UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Quarterly Period Ended March 31, 2012 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission File Number: 001-14956
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Canada (State or other jurisdiction of incorporation or organization) |
98-0448205 (I.R.S. Employer Identification No.) |
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4787 Levy Street, Montreal, Quebec (Address of principal executive offices) |
H4R 2P9 (Zip Code) |
(514) 744-6792
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
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 ý No o
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 definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common shares, no par value 305,942,855 shares issued and outstanding as of May 1, 2012.
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012
INDEX
Part I. | Financial Information | |||||
Item 1. |
Financial Statements (unaudited) |
|||||
Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 |
1 |
|||||
Consolidated Statements of (Loss) Income for the three months ended March 31, 2012 and 2011 |
2 |
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Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011 |
3 |
|||||
Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 |
4 |
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Notes to the Consolidated Financial Statements |
5 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
47 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
67 |
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Item 4. |
Controls and Procedures |
67 |
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Part II. |
Other Information |
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Item 1. |
Legal Proceedings |
68 |
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Item 1A. |
Risk Factors |
68 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
68 |
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Item 3. |
Defaults Upon Senior Securities |
68 |
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Item 4. |
Mine Safety Disclosures |
68 |
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Item 5. |
Other Information |
68 |
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Item 6. |
Exhibits |
68 |
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Signatures |
71 |
i
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012
Introductory Note
On September 28, 2010, Biovail Corporation ("Biovail") completed the acquisition of Valeant Pharmaceuticals International ("Valeant") with Valeant surviving as a wholly-owned subsidiary of Biovail (the "Merger"). In connection with the Merger, Biovail was renamed "Valeant Pharmaceuticals International, Inc." (the "Company").
Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q (this "Form 10-Q") to the "Company", "we", "us", "our" or similar words or phrases are to Valeant Pharmaceuticals International, Inc. and its subsidiaries, taken together, after giving effect to completion of the Merger; references to "Biovail" are to Biovail Corporation prior to the completion of the Merger and "Valeant" are to Valeant Pharmaceuticals International.
In this Form 10-Q, references to "$" and "US$" are to United States ("U.S.") dollars, references to "C$" are to Canadian dollars, references to "€" are to Euros, references to "AUD$" are to Australian dollars and references to "R$" are to Brazilian real.
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-Q 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: the expected benefits of our acquisitions (including the Merger) and other transactions, such as cost savings, operating synergies and growth potential of the Company; business plans and prospects, prospective products or product approvals, future performance or results of current and anticipated products; the impact of healthcare reform; exposure to foreign currency exchange rate changes and interest rate changes; the outcome of contingencies, such as certain litigation 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", "target", "potential" and other similar expressions. In addition, any statements that refer to expectations, 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-Q that contain forward-looking statements are qualified by these cautionary statements. 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:
ii
iii
Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found under Item 1A. "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2011, and in the Company's other filings with the SEC and CSA. We caution that the foregoing list of important factors that may affect future results is not exhaustive. 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 any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect actual outcomes.
iv
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(All dollar amounts expressed in thousands of U.S. dollars)
(Unaudited)
|
As of March 31 2012 |
As of December 31 2011 |
|||||||
---|---|---|---|---|---|---|---|---|---|
ASSETS |
|||||||||
Current assets: |
|||||||||
Cash and cash equivalents |
$ | 330,479 | $ | 164,111 | |||||
Marketable securities |
1,049 | 6,338 | |||||||
Accounts receivable, net |
613,564 | 569,268 | |||||||
Inventories, net |
373,529 | 355,212 | |||||||
Prepaid expenses and other current assets |
52,489 | 41,884 | |||||||
Assets held for sale |
3,433 | 72,239 | |||||||
Deferred tax assets, net |
157,388 | 148,454 | |||||||
Total current assets |
1,531,931 | 1,357,506 | |||||||
Property, plant and equipment, net |
426,510 | 414,242 | |||||||
Intangible assets, net |
7,808,814 | 7,657,798 | |||||||
Goodwill |
3,730,279 | 3,598,786 | |||||||
Deferred tax assets, net |
34,797 | 54,681 | |||||||
Other long-term assets, net |
87,403 | 58,700 | |||||||
Total assets |
$ | 13,619,734 | $ | 13,141,713 | |||||
LIABILITIES |
|||||||||
Current liabilities: |
|||||||||
Accounts payable |
$ | 156,277 | $ | 157,620 | |||||
Accrued liabilities and other current liabilities |
543,310 | 527,583 | |||||||
Acquisition-related contingent consideration |
92,350 | 100,263 | |||||||
Income taxes payable |
8,245 | 10,335 | |||||||
Deferred revenue |
8,731 | 12,783 | |||||||
Current portion of long-term debt |
145,062 | 111,250 | |||||||
Deferred tax liabilities, net |
3,957 | 4,438 | |||||||
Total current liabilities |
957,932 | 924,272 | |||||||
Deferred revenue |
33,974 | 38,153 | |||||||
Acquisition-related contingent consideration |
328,983 | 319,821 | |||||||
Long-term debt |
6,851,013 | 6,539,761 | |||||||
Liabilities for uncertain tax positions |
102,035 | 91,098 | |||||||
Deferred tax liabilities, net |
1,134,311 | 1,144,914 | |||||||
Other long-term liabilities |
135,051 | 76,678 | |||||||
Total liabilities |
9,543,299 | 9,134,697 | |||||||
SHAREHOLDERS' EQUITY |
|||||||||
Common shares, no par value, unlimited shares authorized, 304,884,241 and 306,371,032 issued and outstanding at March 31, 2012 and December 31, 2011, respectively |
5,936,775 | 5,963,621 | |||||||
Additional paid-in capital |
284,776 | 276,117 | |||||||
Accumulated deficit |
(2,115,592 | ) | (2,030,292 | ) | |||||
Accumulated other comprehensive loss |
(29,524 | ) | (202,430 | ) | |||||
Total shareholders' equity |
4,076,435 | 4,007,016 | |||||||
Total liabilities and shareholders' equity |
$ | 13,619,734 | $ | 13,141,713 | |||||
Commitments and contingencies (note 17) |
The accompanying notes are an integral part of these consolidated financial statements.
1
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(All dollar amounts expressed in thousands of
U.S. dollars, except per share data)
(Unaudited)
|
Three Months Ended March 31 |
||||||
---|---|---|---|---|---|---|---|
|
2012 | 2011 | |||||
Revenues |
|||||||
Product sales |
$ | 768,377 | $ | 500,421 | |||
Alliance and royalty |
79,231 | 58,414 | |||||
Service and other |
8,495 | 6,191 | |||||
|
856,103 | 565,026 | |||||
Expenses |
|||||||
Cost of goods sold (exclusive of amortization of intangible assets shown separately below) |
238,814 | 169,287 | |||||
Cost of alliance and service revenues |
73,022 | 33,945 | |||||
Selling, general and administrative |
177,286 | 139,506 | |||||
Research and development |
22,006 | 13,670 | |||||
Amortization of intangible assets |
200,643 | 112,043 | |||||
Restructuring, integration and other costs |
62,337 | 17,539 | |||||
Acquired in-process research and development |
| 2,000 | |||||
Acquisition-related costs |
7,505 | 1,507 | |||||
Legal settlements |
3,155 | 400 | |||||
Acquisition-related contingent consideration |
9,839 | 386 | |||||
|
794,607 | 490,283 | |||||
Operating income |
61,496 | 74,743 | |||||
Interest income |
1,123 | 803 | |||||
Interest expense |
(102,025 | ) | (68,751 | ) | |||
Loss on extinguishment of debt |
(133 | ) | (8,262 | ) | |||
Foreign exchange and other |
24,299 | 2,807 | |||||
Gain on investments, net |
2,059 | 1,769 | |||||
(Loss) income before recovery of income taxes |
(13,181 | ) | 3,109 | ||||
Recovery of income taxes |
(260 | ) | (3,373 | ) | |||
Net (loss) income |
$ | (12,921 | ) | $ | 6,482 | ||
Basic and diluted (loss) earnings per share |
$ | (0.04 | ) | $ | 0.02 | ||
Weighted-average common shares (000's) |
|||||||
Basic |
307,776 | 303,749 | |||||
Diluted |
307,776 | 332,900 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
2
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(All dollar amounts are expressed in thousands of
U.S. dollars)
(Unaudited)
|
Three Months Ended March 31 |
|||||||
---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | ||||||
Net (loss) income |
$ | (12,921 | ) | $ | 6,482 | |||
Other comprehensive income |
||||||||
Foreign currency translation adjustment |
174,676 | 99,080 | ||||||
Net unrealized holding gain (loss) on available-for-sale equity securities: |
||||||||
Arising in period |
| 18,726 | ||||||
Reclassification to net (loss) income |
(1,634 | ) | | |||||
Net unrealized holding loss on available-for-sale debt securities: |
||||||||
Arising in period |
(13 | ) | (26 | ) | ||||
Pension adjustment |
(123 | ) | 1,000 | |||||
Other comprehensive income |
172,906 | 118,780 | ||||||
Comprehensive income |
$ | 159,985 | $ | 125,262 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts expressed in thousands of
U.S. dollars)
(Unaudited)
|
Three Months Ended March 31 |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | |||||||
Cash Flows From Operating Activities |
|||||||||
Net (loss) income |
$ | (12,921 | ) | $ | 6,482 | ||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|||||||||
Depreciation and amortization |
215,582 | 127,002 | |||||||
Amortization of deferred revenue |
(8,568 | ) | (4,775 | ) | |||||
Amortization of discounts on long-term debt |
3,249 | 2,642 | |||||||
Amortization of deferred financing costs |
2,498 | 1,292 | |||||||
Acquired in-process research and development |
| 2,000 | |||||||
Acquisition accounting adjustment on inventory sold |
33,098 | 29,576 | |||||||
Loss (Gain) on disposal of assets |
9,527 | (5,314 | ) | ||||||
Acquisition-related contingent consideration |
9,839 | 386 | |||||||
Allowances for losses on accounts receivable and inventories |
4,383 | 381 | |||||||
Deferred income taxes |
(14,859 | ) | (19,773 | ) | |||||
Additions to accrued legal settlements |
3,155 | 400 | |||||||
Payments of accrued legal settlements |
(60 | ) | (16,000 | ) | |||||
Share-based compensation |
19,152 | 29,893 | |||||||
Tax benefits from stock options exercised |
(593 | ) | (24,050 | ) | |||||
Foreign exchange gain |
(25,564 | ) | (3,173 | ) | |||||
Payment of accreted interest on repurchase of convertible debt |
(56 | ) | (2,289 | ) | |||||
Loss on extinguishment of debt |
133 | 8,262 | |||||||
Other |
(1,048 | ) | 4,225 | ||||||
Changes in operating assets and liabilities: |
|||||||||
Accounts receivable |
(14,786 | ) | (82,481 | ) | |||||
Inventories |
(35,080 | ) | 13,360 | ||||||
Prepaid expenses and other current assets |
(4,266 | ) | (6,870 | ) | |||||
Accounts payable |
(9,920 | ) | (37,806 | ) | |||||
Accrued liabilities |
(7,520 | ) | 62,742 | ||||||
Income taxes payable |
1,575 | (863 | ) | ||||||
Deferred revenue |
280 | 1,081 | |||||||
Net cash provided by operating activities |
167,230 | 86,330 | |||||||
Cash Flows From Investing Activities |
|||||||||
Acquisitions of businesses, net of cash acquired |
(272,812 | ) | (463,702 | ) | |||||
Acquisitions of intangible assets |
(1,865 | ) | (302,885 | ) | |||||
Purchases of property, plant and equipment |
(11,116 | ) | (21,505 | ) | |||||
Proceeds from sales and maturities of marketable securities |
8,364 | 2,774 | |||||||
Purchases of marketable securities and other investments |
(7,200 | ) | (40,016 | ) | |||||
Proceeds from sale of assets |
66,250 | | |||||||
Net cash used in investing activities |
(218,379 | ) | (825,334 | ) | |||||
Cash Flows From Financing Activities |
|||||||||
Issuance of long-term debt, net of discount |
645,643 | 2,139,688 | |||||||
Repayments of long-term debt |
(302,812 | ) | (975,000 | ) | |||||
Short-term borrowings |
7,364 | | |||||||
Repurchases of convertible debt |
(3,975 | ) | (139,225 | ) | |||||
Repurchases of common shares |
(108,724 | ) | (274,750 | ) | |||||
Proceeds from exercise of stock options |
5,108 | 23,229 | |||||||
Tax benefits from stock options exercised |
593 | 24,050 | |||||||
Payments of employee withholding tax upon vesting of share-based awards |
(3,824 | ) | (39,478 | ) | |||||
Payments of contingent consideration |
(27,500 | ) | | ||||||
Payments of debt issuance costs |
(1,435 | ) | (15,747 | ) | |||||
Net cash provided by financing activities |
210,438 | 742,767 | |||||||
Effect of exchange rate changes on cash and cash equivalents |
7,079 | 3,720 | |||||||
Net increase in cash and cash equivalents |
166,368 | 7,483 | |||||||
Cash and cash equivalents, beginning of period |
164,111 | 394,269 | |||||||
Cash and cash equivalents, end of period |
$ | 330,479 | $ | 401,752 | |||||
Non-Cash Investing and Financing Activities |
|||||||||
Acquisitions of businesses, contingent consideration at fair value |
$ | (17,744 | ) | $ | (27,585 | ) | |||
Additions to marketable securities, accrued but unpaid |
| (20,008 | ) | ||||||
Out-license of intangible asset |
| 36,000 |
The accompanying notes are an integral part of these consolidated financial statements.
4
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts expressed in thousands of
U.S. dollars, except per share data)
(Unaudited)
1. DESCRIPTION OF BUSINESS
On September 28, 2010 (the "Merger Date"), Biovail Corporation ("Biovail") completed the acquisition of Valeant Pharmaceuticals International ("Valeant") through a wholly-owned subsidiary pursuant to an Agreement and Plan of Merger, dated as of June 20, 2010, with Valeant surviving as a wholly-owned subsidiary of Biovail (the "Merger"). In connection with the Merger, Biovail was renamed "Valeant Pharmaceuticals International, Inc." (the "Company"). The Company is a multinational, specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products primarily in the areas of dermatology, neurology and branded generics.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements (the "unaudited 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 ("U.S. GAAP") for interim financial reporting, which do not conform in all respects to the requirements of U.S. GAAP for annual financial statements. Accordingly, these condensed notes to the unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto prepared in accordance with U.S. GAAP that are contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Form 10-K"). The unaudited consolidated financial statements have been prepared using accounting policies that are consistent with the policies used in preparing the Company's audited consolidated financial statements for the year ended December 31, 2011. There have been no changes to the Company's significant accounting policies since December 31, 2011, except as described below under "Adoption of New Accounting Standards". The unaudited consolidated financial statements reflect all normal and recurring adjustments necessary for a fair statement of the Company's financial position and results of operations for the interim periods presented.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform with the current year presentation.
Use of Estimates
In preparing the unaudited 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 dates of the unaudited consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates and the operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.
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 results of operations and financial position could be materially impacted.
5
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Adoption of New Accounting Standards
Effective January 1, 2012, the Company has adopted on a prospective basis the provisions of the following new accounting standards:
3. BUSINESS COMBINATIONS
The Company has focused its business on core geographies and therapeutic classes through selective acquisitions, dispositions and strategic partnerships with other pharmaceutical companies.
Gerot Lannach
Description of the Transaction
On March 13, 2012, the Company acquired certain assets from Gerot Lannach, a branded generics pharmaceutical company based in Austria. The Company made an upfront payment of $164.0 million (€125.0 million), and the Company may pay a series of contingent consideration payments of up to $19.7 million (€15.0 million) if certain net sales milestones are achieved. The fair value of the contingent consideration was determined to be $16.8 million as of the acquisition date. As of March 31, 2012, the assumptions used for determining fair value of the contingent consideration have not changed significantly from those used at the acquisition date. As part of the transaction, the Company also entered into a ten-year exclusive supply agreement with Gerot Lannach for the acquired products.
Approximately 90% of sales relating to the acquired assets are in Russia, with sales also made in certain Commonwealth of Independent States (CIS) countries including Kazakhstan and Uzbekistan. Gerot Lannach's largest product is acetylsalicylic acid, a low dose aspirin.
6
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
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 retrospective 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.
|
Amounts Recognized as of Acquisition Date |
||||
---|---|---|---|---|---|
Property and equipment |
$ | 1,204 | |||
Deferred tax asset |
536 | ||||
Identifiable intangible assets(a) |
169,276 | ||||
Total indentifiable net assets |
171,016 | ||||
Goodwill(b) |
9,739 | ||||
Total fair value of consideration transferred |
$ | 180,755 | |||
|
Weighted- Average Useful Lives (Years) |
Amounts Recognized as of Acquisition Date |
||||||
---|---|---|---|---|---|---|---|---|
Product brands |
11 | $ | 153,140 | |||||
Partner relationships |
5 | 16,136 | ||||||
Total identifiable intangible assets acquired |
10 | $ | 169,276 | |||||
The provisional amount of goodwill has been allocated to the Company's Emerging Markets segment as indicated in note 9.
Acquisition-Related Costs
The Company has incurred to date $0.5 million of transaction costs directly related to the Gerot Lannach acquisition, which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as acquisition-related costs.
7
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
Revenue and Net Loss of Gerot Lannach
The revenues of Gerot Lannach for the period from the acquisition date to March 31, 2012 were $1.2 million, and the net loss was $1.0 million. The net loss includes the effects of the acquisition accounting adjustments of $0.9 million and the acquisition-related costs of $0.5 million.
Probiotica
Description of the Transaction
On February 1, 2012, the Company acquired Probiotica Laboratorios Ltda. ("Probiotica"), which markets over-the-counter ("OTC") sports nutrition products and other food supplements in Brazil, for an upfront payment of $85.9 million (R$150.0 million), as well as a working capital adjustment of $4.7 million (R$8.1 million).
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 retrospective 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.
|
Amounts Recognized as of Acquisition Date |
||||
---|---|---|---|---|---|
Cash and cash equivalents |
$ | 1,125 | |||
Accounts receivable(a) |
11,078 | ||||
Inventories |
5,438 | ||||
Property, plant and equipment |
2,579 | ||||
Deferred tax assets |
460 | ||||
Identifiable intangible assets(b) |
37,938 | ||||
Indemnification assets(c) |
27,901 | ||||
Current liabilities |
(6,417 | ) | |||
Liability for uncertain tax position |
(6,682 | ) | |||
Other non-current liabilities(c) |
(27,901 | ) | |||
Total indentifiable net assets |
45,519 | ||||
Goodwill(d) |
45,104 | ||||
Total fair value of consideration transferred |
$ | 90,623 | |||
8
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
|
Weighted- Average Useful Lives (Years) |
Amounts Recognized as of Acquisition Date |
||||||
---|---|---|---|---|---|---|---|---|
Corporate brands |
15 | $ | 19,026 | |||||
Partner relationships |
5 | 14,557 | ||||||
Product brands |
10 | 4,355 | ||||||
Total identifiable intangible assets acquired |
11 | $ | 37,938 | |||||
The provisional amount of goodwill has been allocated to the Company's Emerging Markets segment as indicated in note 9.
Acquisition-Related Costs
The Company has incurred to date $0.6 million of transaction costs directly related to the Probiotica 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 Probiotica
The revenues of Probiotica for the period from the acquisition date to March 31, 2012 were $7.8 million, and the net loss was immaterial.
9
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
iNova
Description of the Transaction
On December 21, 2011, the Company acquired iNova from Archer Capital, Ironbridge Capital and other minority management shareholders. The Company made upfront payments of $656.7 million (AUD$657.9 million) and the Company may pay a series of potential milestones of up to $59.9 million (AUD$60.0 million) based on the success of pipeline activities, product registrations and overall revenue. The fair value of the contingent consideration was determined to be $44.5 million as of the acquisition date. As of March 31, 2012, the assumptions used for determining the fair value of the acquisition-related contingent consideration have not changed significantly from those used at the acquisition date.
iNova sells and distributes a range of prescription and OTC products in Australia, New Zealand, Southeast Asia and South Africa, including leading therapeutic weight management brands such as Duromine®/Metermine®, as well as leading OTC brands in the cold and cough area, such as Difflam®, Duro-Tuss® and Rikodeine®.
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. The following recognized 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 retrospective adjustments to the provisional amounts recognized at the acquisition date.
10
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
These changes could be significant. The Company will finalize these amounts no later than one year from the acquisition date.
|
Amounts Recognized as of Acquisition Date(a) |
Measurement Period Adjustments(b) |
Amounts Recognized (as adjusted) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Cash and cash equivalents |
$ | 8,792 | $ | | $ | 8,792 | |||||
Accounts receivable(c) |
30,525 | | 30,525 | ||||||||
Inventories |
43,387 | (1,400 | ) | 41,987 | |||||||
Property, plant and equipment |
15,257 | (1,996 | ) | 13,261 | |||||||
Identifiable intangible assets(d) |
423,950 | (2,188 | ) | 421,762 | |||||||
Current liabilities |
(32,500 | ) | (1,713 | ) | (34,213 | ) | |||||
Total indentifiable net assets |
489,411 | (7,297 | ) | 482,114 | |||||||
Goodwill(e) |
211,770 | 7,297 | 219,067 | ||||||||
Total fair value of consideration transferred |
$ | 701,181 | $ | | $ | 701,181 | |||||
|
Weighted- Average Useful Lives (Years) |
Amounts Recognized as of Acquisition Date |
Measurement Period Adjustments |
Amounts Recognized (as adjusted) |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Product brands |
8 | $ | 418,252 | $ | (2,188 | ) | $ | 416,064 | ||||||
Corporate brands |
4 | 5,698 | | 5,698 | ||||||||||
Total identifiable intangible assets acquired |
8 | $ | 423,950 | $ | (2,188 | ) | $ | 421,762 | ||||||
11
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
The provisional amount of goodwill has been allocated to the Company's Canada and Australia segment ($136.0 million) and the Company's Emerging Markets segment ($83.1 million).
Dermik
Description of the Transaction
On December 16, 2011, the Company acquired Dermik, a dermatological unit of Sanofi in the U.S. and Canada, as well as the worldwide rights to Sculptra® and Sculptra® Aesthetic, for a total cash purchase price of approximately $420.5 million. The acquisition includes Dermik's inventories and manufacturing facility located in Laval, Quebec. In connection with the acquisition of Dermik, the Company was required by the Federal Trade Commission ("FTC") to divest 1% clindamycin and 5% benzoyl peroxide gel, a generic version of BenzaClin®, and 5% fluorouracil cream, an authorized generic of Efudex®. For further details, see note 4 titled "ACQUISITIONS AND DISPOSITIONS".
Dermik is a leading global medical dermatology business focused on the manufacturing, marketing and sale of therapeutic and aesthetic dermatology products.
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. The following recognized 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 retrospective adjustments to the provisional amounts recognized at the acquisition date.
12
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
These changes could be significant. The Company will finalize these amounts no later than one year from the acquisition date.
|
Amounts Recognized as of Acquisition Date(a) |
||||
---|---|---|---|---|---|
Inventories |
$ | 32,360 | |||
Property, plant and equipment |
39,581 | ||||
Identifiable intangible assets(b) |
341,680 | ||||
Deferred tax liability |
(1,262 | ) | |||
Total indentifiable net assets |
412,359 | ||||
Goodwill(c) |
8,141 | ||||
Total fair value of consideration transferred |
$ | 420,500 | |||
|
Weighted- Average Useful Lives (Years) |
Amounts Recognized as of Acquisition Date |
||||||
---|---|---|---|---|---|---|---|---|
Product brands |
9 | $ | 292,472 | |||||
Product rights |
5 | 33,857 | ||||||
Manufacturing agreement |
5 | 15,351 | ||||||
Total identifiable intangible assets acquired |
9 | $ | 341,680 | |||||
Ortho Dermatologics
Description of the Transaction
On December 12, 2011, the Company acquired assets of the Ortho Dermatologics division of Janssen Pharmaceuticals, Inc., for a total cash purchase price of approximately $346.1 million. The assets acquired included prescription brands Retin-A Micro®, Ertaczo®, Renova® and Biafine®.
Ortho Dermatologics is a leader in the field of dermatology and, over the years, has developed several products to treat skin disorders and dermatologic conditions.
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
13
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
assumed as of the acquisition date. The following recognized 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 retrospective 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.
|
Amounts Recognized as of Acquisition Date(a) |
||||
---|---|---|---|---|---|
Inventories |
$ | 6,169 | |||
Property, plant and equipment |
206 | ||||
Identifiable intangible assets, excluding acquired IPR&D(b) |
333,599 | ||||
Acquired IPR&D(c) |
4,318 | ||||
Deferred tax liability |
(1,690 | ) | |||
Total indentifiable net assets |
342,602 | ||||
Goodwill(d) |
3,507 | ||||
Total fair value of consideration transferred |
$ | 346,109 | |||
Afexa
Description of the Transaction
On October 17, 2011, the Company acquired 73.8% (80,929,921 common shares) of the outstanding common shares of Afexa Life Sciences Inc. ("Afexa") for cash consideration of $67.7 million. The
14
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
acquisition date fair value of the 26.2% noncontrolling interest in Afexa of $23.8 million was estimated using quoted market prices on such date.
At a special meeting of Afexa shareholders held on December 12, 2011, a subsequent acquisition transaction was approved resulting in the privatization of Afexa and the remaining shareholders receiving C$0.85 per share. Consequently, as of December 31, 2011, the Company owned 100% of Afexa.
Afexa markets several consumer brands, such as Cold-FX®, an OTC cold and flu treatment, and Coldsore-FX®, a topical OTC cold sore treatment.
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. The following recognized 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 retrospective adjustments to the provisional amounts recognized at the acquisition date.
15
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
These changes could be significant. The Company will finalize these amounts no later than one year from the acquisition date.
|
Amounts Recognized as of Acquisition Date(a) |
Measurement Period Adjustments(b) |
Amounts Recognized (as adjusted) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Cash |
$ | 1,558 | $ | | $ | 1,558 | |||||
Accounts receivable(c) |
9,436 | (1,524 | ) | 7,912 | |||||||
Inventories |
22,489 | | 22,489 | ||||||||
Other current assets |
5,406 | | 5,406 | ||||||||
Property and equipment |
8,766 | | 8,766 | ||||||||
Identifiable intangible assets(d) |
80,580 | (5,850 | ) | 74,730 | |||||||
Current liabilities |
(18,104 | ) | | (18,104 | ) | ||||||
Deferred income taxes, net |
(20,533 | ) | 1,462 | (19,071 | ) | ||||||
Other non-current liabilities |
(1,138 | ) | | (1,138 | ) | ||||||
Total indentifiable net assets |
88,460 | (5,912 | ) | 82,548 | |||||||
Goodwill(e) |
3,070 | 5,912 | 8,982 | ||||||||
Total fair value of consideration transferred |
$ | 91,530 | $ | | $ | 91,530 | |||||
|
Weighted-Average Useful Lives (Years) |
Amounts Recognized as of Acquisition Date |
Measurement Period Adjustments |
Amounts Recognized (as adjusted) |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Product brands |
11 | $ | 65,194 | $ | (5,850 | ) | $ | 59,344 | ||||||
Patented technology |
7 | 15,386 | | 15,386 | ||||||||||
Total identifiable intangible assets acquired |
10 | $ | 80,580 | $ | (5,850 | ) | $ | 74,730 | ||||||
The provisional amount of goodwill has been allocated to the Company's Canada and Australia segment.
16
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
Sanitas
Description of the Transaction
On August 19, 2011 (the "Sanitas Acquisition Date"), the Company acquired 87.2% of the outstanding shares of AB Sanitas ("Sanitas") for cash consideration of $392.3 million. Prior to the Sanitas Acquisition Date, the Company acquired 1,502,432 shares of Sanitas, which represented approximately 4.8% of the outstanding shares. As a result, as of the Sanitas Acquisition Date, the Company held a controlling financial interest in Sanitas of 92%, or 28,625,025 shares. The acquisition date fair value of the 8% noncontrolling interest in Sanitas of $34.8 million, and the acquisition date fair value of the previously-held 4.8% equity interest of $21.1 million, were estimated using quoted market prices on such date.
On September 2, 2011, the Company announced a mandatory non-competitive tender offer (the "Tender Offer") to purchase the remaining outstanding ordinary shares of Sanitas from all public shareholders at €10.06 per share. The Tender Offer closed on September 15, 2011, on which date the Company purchased an additional 1,968,631 shares (6.4% of the outstanding shares of Sanitas) for approximately $27.4 million. As a result of this purchase, the Company owned 30,593,656 shares or approximately 98.4% of Sanitas as of September 15, 2011.
On September 22, 2011, the Company received approval from the Securities Commission of the Republic of Lithuania to conduct the mandatory tender offer through squeeze out procedures (the "Squeeze Out") at a price per one ordinary share of Sanitas equal to €10.06, which required that all minority shareholders sell to the Company the ordinary shares of Sanitas owned by them (512,264 ordinary shares, or 1.6% of Sanitas).
As the Company maintained a controlling financial interest in Sanitas during the Tender Offer, the additional ownership interest of 6.4% acquired in Sanitas was accounted for as an equity transaction between owners. The noncontrolling interest in Sanitas of approximately 1.6% to be acquired through the Squeeze Out procedures was classified as a liability in the Company's consolidated balance sheet as it was mandatorily redeemable. As of March 31, 2012, the amount due to Sanitas shareholders of $2.4 million was included in Accrued liabilities and other current liabilities.
Sanitas has a broad branded generics product portfolio consisting of 390 products in nine countries throughout Central and Eastern Europe, primarily Poland, Russia and Lithuania. Sanitas has in-house development capabilities in dermatology, hospital injectables and ophthalmology, and a pipeline of internally developed and acquired dossiers.
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 Sanitas Acquisition Date. The following recognized amounts are provisional and subject to change:
17
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
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 Sanitas Acquisition Date may result in retrospective adjustments to the provisional amounts recognized at the Sanitas Acquisition Date. These changes could be significant. The Company will finalize these amounts no later than one year from the Sanitas Acquisition Date.
|
Amounts Recognized as of Acquisition Date(a) |
||||
---|---|---|---|---|---|
Cash and cash equivalents |
$ | 5,607 | |||
Accounts receivable(b) |
25,645 | ||||
Inventories |
22,010 | ||||
Other current assets |
3,166 | ||||
Property, plant and equipment |
83,288 | ||||
Identifiable intangible assets, excluding acquired IPR&D(c) |
247,127 | ||||
Acquired IPR&D |
747 | ||||
Other non-current assets |
2,662 | ||||
Current liabilities |
(30,428 | ) | |||
Long-term debt, including current portion(d) |
(67,134 | ) | |||
Deferred income taxes, net |
(43,269 | ) | |||
Other non-current liabilities |
(6,049 | ) | |||
Total indentifiable net assets |
243,372 | ||||
Goodwill(e) |
204,791 | ||||
Total fair value of consideration transferred |
$ | 448,163 | |||
|
Weighted- Average Useful Lives (Years) |
Amounts Recognized as of Acquisition Date |
||||||
---|---|---|---|---|---|---|---|---|
Product brands |
7 | $ | 164,823 | |||||
Product rights |
7 | 43,027 | ||||||
Corporate brands |
15 | 25,227 | ||||||
Partner relationships |
7 | 14,050 | ||||||
Total identifiable intangible assets acquired |
8 | $ | 247,127 | |||||
18
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
The provisional amount of goodwill has been allocated to the Company's Emerging Markets segment.
PharmaSwiss
Description of the Transaction
On March 10, 2011, the Company acquired all of the issued and outstanding stock of PharmaSwiss S.A. ("PharmaSwiss"), a privately-owned branded generics and OTC pharmaceutical company based in Zug, Switzerland. As of the acquisition date, the total consideration transferred to effect the acquisition of PharmaSwiss comprised of cash paid of $491.2 million (€353.1 million) and the rights to contingent consideration payments of up to $41.7 million (€30.0 million) if certain net sales milestones of PharmaSwiss were achieved for the 2011 calendar year. The fair value of the contingent payments was determined to be $27.5 million as of the acquisition date. The Company is determining whether a contingent consideration payment of $13.0 million (€10.0 million) is payable based on the net sales results for the 2011 calendar year.
In connection with the transaction, in February 2011, the Company entered into foreign currency forward-exchange contracts to buy €130.0 million, which were settled on March 9, 2011. The Company recorded a $5.1 million gain on the settlement of these contracts, which was partially offset by a foreign exchange loss of $2.4 million recognized on the remaining €220.0 million bought to finance the transaction. The net foreign exchange gain of $2.7 million was recognized in Foreign exchange and other in the consolidated statement of income in the three-month period ended March 31, 2011.
PharmaSwiss is an existing partner to several large pharmaceutical and biotech companies offering regional expertise in such functions as regulatory, compliance, sales, marketing and distribution, in addition to developing its own product portfolio. Through its business operations, PharmaSwiss offers a broad product portfolio in seven therapeutic areas and operations in 19 countries throughout Central and Eastern Europe, including Serbia, Hungary, the Czech Republic and Poland, as well as in Greece and Israel.
Assets Acquired and Liabilities Assumed
The transaction has been accounted for as a business combination under the acquisition method of accounting. As of March 31, 2012, the Company has not recognized any additional measurement period adjustments to the amounts previously reported in the 2011 Form 10-K. The amount of goodwill of $159.7 million has been allocated to the Company's Emerging Markets segment.
19
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
Pro Forma Impact of Material Business Combinations
The following table presents unaudited pro forma consolidated results of operations for the three-month periods ended March 31, 2012 and 2011, as if the Gerot Lannach and Probiotica acquisitions had occurred as of January 1, 2011 and the PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa acquisitions had occurred as of January 1, 2010. The unaudited pro forma information does not include the license agreement entered into in June 2011 to acquire the rights to Elidel® and Xerese®, as the impact is immaterial to these pro forma results and it was impracticable to obtain the necessary historical information as discrete financial statements for these product lines were not prepared. In addition, the unaudited pro forma information does not include the Dermik acquisition, as it was impracticable to obtain the necessary historical information as discrete financial statements were not prepared.
|
Three Months Ended March 31 |
|||||||
---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | ||||||
Revenues |
$ | 864,643 | $ | 752,120 | ||||
Net (loss) income |
(64 | ) | 14,042 | |||||
Basic (loss) earnings per share |
$ | | $ | 0.05 | ||||
Diluted (loss) earnings per share |
$ | | $ | 0.04 |
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, Gerot Lannach, Probiotica, PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa. Except to the extent realized in the three-month period ended March 31, 2012, 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 the Gerot Lannach, Probiotica, PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa acquisitions, or the costs necessary to achieve these cost savings, operating synergies and other benefits. In addition, except to the extent recognized in the three-month period ended March 31, 2012, the unaudited pro forma information does not reflect the costs to integrate the operations of the Company with Gerot Lannach, Probiotica, PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa.
The unaudited pro forma information is not necessarily indicative of what the Company's consolidated results of operations actually would have been had the Gerot Lannach and Probiotica acquisitions and the PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa acquisitions been completed on January 1, 2011 and January 1, 2010, 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 adjustments consistent with the unaudited pro forma information related to the following unaudited pro forma adjustments related to Gerot Lannach, Probiotica, PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa:
20
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
3. BUSINESS COMBINATIONS (Continued)
The pro forma earnings also exclude amortization of inventory step-up that arose from the Merger that was recognized in the three-month period ended March 31, 2011. Such amount was included in the applicable comparative period for purposes of pro forma financial information.
In addition, all of the above adjustments were adjusted for the applicable tax impact.
Other
In the three-month period ended March 31, 2012, the Company acquired Eyetech Inc. ("Eyetech"), a privately-owned ophthalmic biotechnology company dedicated to the treatment of sight-threatening diseases of the retina, for an up-front purchase price of $22.3 million and potential milestone payments of up to $4.0 million based on sales of Macugen® in 2012 and 2013. The fair value of the upfront and contingent consideration was determined to be $23.2 million as of the acquisition date. The total fair value of the consideration transferred was assigned primarily to product rights intangible assets ($24.2 million), deferred income tax liability ($(10.2) million), inventory ($5.0 million) and receivables ($5.0 million). The Company does not consider this acquisition to be material to its consolidated results of operations and is therefore not presenting actual or pro forma financial information.
4. ACQUISITIONS AND DISPOSITIONS
Divestitures of IDP-111 and 5-FU
In connection with the acquisition of Dermik, the Company was required by the FTC to divest 1% clindamycin and 5% benzoyl peroxide gel ("IDP-111"), a generic version of BenzaClin®, and 5% fluorouracil cream ("5-FU"), an authorized generic of Efudex®.
On February 3, 2012, the Company sold the IDP-111 and 5-FU products. In the fourth quarter of 2011, the Company recognized $7.9 million and $19.8 million of impairment charges related to the write-down of the carrying values of the IDP-111 and 5-FU intangible assets, respectively, to their estimated fair values, less costs to sell. The adjusted carrying values of $54.4 million and $14.8 million for IDP-111 and 5-FU, respectively, were classified as Assets held for sale on the consolidated balance sheet as of December 31, 2011 and were included within the U.S. Dermatology reporting segment. IDP-111 and 5-FU were considered non-core products with respect to the Company's business strategy, which contemplates, on an ongoing basis, the selective purchase and sale of products and assets with a focus on core geographies and therapeutic classes. The Company, therefore, considers the sale or the out-license of non-core products to
21
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
4. ACQUISITIONS AND DISPOSITIONS (Continued)
be part of its ongoing major and central operations. Accordingly, proceeds on the sale of non-core products are recognized as alliance revenue, with the associated costs, including the carrying amount of related assets, recorded as cost of alliance revenue. In connection with the sale of the IDP-111 and 5-FU, the Company recognized $66.3 million of cash proceeds as alliance revenue in the first quarter of 2012 and expensed the carrying amounts of the IDP-111 and 5-FU assets of $69.2 million, in the aggregate, as cost of alliance revenue. The cash proceeds from this transaction are classified within investing activities in the consolidated statements of cash flows.
Cloderm®
On March 31, 2011, the Company out-licensed the product rights to Cloderm® Cream, 0.1%, in the U.S. to Promius Pharma LLC, an affiliate of Dr. Reddy's Laboratories, in exchange for a $36.0 million upfront payment, which was received in early April 2011, and future royalty payments. The Cloderm® product rights intangible asset was recorded at a fair value of $31.8 million as of the Merger Date, and had a remaining unamortized carrying value of $30.7 million at March 31, 2011. Cloderm® was considered a non-core product with respect to the Company's business strategy. Accordingly, the Company recognized the upfront payment as alliance revenue in the first quarter of 2011 and expensed the carrying amount of the Cloderm® intangible assets as cost of alliance revenue. The Company recognizes the royalty payments as alliance revenue as they are earned.
Zovirax®
On February 22, 2011 and March 25, 2011, the Company acquired the U.S. and Canadian rights, respectively, to non-ophthalmic topical formulations of Zovirax® from GlaxoSmithKline ("GSK"). Pursuant to the terms of the asset purchase agreements, the Company paid GSK an aggregate amount of $300.0 million in cash for both the U.S. and Canadian rights. The Company had been marketing Zovirax® in the U.S. since January 1, 2002, under a 20-year exclusive distribution agreement with GSK, which distribution agreement terminated following the closing of the U.S. transaction. The Company has entered into new supply agreements and new trademark license agreements with GSK with respect to the U.S. and Canadian territories.
This acquisition was accounted for as a purchase of identifiable intangible assets. Accordingly, the purchase price (including costs of acquisition) was allocated to the product brand intangible asset, with an estimated weighted-average useful life of 11 years. In addition, the Company reclassified the $91.4 million unamortized carrying amount of the original exclusive distribution agreement from product rights to the product brand intangible asset, to be amortized over the same 11-year estimated useful life.
22
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
5. RESTRUCTURING, INTEGRATION AND OTHER COSTS
The Company has largely completed measures to integrate the operations of Biovail and Valeant, capture operating synergies and generate cost savings across the Company. In connection with these cost-rationalization and integration initiatives, the Company has incurred costs including: employee termination costs (including related share-based payments) payable to approximately 500 employees of Biovail and Valeant who were terminated as a result of the Merger; IPR&D termination costs related to the transfer to other parties of product-development programs that did not align with the Company's research and development model; costs to consolidate or close facilities and relocate employees, asset impairments charges to write down property, plant and equipment to fair value; and contract termination and lease cancellation costs.
The following table summarizes the major components of costs incurred in connection with these initiatives through March 31, 2012:
|
Employee Termination Costs | |
|
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Contract Termination, Facility Closure and Other Costs |
|
||||||||||||||
|
Severance and Related Benefits |
Share-Based Compensation |
IPR&D Termination Costs |
Total | |||||||||||||
Balance, January 1, 2010 |
$ | | $ | | $ | | $ | | $ | | |||||||
Costs incurred and charged to expense |
58,727 | 49,482 | 13,750 | 12,862 | 134,821 | ||||||||||||
Cash payments |
(33,938 | ) | | (13,750 | ) | (8,755 | ) | (56,443 | ) | ||||||||
Non-cash adjustments |
| (49,482 | ) | | (2,437 | ) | (51,919 | ) | |||||||||
Balance, December 31, 2010 |
24,789 | | | 1,670 | 26,459 | ||||||||||||
Costs incurred and charged to expense |
14,548 | 3,455 | | 28,938 | 46,941 | ||||||||||||
Cash payments |
(38,168 | ) | (2,033 | ) | | (15,381 | ) | (55,582 | ) | ||||||||
Non-cash adjustments |
989 | (741 | ) | | (4,913 | ) | (4,665 | ) | |||||||||
Balance, December 31, 2011 |
2,158 | 681 | | 10,314 | 13,153 | ||||||||||||
Costs incurred and charged to expense |
1,586 | | | 12,334 | 13,920 | ||||||||||||
Cash payments |
(3,288 | ) | | | (22,572 | ) | (25,860 | ) | |||||||||
Non-cash adjustments |
442 | (681 | ) | | 378 | 139 | |||||||||||
Balance, March 31, 2012 |
$ | 898 | $ | | $ | | $ | 454 | $ | 1,352 | |||||||
Facility closure costs incurred in the three-month period ended March 31, 2012 primarily included an incremental $10.2 million charge for the remaining operating lease obligations related to our vacated Mississauga, Ontario corporate office facility.
In addition to costs associated with the Company's Merger-related initiatives, in the first quarter of 2012, the Company incurred an additional $48.4 million of other restructuring, integration-related and other costs, including $18.2 million of severance costs, and made payments of $41.4 million. These costs were primarily related to the acquisitions of Dermik, Ortho Dermatologics, Afexa, iNova, Sanitas and PharmaSwiss, the consolidation of the Company's manufacturing facilities in Brazil, and worldwide systems integration initiatives.
23
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
6. FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following fair value hierarchy table presents the components of the Company's financial assets and liabilities measured at fair value as of March 31, 2012 and December 31, 2011:
|
As of March 31, 2012 | As of December 31, 2011 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying Value |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
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) |
||||||||||||||||||
Assets: |
||||||||||||||||||||||||||
Money market funds |
$ | 171,970 | $ | 171,970 | $ | | $ | | $ | 27,711 | $ | 27,711 | $ | | $ | | ||||||||||
Available-for-sale equity securities |
| | | | 3,364 | 3,364 | | | ||||||||||||||||||
Available-for-sale debt securities: |
||||||||||||||||||||||||||
Corporate bonds |
1,049 | 1,049 | | | 2,974 | 2,974 | | | ||||||||||||||||||
Total financial assets |
$ | 173,019 | $ | 173,019 | $ | | $ | | $ | 34,049 | $ | 34,049 | $ | | $ | | ||||||||||
Cash equivalents |
$ | 171,970 | $ | 171,970 | $ | | $ | | $ | 27,711 | $ | 27,711 | $ | | $ | | ||||||||||
Marketable securities |
1,049 | 1,049 | | | 6,338 | 6,338 | | | ||||||||||||||||||
Total financial assets |
$ | 173,019 | $ | 173,019 | $ | | $ | | $ | 34,049 | $ | 34,049 | $ | | $ | | ||||||||||
Liabilities: |
||||||||||||||||||||||||||
Acquisition-related contingent consideration |
$ | (421,333 | ) | $ | | $ | | $ | (421,333 | ) | $ | (420,084 | ) | $ | | $ | | $ | (420,084 | ) |
Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:
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.
There were no transfers between Level 1 and Level 2 during the three-month period ended March 31, 2012.
24
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
6. FAIR VALUE MEASUREMENTS (Continued)
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 using unobservable (Level 3) inputs. These inputs 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; and (iii) the risk-adjusted discount rate used to present value the probability-weighted cash flows. 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 three-month period ended March 31, 2012:
|
January 1, 2012 |
Issuances(a) | Payments(b) | Unrealized Loss(c) |
Foreign Exchange(d) |
Transfers Into Level 3 |
Transfers Out of Level 3 |
March 31, 2012 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Acquisition-related contingent consideration |
$ | (420,084 | ) | $ | (17,744 | ) | $ | 27,500 | $ | (9,839 | ) | $ | (1,166 | ) | $ | | $ | | $ | (421,333 | ) |
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
There were no significant assets or liabilities that were re-measured at fair value on a non-recurring basis subsequent to initial recognition in the three-month period ended March 31, 2012.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes the estimated fair values of the Company's financial instruments as of March 31, 2012 and December 31, 2011:
|
As of March 31, 2012 | As of December 31, 2011 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying Value |
Fair Value |
Carrying Value |
Fair Value |
||||||||||
Cash equivalents |
$ | 171,970 | $ | 171,970 | $ | 27,711 | $ | 27,711 | ||||||
Marketable securities |
1,049 | 1,049 | 6,338 | 6,338 | ||||||||||
Long-term debt (as described in note 10)(a) |
(6,996,075 | ) | (7,133,755 | ) | (6,651,011 | ) | (6,732,568 | ) |
25
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The following table summarizes the Company's marketable securities by major security type as of March 31, 2012 and December 31, 2011:
|
As of March 31, 2012 | As of December 31, 2011 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Gross Unrealized |
|
|
Gross Unrealized |
||||||||||||||||||||
|
Cost Basis |
Fair Value |
Cost Basis |
Fair Value |
||||||||||||||||||||||
|
Gains | Losses | Gains | Losses | ||||||||||||||||||||||
Corporate bonds |
$ | 1,062 | $ | 1,049 | $ | | $ | (13 | ) | $ | 2,983 | $ | 2,974 | $ | | $ | (9 | ) | ||||||||
Equity securities |
| | | | 1,730 | 3,364 | 1,634 | | ||||||||||||||||||
|
$ | 1,062 | $ | 1,049 | $ | | $ | (13 | ) | $ | 4,713 | $ | 6,338 | $ | 1,634 | $ | (9 | ) | ||||||||
All marketable debt securities held as of March 31, 2012 mature within one year. Gross gains and losses realized on the sale of marketable debt securities were not material in the three-month periods ended March 31, 2012 and 2011.
8. INVENTORIES
The components of inventories as of March 31, 2012 and December 31, 2011 were as follows:
|
As of March 31 2012 |
As of December 31 2011 |
||||||
---|---|---|---|---|---|---|---|---|
Raw materials |
$ | 79,769 | $ | 63,368 | ||||
Work in process |
45,890 | 64,108 | ||||||
Finished goods |
279,774 | 250,555 | ||||||
|
405,433 | 378,031 | ||||||
Less allowance for obsolescence |
(31,904 | ) | (22,819 | ) | ||||
|
$ | 373,529 | $ | 355,212 | ||||
In the three-month period ended March 31, 2012, cost of goods sold included $33.0 million of acquisition accounting adjustments primarily related to Dermik, iNova, Ortho Dermatologics and Afexa inventories that were sold in the period.
26
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
9. INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The major components of intangible assets as of March 31, 2012 and December 31, 2011 were as follows:
|
As of March 31, 2012 | As of December 31, 2011 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||||||||
Finite-lived intangible assets: |
||||||||||||||||||||||
Product brands |
$ | 6,635,172 | $ | (932,183 | ) | $ | 5,702,989 | $ | 6,442,371 | $ | (737,876 | ) | $ | 5,704,495 | ||||||||
Corporate brands |
217,553 | (14,626 | ) | 202,927 | 181,349 | (10,630 | ) | 170,719 | ||||||||||||||
Product rights |
1,415,268 | (328,790 | ) | 1,086,478 | 1,302,748 | (306,936 | ) | 995,812 | ||||||||||||||
Partner relationships |
164,590 | (20,889 | ) | 143,701 | 135,095 | (15,633 | ) | 119,462 | ||||||||||||||
Out-licensed technology and other |
184,240 | (42,893 | ) | 141,347 | 174,873 | (38,915 | ) | 135,958 | ||||||||||||||
Total finite-lived intangible assets |
8,616,823 | (1,339,381 | ) | 7,277,442 | 8,236,436 | (1,109,990 | ) | 7,126,446 | ||||||||||||||
Indefinite-lived intangible assets: |
||||||||||||||||||||||
Acquired IPR&D |
531,372 | | 531,372 | 531,352 | | 531,352 | ||||||||||||||||
|
$ | 9,148,195 | $ | (1,339,381 | ) | $ | 7,808,814 | $ | 8,767,788 | $ | (1,109,990 | ) | $ | 7,657,798 | ||||||||
The increase in intangible assets primarily reflects the acquisition of Gerot Lannach and Probiotica identifiable intangible assets (as described in note 3).
For the three-month periods ended March 31, 2012 and 2011, amortization expense related to intangible assets was recorded as follows:
|
Three Months Ended March 31 |
|||||||
---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | ||||||
Alliance and royalty revenue |
$ | | $ | 268 | ||||
Cost of goods sold |
2,026 | 2,026 | ||||||
Amortization expense |
200,643 | 112,043 | ||||||
|
$ | 202,669 | $ | 114,337 | ||||
The increase in amortization expense in the three-month period ended March 31, 2012 primarily reflected the amortization of ezogabine/retigabine which was reclassified from IPR&D to a finite-lived intangible asset in December 2011 and the amortization of the acquired identifiable intangible assets from the acquisitions of iNova, Dermik, Ortho Dermatologics, Sanitas and PharmaSwiss, as well as the license agreement for Elidel®/Xerese®.
Estimated aggregate amortization expense for each of the five succeeding years ending December 31 is as follows:
|
2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amortization expense |
$ | 825,622 | $ | 831,278 | $ | 821,745 | $ | 802,754 | $ | 802,521 |
27
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
9. INTANGIBLE ASSETS AND GOODWILL (Continued)
Goodwill
The changes in the carrying amount of goodwill in the three-month period ended March 31, 2012 were as follows:
|
U.S. Dermatology |
U.S. Neurology and Other |
Canada and Australia |
Emerging Markets |
Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, January 1, 2012(a) |
$ | 491,651 | $ | 1,542,203 | $ | 498,198 | $ | 1,066,734 | $ | 3,598,786 | |||||||
Additions(b) |
1,479 | | | 54,843 | 56,322 | ||||||||||||
Adjustments(c) |
| | 13,209 | | 13,209 | ||||||||||||
Foreign exchange and other |
| | 9,708 | 52,254 | 61,962 | ||||||||||||
Balance, March 31, 2012 |
$ | 493,130 | $ | 1,542,203 | $ | 521,115 | $ | 1,173,831 | $ | 3,730,279 | |||||||
As described in note 3, the allocation of the goodwill balance associated with the Gerot Lannach, Probiotica, iNova, Dermik, Ortho Dermatologics, Afexa and Sanitas acquisitions is provisional and subject to the completion of the valuation of the assets acquired and liabilities assumed.
28
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
10. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
A summary of the Company's consolidated short-term borrowings and long-term debt as of March 31, 2012 and December 31, 2011 is outlined in the table below:
|
Maturity Date |
As of March 31 2012 |
As of December 31 2011 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Short-term borrowings |
||||||||||
Brazil Uncommitted Line of Credit(a) |
August 2012 | $ | 7,364 | $ | | |||||
Long-term debt |
||||||||||
Revolving Credit Facility(b) |
April 2016 | $ | | $ | 220,000 | |||||
Term Loan A Facility(b) |
April 2016 | 2,159,993 | 2,185,520 | |||||||
Term Loan B Facility(b) |
February 2019 | 590,815 | | |||||||
Senior Notes: |
||||||||||
6.50% |
July 2016 | 915,500 | 915,500 | |||||||
6.75% |
October 2017 | 498,038 | 497,949 | |||||||
6.875% |
December 2018 | 938,601 | 938,376 | |||||||
7.00% |
October 2020 | 686,336 | 686,228 | |||||||
6.75% |
August 2021 | 650,000 | 650,000 | |||||||
7.25% |
July 2022 | 540,654 | 540,427 | |||||||
5.375% Convertible Notes(c) |
August 2014 | 16,138 | 17,011 | |||||||
|
6,996,075 | 6,651,011 | ||||||||
Less current portion |
(145,062 | ) | (111,250 | ) | ||||||
Total long-term debt |
$ | 6,851,013 | $ | 6,539,761 | ||||||
The total fair value of the Company's long-term debt, with carrying values of approximately $7.0 billion and $6.7 billion at March 31, 2012 and December 31, 2011, was $7.1 billion and $6.7 billion, respectively. The fair value of the Company's long-term debt is estimated using the quoted market prices for the same issues and other pertinent information available to management as of the end of the respective periods.
Brazil Uncommitted Line of Credit
On February 29, 2012, the Company's subsidiary in Brazil entered into an uncommitted unsecured line of credit with a financial institution with total availability of R$16.0 million ($8.8 million at March 31, 2012). This uncommitted unsecured line of credit expires on August 27, 2012 and bears an interest rate of the Interbank Deposit Certificate Rate plus 0.23% per month. As of March 31, 2012, the Company had $7.4 million of borrowings under this line of credit, with $1.4 million of remaining availability. The effective interest rate on the drawn borrowings was approximately 1.0% per month.
29
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
10. SHORT-TERM BORROWINGS AND LONG-TERM DEBT (Continued)
Senior Secured Credit Facilities
On February 13, 2012, the Company and certain of its subsidiaries as guarantors entered into the Third Amended and Restated Credit and Guaranty Agreement (the "Credit Agreement") with a syndicate of financial institutions and investors. The Credit Agreement provides for a $275 million revolving credit facility, including a sublimit for the issuance of standby and commercial letters of credit and a sublimit for swing line loans (the "Revolving Credit Facility"), a $2.225 billion senior secured term loan A facility (the "Term Loan A Facility"), which includes a $500 million delayed draw term loan facility (the "Delayed Draw Facility") and $500 million of incremental term loans (the "Incremental Term Loans"), and a $600 million senior secured tranche B term loan facility (the "Term Loan B Facility" and, together with the Revolving Credit Facility and the Term Loan A Facility, the "Senior Secured Credit Facilities"). The Revolving Credit Facility matures on April 20, 2016 and does not amortize. The Term Loan A Facility matures on April 20, 2016 and began amortizing quarterly on March 31, 2012 at an initial annual rate of 5.0%. The amortization schedule under the Term Loan A Facility will increase to 10.0% annually commencing March 31, 2013 and 20% annually commencing March 31, 2014, payable in quarterly installments. The Term Loan B Facility matures on February 13, 2019 and amortizes quarterly commencing June 30, 2012 at an annual rate of 1.0%.
As of March 31, 2012, $2,160.0 million in term loans was outstanding under the Term Loan A Facility, $590.8 million in term loans was outstanding under the Term Loan B Facility and the Company had no outstanding borrowings under the Revolving Credit Facility.
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.
Borrowings under the Senior Secured Credit Facilities bear interest at a rate per annum equal to, at the Company's option either (a) a base rate determined by reference to the higher of (1) the rate of interest quoted in the print edition of The Wall Street Journal, Money Rates Section, as the Prime Rate (currently defined as the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks) and (2) the federal funds effective rate plus 1/2 of 1% or (b) a LIBO rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, in each case plus an applicable margin. The initial applicable margin for borrowings under the Senior Secured Credit Facilities was 1.75% with respect to base rate borrowings and 2.75% with respect to LIBO rate borrowings. The LIBO rate in respect of the Term Loan B Facility shall at no time be less than 1%. Interest rates are subject to increase or decrease quarterly based on leverage ratios. As of March 31, 2012, the effective rate of interest on the Company's borrowings under the Revolving Credit Facility, the Term Loan A Facility and the Term Loan B Facility was 4.1%, 3.4%, and 3.8% per annum, respectively.
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 and 0.50% per annum in respect of the average aggregate daily maximum amount available to be drawn under the Delayed Draw Facility. 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.
30
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
10. SHORT-TERM BORROWINGS AND LONG-TERM DEBT (Continued)
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 net cash proceeds from asset sales outside the ordinary course of business (subject to reinvestment rights), (b) 100% of the net cash proceeds of insurance and condemnation proceeds for property or asset losses (subject to reinvestment rights and net proceeds threshold), (c) 50% of the net cash proceeds from the issuance of equity securities subject to decrease based on leverage ratios, (d) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as defined in the Credit Agreement) and (e) 50% of Consolidated Excess Cash Flow (as defined in the Credit Agreement) subject to decrease based on leverage ratios.
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. Except for repayments of outstanding loans under the Term Loan B Facility in connection with certain refinancings on or prior to February 13, 2013, the Company is permitted to voluntarily repay outstanding loans under the Term Loan A Facility and the Term Loan B Facility at any time without premium or penalty, other than customary "breakage" costs with respect to LIBO rate loans. Repayments of outstanding loans under the Term Loan B Facility in connection with certain refinancings on or prior to February 13, 2013 require a prepayment premium of 1% of such loans prepaid.
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 Valeant and the guarantors, including 100% of the capital stock of Valeant and each domestic subsidiary of Valeant, 65% of the capital stock of each foreign subsidiary of Valeant that is directly owned by Valeant or a guarantor that is a subsidiary of Valeant, and 100% of the capital stock of each other material subsidiary of the Company (other than Valeant's subsidiaries), in each case subject to certain exclusions set forth in the credit documentation governing the Senior Secured Credit Facilities.
The Senior Secured Credit Facilities contain a number of covenants that, among other things and subject to certain exceptions, restrict the Company's ability and the ability of its subsidiaries to: incur additional indebtedness; create liens; enter into agreements and other arrangements that include negative pledge clauses; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; create restrictions on the payment of dividends or other distributions by subsidiaries; make investments, loans, advances and acquisitions; merge, amalgamate or sell assets, including equity interests of the subsidiaries; enter into sale and leaseback transactions; engage in transactions with affiliates; enter into new lines of business; and enter into amendments of or waivers under subordinated indebtedness, organizational documents and certain other material agreements.
The Credit Agreement requires that the Company maintain a secured leverage ratio not to exceed 2.50 to 1.00 as of the last day of each fiscal quarter beginning with the fiscal quarter ending March 31, 2012. The Credit Agreement requires that the Company maintain an interest coverage ratio of not less than 3.00 to 1.00 as of the last day of each fiscal quarter. The Credit Agreement also contains certain customary affirmative covenants and events of default. If an event of default, as specified in the Credit Agreement, shall occur and be continuing, the Company may be required to repay all amounts outstanding under the Senior Secured Credit Facilities. As of March 31, 2012, the Company was in compliance with all covenants associated with the Senior Secured Credit Facilities.
31
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
11. SECURITIES REPURCHASE PROGRAM
On November 4, 2010, the Company announced that its board of directors had approved a securities repurchase program, pursuant to which the Company could make purchases of its common shares, convertible notes and/or senior notes, from time to time, up to an aggregate maximum value of $1.5 billion, subject to any restrictions in the Company's financing agreements and applicable law. On August 29, 2011, the Company announced that its board of directors had approved an increase of $300.0 million under its securities repurchase program (the "Securities Repurchase Program"). As a result, under the Securities Repurchase Program, the Company was able to repurchase up to $1.8 billion of its convertible notes, senior notes, common shares and/or other notes or shares that may be issued prior to the completion of the program. The Securities Repurchase Program terminated on November 7, 2011.
On November 3, 2011, the Company announced that its board of directors had approved a new securities repurchase program (the "New Securities Repurchase Program"). Under the New Securities Repurchase Program, which commenced on November 8, 2011, the Company may make purchases of up to $1.5 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 New Securities Repurchase Program will terminate on November 7, 2012 or at such time as the Company completes its purchases. The amount of securities to be purchased and the timing of purchases under the New Securities Repurchase Program may be subject to various factors, which may include the price of the securities, general market conditions, corporate and regulatory requirements, alternate investment opportunities and restrictions under our financing agreements and applicable law. The securities to be repurchased will be funded using the Company's cash resources.
Repurchase of 5.375% Convertible Notes
In the three-month period ended March 31, 2012, under the New Securities Repurchase Program, the Company repurchased $1.1 million principal amount of the 5.375% senior convertible notes due 2014 (the "5.375% Convertible Notes") for a purchase price of $4.0 million. The carrying amount of the 5.375% Convertible Notes purchased was $1.0 million (net of related unamortized deferred financing costs) and the estimated fair value of the 5.375% Convertible Notes exclusive of the conversion feature was $1.1 million. The difference of $0.1 million between the net carrying amount and the estimated fair value was recognized as a loss on extinguishment of debt. The difference of $2.9 million between the estimated fair value of $1.1 million and the purchase price of $4.0 million resulted in charges to additional paid-in capital and accumulated deficit of $0.2 million and $2.7 million, respectively. The portion of the purchase price attributable to accreted interest on the debt discount amounted to $0.1 million, and is presented in the consolidated statements of cash flows as payment of accreted interest in cash flows from operating activities. The remaining portion of the payment of $3.9 million is presented in the consolidated statement of cash flows as an outflow from financing activities, which includes a payment to the note holders of a $1.9 million premium above the carrying value.
In the three-month period ended March 31, 2011, under the Securities Repurchase Program, the Company repurchased $52.3 million aggregate principal amount of the 5.375% Convertible Notes for an aggregate purchase price of $141.5 million. The carrying amount of the 5.375% Convertible Notes purchased was $44.7 million (net of $1.5 million of related unamortized deferred financing costs) and the estimated fair value of the 5.375% Convertible Notes exclusive of the conversion feature was $53.0 million. The difference of $8.3 million between the net carrying amount and the estimated fair value was recognized as a loss on extinguishment of debt. The difference of $88.5 million between the estimated fair value of $53.0 million and the purchase price of $141.5 million resulted in charges to additional paid-in capital and accumulated
32
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
11. SECURITIES REPURCHASE PROGRAM (Continued)
deficit of $8.5 million and $80.0 million, respectively. The portion of the purchase price attributable to accreted interest on the debt discount amounted to $2.3 million, and is presented in the consolidated statements of cash flows as payment of accreted interest in cash flows from operating activities. The remaining portion of the payment of $139.2 million is presented in the consolidated statement of cash flows as an outflow from financing activities.
Share Repurchases
In the three-month period ended March 31, 2012, under the New Securities Repurchase Program, the Company repurchased 2,004,952 of its common shares for an aggregate purchase price of $108.7 million. The excess of the purchase price over the carrying value of the common shares repurchased of $69.7 million was charged to the accumulated deficit. These common shares were subsequently cancelled.
In March 2011, under the Securities Repurchase Program, the Company repurchased 7,366,419 of its common shares from ValueAct Capital Master Fund, L.P. ("ValueAct") for an aggregate purchase price of $274.8 million, negotiated at a 5.77% discount over a 20-day trading average. The excess of the purchase price over the carrying value of the common shares repurchased of $146.8 million was charged to the accumulated deficit. These common shares were subsequently cancelled. As of March 31, 2012, the Company had recorded an estimated $24.2 million receivable from ValueAct in relation to withholding taxes on the repurchase. G. Mason Morfit is a partner and a member of the Management Committee of ValueAct Capital. Mr. Morfit joined the Company's board of directors on September 28, 2010, effective with the Merger, and prior thereto served as a member of Valeant's board of directors since 2007. ValueAct Capital is the general partner and the manager of ValueAct.
Total Repurchases
As of March 31, 2012, the Company had repurchased approximately $270.5 million, in the aggregate, of its convertible notes, senior notes and common shares under the New Securities Repurchase Program.
Subsequent to March 31, 2012, the Company repurchased an additional 949,466 of its common shares for cash consideration of $51.8 million.
33
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
12. SHARE-BASED COMPENSATION
The following table summarizes the components and classification of share-based compensation expense related to stock options and restricted share units ("RSUs") for the three-month periods ended March 31, 2012 and 2011:
|
Three Months Ended March 31 |
|||||||
---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | ||||||
Stock options(1) |
$ | 6,711 | $ | 17,650 | ||||
RSUs |
12,441 | 12,243 | ||||||
Stock-based compensation expense |
$ | 19,152 | $ | 29,893 | ||||
Cost of goods sold(1) |
$ | 230 | $ | 435 | ||||
Research and development expenses(1) |
230 | 435 | ||||||
Selling, general and administrative expenses(1) |
18,692 | 28,874 | ||||||
Restructuring and integration costs |
| 149 | ||||||
Stock-based compensation expense |
$ | 19,152 | $ | 29,893 | ||||
In the three-month periods ended March 31, 2012 and 2011, the Company granted approximately 320,000 stock options with a weighted-average exercise price of $53.84 per option and approximately 384,000 stock options with a weighted-average exercise price of $39.38 per option, respectively. The weighted-average fair values of all stock options granted to employees in the three-month periods ended March 31, 2012 and 2011 were $18.85 and $11.71, respectively.
In the three-month periods ended March 31, 2012 and 2011, the Company granted approximately 86,000 time-based RSUs with a weighted-average grant date fair value of $51.31 per RSU and approximately 119,000 time-based RSUs with a weighted-average grant date fair value of $39.35 per RSU, respectively.
In the three-month period ended March 31, 2012, the Company granted approximately 151,000 performance-based RSUs with a weighted-average grant date fair value of $69.94 per RSU. The Company did not grant any performance-based RSUs during the three-month period ended March 31, 2011.
As of March 31, 2012, the total remaining unrecognized compensation expense related to non-vested stock options, time-based RSUs and performance-based RSUs amounted to $118.2 million, in the aggregate, which will be amortized over a weighted-average period of 2.5 years.
34
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
13. SHAREHOLDERS' EQUITY
|
Shareholders | |
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common Shares | |
|
|
|
|||||||||||||||||
|
|
|
Accumulated Other Comprehensive (Loss) Income |
|
||||||||||||||||||
|
Shares (000s) |
Amount | Additional Paid-In Capital |
Accumulated Deficit |
Total Shareholders' equity |
|||||||||||||||||
Balance, January 1, 2011 |
302,449 | $ | 5,251,730 | $ | 495,041 | $ | (934,511 | ) | $ | 98,836 | $ | 4,911,096 | ||||||||||
Repurchase of equity component of 5.375% Convertible Notes |
| | (8,470 | ) | (80,040 | ) | | (88,510 | ) | |||||||||||||
Common shares issued under share-based compensation plans |
2,579 | 75,457 | (53,466 | ) | | | 21,991 | |||||||||||||||
Repurchase of common shares |
(7,366 | ) | (127,910 | ) | | (146,841 | ) | | (274,751 | ) | ||||||||||||
Share-based compensation |
| | 29,893 | | | 29,893 | ||||||||||||||||
Employee withholding taxes related to share-based awards |
| | 12,304 | (51,782 | ) | | (39,478 | ) | ||||||||||||||
Tax benefits from stock options exercised |
| | 23,172 | | | 23,172 | ||||||||||||||||
|
297,662 | 5,199,277 | 498,474 | (1,213,174 | ) | 98,836 | 4,583,413 | |||||||||||||||
Comprehensive income: |
||||||||||||||||||||||
Net income |
| | | 6,482 | | 6,482 | ||||||||||||||||
Other comprehensive income |
| | | | 118,780 | 118,780 | ||||||||||||||||
Total comprehensive income |
125,262 | |||||||||||||||||||||
Balance, March 31, 2011 |
297,662 | $ | 5,199,277 | $ | 498,474 | $ | (1,206,692 | ) | $ | 217,616 | $ | 4,708,675 | ||||||||||
Balance, January 1, 2012 |
306,371 | $ | 5,963,621 | $ | 276,117 | $ | (2,030,292 | ) | $ | (202,430 | ) | $ | 4,007,016 | |||||||||
Repurchase of equity component of 5.375% Convertible Notes |
| | (180 | ) | (2,682 | ) | | (2,862 | ) | |||||||||||||
Common shares issued under share-based compensation plans |
518 | 12,181 | (7,082 | ) | | | 5,099 | |||||||||||||||
Repurchase of common shares |
(2,005 | ) | (39,027 | ) | | (69,697 | ) | | (108,724 | ) | ||||||||||||
Share-based compensation |
| | 19,152 | | | 19,152 | ||||||||||||||||
Employee withholding taxes related to share-based awards |
| | (3,824 | ) | | | (3,824 | ) | ||||||||||||||
Tax benefits from stock options exercised |
| | 593 | | | 593 | ||||||||||||||||
|
304,884 | 5,936,775 | 284,776 | (2,102,671 | ) | (202,430 | ) | 3,916,450 | ||||||||||||||
Comprehensive income: |
||||||||||||||||||||||
Net loss |
| | | (12,921 | ) | | (12,921 | ) | ||||||||||||||
Other comprehensive income |
| | | | 172,906 | 172,906 | ||||||||||||||||
Total comprehensive income |
159,985 | |||||||||||||||||||||
Balance, March 31, 2012 |
304,884 | $ | 5,936,775 | $ | 284,776 | $ | (2,115,592 | ) | $ | (29,524 | ) | $ | 4,076,435 | |||||||||
35
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
14. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss as of March 31, 2012, were as follows:
|
Foreign Currency Translation Adjustment |
Net Unrealized Holding Gain (Loss) on Available- For-Sale Equity Securities |
Net Unrealized Holding Gain (Loss) on Available- For-Sale Debt Securities |
Acquisition of Noncontrolling Interest |
Pension Adjustment |
Total | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, January 1, 2012 |
$ | (205,521 | ) | $ | 1,634 | $ | (204 | ) | $ | 2,206 | $ | (545 | ) | $ | (202,430 | ) | ||||
Foreign currency translation adjustment |
174,676 | | | | | 174,676 | ||||||||||||||
Reclassification to net loss(1) |
| (1,634 | ) | | | | (1,634 | ) | ||||||||||||
Net unrealized holding loss on available-for-sale debt securities |
| | (13 | ) | | | (13 | ) | ||||||||||||
Pension adjustment(2) |
| | | | (123 | ) | (123 | ) | ||||||||||||
Balance, March 31, 2012 |
$ | (30,845 | ) | $ | | $ | (217 | ) | $ | 2,206 | $ | (668 | ) | $ | (29,524 | ) | ||||
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, except to the extent of translation adjustments related to the Company's retained earnings for foreign jurisdictions in which the Company is not considered to be permanently reinvested. Income taxes allocated to other components of other comprehensive income, including reclassification adjustments, were not material.
15. INCOME TAXES
In the three-month period ended March 31, 2012, the Company recognized a recovery of income taxes of $0.3 million, which comprised $2.0 million related to the expected tax benefit in tax jurisdictions outside of Canada offset with a tax expense of $1.7 million related to Canadian income taxes. In the three months ended March 31, 2012, the Company's effective tax rate was primarily impacted by (i) the tax benefit of current U.S. losses, (ii) the increase in liabilities for uncertain tax positions, (iii) an adjustment of the valuation allowance specific to acquired Canadian net deferred tax liabilities, and (iv) withholding tax outside of Canada.
The Company records a valuation allowance against its deferred tax assets to reduce the net carrying value to an amount that it believes is more likely than not to be realized. When the Company establishes or reduces the valuation allowance against its deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period such determination is made. The valuation allowance against deferred tax assets was $130.2 million as of March 31, 2012 and $128.7 million as of December 31, 2011. The Company does not record a valuation allowance against its U.S. foreign tax credits as it has determined it is more likely than not the Company will realize these deferred tax assets in the future. However, the Company continues to monitor its U.S. foreign source income and losses in the future and assess the need for a valuation allowance.
36
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
15. INCOME TAXES (Continued)
As of March 31, 2012, the Company had $117.6 million of unrecognized tax benefits, which included $21.8 million relating to interest and penalties. Of the total unrecognized tax benefits, $68.3 million would reduce the Company's effective tax rate, if recognized. The Company does not expect any significant change to the above unrecognized tax benefits during the next twelve months.
The Company's continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. As of March 31, 2012, the Company had accrued $0.4 million for interest and $0.1 million for penalties.
Valeant is currently under examination by the Internal Revenue Service for the 2009 tax year, as well as various state tax audits for years 2002 to 2010. The Company is currently under examination by the Canada Revenue Agency for years 2003 to 2006 and remains open to examination for years 2004 and later. Valeant is currently under examination by the Australian Tax Office for the 2010 tax year.
16. (LOSS) EARNINGS PER SHARE
(Loss) earnings per share for the three-month periods ended March 31, 2012 and 2011 were calculated as follows:
|
Three Months Ended March 31 |
|||||||
---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | ||||||
Net (loss) income |
$ | (12,921 | ) | $ | 6,482 | |||
Basic weighted-average number of common shares outstanding (000s) |
307,776 | 303,749 | ||||||
Dilutive effect of stock options and RSUs (000s) |
| (a) | 8,427 | |||||
Dilutive effect of convertible debt (000s) |
| (a) | 20,724 | |||||
Diluted weighted-average number of common shares outstanding (000s) |
307,776 | 332,900 | ||||||
Basic and diluted (loss) earnings per share |
$ | (0.04 | ) | $ | 0.02 | |||
|
Three Months Ended March 31 2012 |
||||
---|---|---|---|---|---|
Basic weighted-average number of common shares outstanding (000s) |
307,776 | ||||
Dilutive effect of stock options and RSUs (000s) |
7,725 | ||||
Dilutive effect of convertible debt (000s) |
896 | ||||
Diluted weighted-average number of common shares outstanding (000s) |
316,397 | ||||
In the three-month periods ended March 31, 2012 and 2011, stock options to purchase approximately 702,000 and 267,000 common shares of the Company, respectively, had exercise prices greater than the average trading price of the Company's common shares, and were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.
37
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
17. LEGAL PROCEEDINGS
From time to time, the Company becomes involved in various legal and administrative proceedings, which include product liability, intellectual property, antitrust, governmental and regulatory investigations, and related private litigation. There are also ordinary course employment-related issues and other types of claims in which the Company routinely becomes involved, but which individually and collectively are not material.
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 to decline.
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 cannot reasonably predict the outcome of these proceedings, some of which may involve significant legal fees. The Company believes that the prosecution of these actions and counterclaims is important to preserve and protect the Company, its reputation and its assets.
Governmental and Regulatory Inquiries
On May 16, 2008, Biovail Pharmaceuticals, Inc., 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 $22.2 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 in exchange for continuing cooperation and a civil settlement agreement and pay a civil penalty of $2.4 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 and the Department of Health and Human Services on September 11, 2009. The CIA requires Biovail to have a compliance program in place and to undertake a set of defined corporate integrity obligations for a five-year term. The CIA also includes requirements for an annual independent review of these obligations. Failure to comply with the obligations under the CIA could result in financial penalties.
Antitrust
On April 4, 2008, a direct purchaser plaintiff filed a class action antitrust complaint in the U.S. District Court for the District of Massachusetts against Biovail, GlaxoSmithKline plc, and SmithKline Beecham Inc. (the latter two of which are referred to here as "GSK") seeking damages and alleging that Biovail and GSK took actions to improperly delay U.S. Food and Drug Administration ("FDA") approval for generic forms of Wellbutrin XL®. The direct purchaser plaintiff in the Massachusetts federal court lawsuit voluntarily dismissed its complaint on May 27, 2008, and shortly thereafter re-filed a virtually identical complaint in the U.S. District Court for the Eastern District of Pennsylvania. In late May and early June 2008, additional direct and indirect purchaser class actions were also filed against Biovail and GSK in the Eastern District of Pennsylvania, all making similar allegations. These complaints have now been consolidated, resulting in a lead direct purchaser and a lead indirect purchaser action.
38
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
17. LEGAL PROCEEDINGS (Continued)
On September 10, 2008, the Company and GSK filed motions to dismiss both the direct and indirect purchaser actions. Those motions were heard on February 26, 2009. In the direct purchaser case, on March 13, 2009, the Court granted in part and denied in part the motions, dismissing the Sherman Act Section 2 monopolization claim that had been made by the direct purchasers against the Company. The Company and GSK answered the remaining claims in the direct purchaser case on April 16, 2009. On March 26, 2009, before an order issued on the motions to dismiss the indirect purchaser plaintiffs' claims, the indirect purchaser plaintiffs filed an amended complaint. The pending motions were therefore denied as moot, and new motions to dismiss the indirect purchaser plaintiffs' claims were filed on April 30, 2009. On July 30, 2009, the Court dismissed all indirect purchaser claims except the antitrust claims (limited as to the Company's concerted actions) in California, Nevada, Tennessee and Wisconsin and the consumer protection claims of California and Florida.
On September 14, 2010, the indirect purchaser plaintiffs filed a motion for leave to amend their complaint to add claims under Illinois's Antitrust Act and New York's Donnelly Act. The Company and GSK opposed the indirect purchaser plaintiffs' motion. On December 21, 2010, the Court granted in part and denied in part the motion for leave to amend, permitting indirect purchasers leave to amend their complaint to assert claims under New York's Donnelly Act but not under Illinois's Antitrust Act.
Plaintiffs filed motions for class certification. The Company and GSK opposed the motions. The Court held a hearing on direct purchaser plaintiffs' class certification motion on April 5, 2011, and on indirect purchaser plaintiffs' class certification motion on April 29, 2011 and May 27, 2011. The Court granted in part and denied in part the direct purchaser plaintiffs' motion on August 11, 2011. The Court certified a class consisting of all persons or entities in the United States and its territories who purchased Wellbutrin XL ® directly from any of the defendants at any time during the period of November 14, 2005 through August 31, 2009. Excluded from the class are defendants and their officers, directors, management, employees, parents, subsidiaries, and affiliates, and federal government entities. Further excluded from the class are persons or entities who have not purchased generic versions of Wellbutrin XL® during the class period after the introduction of generic versions of Wellbutrin XL®. Defendants petitioned the Third Circuit for immediate appellate review of this order pursuant to Federal Rule of Civil Procedure 23(f), but the Third Circuit denied the request without comment. The order remains appealable at the conclusion of the district court proceedings.
The Court granted in part and denied in part the indirect purchaser plaintiffs' motion on August 12, 2011. The defendants have moved the district court to reconsider certain aspects of this order, which motion is pending.
Discovery has concluded and motions for summary judgment have been filed by the Defendants. The summary judgment hearing took place on March 21, 2012 and a decision is pending.
The Company believes that each of these complaints lacks merit and that the Company's challenged actions complied with all applicable laws and regulations, including federal and state antitrust laws, FDA regulations, U.S. patent law and the Hatch-Waxman Act.
Intellectual Property
On January 18, 2010, a Canadian Federal Court judge presiding over Biovail and Depomed, Inc. ("Depomed") v. Apotex Inc. ("Apotex") et al. issued a decision in a proceeding pursuant to the Patented Medicines (Notice of Compliance) ("PMNOC") Regulations in Canada to determine whether Apotex's allegations that a Depomed patent was invalid and/or not infringed was justified. This proceeding related to
39
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
17. LEGAL PROCEEDINGS (Continued)
a Canadian application filed by Apotex to market a generic version of the 500 mg formulation of Glumetza® (extended release metformin hydrochloride tablets) licensed in Canada by Depomed to Biovail Laboratories International SRL, now known as Valeant International (Barbados) SRL ("VIB"). Pursuant to the decision issued by the Court, Health Canada can authorize Apotex to market in Canada its generic version of the 500mg formulation of Glumetza®. The decision, which was amended on January 20, 2010, found under Canadian law that Apotex's allegation was justified that the Depomed Canadian patent at issue in the matter (No. 2,290,624) (the "624 Patent") is obvious. The judge found that the evidence presented by the parties was "evenly balanced" as to obviousness. The judge found in favor of Biovail and Depomed as to all other issues related to the '624 Patent under Canadian law. Apotex was authorized by Health Canada on February 4, 2010 to market its generic version of 500 mg Glumetza® in Canada. This decision, however, did not find the patent invalid and did not preclude the filing of a subsequent patent infringement suit against Apotex. Biovail and Depomed commenced action for patent infringement against Apotex in Canadian Federal Court on February 8, 2010. Pleadings have now closed, but no further steps have been taken.
On or about June 24, 2010, Biovail and VIB received a Notice of Allegation from Mylan Pharmaceuticals ULC ("Mylan") with respect to Bupropion Hydrochloride 150 mg and 300 mg tablets, marketed in Canada by Biovail as Wellbutrin® XL. The patents in issue were Canadian Patent Nos. 2,142,320, 2,168,364 and 2,524,300. Mylan alleged that its generic form of Wellbutrin® XL did not infringe the patents and, alternatively, that the patents were invalid. Following an evaluation of the allegations in the Notice of Allegation, an application for an order prohibiting the Minister from issuing a Notice of Compliance to Mylan was issued in the Federal Court on August 6, 2010, relating to Canadian Patent Nos. 2,524,300 and 2,168,364 (the "PMNOC Proceeding"). Mylan subsequently withdrew its allegations of invalidity. The parties exchanged evidence and cross-examinations were held. In May 2011, Mylan filed a Statement of Claim in the Federal Court of Canada against the Company, VIB and Valeant Canada seeking to impeach Canadian Patent No. 2,524,300. The parties agreed to discontinue this action, without costs, and a notice of discontinuance was filed with the Federal Court of Canada on August 12, 2011. On September 12, 2011, Mylan filed a Statement of Claim in the Federal Court of Canada against the Company, VIB and Valeant Canada seeking to impeach Canadian Patent No. 2,168,364. The parties agreed to stay this action pending resolution of the PMNOC Proceeding. In April 2012, the Company, VIB, Valeant Canada and Mylan entered into a settlement agreement with respect to the PMNOC Proceeding and the remaining impeachment proceeding, which resulted in a dismissal of the remaining impeachment proceeding and a stay of the PMNOC Proceeding until certain events occur.
On or about January 5, 2010, VIB received a Notice of Paragraph IV Certification dated January 4, 2010 from Watson Laboratories, Inc. Florida ("Watson"), related to Watson's ANDA filing for bupropion hydrobromide extended-release tablets, 174 mg and 348 mg, which correspond to the Company's Aplenzin® Extended-release Tablets 174 mg and 348 mg products. Watson asserted that U.S. Patent Nos. 7,241,805, 7,569,610, 7,572,935 and 7,585,897 which are listed in the FDA's Orange Book for Aplenzin® are invalid or not infringed. VIB subsequently received from Watson a second Notice of Paragraph IV Certification for U.S. Patent Nos. 7,645,802 and 7,649,019, which were listed in the FDA's Orange Book after Watson's initial certification. Watson has alleged these patents are invalid or not infringed. VIB filed suit pursuant to the Hatch-Waxman Act against Watson on February 18, 2010, in the U.S. District Court for the District of Delaware and on February 19, 2010, in the U.S. District Court for the Southern District of Florida, thereby triggering a 30-month stay of the approval of Watson's ANDA. The Delaware action has been dismissed without prejudice and the litigation is proceeding in the Florida Court. VIB received a third Notice of Paragraph IV Certification from Watson dated March 5, 2010, seeking to market its products prior to the
40
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
17. LEGAL PROCEEDINGS (Continued)
expiration of U.S. Patent Nos. 7,662,407 and 7,671,094. VIB received a fourth Notice of Paragraph IV Certification from Watson on April 9, 2010. VIB filed a second Complaint against Watson in Florida Court on the third and fourth Notices on April 16, 2010. The two actions have been consolidated into the first-filed case before the same judge. In the course of discovery the issues have been narrowed and only five of the patents remain in the litigation. Mandatory mediation was completed unsuccessfully on December 17, 2010. The trial in this matter was held in June 2011 and closing arguments were heard in September 2011. A judgment in this matter was issued on November 8, 2011. The Court found that Watson had failed to prove that VIB's patents at suit were invalid and granted judgment in favor of VIB. Watson is appealing the judgment and the appeal is proceeding in the ordinary course.
On or after December 12, 2011, a Notice of Paragraph IV Certification, dated December 7, 2011, was received from Spear Pharmaceuticals, Inc. ("Spear"), related to Spear's ANDA filing for fluorouracil topical cream, 0.5%, which corresponds to the Company's Carac® product. Spear has asserted that U.S. Patent No. 6,670,335 (the "335 Patent"), which is listed in the FDA's Orange Book for Carac®, is not infringed by the filing of Spear's ANDA or the manufacture, use, offer for sale, sale or importation of Spear's product in the U.S. VIB (as exclusive licensee of the '335 Patent) and AP Pharma, Inc. (as owner of the '335 Patent) filed suit pursuant to the Hatch-Waxman Act against Spear on January 25, 2012, in the U.S. District Court for the Middle District of Florida, thereby triggering a stay of the approval of Spear's ANDA of up to 30 months during the pendency of the litigation. This matter is proceeding in the ordinary course.
On or about March 20, 2012, a Notice of Paragraph IV Certification was received from Sandoz Inc. ("Sandoz"), related to Sandoz's ANDA filing for bupropion hydrobromide extended release tablets, 348 mg, which corresponds to the Company's Aplenzin® ER tablets. Sandoz has asserted that U.S. Patent Nos. 7,241,805, 7,569,610, 7,572,935, 7,585,897, 7,645,802, 7,649,019, 7,662,407 and 7,671,094, which are listed in the FDA's Orange Book for Aplenzin® Extended Release (ER) tablets, are invalid, unenforceable, and/or will not be infringed by the manufacture, use, importation, sale or offer for sale of Sandoz's product in the U.S. VIB filed suit against Sandoz on April 30, 2012 asserting infringement of the Orange Book listed patents and U.S. Patent No. 7,553,992 in the U.S. District Court for the District of Delaware, thereby triggering pursuant to the Hatch-Waxman Act, a stay of the approval of Sandoz's ANDA of up to 30 months during the pendency of the litigation. This matter is expected to proceed in the ordinary course.
General Civil Actions
Complaints have been filed by the City of New York, the State of Alabama, the State of Mississippi, the State of Louisiana and a number of counties within the State of New York, claiming that Biovail, and numerous other pharmaceutical companies, made fraudulent misstatements concerning the "average wholesale price" ("AWP") of their prescription drugs, resulting in alleged overpayments by the plaintiffs for pharmaceutical products sold by the companies.
The City of New York and plaintiffs for all the counties in New York (other than Erie, Oswego and Schenectady) voluntarily dismissed Biovail and certain others of the named defendants on a without prejudice basis. Similarly, the State of Mississippi voluntarily dismissed its claim against Biovail and a number of defendants on a without prejudice basis.
In the case brought by the State of Alabama, the Company answered the State's Amended Complaint. On October 16, 2009, the Supreme Court of Alabama issued an opinion reversing judgments in favor of the State in the first three cases that were tried against co-defendant companies. The Alabama Supreme Court
41
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
17. LEGAL PROCEEDINGS (Continued)
also rendered judgment in favor of those defendants, finding that the State's fraud-based theories failed as a matter of law. The court ordered all parties to this proceeding to attend mediation in December 2011. The matter has settled for an all inclusive payment in the amount of less than $0.1 million.
A Third Amending Petition for Damages and Jury Demand was filed on November 10, 2010 in Louisiana State Court by the State of Louisiana claiming that a former subsidiary of the Company, and numerous other pharmaceutical companies, knowingly inflated the AWP and "wholesale acquisition cost" of their prescription drugs, resulting in alleged overpayments by the State for pharmaceutical products sold by the companies. The State has subsequently filed additional amendments to its Petition, none of which materially affect the claims against the Company. The matter is in preliminary stages and the Company intends to defend against this action.
On December 15, 2009, Biovail was served with a Seventh Amended Complaint under the False Claims Act in an action captioned United States of America, ex rel. Constance A. Conrad v. Actavis Mid-Atlantic, LLC, et al., United States District Court, District of Massachusetts. This case was originally filed in 2002 and maintained under seal until shortly before Biovail was served. Twenty other companies are named as defendants. In the Seventh Amended Complaint, Conrad alleges that various formulations of Rondec, a product formerly owned by Biovail, were not properly approved by the FDA and therefore not a "Covered Outpatient Drug" within the meaning of the Medicaid Rebate Statute. As such, Conrad alleges that Rondec was not eligible for reimbursement by federal healthcare programs, including Medicaid. Conrad seeks treble damages and civil penalties under the False Claims Act. Motions to dismiss have been brought by the defendants. Briefing on these motions concluded on March 30, 2012. A hearing date has not been set.
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 Afexa. The proposed claim asserts that Afexa and the Company made false representations respecting Cold-FX® to all residents of British Columbia who purchased the product during the applicable period and that the class has suffered damages as a result. The Company denies the allegations being made and intends to defend this matter.
Legacy Valeant Litigation
Valeant is the subject of a Formal Order of Investigation with respect to events and circumstances surrounding trading in its common stock, the public release of data from its first pivotal Phase III trial for taribavirin in March 2006, statements made in connection with the public release of data and matters regarding its stock option grants since January 1, 2000 and its restatement of certain historical financial statements announced in March 2008. In September 2006, Valeant's board of directors established a Special Committee to review its historical stock option practices and related accounting, and informed the U.S. Securities and Exchange Commission ("SEC") of these efforts. Valeant has cooperated fully and will continue to cooperate with the SEC in its investigation. The Company cannot predict the outcome of the investigation.
18. SEGMENT INFORMATION
Reportable Segments
As a result of the acquisition of iNova in December 2011, the Company operates in five new territories: Malaysia, Philippines, Singapore, Hong Kong and South Africa, with a distribution business in Thailand, Taiwan and some sub-Saharan Africa markets. iNova also distributes through partners in China, Korea and Japan. Consequently, the Company's Chief Executive Officer, who is the Company's Chief Operating
42
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
18. SEGMENT INFORMATION (Continued)
Decision Maker ("CODM") has begun to manage the business differently, which has necessitated a realignment of the segment structure, effective in the first quarter of 2012. Pursuant to this change, the Company now has four reportable segments: (i) U.S. Dermatology, (ii) U.S. Neurology and Other, (iii) Canada and Australia and (iv) Emerging Markets. Accordingly, the Company has restated prior period segment information to conform to the current period presentation. The following is a brief description of the Company's segments:
Segment profit is based on operating income after the elimination of intercompany transactions. Certain costs, such as restructuring and acquisition-related costs, legal settlement and acquired IPR&D 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, 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.
43
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
18. SEGMENT INFORMATION (Continued)
Segment Revenues and Profit
Segment revenues and profit for the three-month periods ended March 31, 2012 and 2011 were as follows:
|
Three Months Ended March 31 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | ||||||||
Revenues: |
||||||||||
U.S. Dermatology(1) |
$ | 292,217 | $ | 154,191 | ||||||
U.S. Neurology and Other |
187,708 | 208,115 | ||||||||
Canada and Australia(2) |
132,569 | 70,244 | ||||||||
Emerging Markets(3) |
243,609 | 132,476 | ||||||||
Total revenues |
856,103 | 565,026 | ||||||||
Segment profit (loss): |
||||||||||
U.S. Dermatology(4) |
88,026 | 34,576 | ||||||||
U.S. Neurology and Other |
52,558 | 99,741 | ||||||||
Canada and Australia(5) |
14,917 | 20,922 | ||||||||
Emerging Markets(6) |
23,189 | (559 | ) | |||||||
Total segment profit |
178,690 | 154,680 | ||||||||
Corporate(7) |
(34,358 | ) | (58,105 | ) | ||||||
Restructuring, integration and other costs |
(62,337 | ) | (17,539 | ) | ||||||
Acquired IPR&D |
| (2,000 | ) | |||||||
Acquisition-related costs |
(7,505 | ) | (1,507 | ) | ||||||
Legal settlements |
(3,155 | ) | (400 | ) | ||||||
Acquisition-related contingent consideration |
(9,839 | ) | (386 | ) | ||||||
Operating income |
61,496 | 74,743 | ||||||||
Interest income |
1,123 | 803 | ||||||||
Interest expense |
(102,025 | ) | (68,751 | ) | ||||||
Loss on extinguishment of debt |
(133 | ) | (8,262 | ) | ||||||
Foreign exchange and other |
24,299 | 2,807 | ||||||||
Gain on investments, net |
2,059 | 1,769 | ||||||||
(Loss) income before recovery of income taxes |
$ | (13,181 | ) | $ | 3,109 | |||||
44
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
18. SEGMENT INFORMATION (Continued)
ended March 31, 2012 also reflects the addition of Ortho Dermatologics operations, including the impact of acquisition accounting adjustments related to the fair value adjustments to inventory and identifiable intangible assets of $3.3 million and $9.8 million, respectively.
Segment Assets
Total assets by segment as of March 31, 2012 and December 31, 2011 were as follows:
|
As of March 31 2012 |
As of December 31 2011 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Assets: |
|||||||||
U.S. Dermatology |
$ | 3,041,252 | $ | 3,077,119 | |||||
U.S. Neurology and Other |
4,271,010 | 4,436,463 | |||||||
Canada and Australia |
1,626,030 | 1,611,999 | |||||||
Emerging Markets(1) |
3,879,790 | 3,349,821 | |||||||
|
12,818,082 | 12,475,402 | |||||||
Corporate |
801,652 | 666,311 | |||||||
Total assets |
$ | 13,619,734 | $ | 13,141,713 | |||||
19. SUBSEQUENT EVENTS AND PENDING ACQUISITIONS
University Medical Pharmaceuticals Corp.
On May 2, 2012, the Company entered into an agreement to acquire certain assets from University Medical Pharmaceuticals Corp. ("University Medical"), a specialty pharmaceutical company focused on skincare products, for approximately $64.0 million plus potential future milestones. University Medical's main brand
45
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All tabular amounts expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
19. SUBSEQUENT EVENTS AND PENDING ACQUISITIONS (Continued)
is AcneFree, a retail OTC acne treatment. The transaction is subject to certain closing conditions and is expected to close by mid-year 2012.
Atlantis Pharma
On May 2, 2012, the Company acquired certain assets from Atlantis Pharma ("Atlantis"), a branded generics pharmaceutical company located in Mexico, for approximately $71.0 million. Atlantis has a broad product portfolio, including products in gastro, analgesics and anti-inflammatory therapeutic categories.
The transaction will be accounted for as a business combination under the acquisition method of accounting. The Company will record the assets acquired and liabilities assumed at their fair values as of the acquisition date. Due to the limited time since the closing of the acquisition, the valuation efforts and related acquisition accounting are incomplete at the time of filing of the consolidated financial statements. As a result, the Company is unable to provide amounts recognized as of the acquisition date for major classes of assets and liabilities acquired, including goodwill. In addition, because the acquisition accounting is incomplete, the Company is unable to provide the supplemental pro forma revenue and earnings for the combined entity, as the pro forma adjustments are expected to primarily consist of estimates for the amortization of identifiable intangible assets acquired and related income tax effects, which will result from the purchase price allocation and determination of the fair values for the assets acquired and liabilities assumed.
Pedinol Pharmacal, Inc.
On April 11, 2012, the Company acquired Pedinol Pharmacal, Inc., a podiatry-focused, privately-owned specialty pharmaceutical company based in the U.S., for an up-front purchase price of $21.5 million.
Natur Produkt International, JSC
On March 26, 2012, the Company entered into an agreement to acquire Natur Produkt International, JSC ("Natur Produkt"), a specialty pharmaceutical company in Russia, for approximately $180.0 million, with an additional $5.0 million in potential future milestones. Natur Produkt's key brand products include AntiGrippin®, Anti Angin®, Sage and Eucaplyptus MA. The transaction is subject to certain closing conditions and regulatory approvals and is expected to close by mid-year 2012.
46
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the unaudited consolidated financial statements, and notes thereto, prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for the interim period ended March 31, 2012 (the "unaudited consolidated financial statements"). This MD&A should also be read in conjunction with the annual MD&A and the audited consolidated financial statements and notes thereto prepared in accordance with U.S. GAAP that are contained in our Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Form 10-K").
Additional information relating to the Company, including the 2011 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 May 4, 2012.
All dollar amounts are expressed in U.S. dollars, unless otherwise noted.
COMPANY PROFILE
On September 28, 2010 (the "Merger Date"), Biovail Corporation ("Biovail") completed the acquisition of Valeant Pharmaceuticals International ("Valeant") through a wholly-owned subsidiary pursuant to an Agreement and Plan of Merger, dated as of June 20, 2010, with Valeant surviving as a wholly-owned subsidiary of Biovail (the "Merger"). In connection with the Merger, Biovail was renamed "Valeant Pharmaceuticals International, Inc." ("we", "us", "our" or the "Company").
We are a multinational, specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products. Our specialty pharmaceutical and over-the-counter ("OTC") products are marketed under brand names and are sold in the U.S., Canada, Australia and New Zealand, where we focus most of our efforts on products in the dermatology and neurology therapeutic classes. We also have branded generic, branded and OTC operations in Europe, Latin America, South East Asia and South Africa.
BUSINESS DEVELOPMENT
Our strategy is to focus the business on core geographies and therapeutic classes through selective acquisitions, dispositions and strategic partnerships with other pharmaceutical companies. We have completed several transactions to expand our product portfolio including, among others, the following acquisitions and dispositions in 2012:
47
In addition, we have entered into the following business transactions, which are expected to be completed by mid-year 2012:
MERGER-RELATED COST-RATIONALIZATION AND INTEGRATION INITIATIVES
The complementary nature of the Biovail and Valeant businesses has provided an opportunity to capture significant operating synergies from reductions in research and development, general and administrative expenses, and sales and marketing. In total, we have realized approximately $350 million of annual cost synergies as of March 31, 2012. This amount does not include potential revenue synergies or the benefits of expanding the Biovail corporate structure to Valeant's operations.
We estimate that we will incur total costs in the range of up to $200 million (of which the non-cash component, including share-based compensation, is expected to be approximately $55 million) in connection with these cost-rationalization and integration initiatives, of which $195.7 million has been incurred as of March 31, 2012. These costs include: employee termination costs (including related share-based payments) payable to approximately 500 employees of Biovail and Valeant who were terminated as a result of Merger; IPR&D termination costs related to the transfer to other parties of product-development programs that did not align with our research and development model; costs to consolidate or close facilities and relocate employees, asset impairment charges to write down property, plant and equipment to fair value; and contract termination and lease cancellation costs.
48
The following table summarizes the major components of costs incurred in connection with these initiatives through March 31, 2012:
|
Employee Termination Costs | |
|
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Contract Termination, Facility Closure and Other Costs |
|
|||||||||||||
|
Severance and Related Benefits |
Share-Based Compensation |
IPR&D Termination Costs |
Total | ||||||||||||
($ in 000s)
|
$ | $ | $ | $ | $ | |||||||||||
Balance, January 1, 2010 |
| | | | | |||||||||||
Costs incurred and charged to expense |
58,727 | 49,482 | 13,750 | 12,862 | 134,821 | |||||||||||
Cash payments |
(33,938 | ) | | (13,750 | ) | (8,755 | ) | (56,443 | ) | |||||||
Non-cash adjustments |
| (49,482 | ) | | (2,437 | ) | (51,919 | ) | ||||||||
Balance, December 31, 2010 |
24,789 | | | 1,670 | 26,459 | |||||||||||
Costs incurred and charged to expense |
14,548 | 3,455 | | 28,938 | 46,941 | |||||||||||
Cash payments |
(38,168 | ) | (2,033 | ) | | (15,381 | ) | (55,582 | ) | |||||||
Non-cash adjustments |
989 | (741 | ) | | (4,913 | ) | (4,665 | ) | ||||||||
Balance, December 31, 2011 |
2,158 | 681 | | 10,314 | 13,153 | |||||||||||
Costs incurred and charged to expense |
1,586 | | | 12,334 | 13,920 | |||||||||||
Cash payments |
(3,288 | ) | | | (22,572 | ) | (25,860 | ) | ||||||||
Non-cash adjustments |
442 | (681 | ) | | 378 | 139 | ||||||||||
Balance, March 31, 2012 |
898 | | | 454 | 1,352 | |||||||||||
Facility closure costs incurred in the first quarter of 2012 primarily included an incremental $10.2 million charge for the remaining operating lease obligations related to our vacated Mississauga, Ontario corporate office facility.
In addition to costs associated with our Merger-related initiatives, in the first quarter of 2012, we incurred an additional $48.4 million of other restructuring, integration-related and other costs, including $18.2 million of severance costs, and made payments of $41.4 million. These costs were primarily related to the acquisitions of Dermik, Ortho Dermatologics, Afexa Life Sciences Inc. ("Afexa"), iNova, AB Sanitas ("Sanitas") and PharmaSwiss S.A. ("PharmaSwiss"), the consolidation of our manufacturing facilities in Brazil, and worldwide systems integration initiatives.
SELECTED FINANCIAL INFORMATION
The following table provides selected financial information for the periods indicated:
|
Three Months Ended March 31 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | Change | ||||||||||
($ in 000s, except per share data)
|
$ | $ | $ | % | |||||||||
Revenues |
856,103 | 565,026 | 291,077 | 52 | |||||||||
Operating expenses |
794,607 | 490,283 | 304,324 | 62 | |||||||||
Net (loss) income |
(12,921 | ) | 6,482 | (19,403 | ) | NM | |||||||
Basic and diluted (loss) earnings per share |
(0.04 | ) | 0.02 | (0.06 | ) | NM |
|
As of March 31 2012 |
As of December 31 2011 |
Change | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
$ | $ | $ | % | |||||||||
Total assets |
13,619,734 | 13,141,713 | 478,021 | 4 | |||||||||
Long-term debt, including current portion |
6,996,075 | 6,651,011 | 345,064 | 5 |
NM Not meaningful
49
Financial Performance
Changes in Revenues
Total revenues increased $291.1 million, or 52%, to $856.1 million in the first quarter of 2012, compared with $565.0 million in the first quarter of 2011, primarily due to:
Those factors were partially offset by:
The remaining increase in revenues is primarily due to growth from the existing business.
Changes in Earnings
Net loss was $12.9 million (basic and diluted loss per share of $0.04) in the first quarter of 2012, compared with net income of $6.5 million (basic and diluted earnings per share of $0.02) in the first quarter of 2011, reflecting the following factors:
Those factors were partially offset by:
50
partially offset by $2.7 million net gain realized on foreign currency forward contracts entered in connection with the acquisition of PharmaSwiss in the first quarter of 2011.
Cash Dividends
No dividends were declared or paid in the first quarters of 2012 and 2011. While our board of directors will review our dividend policy from time to time, we currently do not intend to pay dividends in the foreseeable future. In addition, the covenants contained in the Third Amended and Restated Credit and Guaranty Agreement include restrictions on the payment of dividends.
RESULTS OF OPERATIONS
Reportable Segments
As a result of the acquisition of iNova in December 2011, we operate in five new territories: Malaysia, Philippines, Singapore, Hong Kong and South Africa, with a distribution business in Thailand, Taiwan and some sub-Saharan Africa markets. iNova also distributes through partners in China, Korea and Japan. Consequently, our Chief Executive Officer ("CEO"), who is our Chief Operating Decision Maker ("CODM") has begun to manage the business differently, which has necessitated a realignment of the segment structure, effective in the first quarter of 2012. Pursuant to this change, we now have four reportable segments: (i) U.S. Dermatology, (ii) U.S. Neurology and Other, (iii) Canada and Australia and (iv) Emerging Markets. Accordingly, we have restated prior period segment information to conform to the current period presentation. The following is a brief description of our segments:
Revenues By Segment
The following table displays revenues by segment for the first quarters of 2012 and 2011, the percentage of each segment's revenues compared with total revenues in the respective period, and the dollar and percentage change in the dollar amount of each segment's revenues. Percentages may not add due to rounding.
|
Three Months Ended March 31 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | Change | ||||||||||||||||
($ in 000s)
|
$ | % | $ | % | $ | % | |||||||||||||
U.S. Dermatology |
292,217 | 34 | 154,191 | 27 | 138,026 | 90 | |||||||||||||
U.S. Neurology and Other |
187,708 | 22 | 208,115 | 37 | (20,407 | ) | (10 | ) | |||||||||||
Canada and Australia |
132,569 | 15 | 70,244 | 12 | 62,325 | 89 | |||||||||||||
Emerging Markets |
243,609 | 28 | 132,476 | 23 | 111,133 | 84 | |||||||||||||
Total revenues |
856,103 | 100 | 565,026 | 100 | 291,077 | 52 | |||||||||||||
NM Not meaningful
51
Total revenues increased $291.1 million, or 52%, to $856.1 million in the first quarter of 2012, compared with $565.0 million in the first quarter of 2011, mainly attributable to the effect of the following factors:
Those factors were partially offset by:
Those factors were partially offset by:
52
Those factors were partially offset by:
The remaining increase in revenues in the Emerging Markets segment is primarily due to growth from the existing business.
Segment Profit
Segment profit is based on operating income after the elimination of intercompany transactions. Certain costs, such as restructuring and acquisition-related costs and legal settlement and acquired IPR&D charges, are not included in the measure of segment profit, as management excludes these items in assessing segment financial performance. In addition, share-based compensation is not allocated to segments, since the amount of such expense depends on company-wide performance rather than the operating performance of any single segment.
The following table displays profit (loss) by segment for the first quarters of 2012 and 2011, the percentage of each segment's profit (loss) compared with corresponding segment revenues in the respective period, and the dollar and percentage change in the dollar amount of each segment's profit (loss). Percentages may not add due to rounding.
|
Three Months Ended March 31 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | Change | ||||||||||||||||
($ in 000s)
|
$ | % | $ | % | $ | % | |||||||||||||
U.S. Dermatology |
88,026 | 30 | 34,576 | 22 | 53,450 | 155 | |||||||||||||
U.S. Neurology and Other |
52,558 | 28 | 99,741 | 48 | (47,183 | ) | (47 | ) | |||||||||||
Canada and Australia |
14,917 | 11 | 20,922 | 30 | (6,005 | ) | (29 | ) | |||||||||||
Emerging Markets |
23,189 | 10 | (559 | ) | | 23,748 | NM | ||||||||||||
Total segment profit |
178,690 | 21 | 154,680 | 27 | 24,010 | 16 | |||||||||||||
NM Not meaningful
Total segment profit increased $24.0 million, or 16%, to $178.7 million in the first quarter of 2012, compared with $154.7 million in the first quarter of 2011, mainly attributable to the effect of the following factors:
53
Those factors were partially offset by:
Those factors were partially offset by:
Operating Expenses
The following table displays the dollar amount of each operating expense category for the first quarters of 2012 and 2011, the percentage of each category compared with total revenues in the respective period, and the dollar and percentage changes in the dollar amount of each category. Percentages may not add due to rounding.
|
Three Months Ended March 31 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | Change | ||||||||||||||||
($ in 000s)
|
$ | % | $ | % | $ | % | |||||||||||||
Cost of goods sold (exclusive of amortization of intangible assets shown separately below) |
238,814 | 28 | 169,287 | 30 | 69,527 | 41 | |||||||||||||
Cost of alliance and service revenues |
73,022 | 9 | 33,945 | 6 | 39,077 | 115 | |||||||||||||
Selling, general and administrative |
177,286 | 21 | 139,506 | 25 | 37,780 | 27 | |||||||||||||
Research and development |
22,006 | 3 | 13,670 | 2 | 8,336 | 61 | |||||||||||||
Amortization of intangible assets |
200,643 | 23 | 112,043 | 20 | 88,600 | 79 | |||||||||||||
Restructuring, integration and other costs |
62,337 | 7 | 17,539 | 3 | 44,798 | NM | |||||||||||||
Acquired IPR&D |
| | 2,000 | | (2,000 | ) | (100 | ) | |||||||||||
Acquisition-related costs |
7,505 | 1 | 1,507 | | 5,998 | NM | |||||||||||||
Legal settlements |
3,155 | | 400 | | 2,755 | NM | |||||||||||||
Acquisition-related contingent consideration |
9,839 | 1 | 386 | | 9,453 | NM | |||||||||||||
Total operating expenses |
794,607 | 93 | 490,283 | 87 | 304,324 | 62 | |||||||||||||
NM Not meaningful
54
Cost of Goods Sold
Cost of goods sold, which excludes the amortization of intangible assets described separately below under " Amortization of Intangible Assets", increased $69.5 million, or 41%, to $238.8 million in the first quarter of 2012, compared with $169.3 million in the first quarter of 2011. The percentage increase in cost of goods sold in the first quarter of 2012 was lower than the corresponding 54% increase in product sales, primarily due to:
That factor was partially offset by:
Cost of Alliance and Service Revenues
Cost of alliance and service revenues increased $39.1 million, or 115%, to $73.0 million in the first quarter of 2012, compared with $33.9 million in the first quarter of 2011, primarily due to the inclusion of the carrying amounts of the IDP-111 and 5-FU intangible assets of $69.2 million, in the aggregate, which were expensed on the sale of these products in the first quarter of 2012, partially offset by $30.7 million carrying amount of the Cloderm® intangible asset, which was expensed on the out-license of the product rights in the first quarter of 2011.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $37.8 million, or 27%, to $177.3 million in the first quarter of 2012, compared with $139.5 million in the first quarter of 2011, primarily due to the addition of selling, general and administrative expenses relating to iNova, PharmaSwiss, Dermik, Elidel®/Xerese®, Sanitas, Ortho Dermatologics, Probiotica and Afexa of $47.7 million, partially offset by a decrease of $10.2 million in share-based compensation expense charged to selling, general and administrative expenses in the first quarter of 2012 as a result of the impact of the stock option modification recognized in the first quarter of 2011. Refer to note 12 of notes to unaudited consolidated financial statements for further details.
Research and Development Expenses
Research and development expenses increased $8.3 million, or 61%, to $22.0 million in the first quarter of 2012, compared with $13.7 million in the first quarter of 2011, reflecting spending on retigabine, a Phase 4 study for Wellbutrin XL®, and the continued development of the IDP-107 program (an investigational oral treatment for moderate to severe acne vulgaris) and the IDP-108 program (an antifungal targeted to treat onychomycosis, a fungal infection of the fingernails and toenails primarily in older adults).
Amortization of Intangible Assets
Amortization expense increased $88.6 million, or 79%, to $200.6 million in the first quarter of 2012, compared with $112.0 million in the first quarter of 2011, primarily due to (i) amortization of ezogabine/retigabine of $28.6 million, which was reclassified from IPR&D to a finite-lived intangible asset in December 2011, and (ii) the amortization of the iNova, Elidel®/Xerese®, Dermik, Ortho Dermatologics, Sanitas and PharmaSwiss identifiable intangible assets of $64.8 million in the first quarter of 2012. As part of our ongoing assessment of potential impairment indicators related to our intangible assets, we will closely monitor the performance of our product portfolio, including ezogabine/retigabine which is marketed under a collaboration agreement with GSK. If our assessment reveals indications of impairment to our assets, we may determine that a non-cash impairment charge is necessary and such charge could be material.
55
Restructuring, Integration and Other Costs
As described above under "Merger-Related Cost-Rationalization and Integration Initiatives", we recognized restructuring, integration and other costs of $62.3 million and $17.5 million in the first quarters of 2012 and 2011, respectively.
Acquired IPR&D
In the first quarter of 2011, we recorded a charge of $2.0 million related to the acquisition of the Canadian rights to Lodalis, which was accounted for as a purchase of IPR&D assets with no alternative future use.
Acquisition-Related Costs
Acquisition-related costs increased $6.0 million to $7.5 million in the first quarter of 2012 as compared with $1.5 million in the first quarter of 2011, reflecting increased acquisition activity during the quarter, as described above under "Business Development".
Legal Settlements
Legal settlements costs increased $2.8 million to $3.2 million in the first quarter of 2012 as compared with $0.4 million in the first quarter of 2011, primarily due to a settlement of patent-related litigation.
Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration increased $9.5 million to $9.8 million in the first quarter of 2012 as compared with $0.4 million in the first quarter of 2011, primarily driven by the changes in the fair value of acquisition-related contingent consideration of $6.9 million related to the Elidel®/Xerese® license agreement entered into in June 2011 and $2.2 million related to the iNova acquisition.
Non-Operating Income (Expense)
The following table displays the dollar amounts of each non-operating income or expense category in the first quarters of 2012 and 2011 and the dollar and percentage changes in the dollar amount of each category.
|
Three Months Ended March 31 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | Change | ||||||||||
($ in 000s; Income (Expense))
|
$ | $ | $ | % | |||||||||
Interest income |
1,123 | 803 | 320 | 40 | |||||||||
Interest expense |
(102,025 | ) | (68,751 | ) | (33,274 | ) | 48 | ||||||
Loss on extinguishment of debt |
(133 | ) | (8,262 | ) | 8,129 | (98 | ) | ||||||
Foreign exchange and other |
24,299 | 2,807 | 21,492 | NM | |||||||||
Gain on investments, net |
2,059 | 1,769 | 290 | 16 | |||||||||
Total non-operating expense |
(74,677 | ) | (71,634 | ) | (3,043 | ) | 4 | ||||||
NM Not meaningful
56
Interest Expense
Interest expense increased $33.3 million, or 48%, to $102.0 million in the first quarter of 2012, compared with $68.8 million in the first quarter of 2011, primarily reflecting interest expense of $26.3 million related to the borrowings under our senior secured credit facilities and incremental interest expense of $22.7 related to our senior notes, partially offset by a decrease of $10.0 million due to the repayment of our previous term loan A facility in the first quarter of 2011 and a decrease of $4.2 million in interest expense related to the repurchases of 5.375% senior convertible notes due 2014 (the "5.375% Convertible Notes") (as described below under "Financial Condition, Liquidity and Capital Resources Financial Assets (Liabilities)"). Interest expense in the first quarters of 2012 and 2011 included the non-cash amortization of debt discounts and deferred financing costs of $5.7 million and $3.9 million, respectively, in the aggregate.
Loss on Extinguishment of Debt
In the first quarter of 2011, we recognized a loss of $8.3 million on the repurchase of $52.3 million aggregate principal amount of the 5.375% Convertible Notes (as described below under "Financial Condition, Liquidity and Capital Resources Securities Repurchase Program").
Foreign Exchange and Other
Foreign exchange and other increased $21.5 million to $24.3 million in the first quarter of 2012, compared with $2.8 million in the first quarter of 2011, primarily due to a $29.0 million gain related to an intercompany loan that was not designated as permanent in nature, and therefore the impact of changes in foreign currency exchange rates was recognized in our consolidated statements of (loss) income. $25.4 million of this gain was realized on an intercompany loan as of March 31, 2012. This was partially offset by $2.7 million net gain realized on foreign currency forward contracts entered in connection with the acquisition of PharmaSwiss in the first quarter of 2011.
Income Taxes
The following table displays the dollar amounts of the current and deferred provisions for income taxes in the first quarters of 2012 and 2011 and the dollar and percentage changes in the dollar amount of each provision. Percentages may not add due to rounding.
|
Three Months Ended March 31 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | Change | ||||||||||
($ in 000s; Income (Expense))
|
$ | $ | $ | % | |||||||||
Current income tax expense |
(14,600 | ) | (16,400 | ) | 1,800 | (11 | ) | ||||||
Deferred income tax benefit |
14,860 | 19,773 | (4,913 | ) | (25 | ) | |||||||
Total recovery of income taxes |
260 | 3,373 | (3,113 | ) | (92 | ) | |||||||
In the first quarter of 2012, we recognized a recovery of income taxes of $0.3 million, which comprised $2.0 million related to the expected tax benefit in tax jurisdictions outside of Canada offset with a tax expense of $1.7 million related to Canadian income taxes. In the first quarter of 2012, our effective tax rate was primarily impacted by (i) the tax benefit of current U.S. losses, (ii) the increase in liabilities for uncertain tax positions, (iii) an adjustment of the valuation allowance specific to acquired Canadian net deferred tax liabilities, and (iv) withholding tax outside of Canada.
57
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Selected Measures of Financial Condition
The following table displays a summary of our financial condition as of March 31, 2012 and December 31, 2011:
|
As of March 31 2012 |
As of December 31 2011 |
Change | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
($ in 000s; Asset (Liability))
|
$ | $ | $ | % | |||||||||
Cash and cash equivalents |
330,479 | 164,111 | 166,368 | 101 | |||||||||
Long-lived assets(1) |
11,965,603 | 11,670,826 | 294,777 | 3 | |||||||||
Long-term debt, including current portion |
(6,996,075 | ) | (6,651,011 | ) | (345,064 | ) | 5 | ||||||
Shareholders' equity |
4,076,435 | 4,007,016 | 69,419 | 2 |
Cash and Cash Equivalents
Cash and cash equivalents increased $166.4 million, or 101%, to $330.5 million as of March 31, 2012, compared with $164.1 million at December 31, 2011, which primarily reflected the following sources of cash:
Those factors were partially offset by the following uses of cash:
Long-Lived Assets
Long-lived assets increased $294.8 million, or 3%, to $11,965.6 million as of March 31, 2012, compared with $11,670.8 million at December 31, 2011, primarily due to:
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Those factors were partially offset by:
Long-Term Debt
Long-term debt (including the current portion) increased $345.1 million, or 5%, to $6,996.1 million as of March 31, 2012, compared with $6,651.0 million at December 31, 2011, primarily due to:
Those factors were partially offset by:
Shareholders' Equity
Shareholders' equity increased $69.4 million, or 2%, to $4,076.4 million as of March 31, 2012, compared with $4,007.0 million at December 31, 2011, primarily due to:
Those factors were partially offset by:
Cash Flows
Our primary sources of cash include: the cash generated from operations; the issuance of long-term debt and borrowings under our senior secured credit facilities; and proceeds from the sale of non-core assets. Our primary uses of cash include: business development transactions; interest and principal payments; securities repurchases; restructuring activities; salaries and benefits; inventory purchases; research and development
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spending; sales and marketing activities; capital expenditures; legal costs; litigation and regulatory settlements. The following table displays cash flow information for the first quarters of 2012 and 2011:
|
Three Months Ended March 31 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | Change | ||||||||||
($ in 000s)
|
$ | $ | $ | % | |||||||||
Net cash provided by operating activities |
167,230 | 86,330 | 80,900 | 94 | |||||||||
Net cash used in investing activities |
(218,379 | ) | (825,334 | ) | 606,955 | (74 | ) | ||||||
Net cash provided by financing activities |
210,438 | 742,767 | (532,329 | ) | (72 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents |
7,079 | 3,720 | 3,359 | 90 | |||||||||
Net increase in cash and cash equivalents |
166,368 | 7,483 | 158,885 | NM | |||||||||
Cash and cash equivalents, beginning of period |
164,111 | 394,269 | (230,158 | ) | (58 | ) | |||||||
Cash and cash equivalents, end of period |
330,479 | 401,752 | (71,273 | ) | (18 | ) | |||||||
NM Not meaningful
Operating Activities
Net cash provided by operating activities increased $80.9 million, or 94%, to $167.2 million in the first quarter of 2012, compared with $86.3 million in the first quarter of 2011, primarily due to:
Those factors were partially offset by:
Investing Activities
Net cash used in investing activities decreased $607.0 million, or 74%, to $218.4 million in the first quarter of 2012, compared with $825.3 million in the first quarter of 2011, primarily due to:
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Financing Activities
Net cash provided by financing activities decreased $532.3 million, or 72%, to $210.4 million in the first quarter of 2012, compared with $742.8 million in the first quarter of 2011, primarily due to:
Those factors were partially offset by:
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Financial Assets (Liabilities)
The following table displays our net financial liability position as of March 31, 2012 and December 31, 2011:
|
|
As of March 31 2012 |
As of December 31 2011 |
|
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Change | |||||||||||||||
|
Maturity Date |
||||||||||||||||
($ in 000s; Asset (Liability))
|
$ | $ | $ | % | |||||||||||||
Financial assets: |
|||||||||||||||||
Cash and cash equivalents |
330,479 | 164,111 | 166,368 | 101 | |||||||||||||
Marketable securities |
1,049 | 6,338 | (5,289 | ) | (83 | ) | |||||||||||
Total financial assets |
331,528 | 170,449 | 161,079 | 95 | |||||||||||||
Financial liabilities: |
|||||||||||||||||
Brazil Uncommitted Line of Credit |
August 2012 | (7,364 | ) | | (7,364 | ) | NM | ||||||||||
Revolving Credit Facility |
April 2016 | | (220,000 | ) | 220,000 | (100 | ) | ||||||||||
Term Loan A Facility |
April 2016 | (2,159,993 | ) | (2,185,520 | ) | 25,527 | (1 | ) | |||||||||
Term Loan B Facility |
February 2019 | (590,815 | ) | | (590,815 | ) | NM | ||||||||||
Senior Notes: |
|||||||||||||||||
6.50% |
July 2016 | (915,500 | ) | (915,500 | ) | | NM | ||||||||||
6.75% |
October 2017 | (498,038 | ) | (497,949 | ) | (89 | ) | NM | |||||||||
6.875% |
December 2018 | (938,601 | ) | (938,376 | ) | (225 | ) | NM | |||||||||
7.00% |
October 2020 | (686,336 | ) | (686,228 | ) | (108 | ) | NM | |||||||||
6.75% |
August 2021 | (650,000 | ) | (650,000 | ) | | NM | ||||||||||
7.25% |
July 2022 | (540,654 | ) | (540,427 | ) | (227 | ) | NM | |||||||||
5.375% Convertible Notes |
August 2014 | (16,138 | ) | (17,011 | ) | 873 | (5 | ) | |||||||||
Total financial liabilities |
(7,003,439 | ) | (6,651,011 | ) | (352,428 | ) | 5 | ||||||||||
Net financial liabilities |
(6,671,911 | ) | (6,480,562 | ) | (191,349 | ) | 3 | ||||||||||
NM Not meaningful
On February 29, 2012, our subsidiary in Brazil entered into an uncommitted unsecured line of credit with a financial institution with total availability of R$16.0 million ($8.8 million at March 31, 2012). This uncommitted unsecured line of credit expires on August 27, 2012 and bears an interest rate of the Interbank Deposit Certificate Rate plus 0.23% per month. As of March 31, 2012, we had $7.4 million of borrowings under this line of credit, with $1.4 million of remaining availability.
On February 13, 2012, we and certain of our subsidiaries as guarantors entered into the Third Amended and Restated Credit and Guaranty Agreement (the "Credit Agreement") with a syndicate of financial institutions and investors. The Credit Agreement provides for a $275 million revolving credit facility, including a sublimit for the issuance of standby and commercial letters of credit and a sublimit for swing line loans (the "Revolving Credit Facility"), a $2.225 billion senior secured term loan A facility (the "Term Loan A Facility"), which includes a $500 million delayed draw term loan facility (the "Delayed Draw Facility"), and $500 million of incremental term loans (the "Incremental Term Loans"), and a $600 million senior secured tranche B term loan facility (the "Term Loan B Facility" and, together with the Revolving Credit Facility and the Term Loan A Facility, the "Senior Secured Credit Facilities"). The Revolving Credit Facility matures on April 20, 2016 and does not amortize. The Term Loan A Facility matures on April 20, 2016 and began amortizing quarterly on March 31, 2012 at an initial annual rate of 5.0%. The amortization schedule under the Term Loan A Facility will increase to 10.0% annually commencing March 31, 2013 and 20% annually commencing March 31, 2014, payable in quarterly installments. The Term Loan B Facility matures on February 13, 2019 and amortizes quarterly commencing June 30, 2012 at an annual rate of 1.0%. As of March 31, 2012, $2,160.0 million in term loans was outstanding under the Term Loan A Facility, $590.8 million in term loans was outstanding under the Term Loan B Facility and we had no outstanding borrowings under the Revolving Credit Facility.
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The senior notes issued by 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 its other senior notes. Certain of the future subsidiaries of Valeant and the Company may be required to guarantee the senior notes. The non-guarantor subsidiaries had total assets of $3,455.7 million and total liabilities of $980.3 million as of March 31, 2012, and net revenues of $180.9 million and earnings from operations of $6.4 million for the three-month period ended March 31, 2012.
Our primary sources of liquidity are our cash flows from operations and issuances of long-term debt securities. We believe that existing cash and cash generated from operations and funds available under the Senior Secured Credit Facilities will be sufficient to meet our current liquidity needs. We have no material commitments for expenditures related to property, plant and equipment. Since part of our business strategy is to expand through strategic acquisitions, we may be required to seek additional debt financing, issue additional equity securities or sell assets, as necessary, to finance future acquisitions or for other general corporate purposes. In January 2012, Moody's Investor Services ("Moody's") downgraded our senior secured debt rating from Baa3 to Ba1. At the same time, Moody's reaffirmed our Corporate Family rating (Ba3) and our senior unsecured debt rating (B1). Increased debt levels could result in further ratings pressure. A further downgrade may increase our cost of borrowing and may negatively impact our ability to raise additional debt capital.
As of March 31, 2012, we were in compliance with all of our covenants related to our outstanding debt. Our short-term debt maturities consist of $145.1 million, in the aggregate, in term loans outstanding under the Term A Facility and Term Loan B Facility, due in quarterly installments, and borrowings of $7.4 million under our uncommitted unsecured line of credit. We believe our existing cash and cash generated from operations will be sufficient to cover these short-term debt maturities as they become due.
Securities Repurchase Program
On November 4, 2010, we announced that the board of directors had approved a securities repurchase program, pursuant to which we where able to make purchases of our common shares, convertible notes and/or senior notes, from time to time, up to an aggregate maximum value of $1.5 billion, subject to any restrictions in our financing agreements and applicable law. On August 29, 2011, we announced that the board of directors had approved an increase of $300.0 million under our securities repurchase program (the "Securities Repurchase Program"). As a result, under the Securities Repurchase Program, we were able to repurchase up to $1.8 billion of our convertible notes, senior notes, common shares and/or other notes or shares that may be issued prior to the completion of the program. The Securities Repurchase Program terminated on November 7, 2011.
In the three-month period ended March 31, 2011, under the Securities Repurchase Program, we repurchased $52.3 million aggregate principal amount of the 5.375% Convertible Notes for an aggregate purchase price of $141.5 million.
In March 2011, under the Securities Repurchase Program, we repurchased 7,366,419 of our common shares from ValueAct Capital Master Fund, L.P. ("ValueAct") for an aggregate purchase price of $274.8 million, negotiated at a 5.77% discount over a 20-day trading average. As of March 31, 2012, we had recorded an estimated $24.2 million receivable from ValueAct in relation to withholding taxes on the repurchase. G. Mason Morfit is a partner and a member of the Management Committee of ValueAct Capital. Mr. Morfit joined the Company's board of directors on September 28, 2010, effective with the Merger, and prior thereto served as a member of Valeant's board of directors since 2007. ValueAct Capital is the general partner and the manager of ValueAct.
New Securities Repurchase Program
On November 3, 2011, we announced that our board of directors had approved a new securities repurchase program (the "New Securities Repurchase Program"). Under the New Securities Repurchase Program, which commenced on November 8, 2011, we may make purchases of up to $1.5 billion of our convertible notes, senior notes, common shares and/or other future debt or shares, subject to any restrictions in our financing agreements and applicable law. The New Securities Repurchase Program will terminate on November 7, 2012 or at such time as we complete our purchases. The amount of securities to be purchased and the timing of purchases under the New Securities Repurchase Program may be subject to various factors, which may include the price of the
63
securities, general market conditions, corporate and regulatory requirements, alternate investment opportunities and restrictions under our financing agreements and applicable law. The securities to be repurchased will be funded using our cash resources.
In the three-month period ended March 31, 2012, under the New Securities Repurchase Program, we repurchased $1.1 million principal amount of the 5.375% Convertible Notes for an aggregate purchase price of $4.0 million.
In the three-month period ended March 31, 2012, under the New Securities Repurchase Program, we also repurchased 2,004,952 of our common shares for an aggregate purchase price of $108.7 million. These common shares were subsequently cancelled.
Since the commencement of the New Securities Repurchase Program through May 1, 2012, we have repurchased an additional $322.3 million, in the aggregate, of our convertible notes, senior notes and common shares.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material future effect on our results of operations, financial condition, capital expenditures, liquidity, or capital resources.
The following table summarizes contractual obligations related to short-term borrowings and long-term debt, including interest as of March 31, 2012:
|
Payments Due by Period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total | 2012 | 2013 and 2014 |
2015 and 2016 |
Thereafter | |||||||||||
($ in 000s)
|
$ | $ | $ | $ | $ | |||||||||||
Short-term borrowings and long-term debt obligations, including interest(1) |
9,650,915 | 386,219 | 1,448,033 | 3,049,510 | 4,767,153 | |||||||||||
There have been no other material changes outside the normal course of business to the items specified in the contractual obligations table and related disclosures under the heading "Off-Balance Sheet Arrangements and Contractual Obligations" in the annual MD&A contained in the 2011 Form 10-K.
OUTSTANDING SHARE DATA
Our common shares are listed on the TSX and the NYSE under the ticker symbol "VRX".
As of May 1, 2012, we had 305,942,855 issued and outstanding common shares, which includes 1,809,174 common shares issuable in connection with the Merger. In addition, we had 10,192,787 stock options and 1,714,375 time-based RSUs that each represent the right of a holder to receive one of the Company's common shares, and 1,675,962 performance-based RSUs that represent the right of a holder to receive up to 400% of the RSUs granted. A maximum of 4,017,968 common shares could be issued upon vesting of the performance-based RSUs outstanding.
Assuming full share settlement, 1,226,271 common shares are issuable upon the conversion of the 5.375% Convertible Notes (based on a current conversion rate of 69.6943 common shares per $1,000 principal amount of notes, subject to adjustment).
64
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 judgment due to the need to select policies from among alternatives available, and to make estimates about matters that are inherently uncertain. There have been no material changes to our critical accounting policies and estimates disclosed under the heading "Critical Accounting Policies and Estimates" in the annual MD&A contained in the 2011 Form 10-K.
NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards
Information regarding the adoption of new accounting standards is contained in note 2 to the unaudited consolidated financial statements.
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 MD&A 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: the expected benefits of our acquisitions (including the Merger) and other transactions, such as cost savings, operating synergies and growth potential of the Company; business plans and prospects, prospective products or product approvals, future performance or results of current and anticipated products; the impact of healthcare reform; exposure to foreign currency exchange rate changes and interest rate changes; the outcome of contingencies, such as certain litigation 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", "target", "potential" and other similar expressions. In addition, any statements that refer to expectations, 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-Q that contain forward-looking statements are qualified by these cautionary statements. 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:
65
Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found elsewhere in this MD&A, as well as under Item 1A. "Risk Factors" of the
66
Company's Annual Report on Form 10-K for the year ended December 31, 2011, and in the Company's other filings with the SEC and CSA. We caution that the foregoing list of important factors that may affect future results is not exhaustive. 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 any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect actual outcomes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our exposures to market risks as disclosed under the heading "Quantitative and Qualitative Disclosures About Market Risks" in the annual MD&A contained in the 2011 Form 10-K.
Interest Rate Risk
As of March 31, 2012, we had $4,267.7 million and $2,804.6 million principal amount of issued fixed rate debt and variable rate debt, respectively, that requires U.S. dollar repayment. The estimated fair value of our issued fixed rate debt as of March 31, 2012 was $4,336.6 million. If interest rates were to increase or decrease by 100 basis-points the fair value of our long-term debt would increase or decrease by approximately $221.3 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 would have an annualized pre-tax effect of approximately $25.0 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. While our variable-rate debt may impact earnings and cash flows as interest rates change, it is not subject to changes in fair value.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our CEO and Chief Financial Officer ("CFO"), has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2012. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2012.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the three-month period ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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For information concerning legal proceedings, reference is made to note 17 to the unaudited consolidated financial statements included under Part I, Item 1, of this Quarterly Report on Form 10-Q.
There have been no material changes to the risk factors disclosed in Part I, Item 1A. of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 3, 2011, the Company announced that its board of directors had approved a new securities repurchase program (the "New Securities Repurchase Program"). Under the New Securities Repurchase Program, which commenced on November 8, 2011, the Company may make purchases of up to $1.5 billion of its convertible notes, senior notes, common shares and/or other future debt or shares, subject to any restrictions in our financing agreements and applicable law. The New Securities Repurchase Program will terminate on November 7, 2012 or at such time as the Company completes its purchases.
Set forth below is information regarding securities repurchased under the New Securities Repurchase Program in the three-month period ended March 31, 2012:
Period
|
Total Number of Shares (or Units) Purchased |
Average Price Paid Per Share (or Unit) |
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plan |
Approximate Dollar Value of Shares (or Units) That May Yet Be Purchased Under the Plan |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
(In thousands) |
|||||||||
January 2012 |
| $ | | | $ | 1,342,227 | |||||||
January 2012 |
1,113 | (1) | $ | 3,595.00 | 1,113 | (1) | $ | 1,338,226 | |||||
February 2012 |
| $ | | | $ | 1,338,226 | |||||||
March 2012 |
14,085 | (2) | $ | 51.80 | 14,085 | (2) | $ | 1,337,496 | |||||
March 2012 |
400,000 | (2) | $ | 54.05 | 400,000 | (2) | $ | 1,315,874 | |||||
March 2012 |
471,000 | (2) | $ | 53.57 | 471,000 | (2) | $ | 1,290,642 | |||||
March 2012 |
394,220 | (2) | $ | 54.35 | 394,220 | (2) | $ | 1,269,217 | |||||
March 2012 |
218,347 | (2) | $ | 55.00 | 218,347 | (2) | $ | 1,257,208 | |||||
March 2012 |
507,300 | (2) | $ | 54.58 | 507,300 | (2) | $ | 1,229,522 |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
None.
3.1 | Certificate and Articles of Amalgamation of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed on January 5, 2012, which is incorporated by reference herein. |
68
4.1 | Fourth Supplemental Indenture, dated as of February 13, 2012, by and among Valeant, Valeant Holdco 2 Pty Ltd., (ACN 154 341 367), Wirra Holdings Pty Limited, (ACN 122 216 577), Wirra Operations Pty Limited, (ACN 122 250 088), iNova Pharmaceuticals (Australia) Pty Ltd., (ACN 000 222 408), iNova Sub Pty Ltd., (ACN 134 398 815), Wirra IP Pty Ltd., (ACN 122 536 350), and The Bank of New York Mellon Trust Company, N.A., as trustee, to Indenture, dated as of September 28, 2010, among Valeant, the Company, The Bank of New York Mellon Trust Company, N.A., as trustee, and the guarantors listed therein, originally filed as Exhibit 10.6 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein. | |
4.2 |
Third Supplemental Indenture, dated as of February 13, 2012, by and among Valeant, Valeant Holdco 2 Pty Ltd., (ACN 154 341 367), Wirra Holdings Pty Limited, (ACN 122 216 577), Wirra Operations Pty Limited, (ACN 122 250 088), iNova Pharmaceuticals (Australia) Pty Ltd., (ACN 000 222 408), iNova Sub Pty Ltd., (ACN 134 398 815), Wirra IP Pty Ltd., (ACN 122 536 350), and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Indenture, dated as of November 23, 2010, by and among Valeant, the Company, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee, originally filed as Exhibit 10.5 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein. |
|
4.3 |
Second Supplemental Indenture, dated as of February 13, 2012, by and among Valeant, Valeant Holdco 2 Pty Ltd., (ACN 154 341 367), Wirra Holdings Pty Limited, (ACN 122 216 577), Wirra Operations Pty Limited, (ACN 122 250 088), iNova Pharmaceuticals (Australia) Pty Ltd., (ACN 000 222 408), iNova Sub Pty Ltd., (ACN 134 398 815), Wirra IP Pty Ltd., (ACN 122 536 350), and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Indenture, dated as of February 8, 2011, by and among Valeant, the Company, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee, originally filed as Exhibit 10.4 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein. |
|
4.4 |
Second Supplemental Indenture, dated as of February 13, 2012, by and among Valeant, Valeant Holdco 2 Pty Ltd., (ACN 154 341 367), Wirra Holdings Pty Limited, (ACN 122 216 577), Wirra Operations Pty Limited, (ACN 122 250 088), iNova Pharmaceuticals (Australia) Pty Ltd., (ACN 000 222 408), iNova Sub Pty Ltd., (ACN 134 398 815), Wirra IP Pty Ltd., (ACN 122 536 350), and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Indenture, dated as of March 8, 2011, by and among Valeant, the Company, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee, originally filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein. |
|
10.1 |
Third Amended and Restated Credit and Guaranty Agreement, dated as of February 13, 2012, among the Company, certain subsidiaries of the Company 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, 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. |
|
10.2 |
Amendment No. 1, dated as of February 13, 2012, to the Second Amended and Restated Credit and Guaranty Agreement, dated as of October 20, 2011, among the Company, certain subsidiaries of the Company, 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, 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. |
|
31.1* |
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. |
69
31.2* | 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. | |
32.1* |
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. |
|
32.2* |
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. |
|
101.INS |
XBRL Instance Document |
|
101.SCH |
XBRL Taxonomy Extension Schema |
|
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase |
|
101.LAB |
XBRL Taxonomy Extension Label Linkbase |
|
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase |
|
101.DEF |
XBRL Taxonomy Extension Definition Linkbase |
70
Pursuant to the requirements 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: May 4, 2012 |
/s/ J. MICHAEL PEARSON J. Michael Pearson Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
|
Date: May 4, 2012 |
/s/ HOWARD B. SCHILLER Howard B. Schiller Executive Vice-President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
71
Exhibit Number |
Exhibit Description | |
---|---|---|
3.1 | Certificate and Articles of Amalgamation of Valeant Pharmaceuticals International, Inc., originally filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed on January 5, 2012, which is incorporated by reference herein. | |
4.1 |
Fourth Supplemental Indenture, dated as of February 13, 2012, by and among Valeant, Valeant Holdco 2 Pty Ltd., (ACN 154 341 367), Wirra Holdings Pty Limited, (ACN 122 216 577), Wirra Operations Pty Limited, (ACN 122 250 088), iNova Pharmaceuticals (Australia) Pty Ltd., (ACN 000 222 408), iNova Sub Pty Ltd., (ACN 134 398 815), Wirra IP Pty Ltd., (ACN 122 536 350), and The Bank of New York Mellon Trust Company, N.A., as trustee, to Indenture, dated as of September 28, 2010, among Valeant, the Company, The Bank of New York Mellon Trust Company, N.A., as trustee, and the guarantors listed therein, originally filed as Exhibit 10.6 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein. |
|
4.2 |
Third Supplemental Indenture, dated as of February 13, 2012, by and among Valeant, Valeant Holdco 2 Pty Ltd., (ACN 154 341 367), Wirra Holdings Pty Limited, (ACN 122 216 577), Wirra Operations Pty Limited, (ACN 122 250 088), iNova Pharmaceuticals (Australia) Pty Ltd., (ACN 000 222 408), iNova Sub Pty Ltd., (ACN 134 398 815), Wirra IP Pty Ltd., (ACN 122 536 350), and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Indenture, dated as of November 23, 2010, by and among Valeant, the Company, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee, originally filed as Exhibit 10.5 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein. |
|
4.3 |
Second Supplemental Indenture, dated as of February 13, 2012, by and among Valeant, Valeant Holdco 2 Pty Ltd., (ACN 154 341 367), Wirra Holdings Pty Limited, (ACN 122 216 577), Wirra Operations Pty Limited, (ACN 122 250 088), iNova Pharmaceuticals (Australia) Pty Ltd., (ACN 000 222 408), iNova Sub Pty Ltd., (ACN 134 398 815), Wirra IP Pty Ltd., (ACN 122 536 350), and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Indenture, dated as of February 8, 2011, by and among Valeant, the Company, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee, originally filed as Exhibit 10.4 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein. |
|
4.4 |
Second Supplemental Indenture, dated as of February 13, 2012, by and among Valeant, Valeant Holdco 2 Pty Ltd., (ACN 154 341 367), Wirra Holdings Pty Limited, (ACN 122 216 577), Wirra Operations Pty Limited, (ACN 122 250 088), iNova Pharmaceuticals (Australia) Pty Ltd., (ACN 000 222 408), iNova Sub Pty Ltd., (ACN 134 398 815), Wirra IP Pty Ltd., (ACN 122 536 350), and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Indenture, dated as of March 8, 2011, by and among Valeant, the Company, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee, originally filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed on February 17, 2012, which is incorporated by reference herein. |
|
10.1 |
Third Amended and Restated Credit and Guaranty Agreement, dated as of February 13, 2012, among the Company, certain subsidiaries of the Company 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, 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. |
72
Exhibit Number |
Exhibit Description | |
---|---|---|
10.2 | Amendment No. 1, dated as of February 13, 2012, to the Second Amended and Restated Credit and Guaranty Agreement, dated as of October 20, 2011, among the Company, certain subsidiaries of the Company, 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, 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. | |
31.1* |
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. |
|
31.2* |
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. |
|
32.1* |
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. |
|
32.2* |
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. |
|
101.INS |
XBRL Instance Document |
|
101.SCH |
XBRL Taxonomy Extension Schema |
|
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase |
|
101.LAB |
XBRL Taxonomy Extension Label Linkbase |
|
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase |
|
101.DEF |
XBRL Taxonomy Extension Definition Linkbase |
73