3. BUSINESS COMBINATIONS

The Company focuses its business on core geographies and therapeutic classes through selective acquisitions, dispositions and strategic partnerships with other pharmaceutical companies.

(a) Business combinations in 2012 included the following:

Medicis

Description of the Transaction

On December 11, 2012, the Company acquired all of the outstanding common stock of Medicis Pharmaceutical Corporation (“Medicis”) for $44.00 per share (“Per Share Consideration”) for cash. Pursuant to the Agreement and Plan of Merger, dated September 2, 2012, among the Company, Valeant, Merlin Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Valeant (“Merger Sub”), and Medicis, on December 11, 2012, Merger Sub merged with and into Medicis, with Medicis continuing as the surviving entity and wholly owned subsidiary of Valeant. At the effective time of this merger, each share of Medicis Class A common stock, par value $0.014 per share, issued and outstanding immediately prior to such effective time was converted into the right to receive the Per Share Merger Consideration in cash, without interest. Each Medicis stock option and stock appreciation right, whether vested or unvested, that was outstanding immediately prior to the acquisition was cancelled and converted into the right to receive the excess, if any, of the Per Share Consideration over the exercise price of such stock option or stock appreciation right, as applicable. Each Medicis restricted share, whether vested or unvested, that was outstanding immediately prior to the acquisition was cancelled and converted into the right to receive the Per Share Consideration.

Medicis is a specialty pharmaceutical company that focuses primarily on the development and marketing in the U.S. and Canada of products for the treatment of dermatological and aesthetic conditions. Medicis offers a broad range of products addressing various conditions or aesthetics improvements, including acne, actinic keratosis, facial wrinkles, glabellar lines, fungal infections, hyperpigmentation, photoaging, psoriasis, bronchospasms, external genital and perianal warts/condyloma acuminate, seborrheic dermatitis and cosmesis (improvement in the texture and appearance of skin). Medicis’ primary brands are Solodyn®, Restylane®, Perlane®, Ziana®, Dysport® and Zyclara®.

Fair Value of Consideration Transferred

The following table indicates the consideration transferred to effect the acquisition of Medicis:

(Number of shares, stock options and restricted share units in thousands)	Conversion Calculation		Fair Value
Number of common shares of Medicis outstanding as of acquisition date	57,135
Multiplied by Per Share Consideration	$	44.00	$	2,513,946
Number of stock options of Medicis cancelled and exchanged for cash(a)	3,152		33,052
Number of outstanding restricted shares cancelled and exchanged for cash(a)	1,974		31,881
Total fair value of consideration transferred			$	2,578,879

(a) The cash consideration paid for Medicis stock options and restricted shares attributable to pre-combination services has been included as a component of purchase price. The remaining $77.3 million balance related to the acceleration of unvested stock options, restricted stock awards, and share appreciation rights for Medicis employees that was triggered by the change in control was recognized as a post-combination expense within Restructuring, integration and other costs in the fourth quarter of 2012.

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	$	169,583
Accounts receivable(a)	81,092
Inventories(b)	145,157
Short-term and long-term investments(c)	626,559
Income taxes receivable	40,416
Other current assets(d)	74,622
Property and equipment, net	8,239
Identifiable intangible assets, excluding acquired IPR&D(e)	1,390,724
Acquired IPR&D(f)	153,817
Other non-current assets	616
Current liabilities(g)	(453,909		)
Long-term debt, including current portion(h)	(777,985		)
Deferred income taxes, net	(205,009		)
Other non-current liabilities	(8,841		)
Total identifiable net assets	1,245,081
Goodwill(i)	1,333,798
Total fair value of consideration transferred	$	2,578,879

(a) Both the fair value and gross contractual amount of trade accounts receivable acquired were $81.1 million.

(b) Includes $109.3 million to record Medicis’s inventory at its estimated fair value.

(c) Short-term and long-term investments consist of corporate and various government agency and municipal debt securities and the investments in auction rate floating securities (student loans). Subsequent to the acquisition date, the Company liquidated the majority of the investments for proceeds of$615.4 million, with the investment in auction rate floating securities and the investment in equity securities outstanding as of December 31, 2012.

(d) Includes prepaid expenses and an asset related to a supplemental executive retirement program. The supplemental executive retirement program was settled as of December 31, 2012.

(e) The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)	Amounts Recognized as of Acquisition Date
In-licensed products	12	$	633,429
Product brands	10	491,627
Patents	5	224,985
Corporate brand	14	40,683
Total identifiable intangible assets acquired	10	$	1,390,724

(f) The significant components of the acquired IPR&D assets relate to the development of dermatology products, such as Luliconazole, a new imidazole, antimycotic cream for the treatment of tinea cruris, pedis and corporis, and Metronidazole 1.3%, a topical antibiotic for the treatment of bacterial vaginosis ($130.9 million, in the aggregate), and the development of several aesthetics programs ($22.9 million). A New Drug Application (“NDA”) for Luliconazole was submitted to the FDA on December 11, 2012. A multi-period excess earnings methodology (income approach) was used to determine the estimated fair values of the acquired IPR&D assets. The projected cash flows from these assets were adjusted for the probabilities of successful development and commercialization of each project. Risk-adjusted discount rates of 10% - 11% were used to present value the projected cash flows.

(g) Includes accounts payable, a liability for a supplemental executive retirement program, a liability for stock appreciation rights, deferred revenue, accrued liabilities, and reserves for sales returns, rebates, managed care and Medicaid. The supplemental executive retirement program was settled as of December 31, 2012.

(h) The following table summarizes the fair value of long-term debt assumed as of the acquisition date:

	Amounts Recognized as of Acquisition Date
1.375% Convertible Senior Notes(1)	$	546,668
2.50% Contingent Convertible Senior Notes(1)	231,111
1.50% Contingent Convertible Senior Notes(1)	206
Total long-term debt assumed	$	777,985

(1) During the period from the acquisition date to December 31, 2012, the Company redeemed a portion of the 1.375% Convertible Senior Notes, 2.50% Contingent Convertible Senior Notes and 1.50% Contingent Convertible Senior Notes. For further details, see note 14 titled “SHORT-TERM BORROWINGS AND LONG-TERM DEBT”.

(i) Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the provisional values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:

· cost savings, operating synergies and other benefits expected to result from combining the operations of Medicis with those of the Company;

· the value of the continuing operations of Medicis’ existing business (that is, the higher rate of return on the assembled net assets versus if the Company had acquired all of the net assets separately); and

· intangible assets that do not qualify for separate recognition (for instance, Medicis’ assembled workforce).

The provisional amount of goodwill has been allocated to the Company’s U.S. Dermatology segment.

Acquisition-Related Costs

The Company has incurred to date $55.4 million of transaction costs directly related to the Medicis acquisition, which includes $39.2 million of expenses incurred with respect to an agreement with Galderma S.A (“Galderma”) which, among other things, includes an upfront payment and royalties to be paid to Galderma on sales of Sculptra®. The agreement also resolved all claims asserted in Galderma’s pending litigation related to the Company’s acquisition of Medicis. Acquisition-related costs also include expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as acquisition-related costs.

Revenue and Net Loss of Medicis

The revenues of Medicis for the period from the acquisition date to December 31, 2012 were $51.2 million, and the net loss, net of tax, was $135.6 million. The net loss, net of tax, includes the effects of the acquisition accounting adjustments and acquisition-related costs.

OraPharma

Description of the Transaction

On June 18, 2012, the Company acquired OraPharma Topco Holdings, Inc. (“OraPharma”), a specialty oral health company located in the U.S. that develops and commercializes products that improve and maintain oral health. The Company made an up-front payment of $289.3 million, and the Company may pay a series of contingent consideration payments of up to $114.0 million based on certain milestones, including certain revenue targets. The fair value of the contingent consideration was determined to be $99.2 million as of the acquisition date, for a total fair value of consideration transferred of $388.5 million. As of December 31, 2012, the assumptions used for determining fair value of the contingent consideration have not changed significantly from those used at the acquisition date. The Company also repaid at the closing $37.9 million of assumed debt.

OraPharma’s lead product is Arestin®, a locally administered antibiotic for the treatment of periodontitis that utilizes an advanced controlled-release delivery system and is indicated for use in conjunction with scaling and root planing for the treatment of adult periodontitis.

Assets Acquired and Liabilities Assumed

	Amounts Recognized as of Acquisition Date (as previously reported)(a)			Measurement Period Adjustments(b)			Amounts Recognized as of December 31, 2012 (as adjusted)
Cash	$	14,119		$	—		$	14,119
Accounts receivable(c)	10,348			—			10,348
Inventories	3,222			(685		)	2,537
Other current assets	4,063			22			4,085
Property and equipment	8,181			—			8,181
Identifiable intangible assets, excluding acquired IPR&D(d)	466,408			(64,095		)	402,313
Acquired IPR&D(e)	15,464			13,151			28,615
Other non-current assets	1,862			—			1,862
Current liabilities	(9,675		)	(395		)	(10,070		)
Long-term debt, including current portion(f)	(37,868		)	—			(37,868		)
Deferred income taxes, net	(173,907		)	18,386			(155,521		)
Other non-current liabilities	(158		)	—			(158		)
Total identifiable net assets	302,059			(33,616		)	268,443
Goodwill(g)	86,802			33,255			120,057
Total fair value of consideration transferred	$	388,861		$	(361	)	$	388,500

(a) As previously reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.

(b) The measurement period adjustments primarily reflect: (i) changes in the estimated fair value of the Arestin® product brand; (ii) the reclassification of intangible assets from product brands to IPR&D; (iii) a decrease in the total fair value of consideration transferred due to a working capital adjustment; and (iv) the tax impact of pre-tax measurement period adjustments. The measurement period adjustments were made to reflect facts and circumstances existing as of the acquisition date, and did not result from intervening events subsequent to the acquisition date. These adjustments did not have a significant impact on the Company’s previously reported consolidated financial statements and, therefore, the Company has not retrospectively adjusted those financial statements.

(c) Both the fair value and gross contractual amount of trade accounts receivable acquired were $10.3 million, as the Company expects that the amount to be uncollectible is negligible.

(d) The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)	Amounts Recognized as of Acquisition Date (as previously reported)		Measurement Period Adjustments			Amounts Recognized as of December 31, 2012 (as adjusted)
Product brand	12	$	446,958	$	(62,450	)	$	384,508
Corporate brand	15	19,450		(1,645		)	17,805
Total identifiable intangible assets acquired	12	$	466,408	$	(64,095	)	$	402,313

(e) The IPR&D assets primarily relate to the development of Arestin® ER, which is indicated for oral hygiene use and Arestin® Peri-Implantitis, which is indicated for anti-inflammatory and anti-bacterial use.

(f) Effective June 18, 2012, the Company terminated the credit facility agreement, repaid the assumed debt outstanding and cancelled the undrawn credit facilities.

(g) Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the provisional values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:

· cost savings, operating synergies and other benefits expected to result from combining the operations of OraPharma with those of the Company;

· the value of the continuing operations of OraPharma’s existing business (that is, the higher rate of return on the assembled net assets versus if the Company had acquired all of the net assets separately); and

· intangible assets that do not qualify for separate recognition (for instance, OraPharma’s assembled workforce).

The provisional amount of goodwill has been allocated to the Company’s U.S. Dermatology segment.

Acquisition-Related Costs

The Company has incurred to date $3.5 million of transaction costs directly related to the OraPharma 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 OraPharma

The revenues of OraPharma for the period from the acquisition date to December 31, 2012 were $53.9 million, and the net loss, net of tax, was $3.7 million. The net loss, net of tax, includes the effects of the acquisition accounting adjustments and acquisition-related costs.

Other Business Combinations

Description of the Transactions

In the year ended December 31, 2012, the Company completed other business combinations, which included the following businesses, as well as other smaller acquisitions, for an aggregate purchase price of $809.2 million. The aggregate purchase price included contingent consideration obligations with an aggregate acquisition date fair value of $44.2 million.

· On October 2, 2012, the Company acquired certain assets from Johnson & Johnson Consumer Companies, Inc. (“J&J ROW”) for a purchase price of $41.9 million, relating to the rights in various ex-North American territories to the over-the-counter (“OTC”) consumer brands Caladryl® and Shower to Shower®.

· On September 28, 2012, the Company acquired certain assets from Johnson & Johnson Consumer Companies, Inc. (“J&J North America”) for a purchase price of $107.3 million, relating to the U.S. and Canadian rights to the OTC consumer brands Ambi®, Caladryl®, Corn Huskers®, Cortaid®, Purpose® and Shower to Shower®.

· On September 24, 2012, the Company acquired certain assets from QLT Inc. and QLT Ophthalmics, Inc. (collectively, “QLT”) relating to Visudyne®, which is used to treat abnormal growth of leaky blood vessels in the eye caused by wet age-related macular degeneration. The consideration paid included up-front payments of $62.5 million for the assets related to the rights to the product in the U.S. and $50.0 million for the assets related to the rights to the product outside the U.S. The Company may pay a series of contingent payments of up to $20.0 million relating to non-U.S. royalties and development milestones for QLT’s laser program in the U.S. In addition, the Company will pay royalties on sales of potential new indications for Visudyne® in the U.S. The fair value of the contingent consideration was determined to be $7.9 million as of the acquisition date. As of December 31, 2012, the assumptions used for determining fair value of the contingent consideration have not changed significantly from those used at the acquisition date.

· On May 23, 2012, the Company acquired certain assets from University Medical Pharmaceuticals Corp. (“University Medical”), a specialty pharmaceutical company located in the U.S. focused on skincare products, including the rights to University Medical’s main brand AcneFree™, a retail OTC acne treatment. The consideration includes up-front payments of $65.0 million, and the Company may pay a series of contingent consideration payments of up to $40.0 million if certain net sales milestones are achieved. The fair value of the contingent consideration was determined to be $1.5 million as of the acquisition date. As of December 31, 2012, the assumptions used for determining fair value of the contingent consideration have not changed significantly from those used at the acquisition date.

· On May 2, 2012, the Company acquired certain assets from Atlantis Pharma (“Atlantis”), a branded generics pharmaceutical company located in Mexico, for up-front payments of $65.5 million (MXN$847.3 million), and the Company placed an additional $8.9 million (MXN$114.7 million) into an escrow account. The amounts in escrow will be paid to the sellers only if certain regulatory milestones are achieved and therefore such amounts were treated as contingent consideration. The fair value of the contingent consideration was determined to be $7.6 million as of the acquisition date. As of December 31, 2012, the assumptions used for determining fair value of the contingent consideration have not changed significantly from those used at the acquisition date. Since the acquisition date, certain amounts have been released from escrow to the sellers, reducing the escrow balance to $8.2 million as of December 31, 2012. The escrow balance is treated as restricted cash and is included in Prepaid expenses and other current assets and Other long-term assets, net in the Company’s consolidated balance sheets. Atlantis has a broad product portfolio, including products in gastro, analgesics and anti-inflammatory therapeutic categories.

· On March 13, 2012, the Company acquired certain assets from Gerot Lannach, a branded generics pharmaceutical company based in Austria. The Company made an up-front 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 December 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.

· On February 1, 2012, the Company acquired Probiotica Laboratorios Ltda. (“Probiotica”), which markets OTC sports nutrition products and other food supplements in Brazil, for a purchase price of $90.5 million (R$158.0 million).

· During the year ended December 31, 2012, the Company completed other smaller acquisitions which are not material individually or in the aggregate. These acquisitions are included in the aggregated amounts presented below.

Assets Acquired and Liabilities Assumed

These transactions have been accounted for as business combinations under the acquisition method of accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed related to the other business combinations, in the aggregate, as of the acquisition dates. The following recognized amounts with respect to the J&J ROW and J&J North America, and certain other smaller acquisitions are provisional and subject to change:

· amounts for intangible assets, property, plant and equipment and inventories, pending finalization of the valuation;

· amounts for income tax assets and liabilities, pending finalization of estimates and assumptions in respect of certain tax aspects of the transaction; and

· amount of goodwill pending the completion of the valuation of the assets acquired and liabilities assumed.

The Company will finalize these amounts as it obtains the information necessary to complete the measurement processes. Any changes resulting from facts and circumstances that existed as of the acquisition dates may result in retrospective adjustments to the provisional amounts recognized at the acquisition dates. These changes could be significant. The Company will finalize these amounts no later than one year from the respective acquisition dates.

	Amounts Recognized as of Acquisition Dates			Measurement Period Adjustments(a)			Amounts Recognized as of December 31, 2012 (as adjusted)
Cash and cash equivalents	$	7,255		$	(258	)	$	6,997
Accounts receivable(b)	29,846			(17		)	29,829
Assets held for sale(c)	15,566			—			15,566
Inventories	64,819			(5,970		)	58,849
Other current assets	2,524			—			2,524
Property, plant and equipment	9,027			—			9,027
Identifiable intangible assets, excluding acquired IPR&D(d)	666,619			764			667,383
Acquired IPR&D	1,234			—			1,234
Indemnification assets(e)	27,901			—			27,901
Other non-current assets	21			—			21
Current liabilities	(32,146		)	(350		)	(32,496		)
Long-term debt	(920		)	—			(920		)
Liability for uncertain tax position	(6,682		)	6,682			—
Other non-current liabilities(e)	(28,523		)	—			(28,523		)
Deferred income taxes, net	(10,933		)	373			(10,560		)
Total identifiable net assets	745,608			1,224			746,832
Goodwill(f)	70,600			(8,271		)	62,329
Total fair value of consideration transferred	$	816,208		$	(7,047	)	$	809,161

(a) The measurement period adjustments primarily relate to the Probiotica acquisition and primarily reflect: (i) the elimination of the liability for uncertain tax positions; (ii) the changes in the estimated fair value of the corporate brand intangible asset; and (iii) a decrease in the total fair value of consideration transferred due to a working capital adjustment. The measurement period adjustments were made to reflect facts and circumstances existing as of the acquisition date, and did not result from intervening events subsequent to the acquisition date. These adjustments did not have a significant impact on the Company’s previously reported consolidated financial statements and, therefore, the Company has not retrospectively adjusted those financial statements.

(b) The fair value of trade accounts receivable acquired was $29.8 million, with the gross contractual amount being $31.1 million, of which the Company expects that $1.3 million will be uncollectible.

(c) Assets held for sale relate to a product brand acquired in the Atlantis acquisition. Subsequent to that acquisition, the plan of sale changed, and the Company no longer intends to sell the asset. Consequently, the product brand is not classified as an asset held for sale as of December 31, 2012.

(d) The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)	Amounts Recognized as of Acquisition Date (as previously reported)		Measurement Period Adjustments			Amounts Recognized as of December 31, 2012 (as adjusted)
Product brands	10	$	456,720	$	(2,088	)	$	454,632
Corporate brands	12	31,934		3,725			35,659
Product rights	10	109,274		(873		)	108,401
Royalty agreement	9	36,277		—			36,277
Partner relationships	5	32,414		—			32,414
Total identifiable intangible assets acquired	10	$	666,619	$	764		$	667,383

(e) Other non-current liabilities, and the corresponding indemnification assets, primarily relate to certain asserted and unasserted claims against Probiotica, which include potential tax-related obligations that existed at the acquisition date. The Company is indemnified by the sellers in accordance with indemnification provisions under its contractual arrangements. Indemnification assets and contingent liabilities were recorded at the same amount and classified in the same manner, as components of the purchase price, representing our best estimates of these amounts at the acquisition date, in accordance with guidance for loss contingencies and uncertain tax positions. Under the Company’s contractual arrangement with Probiotica, there is no limitation on the amount or value of indemnity claims that can be made by the Company; however there is a time restriction of either two or five years, depending on the nature of the claim. Approximately $12.9 million (R$22.5 million) of the purchase price for the Probiotica transaction from the date of acquisition has been placed in escrow in accordance with the indemnification provisions. The escrow account will be maintained for two years, with 50% being released to the sellers after the first year, and the remaining balance released after the second year. The Company expects the total amount of such indemnification assets to be collectible from the sellers.

(f) The goodwill relates primarily to the Probiotica acquisition. Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. The Company expects that the Probiotica’s goodwill will be deductible for tax purposes. The goodwill recorded from the J&J ROW, J&J North America, QLT, University Medical, Atlantis and Gerot Lannach acquisitions represents primarily the cost savings, operating synergies and other benefits expected to result from combining the operations with those of the Company. Probiotica’s goodwill recorded represents the following:

· the Company’s expectation to develop and market new product brands and product lines in the future;

· the value associated with the Company’s ability to develop relationships with new customers;

· the value of the continuing operations of Probiotica’s existing business (that is, the higher rate of return on the assembled net assets versus if the Company had acquired all of the net assets separately); and

· intangible assets that do not qualify for separate recognition (for instance, Probiotica’s assembled workforce).

The amount of the goodwill from the J&J North America, QLT and University Medical acquisitions has been allocated to the Company’s U.S. Dermatology segment. The amounts of goodwill from the J&J ROW, Probiotica, Atlantis and Gerot Lannach acquisitions, has been allocated to the Company’s Emerging Markets segment.

Acquisition-Related Costs

The Company has incurred to date $9.4 million, in the aggregate, of transaction costs directly related to the other business combinations, which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as acquisition-related costs.

Revenue and Net Loss of Other Business Combinations

The revenues of the other business combinations for the period from the respective acquisition dates to December 31, 2012 were $178.8 million, in the aggregate, and the net loss, net of tax, was $14.3 million, in the aggregate. The net loss, net of tax, includes the effects of the acquisition accounting adjustments and acquisition-related costs.

(b) Business combinations in 2011 included the following:

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, for a total fair value of consideration transferred of $701.2 million. For the year ended December 31, 2012, the Company recognized a net gain of $10.3 million primarily due to changes in the estimated probability of achieving the milestones. The net gain was recognized as Acquisition-related contingent consideration in the consolidated statement of (loss) income.

In connection with the transaction, in November and December 2011, the Company entered into foreign currency forward-exchange contracts to buy AUD$625.0 million, which were settled on December 20, 2011. The Company recorded a $16.4 million foreign exchange gain on the settlement of these contracts, which was recognized in Foreign exchange and other in the consolidated statements of (loss) income for the year ended December 31, 2011.

iNova sells and distributes a range of prescription and OTC products in Australia, New Zealand, 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

	Amounts Recognized as of Acquisition Date (as previously reported)(a)			Measurement Period Adjustments(b)			Amounts Recognized as of December 31, 2012 (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(d)	15,257			(749		)	14,508
Identifiable intangible assets(e)	423,950			(2,188		)	421,762
Deferred income taxes, net	—			15,893			15,893
Current liabilities	(32,500		)	(1,713		)	(34,213		)
Total identifiable net assets	489,411			9,843			499,254
Goodwill(f)	211,770			(9,843		)	201,927
Total fair value of consideration transferred	$	701,181		$	—		$	701,181

(a) As previously reported in the 2011 Form 10-K.

(b) The measurement period adjustments primarily reflect: (i) resolution of certain tax aspects of the transaction and the tax impact of pre-tax measurement period adjustments; (ii) changes in the estimated fair value of an intangible asset and the related inventory; (iii) additional information obtained with respect to the fair value of an acquired manufacturing facility; and (iv) additional information obtained with respect to the valuation of compensation-related liabilities. The measurement period adjustments were made to reflect facts and circumstances existing as of the acquisition date, and did not result from intervening events subsequent to the acquisition date. These adjustments did not have a significant impact on the Company’s previously reported consolidated financial statements and, therefore, the Company has not retrospectively adjusted those financial statements.

(c) The fair value of trade accounts receivable acquired was $30.5 million, with the gross contractual amount being $31.5 million, of which the Company expects that $1.0 million will be uncollectible.

(d) Property, plant and equipment includes a manufacturing facility, included in the Canada and Australia segment, which was subsequently sold during the third quarter of 2012 for $10.2 million, which equaled its carrying amount.

(e) The following table summarizes the amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)	Amounts Recognized as of Acquisition Date (as previously reported)		Measurement Period Adjustments			Amounts Recognized as of December 31, 2012 (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

(f) Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:

· cost savings, operating synergies and other benefits expected to result from combining the operations of iNova with those of the Company;

· the value of the continuing operations of iNova’s existing business (that is, the higher rate of return on the assembled net assets versus if the Company had acquired all of the net assets separately); and

· intangible assets that do not qualify for separate recognition (for instance, iNova’s assembled workforce).

The goodwill has been allocated to the Company’s Canada and Australia segment ($119.5 million) and the Company’s Emerging Markets segment ($82.4 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 $421.6 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

	Amounts Recognized as of Acquisition Date (as previously reported)(a)			Measurement Period Adjustments(b)			Amounts Recognized as of December 31, 2012 (as adjusted)
Inventories	$	32,360		$	(3,792	)	$	28,568
Property, plant and equipment	39,581			—			39,581
Identifiable intangible assets(c)	341,680			1,969			343,649
Deferred tax liability	(1,262		)	—			(1,262		)
Total identifiable net assets	412,359			(1,823		)	410,536
Goodwill(d)	8,141			2,935			11,076
Total fair value of consideration transferred	$	420,500		$	1,112		$	421,612

(a) As previously reported in the 2011 Form 10-K.

(b) The measurement period adjustments primarily reflect: (i) changes in estimated inventory reserves, (ii) revisions to certain assumptions impacting the fair value of intangible assets; and (iii) an increase in the total fair value of consideration transferred pursuant to a working capital adjustment provision under the purchase agreement. The measurement period adjustments were made to reflect facts and circumstances existing as of the acquisition date, and did not result from intervening events subsequent to the acquisition date. These adjustments did not have a significant impact on the Company’s previously reported consolidated financial statements and, therefore, the Company has not retrospectively adjusted those financial statements.

	Weighted- Average Useful Lives (Years)	Amounts Recognized as of Acquisition Date (as previously reported)		Measurement Period Adjustments			Amounts Recognized as of December 31, 2012 (as adjusted)
Product brands	9	$	292,472	$	1,816		$	294,288
Product rights	5	33,857		227			34,084
Manufacturing agreement	5	15,351		(74		)	15,277
Total identifiable intangible assets acquired	9	$	341,680	$	1,969		$	343,649

(d) Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. The Company expects that $6.4 million of the goodwill will be deductible for tax purposes in Canada. The goodwill recorded represents primarily the value of Dermik’s assembled workforce. The goodwill has been allocated to the Company’s U.S. Dermatology segment.

Ortho Dermatologics

Description of the Transaction

On December 12, 2011, the Company acquired assets of the Ortho Dermatologics division of Janssen Pharmaceuticals, Inc. (“Janssen”), for a total cash purchase price of approximately $345.2 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

	Amounts Recognized as of Acquisition Date (as previously reported)(a)			Measurement Period Adjustments(b)			Amounts Recognized as of December 31, 2012 (as adjusted)
Inventories	$	6,169		$	—		$	6,169
Property, plant and equipment	206			—			206
Identifiable intangible assets, excluding acquired IPR&D(c)	333,599			—			333,599
Acquired IPR&D(d)	4,318			—			4,318
Deferred tax liability	(1,690		)	—			(1,690		)
Total identifiable net assets	342,602			—			342,602
Goodwill(e)	3,507			(915		)	2,592
Total fair value of consideration transferred	$	346,109		$	(915	)	$	345,194

(a) As previously reported in the 2011 Form 10-K.

(b) The measurement period adjustment reflects a decrease in the total fair value of consideration transferred pursuant to a working capital adjustment provision under the purchase agreement. The measurement period adjustment was made to reflect facts and circumstances existing as of the acquisition date, and did not result from intervening events subsequent to the acquisition date. This adjustment did not have a significant impact on the Company’s previously reported consolidated financial statements and, therefore, the Company has not retrospectively adjusted those financial statements.

(c) The identifiable intangible assets acquired relate to product brands intangible assets with an estimated weighted-average useful life of approximately nine years.

(d) The acquired IPR&D asset relates to the development of the MC5 program, a topical treatment for acne vulgaris. In the second quarter of 2012, the Company terminated the MC5 program and recognized a charge of $4.3 million to write off the related IPR&D asset. This charge was recognized as In-process research and development impairments and other charges in the Company’s consolidated statements of (loss) income.

(e) Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents primarily the cost savings, operating synergies and other benefits expected to result from combining the operations of Ortho Dermatologics with those of the Company. The goodwill has been allocated to the Company’s U.S. Dermatology segment.

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 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, for a total fair value of consideration transferred of $91.5 million.

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, currently 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

	Amounts Recognized as of Acquisition Date (as previously reported)(a)			Measurement Period Adjustments(b)			Amounts Recognized as of December 31, 2012 (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 identifiable 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

(a) As previously reported in the 2011 Form 10-K.

(b) The measurement period adjustments primarily reflect: (i) changes in the estimated fair value of certain intangible assets; (ii) changes in estimated sales reserves; and (iii) the tax impact of pre-tax measurement period adjustments. The measurement period adjustments were made to reflect facts and circumstances existing as of the acquisition date, and did not result from intervening events subsequent to the acquisition date. These adjustments did not have a significant impact on the Company’s previously reported consolidated financial statements and, therefore, the Company has not retrospectively adjusted those financial statements.

(c) Both the fair value and gross contractual amount of trade accounts receivable acquired were $7.9 million, as the Company expects that the amount to be uncollectible is negligible.

(d) The following table summarizes the amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)	Amounts Recognized as of Acquisition Date (as previously reported)		Measurement Period Adjustments			Amounts Recognized as of December 31, 2012 (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

· cost savings, operating synergies and other benefits expected to result from combining the operations of Afexa with those of the Company; and

· intangible assets that do not qualify for separate recognition (for instance, Afexa’s assembled workforce).

The goodwill has been allocated to the Company’s Canada and Australia business segment.

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.

As of the Sanitas Acquisition Date, the Company reclassified the unrealized loss of $0.2 million related to the previously-held equity interest from other comprehensive income to earnings, which was included in Gain (loss) on investments, net in the consolidated statements of (loss) income.

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 requested 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 December 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

	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 identifiable net assets	243,372
Goodwill(e)	204,791
Total fair value of consideration transferred	$	448,163

(a) As previously reported in the 2011 Form 10-K. The Company has not recognized any measurement period adjustments to the amounts previously reported in the 2011 Form 10-K.

(b) The fair value of trade accounts receivable acquired was $25.6 million, with the gross contractual amount being $27.8 million, of which the Company expects that $2.2 million will be uncollectible.

	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

(d) Effective December 1, 2011, Sanitas terminated its Facility Agreement and Revolving Credit Line Agreement, repaid the amounts outstanding under its credit facilities and cancelled the undrawn credit facilities.

· cost savings, operating synergies and other benefits expected to result from combining the operations of Sanitas with those of the Company;

· the value of the continuing operations of Sanitas’s existing business (that is, the higher rate of return on the assembled net assets versus if the Company had acquired all of the net assets separately); and

· intangible assets that do not qualify for separate recognition (for instance, Sanitas’s assembled workforce).

The goodwill has been allocated to the Company’s Emerging Markets segment.

Elidel®/Xerese®

On June 29, 2011, the Company entered into a license agreement with Meda Pharma SARL (“Meda”) to acquire the exclusive rights to commercialize both Elidel® Cream and Xerese® Cream in the U.S., Canada and Mexico. In addition, the Company and Meda have the right to undertake development work in respect of Elidel® and Xerese® products. The Company made an upfront payment to Meda of $76.0 million with an obligation to pay a series of potential milestone payments of up to $16.0 million and guaranteed royalties totaling $120.0 million in the aggregate through 2011 and 2012. Thereafter, the Company will pay a double-digit royalty to Meda on net sales of Elidel®, Xerese® and Zovirax®, including additional minimum royalties of $120.0 million in the aggregate during 2013-2015. The Company acquired the U.S. and Canadian rights to non-ophthalmic topical formulations of Zovirax® from GSK in the first quarter of 2011 (as described in note 4).

The Elidel®/Xerese® transaction has been accounted for as a business combination under the acquisition method of accounting. The fair value of the upfront and contingent consideration, inclusive of minimum and variable royalty payments, was determined to be $437.7 million as of the acquisition date. As the majority of the contingent consideration relates to future royalty payments, the amount ultimately to be paid under this arrangement will be dependent on the future sales levels of Elidel®, Xerese®, and Zovirax®. In accordance with the acquisition method of accounting, the royalty payments associated with this transaction are treated as part of the consideration paid for the business, and therefore the Company will not recognize royalty expense in the consolidated statements of (loss) income for these products. The royalty payments are being recorded as a reduction to the acquisition-related contingent consideration liability. During the year ended December 31, 2012 and 2011, the Company made $88.0 million and $28.5 million, respectively, of acquisition-related contingent consideration payments, including royalties and milestones, related to this transaction. In January 2013, the Company made additional royalty payments totaling $14.5 million. For the year ended December 31, 2012, the Company recognized a net loss of $6.5 million primarily driven by fair value adjustments to reflect accretion for the time value of money, partially offset by changes in the projected revenue forecast. For the year ended December 31, 2011, the Company recognized a loss of $11.2 million due to changes in fair value of acquisition-related contingent consideration primarily due to accretion to reflect the time value of money. The net loss for the year ended December 31, 2012 and 2011 was recognized as Acquisition-related contingent consideration in the consolidated statements of (loss) income.

The total fair value of the consideration transferred has been assigned to product brands intangible assets ($406.4 million), acquired IPR&D assets ($33.5 million) and a net deferred income tax liability ($(2.2) million). The product brands intangible assets have an estimated weighted-average useful life of approximately eight years. The acquired IPR&D asset relates to the development of a Xerese® life-cycle product. The projected cash flows from the acquired IPR&D asset were adjusted for the probability of successful development and commercialization of the product. In determining the fair value of this asset, we used a risk-adjusted discount rate of 13% to present value the projected cash flows. In the fourth quarter of 2012, the Company recognized an IPR&D impairment charge of $24.7 million related to this asset due to higher projected development spend and revised timelines for potential commercialization. See note 12 titled “INTANGIBLE ASSETS AND GOODWILL” for further information regarding IPR&D asset impairments recognized in 2012.

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 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. For the year ended December 31, 2011, the Company recognized a gain of $13.2 million due to changes in the fair value of acquisition-related contingent consideration. The gain was recognized as Acquisition-related contingent consideration in the consolidated statements of (loss) income. In May 2012, the Company made a contingent consideration payment of $12.4 million (€10.0 million) based on the net sales results for the 2011 calendar year. There are no remaining contingent consideration payments under this arrangement.

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 for the year ended December 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

	Amounts Recognized as of Acquisition Date (as previously reported)			Measurement Period Adjustments(b)			Amounts Recognized as of December 31, 2011 (as adjusted)(a)
Cash and cash equivalents	$	43,940		$	—		$	43,940
Accounts receivable(c)	63,509			(1,880		)	61,629
Inventories(d)	72,144			(1,825		)	70,319
Other current assets	14,429			—			14,429
Property, plant and equipment	9,737			—			9,737
Identifiable intangible assets(e)	202,071			7,169			209,240
Other non-current assets	3,122			—			3,122
Current liabilities	(46,866		)	826			(46,040		)
Deferred income taxes, net	(18,176		)	11,568			(6,608		)
Other non-current liabilities	(720		)	—			(720		)
Total identifiable net assets	343,190			15,858			359,048
Goodwill(f)	171,105			(11,445		)	159,660
Total fair value of consideration transferred	$	514,295		$	4,413		$	518,708

(a) As previously reported in the 2011 Form 10-K. The Company has not recognized any measurement period adjustments in 2012 to the amounts previously reported in the 2011 Form 10-K.

(b) The measurement period adjustments primarily reflect: (i) changes to deferred taxes based on estimates of income tax rates; (ii) changes in the estimated fair value of certain intangible assets; (iii) an increase in the total fair value of consideration transferred pursuant to a working capital adjustment provision of the purchase agreement; and (iv) the tax impact of pre-tax measurement period adjustments. The measurement period adjustments were made to reflect facts and circumstances existing as of the acquisition date, and did not result from intervening events subsequent to the acquisition date. These adjustments did not have a significant impact on the Company’s previously reported consolidated financial statements and, therefore, the Company has not retrospectively adjusted those financial statements.

(c) The fair value of trade accounts receivable acquired was $61.6 million, with the gross contractual amount being $66.8 million, of which the Company expects that $5.2 million will be uncollectible.

(d) Includes $18.2 million to record PharmaSwiss inventory at its estimated fair value.

(e) The following table summarizes the amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)	Amounts Recognized as of Acquisition Date (as previously reported)		Measurement Period Adjustments		Amounts Recognized as of December 31, 2011 (as adjusted)
Partner relationships(1)	7	$	130,183	$	—	$	130,183
Product brands	9	71,888		7,169		79,057
Total identifiable intangible assets acquired	7	$	202,071	$	7,169	$	209,240

(1) The partner relationships intangible asset represents the value of existing arrangements with various pharmaceutical and biotech companies, for whom PharmaSwiss provides regulatory, compliance, sales, marketing and distribution functions.

· cost savings, operating synergies and other benefits expected to result from combining the operations of PharmaSwiss with those of the Company;

· the value of the going-concern element of PharmaSwiss existing business (that is, the higher rate of return on the assembled net assets versus if the Company had acquired all of the net assets separately); and

· intangible assets that do not qualify for separate recognition (for instance, PharmaSwiss assembled workforce).

The goodwill has been allocated to the Company’s Emerging Markets segment.

(c) Business combinations in 2010 included the following:

Biovail Merger with Valeant

Description of the Transaction

On September 28, 2010, a wholly-owned subsidiary of Biovail acquired all of the outstanding equity of Valeant in a share transaction, in which each share of Valeant common stock was cancelled and converted into the right to receive 1.7809 Biovail common shares. The share consideration was valued at $26.35 per share based on the market price of Biovail’s common shares as of the Merger Date. In addition, immediately preceding the effective time of the Merger, Valeant paid its stockholders a special dividend of $16.77 per share (the “pre-Merger special dividend”) of Valeant common stock. As a result of the Merger, Valeant became a wholly-owned subsidiary of Biovail.

On December 22, 2010, the Company paid a post-Merger special dividend of $1.00 per common share (the “post-Merger special dividend”). The post-Merger special dividend comprised aggregate cash paid of $297.6 million and 72,283 shares issued to shareholders that elected to reinvest in additional common shares of the Company through a special dividend reinvestment plan, which plan was terminated following payment of the post-Merger special dividend.

Basis of Presentation

The transaction has been accounted for as a business combination under the acquisition method of accounting, which requires, among other things, the share consideration transferred be measured at the acquisition date based on the then-current market price and that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. Acquisition-related transaction costs and certain acquisition-related restructuring charges are not included as a component of the acquisition accounting, but are accounted for as expenses in the periods in which the costs are incurred.

Fair Value of Consideration Transferred

The following table indicates the consideration transferred to effect the acquisition of Valeant:

(Number of shares, stock options and restricted share units in thousands)	Conversion Calculation		Fair Value		Form of Consideration
Number of common shares of Biovail issued in exchange for Valeant common stock outstanding as of the Merger Date	139,137
Multiplied by Biovail’s stock price as of the Merger Date(a)	$	26.35	$	3,666,245	Common shares
Number of common shares of Biovail expected to be issued pursuant to vested Valeant RSUs as a result of the Merger	1,694
Multiplied by Biovail’s stock price as of the Merger date(a)	$	26.35	44,643		Common shares
Fair value of vested and partially vested Valeant stock options converted into Biovail stock options			110,687		Stock options(b)
Fair value of vested and partially vested Valeant RSUs converted into Biovail RSUs			58,726		RSUs(c)
Cash consideration paid and payable			51,739		Cash(d)
Total fair value of consideration transferred			$	3,932,040

(a) As the Merger was effective at 12:01 a.m. on September 28, 2010, the conversion calculation reflects the closing price of Biovail’s common shares on the New York Stock Exchange (“NYSE”) at September 27, 2010.

(b) The fair value of the vested and partially vested portions of Valeant stock options that were converted into stock options of Biovail was recognized as a component of the consideration transferred, based on a weighted-average fair value of $17.63 per stock option, which was calculated using the Black-Scholes option pricing model. This calculation considered the closing price of Biovail’s common shares of $26.35 per share as of the Merger Date and the following assumptions:

Expected volatility		32.9%
Expected life		3.4 years
Risk-free interest rate		1.1%
Expected dividend yield		1.5%

The expected life of the options was determined by taking into account the contractual life of the options and estimated exercise pattern of the option holders. The expected volatility and risk-free interest rate were determined based on current market information, and the dividend yield was derived based on the expectation of the post-Merger special dividend of $1.00 per common share of the Company and no dividends thereafter.

The fair values of the exchanged Biovail stock options exceeded the fair values of the vested and partially vested Valeant stock options as of the Merger Date in an amount of $17.2 million, which was recognized immediately as post-Merger compensation expense.

(c) The fair value of the vested portion of Valeant time-based and performance-based RSUs converted into RSUs of Biovail was recognized as a component of the purchase price. The fair value of the vested portion of the Valeant time-based RSUs was determined based on the closing price of Biovail’s common shares of $26.35 per share as of the Merger Date. The fair value of Valeant performance-based RSUs was determined using a Monte Carlo simulation model, which utilizes multiple input variables to estimate the probability that the performance condition will be achieved.

The fair value of the exchanged Biovail time-based RSUs exceeded the fair value of the vested and partially vested Valeant time-based RSUs as of the Merger Date in an amount of $3.8 million, which was recognized immediately as post-Merger compensation expense.

(d) Cash consideration includes $39.7 million of income tax withholdings paid by the Company on behalf of employees of Valeant, in connection with the net share settlement of certain vested Valeant RSUs as of the Merger Date. In addition, under the terms of the Company’s employment agreement with J. Michael Pearson, Chief Executive Officer, cash equal to the pre-Merger special dividend payment was paid to Mr. Pearson in respect of any of his 2008 performance awards that vested in February 2011 at the time of such vesting. As of the Merger Date, the aggregate amount of this cash payment in respect of the pre-Merger special dividend was estimated to be $13.7 million, based on the assumption that Mr. Pearson’s 2008 performance awards will vest at the maximum performance target. Of that amount, the portion attributable to Mr. Pearson’s pre-Merger service ($12.1 million) was recognized in the fair value of consideration transferred, while the portion attributable to Mr. Pearson’s post-Merger service ($1.6 million) was recognized as share-based compensation expense over the remaining vesting period from the Merger Date to February 2011.

Assets Acquired and Liabilities Assumed

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the Merger Date, as well as measurement period adjustments to the amounts originally recorded in 2010. The measurement period adjustments did not have a material impact on the Company’s previously reported results of operations or financial position in any period subsequent to the Merger Date and, therefore, the Company has not retrospectively adjusted its consolidated financial statements.

	Amounts Recognized as of Merger Date (as previously reported)(a)			Measurement Period Adjustments(b)			Amounts Recognized as of December 31, 2011 (as adjusted)(c)
Cash and cash equivalents	$	348,637		$	—		$	348,637
Accounts receivable(d)	194,930			—			194,930
Inventories(e)	208,874			—			208,874
Other current assets	30,869			—			30,869
Property, plant and equipment	184,757			—			184,757
Identifiable intangible assets, excluding acquired IPR&D(f)	3,844,310			(224,939		)	3,619,371
Acquired IPR&D(g)	1,404,956			(4,195		)	1,400,761
Other non-current assets	6,108			—			6,108
Current liabilities(h)	(385,574		)	874			(384,700		)
Long-term debt, including current portion(i)	(2,913,614		)	—			(2,913,614		)
Deferred income taxes, net(j)	(1,467,791		)	157,816			(1,309,975		)
Other non-current liabilities(k)	(149,307		)	(46,022		)	(195,329		)
Total identifiable net assets	1,307,155			(116,466		)	1,190,689
Equity component of convertible debt(i)	(225,971		)	—			(225,971		)
Call option agreements(l)	(28,000		)	—			(28,000		)
Goodwill(m)	2,878,856			116,466			2,995,322
Total fair value of consideration transferred	$	3,932,040		$	—		$	3,932,040

(a) As previously reported in the 2010 Form 10-K.

(b) The measurement period adjustments primarily reflect: (i) changes in the estimated fair values of certain identifiable intangible assets to better reflect the competitive environment, market potential and economic lives of certain products; and (ii) the tax impact of pre-tax measurement period adjustments and resolution of certain tax aspects of the transaction. The measurement period adjustments were made to reflect market participant assumptions about facts and circumstances existing as of the Merger Date, and did not result from intervening events subsequent to the Merger Date.

(d) The fair value of accounts receivable acquired was $194.9 million, which comprised trade receivables ($151.9 million) and royalty and other receivables ($43.1 million). The gross contractual amount of trade receivables was $159.0 million, of which the Company expects that $7.1 million will be uncollectible.

(e) Includes $78.5 million to record Valeant’s inventory at its estimated fair value.

(f) The following table summarizes the amounts and useful lives assigned to identifiable intangible assets:

	Weighted- Average Useful Lives (Years)	Amounts Recognized as of Merger Date (as previously reported)		Measurement Period Adjustments			Amounts Recognized as of December 31, 2011 (as adjusted)
Product brands	16	$	3,114,689	$	(190,779	)	$	2,923,910
Corporate brands	20	168,602		98			168,700
Product rights	9	360,970		(52,949		)	308,021
Out-licensed technology and other	7	200,049		18,691			218,740
Total identifiable intangible assets acquired	15	$	3,844,310	$	(224,939	)	$	3,619,371

(g) Acquired IPR&D assets are initially recognized at fair value and are classified as indefinite-lived intangible assets until the successful completion or abandonment of the associated research and development efforts. The significant components of the acquired IPR&D assets relate to the development of ezogabine/retigabine in collaboration with Glaxo Group Limited, a subsidiary of GlaxoSmithKline plc (the entities within The Glaxo Group of Companies are referred throughout as “GSK”), as an adjunctive treatment for refractory partial-onset seizures in adult patients with epilepsy (as described in note 5), and a number of dermatology products in development for the treatment of severe acne and fungal infections, among other indications. The following table summarizes the amounts assigned to the acquired IPR&D assets:

	Amounts Recognized as of Merger Date (as previously reported)		Measurement Period Adjustments			Amounts Recognized as of December 31, 2011 (as adjusted)
Ezogabine/retigabine(1)	$	891,461	$	—		$	891,461
Dermatology products	431,323		(3,100		)	428,223
Other	82,172		(1,095		)	81,077
Total IPR&D assets acquired	$	1,404,956	$	(4,195	)	$	1,400,761

(1) Refer to note 5 — “COLLABORATION AGREEMENTS”

A multi-period excess earnings methodology (income approach) was used to determine the estimated fair values of the acquired IPR&D assets. The projected cash flows from these assets were adjusted for the probabilities of successful development and commercialization of each project. A risk-adjusted discount rate of 9% was used to present value the projected cash flows. See note 12 titled “INTANGIBLE ASSETS AND GOODWILL” for further information regarding IPR&D asset impairments recognized in 2012 and 2011.

(h) Includes accounts payable, accrued liabilities and income taxes payable.

(i) As described in note 14, concurrent with the closing of the Merger, Valeant issued $500.0 million aggregate principal amount of 6.75% senior notes due 2017 (the “2017 Notes”) and $700.0 million aggregate principal amount of 7.00% senior notes due 2020 (the “2020 Notes”). A portion of the proceeds of the 2017 Notes and 2020 Notes offering was used to pay down $1.0 billion outstanding under previous term loan B facility.

The following table summarizes the fair value of long-term debt assumed as of the Merger Date:

	Amounts Recognized as of Merger Date
Term Loan A Facility(1)	$	1,000,000
Term Loan B Facility(1)	500,000
2017 Notes	497,500
2020 Notes	695,625
4.0% Convertible Notes(2)	220,489
Total long-term debt assumed	$	2,913,614

(1) Effective November 29, 2010, the Term Loan B Facility was repaid in full. Effective March 8, 2011, Valeant terminated the Credit and Guaranty Agreement and repaid the amounts outstanding under the Term Loan A Facility.

(2) 4% Convertible Notes were redeemed in the second quarter of 2011.For further details regarding the settlement of the 4% Convertible Notes, see note 14 titled “SHORT-TERM BORROWINGS AND LONG-TERM DEBT”.

(j) Comprises current deferred tax assets ($68.5 million), non-current deferred tax assets ($4.3 million), current deferred tax liabilities ($6.5 million) and non-current deferred tax liabilities ($1,376.3 million).

(k) Includes the fair value of contingent consideration related to Valeant’s acquisition of Princeton Pharma Holdings LLC, and its wholly-owned operating subsidiary, Aton Pharma, Inc. (“Aton”), on May 26, 2010. The aggregate fair value of the contingent consideration was determined to be $21.6 million as of the Merger Date. The contingent consideration consists of future milestones predominantly based upon the achievement of approval and commercial targets for certain pipeline products (which are included in the fair value ascribed to the IPR&D assets acquired, as described above under (g)). As a result of an agreement entered in the third quarter of 2012, the future milestones that the Company may be required to pay with respect to the acquisition of Aton, have been reduced by $190.0 million, from up to $390.0 million to up to $200.0 million.

(l) The Company assumed Valeant’s existing call option agreements in respect of the shares underlying the conversion of $200.0 million principal amount of the 4.0% Convertible Notes. These agreements consisted of purchased call options on 15,813,338 common shares of the Company, which matured on May 20, 2011, and written call options on the identical number of shares, which matured on August 18, 2011. For further details regarding the settlement of these call options, see note 14 titled “SHORT-TERM BORROWINGS AND LONG-TERM DEBT”.

In addition, the Company assumed written call option agreements in respect of 3,863,670 common shares of the Company underlying Valeant’s 3.0% convertible subordinated notes that matured in August 2010. The written call options on shares underlying the 3.0% convertible subordinated notes expired on November 15, 2010, and were settled over the following 30 business days. On November 19, 2010, the call option agreements were amended to require cash settlement, resulting in the reclassification of the $32.8 million fair value of the written call options as a liability as of that date. The Company recognized a loss of $10.1 million on the written call options settled for cash, which has been included in loss on extinguishment of debt (as described in note 19).

(m) Goodwill is calculated as the difference between the Merger Date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents the following:

· cost savings, operating synergies and other benefits expected to result from combining the operations of Valeant with those of Biovail;

· the value of the going-concern element of Valeant’s existing business (that is, the higher rate of return on the assembled net assets versus if Biovail had acquired all of the net assets separately); and

· intangible assets that do not qualify for separate recognition (for instance, Valeant’ assembled workforce), as well as future, as yet unidentified research and development projects.

Pro Forma Impact of Business Combinations

The following table presents unaudited pro forma consolidated results of operations for the years ended December 31, 2012 and 2011, as if the Medicis, J&J ROW, J&J North America, QLT, OraPharma, University Medical, Atlantis, 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.

	Unaudited
	2012			2011
Revenues	$	4,381,138		$	4,137,340
Net loss	(97,549		)	(43,342		)
Basic loss per share	$	(0.32	)	$	(0.14	)
Diluted loss per share	$	(0.32	)	$	(0.14	)

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, Medicis, J&J ROW, J&J North America, QLT, OraPharma, University Medical, Atlantis, Gerot Lannach, Probiotica, PharmaSwiss, Sanitas, Ortho Dermatologics, iNova and Afexa. Except to the extent realized in the year ended December 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 these acquisitions, or the costs necessary to achieve these cost savings, operating synergies and other benefits. In addition, except to the extent recognized in the year ended December 31, 2012, the unaudited pro forma information does not reflect the costs to integrate the operations of the Company with those of Medicis, J&J ROW, J&J North America, QLT, OraPharma, University Medical, Atlantis, 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 Medicis, J&J ROW, J&J North America, QLT, OraPharma, University Medical, Atlantis, 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 these acquisitions:

· elimination of Medicis’, J&J ROW’s, J&J North America’s, QLT’s, OraPharma’s, University Medical’s, Atlantis’, Gerot Lannach’s, Probiotica’s, PharmaSwiss’, Sanitas’, Ortho Dermatologics’, iNova’s and Afexa’s historical intangible asset amortization expense;

· additional amortization expense related to the provisional fair value of identifiable intangible assets acquired;

· additional depreciation expense related to fair value adjustment to property, plant and equipment acquired;

· additional interest expense associated with the financing obtained by the Company in connection with the various acquisitions;

· the exclusion from pro forma earnings in the year ended December 31, 2012 of the acquisition accounting adjustments on Medicis’, J&J ROW’s, J&J North America’s, QLT’s, iNova’s, Ortho Dermatologics’, Afexa’s, Probiotica’s, OraPharma’s, University Medical’s, and Atlantis’ inventories that were sold subsequent to the acquisition date of $58.1 million, in the aggregate, and the exclusion of $72.1 million of acquisition-related costs, in the aggregate, incurred primarily for the Medicis, J&J ROW, J&J North America, QLT, OraPharma, University Medical, Atlantis, Gerot Lannach, and Probiotica acquisitions in the year ended December 31, 2012, and the inclusion of those amounts in pro forma earnings for the corresponding comparative periods.

The pro forma revenue and earnings include the historical financial information of the significant acquisition completed by Medicis during the year ended December 31, 2011 as if such acquisition was consummated as of January 1, 2011.

The pro forma earnings also exclude amortization of inventory step-up that arose from the Merger that was recognized in the year ended December 31, 2011. Such amounts were 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.