26. 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 Decision Maker (“CODM”), began to manage the business differently, which 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:

· U.S. Dermatology consists of pharmaceutical and OTC product sales, and alliance and contract service revenues, in the areas of dermatology and topical medication, aesthetics (including medical devices), dentistry, ophthalmology and podiatry.

· U.S. Neurology and Other consists of sales of pharmaceutical products indicated for the treatment of neurological and other diseases, as well as alliance revenue from the licensing of various products the Company developed or acquired.

· Canada and Australia consists of pharmaceutical and OTC products sold in Canada, Australia and New Zealand.

· Emerging Markets consists of branded generic pharmaceutical products, as well as OTC products and agency/in-licensing arrangements with other research-based pharmaceutical companies (where the Company distributes and markets branded, patented products under long-term, renewable contracts). Products are sold primarily in Central and Eastern Europe (Poland, Serbia, and Russia), Latin America (Mexico, Brazil and exports out of Mexico to other Latin American markets), Southeast Asia and South Africa.

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 in-process research and development impairments and other charges, are not included in the measure of segment profit, as management excludes these items in assessing financial performance.

Corporate includes the finance, treasury, tax and legal operations of the Company’s businesses and maintains and/or incurs certain assets, liabilities, expenses, gains and losses related to the overall management of the Company, which are not allocated to the other business segments. In addition, share-based compensation is considered a corporate cost, since the amount of such expense depends on Company-wide performance rather than the operating performance of any single segment.

Segment Revenues and Profit

Segment revenues and profit for the years ended December 31, 2012, 2011 and 2010 were as follows:

	2012			2011			2010
Revenues:
U.S. Dermatology(1)	$	1,158,600		$	575,798		$	220,667
U.S. Neurology and Other	793,503			821,789			656,653
Canada and Australia(2)	544,128			340,240			161,568
Emerging Markets(3)	1,050,395			725,623			142,349
Total revenues	3,546,626			2,463,450			1,181,237
Segment profit:
U.S. Dermatology(4)	444,545			182,888			46,209
U.S. Neurology and Other	274,154			417,514			252,657
Canada and Australia(5)	46,433			105,335			51,043
Emerging Markets(6)	117,159			14,915			16,757
Total segment profit	882,291			720,652			366,666
Corporate(7)	(138,201		)	(180,007		)	(155,794		)
Restructuring, integration and other costs	(344,387		)	(97,667		)	(140,840		)
In-process research and development impairments and other charges	(189,901		)	(109,200		)	(89,245		)
Acquisition-related costs	(78,604		)	(32,964		)	(38,262		)
Legal settlements	(56,779		)	(11,841		)	(52,610		)
Acquisition-related contingent consideration	5,266			10,986			—
Operating income (loss)	79,685			299,959			(110,085		)
Interest income	5,986			4,084			1,294
Interest expense	(473,396		)	(333,041		)	(84,307		)
Write-down of deferred financing charges	(8,200		)	(1,485		)	(5,774		)
Loss on extinguishment of debt	(20,080		)	(36,844		)	(32,413		)
Foreign exchange and other	19,721			26,551			574
Gain (loss) on investments, net	2,056			22,776			(5,552		)
Loss before recovery of income taxes	$	(394,228	)	$	(18,000	)	$	(236,263	)

(1) U.S. Dermatology segment revenues reflect incremental product sales revenue of $492.3 million in 2012, in the aggregate, from all 2011 acquisitions and all 2012 acquisitions, primarily from Dermik, Ortho Dermatologics, OraPharma, Medicis and University Medical. U.S. Dermatology segment revenues reflect incremental product sales revenue $194.6 million in 2011, in the aggregate, from all 2010 acquisitions and all 2011 acquisitions, primarily from Valeant, Elidel® and Xerese®, Dermik and Ortho Dermatologics.

(2) Canada and Australia segment revenues reflect incremental product sales revenue of $172.2 million in 2012, in the aggregate, from all 2011 acquisitions and all 2012 acquisitions, primarily from iNova, Afexa and Dermik. Canada and Australia segment revenues reflect incremental product sales revenue of $155.9 million in 2011, in the aggregate, from all 2010 acquisitions and all 2011 acquisitions, primarily from Valeant and Afexa.

(3) Emerging Markets segment revenues reflect incremental product sales revenue of $322.9 million in 2012, in the aggregate, from all 2011 acquisitions and all 2012 acquisitions, primarily from iNova, Sanitas, PharmaSwiss, Probiotica and Gerot Lannach. Emerging Markets segment revenues reflect incremental product sales revenue of $564.7 million in 2011, in the aggregate, from all 2010 acquisitions and all 2011 acquisitions, primarily from Valeant, PharmaSwiss and Sanitas.

(4) U.S. Dermatology segment profit reflects the addition of operations from all 2011 acquisitions and all 2012 acquisitions, including the impact of acquisition accounting adjustments related to the fair value adjustments to inventory and identifiable intangible assets of $221.0 million in 2012, in the aggregate, primarily from Dermik, Ortho Dermatologics, OraPharma and Medicis operations. U.S. Dermatology segment profit reflects the addition of operations from all 2010 acquisitions and all 2011 acquisitions, including the impact of acquisition accounting adjustments related to the fair value adjustments to inventory and identifiable intangible assets of $64.5 million in 2011, in the aggregate, primarily from Valeant, Dermik and Ortho Dermatologics operations.

(5) Canada and Australia segment profit reflects the addition of operations from all 2011 acquisitions and all 2012 acquisitions, including the impact of acquisition accounting adjustments related to the fair value adjustments to inventory and identifiable intangible assets of $117.9 million in 2012, in the aggregate, respectively, primarily from iNova, Dermik and Afexa operations. Canada and Australia segment profit reflects the addition of operations from all from all 2010 acquisitions and all 2011 acquisitions, including the impact of acquisition accounting adjustments related to the fair value adjustments to inventory and identifiable intangible assets of $41.8 million in 2011, in the aggregate, respectively, primarily from Valeant, Afexa, iNova and Dermik operations.

(6) Emerging Markets segment profit reflects the addition of operations from all 2011 acquisitions and all 2012 acquisitions, including the impact of acquisition accounting adjustments related to the fair value adjustments to inventory and identifiable intangible assets of $180.5 million in 2012, in the aggregate, primarily from PharmaSwiss, Sanitas, iNova and Gerot Lannach operations. Emerging Markets segment profit reflects the addition of operations from all 2010 acquisitions and all 2011 acquisitions, including the impact of acquisition accounting adjustments related to the fair value adjustments to inventory and identifiable intangible assets of $136.8 million in 2011, in the aggregate, primarily from Valeant, PharmaSwiss and Sanitas operations.

(7) Corporate reflects non-restructuring-related share-based compensation expense of $66.2 million, $93.0 million and $48.6 million in 2012, 2011 and 2010, respectively. The non-restructuring-related share-based compensation expense includes the effect of the fair value increment on Valeant stock options and RSUs converted into the Company awards of $58.6 million and $37.1 million in 2011 and 2010, respectively.

Segment Assets

Total assets by segment as of December 31, 2012, 2011 and 2010 were as follows:

	2012		2011		2010
Assets(1)(2):
U.S. Dermatology(3)	$	6,899,386	$	3,042,741	$	1,875,621
U.S. Neurology and Other	4,313,272		4,404,230		4,978,323
Canada and Australia(4)	1,646,441		1,705,588		1,120,027
Emerging Markets(5)	4,056,666		3,289,249		2,298,815
	16,915,765		12,441,808		10,272,786
Corporate	1,034,614		666,311		522,331
Total assets	$	17,950,379	$	13,108,119	$	10,795,117

(1) The segment assets as of December 31, 2011 and 2010 contain reclassifications between segments to conform to the current year management structure.

(2) Segments assets as of December 31, 2011 reflect the measurement period adjustments associated with the Merger. Segment assets as of December 31, 2011 reflect the amounts of identifiable intangible assets and goodwill of Valeant as follows: U.S. Dermatology — $1,503.1 million; U.S. Neurology and Other — $3,367.8 million; Canada and Australia — $759.6 million; and Emerging Markets — $1,602.3 million. Segment assets as of December 31, 2010 reflect the provisional amounts of identifiable intangible assets and goodwill of Valeant as follows: U.S. Dermatology — $1,665.1 million; U.S. Neurology and Other — $3,604.8 million; Canada and Australia — $945.1 million; and Emerging Markets — $1,882.1 million.

(3) U.S. Dermatology segment assets as of December 31, 2012 reflect the amounts of identifiable intangible assets and goodwill acquired from Medicis, OraPharma, QLT, J&J North America, and University Medical of $2,242.8 million and $1,460.9 million, in the aggregate, respectively. U.S. Dermatology segment assets as of December 31, 2011 reflect the provisional amounts of identifiable intangible assets and goodwill of Dermik and Ortho Dermatologics of $675.3 million and $11.6 million, in the aggregate, respectively.

(4) Canada and Australia segment assets as of December 31, 2011 reflect the provisional amounts of identifiable intangible assets and goodwill of iNova and Afexa of $504.6 million and $214.9 million, in the aggregate, respectively.

(5) Emerging Markets segment assets as of December 31, 2012 reflect the provisional amounts of identifiable intangible assets and goodwill of Probiotica, J&J ROW, Atlantis and Gerot Lannach of $303.6 million and $47.5 million, in the aggregate, respectively. Emerging Markets segment assets as of December 31, 2011 reflect the provisional amounts of identifiable intangible assets and goodwill of PharmaSwiss and Sanitas of $456.3 million and $364.5 million, in the aggregate, respectively.

Capital Expenditures, and Depreciation and Amortization

Capital expenditures, and depreciation and amortization by segment for the years ended December 31, 2012, 2011 and 2010 were as follows:

	2012		2011		2010
Capital expenditures:
U.S. Dermatology	$	5,080	$	1,401	$	652
U.S. Neurology and Other	1,735		233		8,080
Canada and Australia	5,196		2,066		804
Emerging Markets	61,866		33,989		6,094
	73,877		37,689		15,630
Corporate	33,761		20,826		1,193
Total capital expenditures	$	107,638	$	58,515	$	16,823
Depreciation and amortization(1):
U.S. Dermatology	$	277,124	$	181,958	$	36,897
U.S.Neurology and Other	313,868		213,028		170,500
Canada and Australia	163,676		52,375		14,791
Emerging Markets	224,984		159,098		25,198
	979,652		606,459		247,386
Corporate	6,570		6,144		7,118
Total depreciation and amortization	$	986,222	$	612,603	$	254,504

The increase in capital expenditures in the Emerging Markets segment is driven primarily by the construction of two manufacturing facilities in Serbia and Mexico.

(1) Depreciation and amortization in 2012 reflects the impact of acquisition accounting adjustments related to the fair value adjustment to identifiable intangible assets as follows: U.S. Dermatology — $178.0 million; U.S. Neurology and Other — $167.5 million; Canada and Australia — $85.0 million; and Emerging Markets — $177.5 million. In addition, depreciation and amortization in 2012 also reflects (i) impairment charges of $31.3 million related to the write-down of the carrying values of intangible assets related to certain suncare and skincare brands sold primarily in Australia, which are classified as assets held for sale as of December 31, 2012, to their estimated fair values less costs to sell, (ii) an $18.7 million impairment charge related to the write-down of the carrying value of the Dermaglow® intangible asset, which is classified as an asset held for sale as of December 31, 2012, to its estimated fair value less costs to sell, and (iii) impairment charges of $13.3 million related to the discontinuation of certain products in the Brazilian and Polish markets.

Depreciation and amortization in 2011 reflects the impact of acquisition accounting adjustments related to the fair value adjustment to identifiable intangible assets as follows: U.S. Dermatology — $55.0 million; U.S. Neurology and Other — $29.1 million; Canada and Australia — $32.2 million; and Emerging Markets — $106.0 million. In addition, depreciation and amortization in 2011 also reflects impairment charges of $7.9 million and $19.8 million 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.

Depreciation and amortization in 2010 reflects the impact of acquisition accounting adjustments related to the fair value adjustment to identifiable intangible assets as follows: U.S. Dermatology — $19.1 million; U.S. Neurology and Other — $14.1 million; Canada and Australia — $6.7 million; and Emerging Markets — $18.8 million.

Geographic Information

Revenues and long-lived assets by geographic region for the years ended and as of December 31, 2012, 2011 and 2010 were as follows:

	Revenues(1)						Long-Lived Assets(2)
	2012		2011		2010		2012		2011		2010
U.S. and Puerto Rico	$	1,952,092	$	1,397,637	$	872,112	$	60,432	$	22,619	$	14,231
Canada	349,137		256,820		154,200		109,728		129,510		94,435
Poland	199,278		179,501		30,430		110,890		106,743		60,390
Australia	184,073		79,204		17,616		4,402		16,636		1,724
Mexico	167,445		151,948		42,833		73,894		53,500		51,367
Brazil	135,114		87,190		22,595		45,959		49,231		46,074
Serbia	90,768		81,867		—		32,057		10,039		—
Russia	71,181		8,720		—		228		—		—
Asia	44,882		409		—		596		—		—
South Africa	37,210		—		—		111		—		—
Other (3)	315,446		220,154		41,451		24,427		25,964		13,531
	$	3,546,626	$	2,463,450	$	1,181,237	$	462,724	$	414,242	$	281,752

(1) Revenues are attributed to countries based on the location of the customer.

(2) Long-lived assets consist of property, plant and equipment, net of accumulated depreciation, which is attributed to countries based on the physical location of the assets.

(3) Other consists primarily of other Central and Eastern European countries.

Major Customers

External customers that accounted for 10% or more of the Company’s total revenues for the years ended December 31, 2012, 2011 and 2010 were as follows:

	2012		2011		2010
McKesson Corporation	20	%	23	%	28	%
Cardinal Health, Inc.	20	%	21	%	24	%
AmerisourceBergen Corporation	8	%	10	%	12	%