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SHARE-BASED COMPENSATION (Tables)
 12 Months Ended
Dec. 31, 2012
SHARE-BASED COMPENSATION  
Summary of the components and classification of share-based compensation expense

 

 

 

2012

 

2011

 

2010

 

Stock options(1)

 

$

21,739

 

$

45,465

 

$

56,851

 

RSUs

 

44,497

 

48,558

 

41,182

 

Share-based compensation expense

 

$

66,236

 

$

94,023

 

$

98,033

 

 

 

 

 

 

 

 

 

Cost of goods sold(1)(2)

 

$

—

 

$

1,330

 

$

1,258

 

Research and development expenses(1)(2)

 

764

 

1,329

 

2,487

 

Selling, general and administrative expenses(1)(2)(3)

 

65,472

 

90,379

 

44,806

 

Restructuring, integration and other costs (as described in note 6)

 

—

 

985

 

49,482

 

Share-based compensation expense

 

$

66,236

 

$

94,023

 

$

98,033

 

 

(1)         On March 9, 2011, the Company’s compensation committee of the board of directors approved an equitable adjustment to all stock options outstanding as of that date for employees and directors as of such date, in connection with the post-Merger special dividend of $1.00 per common share declared on November 4, 2010 and paid on December 22, 2010. As the Company’s stock option awards do not automatically adjust for dividend payments, this adjustment was treated as a modification of the terms and conditions of the outstanding options. The incremental fair value of the modified awards was determined to be $15.4 million, of which $9.2 million related to vested options, which was expensed as of March 9, 2011 as follows: cost of goods sold ($0.2 million), selling, general and administrative expenses ($8.8 million) and research and development expenses ($0.2 million). The remaining $6.2 million is being recognized over the remaining requisite service period of the unvested options.

 

(2)         Includes the excess of the fair value of Biovail stock options and time-based RSUs over the fair value of the vested and partially vested Valeant stock options and time-based RSUs of $20.9 million (as described in note 3), which was recognized immediately as post-Merger compensation expense and allocated as follows: cost of goods sold ($0.4 million), research and development expenses ($0.4 million), and selling, general and administrative expenses ($20.1 million).

 

(3)         During the third quarter of 2012, the Company recorded an incremental charge of $4.8 million to selling, general and administrative expenses as some of the Company’s performance-based RSU grants triggered a partial payout as a result of achieving certain share price appreciation conditions.
Schedule of compensation cost and weighted average service period related to unvested portion

 

 

 

Stock
Options

 

Time-Based
RSUs

 

Performance-
Based
RSUs

 

Number of awards issued (000s)

 

12,464

 

2,217

 

1,212

 

Total compensation cost related to unvested awards to be recognized

 

$

66,520

 

$

30,558

 

$

24,998

 

Weighted-average service period over which compensation cost is expected to be recognized (months)

 

18

 

25

 

34

 
Schedule of weighted-average assumption as of the date of grant using the Black Scholes option-pricing model

 

 

 

2012

 

2011

 

2010

 

Expected stock option life (years)(1)

 

4.0

 

4.0

 

4.0

 

Expected volatility(2)

 

44.9

%

42.8

%

37.1

%

Risk-free interest rate(3)

 

0.5

%

1.4

%

1.5

%

Expected dividend yield(4)

 

—

 

—

 

1.5

%

 

(1)         Determined based on historical exercise and forfeiture patterns.

 

(2)         Effective January 1, 2012, expected volatility was determined based on implied volatility in the market traded options of the Company’s common stock. Prior to 2012, expected volatility was determined based on historical volatility of the Company’s common shares over the expected life of the stock option.

 

(3)         Determined based on the rate at the time of grant for zero-coupon U.S. or Canadian government bonds with maturity dates equal to the expected life of the stock option.

 

(4)         Determined based on the stock option’s exercise price and expected annual dividend rate at the time of grant.
Summary of stock option activity

 

 

 

Options
(000s)

 

Weighted-
Average
Exercise
Price

 

Weighted-
Average
Remaining
Contractual
Term
(Years)

 

Aggregate
Intrinsic
Value

 

Outstanding, January 1, 2012

 

10,480

 

$

15.10

 

 

 

 

 

Granted

 

750

 

55.16

 

 

 

 

 

Exercised

 

(1,802

)

12.78

 

 

 

 

 

Expired or forfeited

 

(922

)

16.62

 

 

 

 

 

Outstanding, December 31, 2012

 

8,506

 

$

18.97

 

6.0

 

$

347,068

 

Vested and exercisable, December 31, 2012

 

4,491

 

$

9.23

 

5.3

 

$

226,960

 
Summary of stock options outstanding and exercisable by range of exercise prices

 

Range of Exercise Prices

 

Outstanding
(000s)

 

Weighted-
Average
Remaining
Contractual
Life
(Years)

 

Weighted-
Average
Exercise
Price

 

Exercisable
(000s)

 

Weighted-
Average
Exercise
Price

 

$3.46 - $5.19

 

3,097

 

5.0

 

$

4.22

 

3,097

 

$

4.22

 

$5.33 - $8.00

 

367

 

4.8

 

6.39

 

270

 

5.97

 

$8.03 - $12.05

 

40

 

3.1

 

9.47

 

35

 

9.52

 

$12.87 - $19.31

 

2,382

 

7.0

 

13.04

 

586

 

13.04

 

$20.42 - $30.63

 

760

 

3.1

 

25.17

 

269

 

25.39

 

$39.95 - $54.76

 

1,860

 

7.7

 

51.26

 

234

 

51.14

 

 

 

8,506

 

6.0

 

$

18.97

 

4,491

 

$

9.23

 
Summary of non-vested time-based RSU activity

 

 

 

Time-Based
RSUs
(000s)

 

Weighted-
Average
Grant-Date
Fair Value

 

Non-vested, January 1, 2012

 

1,829

 

$

29.47

 

Granted

 

222

 

50.44

 

Vested

 

(646

)

28.00

 

Forfeited

 

(95

)

33.84

 

Non-vested, December 31, 2012

 

1,310

 

$

33.43

 
Share-based compensation  
Summary of non-vested performance-based RSU activity

 

 

 

Performance-
Based RSUs
(000s)

 

Weighted-
Average
Grant-Date
Fair Value

 

Non-vested, January 1, 2012

 

2,060

 

$

31.24

 

Granted

 

334

 

81.55

 

Vested

 

(603

)

47.91

 

Forfeited

 

(95

)

27.21

 

Non-vested, December 31, 2012

 

1,696

 

$

43.40
Summary of deferred share unit ("DSU") activity

 

 

 

DSUs
(000s)

 

Weighted-
Average
Grant-Date
Fair Value

 

Outstanding, January 1, 2012

 

148

 

$

16.78

 

Granted

 

—

 

—

 

Settled for cash

 

—

 

—

 

Outstanding, December 31, 2012

 

148

 

$

16.78
Prior to merger
  
Share-based compensation  
Schedule of assumptions used to calculate the fair values of performance-based RSUs

 

 

 

 

2010

 

Contractual term (years)

 

5.0

 

Expected Company share volatility(1)

 

43.2

%

Average comparator group share price volatility(1)

 

34.7

%

Risk-free interest rate(2)

 

2.4

%

 

(1)         Determined based on historical volatility over the contractual term of the performance-based RSU.

 

(2)         Determined based on the rate at the time of grant for zero-coupon U.S. government bonds with maturity dates equal to the contractual term of the performance-based RSUs.

 
After merger
  
Share-based compensation  
Schedule of assumptions used to calculate the fair values of performance-based RSUs

 

 

 

2012

 

2011

 

2010

 

Contractual term (years)

 

2.9 - 4.3

 

3.0

 

4.1-4.6

 

Expected Company share volatility(1)

 

42.5% - 52.3%

 

34.6% - 60.8%

 

32.4% - 33.2%

 

Risk-free interest rate(2)

 

0.6% - 1.0%

 

1.0% - 1.9%

 

1.2% - 2.3%

 

 

(1)         Determined based on historical volatility over the contractual term of the performance-based RSU.

 

(2)         Determined based on the rate at the time of grant for zero-coupon U.S. government bonds with maturity dates equal to the contractual term of the performance-based RSUs.