BUSINESS COMBINATIONS

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

(a) Business combinations in 2013 include the following:

B&L

Description of the Transaction

On August 5, 2013, the Company acquired B&L, pursuant to the Merger Agreement dated May 24, 2013 (as amended), among the Company, Valeant, Stratos Merger Corp., a Delaware corporation and wholly-owned subsidiary of Valeant (“Merger Sub”), and B&L. Pursuant to the terms and conditions set forth in the Merger Agreement, B&L became a wholly-owned subsidiary of Valeant. At the effective time of this merger, each share of B&L common stock, par value $0.01 per share, issued and outstanding immediately prior to such effective time, other than any dissenting shares and any shares held by B&L, Valeant, Merger Sub or any of their subsidiaries, was converted into the right to receive its pro rata share (the “Per Share Merger Consideration”), without interest, of an aggregate purchase price equal to $8.7 billion minus B&L’s existing indebtedness for borrowed money (which was paid off by Valeant in accordance with the terms of the Merger Agreement) and related fees and costs, minus certain of B&L’s transaction expenses, minus certain payments with respect to certain cancelled B&L performance-based options (which were not outstanding immediately prior to such effective time), plus the aggregate exercise price applicable to B&L’s outstanding options immediately prior to such effective time, and plus certain cash amounts, all as further described in the Merger Agreement. The B&L Acquisition was financed with debt and equity issuances (see note 11 titled “LONG-TERM DEBT” for additional information). Each B&L restricted share and stock option, whether vested or unvested, that was outstanding immediately prior to such effective time, was cancelled and converted into the right to receive the Per Share Merger Consideration in the case of restricted shares or, in the case of stock options, the excess, if any, of the Per Share Merger Consideration over the exercise price of such stock option.

B&L is a global eye health company that focuses primarily on the development, manufacture and marketing of eye health products, including contact lenses, contact lens care solutions, ophthalmic pharmaceuticals and ophthalmic surgical products.

Fair Value of Consideration Transferred

The following table indicates the consideration transferred to effect the B&L Acquisition:



	Fair Value
Enterprise value	$	8,700,000
Adjusted for the following:
B&L’s outstanding debt, including accrued interest	(4,248,310		)
B&L’s company expenses	(6,377		)
Payment in B&L’s performance-based option^(a)	(48,478		)
Payment for B&L’s cash balance^(b)	149,000
Additional cash payment^(b)	75,000
Other	(3,189		)
Equity purchase price	4,617,646
Less: Cash consideration paid for B&L’s unvested stock options^(c)	(4,320		)
Total fair value of consideration transferred	$	4,613,326

___________________________________


(a)	The cash consideration paid for previously cancelled B&L’s performance-based options was recognized as a post-combination expense within Restructuring, integration and other costs in the third quarter of 2013.


(b)	As defined in the Merger Agreement.


(c)	The cash consideration paid for B&L stock options and restricted stock attributable to pre-combination services has been included as a component of purchase price. The remaining $4.3 million balance related to the acceleration of unvested stock options for B&L employees was recognized as a post-combination expense within Restructuring, integration and other costs in the third quarter of 2013.

Assets Acquired and Liabilities Assumed

The transaction has been accounted for as a business combination under the acquisition method of accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of acquisition date. 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	$	209,522
Accounts receivable^(a)	547,873
Inventories^(b)	675,818
Other current assets^(c)	146,574
Property, plant and equipment, net^(d)	761,410
Identifiable intangible assets, excluding acquired IPR&D^(e)	4,316,117
Acquired IPR&D^(f)	398,130
Other non-current assets	58,757
Current liabilities^(g)	(885,578		)
Long-term debt, including current portion^(h)	(4,209,852		)
Deferred income taxes, net⁽ⁱ⁾	(1,410,931		)
Other non-current liabilities^(j)	(280,195		)
Total identifiable net assets	327,645
Noncontrolling interest^(k)	(102,300		)
Goodwill^(l)	4,387,981
Total fair value of consideration transferred	$	4,613,326

________________________


(a)	The fair value of trade accounts receivable acquired was $547.9 million, with the gross contractual amount being $556.4 million, of which the Company expects that $8.5 million will be uncollectible.


(b)	Includes an estimated fair value adjustment to inventory of $285.5 million.


(c)	Includes primarily prepaid expenses.


(d)	The following table summarizes the provisional amounts and useful lives assigned to property, plant and equipment:



	Useful Lives (Years)	Amounts Recognized as of Acquisition Date
Land	NA	$	47,407
Buildings	19	273,180
Machinery and equipment	6	273,509
Leasehold improvements	6	22,455
Equipment on operating lease	4	13,792
Construction in progress	NA	131,067
Total property, plant and equipment acquired		$	761,410


(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
Product brands	10	$	1,770,164
Product rights	8	855,402
Corporate brand	Indefinite	1,690,551
Total identifiable intangible assets acquired	9	$	4,316,117

The corporate brand represents the B&L corporate trademark and has an indefinite useful life as there are no legal, regulatory, contractual, competitive, economic, or other factors that limit the useful life of this intangible asset. The estimated fair value was determined using the relief from royalty method.

(f)

The significant components of the acquired in-process research and development (“IPR&D”) assets primarily relate to the development of (i) various vision care products ($193.4 million in the aggregate), such as a novel silicone hydrogel planned replacement lens, (ii) various pharmaceutical products ($170.5 million, in the aggregate), such as latanoprostene bunod, a nitric oxide-donating prostaglandin for reduction of elevated intraocular pressure in patients with glaucoma or ocular hypertension, and (iii) various surgical products ($34.2 million, in the aggregate). See note 5 titled “COLLABORATION AGREEMENTS” for further information related to the worldwide licensing agreement with NicOx, S.A. (“NicOx”) for latanoprostene bunod. A multi-period excess earnings methodology (income approach) was used to determine the estimated fair values of the acquired IPR&D assets from market participant perspective. The projected cash flows from these assets were adjusted for the probabilities of successful development and commercialization of each project. A risk-adjusted discount rate of 10% was used to present value the projected cash flows. As of the acquisition date, the Company estimated that it will incur development costs, including certain milestone payments, of approximately $100 million, in the aggregate, to complete the development of the IPR&D assets. In determining fair value for latanoprostene bunod and the novel silicone hydrogel planned replacement lens, the Company assumed that material cash inflows for these products would commence in 2016 and 2014, respectively.


(g)	Includes accrued liabilities, including reserves for sales returns, rebates and managed care, accounts payable and accrued compensation-related liabilities.


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



	Amounts Recognized as of Acquisition Date
Holdco unsecured term loan⁽¹⁾	$	707,010
U.S. dollar-denominated senior secured term loan⁽¹⁾	1,915,749
Euro-denominated senior secured term loan⁽¹⁾	603,952
U.S. dollar-denominated delayed draw term loan⁽¹⁾	398,003
U.S. dollar-denominated revolver loan⁽¹⁾	170,000
9.875% senior notes⁽¹⁾	350,000
Multi-currency denominated revolver loan⁽¹⁾	15,000
Japanese revolving credit facility	33,835
Debentures	11,803
Other⁽¹⁾	4,500
Total long-term debt assumed	$	4,209,852

____________________________________


(1)	The Company subsequently repaid these amounts in full in the third quarter of 2013. In connection with the redemption of the 9.875% senior notes, the Company recognized a loss on extinguishment of debt of $8.2 million in the third quarter of 2013.


(i)	Comprises current deferred tax assets ($49.5 million) and non-current deferred tax liabilities ($1,460.4 million).


(j)	Includes $223.0 million related to the estimated fair value of pension and other benefits liabilities.


(k)	Represents the estimated fair value of B&L’s noncontrolling interest related primarily to Chinese joint ventures. A discounted cash flow methodology was used to determine the estimated fair values as of the acquisition date.


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


•	the Company’s expectation to develop and market new product brands, product lines and technology;


•	cost savings and operating synergies expected to result from combining the operations of B&L with those of the Company;


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


•	intangible assets that do not qualify for separate recognition (for instance, B&L’s assembled workforce).

The provisional amount of goodwill has been allocated to the Company’s Developed Markets segment ($3,271.6 million) and Emerging Markets segment ($1,116.4 million).

Acquisition-Related Costs

The Company has incurred to date $8.3 million of transaction costs directly related to the B&L 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 B&L

The revenues of B&L for the period from the acquisition date to September 30, 2013 were $500.9 million and net loss, net of tax, was $165.8 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 nine-month period ended September 30, 2013, the Company completed other business combinations, which included the acquisition of the following businesses, for an aggregate purchase price of $848.4 million. The aggregate purchase price included contingent consideration payment obligations with an aggregate acquisition date fair value of $59.1 million.

•

On April 25, 2013, the Company acquired all of the outstanding shares of Obagi Medical Products, Inc. (“Obagi”) at a price of $24.00 per share in cash. The aggregate purchase price paid by the Company was approximately $437.1 million. Obagi is a specialty pharmaceutical company that develops, markets, and sells topical aesthetic and therapeutic skin-health systems with a product portfolio of dermatology brands including Obagi Nu-Derm®, Condition & Enhance®, Obagi-C® Rx, ELASTIDerm® and CLENZIDerm®.

•

On February 20, 2013, the Company acquired certain assets from Eisai Inc. (“Eisai”) relating to the U.S. rights to Targretin®, which is indicated for the treatment of Cutaneous T-Cell Lymphoma. The consideration includes up-front payments of $66.5 million and the Company may pay up to an additional $60.0 million of contingent consideration based on the occurrence of potential future events. The fair value of the contingent consideration was determined to be $50.8 million as of the acquisition date. As of September 30, 2013, the assumptions used for determining fair value of the contingent consideration have not changed significantly from those used at the acquisition date.

•

On February 1, 2013, the Company acquired Natur Produkt International, JSC (“Natur Produkt”), a specialty pharmaceutical company in Russia, for a purchase price of $137.0 million, including a $20.0 million contingent refund of purchase price relating to the outcome of certain litigation involving AntiGrippin® that commenced prior to the acquisition. Subsequent to the acquisition, during the three-month period ended March 31, 2013, the litigation was resolved, and the $20.0 million was refunded back to the Company. Natur Produkt’s key brand products include AntiGrippin®, Anti-Angin®, Sage™ and Eucalyptus MA™.


•	During the nine-month period ended September 30, 2013, the Company completed other smaller acquisitions which are not material individually or in the aggregate. These acquisitions are included in the aggregated amounts presented below.

Assets Acquired and Liabilities Assumed

These transactions have been accounted for as business combinations under the acquisition method of accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed related to the business combinations, in the aggregate, as of the applicable acquisition dates. The following recognized amounts related to the Natur Produkt acquisition, as well as certain smaller acquisitions, are provisional and subject to change:


•	amounts for intangible assets, property and equipment, inventories and working capital adjustments pending finalization of the valuation;


•	amounts for income tax assets and liabilities, pending finalization of estimates and assumptions in respect of certain tax aspects of the 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 process. 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
Cash	$	43,069
Accounts receivable^(a)	64,049
Inventories	33,108
Other current assets	13,965
Property, plant and equipment	13,950
Identifiable intangible assets, excluding acquired IPR&D^(b)	689,302
Acquired IPR&D^(c)	18,714
Indemnification assets	3,201
Other non-current assets	185
Current liabilities	(36,234		)
Short-term borrowings^(d)	(33,321		)
Long-term debt^(d)	(24,018		)
Deferred tax liability, net	(147,801		)
Other non-current liabilities	(1,453		)
Total identifiable net assets	636,716
Noncontrolling interest^(e)	(11,196		)
Goodwill^(f)	222,926
Total fair value of consideration transferred	$	848,446

________________________


(a)	The fair value of trade accounts receivable acquired was $64.0 million, with the gross contractual amount being $66.2 million, of which the Company expects that $2.2 million will be uncollectible.


(b)	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 Dates
Product brands	7	$	483,592
Corporate brand	13	86,129
Patents	3	71,676
Royalty Agreement	5	26,466
Partner relationships	5	16,000
Technology	10	5,439
Total identifiable intangible assets acquired	8	$	689,302

(c)

The acquired IPR&D assets relate to the Obagi and Natur Produkt acquisitions. Obagi’s acquired IPR&D assets primarily relate to the development of dermatology products for anti-aging and suncare. Natur Produkt’s acquired IPR&D assets include a product indicated for the prevention of viral diseases, specifically cold and flu, and a product indicated for the treatment of inflammation and muscular disorders.


(d)	Short-term borrowings and long-term debt primarily relate to the Natur Produkt acquisition. In March 2013, the Company settled all of Natur Produkt’s outstanding third party short-term borrowings and long-term debt.


(e)	Represents the estimated fair value of noncontrolling interest related to a smaller acquisition completed in the third quarter of 2013.

(f)

The goodwill relates primarily to the Obagi and Natur Produkt acquisitions. Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. None of Obagi’s and Natur Produkt’s goodwill is expected to be deductible for tax purposes. The goodwill recorded from the Obagi and the Natur Produkt acquisitions represents primarily the cost savings, operating synergies and other benefits expected to result from combining the operations with those of the Company.

The amount of goodwill from the Eisai acquisition has been allocated to the Company’s Developed Markets segment. The provisional amount of goodwill from the Natur Produkt acquisition has been allocated to the Company’s Emerging Markets segment. The amount of goodwill from the Obagi acquisition has been allocated primarily to the Company’s Developed Markets segment.

Acquisition-Related Costs

The Company has incurred to date $10.0 million, in the aggregate, of transaction costs directly related to these business combinations, which includes expenditures for advisory, legal, valuation, accounting and other similar services. These costs have been expensed as acquisition-related costs.

Revenue and Earnings

The revenues of these business combinations for the period from the respective acquisition dates to September 30, 2013 were $168.9 million, in the aggregate, and earnings, net of tax, were $13.8 million, in the aggregate. The earnings, net of tax, include the effects of the acquisition accounting adjustments and acquisition-related costs.

(b) Business combinations in 2012 include the following:

Medicis

Description of the Transaction

On December 11, 2012, the Company acquired all of the outstanding common stock of Medicis for $44.00 per share (“Medicis Per Share Consideration”) for cash. Pursuant to the Agreement and Plan of Merger, dated September 2, 2012, among the Company, the Company’s subsidiary Valeant, Merlin Merger Sub, Inc. (“Merlin Merger Sub”), a Delaware corporation and wholly-owned subsidiary of Valeant, and Medicis, on December 11, 2012, Merlin 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 Medicis Per Share Consideration in cash, without interest. Each Medicis stock option and stock appreciation right, whether vested or unvested, that was outstanding immediately prior to such effective time, was cancelled and converted into the right to receive the excess, if any, of the Medicis 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 such effective time, was cancelled and converted into the right to receive the Medicis 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 Medicis 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 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.



	Amounts Recognized as of Acquisition Date (as previously reported)^(a)			Measurement Period Adjustments^(b)			Amounts Recognized as of September 30, 2013 (as adjusted)
Cash and cash equivalents	$	169,583		$	—		$	169,583
Accounts receivable^(c)	81,092			9,116			90,208
Inventories^(d)	145,157			(7,635		)	137,522
Short-term and long-term investments^(e)	626,559			—			626,559
Income taxes receivable	40,416			—			40,416
Other current assets^(f)	74,622			—			74,622
Property and equipment, net	8,239			(5,625		)	2,614
Identifiable intangible assets, excluding acquired IPR&D^(g)	1,390,724			(21,843		)	1,368,881
Acquired IPR&D^(h)	153,817			5,992			159,809
Other non-current assets	616			—			616
Current liabilities⁽ⁱ⁾	(453,909		)	(12,375		)	(466,284		)
Long-term debt, including current portion^(j)	(777,985		)	—			(777,985		)
Deferred income taxes, net	(205,009		)	12,204			(192,805		)
Other non-current liabilities	(8,841		)	—			(8,841		)
Total identifiable net assets	1,245,081			(20,166		)	1,224,915
Goodwill^(k)	1,333,798			20,166			1,353,964
Total fair value of consideration transferred	$	2,578,879		$	—		$	2,578,879

______________________


(a)	As previously reported in the 2012 Form 10-K.

(b)

The measurement period adjustments primarily reflect: (i) reductions in the estimated fair value of a product brand intangible asset and property and equipment; (ii) changes in estimated inventory reserves; (iii) changes in certain assumptions impacting the fair value of acquired IPR&D; (iv) additional information obtained with respect to the valuation of certain pre-acquisition contingent assets, as well as legal and milestone obligations; and (v) 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 $90.2 million, with the gross contractual amount being $90.3 million, of which the Company expects that $0.1 million will be uncollectible.


(d)	Includes an estimated fair value adjustment to inventory of $104.6 million.

(e)

Short-term and long-term investments consist of corporate and various government agency and municipal debt securities, investments in auction rate floating securities (student loans), and investments in equity securities. Subsequent to the acquisition date, the Company liquidated these investments for proceeds of $615.4 million, $9.0 million and $8.0 million in the fourth quarter of 2012, the first quarter of 2013, and the second quarter of 2013, respectively.


(f)	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.


(g)	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 September 30, 2013 (as adjusted)
In-licensed products	11	$	633,429	$	2,283		$	635,712
Product brands	8	491,627		(24,877		)	466,750
Patents	5	224,985		1,148			226,133
Corporate brands	14	40,683		(397		)	40,286
Total identifiable intangible assets acquired	9	$	1,390,724	$	(21,843	)	$	1,368,881

(h)

The significant components of the acquired IPR&D assets primarily 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 ($136.9 million, in the aggregate), and the development of aesthetics programs ($22.9 million). A New Drug Application (“NDA”) for Luliconazole was submitted to the U.S. Food and Drug Administration (“FDA”) on December 11, 2012. A multi-period excess earnings methodology (income approach) was primarily 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. On April 30, 2013, the Company agreed to sell the worldwide rights in its Metronidazole 1.3% Vaginal Gel antibiotic development product, a topical antibiotic for the treatment of bacterial vaginosis, to Actavis Specialty Brands for approximately $55 million, which includes upfront and certain milestone payments, and minimum royalties for the first three years of commercialization. For further details, see note 21 titled “PENDING TRANSACTION”.


(i)	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.


(j)	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 September 30, 2013, the Company redeemed the 2.50% Contingent Convertible Senior Notes, the 1.50% Contingent Convertible Senior Notes and a portion of the 1.375% Convertible Senior Notes. For further details, see note 11 titled “LONG-TERM DEBT”.


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


•	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 goodwill has been allocated to the Company’s Developed Markets segment.

OraPharma

Description of the Transaction

On June 18, 2012, the Company acquired all of the outstanding common stock and preferred stock of 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. Pursuant to the Agreement and Plan of Merger, dated June 14, 2012, by and among Valeant, Orange Acquisition, Inc. (“Orange Merger Sub”), a Delaware corporation and wholly-owned subsidiary of Valeant, OraPharma and a representative of the shareholder of Orapharma, Orange Merger Sub merged with and into OraPharma with OraPharma continuing as the surviving entity and wholly-owned subsidiary of Valeant. 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 September 30, 2013, 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. In June 2013, the Company made a contingent consideration payment of $38.3 million. In July 2013, the Company made a contingent consideration payment of $1.7 million.

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

The transaction has been accounted for as a business combination under the acquisition method of accounting. As of September 30, 2013, the Company has not recognized any additional measurement period adjustments to the amounts previously reported in the 2012 Form 10-K. The amount of goodwill of $120.1 million has been allocated to the Company’s Developed Markets segment.

Other Business Combinations

Description of the Transactions

In the year ended December 31, 2012, the Company completed other business combinations, which included the acquisition of the following businesses, as well as other smaller acquisitions, for an aggregate purchase price of $807.5 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 $41.7 million, relating to the rights in various ex-North American territories to the 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 September 30, 2013, 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 September 30, 2013, 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 September 30, 2013, 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 $7.9 million as of September 30, 2013. 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 September 30, 2013, the assumptions used for determining fair value of the contingent consideration have not changed significantly from those used at the acquisition date. In June 2013, the Company made a contingent consideration payment of $6.5 million (€5.0 million). In September 2013, the Company made a contingent consideration payment of $6.7 million (€5.0 million). 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



	Amounts Recognized as of Acquisition Dates			Measurement Period Adjustments^(a)			Amounts Recognized as of September 30, 2013 (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			(8,091		)	56,728
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			1,527			668,146
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			(134		)	745,474
Goodwill^(f)	70,600			(8,587		)	62,013
Total fair value of consideration transferred	$	816,208		$	(8,721	)	$	807,487

________________________

(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 September 30, 2013.


(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 September 30, 2013 (as adjusted)
Product brands	10	$	456,720	$	(1,325	)	$	455,395
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	$	1,527		$	668,146

(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 had been placed in escrow in accordance with the indemnification provisions. The escrow account will be maintained for two years, of which 50% was released to the sellers in February 2013 and the remaining balance will be 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 Developed Markets segment. The amount of goodwill from the J&J ROW, Probiotica, Atlantis and Gerot Lannach acquisitions has been allocated to the Company’s Emerging Markets segment.

Pro Forma Impact of Business Combinations

The following table presents unaudited pro forma consolidated results of operations for the three-month and nine-month periods ended September 30, 2013 and 2012, as if the 2013 acquisitions had occurred as of January 1, 2012 and the 2012 acquisitions had occurred as of January 1, 2011.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenues	$	1,805,197		$	1,910,348		$	5,602,093		$	5,745,192
Net loss attributable to Valeant Pharmaceuticals International, Inc.	(960,328		)	(113,069		)	(1,045,224		)	(543,133		)

Loss per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic and diluted	$	(2.88	)	$	(0.34	)	$	(3.13	)	$	(1.63	)

The decline in pro forma revenues in the three-month period ended September 30, 2013 as compared to the three-month period ended September 30, 2012 was primarily due to lower sales of the Zovirax® franchise, Retin-A Micro® and BenzaClin® due to generic competition, partially offset by growth from the remaining business.

The decline in pro forma revenues in the nine-month period ended September 30, 2013 as compared to the nine-month period ended September 30, 2012 was primarily due to (i) lower sales of the Zovirax® franchise, Retin-A Micro®, BenzaClin® and Cesamet® due to generic competition and (ii) lower alliance and royalty revenue resulting from (a) alliance revenue recognized in the first quarter of 2012 related to the divestitures of 1% clindamycin and 5% benzoyl peroxide gel (“IDP-111”), a generic version of BenzaClin®, and 5% fluorouracil cream (“5-FU”), an authorized generic of Efudex® (see note 4 titled “DIVESTITURES” for further information), and (b) a milestone payment recognized in the second quarter of 2012 from GSK in connection with the launch of Potiga® (see note 5 titled “COLLABORATION AGREEMENTS” for further information). These declines were partially offset by growth from the remaining business.

The unaudited pro forma consolidated results of operations were prepared using the acquisition method of accounting and are based on the historical financial information of the Company and the acquired businesses described above. Except to the extent realized in the three-month and nine-month periods ended September 30, 2013, the unaudited pro forma information does not reflect any cost savings, operating synergies and other benefits that the Company may achieve as a result of these acquisitions, or the costs necessary to achieve these cost savings, operating synergies and other benefits. In addition, except to the extent recognized in the three-month and nine-month periods ended September 30, 2013, the unaudited pro forma information does not reflect the costs to integrate the operations of the Company with those of the acquired businesses.

The unaudited pro forma information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the 2013 acquisitions and the 2012 acquisitions been completed on January 1, 2012 and January 1, 2011, respectively. In addition, the unaudited pro forma information does not purport to project the future results of operations of the Company. The unaudited pro forma information reflects primarily the following adjustments:


•	elimination of the historical intangible asset amortization expense of these acquisitions;


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


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


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

•

the exclusion from pro forma earnings in the nine-month period ended September 30, 2013 of the acquisition accounting adjustments on these acquisitions’ inventories that were sold subsequent to the acquisition date of $216.6 million, in the aggregate, and the exclusion of $19.6 million of acquisition-related costs, in the aggregate, incurred primarily for these acquisitions in the nine-month period ended September 30, 2013, and the inclusion of those amounts in pro forma earnings for the corresponding comparative periods; and

•

the exclusion from pro forma earnings in the three-month period ended September 30, 2013 of the acquisition accounting adjustments on these acquisitions’ inventories that were sold subsequent to the acquisition date of $148.7 million, in the aggregate, and the exclusion of $7.2 million of acquisition-related costs, in the aggregate, incurred primarily for these acquisitions in the three-month period ended September 30, 2013, and the inclusion of those amounts in pro forma earnings for the corresponding comparative periods.

In addition, all of the above adjustments were adjusted for the applicable tax impact.