SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

13.   SHARE-BASED COMPENSATION

• The following table summarizes the components and classification of share-based compensation expense related to stock options and RSUs for the three-month and nine-month periods ended September 30, 2011 and 2010:

	Three Months Ended September 30				Nine Months Ended September 30
	2011		2010		2011		2010
Stock options(a)	$	9,218	$	41,082	$	35,943	$	42,264
RSUs		8,369		27,202		37,095		29,572
Stock-based compensation expense	$	17,587	$	68,284	$	73,038	$	71,836
Cost of goods sold(a)(b)	$	278	$	536	$	980	$	797
Selling, general and administrative expenses(a)(b)		16,581		21,435		70,479		24,267
Research and development expenses(a)(b)		278		648		980		1,107
Restructuring and integration costs		450		45,665		599		45,665
Stock-based compensation expense	$	17,587	$	68,284	$	73,038	$	71,836

(a)

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.

(b)

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, which was recognized immediately as post-Merger compensation expense in 2010 and allocated as follows: cost of goods sold ($0.4 million), selling, general and administrative expenses ($20.1 million) and research and development expenses ($0.4 million).

• The Company recognized $2.1 million and $33.7 million of tax benefits from stock options exercised in the three-month and nine-month periods ended September 30, 2011, respectively. The Company did not recognize any tax benefits from stock options exercised during the corresponding periods of 2010.

  Stock Options

  The following table summarizes stock option activity during the nine-month period ended September 30, 2011:

	Options (000s)			Weighted- Average Exercise Price		Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding, January 1, 2011		12,203		$	11.99
Granted		934			47.75
Equitable adjustment		380			11.00
Exercised		(2,158	)		15.20
Expired or forfeited		(459	)		21.34
Outstanding, September 30, 2011		10,900		$	13.79		6.1	$	264,032
Vested and exercisable, September 30, 2011		4,795		$	6.70		5.5	$	145,890

• The weighted-average grant-date fair value of stock options granted to employees in the nine-month period ended September 30, 2011 was $12.03. The total intrinsic value of stock options exercised in the nine-month period ended September 30, 2011 was $22.8 million. Proceeds received on the exercise of stock options in the nine-month period ended September 30, 2011 amounted to $34.2 million. As of September 30, 2011, the total remaining unrecognized compensation expense related to non-vested stock options amounted to $52.3 million, which will be amortized over the weighted-average remaining requisite service period of approximately 1.6 years.

  Time-Based RSUs

  The following table summarizes non-vested time-based RSU activity during the nine-month period ended September 30, 2011:

	Time-Based RSUs (000s)			Weighted- Average Grant-Date Fair Value
Non-vested, January 1, 2011		2,213		$	24.61
Granted		228			50.02
Vested		(287	)		17.63
Forfeited		(115	)		19.42
Non-vested, September 30, 2011		2,039		$	28.72

• As of September 30, 2011, the total remaining unrecognized compensation expense related to non-vested time-based RSUs amounted to $23.2 million, which will be amortized over the weighted-average remaining requisite service period of approximately 1.3 years.

  Performance-Based RSUs

  The following table summarizes non-vested performance-based RSU activity during the nine-month period ended September 30, 2011:

	Performance- Based RSUs (000s)			Weighted- Average Grant-Date Fair Value
Non-vested, January 1, 2011		2,496		$	33.25
Granted		219			56.31
Vested		(751	)		52.72
Forfeited		(82	)		17.82
Non-vested, September 30, 2011		1,882		$	28.85

• As of September 30, 2011, the total remaining unrecognized compensation expense related to non-vested performance-based RSUs amounted to $38.1 million, which will be amortized over the weighted-average remaining requisite service period of approximately 1.8 years.

  Deferred Share Units

  Prior to May 2011, non-management directors received non-cash compensation in the form of deferred share units ("DSUs"), which entitled such directors to receive a lump-sum cash payment in respect of their DSUs either following the date upon which they ceased to be a director of the Company or, with respect to DSUs granted after the Merger Date as part of the annual retainer, one year after such date. Effective May 16, 2011 (the "Modification Date"), the board of directors of the Company modified the existing DSUs held by current directors from units settled in cash to units settled in common shares, which changed these DSUs from a liability award to an equity award. Accordingly, as of the Modification Date, the Company reclassified the $9.3 million aggregate fair value of the 182,053 DSUs then held by current directors from accrued liabilities to additional paid-in capital. In the period from January 1, 2011 to the Modification Date, the Company recorded $3.6 million of compensation expense related to the change in the fair value of the DSUs held by current directors. As the modified DSUs were fully vested, no additional compensation expense will be recognized after the Modification Date. The DSUs held by former directors of Biovail were not affected by the modification and will continue to be cash settled. In the nine-month period ended September 30, 2011, the Company recognized $2.8 million of compensation expense in restructuring and integration costs related to the change in the fair value of DSUs still held by former directors of Biovail. As of September 30, 2011, there were 64,294 DSUs still held by former directors of Biovail.

  The following table summarizes DSU activity during the nine-month period ended September 30, 2011:

	DSUs (000s)			Weighted- Average Grant-Date Fair Value
Outstanding, January 1, 2011		382		$	14.43
Granted		18			39.79
Settled for cash		(204	)		15.09
Outstanding, September 30, 2011		196		$	16.06

• Effective May 16, 2011, in lieu of grants of DSUs, unless the Company determines otherwise, non-management directors will receive their annual equity compensation retainer in the form of RSUs, which will vest immediately upon grant and will be settled in common shares of the Company on the first anniversary of the date upon which the director ceases to be a director of the Company. In addition, a non-management director may elect to receive some or all of his or her cash retainers in RSUs, which will be vested upon grant and will be settled in common shares of the Company when the director ceases to be a director of the Company (unless a different payment is elected in accordance with the procedures established by the Company).