##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission file number: 1-11397
 Valeant Pharmaceuticals International
 (Exact name of registrant as specified in its charter)
 Delaware
    
    33-0628076(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)One Enterprise
    
    92656Aliso Viejo, California
    
    (Zip Code)(Address of principal executive offices)
 (949) 461-6000  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



VALEANT PHARMACEUTICALS INTERNATIONAL
 INDEX
 PageNumberPART I  FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)
    
    
    2Consolidated Condensed Balance Sheets as of March 31, 2009 and December 31, 2008
    
    
    2Consolidated Condensed Statements of Operations for the three months ended March 31,
2009 and 2008
    
    
    3Consolidated Condensed Statements of Comprehensive Income for the three months ended
March 31, 2009 and 2008
    
    
    4Consolidated Condensed Statements of Cash Flows for the three months ended March 31,
2009 and 2008
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    47Item 4. Controls and Procedures
    
    
    47PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    49Item 1A. Risk Factors
    
    
    49Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    49Item 6. Exhibits
    
    
    49SIGNATURES
    
    
    51EX-10.2EX-15.1EX-15.2EX-31.1EX-31.2EX-32.1
  1




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 VALEANT PHARMACEUTICALS INTERNATIONAL
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 As of March 31, 2009 and December 31, 2008
(unaudited)
 March 31,
    
    
    December 31,2009
    
    
    2008( In thousands, except par value data)ASSETSCurrent Assets:Cash and cash
equivalents
    
    $
    139,909
    
    
    $
    199,582Marketable
securities
    
    
    5,930
    
    
    
    19,193Accounts
receivable, net
    
    
    122,172
    
    
    
    144,509Inventories, net
    
    
    70,564
    
    
    
    72,972Prepaid expenses
and other
current assets
    
    
    14,216
    
    
    
    17,605Current deferred
tax assets, net
    
    
    15,425
    
    
    
    16,179Income taxes
    
    
    13,145
    
    
    
    Total
current
assets
    
    
    381,361
    
    
    
    470,040Property, plant and
equipment, net
    
    
    84,194
    
    
    
    90,228Deferred tax
assets, net
    
    
    32,431
    
    
    
    14,850Goodwill
    
    
    98,132
    
    
    
    114,634Intangible assets,
net
    
    
    446,095
    
    
    
    467,795Other assets
    
    
    26,673
    
    
    
    28,385Total
non-current
assets
    
    
    687,525
    
    
    
    715,892$
    1,068,886
    
    
    $
    1,185,932LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Trade payables
    
    $
    29,097
    
    
    $
    41,638Accrued
liabilities
    
    
    196,536
    
    
    
    231,451Notes payable
and current
portion of
long-term debt
    
    
    318
    
    
    
    666Deferred revenue
    
    
    16,616
    
    
    
    15,415Income taxes
payable
    
    
    5,198
    
    
    
    2,497Current deferred
tax liabilities,
net
    
    
    22
    
    
    
    52Current
liabilities for
uncertain tax
positions
    
    
    504
    
    
    
    478Total
current
liabilities
    
    
    248,291
    
    
    
    292,197Long-term debt,
less current
portion
    
    
    340,076
    
    
    
    398,136Deferred revenue
    
    
    9,286
    
    
    
    11,841Deferred tax
liabilities, net
    
    
    3,350
    
    
    
    3,206Liabilities for
uncertain tax
positions
    
    
    53,903
    
    
    
    53,425Other liabilities
    
    
    154,599
    
    
    
    175,379Total
non-current
liabilities
    
    
    561,214
    
    
    
    641,987Total
liabilities
    
    
    809,505
    
    
    
    934,184Commitments and
contingenciesStockholders
Equity:Common stock, $0.01 par value; 200,000
shares authorized; 82,185 (March 31, 2009)
and 81,753 (December 31, 2008) shares
outstanding (after deducting shares in
treasury of 18,688 as of March 31,
2009 and December 31, 2008)
    
    
    822
    
    
    
    818Additional
capital
    
    
    1,144,213
    
    
    
    1,138,575Accumulated
deficit
    
    
    (874,589
    )
    
    
    (905,784
    )Accumulated
other
comprehensive
income
    
    
    (11,083
    )
    
    
    18,122Total
Valeant
stockholders
equity
    
    
    259,363
    
    
    
    251,732Noncontrolling
interest
    
    
    18
    
    
    
    17Total
stockholders
equity
    
    
    259,381
    
    
    
    251,748$
    1,068,886
    
    
    $
    1,185,932
  2




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VALEANT PHARMACEUTICALS INTERNATIONAL
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 For the three months ended March 31, 2009 and 2008
 Three Months EndedMarch 31,2009
    
    
    2008( Unaudited , in thousands, except per share data)Revenues:Product sales
    
    $
    152,833
    
    
    $
    139,210Service revenue
    
    
    6,738
    
    
    
    Alliances (including ribavirin royalties)
    
    
    18,352
    
    
    
    12,773Total revenues
    
    
    177,923
    
    
    
    151,983Costs and expenses:Cost of goods sold (excluding amortization)
    
    
    39,697
    
    
    
    35,755Cost of services
    
    
    4,326
    
    
    
    Selling, general and administrative
    
    
    64,216
    
    
    
    69,439Research and development costs, net
    
    
    8,735
    
    
    
    29,294Restructuring, asset impairments and dispositions
    
    
    1,211
    
    
    
    (13,190
    )Amortization expense
    
    
    17,004
    
    
    
    13,329Total costs and expenses
    
    
    135,189
    
    
    
    134,627Income from operations
    
    
    42,734
    
    
    
    17,356Other income (expense), net including translation and exchange
    
    
    1,212
    
    
    
    (1,531
    )Gain on early extinguishment of debt
    
    
    4,599
    
    
    
    Interest income
    
    
    1,835
    
    
    
    4,724Interest expense
    
    
    (8,013
    )
    
    
    (13,384
    )Income from continuing operations before income taxes
    
    
    42,367
    
    
    
    7,165Provision for income taxes
    
    
    11,569
    
    
    
    4,659Income from continuing operations
    
    
    30,798
    
    
    
    2,506Income from discontinued operations, net of tax
    
    
    398
    
    
    
    3,293Net income
    
    
    31,196
    
    
    
    5,799Less: Net income attributable to noncontrolling interest
    
    
    1
    
    
    
    2Net income attributable to Valeant
    
    $
    31,195
    
    
    $
    5,797Basic income per share attributable to Valeant:Income from continuing operations attributable to Valeant
    
    $
    0.37
    
    
    $
    0.03Income from discontinued operations attributable to Valeant
    
    
    0.01
    
    
    
    0.03Net income per share attributable to Valeant
    
    $
    0.38
    
    
    $
    0.06Diluted income per share attributable to Valeant:Income from continuing operations attributable to Valeant
    
    $
    0.37
    
    
    $
    0.03Income from discontinued operations attributable to Valeant
    
    
    
    
    
    
    0.03Net income per share attributable to Valeant
    
    $
    0.37
    
    
    $
    0.06Shares used in per share computation  Basic
    
    
    82,548
    
    
    
    89,590Shares used in per share computation  Diluted
    
    
    83,402
    
    
    
    90,212
  3




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VALEANT PHARMACEUTICALS INTERNATIONAL
 
 CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
 For the three months ended March 31, 2009 and 2008
 Three Months EndedMarch 31,2009
    
    
    2008(Unaudited, in thousands)Net income
    
    $
    31,196
    
    
    $
    5,799Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    (29,485
    )
    
    
    53,569Unrealized gain (loss) on marketable equity
securities
    
    
    
    
    
    
    (1,874
    )Unrealized gain (loss) on hedges
    
    
    211
    
    
    
    (595
    )Pension liability adjustment
    
    
    69
    
    
    
    14Comprehensive income
    
    $
    1,991
    
    
    $
    56,913
  4




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VALEANT PHARMACEUTICALS INTERNATIONAL
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 For the three months ended March 31, 2009 and 2008
 Three Months EndedMarch 31,2009
    
    
    2008(Unaudited, in thousands)Cash flows from operating activities:Net income
    
    $
    31,196
    
    
    $
    5,799Income from discontinued operations
    
    
    398
    
    
    
    3,293Income from continuing operations
    
    
    30,798
    
    
    
    2,506Adjustments to reconcile income from continuing operations to net
cash provided by
operating activities in continuing operations:Depreciation and amortization
    
    
    20,764
    
    
    
    17,795Provision for losses on accounts receivable and inventory
    
    
    536
    
    
    
    5,877Stock compensation expense
    
    
    4,322
    
    
    
    2,372Translation and exchange (gains) losses, net
    
    
    (1,181
    )
    
    
    1,532Impairment charges and other non-cash items
    
    
    5,508
    
    
    
    (18,720
    )Payments of
accreted interest on long-term debt and notes payable
    
    
    (13,277
    )
    
    
    Deferred income taxes
    
    
    (2,201
    )
    
    
    2,001Gain on extinguishment of debt
    
    
    (4,599
    )
    
    
    Change in assets and liabilities, net of effects of acquisitions:Accounts receivable
    
    
    15,093
    
    
    
    33,789Inventories
    
    
    (2,918
    )
    
    
    (6,050
    )Prepaid expenses and other assets
    
    
    3,461
    
    
    
    (731
    )Trade payables and accrued liabilities
    
    
    4,431
    
    
    
    10,047Income taxes
    
    
    (9,960
    )
    
    
    244Other liabilities
    
    
    (12,955
    )
    
    
    (236
    )Cash flow from operating activities in continuing operations
    
    
    37,822
    
    
    
    50,426Cash flow from operating activities in discontinued operations
    
    
    (2,149
    )
    
    
    (7,457
    )Net cash provided by operating activities
    
    
    35,673
    
    
    
    42,969Cash flows from investing activities:Capital expenditures
    
    
    (7,076
    )
    
    
    (3,631
    )Proceeds from sale of assets
    
    
    255
    
    
    
    289Proceeds from sale of businesses
    
    
    
    
    
    
    36,317Proceeds from investments
    
    
    13,541
    
    
    
    35,037Purchase of investments
    
    
    (802
    )
    
    
    (500
    )Acquisition of businesses, license rights and product lines
    
    
    (32,211
    )
    
    
    (504
    )Cash flow from investing activities in continuing operations
    
    
    (26,293
    )
    
    
    67,008Cash flow from investing activities in discontinued operations
    
    
    (10,273
    )
    
    
    69,497Net cash provided by (used in) investing activities
    
    
    (36,566
    )
    
    
    136,505Cash flows from financing activities:Payments on long-term debt and notes payable
    
    
    (52,779
    )
    
    
    (398
    )Proceeds from capitalized lease financing, long-term debt and notes
payable
    
    
    2,006
    
    
    
    50Stock option exercises
    
    
    7,036
    
    
    
    Cash flow from financing activities in continuing operations
    
    
    (43,737
    )
    
    
    (348
    )Cash flow from financing activities in discontinued operations
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (43,737
    )
    
    
    (348
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (15,043
    )
    
    
    9,606Net increase (decrease) in cash and cash equivalents
    
    
    (59,673
    )
    
    
    188,732Cash and cash equivalents at beginning of period
    
    
    199,582
    
    
    
    309,365Cash and cash equivalents at end of period
    
    
    139,909
    
    
    
    498,097Cash and cash equivalents classified as part of discontinued operations
    
    
    
    
    
    
    (25,992
    )Cash and cash equivalents of continuing operations
    
    $
    139,909
    
    
    $
    472,105
  5




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VALEANT PHARMACEUTICALS INTERNATIONAL
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 March 31, 2009
(Unaudited)
(all amounts in thousands, except share and per share amounts, unless otherwise indicated)
  1. Organization and Summary of Significant Accounting Policies
 Organization:
 Principles of Consolidation:
 Marketable Securities:
 Accumulated Other Comprehensive Income
 Discontinued Operations Accounting
for the Disposal and Impairment of Long-Lived Assets Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in
Determining Whether to Report Discontinued Operations
 Stock-Based Compensation Share-Based Payment
 6




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VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  Income Taxes Accounting for
Income Taxes
 Derivative Financial Instruments
 Per Share Information
 Use of Estimates:
 Recent Accounting Pronouncements:
 Noncontrolling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51
 Effective Date of FASB Statement
No. 157 Fair Value Measurements
 Business Combinations
 7




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VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  Accounting for Collaborative Arrangements
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133
 Determination of the Useful
Life of Intangible Assets Goodwill and Other Intangible Assets
 Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
   
    
    Financial statements for each individual prior period presented shall be adjusted to
reflect the period-specific effects of applying the new accounting principle.
    
    The cumulative effect of the change on periods prior to those presented shall be
reflected in the carrying amount of assets and liabilities as of the beginning of the
first period presented.
    
    An offsetting adjustment, if any, shall be made to the opening balance of retained
earnings for that period.
 8




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VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  Three Months EndedMarch 31, 2008AsOriginallyReportedAndAdjusted ForDiscontinued
    
    AsOperations
    
    AdjustedInterest expense
    
    $
    9,730
    
    
    $
    13,384Income from continuing operations
    
    
    6,160
    
    
    
    2,506Net income attributable to Valeant
    
    
    9,450
    
    
    
    5,797Basic income per share:Income from continuing operations
    
    $
    0.07
    
    
    $
    0.03Net income attributable to Valeant
    
    
    0.11
    
    
    
    0.06Diluted income per share:Income from continuing operations
    
    $
    0.07
    
    
    $
    0.03Net income attributable to Valeant
    
    
    0.10
    
    
    
    0.06
 As ofDecember 31, 2008Originally
    
    AsReported
    
    AdjustedOther assets
    
    $
    29,805
    
    
    $
    28,385Long-term debt, less current portion
    
    
    447,862
    
    
    
    398,136Additional capital (1)
    
    
    1,067,758
    
    
    
    1,138,575Accumulated deficit (1)
    
    
    (883,273
    )
    
    
    (905,784
    )
 
 (1)
    
    The as adjusted balance includes $0.8 million related to tax deductions for restricted
stock. Recognition and
Presentation of Other-Than-Temporary Impairments
 Interim Disclosures
about Fair Value of Financial Instruments Disclosures about Fair Value of Financial Instruments
 2. Restructuring
  9




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VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 Employers
Accounting for Postemployment Benefits Accounting for Costs Associated with Exit or Disposal
Activities Accounting for the Impairment or Disposal
of Long-lived Assets
 2008 Restructuring
      10




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VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  2008 Restructuring
 Three MonthsEndedMarch 31,2009Severance costs (22 employees)
    
    $
    928Contract cancellation costs, legal and professional fees and other associated costs
    
    
    255Subtotal: cash charges
    
    
    1,183Non-cash charges
    
    
    28Restructurings, asset impairments and dispositions
    
    $
    1,211
   2008
Restructuring
 Three MonthsEndedMarch 31,2008Severance costs (15 employees)
    
    $
    6,215Contract cancellation costs, legal and professional fees and other associated costs
    
    
    4,886Subtotal: cash charges
    
    
    11,101Stock compensation
    
    
    4,778Impairment of long-lived assets
    
    
    7,853Subtotal: restructuring expenses
    
    
    23,732Gain on Invida transaction
    
    
    (36,922
    )Restructurings, asset impairments and dispositions
    
    $
    (13,190
    )
 Reconciliation of Cash Restructuring Payments with Restructuring Accrual
  2008 and 2006 Restructuring: Reconciliation of Cash Payments and Accruals
 Restructuring accrual, December 31, 2008
    
    $
    10,926Charges to earnings
    
    
    1,183Cash paid
    
    
    (3,705
    )Restructuring accrual, March 31, 2009
    
    $
    8,404
 11




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 3. Acquisitions and Collaboration Agreement
 Dow Acquisition
      Value ofIntangible
    
    
    Weighted-AverageAssets
    
    
    AmortizationAcquired
    
    
    PeriodDeveloped formulations
    
    $
    104,500
    
    
    6.1 yearsOutlicensed technology
    
    
    70,000
    
    
    9.5 yearsCustomer relationships
    
    
    6,600
    
    
    7.0 yearsTotal identifiable intangible assets
    
    $
    181,100
 Coria Acquisition
  12




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VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  Value ofIntangible
    
    
    Weighted-AverageAssets
    
    
    AmortizationAcquired
    
    
    PeriodDeveloped technology
    
    $
    74,900
    
    
    19.8 years
 Collaboration Agreement with GSK:
   Three MonthsEndedMarch 31,2009Valeant research and development costs
    
    $
    7,947Valeant selling, general and administrative
    
    
    1498,096GSK expenses
    
    
    5,303Total spending for Collaboration Agreement
    
    $
    13,399Equalization (difference between individual partner costs and 50% of total)
    
    $
    1,397
 13




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VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  Three Months Ended March 31, 2009Selling,
    
    
    ResearchBalance
    
    
    Alliance
    
    
    General and
    
    
    andCollaboration Accounting Impact
    
    Sheet
    
    
    Revenue
    
    
    Administrative
    
    
    DevelopmentUpfront payment from GSK
    
    $
    125,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Release from upfront payment in prior quarter
    
    
    (10,909
    )
    
    
    
    
    
    
    
    
    
    
    Incurred cost in current quarter
    
    
    
    
    
    
    
    
    
    
    149
    
    
    
    7,947Incurred cost offset
    
    
    (6,699
    )
    
    
    
    
    
    
    (387
    )
    
    
    (6,312
    )Recognize alliance revenue
    
    
    (3,318
    )
    
    
    (3,318
    )
    
    
    
    
    
    
    Release from upfront payment
    
    
    (10,017
    )
    
    
    
    
    
    
    
    
    
    
    Remaining upfront payment from GSK
    
    $
    104,074
    
    
    
    
    
    
    
    
    
    
    
    Equalization receivable from GSK
    
    
    1,397
    
    
    
    
    
    
    
    238
    
    
    
    (1,635
    )Total equalization receivable from GSK
    
    $
    1,397
    
    
    
    
    
    
    
    
    
    
    
    Total expense and revenue
    
    
    
    
    
    $
    (3,318
    )
    
    $
    
    
    
    $
    Accrued liabilities
    
    $
    40,481Other liabilities
    
    
    40,698Deferred revenue short-term
    
    
    13,624Deferred revenue long-term
    
    
    9,271Remaining upfront payment from GSK
    
    $
    104,074
  4. Discontinued Operations
   .
 14




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VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  Three Months EndedMarch 31,2009
    
    
    2008WEEMEA Business:Product sales
    
    $
    
    
    
    $
    42,703Costs and expenses:Cost of goods sold (excluding amortization)
    
    
    
    
    
    
    19,135Selling, general and administrative
    
    
    
    
    
    
    20,457Research and development costs, net
    
    
    
    
    
    
    98Restructuring, asset impairments and dispositions
    
    
    
    
    
    
    526Amortization expense
    
    
    
    
    
    
    4,736Total costs and expenses
    
    
    
    
    
    
    44,952Other expense
    
    
    
    
    
    
    (1,488
    )Loss from discontinued operations before income taxes, WEEMEA
    
    
    
    
    
    
    (3,737
    )Infergen:Product sales
    
    
    
    
    
    
    1,050Costs and expenses:Cost of goods sold (excluding amortization)
    
    
    
    
    
    
    2,076Selling, general and administrative
    
    
    
    
    
    
    1,365Research and development costs, net
    
    
    
    
    
    
    9,684Amortization expense
    
    
    
    
    
    
    Total costs and expenses
    
    
    
    
    
    
    13,125Loss from discontinued operations, Infergen
    
    
    
    
    
    
    (12,075
    )Other discontinued operations:Other expense
    
    
    (120
    )
    
    
    Consolidated discontinued operations:Loss from discontinued operations before income taxes
    
    
    (120
    )
    
    
    (15,812
    )Provision for income taxes
    
    
    
    
    
    
    4,291Loss from discontinued operations
    
    
    (120
    )
    
    
    (20,103
    )Disposal of discontinued operations, net
    
    
    518
    
    
    
    23,396Income from discontinued operations, net
    
    $
    398
    
    
    $
    3,293
 15




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 5. Fair Value Measurements
      Assets (Liabilities)
    
    Assets (Liabilities)March 31, 2009
    
    December 31, 2008Level 1
    
    Level 2
    
    Level 3
    
    Level 1
    
    Level 2
    
    Level 3Available-for-sale securities
    
    $
    1,445
    
    
    $
    
    
    
    $
    
    
    
    $
    6,646
    
    
    $
    
    
    
    $
    Undesignated hedges
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    157
    
    
    
    Net investment derivative contracts
    
    
    
    
    
    
    (121
    )
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    Cash flow derivative contracts
    
    
    
    
    
    
    211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   16




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 6. Earnings Per Share
  2009
    
    
    2008Income:Numerator for basic and diluted earnings per share attributable to Valeant:Income from continuing operations attributable to Valeant
    
    $
    30,797
    
    
    $
    2,504Income from discontinued operations
    
    
    398
    
    
    
    3,293Net income attributable to Valeant
    
    $
    31,195
    
    
    $
    5,797Shares:Denominator for basic earnings per share attributable to Valeant:Weighted shares outstanding
    
    
    82,104
    
    
    
    89,286Vested stock equivalents (not issued)
    
    
    444
    
    
    
    304Denominator for basic earnings per share attributable to Valeant
    
    
    82,548
    
    
    
    89,590Denominator for diluted earnings per share attributable to Valeant:Employee stock options
    
    
    546
    
    
    
    480Other dilutive securities
    
    
    308
    
    
    
    142Dilutive potential common shares
    
    
    854
    
    
    
    622Denominator for diluted earnings per share attributable to Valeant
    
    
    83,402
    
    
    
    90,212Basic income per share attributable to Valeant:Income from continuing operations attributable to Valeant
    
    $
    0.37
    
    
    $
    0.03Income from discontinued operations
    
    
    0.01
    
    
    
    0.03Net income per share attributable to Valeant
    
    $
    0.38
    
    
    $
    0.06Diluted income per share attributable to Valeant:Income from continuing operations attributable to Valeant
    
    $
    0.37
    
    
    $
    0.03Income from discontinued operations
    
    
    
    
    
    
    0.03Net income per share attributable to Valeant
    
    $
    0.37
    
    
    $
    0.06
   17




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 7. Detail of Certain Accounts
  March 31,
    
    
    December 31,2009
    
    
    2008Accounts receivable, net:Trade accounts receivable
    
    $
    90,094
    
    
    $
    93,796Royalties receivable
    
    
    15,004
    
    
    
    21,774Other receivables
    
    
    20,280
    
    
    
    33,038125,378
    
    
    
    148,608Allowance for doubtful accounts
    
    
    (3,206
    )
    
    
    (4,099
    )$
    122,172
    
    
    $
    144,509Inventories, net:Raw materials and supplies
    
    $
    18,645
    
    
    $
    16,742Work-in-process
    
    
    10,303
    
    
    
    8,506Finished goods
    
    
    53,046
    
    
    
    61,64181,994
    
    
    
    86,889Allowance for inventory obsolescence
    
    
    (11,430
    )
    
    
    (13,917
    )$
    70,564
    
    
    $
    72,972Property, plant and equipment, net:Property, plant and equipment, at cost
    
    $
    166,853
    
    
    $
    178,156Accumulated depreciation and amortization
    
    
    (82,659
    )
    
    
    (87,928
    )$
    84,194
    
    
    $
    90,228
 Intangible assets:
 Weighted
    
    
    March 31, 2009
    
    
    December 31, 2008Average
    
    
    Gross
    
    
    Accumulated
    
    
    Net
    
    
    Gross
    
    
    Accumulated
    
    
    NetLives (years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountProduct rightsNeurology
    
    
    12
    
    
    $
    276,015
    
    
    $
    (153,677
    )
    
    $
    122,338
    
    
    $
    276,229
    
    
    $
    (147,745
    )
    
    $
    128,484Dermatology
    
    
    13
    
    
    
    275,025
    
    
    
    (62,337
    )
    
    
    212,688
    
    
    
    275,032
    
    
    
    (54,906
    )
    
    
    220,126Other
    
    
    15
    
    
    
    69,962
    
    
    
    (41,215
    )
    
    
    28,747
    
    
    
    72,956
    
    
    
    (41,970
    )
    
    
    30,986Total product rights
    
    
    13
    
    
    
    621,002
    
    
    
    (257,229
    )
    
    
    363,773
    
    
    
    624,217
    
    
    
    (244,621
    )
    
    
    379,596Outlicensed technology
    
    
    10
    
    
    
    70,000
    
    
    
    (1,907
    )
    
    
    68,093
    
    
    
    74,000
    
    
    
    
    
    
    
    74,000Customer relationships
    
    
    8
    
    
    
    8,832
    
    
    
    (494
    )
    
    
    8,338
    
    
    
    8,242
    
    
    
    (30
    )
    
    
    8,212Trade names
    
    Indefinite
    
    
    5,891
    
    
    
    
    
    
    
    5,891
    
    
    
    5,987
    
    
    
    
    
    
    
    5,987License agreement
    
    
    5
    
    
    
    67,376
    
    
    
    (67,376
    )
    
    
    
    
    
    
    67,376
    
    
    
    (67,376
    )
    
    
    Total intangible assets
    
    
    
    
    
    $
    773,101
    
    
    $
    (327,006
    )
    
    $
    446,095
    
    
    $
    779,822
    
    
    $
    (312,027
    )
    
    $
    467,795
 18




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VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  Scheduled Future Amortization Expense2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    TotalProduct rightsNeurology
    
    $
    18,650
    
    
    $
    24,276
    
    
    $
    18,947
    
    
    $
    17,859
    
    
    $
    16,818
    
    
    $
    25,787
    
    
    $
    122,337Dermatology
    
    
    21,397
    
    
    
    28,525
    
    
    
    28,525
    
    
    
    28,525
    
    
    
    26,902
    
    
    
    76,016
    
    
    
    209,890Other
    
    
    3,047
    
    
    
    4,170
    
    
    
    4,417
    
    
    
    4,345
    
    
    
    4,245
    
    
    
    8,522
    
    
    
    28,746Outlicensed technology
    
    
    5,720
    
    
    
    7,626
    
    
    
    7,626
    
    
    
    7,081
    
    
    
    7,081
    
    
    
    29,918
    
    
    
    65,052Customer relationships
    
    
    1,404
    
    
    
    1,634
    
    
    
    1,399
    
    
    
    1,163
    
    
    
    927
    
    
    
    1,810
    
    
    
    8,337Total
    
    $
    50,218
    
    
    $
    66,231
    
    
    $
    60,914
    
    
    $
    58,973
    
    
    $
    55,973
    
    
    $
    142,053
    
    
    $
    434,362
   8. Long-term Debt
 3.0% and 4.0% Convertible Subordinated Notes
      19




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VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  March 31,
    
    
    December 31,2009
    
    
    20083.0% Notes
    
    $
    141,639
    
    
    $
    207,360Unamortized discount
    
    
    (7,754
    )
    
    
    (13,548
    )Net carrying value of 3.0% Notes
    
    $
    133,885
    
    
    $
    193,8124.0% Notes
    
    $
    240,000
    
    
    $
    240,000Unamortized discount
    
    
    (34,631
    )
    
    
    (36,179
    )Net carrying value of 4.0% Notes
    
    $
    205,369
    
    
    $
    203,821Equity component for 3.0% Notes
    
    $
    49,917
    
    
    $
    57,190Equity component for 4.0% Notes
    
    $
    62,167
    
    
    $
    62,167
  Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock.
  7.0% Senior Notes
  9. Income Taxes
  20




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
   Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109
   10. Stock and Stock Incentive Programs
 Stock and Securities Repurchase Programs
  Stock-based compensation
 21




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  Three MonthsEndedMarch 31,2009
    
    
    2008Employee stock options
    
    $
    1,494
    
    
    $
    1,239Restricted stock units
    
    
    2,828
    
    
    
    1,067Employee stock purchase plan
    
    
    
    
    
    
    66Total stock-based compensation
    
    $
    4,322
    
    
    $
    2,372
   Remainder of 2009
    
    $
    8,7432010
    
    
    7,8642011
    
    
    2,4862012
    
    
    589$
    19,682
 11. Derivative Financial Instruments
   22




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  As of March 31, 2009Asset Derivatives
    
    Liability DerivativesBalance
    
    
    
    
    
    BalanceNotional
    
    Sheet
    
    Fair
    
    Sheet
    
    FairDescription
    
    Amount
    
    Location
    
    Value
    
    Location
    
    ValueUndesignated hedges
    
    $
    3,935
    
    
    Other assets
    
    $
    10
    
    
    
    
    
    
    $
    Net investment derivative contracts
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    (121
    )Cash flow derivative contracts
    
    
    2,231
    
    
    Other assets
    
    
    211
    
    
    
    
    
    
    
    
 As of December 31, 2008Asset Derivatives
    
    Liability DerivativesBalance
    
    
    
    
    
    BalanceNotional
    
    Sheet
    
    Fair
    
    Sheet
    
    FairDescription
    
    Amount
    
    Location
    
    Value
    
    Location
    
    ValueUndesignated hedges
    
    $
    3,916
    
    
    Other assets
    
    $
    192
    
    
    Accrued liabilities
    
    $
    (35
    )Net investment derivative contracts
    
    
    18,779
    
    
    Other assets
    
    
    13
    
    
    
    
    
    
    
    
  
    
    Changes in the fair value of undesignated hedges are recorded in earnings in the
period of the change.
    
    Changes in the fair value of a derivative that is designated and qualifies as a net
investment hedge are recorded as translation adjustment in accumulated other
comprehensive income.
    
    Changes in the fair value of a derivative that is designated and qualifies as a cash
flow hedge are recorded in accumulated other comprehensive income and then recognized in
earnings when the hedged items affect earnings.
    
    Changes in the fair value of a derivative that is designated and qualifies as a fair
value hedge are recorded in exchange gains or loss in the period of the change.
    
    Changes in the fair value of the interest rate swap are recorded as interest expense
in the period of the change.
  Three Months Ended March 31, 2009Net
    
    CashInvestment
    
    Flow
    
    Fair
    
    InterestUndesignated
    
    Derivative
    
    Derivative
    
    Value
    
    RateDescription
    
    Hedges
    
    Contracts
    
    Contracts
    
    Hedges
    
    SwapGain recognized in currency translation
adjustment in other comprehensive income
    
    $
    
    
    
    $
    2,807
    
    
    $
    
    
    
    $
    
    
    
    $
    Loss recognized in exchange gain / loss
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Three Months Ended March 31, 2008Net
    
    CashInvestment
    
    Flow
    
    Fair
    
    InterestUndesignated
    
    Derivative
    
    Derivative
    
    Value
    
    RateDescription
    
    Hedges
    
    Contracts
    
    Contracts
    
    Hedges
    
    SwapGain recognized in interest expense
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    319Loss recognized in royalty income
    
    
    
    
    
    
    
    
    
    
    (438
    )
    
    
    
    
    
    
    Gain (Loss) recognized in exchange gain / loss
    
    
    (152
    )
    
    
    
    
    
    
    
    
    
    
    656
    
    
    
    
  23




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 12. Commitments and Contingencies
  SEC Investigation:
 Derivative Actions Related to Stock Options:
  Permax Product Liability Cases:
 24




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  Eli Lilly:
 Spear Pharmaceuticals, Inc
  Paddock Litigation: ®
 25




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
   Tolmar Matter:
     13. Business Segments
  26




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
   Three Months EndedMarch 31,2009
    
    
    2008RevenuesSpecialty pharmaceuticals product sales
    
    $
    86,313
    
    
    $
    80,014Specialty
pharmaceuticals services and alliance revenue (1)
    
    
    11,905
    
    
    
    Branded generics  Europe product sales
    
    
    35,338
    
    
    
    37,953Branded generics  Latin America product sales
    
    
    31,182
    
    
    
    21,243Alliances (ribavirin royalties)
    
    
    13,185
    
    
    
    12,773Consolidated revenues
    
    $
    177,923
    
    
    $
    151,983Operating Income (Loss)Specialty pharmaceuticals
    
    $
    28,250
    
    
    $
    (3,688
    )Branded generics  Europe
    
    
    8,864
    
    
    
    12,741Branded generics  Latin America
    
    
    12,208
    
    
    
    (2,375
    )49,322
    
    
    
    6,678Alliances
    
    
    13,185
    
    
    
    12,773Corporate (2)
    
    
    (18,562
    )
    
    
    (15,285
    )Subtotal
    
    
    43,945
    
    
    
    4,166Restructuring, asset impairments and dispositions
    
    
    (1,211
    )
    
    
    13,190Consolidated segment operating income
    
    
    42,734
    
    
    
    17,356Interest income
    
    
    1,835
    
    
    
    4,724Interest expense
    
    
    (8,013
    )
    
    
    (13,384
    )Gain on early extinguishment of debt
    
    
    4,599
    
    
    
    Other, net
    
    
    1,212
    
    
    
    (1,531
    )Income from continuing operations before income taxes
    
    $
    42,367
    
    
    $
    7,165
 
 (1)
    
    Specialty pharmaceuticals services and alliance revenue consists of $6.7 million of service
revenue from Dow, $1.9 million of royalties earned from patent protected formulations developed by
Dow and $3.3 million from the GSK Collaboration Agreement.(2)
    
    Stock-based compensation expense has been considered a corporate cost as management
excludes this item in assessing the financial performance of individual business segments and
considers it a function of valuation factors that pertain to overall corporate stock performance. 27




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  March 31,
    
    
    December 31,2009
    
    
    2008Total AssetsSpecialty pharmaceuticals
    
    $
    613,279
    
    
    $
    692,734Branded generics  Europe
    
    
    175,177
    
    
    
    219,234Branded generics  Latin America
    
    
    107,235
    
    
    
    103,573Alliances
    
    
    12,875
    
    
    
    16,436Corporate
    
    
    160,320
    
    
    
    153,955Total
    
    $
    1,068,886
    
    
    $
    1,185,932
  Three MonthsEndedMarch 31,2009
    
    2008Sales:McKesson
    
    $
    33,259
    
    
    $
    29,828Cardinal
    
    
    21,246
    
    
    
    18,142Percentage of total product sales:McKesson
    
    
    22
    %
    
    
    21
    %Cardinal
    
    
    14
    %
    
    
    13
    %
 14. Alliance Revenue
  Three Months EndedMarch 31,2009
    
    
    2008Ribavirin royalty
    
    $
    13,185
    
    
    $
    12,773Dermatology royalties
    
    
    1,849
    
    
    
    GSK Collaboration
    
    
    3,318
    
    
    
    Total alliance revenue
    
    $
    18,352
    
    
    $
    12,773
 15. Related Parties
   28




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##### Table of Contents



VALEANT PHARMACEUTICALS INTERNATIONAL
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 16. Subsequent Events
  29




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Company Overview
 Introduction
    Business Strategy
     30




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##### Table of Contents



Pharmaceutical Products
   Alliance Revenue
    in vitro
 Research and Development
  31




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##### Table of Contents



Collaboration Agreement
    Three MonthsEndedMarch 31,2009Valeant research and development costs
    
    $
    7,947Valeant selling, general and administrative
    
    
    1498,096GSK expenses
    
    
    5,303Total spending for Collaboration Agreement
    
    $
    13,399Equalization (difference between individual partner costs and 50% of total)
    
    $
    1,397
 32




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##### Table of Contents



Three Months Ended March 31, 2009Selling,
    
    
    ResearchBalance
    
    
    Alliance
    
    
    General and
    
    
    andCollaboration Accounting Impact
    
    Sheet
    
    
    Revenue
    
    
    Administrative
    
    
    DevelopmentUpfront payment from GSK
    
    $
    125,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Release from upfront payment in prior quarter
    
    
    (10,909
    )
    
    
    
    
    
    
    
    
    
    
    Incurred cost in current quarter
    
    
    
    
    
    
    
    
    
    
    149
    
    
    
    7,947Incurred cost offset
    
    
    (6,699
    )
    
    
    
    
    
    
    (387
    )
    
    
    (6,312
    )Recognize alliance revenue
    
    
    (3,318
    )
    
    
    (3,318
    )
    
    
    
    
    
    
    Release from upfront payment
    
    
    (10,017
    )
    
    
    
    
    
    
    
    
    
    
    Remaining upfront payment from GSK
    
    $
    104,074
    
    
    
    
    
    
    
    
    
    
    
    Equalization receivable from GSK
    
    
    1,397
    
    
    
    
    
    
    
    238
    
    
    
    (1,635
    )Total equalization receivable from GSK
    
    $
    1,397
    
    
    
    
    
    
    
    
    
    
    
    Total expense and revenue
    
    
    
    
    
    $
    (3,318
    )
    
    $
    
    
    
    $
    Accrued liabilities
    
    $
    40,481Other liabilities
    
    
    40,698Deferred revenue short-term
    
    
    13,624Deferred revenue long-term
    
    
    9,271Remaining upfront payment from GSK
    
    $
    104,074
  Results of Operations
   33




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##### Table of Contents



Three Months EndedMarch 31,2009
    
    
    2008(in thousands)RevenuesSpecialty pharmaceuticals product sales
    
    $
    86,313
    
    
    $
    80,014Specialty pharmaceuticals services and alliance revenue
    
    
    11,905
    
    
    
    Branded generics  Europe
    
    
    35,338
    
    
    
    37,953Branded generics  Latin America
    
    
    31,182
    
    
    
    21,243Alliances (ribavirin royalties)
    
    
    13,185
    
    
    
    12,773Consolidated revenues
    
    
    177,923
    
    
    
    151,983Costs and expensesCost of goods sold (excluding amortization)
    
    
    39,697
    
    
    
    35,755Cost of services
    
    
    4,326
    
    
    
    Selling, general and administrative
    
    
    64,216
    
    
    
    69,439Research and development costs, net
    
    
    8,735
    
    
    
    29,294Restructuring, asset impairments and dispositions
    
    
    1,211
    
    
    
    (13,190
    )Amortization expense
    
    
    17,004
    
    
    
    13,329Income from operations
    
    $
    42,734
    
    
    $
    17,356
  Product Sales Revenues:
   Alliance Revenue
   34




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in vitro
   Gross Profit Margin:
  35




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##### Table of Contents



Three Months EndedMarch 31,
    
    
    Increase
    
    
    Percent2009
    
    
    2008
    
    
    (Decrease)
    
    
    ChangeGross Profit (excluding amortization)Specialty pharmaceuticals
    
    $
    70,949
    
    
    $
    66,515
    
    
    $
    4,434
    
    
    
    7
    %% of product sales
    
    
    82
    %
    
    
    83
    %Branded generics  Europe
    
    
    18,921
    
    
    
    24,791
    
    
    
    (5,870
    )
    
    
    (24
    )%% of product sales
    
    
    54
    %
    
    
    65
    %Branded generics  Latin America
    
    
    23,285
    
    
    
    12,215
    
    
    
    11,070
    
    
    
    91
    %% of product sales
    
    
    75
    %
    
    
    58
    %Corporate
    
    
    (19
    )
    
    
    (66
    )
    
    
    47
    
    
    
    % of product sales
    
    
    
    
    
    
    
    
    
    
    Consolidated gross profit
    
    $
    113,136
    
    
    $
    103,455
    
    
    $
    9,681
    
    
    
    9
    %% of product sales
    
    
    74
    %
    
    
    74
    %AmortizationSpecialty pharmaceuticals
    
    $
    15,991
    
    
    $
    12,065
    
    
    $
    3,926
    
    
    
    33
    %Branded generics  Europe
    
    
    234
    
    
    
    278
    
    
    
    (44
    )
    
    
    (16
    )%Branded generics  Latin America
    
    
    779
    
    
    
    986
    
    
    
    (207
    )
    
    
    (21
    )%Total amortization
    
    $
    17,004
    
    
    $
    13,329
    
    
    $
    3,675
    
    
    
    28
    %Gross Profit (including amortization)Specialty pharmaceuticals
    
    $
    54,958
    
    
    $
    54,450
    
    
    $
    508
    
    
    
    1
    %% of product sales
    
    
    64
    %
    
    
    68
    %Branded generics  Europe
    
    
    18,687
    
    
    
    24,513
    
    
    
    (5,826
    )
    
    
    (24
    )%% of product sales
    
    
    53
    %
    
    
    65
    %Branded generics  Latin America
    
    
    22,506
    
    
    
    11,229
    
    
    
    11,277
    
    
    
    100
    %% of product sales
    
    
    72
    %
    
    
    53
    %Corporate
    
    
    (19
    )
    
    
    (66
    )
    
    
    47
    
    
    
    % of product sales
    
    
    
    
    
    
    
    
    
    
    Consolidated gross profit
    
    $
    96,132
    
    
    $
    90,126
    
    
    $
    6,006
    
    
    
    7
    %% of product sales
    
    
    63
    %
    
    
    65
    %
 Selling, General and Administrative Expenses:
 Research and Development Costs:
 36




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##### Table of Contents



Restructuring, Asset Impairments and Dispositions: Employers Accounting for
Postemployment Benefits Accounting for Costs Associated with Exit or Disposal Activities Accounting for the Impairment or Disposal of Long-lived Assets
 2008 Restructuring
      37




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2008 Restructuring
 Three MonthsEndedMarch 31,2009Severance costs (22 employees)
    
    $
    928Contract cancellation costs, legal and professional fees and other associated costs
    
    
    255Subtotal: cash charges
    
    
    1,183Non-cash charges
    
    
    28Restructurings, asset impairments and dispositions
    
    $
    1,211
   2008 Restructuring
 Three MonthsEndedMarch 31,2008Severance costs (15 employees)
    
    $
    6,215Contract cancellation costs, legal and professional fees and other associated costs
    
    
    4,886Subtotal: cash charges
    
    
    11,101Stock compensation
    
    
    4,778Impairment of long-lived assets
    
    
    7,853Subtotal: restructuring expenses
    
    
    23,732Gain on Invida transaction
    
    
    (36,922
    )Restructurings, asset impairments and dispositions
    
    $
    (13,190
    )
 Reconciliation of Cash Restructuring Payments with Restructuring Accrual
  2008 and 2006 Restructuring: Reconciliation of Cash Payments and Accruals
 Restructuring accrual, December 31, 2008
    
    $
    10,926Charges to earnings
    
    
    1,183Cash paid
    
    
    (3,705
    )Restructuring accrual, March 31, 2009
    
    $
    8,404
 Amortization:
 38




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##### Table of Contents



Interest Expense and Income:
  Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)
 Gain on Early Extinguishment of Debt:
 Other Income (Expense) Net, Including Translation and Exchange:
 Income Taxes:
    39




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##### Table of Contents



Income from Discontinued Operations, Net:
 Liquidity and Capital Resources
       40




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##### Table of Contents



Off-Balance Sheet Arrangements
  Products in Development
 Late Stage Development of New Chemical Entities
 Retigabine
    >
   >
  41




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##### Table of Contents



Taribavirin
       42




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Dermatology Products
  IDP-107:
 IDP-108:
 IDP-113:
 IDP-115:
 Foreign Operations
  Critical Accounting Estimates
  43




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##### Table of Contents



Other Financial Information
  44




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##### Table of Contents



Forward-Looking Statements
   
    
    Adverse U.S and international economic and market conditions may adversely affect our
product sales and business.
    
    Due to the large portion of our business conducted outside the United States, we have
significant foreign currency risk.
    
    If retigabine, taribavirin and other product candidates in development do not become
approved and commercially successful products, our ability to generate future growth in
revenue and earnings will be adversely affected.
    
    We may be unable to identify, acquire and integrate acquisition targets successfully.
    
    Even in well designed clinical trials, the potential of a drug to cause serious or
widespread personal injury may not be apparent. In addition, the existence of a correlation
between use of a drug and serious or widespread personal injury may not be apparent until
it has been in widespread use for some period of time. Particularly when a drug is used to
treat a disease or condition which is complex and the patients are taking multiple
medications, such correlations may indicate, but do not necessarily indicate, that the drug
has caused the injury; nevertheless we may decide to, or regulatory authorities may require
that we, withdraw the drug from the market and/or we may incur significant costs, including
the potential of paying substantial damages. Withdrawals of products from the market and/or
incurring significant costs, including the requirement to pay substantial damages in
personal injury cases, would materially affect our business and results of operations.
    
    Our future growth will depend, in large part, upon our ability or the ability of our
partners or licensees to develop or obtain and commercialize new products and new
formulations of, or indications for, current products.
    
    Identifying a material weakness in our internal control over financial reporting in
future periods could adversely affect our stock price and our ability to prepare complete
and accurate financial statements in a timely manner.
    
    The results from the interim analyses of our Phase IIb study for taribavirin may not be
predictive of the final results of the 72-week Phase IIb study or of any subsequent
clinical trial necessary for approval of taribavirin.
    
    We are involved in several legal proceedings, including the current SEC investigation
and those other proceedings described in Note 12, Commitments and Contingencies, of the
notes to consolidated condensed financial statements included elsewhere in this quarterly
report, any of which could result in substantial cost and divert managements attention and
resources.
    
    Third parties may be able to sell generic forms of our products or block the sales of
our products if our intellectual property rights or data exclusivity rights do not
sufficiently protect us; patent rights of third parties may also be asserted against us.
    
    Some of the products we sell have no meaningful exclusivity protection via patent or
data exclusivity rights. These products represent a significant amount of our revenues.
Without exclusivity protection, competitors face fewer barriers in introducing competing
products. The introduction of competing products could adversely affect our results of
operations and financial condition.
    
    We are subject to uncertainty related to health care reform measures and reimbursement
policies.
 45




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##### Table of Contents




    
    The matters relating to the Special Committees review of our historical stock option
granting practices and our prior restatement of our consolidated financial statements have
resulted in increased litigation and regulatory proceedings against us and could have a
material adverse effect on us.
    
    Our business could be seriously harmed if competitors develop more effective or less
costly drugs for our target indications.
    
    Obtaining necessary government approvals is time consuming and not assured.
Uncertainties and delays inherent in the process can preclude or delay development and
commercialization of our products.
    
    If we or our third-party manufacturers are unable to manufacture our products or the
manufacturing process is interrupted due to failure to comply with regulations or for other
reasons, the manufacture of our products could be interrupted.
    
    Many of our key processes, opportunities and expenses are a function of existing
national and/or local government regulation. Significant changes in regulations could have
a material adverse impact on our business.
    
    Our business, financial condition and results of operations are subject to risks arising
from the international scope of our operations.
    
    If the counterparties to our convertible notes hedge and warrant transactions do not
fulfill their obligations, if and when they occur, such a failure could have a material
adverse effect on our financial position and results of operations, and result in
stockholder dilution.
    
    Existing and future audits by, or other disputes with, taxing authorities may not be
resolved in our favor.
    
    Our stockholder rights plan and anti-takeover provisions of our charter documents could
provide our board of directors with the ability to delay or prevent a change in control of
us.
    
    We are subject to a consent order with the Securities and Exchange Commission, which
permanently enjoins us from violating securities laws and regulations. The consent order
also precludes protection for forward-looking statements under the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 with respect to forward-looking
statements we made prior to November 28, 2005. The existence of the permanent injunction
under the consent order, and the lack of protection under the safe harbor with respect to
forward-looking statements made prior to November 28, 2005 may limit our ability to defend
against future allegations.
    
    We are subject to fraud and abuse and similar laws and regulations, and a failure to
comply with such regulations or prevail in any litigation related to noncompliance could
harm our business.
    
    Our restructuring plans are intended to improve operational efficiencies and our
competitiveness. If we are unable to realize the benefits from our restructuring plans, our
business prospects may suffer and our operating results and financial condition would be
adversely affected.
    
    All drugs have potential harmful side effects and can expose drug manufacturers and
distributors to liability. In the event one or more of our products is found to have harmed
an individual or individuals, we may be responsible for paying all or substantially all
damages awarded. A successful product liability claim against us could have a material
negative impact on our financial position and results of operations.
    
    Our stockholder rights plan, provisions of our certificate of incorporation and
provisions of the Delaware General Corporation Law could provide our Board of Directors
with the ability to deter hostile takeovers or delay, deter or prevent a change in control
of our company, including transactions in which stockholders might otherwise receive a
premium for their shares over then current market prices.
    
    We are authorized to issue, without stockholder approval, approximately 10,000,000
shares of preferred stock, 200,000,000 shares of common stock and securities convertible
into either shares of common stock or preferred stock. If we issue additional equity
securities, the price of our securities may be materially and adversely affected. The Board
of Directors can also use issuances of preferred or common stock to deter a hostile
takeover or change in control of our company.
 46




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Notional/
    
    Assets (Liabilities)Contract
    
    Carrying
    
    FairDescription
    
    Amount
    
    Value
    
    ValueUndesignated hedges
    
    $
    3,935
    
    
    $
    10
    
    
    $
    10Net investment derivative contracts
    
    
    20,000
    
    
    
    (121
    )
    
    
    (121
    )Cash flow derivative contracts
    
    
    2,231
    
    
    
    211
    
    
    
    211
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   47




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Changes in Internal Control over Financial Reporting
  48




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 6. Exhibits
 Exhibit3.1
    
    Restated Certificate of Incorporation, as amended to date, previously filed as Exhibit 3.1 to
the Registrants Form 10-Q for the quarter ended September 30, 2003 (File No. 03995078), which
is incorporated herein by reference.3.2
    
    Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock
previously filed as Exhibit 3.1 to the Registrants Current Report on Form 8-K, dated October
6, 2004, which is incorporated herein by reference.3.3
    
    Certificate of Correction to Restated Certificate of Incorporation, dated April 3, 2006,
previously filed as Exhibit 3.3 to the Registrants Form 10-Q for the quarter ended September
30, 2007, which is incorporated herein by reference.3.4
    
    Amended and Restated Bylaws of the Registrant previously filed as Exhibit 3.1 to the
Registrants Current Report on Form 8-K, dated February 25, 2008, which is incorporated herein
by reference.4.1
    
    Form of Rights Agreement, dated as of November 2, 1994, between the Registrant and American
Stock Transfer & Trust Company, as trustee, previously filed as Exhibit 4.3 to the Registrants
Registration Statement on Form 8-A, dated November 10, 1994 (No. 94558814), which is
incorporated herein by reference.4.2
    
    Amended Rights Agreement, dated as of October 5, 2004, previously filed as Exhibit 4.1 to the
Registrants Current Report on Form 8-K, dated October 5, 2004, which is incorporated herein by
reference.4.3
    
    Amendment No. 2 to Rights Agreement, dated as of June 5, 2008, by and between Valeant
Pharmaceuticals International and American Transfer & Trust Company as Rights Agent, previously
filed as Exhibit 4.3 to the Registrants Amendment No. 4 to Form 8-A/A, filed June 6, 2008,
which is incorporated herein by reference.10.2
    
    Employment letter agreement, dated March 10, 2009, between the Registrant and Bhaskar Chaudhuri.10.3
    
    Description of Registrants annual incentive plan for fiscal year 2009, previously described in
Item 5.02 of Registrants Current Report on Form 8-K, dated March 10, 2009, which is
incorporated herein by reference.
 49




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##### Table of Contents



Exhibit15.1
    
    Review Report of Independent Registered Public Accounting Firm.15.2
    
    Awareness Letter of Independent Registered Public Accounting Firm.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act and
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act and
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer of Periodic Financial
Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350.
 
 
    
    Management contract or compensatory plan or arrangement. 50




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##### Table of Contents



SIGNATURES
  Valeant Pharmaceuticals International
Registrant/s/  J. Michael PearsonJ. Michael PearsonChairman and Chief Executive Officer  /s/  Peter J. BlottPeter J. BlottExecutive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)  51




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##### Table of Contents



EXHIBIT INDEX
 Exhibit3.1
    
    Restated Certificate of Incorporation, as amended to date, previously filed as Exhibit 3.1 to
the Registrants Form 10-Q for the quarter ended September 30, 2003(No. 03995078), which is
incorporated herein by reference. [Note: Item 10(d) of Regulation S-K provides that no document
on file with the SEC for more than 5 years may be incorporated by reference except (1)
documents contained in registration statements or (2) documents that are identified by SEC file
number reference.]3.2
    
    Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock
previously filed as Exhibit 3.1 to the Registrants Current Report on Form 8-K, dated October
6, 2004, which is incorporated herein by reference.3.3
    
    Certificate of Correction to Restated Certificate of Incorporation, dated April 3, 2006,
previously filed as Exhibit 3.3 to the Registrants Form 10-Q for the quarter ended September
30, 2007, which is incorporated herein by reference.3.4
    
    Amended and Restated Bylaws of the Registrant previously filed as Exhibit 3.1 to the
Registrants Current Report on Form 8-K, dated February 25, 2008, which is incorporated herein
by reference.4.1
    
    Form of Rights Agreement, dated as of November 2, 1994, between the Registrant and American
Stock Transfer & Trust Company, as trustee, previously filed as Exhibit 4.3 to the Registrants
Registration Statement on Form 8-A, dated November 10, 1994 (No. 94558814), which is
incorporated herein by reference.4.2
    
    Amended Rights Agreement, dated as of October 5, 2004, previously filed as Exhibit 4.1 to the
Registrants Current Report on Form 8-K, dated October 5, 2004, which is incorporated herein by
reference.4.3
    
    Amendment No. 2 to Rights Agreement, dated as of June 5, 2008, by and between Valeant
Pharmaceuticals International and American Transfer & Trust Company as Rights Agent, previously
filed as Exhibit 4.3 to the Registrants Amendment No. 4 to Form 8-A/A, filed June 6, 2008,
which is incorporated herein by reference.10.2
    
    Employment letter agreement, dated March 10, 2009, between the Registrant and Bhaskar Chaudhuri.10.3
    
    Description of Registrants annual incentive plan for fiscal year 2009, previously described in
Item 5.02 of Registrants Current Report on Form 8-K, dated March 10, 2009, which is
incorporated herein by reference.15.1
    
    Review Report of Independent Registered Public Accounting Firm.15.2
    
    Awareness Letter of Independent Registered Public Accounting Firm.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act and
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act and
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer of Periodic Financial
Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350.
 
 
    
    Management contract or compensatory plan or arrangement.