UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2014
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: 001-14956

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

British Columbia, Canada  (State or other jurisdiction of incorporation or organization)	98-0448205  (I.R.S. Employer Identification No.)
2150 St. Elzéar Blvd. West, Laval, Quebec  (Address of principal executive offices)	H7L 4A8  (Zip Code)

(514) 744-6792

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer o Non-accelerated filer o(Do not check if a smallerreporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common shares, no par value — 335,411,043 shares issued and outstanding as of July 29, 2014.

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014

INDEX

Part I.	Financial Information
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013	1
	Consolidated Statements of Income (Loss) for the three months and six months ended June 30, 2014 and 2013	2
	Consolidated Statements of Comprehensive Income (Loss) for the three months and six months ended June 30, 2014 and 2013	3
	Consolidated Statements of Cash Flows for the three months and six months ended June 30, 2014 and 2013	4
	Notes to the Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	59
Part II.	Other Information
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	60
Signatures		62

i

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014

Introductory Note

Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q (this “Form 10-Q”) to the “Company”, “we”, “us”, “our” or similar words or phrases are to Valeant Pharmaceuticals International, Inc. and its subsidiaries.

In this Form 10-Q, references to “$” and “US$” are to United States (“U.S.”) dollars.

Forward-Looking Statements

Caution regarding forward-looking information and statements and “Safe-Harbor” statements under the U.S. Private Securities Litigation Reform Act of 1995:

 To the extent any statements made in this Form 10-Q contain information that is not historical, these statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and may be forward-looking information within the meaning defined under applicable Canadian securities legislation (collectively, “forward-looking statements”).

 These forward-looking statements relate to, among other things: the expected benefits of our acquisitions and other transactions, such as cost savings, operating synergies and growth potential of the Company; business plans and prospects, prospective products or product approvals, future performance or results of current and anticipated products; exposure to foreign currency exchange rate changes and interest rate changes; the outcome of contingencies, such as certain litigation and regulatory proceedings; general market conditions; and our expectations regarding our financial performance, including revenues, expenses, gross margins, liquidity and income taxes.

 Forward-looking statements can generally be identified by the use of words such as “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “continue”, “will”, “may”, “could”, “would”, “should”, “target”, “potential”, “opportunity”, “positioning”, “designed”, “create”, “predict”, “project”, “seek“, “ongoing”, “increase”, “upside” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements may not be appropriate for other purposes. Although we have indicated above certain of these statements set out herein, all of the statements in this Form 10-Q that contain forward-looking statements are qualified by these cautionary statements. These statements are based upon the current expectations and beliefs of management. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, including, but not limited to, factors and assumptions regarding the items outlined above. Actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following:

• the challenges and difficulties associated with managing the rapid growth of our Company and a larger, more complex business;

• the introduction of generic competitors of our brand products;

• the introduction of products that compete against our products that do not have patent or data exclusivity rights, which products represent a significant portion of our revenues;

• our ability to compete against companies that are larger and have greater financial, technical and human resources than we do, as well as other competitive factors, such as technological advances achieved, patents obtained and new products introduced by our competitors;

• our ability to identify, finance, acquire, close and integrate acquisition targets successfully and on a timely basis;

• factors relating to the integration of the companies, businesses and products acquired by the Company (including the integration relating to our recent acquisitions of PreCision Dermatology, Inc. (“PreCision”), Solta Medical, Inc. (“Solta Medical”), and Bausch & Lomb Holdings Incorporated (“B&L”)), such as the time and resources required to integrate such companies, businesses and products, the difficulties associated with such integrations (including potential disruptions in sales activities and potential challenges with information technology systems integrations), the difficulties and challenges associated with entering into new business areas and new geographic markets, the difficulties, challenges

ii

and costs associated with managing and integrating new facilities, equipment and other assets, and the achievement of the anticipated benefits from such integrations;

• factors relating to our ability to achieve all of the estimated synergies from our acquisitions, including from our recent acquisition of B&L (which we anticipate will be greater than $900 million), as a result of cost-rationalization and integration initiatives. These factors may include greater than expected operating costs, the difficulty in eliminating certain duplicative costs, facilities and functions, and the outcome of many operational and strategic decisions, some of which have not yet been made;

• the ultimate outcome of any possible transaction between the Company and Allergan, Inc. (“Allergan”) including the possibilities that the Company will not continue to pursue a transaction with Allergan or that Allergan will reject a transaction with the Company and factors relating to the time, resources and efforts expended in pursuing a transaction with Allergan;

• ability to obtain regulatory approvals and meet other closing conditions to the proposed Allergan transaction, including all necessary stockholder approvals, on a timely basis;

• the ultimate outcome and results of integrating the operations of the Company and Allergan, the ultimate outcome of the Company’s pricing and operating strategy applied to Allergan and the ultimate ability to realize synergies;

• the effects of the business combination of the Company and Allergan, including the combined company’s future financial condition, operating results, strategy and plans;

• our ability to secure and maintain third party research, development, manufacturing, marketing or distribution arrangements;

• our eligibility for benefits under tax treaties and the continued availability of low effective tax rates for the business profits of certain of our subsidiaries;

• our substantial debt and debt service obligations and their impact on our financial condition and results of operations;

• our future cash flow, our ability to service and repay our existing debt and our ability to raise additional funds, if needed, in light of our current and projected levels of operations, acquisition activity and general economic conditions;

• interest rate risks associated with our floating debt borrowings;

• the risks associated with the international scope of our operations, including our presence in emerging markets and the challenges we face when entering new geographic markets (including the challenges created by new and different regulatory regimes in those markets);

• adverse global economic conditions and credit market and foreign currency exchange uncertainty in the countries in which we do business (such as the recent instability in Russia, Ukraine and the Middle East);

• economic factors over which the Company has no control, including changes in inflation, interest rates, foreign currency rates, and the potential effect of such factors on revenues, expenses and resulting margins;

• our ability to retain, motivate and recruit executives and other key employees;

• our ability to obtain and maintain sufficient intellectual property rights over our products and defend against challenge to such intellectual property;

• the outcome of legal proceedings, investigations and regulatory proceedings;

• the risk that our products could cause, or be alleged to cause, personal injury and adverse effects, leading to potential lawsuits and/or withdrawals of products from the market;

• the availability of and our ability to obtain and maintain adequate insurance coverage and/or our ability to cover or insure against the total amount of the claims and liabilities we face, whether through third party insurance or self-insurance;

• the difficulty in predicting the expense, timing and outcome within our legal and regulatory environment, including, but not limited to, the U.S. Food and Drug Administration, Health Canada and other regulatory approvals, legal and regulatory proceedings and settlements thereof, the protection afforded by our patents and other intellectual and proprietary property, successful generic challenges to our products and infringement or alleged infringement of the intellectual property of others;

iii

• the results of continuing safety and efficacy studies by industry and government agencies;

• the availability and extent to which our products are reimbursed by government authorities and other third party payors, as well as the impact of obtaining or maintaining such reimbursement on the price of our products;

• the inclusion of our products on formularies or our ability to achieve favorable formulary status, as well as the impact on the price of our products in connection therewith;

• the impact of price control restrictions on our products, including the risk of mandated price reductions;

• the success of preclinical and clinical trials for our drug development pipeline or delays in clinical trials that adversely impact the timely commercialization of our pipeline products, as well as factors impacting the commercial success of our currently marketed products, which could lead to material impairment charges;

• the results of management reviews of our research and development portfolio, conducted periodically and in connection with certain acquisitions, the decisions from which could result in terminations of specific projects which, in turn, could lead to material impairment charges;

• negative publicity or reputational harm to our products and business, including as faced in connection with our proposed transaction with Allergan;

• the uncertainties associated with the acquisition and launch of new products, including, but not limited to, the acceptance and demand for new pharmaceutical products, and the impact of competitive products and pricing;

• our ability to obtain components, raw materials or finished products supplied by third parties and other manufacturing and related supply difficulties, interruptions and delays;

• the disruption of delivery of our products and the routine flow of manufactured goods;

• the seasonality of sales of certain of our products;

• declines in the pricing and sales volume of certain of our products that are distributed by third parties, over which we have no or limited control;

• compliance with, or the failure to comply with, health care “fraud and abuse” laws and other extensive regulation of our marketing, promotional and pricing practices, worldwide anti-bribery laws (including the U.S. Foreign Corrupt Practices Act), worldwide environmental laws and regulation and privacy and security regulations;

• the impacts of the Patient Protection and Affordable Care Act (as amended) and other legislative and regulatory healthcare reforms in the countries in which we operate;

• interruptions, breakdowns or breaches in our information technology systems; and

• other risks detailed from time to time in our filings with the U.S. Securities and Exchange Commission (the “SEC”) and the Canadian Securities Administrators (the “CSA”), as well as our ability to anticipate and manage the risks associated with the foregoing.

 Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found under Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, and in the Company’s other filings with the SEC and CSA. We caution that the foregoing list of important factors that may affect future results is not exhaustive. When relying on our forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. These forward-looking statements speak only as of the date made. We undertake no obligation to update any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect actual outcomes, except as required by law.

iv

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(All dollar amounts expressed in millions of U.S. dollars)

(Unaudited)

	As of June 30,  2014			As of December 31,  2013
Assets
Current assets:
Cash and cash equivalents	$	531.2		$	600.3
Trade receivables, net	1,770.7			1,676.4
Inventories, net	942.5			883.0
Prepaid expenses and other current assets	452.6			343.4
Assets held for sale	1,156.9			15.9
Deferred tax assets, net	309.8			366.9
Total current assets	5,163.7			3,885.9
Property, plant and equipment, net	1,319.6			1,234.2
Intangible assets, net	11,751.4			12,848.2
Goodwill	9,436.3			9,752.1
Deferred tax assets, net	18.3			54.9
Other long-term assets, net	206.3			195.5
Total assets	$	27,895.6		$	27,970.8
Liabilities
Current liabilities:
Accounts payable	$	327.7		$	327.0
Accrued and other current liabilities	1,774.9			1,800.2
Acquisition-related contingent consideration	88.9			114.5
Current portion of long-term debt	266.7			204.8
Liability held for sale	27.1			—
Deferred tax liabilities, net	11.0			66.0
Total current liabilities	2,496.3			2,512.5
Acquisition-related contingent consideration	238.1			241.3
Long-term debt	17,058.8			17,162.9
Pension and other benefit liabilities	165.5			172.0
Liabilities for uncertain tax positions	115.8			169.1
Deferred tax liabilities, net	2,238.8			2,319.2
Other long-term liabilities	215.0			160.5
Total liabilities	22,528.3			22,737.5
Commitments and contingencies (note 17)
Equity
Common shares, no par value, unlimited shares authorized, 333,777,181 and
333,036,637 issued and outstanding at June 30, 2014 and December 31, 2013, respectively	8,325.9			8,301.2
Additional paid-in capital	212.2			228.8
Accumulated deficit	(3,175.3		)	(3,278.5		)
Accumulated other comprehensive loss	(104.7		)	(132.8		)
Total Valeant Pharmaceuticals International, Inc. shareholders’ equity	5,258.1			5,118.7
Noncontrolling interest	109.2			114.6
Total equity	5,367.3			5,233.3
Total liabilities and equity	$	27,895.6		$	27,970.8

The accompanying notes are an integral part of these consolidated financial statements.

1

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(All dollar amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenues
Product sales	$	1,994.1		$	1,063.5		$	3,845.2		$	2,102.4
Other revenues	47.0			32.2			82.1			61.7
	2,041.1			1,095.7			3,927.3			2,164.1
Expenses
Cost of goods sold (exclusive of amortization and impairments of
finite-lived intangible assets shown separately below)	569.6			283.2			1,073.7			568.1
Cost of other revenues	16.0			14.5			30.3			29.9
Selling, general and administrative	515.7			257.3			997.7			499.2
Research and development	66.5			24.5			127.8			48.3
Amortization and impairments of finite-lived intangible assets (see Note 8)	365.6			303.6			720.8			629.8
Restructuring, integration and other costs	142.1			53.6			275.7			102.6
In-process research and development impairments and other charges	8.4			4.8			20.4			4.8
Acquisition-related costs	0.6			7.9			2.1			15.8
Acquisition-related contingent consideration	1.9			3.7			10.8			1.5
Other (income) expense	(0.4		)	1.1			(43.7		)	5.6
	1,686.0			954.2			3,215.6			1,905.6
Operating income	355.1			141.5			711.7			258.5
Interest income	1.2			1.0			3.0			2.6
Interest expense	(241.2		)	(176.8		)	(487.7		)	(332.1		)
Loss on extinguishment of debt	—			—			(93.7		)	(21.4		)
Foreign exchange and other	3.4			(10.0		)	(10.0		)	(8.6		)
Gain on investments, net	2.5			3.9			2.5			5.8
Income (loss) before (recovery of) provision for income taxes	121.0			(40.4		)	125.8			(95.2		)
(Recovery of) provision for income taxes	(1.0		)	(51.2		)	24.1			(78.5		)
Net income (loss)	122.0			10.8			101.7			(16.7		)
Less: Net loss attributable to noncontrolling interest	(3.8		)	—			(1.5		)	—
Net income (loss) attributable to Valeant Pharmaceuticals International, Inc.	$	125.8		$	10.8		$	103.2		$	(16.7	)
Earnings (loss) per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic	$	0.38		$	0.04		$	0.31		$	(0.05	)
Diluted	$	0.37		$	0.03		$	0.30		$	(0.05	)
Weighted-average common shares
Basic	335.3			308.1			335.1			307.7
Diluted	341.3			314.4			341.4			307.7

The accompanying notes are an integral part of these consolidated financial statements.

2

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(All dollar amounts expressed in millions of U.S. dollars)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Net income (loss)	$	122.0		$	10.8		$	101.7		$	(16.7	)
Other comprehensive income (loss)
Foreign currency translation adjustment	13.8			(141.1		)	6.4			(224.2		)
Unrealized gain on equity method investment, net of tax	18.5			—			18.5			—
Net unrealized holding gain (loss) on available-for-sale equity securities:
Arising in period	2.7			(2.1		)	2.7			3.6
Reclassification to net income (loss)	—			(3.9		)	—			(3.9		)
Pension and postretirement benefit plan adjustments	(0.6		)	—			(1.2		)	—
Other comprehensive income (loss)	34.4			(147.1		)	26.4			(224.5		)
Comprehensive income (loss)	156.4			(136.3		)	128.1			(241.2		)
Less: Comprehensive loss attributable to noncontrolling interest	(4.7		)	—			(3.2		)	—
Comprehensive income (loss) attributable to Valeant Pharmaceuticals International, Inc.	$	161.1		$	(136.3	)	$	131.3		$	(241.2	)

The accompanying notes are an integral part of these consolidated financial statements.

3

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(All dollar amounts expressed in millions of U.S. dollars)

(Unaudited)

	Three Months Ended  June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Cash Flows From Operating Activities
Net income (loss)	$	122.0		$	10.8		$	101.7		$	(16.7	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization, including impairments of finite-lived intangible assets	407.7			317.9			808.8			659.3
Amortization and write-off of debt discounts and debt issuance costs	11.3			33.3			23.5			42.9
In-process research and development impairments	0.4			4.8			0.4			4.8
Acquisition accounting adjustment on inventory sold	4.3			26.6			9.5			69.8
Acquisition-related contingent consideration	1.9			3.7			10.8			1.5
Allowances for losses on accounts receivable and inventories	16.0			11.6			35.6			20.6
Deferred income taxes	(21.4		)	(63.2		)	(11.4		)	(100.6		)
Additions (reductions) to accrued legal settlements	1.5			1.1			(47.3		)	5.6
Payments of accrued legal settlements	(0.9		)	(11.7		)	(1.0		)	(14.5		)
Share-based compensation	15.6			7.4			40.4			16.5
Tax benefits from stock options exercised	—			(11.8		)	(1.2		)	(16.4		)
Foreign exchange (gain) loss	(5.3		)	10.6			7.3			8.8
Loss on extinguishment of debt	—			—			93.7			21.4
Payment of accreted interest on contingent consideration	(7.5		)	(2.3		)	(8.2		)	(2.9		)
Other	(3.7		)	(7.7		)	6.1			(8.6		)
Changes in operating assets and liabilities:
Trade receivables	(53.7		)	(49.3		)	(83.8		)	(161.0		)
Inventories	(12.1		)	(34.0		)	(81.3		)	(58.9		)
Prepaid expenses and other current assets	24.8			9.9			29.0			32.2
Accounts payable, accrued and other liabilities	(124.9		)	47.4			(72.3		)	56.6
Net cash provided by operating activities	376.0			305.1			860.3			560.4
Cash Flows From Investing Activities
Acquisition of businesses, net of cash acquired	(68.0		)	(513.4		)	(374.3		)	(751.0		)
Acquisition of intangible assets and other assets	(10.4		)	(32.5		)	(31.5		)	(33.2		)
Purchases of property, plant and equipment	(113.5		)	(12.8		)	(171.6		)	(26.8		)
Proceeds from sales and maturities of marketable securities	—			8.0			—			17.0
Purchase of equity method investment	(75.9		)	—			(75.9		)	—
Proceeds from sale of assets	1.4			19.0			2.8			27.4
Net cash used in investing activities	(266.4		)	(531.7		)	(650.5		)	(766.6		)
Cash Flows From Financing Activities
Issuance of long-term debt, net of discount	50.0			340.0			410.6			340.0
Repayments of long-term debt	(120.3		)	(174.7		)	(554.2		)	(604.7		)
Short-term debt borrowings	4.8			14.1			6.4			18.6
Short-term debt repayments	(8.1		)	(10.9		)	(13.2		)	(12.3		)
Issuance of common stock, net	—			2,271.2			—			2,271.2
Repurchases of common shares	—			(20.6		)	—			(55.6		)
Settlement of stock options	(3.1		)	—			(3.1		)	—
Proceeds from exercise of stock options	3.6			2.0			7.1			4.6
Tax benefits from stock options exercised	—			11.8			1.2			16.4
Payments of employee withholding tax upon vesting of share-based awards	(8.8		)	(14.7		)	(36.5		)	(21.5		)
Payments of contingent consideration	(72.5		)	(61.8		)	(82.2		)	(82.9		)
Acquisition of noncontrolling interest	—			—			(3.3		)	—
Payments of debt issuance costs	(0.9		)	(0.3		)	(10.8		)	(33.6		)
Other	(1.3		)	—			(1.3		)	—
Net cash (used in) provided by financing activities	(156.6		)	2,356.1			(279.3		)	1,840.2
Effect of exchange rate changes on cash and cash equivalents	1.9			(3.8		)	0.4			(10.7		)
Net (decrease) increase in cash and cash equivalents	(45.1		)	2,125.7			(69.1		)	1,623.3
Cash and cash equivalents, beginning of period	576.3			413.7			600.3			916.1
Cash and cash equivalents, end of period	$	531.2		$	2,539.4		$	531.2		$	2,539.4
Non-Cash Investing and Financing Activities
Acquisition of businesses, contingent consideration obligations at fair value	$	(27.4	)	$	(8.3	)	$	(49.1	)	$	(67.4	)
Acquisition of businesses, debt assumed	—			(5.0		)	(4.0		)	(42.6		)

The accompanying notes are an integral part of these consolidated financial statements.

4

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

1. DESCRIPTION OF BUSINESS

The Company is a multinational, specialty pharmaceutical and medical device company that develops, manufactures, and markets a broad range of branded, generic and branded generic pharmaceuticals, over-the-counter (“OTC”) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices), which are marketed directly or indirectly in over 100 countries. Effective August 9, 2013, the Company continued from the federal jurisdiction of Canada to the Province of British Columbia, meaning that the Company became a company registered under the laws of the Province of British Columbia as if it had been incorporated under the laws of the Province of British Columbia. As a result of this continuance, the legal domicile of the Company became the Province of British Columbia, the Canada Business Corporations Act ceased to apply to the Company and the Company became subject to the British Columbia Business Corporations Act. 

On August 5, 2013, the Company acquired Bausch & Lomb Holdings Incorporated (“B&L”), pursuant to an Agreement and Plan of Merger, as amended (the “Merger Agreement”) dated May 24, 2013, with B&L surviving as a wholly-owned subsidiary of Valeant Pharmaceuticals International (“Valeant”), a wholly-owned subsidiary of the Company (the “B&L Acquisition”).

For further information regarding the B&L Acquisition, see note 3 titled “BUSINESS COMBINATIONS”.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements (the “unaudited consolidated financial statements”) have been prepared by the Company in United States (“U.S.”) dollars and in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting, which do not conform in all respects to the requirements of U.S. GAAP for annual financial statements. Accordingly, these condensed notes to the unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto prepared in accordance with U.S. GAAP that are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”). The unaudited consolidated financial statements have been prepared using accounting policies that are consistent with the policies used in preparing the Company’s audited consolidated financial statements for the year ended December 31, 2013, except as described below under “Adoption of New Accounting Standards”. The unaudited consolidated financial statements reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations for the interim periods presented.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform with the current year presentation.

Use of Estimates

In preparing the unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the unaudited consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates and the operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.

On an ongoing basis, management reviews its estimates to ensure that these estimates appropriately reflect changes in the Company’s business and new information as it becomes available. If historical experience and other factors used by management to make these estimates do not reasonably reflect future activity, the Company’s results of operations and financial position could be materially impacted.

Adoption of New Accounting Standards

In July 2013, the Financial Accounting Standard Board (“FASB”) issued guidance to eliminate the diversity in practice in presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. This new guidance requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. Under the new guidance,

5

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

unrecognized tax benefits are netted against all available same-jurisdiction loss or other tax carryforward that would be utilized, rather than only against carryforwards that are created by the unrecognized tax benefits. The guidance was effective for reporting periods beginning after December 15, 2013. As this guidance relates to presentation only, the adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.

In April 2014, the FASB issued guidance which changes the criteria for reporting a discontinued operation while enhancing disclosures in this area. Under the new guidance, a disposal of a component of an entity or group of components of an entity that represents a strategic shift that has, or will have, a major effect on operations and financial results is a discontinued operation when any of the following occurs: (i) it meets the criteria to be classified as held for sale, (ii) it is disposed of by sale, or (iii) it is disposed of other than by sale. Also, a business that, on acquisition, meets the criteria to be classified as held for sale is reported in discontinued operations. Additionally, the new guidance requires expanded disclosures about discontinued operations, as well as disclosure of the pre-tax profit or loss attributable to a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation. As permitted, the Company early adopted this guidance in the second quarter of 2014, and the Company applied this guidance to the divestiture of filler and toxin assets and the divestiture of Metronidazole 1.3%. See note 19 titled “SUBSEQUENT EVENTS AND PROPOSED TRANSACTIONS” for information regarding these divestitures.

In May 2014, the FASB and the International Accounting Standards Board issued converged guidance on recognizing revenue from contracts with customers. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the revenue model to contracts within its scope, an entity will: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. In addition to these provisions, the new standard provides implementation guidance on several other topics, including the accounting for certain revenue-related costs, as well as enhanced disclosure requirements. The new guidance requires entities to disclose both quantitative and qualitative information that enables users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early application is not permitted. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. The Company is evaluating the impact of adoption of this guidance on its financial position and results of operations.

3. BUSINESS COMBINATIONS

The Company’s business strategy involves selective acquisitions with a focus on core geographies and therapeutic classes.

(a) Business combinations in 2014 included the following:

In the six-month period ended June 30, 2014, the Company completed business combinations, which included the acquisition of the following businesses, for an aggregate purchase price of $423.6 million. The aggregate purchase price included contingent consideration payment obligations with an aggregate acquisition date fair value of $49.1 million.

• On January 23, 2014, the Company acquired all of the outstanding common stock of Solta Medical, Inc. (“Solta Medical”) for $292.5 million, which includes $2.92 per share in cash and $44.2 million for the repayment of Solta Medical’s long-term debt, including accrued interest. In connection with the acquisition, the Company recognized a charge of $5.6 million in the first quarter of 2014 relating to a settlement of a pre-existing relationship with Solta Medical, which is included in Other (income) expense in the consolidated statements of income (loss). As a result of the completion of the merger, Solta Medical has become a wholly-owned subsidiary of Valeant. Solta Medical designs, develops, manufactures, and markets energy-based medical device systems for aesthetic applications. Solta Medical’s products include the Thermage CPT® system that provides non-invasive treatment options using radiofrequency energy for skin tightening, the Fraxel® repair system for use in dermatological procedures requiring ablation, coagulation, and resurfacing of soft tissue, the Clear + Brilliant® system to improve skin texture and help prevent the signs of aging skin, and the Liposonix® system that destroys unwanted fat cells resulting in waist circumference reduction.

• During the six-month period ended June 30, 2014, 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

6

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

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 Solta Medical 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 processes. 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			Measurement Period Adjustments(a)			Amounts Recognized as of June 30, 2014 (as adjusted)
Cash and cash equivalents	$	2.7		$	—		$	2.7
Accounts receivable(b)	16.8			—			16.8
Inventories	46.1			(6.5		)	39.6
Other current assets	7.5			—			7.5
Property, plant and equipment, net	6.6			(0.6		)	6.0
Identifiable intangible assets, excluding acquired IPR&D(c)	232.6			6.3			238.9
Acquired IPR&D(d)	61.8			0.8			62.6
Other non-current assets	0.9			—			0.9
Current liabilities	(34.6		)	(0.6		)	(35.2		)
Long-term debt, including current portion	(4.0		)	—			(4.0		)
Deferred income taxes, net	(9.4		)	(4.7		)	(14.1		)
Other non-current liabilities	(9.8		)	—			(9.8		)
Total identifiable net assets	317.2			(5.3		)	311.9
Goodwill(e)	106.4			5.3			111.7
Total fair value of consideration transferred	$	423.6		$	—		$	423.6

________________________

(a) The measurement period adjustments relate to the Solta Medical acquisition and primarily reflect: (i) reductions in the estimated fair value of inventory, (ii) increases in the estimated fair value of intangible assets, and (iii) 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.

(b) The fair value of trade accounts receivable acquired was $16.8 million, with the gross contractual amount being $19.1 million, of which the Company expects that $2.3 million will be uncollectible.

(c) The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:

7

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

	Weighted-  Average Useful Lives (Years)	Amounts Recognized as of Acquisition Dates		Measurement Period Adjustments			Amounts Recognized as of June 30, 2014 (as adjusted)
Product brands	9	$	127.4	$	5.7		$	133.1
Product rights	8	86.3		(0.9		)	85.4
Corporate brand	14	18.5		1.5			20.0
In-licensed products	7	0.4		—			0.4
Total identifiable intangible assets acquired	9	$	232.6	$	6.3		$	238.9

(d) The acquired in-process research and development (“IPR&D”) assets primarily relate to programs from smaller acquisitions. In addition, the Solta Medical acquisition includes a program for the development of a next generation Thermage® product.

(e) 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 from the Solta Medical acquisition represents the following:

• cost savings, operating synergies and other benefits expected to result from combining the operations of Solta Medical with those of the Company;

• the Company’s expectation to develop and market new products and technology; and

• intangible assets that do not qualify for separate recognition (for instance, Solta Medical’s assembled workforce).

The provisional amount of goodwill from the Solta Medical acquisition has been allocated to both the Company’s Developed Markets segment ($64.0 million) and Emerging Markets segment ($42.9 million).

Acquisition-Related Costs

The Company has incurred to date $2.6 million, in the aggregate, of transaction costs directly related to business combinations which closed in 2014, 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

The revenues of these business combinations for the period from the respective acquisition dates to June 30, 2014 were $61.9 million, in the aggregate, and net loss, net of tax, was $15.3 million, in the aggregate. The net loss, net of tax, includes the effects of the acquisition accounting adjustments and acquisition-related costs.

(b) Business combinations in 2013 included 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. 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.

8

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

Fair Value of Consideration Transferred

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

	Fair Value
Enterprise value	$	8,700.0
Adjusted for the following:
B&L’s outstanding debt, including accrued interest	(4,248.3		)
B&L’s company expenses	(6.4		)
Payment in B&L’s performance-based option(a)	(48.5		)
Payment for B&L’s cash balance(b)	149.0
Additional cash payment(b)	75.0
Other	(3.2		)
Equity purchase price	4,617.6
Less: Cash consideration paid for B&L’s unvested stock options(c)	(4.3		)
Total fair value of consideration transferred	$	4,613.3

___________________________________

(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.

9

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

	Amounts Recognized as of Acquisition Date (as previously reported)(a)			Measurement Period Adjustments(b)			Amounts Recognized as of June 30, 2014 (as adjusted)
Cash and cash equivalents	$	209.5		$	(31.4	)	$	178.1
Accounts receivable(c)	547.9			(7.2		)	540.7
Inventories(d)	675.8			(34.0		)	641.8
Other current assets(e)	146.6			0.3			146.9
Property, plant and equipment, net(f)	761.4			33.2			794.6
Identifiable intangible assets, excluding acquired IPR&D(g)	4,316.1			17.3			4,333.4
Acquired IPR&D(h)	398.1			17.0			415.1
Other non-current assets	58.8			(1.9		)	56.9
Current liabilities(i)	(885.6		)	2.1			(883.5		)
Long-term debt, including current portion(j)	(4,209.9		)	—			(4,209.9		)
Deferred income taxes, net(k)	(1,410.9		)	36.0			(1,374.9		)
Other non-current liabilities(l)	(280.2		)	(1.0		)	(281.2		)
Total identifiable net assets	327.6			30.4			358.0
Noncontrolling interest(m)	(102.3		)	(0.4		)	(102.7		)
Goodwill(n)	4,388.0			(30.0		)	4,358.0
Total fair value of consideration transferred	$	4,613.3		$	—		$	4,613.3

________________________

(a) As previously reported in the 2013 Form 10-K.

(b) The measurement period adjustments primarily reflect: (i) a decrease in the net deferred tax liability, (ii) a reduction in the estimated fair value of inventory, (iii) an increase in the estimated fair value of property, plant and equipment mainly related to certain machinery and equipment in Western Europe and the U.S., partially offset by a reduction in the estimated fair value related to certain manufacturing facilities and an office building, (iv) an adjustment between cash and accounts payable, and (v) increases in the estimated fair value of intangible assets, which included a net increase to IPR&D assets driven by a higher fair value for the next generation silicone hydrogel lens (Bausch + Lomb Ultra™). 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 $540.7 million, with the gross contractual amount being $555.6 million, of which the Company expects that $14.9 million will be uncollectible.

(d) Includes an estimated fair value adjustment to inventory of $269.1 million.

(e) Includes primarily prepaid expenses.

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

	Weighted-  Average Useful Lives (Years)	Amounts Recognized as of Acquisition Date (as previously reported)		Measurement Period Adjustments			Amounts Recognized as of June 30, 2014 (as adjusted)
Land	NA	$	47.4	$	(12.6	)	$	34.8
Buildings	24	273.1		(23.8		)	249.3
Machinery and equipment	5	273.5		76.3			349.8
Leasehold improvements	5	22.5		(0.3		)	22.2
Equipment on operating lease	3	13.8		(0.2		)	13.6
Construction in progress	NA	131.1		(6.2		)	124.9
Total property, plant and equipment acquired		$	761.4	$	33.2		$	794.6

An office building in Rochester, New York, with an adjusted carrying amount of $14.2 million, was classified as held for sale as of June 30, 2014. The Company expects to sell this facility in the third quarter of 2014.

10

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

(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 June 30, 2014 (as adjusted)
Product brands	10	$	1,770.2	$	4.6	$	1,774.8
Product rights	8	855.4		5.7		861.1
Corporate brand	Indefinite	1,690.5		7.0		1,697.5
Total identifiable intangible assets acquired	9	$	4,316.1	$	17.3	$	4,333.4

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.

(h) The significant components of the acquired IPR&D assets primarily relate to the development of (i) various vision care products ($223.4 million in the aggregate), such as the next generation silicone hydrogel lens (Bausch + Lomb Ultra™), (ii) various pharmaceutical products ($170.9 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 ($20.8 million, in the aggregate). 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. The next generation silicone hydrogel lens (Bausch + Lomb Ultra™) was launched in February 2014.

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

(j) 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)	$	707.0
U.S. dollar-denominated senior secured term loan(1)	1,915.8
Euro-denominated senior secured term loan(1)	604.0
U.S. dollar-denominated delayed draw term loan(1)	398.0
U.S. dollar-denominated revolver loan(1)	170.0
9.875% senior notes(1)	350.0
Multi-currency denominated revolver loan(1)	15.0
Japanese revolving credit facility(2)	33.8
Debentures	11.8
Other(1)	4.5
Total long-term debt assumed	$	4,209.9

___________________________________

(1) The Company subsequently repaid these amounts in full in the third quarter of 2013.

(2) In the fourth quarter of 2013, the Company repaid in full the amounts outstanding. In January 2014, the Company terminated this facility.

(k) Comprises current net deferred tax assets ($61.6 million) and non-current net deferred tax liabilities ($1,436.5 million).

(l) Includes $224.2 million related to the estimated fair value of pension and other benefits liabilities.

(m) 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.

(n) 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;

11

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

• 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 amount of goodwill has been allocated to the Company’s Developed Markets segment($3.3 billion) and Emerging Markets segment ($1.1 billion).

Other Business Combinations

Description of the Transactions

In the year ended December 31, 2013, the Company completed other business combinations, which included the acquisition of the following businesses, for an aggregate purchase price of $898.1 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 June 30, 2014, the assumptions used for determining fair value of the contingent consideration have not changed significantly from those used at the acquisition date. In April 2014, the Company made a contingent consideration payment of $30.0 million.

• On February 1, 2013, the Company acquired Natur Produkt International, JSC (“Natur Produkt”), a specialty pharmaceutical company in Russia, for a purchase price of $149.9 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 year ended December 31, 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.

12

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

	Amounts Recognized as of Acquisition Dates			Measurement Period Adjustments(a)			Amounts Recognized as of June 30, 2014 (as adjusted)
Cash	$	43.1		$	—		$	43.1
Accounts receivable(b)	64.0			0.5			64.5
Inventories	33.6			1.9			35.5
Other current assets	14.0			—			14.0
Property, plant and equipment	13.9			(3.3		)	10.6
Identifiable intangible assets, excluding acquired IPR&D(c)	722.9			3.9			726.8
Acquired IPR&D(d)	18.7			0.2			18.9
Indemnification assets	3.2			(0.7		)	2.5
Other non-current assets	0.2			3.7			3.9
Current liabilities	(36.2		)	(0.4		)	(36.6		)
Short-term borrowings(e)	(33.3		)	0.5			(32.8		)
Long-term debt(e)	(24.0		)	—			(24.0		)
Deferred tax liability, net	(147.8		)	(1.1		)	(148.9		)
Other non-current liabilities	(1.5		)	—			(1.5		)
Total identifiable net assets	670.8			5.2			676.0
Noncontrolling interest(f)	(11.2		)	—			(11.2		)
Goodwill(g)	224.3			9.0			233.3
Total fair value of consideration transferred	$	883.9		$	14.2		$	898.1

________________________

(a) The measurement period adjustments primarily reflect an increase in the total fair value of consideration transferred with respect to the Natur Produkt acquisition pursuant to a purchase price 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 $64.5 million, with the gross contractual amount being $68.2 million, of which the Company expects that $3.7 million will be uncollectible.

(c) The following table summarizes the amounts and useful lives assigned to identifiable intangible assets:

	Weighted-  Average Useful Lives (Years)	Amounts Recognized as of Acquisition Dates		Measurement Period Adjustments		Amounts Recognized as of June 30, 2014 (as adjusted)
Product brands	7	$	517.2	$	3.1	$	520.3
Corporate brand	13	86.1		0.8		86.9
Patents	3	71.7		—		71.7
Royalty Agreement	5	26.5		—		26.5
Partner relationships	5	16.0		—		16.0
Technology	10	5.4		—		5.4
Total identifiable intangible assets acquired	8	$	722.9	$	3.9	$	726.8

(d) 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.

(e) 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.

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

(g) 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

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VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

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 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.

Pro Forma Impact of Business Combinations

The following table presents unaudited pro forma consolidated results of operations for the three-month and six-month periods ended June 30, 2014 and 2013, as if the 2014 acquisitions had occurred as of January 1, 2013 and the 2013 acquisitions had occurred as of January 1, 2012.

	Three Months Ended June 30,					Six Months Ended June 30,
	2014		2013			2014		2013
Revenues	$	2,041.1	$	1,957.6		$	3,930.9	$	3,874.6
Net income (loss) attributable to Valeant Pharmaceuticals International, Inc.	127.7		(21.5		)	102.5		(104.2		)
Earnings (loss) per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic	$	0.38	$	(0.06	)	$	0.31	$	(0.31	)
Diluted	$	0.37	$	(0.06	)	$	0.30	$	(0.31	)

The increase in pro forma revenues in the three-month and six-month periods ended June 30, 2014 as compared to the three-month and six-month periods ended June 30, 2013 was primarily due to higher B&L revenues and growth from the remaining business, partially offset by lower sales of the Retin-A Micro®, Vanos®, and Zovirax® franchises and Wellbutrin® XL (Canada) due to generic competition and lower sales of facial injectables (filler and toxin assets).

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 six-month periods ended June 30, 2014, 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 six-month periods ended June 30, 2014, 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 2014 acquisitions and the 2013 acquisitions been completed on January 1, 2013 and January 1, 2012, 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; and

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

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

4. CO-PROMOTION AGREEMENTS

Zovirax Authorized Generic Agreement and Termination of Co-Promotion Agreements

In April 2014, the Company and Actavis, Inc. (“Actavis”) signed an agreement terminating their previously-announced co-promotion agreement for Cordran® Tape, pursuant to which Actavis had granted the Company the exclusive right to co-promote Actavis Specialty Brands’ Cordran® Tape product in the U.S. Following the termination, the Company no longer

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VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

has any rights to co-promote the Cordran® Tape product. In addition, in April 2014, the Company and Actavis signed an agreement terminating their co-promotion agreement for Zovirax® cream, pursuant to which the Company had granted Actavis the exclusive right to co-promote Zovirax® cream to obstetricians and gynecologists in the U.S. Following the termination, Actavis no longer has any rights to co-promote Zovirax® cream.   

However, notwithstanding the termination of the co-promotion arrangements, Actavis continues to be the exclusive marketer and distributor of the authorized generic of the Company’s Zovirax® ointment product (other than to certain dispensing physicians) (the “Zovirax® ointment agreement”). Under the terms of the exclusive Zovirax® ointment agreement, the Company is continuing to supply Actavis with a generic version of the Company’s Zovirax® ointment product, Actavis is continuing to market and distribute the product in the U.S. (other than to certain dispensing physicians) and the Company continues to receive a share of the economics.

5. RESTRUCTURING, INTEGRATION AND OTHER COSTS

In connection with the B&L and Medicis Pharmaceutical Corporation (“Medicis”) acquisitions, as well as other smaller acquisitions, the Company has implemented cost-rationalization and integration initiatives to capture operating synergies and generate cost savings across the Company. These measures included:

• workforce reductions across the Company and other organizational changes;

• closing of duplicative facilities and other site rationalization actions company-wide, including research and development facilities, sales offices and corporate facilities;

• leveraging research and development spend; and

• procurement savings.

B&L Acquisition-Related Cost-Rationalization and Integration Initiatives

The Company estimates that it will incur total costs that are approximately 60% of the estimated annual synergies of greater than $900 million in connection with these cost-rationalization and integration initiatives, which are expected to be substantially completed by the end of 2014. Since the acquisition date, total costs of $515.0 million, including (i) $232.8 million of restructuring expenses, (ii) $268.8 million of integration expenses, and (iii) $13.4 million of acquisition-related costs, have been incurred through June 30, 2014. The estimate of total costs to be incurred primarily includes: employee termination costs payable to approximately 2,500 employees of the Company and B&L who have been or will be terminated as a result of the B&L Acquisition; IPR&D termination costs related to the transfer to other parties of product-development programs that did not align with our research and development model; costs to consolidate or close facilities and relocate employees; and contract termination and lease cancellation costs. These estimates do not include charges of (i) $56.0 million recognized in the second quarter of 2014 related to cost-rationalization measures at a contact lens manufacturing plant in Waterford, Ireland as described below and (ii) $52.8 million, in the aggregate, recognized and paid in the third quarter of 2013 related to B&L’s previously cancelled performance-based options and the acceleration of unvested stock options for B&L employees as a result of the B&L Acquisition.

B&L Restructuring Costs

The following table summarizes the major components of the $232.8 million of restructuring costs, plus the $52.8 million of charges described in the preceding paragraph, incurred in connection with the B&L Acquisition since the acquisition date through June 30, 2014:

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VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

	Employee Termination Costs						IPR&D Termination Costs		Contract Termination, Facility Closure and Other Costs
	Severance and Related Benefits			Share-Based Compensation(1)								Total
Balance, January 1, 2013	$	—		$	—		$	—	$	—		$	—
Costs incurred and/or charged to expense	155.7			52.8			—		25.6			234.1
Cash payments	(77.8		)	(52.8		)	—		(7.8		)	(138.4		)
Non-cash adjustments	11.4			—			—		(6.8		)	4.6
Balance, December 31, 2013	89.3			—			—		11.0			100.3
Costs incurred and/or charged to expense	22.5			—			—		6.6			29.1
Cash payments	(50.9		)	—			—		(3.2		)	(54.1		)
Non-cash adjustments	(2.3		)	—			—		(3.1		)	(5.4		)
Balance, March 31, 2014	58.6			—			—		11.3			69.9
Costs incurred and charged to expense	12.3			—			—		10.1			22.4
Cash payments	(25.7		)	—			—		(1.8		)	(27.5		)
Non-cash adjustments	(0.5		)	—			—		(0.4		)	(0.9		)
Balance, June 30, 2014	$	44.7		$	—		$	—	$	19.2		$	63.9

___________________________________

(1) Relates to B&L’s previously cancelled performance-based options and the acceleration of unvested stock options for B&L employees as a result of the B&L Acquisition.

B&L Integration Costs

As mentioned above, the Company has incurred $268.8 million of integration costs related to the B&L Acquisition since the acquisition date. In the six-month period ended June 30, 2014, the Company incurred $100.0 million of integration costs related to the B&L Acquisition, which related primarily to integration consulting and manufacturing, duplicate labor, transition service, and other costs. The Company made payments of $111.7 million related to B&L integration costs during the six-month period ended June 30, 2014.

In addition to the restructuring and integration costs described above, the Company incurred $56.0 million of restructuring costs in the three-month period ended June 30, 2014 related to employee termination costs with respect to cost-rationalization measures at a contact lens manufacturing plant in Waterford, Ireland (the plant was acquired as part of the B&L Acquisition). The Company did not make any payments in the three-month period ended June 30, 2014 with respect to this initiative.

Medicis Acquisition-Related Cost-Rationalization and Integration Initiatives

The Company estimates that it will incur total costs of approximately $200 million in connection with these cost-rationalization and integration initiatives, which were substantially completed by the end of 2013. However, additional costs have been incurred in 2014, and the Company expects to incur certain costs during the remainder of 2014. Since the acquisition date, total costs of $191.0 million, including (i) $109.2 million of restructuring expenses, (ii) $49.6 million of integration expenses, and (iii) $32.2 million of acquisition-related costs, which excludes $24.2 million of acquisition-related costs recognized in the fourth quarter of 2012 related to royalties to be paid to Galderma S.A. ("Galderma") on sales of Sculptra®, have been incurred through June 30, 2014. In connection with the divestiture of Sculptra® and certain other products to Galderma in July 2014, the royalty obligation owed to Galderma on sales of Sculptra® will be relieved in the third quarter of 2014 and included as part of the gain on sale. See note 19 “SUBSEQUENT EVENTS AND PROPOSED TRANSACTIONS” for additional information regarding this divestiture. The estimated costs primarily include: employee termination costs payable to approximately 750 employees of the Company and Medicis who have been terminated as a result of the Medicis acquisition; IPR&D termination costs related to the transfer to other parties of product-development programs that did not align with our research and development model; costs to consolidate or close facilities and relocate employees; and contract termination and lease cancellation costs. These estimates do not include a charge of $77.3 million recognized and paid in the fourth quarter of 2012 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.

Medicis Restructuring Costs

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VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

The following table summarizes the major components of the $109.2 million of restructuring costs, plus the charge of $77.3 million described in the preceding paragraph, incurred in connection with the Medicis acquisition since the acquisition date through June 30, 2014:

	Employee Termination Costs						IPR&D Termination Costs		Contract Termination, Facility Closure and Other Costs
	Severance and Related Benefits			Share-Based Compensation(1)								Total
Balance, January 1, 2012	$	—		$	—		$	—	$	—		$	—
Costs incurred and/or charged to expense	85.3			77.3			—		0.4			163.0
Cash payments	(78.0		)	(77.3		)	—		—			(155.3		)
Non-cash adjustments	4.1			—			—		(0.2		)	3.9
Balance, December 31, 2012	11.4			—			—		0.2			11.6
Costs incurred and/or charged to expense	20.0			—			—		3.5			23.5
Cash payments	(31.4		)	—			—		(3.6		)	(35.0		)
Non-cash adjustments	0.3			—			—		(0.1		)	0.2
Balance, December 31, 2013(2)	$	0.3		$	—		$	—	$	—		$	0.3

____________________________________

(1) Relates 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.

(2) The Company has not recognized any restructuring charges, and made a payment of $0.1 million, in the six-month period ended June 30, 2014 with respect to the Medicis acquisition-related initiatives.In the six-month period ended June 30, 2013, the Company recognized $21.0 million of restructuring charges and made payments of $31.9 million.

Medicis Integration Costs

As mentioned above, the Company has incurred $49.6 million of integration costs related to the Medicis acquisition since the acquisition date. In the six-month periods ended June 30, 2014 and 2013, the Company incurred $9.7 million and $21.4 million, respectively, of integration costs related to the Medicis acquisition. The costs incurred in 2014 related primarily to an R&D collaboration inherited from Medicis which does not align with the Company's research and development model. The costs in 2013 related primarily to integration consulting, duplicate labor, transition service, and other costs. The Company made payments of $2.3 million and $17.5 million related to Medicis integration costs during the six-month periods ended June 30, 2014 and 2013, respectively.

Other Restructuring and Integration-Related Costs (Excluding B&L and Medicis)

In the six-month period ended June 30, 2014, in addition to the restructuring and integration costs associated with the B&L and Medicis acquisitions described above, the Company incurred an additional $58.5 million of other restructuring, integration-related and other costs. These costs included (i) $36.0 million of integration consulting, duplicate labor, transition service, and other costs, (ii) $12.3 million of severance costs, (iii) $5.8 million of other costs, and (iv) $4.4 million of facility closure costs. These costs primarily related to (i) integration and restructuring costs for Solta Medical and other smaller acquisitions and (ii) intellectual property migration and the global consolidation of the Company’s manufacturing facilities. The Company made payments of $55.8 million during the six-month period ended June 30, 2014 (in addition to the payments related to the B&L and Medicis acquisitions described above).

In the six-month period ended June 30, 2013, in addition to the restructuring and integration costs associated with the Medicis Acquisition described above, the Company incurred an additional $60.2 million of other restructuring, integration-related and other costs. These costs included (i) $36.3 million of integration consulting, duplicate labor, transition service, and other costs, (ii) $9.3 million of facility closure costs, (iii) $9.3 million of severance costs, and (iv) $5.3 million of other costs, including non-personnel manufacturing integration costs. These costs primarily related to (i) integration and restructuring costs for other smaller acquisitions, (ii) intellectual property migration and the global consolidation of the Company’s manufacturing facilities, and (iii) systems integration initiatives. The Company made payments of $52.8 million, in the aggregate, during the six-month period ended June 30, 2013 (in addition to the payments related to the Medicis Acquisition described above).

6. FAIR VALUE MEASUREMENTS

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VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:

• Level 1 — Quoted prices in active markets for identical assets or liabilities;

• Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using discounted cash flow methodologies, pricing models, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following fair value hierarchy table presents the components and classification of the Company’s financial assets and liabilities measured at fair value as of June 30, 2014 and December 31, 2013:

	As of June 30, 2014										As of December 31, 2013
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents(1)	$	14.6		$	14.6	$	—	$	—		$	171.3		$	171.3	$	—	$	—
Available-for-sale equity securities(2)	4.9			4.9		—		—			—			—		—		—
Total financial assets	$	19.5		$	19.5	$	—	$	—		$	171.3		$	171.3	$	—	$	—
Cash equivalents(1)	$	14.6		$	14.6	$	—	$	—		$	171.3		$	171.3	$	—	$	—
Marketable securities	4.9			4.9		—		—			—			—		—		—
Total financial assets	$	19.5		$	19.5	$	—	$	—		$	171.3		$	171.3	$	—	$	—
Liabilities:
Acquisition-related contingent consideration	$	(327.0	)	$	—	$	—	$	(327.0	)	$	(355.8	)	$	—	$	—	$	(355.8	)

___________________________________

(1) Cash equivalents include highly liquid investments with an original maturity of three months or less at acquisition, including money market funds reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.

(2) For the three-month period ended June 30, 2014, the Company recorded a gross unrealized gain on the available-for-sale equity securities of $4.3 million in other comprehensive income (loss).

In addition to the cash equivalents (described under the table above), the Company has time deposits valued at cost, which approximates fair value due to their short-term maturities. The carrying value of $31.2 million and $25.2 million as of June 30, 2014 and December 31, 2013, respectively, related to these investments is classified within Prepaid expenses and other current assets in the consolidated balance sheets.

There were no transfers between Level 1 and Level 2 during the six-month period ended June 30, 2014.

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

The fair value measurement of contingent consideration obligations arising from business combinations is determined using unobservable (Level 3) inputs. These inputs include (i) the estimated amount and timing of projected cash flows; (ii) the probability of the achievement of the factor(s) on which the contingency is based; and (iii) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.

18

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using significant unobservable inputs (Level 3) for the six-month period ended June 30, 2014:

	Balance, January 1, 2014			Issuances(a)			Payments(b)		Net Unrealized Loss(c)			Foreign Exchange(d)			Transfers Into Level 3		Transfers Out of Level 3		Balance, June 30, 2014
Acquisition-related contingent consideration	$	(355.8	)	$	(49.1	)	$	90.4	$	(10.8	)	$	(1.7	)	$	—	$	—	$	(327.0	)

____________________________________

(a) Relates to a contingent consideration liability assumed in the Solta Medical acquisition, as well as contingent consideration with respect to other smaller acquisitions, as described in note 3.

(b) Relates primarily to payments of acquisition-related contingent consideration related to the OraPharma Topco Holdings, Inc. and Eisai (Targretin®) acquisitions and the Elidel®/Xerese®/Zovirax® agreement entered into with Meda Pharma SARL (“Meda”) in June 2011 (the “Elidel®/Xerese®/Zovirax® agreement”).

(c) For the six months ended June 30, 2014, a net loss of $10.8 million was recognized as Acquisition-related contingent consideration in the consolidated statements of income (loss). The acquisition-related contingent consideration net loss was primarily driven by fair value adjustments to reflect accretion for the time value of money related to the Elidel®/Xerese®/Zovirax® agreement.

(d) Included in other comprehensive income (loss).

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

There were no significant assets or liabilities that were re-measured at fair value on a non-recurring basis subsequent to initial recognition in the six-month period ended June 30, 2014.

7. INVENTORIES

The components of inventories as of June 30, 2014 and December 31, 2013 were as follows:

	As of June 30, 2014			As of December 31, 2013
Raw materials	$	236.6		$	221.8
Work in process	110.9			104.7
Finished goods	709.5			656.3
	1,057.0			982.8
Less allowance for obsolescence	(114.5		)	(99.8		)
	$	942.5		$	883.0

In the six-month period ended June 30, 2014, the increase in inventories was primarily driven by (i) the 2014 acquisitions of businesses, primarily from the $30.3 million of inventory acquired in the Solta Medical acquisition and (ii) investments in inventory (inclusive of cost increases) to support growth of the business.

For further information regarding the 2014 acquisitions of businesses, see note 3 titled “BUSINESS COMBINATIONS”.

8. INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

The major components of intangible assets as of June 30, 2014 and December 31, 2013 were as follows:

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All tabular amounts expressed in millions of U.S. dollars, except per share data)

(Unaudited)

	As of June 30, 2014			As of December 31, 2013
	Gross Carrying Amount	Accumulated Amortization, Including Impairments	Net Carrying Amount	Gross Carrying Amount	Accumulated Amortization, Including  Impairments	Net Carrying Amount
Finite-lived intangible assets: