Valeant Pharmaceuticals Reports First Quarter 2015 Financial Results

Valeant Pharmaceuticals International, Inc.

 Table 1 

Condensed Consolidated Statements of Income (Loss)

For the Three Months Ended March 31, 2015 and 2014

Three Months Ended

March 31,

(In millions)

2015

2014

Product sales

$ 2,146.9

$ 1,851.1

Other revenues

44.0

35.1

Total revenues

2,190.9

1,886.2

Cost of goods sold (exclusive of amortization and impairments of finite-lived intangible assets shown separately below)

560.4

504.1

Cost of other revenues

14.3

14.3

Selling, general and administrative ("SG&A")

573.8

482.0

Research and development

55.8

61.3

Acquisition-related contingent consideration

7.1

8.9

In-process research and development impairments and other charges

-

12.0

Other (income)/expense

6.1

(43.3)

Restructuring, integration, acquisition-related and other costs

64.8

135.1

Amortization and impairments of finite-lived intangible assets

365.2

355.2

1,647.5

1,529.6

Operating income (loss)

543.4

356.6

Interest expense, net

(296.9)

(244.7)

Loss on extinguishment of debt

(20.0)

(93.7)

Foreign exchange and other

(71.1)

(13.4)

Income (loss) before (recovery of) provision for income taxes

155.4

4.8

(Recovery of) provision for income taxes

80.9

25.1

Net income (loss)

74.5

(20.3)

Less:  Net income (loss) attributable to noncontrolling interest

0.8

2.3

Net income (loss) attributable to Valeant Pharmaceuticals International, Inc.

$      73.7

$    (22.6)

Earnings (loss) per share:

Basic:

Earnings (loss)

$      0.22

$    (0.07)

Shares used in per share computation

336.8

334.9

Diluted:

Earnings (loss)

$      0.21

$    (0.07)

Shares used in per share computation

343.4

334.9

Valeant Pharmaceuticals International, Inc.

 Table 2 

Reconciliation of GAAP EPS to Cash EPS 

For the Three Months Ended March 31, 2015 and 2014

Three Months Ended

March 31,

(In millions)

2015

2014

Net income (loss) attributable to Valeant Pharmaceuticals International, Inc.

$   73.7

$   (22.6)

Non-GAAP adjustments (a):

Inventory step-up (b)

24.5

5.3

PP&E step-up/down (c)

6.5

4.9

Stock-based compensation (d)

8.5

6.0

Acquisition-related contingent consideration (e)

7.1

8.9

In-process research and development impairments and other charges (f)

-

12.0

Other (income)/expense (g)

6.1

(43.3)

Restructuring, integration, acquisition-related and other costs (h)

64.8

135.1

Amortization and impairments of finite-lived intangible assets and other non-GAAP charges (i)

368.5

364.1

486.0

493.0

Amortization of deferred financing costs, debt discounts and ASC 470-20 (FSP APB 14-1) interest (j)

90.5

12.2

Loss on extinguishment of debt

20.0

93.7

(Gain) loss on disposal of fixed assets and assets held for sale/impairment, net

0.5

0.8

Foreign exchange and other (k)

76.0

12.6

Tax (l)

62.6

10.0

Total adjustments

735.6

622.3

Adjusted net income attributable to Valeant Pharmaceuticals International, Inc.

$ 809.3

$   599.7

GAAP earnings (loss) per share - diluted

$   0.21

$   (0.07)

Cash earnings per share - diluted

$   2.36

$     1.76

Shares used in diluted per share calculation - Cash earnings per share

343.4

341.5

(a) See footnote (a) to Table 2a.

(b) See footnote (b) to Table 2a.

(c) See footnote (c) to Table 2a.

(d) See footnote (d) to Table 2a.

(e) See footnote (e) to Table 2a.

(f) See footnote (f) to Table 2a.

(g) See footnote (g) to Table 2a.

(h) See footnote (h) (i) to Table 2a.

(i) See footnote (c) to Table 2a.

(j) See footnote (j) to Table 2a.

(k) See footnote (k) to Table 2a.

(l) See footnote (l) to Table 2a.

Valeant Pharmaceuticals International, Inc.

 Table 2a 

Reconciliation of GAAP EPS to Cash EPS 

For the Three Months Ended March 31, 2015 and 2014

Non-GAAP Adjustments^(a)for

Three Months Ended

March 31,

(In millions)

2015

2014

Product sales

$        -

$            -

Other revenues

-

-

Total revenues

-

-

Cost of goods sold (exclusive of amortization and impairments of finite-lived intangible assets shown separately below)

(34.0)

 (b)(c) 

(19.6)

 (b)(c)

Cost of other revenues

-

-

Selling, general and administrative ("SG&A")

(9.0)

 (d) 

(6.0)

 (d) 

Research and development

(0.3)

(0.3)

Acquisition-related contingent consideration

(7.1)

 (e) 

(8.9)

 (e) 

In-process research and development impairments and other charges

-

(12.0)

 (f) 

Other income/(expense)

(6.1)

 (g) 

43.3

 (g) 

Restructuring, integration, acquisition-related and other costs

(64.8)

 (h) 

(135.1)

 (i) 

Amortization and impairments of finite-lived intangible assets

(365.2)

(355.2)

(486.5)

(493.8)

Operating income (loss)

486.5

493.8

Interest expense, net

90.5

 (j) 

12.2

 (j) 

Loss on extinguishment of debt

20.0

93.7

Foreign exchange and other

76.0

 (k) 

12.6

 (k) 

Income (loss) before (recovery of) provision for income taxes

673.0

612.3

(Recovery of) provision for income taxes

62.6

 (l) 

10.0

 (l) 

Total adjustments to net income (loss) attributable to Valeant Pharmaceuticals International, Inc.

$  735.6

$       622.3

Earnings (loss) per share:

Diluted:

Total adjustments to earnings (loss)

$    2.14

$         1.82

Shares used in per share computation

343.4

341.5

(a) To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the company uses non-GAAP financial measures that exclude certain items, such as amortization of inventory step-up, amortization of alliance product assets & property, plant and equipment step up, stock-based compensation step-up, contingent consideration fair value adjustments, restructuring, integration, acquisition-related and other costs, In-process research and development, impairments and other charges, ("IPR&D"), legal settlements outside the ordinary course of business, the impact of currency fluctuations, amortization including intangible asset impairments and other non-cash charges, amortization and write-down of deferred financing costs, debt discounts and ASC 470-20 (FSP APB 14-1) interest, loss on extinguishment of debt, (gain) loss on assets sold/held for sale/impairment, net, (gain) loss on investments, net, and adjusts tax expense to cash taxes.

Management uses non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance. By disclosing non-GAAP financial measures, management intends to provide investors with a meaningful, consistent comparison of the company's core operating results and trends for the periods presented. Non-GAAP financial measures are not prepared in accordance with GAAP. Therefore, the information is not necessarily comparable to other companies and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

(b) ASC 805, Business Combinations, requires an inventory fair value step-up whose total impact for the three months ended March 31, 2015 is $24.5 million primarily due to the acquisition of Marathon Pharmaceuticals, LLC on February 10, 2015. For the three months ended March 31, 2014 the impact of inventory fair value step-up is $5.3 million primarily due to the acquisition of Solta Medical, Inc. on January 23, 2014 and net of a measurement period adjustment relating to the acquisition of Bausch & Lomb Holdings Incorporated on August 5, 2013.

(c) For the three months ended March 31, 2015 and 2014, cost of goods sold include $3.3 million and $7.7 million, respectively, of costs associated with integration related tech transfers, PP&E step up of $6.2 million and $5.1 million, respectively, primarily relating to the acquisition of Bausch & Lomb Holdings Incorporated. For the three months ended March 31, 2014, cost of goods sold also includes $1.5 million amortization of a BMS fair value inventory adjustment.

(d) For the three months ended March 31, 2015, SG&A primarily includes $8.5 million of stock-based compensation which reflects acceleration of certain equity instruments. For the three months ended March 31, 2014, SG&A primarily includes $6.0 million of stock-based compensation which reflects acceleration of certain equity instruments and the amortization of the fair value step-up increment resulting from the merger of Legacy Valeant into Legacy Biovail.

(e) Net expense/(income) from the changes in acquisition-related contingent consideration for the three months ended March 31, 2015 and 2014 is $7.1 million and $8.9 million, respectively.

(f) In-process research and development impairments and other charges for the three months ended March 31, 2014 of $12.0 million is primarily due to an upfront payment made in connection with an amendment to a license and distribution agreement with a third party.

(g) For the three months ended March 31, 2015, other (income)/expense of $6.1 million primarily relates to additional expenses related to the divestiture of filler and toxin assets and legal settlements and related fees. For the three months ended March 31, 2014, other (income)/expense of ($43.3) million primarily relates to the reversal of the AntiGrippin® litigation reserve of $50.0 million, partially offset by $5.6 million expense related to a settlement of a preexisting relationship with respect to the acquisition of Solta Medical, Inc.

(h) Restructuring, integration, acquisition-related and other costs of $64.8 million primarily relates to the acquisitions of Dendreon Corporation, Bausch & Lomb Holdings Incorporated, Medicis Pharmaceutical Corporation, Marathon Pharmaceuticals, LLC and Salix Pharmaceuticals, Ltd. These include $24.8 million of contract terminations, integration consulting, transition services, duplicative labor and other, $24.8 million of employee severance costs, $9.8 million of acquisition costs, $3.1 million of other, $1.6 million of facility closure costs and $0.7 million of non-personnel manufacturing integration costs.

(i) Restructuring, integration, acquisition-related and other costs of $135.1 million primarily relates to the acquisitions of Bausch & Lomb Holdings Incorporated, Solta Medical, Inc., other Valeant restructuring and integration initiatives and OnPharma Inc. These include $73.6 million of contract terminations, integration consulting, transition services, duplicative labor and other, $33.8 million of employee severance costs, $13.3 million of facility closure costs, $7.7 million of other, $3.5 million of stock-based compensation, $1.7 million of non-personnel manufacturing integration costs and $1.5 million of acquisition costs.

(j) Non-cash interest expense associated with amortization of deferred financing costs and debt discounts for the three months ended March 31, 2015 and 2014 is $10.5 million and $12.2 million, respectively. The three months ended March 31, 2015 also includes $72.0 million write-down of deferred finance costs and $8.0 million of interest expense resulting from the acquisition of Salix Pharmaceuticals, Ltd.

(k) Unrealized foreign exchange loss on intercompany financing arrangements for the three months ended March 31, 2015 and 2014 is $49.4 million and $12.6 million, respectively. The three months ended March 31, 2015 also includes unrealized foreign exchange loss of $26.6M relating to foreign currency forward-exchange contracts.

(l) Total tax effect of non-GAAP pre-tax adjustments, resolution of uncertain tax positions and change in deferred taxes.

Valeant Pharmaceuticals International, Inc.

 Table 3 

Statement of Revenues - by Segment

For the Three Months Ended March 31, 2015 and 2014

(In millions)

 Three Months Ended 

March 31,

Revenues(a)(b)

2015
GAAP

2014
GAAP

%   Change

2015 currency impact

2015 excluding currency impact
 non-GAAP

%   Change

  Dermatology

$    419.3

$    304.2

38%

$        -

$      419.3

38%

  Consumer

155.5

144.0

8%

-

155.5

8%

  Ophthalmology Rx

129.1

99.3

30%

-

129.1

30%

  Contact Lenses

47.7

40.9

17%

-

47.7

17%

  Surgical

48.1

48.3

0%

-

48.1

0%

  Neuro & Other/Generics

539.1

351.5

53%

-

539.1

53%

  Dental

34.8

18.2

91%

-

34.8

91%

  Oncology

30.1

-

-

30.1

  Total U.S. 

1,403.7

1,006.4

39%

-

1,403.7

39%

  ROW Developed

360.7

415.4

-13%

62.0

422.7

2%

Developed Markets

1,764.4

1,421.8

24%

62.0

1,826.4

28%

     Emerging Markets-Europe/Middle East

212.1

248.7

-15%

60.1

272.2

9%

     Emerging Markets-Latin America

89.0

99.3

-10%

14.0

103.0

4%

     Emerging Markets-Asia

125.4

116.4

8%

3.5

128.9

11%

Emerging Markets

426.5

464.4

-8%

77.6

504.1

9%

Total revenues

$ 2,190.9

$ 1,886.2

16%

$   139.6

$   2,330.5

24%

(a) Note: Currency effect for constant currency sales is determined by comparing 2015 reported amounts adjusted to exclude currency impact, calculated using 2014 monthly average exchange rates, to the actual 2014 reported amounts. Constant currency sales is not a GAAP-defined measure of revenue growth. Constant currency sales as defined and presented by us may not be comparable to similar measures reported by other companies. 

(b) See footnote (a) to Table 2a.

Valeant Pharmaceuticals International, Inc.

Table 4

Reconciliation of GAAP Cost of Goods Sold to Non-GAAP Cost of Goods Sold - by Segment

For the Three Months Ended March 31, 2015 

(In millions)

4.1

Cost of goods sold (a)

 Three Months Ended 

March 31,

2015
as reported
GAAP

%
of product sales

2015
 fair value step-up adjustment to inventory and other non-GAAP    (b)

2015 excluding fair value step-up adjustment to inventory and other
non-GAAP

%
of product sales

Developed Markets

$        397.6

23%

$           32.1

$         365.5

21%

Emerging Markets

162.8

1.9

160.9

39%

$        560.4

26%

$           34.0

$         526.4

25%

(a) See footnote (a) to Table 2a.

(b) Developed Markets include $24.5 million of fair value step-up adjustment to inventory, PP&E net step up adjustment of $5.7 million and $1.9 million of integration related tech transfer costs.  Emerging Markets include $1.4 million of integration related tech transfer costs and $0.5 million of PP&E step up adjustment.

Valeant Pharmaceuticals International, Inc.

Table 5

Consolidated Balance Sheet and Other Data

(In millions)

As of

As of

March 31,

December 31,

5.1

Cash

2015

2014

Cash and cash equivalents

$   1,864.4

$            322.6

Marketable securities

-

-

Total cash and marketable securities

$   1,864.4

$            322.6

Debt

Revolving Credit Facility

$      225.0

$            165.0

Series A-1 Tranche A Term Loan Facility

139.1

139.6

Series A-2 Tranche A Term Loan Facility

135.3

135.7

Series A-3 Tranche A Term Loan Facility

1,877.3

1,637.9

Series D-2 Tranche B Term Loan Facility

1,084.1

1,089.7

Series C-2 Tranche B Term Loan Facility

834.0

838.3

Series E-1 Tranche B Term Loan Facility

2,529.5

2,544.9

Senior Notes

19,184.2

8,690.8

Other

12.2

12.7

26,020.7

15,254.6

Less: current portion

(122.8)

(0.9)

Total long-term debt

$ 25,897.9

$       15,253.7

5.2

Summary of Cash Flow Statements

Three Months Ended

March 31,

2015

2014

Cash flow provided by (used in):

Net cash provided by operating activities (GAAP)

$      491.1

$            484.3

Restructuring, integration and acquisition-related costs ^(c)

64.8

135.1

Payment of accrued legal settlements

3.0

-

Tax benefit from stock options exercised ^(a)

17.9

1.2

Acquired in-process research and development

-

12.0

Working capital change related to business development activities

130.6

-

Changes in working capital related to restructuring, integration and acquisition-related costs^(c)

0.7

3.7

Adjusted cash flow from operations (Non-GAAP) ^(b)

$      708.1

$            636.3

(a) Includes stock option tax benefit which will reduce taxes in future periods.

(b) See footnote (a) to Table 2a.

(c) Total restructuring, integration and acquisition-related costs cash payments of $65.5 million are broken down as follows:

Project Type

Cash Paid

Expensed

Bausch & Lomb Holdings Incorporated

22.0

8.8

Project Vision/Waterford

15.7

0.2

Dendreon Corporation

8.9

35.2

Medicis Pharmaceutical Corporation

5.2

5.3

Europe (Various Deals)

2.3

1.4

Intellectual property migration

1.7

1.0

Solta Medical, Inc.

1.7

1.4

Nicox Inc.

1.5

0.4

Manufacturing integration (Various deals)

1.2

0.6

Precision Dermatology

1.1

1.1

Marathon Pharmaceuticals, LLC

0.3

2.8

Salix Pharmaceuticals, Ltd

-

2.5

Other (Various deals)

3.9

4.1

Total

65.5

64.8

Expense Type

Cash Paid

Severance payments

38.9

Integration related consulting, duplicative labor, transition services, and other

21.1

Facility closure costs, other manufacturing integration, and other

5.2

Acquisition-related costs paid to 3rd parties

0.3

Total

65.5

Valeant Pharmaceuticals International, Inc.

Table 6

Organic Growth - by Segment 

For the Three Months Ended March 31, 2015 

(In Millions)

As reported

 For the Three Months Ended March 31, 

(a)

(b)

(b)

(b)

 (1) Q1 2015 

 (2) Acq impact 

 (3) Q1 2015
Same store 

 (4) Q1 2014 

 (5) Pro Forma Adj 

 (6) Q1  2014 

 (7) Currency impact Same store 

 (8) Currency impact Acq 

 (9) Divestitures / Discontinuations (c ) 

Pro Forma (1)+(7)+(8) / (6)-(9)
(f)

Same store (3)+(7) / (4)-(9)
(f)

Total U.S.    (d)

1,382.4

196.3

1,186.0

997.8

76.1

1,073.9

-

-

58.1

36%

26%

ROW Developed (e)

348.8

11.6

337.1

402.5

14.8

417.3

57.8

2.5

4.6

-1%

-1%

Developed Markets

1,731.1

208.0

1,523.2

1,400.4

90.8

1,491.2

57.8

2.5

62.7

25%

18%

Emerging Markets

416.4

12.2

404.2

454.5

11.2

465.7

74.4

1.2

7.9

7%

7%

Total product sales

2,147.5

220.2

1,927.3

1,854.9

102.0

1,956.9

132.2

3.7

70.5

21%

15%

(a) Note: Currency effect for constant currency sales is determined by comparing 2015 reported amounts adjusted to exclude currency impact, calculated using 2014 monthly average exchange rates, to the actual 2014 reported amounts. Constant currency sales is not a GAAP-defined measure of revenue growth. Constant currency sales as defined and presented by us may not be comparable to similar measures reported by other companies. 

(b) See footnote (a) to Table 2a.

(c) Includes divestitures and discontinuations.

(d) Includes Valeant's attributable portion of revenue from joint ventures (JV) - $0.6M Q1'15 and $0.7M Q1'14.

(e) Includes Valeant's attributable portion of revenue from joint ventures (JV) - $3.1M Q1'14.

(f) Organic Growth Definitions:

Same Store (SS): This measure provides growth rates for businesses that have been owned for one year or more.  

((Current Year Total product sales – acquisitions within the last year + YoY FX impact)- (Prior Year Total product sales – divestitures & discontinuations))/( Prior Year Total product sales – divestitures & discontinuations)

Pro Forma (PF):  This measure provides year over year growth rates for the entire business, including those that have been acquired within the last year.  

((Current Year Total product sales + YoY FX impact + divestitures or discontinuations) – (Prior Year Total product sales + Pro Forma impact of acquisitions within the last year))/(Prior Year Total product sales + Pro Forma impact of acquisitions within the last year).