Source

Assertion

Facts

•     Allergan’s statement is factually incorrect. In accordance with GAAP accounting and Accounting Standards Codification (ASC) 805-20, Valeant records inventory acquired in business combinations at its acquisition date fair value. As part of this analysis any obsolescence reserves existing at the time of the acquisition are adjusted as appropriate to reflect inventory at fair value as of the acquisition date.

•     We are transparent with our investors with regard to our obsolescence reserve balances related to our acquisitions and provide them on Schedule II “Valuation and Qualifying Accounts” in Valeant’s 10-Ks, including our most recently filed Form 10-K. Valeant discloses a roll-forward of the inventory obsolescence balance, specifically identifying expense charges to the income statement, inventory reserves assumed as part of business combinations, and write-offs/disposals. Valeant does not use inventory obsolescence reserves recorded by the acquired companies to absorb losses on inventories to avoid recognizing charges to income.

“Recognizing revenue when aesthetics products are shipped to third-party distributor McKesson, instead of when McKesson receives the shipment”

“and withholding information from the SEC Staff on a rebate program that Valeant established subsequent to its acquisition of Medicis”

•     Allergan’s statement is factually incorrect. Revenue from aesthetics products is recognized when product is received by McKesson and changes to the revenue recognition policy used by Medicis management were related to changes in business practices after the Medicis acquisition. This is explained in detail in our response to the SEC comment letter dated October 1, 2013 which can be found at: http://www.sec.gov/Archives/edgar/data/885590/000134100413001002/filename1.htm

•     Allergan’s statement is factually incorrect. Information was never withheld from the SEC regarding rebates. The rebates that were discontinued were consumer (patient) rebates as described in the SEC letter dated October 1, 2013. Valeant never discontinued any physician rebates. The MVP program that was launched in Q3 of 2013 is a physician loyalty program, not a consumer (patient) rebate program. Our rebates with regard to physician loyalty programs are included in our Gross to Nets and details of the program can be found in Valeant’s press release dated July 2, 2013.

•     Allergan’s statement is factually incorrect. Through Q1 2014, Valeant had assessed all disposals and divestitures under ASC 205-20-45 to determine whether reporting as discontinued operations was appropriate. In all instances, the divestitures and discontinuations did not meet the criteria or were immaterial.

•     In Q2 2014, the FASB issued guidance which changes the criteria for reporting a discontinued operation, specifically setting higher thresholds for meeting the discontinued operations criteria while enhancing disclosures in this area. Valeant reviewed all Q2 disposals and divestitures under these criteria. As permitted, Valeant early adopted this guidance in the second quarter and applied the criteria set forth in ASU 2014-08 for assessing the divestiture of the facial injectable products business to Nestle and the divestiture of Metronidazole 1.3% to Actavis. As described in Valeant’s June 30, 2014 10-Q footnote #19, neither of these divestitures met the criteria for discontinued operations reporting or for individual significant component reporting.

•     Allergan’s statement is misleading. Valeant provides non-GAAP financial metrics with the same adjustments as Allergan and other industry peers to provide additional information to shareholders on the underlying performance of the business. Comparable GAAP financial measures are provided, consistent with SEC guidance.

•     Allergan’s statement is factually incorrect. Valeant has appropriately identified its operating segments based on the operation of the business and in accordance with ASC 280-10-50-1. Valeant reviews operating segments on a yearly basis or more frequently as necessary.

•     Allergan’s statement is factually incorrect. The Valeant proxy statement fully discloses that Mr. Pearson pledged shares of Valeant common stock in connection with loans used to fund tax and other obligations associated with vesting and delivery of equity incentive awards and purchases of Company shares. This disclosure complies in full with all applicable SEC requirements, and is consistent with disclosure made by other issuers.

•     Such a pledge does not implicate the Sarbanes-Oxley prohibition on publicly traded companies extending or arranging personal loans to directors or executive officers

•     Allergan’s statement is misleading. As is standard practice with all acquisitions that are business combinations, assets and liabilities that are acquired are recorded at the acquisition date fair value as described under ASC 805-20-25. As such, Valeant performed a valuation of the intangible assets acquired from B+L as of the acquisition date, which was in August 2013. The goodwill and intangible asset balances were immediately incorporated into Valeant’s internal control environment and subject to internal control over financial reporting (“ICFR”) design and operating effectiveness assessments.

•     The valuation of these assets was performed centrally by Valeant corporate staff with the assistance of external experts. The valuation and subsequent impairment testing were conducted in accordance with Valeant’s policies and procedures and the reviews of the financial statement disclosures associated with these balances were subject to Valeant’s disclosure review process. Based on the procedures performed and the testing conducted, these assets were included as part of the CEOs and CFOs 302 and 906 certifications.

•     Allergan’s statement is misleading. As previously mentioned and disclosed in our Q2 2014 10-Q, there is a routine ongoing audit related to the Company’s 2011 – 2012 tax years. The Company is regularly subject to audits as are most companies of our size.

•     In Allergan’s 2013 10-K it disclosed that it is currently being audited by the IRS for the 2009 and 2010 tax years, along with previously being audited in the 2003-2006 tax years, including reaching settlements with the IRS for the 2005 and 2006 tax years.

•     Allergan’s statement is misleading. In our Q2 2014 earnings presentation, we provided 2015 and 2016 projections based on two scenarios: an acquisition case and a debt repayment case.

•     In both the debt repayment case and the acquisition case, we include sales & marketing, research & development, capital expenditures, contingent consideration, mandatory debt repayments and other standard business expenses in-line with historical levels.

•     In the debt repayment case, we assume no future acquisitions and 90% of remaining free cash flow cash to pay down debt.

•     No new acquisitions would lead to no incremental restructuring, therefore the gap between adjusted and GAAP cash flows will narrow making the historical ratio of these metrics irrelevant

•     Given we are only using 90% of remaining free cash flow there would be cash available to acquire intellectual property and make additional capital expenditures or investments in sales & marketing, and research & development.

•     In the acquisition case, we assume that we continue to make acquisitions, maintaining a leverage ratio of ~4.0x or below. We assume that we use a combination of incremental debt and 90% of remaining free cash flow for acquisitions. We assume we acquire companies at an acquisition price equal to ~3.0X sales.

•     Allergan’s statement is misleading. While legacy Biovail utilized a Barbados tax structure, currently Valeant does not, and therefore any specifics with regard to a Barbados tax structure are irrelevant.

•     Valeant operates in a number of jurisdictions, abiding by all applicable laws, including using standard and well recognized transfer pricing rules. Additionally, all financial reporting is prepared in accordance with US GAAP including Tax Assets and Tax Liabilities.

•     Please see response #25 in the June 23^rd clarification about the Valeant’s business

•     Please see response #7 in the August 19^th clarification about the Valeant business

•     Valeant’s offer provides a compelling offer to Allergan shareholders, providing for approximately $19.77 or ~2x Cash EPS in 2016 compared to Allergan’s 2016 standalone guidance of $10.00 as of July 21^st.