RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

This footnote discloses the nature of the restatement matters described below and shows the impact of the restatement matters on the Company's consolidated financial statements for the six months ended June 30, 2015.

As described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”), the Company has restated its consolidated financial statements for the year ended December 31, 2014 (including the financial information for the three months ended December 31, 2014), the three months ended March 31, 2015, six months ended June 30, 2015 and nine months ended September 30, 2015. The Company filed the 2015 Form 10-K on April 29, 2016. Additional information regarding the restatement is contained in that filing. Prior period financial information in this Form 10-Q has been amended where necessary to reflect the restatement. Therefore, this Form 10-Q should be read in conjunction with the Company’s 2015 Form 10-K.

On December 15, 2014, the Company entered into a purchase option agreement with Philidor Rx Services, LLC (“Philidor”) and its members in which the Company received an exclusive option to acquire 100% of the equity interest in Philidor, and as of which time Philidor was consolidated with the Company for accounting purposes as a variable interest entity for which the Company was the primary beneficiary. Prior to consolidation, revenue on sales to Philidor was recognized by the Company on a sell-in basis (i.e., recorded when the Company delivered product to Philidor). The Company determined that certain sales transactions for deliveries to Philidor in the second half of 2014 leading up to the execution of the purchase option agreement were not executed in the normal course of business under applicable accounting standards and included actions taken by the Company (including fulfillment of unusually large orders with extended payment terms and increased pricing, an emphasis on delivering product prior to the execution of the purchase option agreement and seeking and filling a substitute order of equivalent value for an unavailable product) in contemplation of the purchase option agreement. As a result of these actions, revenue for certain transactions completed prior to entry into the purchase option agreement should have been recognized on a sell-through basis (i.e., record revenue when Philidor dispensed the products to patients) rather than incorrectly recognized on the sell-in basis utilized by the Company. Additionally, related to these and certain earlier transactions, the Company has since concluded that collectability was not reasonably assured at the time the revenue was originally recognized, and, thus, these transactions should have been recognized at a later date (when collectability was reasonably assured which the Company determined coincides with when the inventory is sold through to the end customer) instead of on a sell-in basis. Following the consolidation of Philidor on the date of entry into the purchase option agreement, the Company began recognizing revenue as Philidor dispensed product to patients. The restatement of previously issued financial statements, primarily for these Philidor-related adjustments, reduced revenue for the three months ended March 31, 2015 by approximately $21 million and increased the Company's net income attributable to Valeant Pharmaceuticals International, Inc. and diluted earnings per share for the three months ended March 31, 2015 by approximately $24 million or $0.07 per share. Due to the fact that the first quarter 2015 results are included within the financial statements for the six months ended June 30, 2015 and the financial statements for the nine months ended September 30, 2015, those financial statements have also been restated.

The following tables summarize the Consolidated Statement of Income and the Consolidated Statement of Cash Flows for the six months ended June 30, 2015, as reported on the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on July 28, 2015, compared to the restated financial statements. The individual restatement matters that underlie the restatement adjustments are described below and are reflected and quantified, as applicable, in the footnotes to the below tables.

(a)

Philidor revenue recognition adjustments - The correction of the misstatement from recognizing revenue related to sales to Philidor from a sell-in to sell-through basis had the effect of eliminating certain revenue recorded in 2014 prior to the date that Philidor was consolidated as a variable interest entity. The revenue that was eliminated from 2014 did not result in an increase to revenue in subsequent periods as a result of the Company having previously recognized that revenue, subsequent to the consolidation of Philidor, when Philidor dispensed the product to patients. Under the sell-in method previously utilized by the Company with respect to sales to Philidor prior to its consolidation in December 2014, revenue was recognized upon delivery of the products to Philidor. At the date of consolidation, certain of that previously sold inventory was still held by Philidor. Subsequent to the consolidation, Philidor recognized revenue on that inventory when it dispensed products to patients, and that revenue was consolidated into the Company’s results. As long as those pre-consolidation sales transactions were in the normal course of business under applicable accounting standards and not entered into in contemplation of the purchase option agreement, the Company’s historical accounting for this revenue was in accordance with U.S. GAAP. The Company has since determined that certain sales transactions for deliveries to Philidor, leading up to the purchase option agreement, were not executed in the normal course of business under applicable accounting standards and included actions taken by the Company (including fulfillment of unusually large orders with extended payment terms and increased pricing, an emphasis on delivering product prior to the execution of the purchase option agreement and seeking and filling a substitute order of equivalent value for an unavailable product) in contemplation of the purchase option agreement. As such, revenue, net of managed care rebates, of $58 million previously recorded in 2014 was corrected. However, because that revenue was also recorded by Philidor subsequent to consolidation, upon dispensing of products to patients, the elimination of this revenue in 2014, prior to consolidation, did not result in additional revenue being recorded in 2015. Additionally, provisions for managed care rebates of $21 million previously recorded in 2014 are now recognized against that revenue in the first quarter of 2015.

At the time of the consolidation of Philidor in December 2014, under the acquisition method of accounting, the Company recorded the fair value of the inventory on hand at Philidor at the net price the Company previously sold the inventory to Philidor, exclusive of the impact of managed care rebates. The restatement adjustments to eliminate the revenue for certain sales transactions between the Company and Philidor prior to consolidation, resulted in a reduction, for accounting purposes, to the amount of inventory that the Company acquired from Philidor. Eliminating the pre-consolidation sales described above had the effect of reducing pre-tax profit that was recognized in 2014 by $39 million. The majority of this profit is now recognized in 2015 as a reduction to previously recorded Cost of Goods Sold as the restated carrying amount of this inventory does not include the stepped up value resulting from the Company's consolidation of Philidor.


(b)	Accrued liability adjustment - Unrelated to Philidor, the Company recorded an accrual for previously unrecorded professional fees related to acquisition-related costs.


(c)	Tax effect of restatement adjustments - The Company calculated the tax effect of the adjustments noted above.

(d)

Philidor measurement period adjustments - Related to the consolidation of Philidor, the Company previously recorded certain measurement period adjustments during the second and third quarters of 2015 when known, which should be retroactively recorded as of the date Philidor was consolidated (December 2014). These measurement period adjustments primarily resulted in (1) an increase to acquisition-related contingent consideration as a result of further valuation analysis around the probability and timing of certain milestone payments; (2) increases in the fair value of certain intangible assets resulting from the higher sales forecast; and (3) a net increase in goodwill as a result of (1) and (2) above. The measurement period adjustments were previously determined to be immaterial to the Company’s consolidated financial statements, but were recorded in the fourth quarter of 2014 in connection with the other restatement adjustments related to Philidor.

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)



	Six Months Ended June 30,
	2015 (As Previously Reported)			Restatement Adjustments			2015 (Restated)			Restatement Ref
Revenues
Product sales	$	4,841.9		$	(20.8	)	$	4,821.1		(a)
Other revenues	81.4			—			81.4
	4,923.3			(20.8		)	4,902.5
Expenses
Cost of goods sold (exclusive of amortization and impairments of finite-lived
intangible assets shown separately below)	1,230.3			(52.5		)	1,177.8			(a)
Cost of other revenues	29.5			—			29.5
Selling, general and administrative	1,259.3			—			1,259.3
Research and development	136.9			—			136.9
Amortization and impairment of finite-lived intangible assets	950.6			—			950.6
Restructuring, integration and other costs	198.4			—			198.4
In-process research and development impairments and other changes	12.3			—			12.3
Acquisition-related costs	19.3			4.1			23.4			(b)
Acquisition-related contingent consideration	18.8			—			18.8
Other expense	183.0			—			183.0
	4,038.4			(48.4		)	3,990.0
Operating income	884.9			27.6			912.5
Interest income	1.8			—			1.8
Interest expense	(710.5		)	—			(710.5		)
Loss on extinguishment of debt	(20.0		)	—			(20.0		)
Foreign exchange and other	(65.5		)	—			(65.5		)
Income before provision for income taxes	90.7			27.6			118.3
Provision for income taxes	67.8			3.6			71.4			(c)
Net income	22.9			24.0			46.9
Less: Net income attributable to noncontrolling interest	2.2			—			2.2
Net income attributable to Valeant Pharmaceuticals International, Inc.	$	20.7		$	24.0		$	44.7

Earnings per share attributable to Valeant Pharmaceuticals International, Inc.:
Basic	$	0.06		$	0.07		$	0.13
Diluted	$	0.06		$	0.07		$	0.13

Weighted-average common shares (in millions)
Basic	340.5						340.5
Diluted	347.1						347.1

There was no net impact of the 2015 restatement adjustments on net cash provided by operating activities, net cash used in investing activities and net cash provided by financing activities in the Consolidated Statement of Cash Flows. The adjustments only had an impact on certain captions within cash flows from operating activities.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)



	Six Months Ended June 30,
	2015 (As Previously Reported)			Restatement Adjustments			2015 (Restated)			Restatement Ref
Cash Flow From Operating Activities
Net income	$	22.9		$	24.0		$	46.9
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including impairments of finite-lived intangible assets	1,042.0			—			1,042.0
Amortization and write-off of debt discounts and debt issuance costs	103.2			—			103.2
In-process research and development impairments	12.3			—			12.3
Acquisition accounting adjustment on inventory sold	70.5			—			70.5
Acquisition-related contingent consideration	18.8			—			18.8
Allowances for losses on accounts receivable and inventories	26.8			—			26.8
Deferred income taxes⁽¹⁾	34.1			3.6			37.7			(c)
Additions to accrued legal settlements	6.3			—			6.3
Payments of accrued legal settlements	(5.9		)	—			(5.9		)
Share-based compensation	60.9			—			60.9
Tax benefits from share-based compensation	(25.6		)	—			(25.6		)
Foreign exchange loss	65.6			—			65.6
Loss on extinguishment of debt	20.0			—			20.0
Payment of contingent consideration adjustments, including accretion	(12.1		)	—			(12.1		)
Other	(9.9		)	—			(9.9		)
Changes in operating assets and liabilities:
Trade receivables	(308.8		)	—			(308.8		)
Inventories	(86.8		)	(52.5		)	(139.3		)	(a)
Prepaid expenses and other current assets	(163.5		)	—			(163.5		)
Accounts payable, accrued and other liabilities⁽¹⁾	30.8			24.9			55.7			(a), (b)
Net cash provided by operating activities	901.6			—			901.6

Net cash used in investing activities	(13,885.7		)	—			(13,885.7		)

Net cash provided by financing activities	13,631.6			—			13,631.6

Effect of exchange rate changes on cash and cash equivalents	(12.1		)	—			(12.1		)
Net increase in cash and cash equivalents	635.4			—			635.4
Cash and cash equivalents, beginning of period	322.6			—			322.6
Cash and cash equivalents, end of period	$	958.0		$	—		$	958.0

Non- Cash Investing and Financing Activities
Acquisition of businesses, contingent consideration at fair value	$	(674.6	)	$	38.8		$	(635.8	)	(d)
Acquisition of businesses, debt assumed	(3,123.1		)	—			(3,123.1		)

________________________


(1)	As described in Note 3, the Consolidated Statement of Cash Flows reflects a reclassification of $22 million related to a change in income taxes payable which increased deferred income taxes and decreased accounts payable, accrued and other liabilities within the cash flow from operating activities.