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Valeant Pharma (VRX) Announces Filing of 10-K for FY15

April 29, 2016 7:29 AM EDT

Valeant Pharmaceuticals International, Inc. (NYSE: VRX) announced that it has filed with the U.S. Securities and Exchange Commission (the "SEC") its Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the "Form 10-K"). This Form 10-K includes consolidated financial statements for the years ended December 31, 2013, 2014 and 2015. The audited consolidated financial statements for the year ended December 31, 2014 are restated. The Company has also restated certain unaudited quarterly results related to the three months ended December 31, 2014, the three months ended March 31, 2015, the six months ended June 30, 2015 and the nine months ended September 30, 2015, and revised certain unaudited results for the three months and nine months ended September 30, 2014.

The default under our senior note indentures arising from the failure to timely file the Form 10-K was cured in all respects by the filing of this Form 10-K. In addition, the Company remains in full compliance with its credit agreement.

Ad Hoc Committee Review

As previously disclosed, on April 5, 2016, Valeant announced that the Ad Hoc Committee ("AHC") had determined that its review was complete, and that the AHC had not identified any additional items that would require restatements beyond those required by matters previously disclosed. In addition, the Company announced that, given the completion of the review by the AHC, the Company's Board of Directors (the "Board") had determined to dissolve the AHC and that the 12 independent directors on the Board, including the members of the Audit and Risk Committee, would assume oversight responsibility for remaining work, including work associated with the completion of the Company's current and restated financial statements and disclosures, as well as its assessment of related internal controls and remediation matters.

Impact of Restatement

As previously disclosed, the Company identified misstatements that would reduce previously-reported fiscal year 2014 revenue by approximately $58 million, net income attributable to Valeant by approximately $33 million, and basic and diluted earnings per share by $0.09 (as compared to the previously-reported amounts of $8,264 million for revenue, $914 million for net income attributable to Valeant and $2.72 and $2.67 for basic and diluted earnings per share respectively). A substantial part of the earnings impact of these misstatements reverses in the first quarter of 2015. The Company has also identified misstatements in the first quarter of 2015, consisting primarily of the reversing effect on earnings of the 2014 misstatements, which would reduce revenue by approximately $21 million (due to timing of recognition of managed care rebates), increase net income attributable to Valeant by approximately $24 million and increase basic and diluted earnings per share by $0.07.

Internal Control Over Financial Reporting and Disclosure Controls and Procedures

The Form 10-K also discloses management's determination that internal control over financial reporting, as well as the Company's disclosure controls and procedures, were not effective due to the existence of material weaknesses. For further information regarding management's assessment of internal control over financial reporting and disclosure controls and procedures, as well as the related remediation actions, please see Item 9A "Controls and Procedures" on Form 10-K.

Adjustments to Unaudited Fourth Quarter 2015 Results

On March 15, 2016, Valeant issued preliminary unaudited fourth quarter results for 2015, including unaudited revenue of $2.8 billion and GAAP EPS of ($0.98). As stated at that time, those results were preliminary and unaudited. As a result of ongoing analysis and review, and finalization of the results for the fourth quarter of 2015 by the Company, the Company has made adjustments to revenue, GAAP EPS and Adjusted EPS (non-GAAP), resulting in revenue of $2.8 billion, GAAP EPS of ($1.12) and Adjusted EPS (non-GAAP) of $1.55. The majority of the impact is attributed to adjustments relating to the deferral of Addyi® revenue, adjustments to the returns reserve of Xifaxan®, as well as several items, including increased professional service fees and intellectual property related adjustments, post March 15, 2016.

Addyi:After considering various factors related to the Addyi product launch, including that Addyi is a new product in a new therapeutic area and the resulting lack of history with the product and associated returns, the Company has now determined that it is more appropriate to record revenue on a "sell-through" basis, instead of on a "sell-in" basis. This results in a net reduction of $16 million to revenue previously included in the preliminary fourth quarter results.

Xifaxan IBS-D Return:Valeant has reduced its previously-reported preliminary fourth quarter 2015 revenue of approximately $5 million related to estimated returns of Xifaxan.

Changes to Valeant's Non-GAAP Tax Reporting

Historically, in calculating adjusted (non-GAAP) net income and EPS, Valeant has reported its non-cash tax adjustment (non-GAAP) on Tables 2, 2A and 2B of the press tables by combining the tax effects of non-GAAP adjustments and the use of tax attributes and other timing issues. This adjustment, representing roughly 5 percent of adjusted non-GAAP net income, approximates the actual cash tax that Valeant paid each year. Going forward, Valeant will no longer include the tax effects from the use of tax attributes and other timing issues, which will in turn raise the Company's reported tax rate on non-GAAP net income. This new reporting metric has no change to either cash flow or actual taxes paid. Tables 2, 2A and 2B of the press tables show the retroactive effect of this new tax treatment on the Company's historical financial statements in order to make them consistent with the current year presentation.

Canadian Regulatory Matters

The Company also announced that it intends to file today its audited annual financial statements for the year ended December 31, 2015, the related management's discussion and analysis, certificates of its CEO and CFO and the Form 10-K (collectively, the "Canadian Required Filings") with the Canadian Securities Administrators (the "CSA"). As a result, the previously announced customary management cease trade orders ("MCTO") issued on March 31, 2016 by the Autorité des marchés financiers (the "AMF"), the Company's principal securities regulator in Canada, and by the Ontario Securities Commission (the "OSC"), respectively, are expected to be lifted or expire on or about May 4, 2016 and the Company will no longer be required to report under the alternative information guidelines set out in National Policy 12-203 Cease Trade Orders for Continuous Disclosure Defaults.

The MCTOs related to the trading in securities of the Company by the Company's CEO, its CFO and each other member of the Company's Board. The MCTOs do not affect the ability of other shareholders to trade in the securities of the Company.

Supplemental Information

Supplemental information regarding fourth quarter and full year 2015 financial results, fourth quarter 2015 top 30 brands, fourth quarter 2015 adjustments since preliminary results were released on March 15, 2016, and changes to non-GAAP tax reporting using a new non-GAAP tax methodology, has been posted in the investor relations section of Valeant's corporate website at www.valeant.com.



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