10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2003
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: 1-11397

Valeant Pharmaceuticals International

(Exact name of registrant as specified in its charter)

Delaware	33-0628076
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3300 Hyland Avenue Costa Mesa, California (Address of principal executive offices)	92626 (Zip Code)

(714) 545-0100

(Registrant’s telephone number, including area code)

ICN Pharmaceuticals, Inc.

(Former name, former address and former fiscal year, if changed since last report)

     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 þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

      The number of outstanding shares of the registrant’s Common Stock, $0.01 par value, as of November 7, 2003 was 83,089,398.

TABLE OF CONTENTS

PART I -- FINANCIAL INFORMATION
	CONSOLIDATED CONDENSED BALANCE SHEETS
	CONSOLIDATED CONDENSED STATEMENTS OF INCOME
	CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
	CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
	MANAGEMENT’S STATEMENT REGARDING UNAUDITED FINANCIAL STATEMENTS
	NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
	NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS --(Continued)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures.
FORWARD LOOKING STATEMENTS
PART II -- OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 3.1
EXHIBIT 15.1
EXHIBIT 15.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

VALEANT PHARMACEUTICALS INTERNATIONAL

INDEX

		Page
		Number
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets — September 30, 2003 and December 31, 2002		2
	Consolidated Condensed Statements of Income — Three months and nine months ended September 30, 2003 and 2002		3
	Consolidated Condensed Statements of Comprehensive Income — Three months and nine months ended September 30, 2003 and 2002		4
	Consolidated Condensed Statements of Cash Flows — Nine months ended September 30, 2003 and 2002		5
	Management’s Statement Regarding Unaudited Financial Statements		6
	Notes to Consolidated Condensed Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		39
Item 4.	Controls and Procedures		39
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		43
Item 6.	Exhibits and Reports on Form 8-K		43
SIGNATURES			44

1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

VALEANT PHARMACEUTICALS INTERNATIONAL

CONSOLIDATED CONDENSED BALANCE SHEETS

September 30, 2003 and December 31, 2002

(In thousands, except per share data)

			September 30,			December 31,
			2003			2002
			(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents		$	301,028		$	245,184
	Accounts receivable, net			156,361			215,776
	Inventories, net			91,812			88,862
	Income taxes receivable			—			12,779
	Prepaid expenses and other current assets			16,771			13,972
		Total current assets		565,972			576,573
Property, plant and equipment, net				235,051			242,888
Deferred tax assets, net				89,720			39,180
Intangible assets, net				442,809			384,547
Other assets				44,273			43,531
		Total non-current assets		811,853			710,146
Assets of discontinued operations				27,172			201,830
			$	1,404,997		$	1,488,549
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Trade payables		$	32,366		$	33,487
	Accrued liabilities			124,217			142,093
	Notes payable and current portion of long-term debt			1,303			3,923
	Income taxes payable			28,250			—
		Total current liabilities		186,136			179,503
Long-term debt, less current portion				478,652			481,548
Deferred income taxes and other liabilities				73,515			52,288
Minority interest				3,397			23,452
		Total non-current liabilities		555,564			557,288
Liabilities of discontinued operations				19,216			48,068
Commitments and contingencies
Stockholders’ Equity:
	Common stock, $0.01 par value; 200,000 shares authorized; 83,075 (September 30, 2003) and 84,066 (December 31, 2002) shares outstanding (after deducting shares in treasury of 1,068 as of September 30, 2003)			831			841
	Additional capital			1,020,829			1,027,335
	Accumulated deficit			(330,174	)		(256,809	)
	Accumulated other comprehensive loss			(47,405	)		(67,677	)
		Total stockholders’ equity		644,081			703,690
			$	1,404,997		$	1,488,549

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

2

VALEANT PHARMACEUTICALS INTERNATIONAL

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

For the three months and nine months ended September 30, 2003 and 2002

(Unaudited, in thousands, except per share data)

			Three Months Ended						Nine Months Ended
			September 30,						September 30,
			2003			2002			2003			2002
Revenues:
	Product sales		$	131,290		$	108,284		$	372,956		$	351,100
	Royalties			36,217			63,367			136,755			186,368
		Total revenues		167,507			171,651			509,711			537,468
Costs and expenses:
	Cost of goods sold			42,128			39,769			131,295			113,360
	Selling expenses			40,478			40,140			121,146			119,120
	General and administrative expenses			25,512			54,483			80,797			293,112
	Research and development costs			10,752			13,479			29,701			35,526
	Acquired in-process research and development			117,609			—			117,609			—
	Amortization expense			10,453			7,930			27,371			23,960
		Total expenses		246,932			155,801			507,919			585,078
		Income (loss) from operations		(79,425	)		15,850			1,792			(47,610	)
Other income, net, including translation and exchange				2,208			4,253			496			8,192
Gain (loss) on sale of subsidiary stock				—			(1,012	)		—			261,937
Gain (loss) on early extinguishment of debt				—			17,538			—			(25,730	)
Interest income				953			1,458			3,066			4,434
Interest expense				(7,871	)		(9,189	)		(23,892	)		(34,381	)
Income (loss) from continuing operations before income taxes and minority interest				(84,135	)		28,898			(18,538	)		166,842
Provision for income taxes				12,720			7,498			37,647			58,811
Minority interest, net				1,656			5,702			11,667			10,670
	Income (loss) from continuing operations			(98,511	)		15,698			(67,852	)		97,361
	Income (loss) from discontinued operations			16,110			(90,633	)		13,992			(109,742	)
	Cumulative effect of change in accounting principle			—			—			—			(21,791	)
	Net loss		$	(82,401	)	$	(74,935	)	$	(53,860	)	$	(34,172	)
Basic earnings per share:
	Income (loss) from continuing operations		$	(1.18	)	$	0.19		$	(0.81	)	$	1.17
	Discontinued operations			0.19			(1.09	)		0.17			(1.32	)
	Cumulative effect of change in accounting principle			—			—			—			(0.26	)
	Basic net loss per share		$	(0.99	)	$	(0.90	)	$	(0.64	)	$	(0.41	)
Diluted earnings per share:
	Income (loss) from continuing operations		$	(1.18	)	$	0.19		$	(0.81	)	$	1.15
	Discontinued operations			0.19			(1.09	)		0.17			(1.11	)
	Cumulative effect of change in accounting principle			—			—			—			(0.22	)
	Diluted net loss per share		$	(0.99	)	$	(0.90	)	$	(0.64	)	$	(0.18	)
Shares used in per share computation:
	Basic			83,067			83,392			83,759			83,053
	Diluted			83,067			83,484			83,759			99,023

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

3

VALEANT PHARMACEUTICALS INTERNATIONAL

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

For the three months and nine months ended September 30, 2003 and 2002

(Unaudited, in thousands)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2003			2002			2003			2002
Net loss		$	(82,401	)	$	(74,935	)	$	(53,860	)	$	(34,172	)
Other comprehensive income:
	Foreign currency translation adjustments		(1,065	)		(4,677	)		19,134			(2,891	)
	Unrealized gain (loss) on marketable equity securities and other		1,205			(3,956	)		1,138			(4,701	)
Comprehensive loss		$	(82,261	)	$	(83,568	)	$	(33,588	)	$	(41,764	)

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

4

VALEANT PHARMACEUTICALS INTERNATIONAL

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2003 and 2002

(Unaudited, in thousands)

				Nine Months Ended
				September 30,
				2003			2002
Cash flows from operating activities:
	Income (loss) from continuing operations			$	(67,852	)	$	97,361
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Depreciation and amortization			45,827			42,758
		Provision for losses on accounts receivable and inventory obsolescence			3,631			4,374
		Translation and exchange (gains) losses, net			(496	)		(8,192	)
		Other non-cash items			464			44,286
		Write-off of acquired in-process R&D			117,609			—
		Deferred income taxes			(7,455	)		34
		Minority interest			11,667			10,670
		Gain on sale of subsidiary stock			—			(261,937	)
		Loss on extinguishment of debt			—			25,730
	Change in assets and liabilities, net of effects of acquisitions:
		Accounts receivable			61,876			21,857
		Inventories			(510	)		(4,300	)
		Prepaid expenses and other assets			(10,236	)		(20,793	)
		Trade payables and accrued liabilities			(42,855	)		10,618
		Income taxes payable			45,582			16,813
		Other liabilities			(8,058	)		4,272
		Cash flow from operating activities in continuing operations			149,194			(16,449	)
		Cash flow from operating activities in discontinued operations			21,938			8,065
			Net cash provided by (used in) operating activities		171,132			(8,384	)
Cash flows from investing activities:
	Capital expenditures				(9,241	)		(13,593	)
	Proceeds from sale of assets				318			356
	Proceeds from sale of subsidiary stock				—			276,611
	Acquisition of license rights, product lines and businesses				(192,923	)		(26,765	)
	Cash flow from investing activities in continuing operations				(201,846	)		236,609
	Cash flow from investing activities in discontinued operations				104,276			5,621
		Net cash (used in) provided by investing activities			(97,570	)		242,230
Cash flows from financing activities:
	Proceeds from issuance of long-term debt and notes payable				—			686
	Payments on long-term debt and notes payable				(6,797	)		(273,630	)
	Proceeds from exercise of stock options				317			12,892
	Dividends paid				(19,501	)		(19,035	)
	Repurchase of common stock				—			(31,955	)
	Funds received from discontinued operations				133,774			8,706
	Cash flow from financing activities in continuing operations				107,793			(302,336	)
	Cash flow from financing activities in discontinued operations				(134,070	)		(8,513	)
		Net cash used in financing activities			(26,277	)		(310,849	)
Effect of exchange rate changes on cash and cash equivalents					966			(161	)
Net increase (decrease) in cash and cash equivalents					48,251			(77,164	)
Cash and cash equivalents at beginning of period					253,664			325,253
Cash and cash equivalents at end of period					301,915			248,089
Cash and cash equivalents classified as part of discontinued operations					(887	)		(13,332	)
Cash and cash equivalents of continuing operations				$	301,028		$	234,757

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

5

MANAGEMENT’S STATEMENT REGARDING UNAUDITED FINANCIAL STATEMENTS

      The consolidated condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared on the basis of accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The results of operations presented herein are not necessarily indicative of the results to be expected for a full year. Although the Company believes that all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the interim periods presented are included and that the disclosures are adequate to make the information presented not misleading, these consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

6

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

September 30, 2003

(Unaudited)

1. Summary of Significant Accounting Policies

      Principles of Consolidation: The accompanying consolidated condensed financial statements include the accounts of Valeant Pharmaceuticals International (formerly known as ICN Pharmaceuticals, Inc.) and its wholly owned subsidiaries (the “Company” or “Valeant”) and all of its majority-owned subsidiaries. Minority interest in results of operations of consolidated subsidiaries represents the minority shareholders’ share of the income or loss of such consolidated subsidiaries. All significant intercompany account balances and transactions have been eliminated.

      Comprehensive Income: Accumulated other comprehensive loss consists of accumulated foreign currency translation adjustments, unrealized losses on marketable equity securities and minimum pension liability. Other comprehensive loss has not been recorded net of any tax provision or benefit as the Company does not expect to realize any significant tax benefit or expense from these items.

      Per Share Information: In 2003, the Company’s Board of Directors declared a first, second and third quarter cash dividends of $0.0775 per share, which were paid on April 23, July 25 and October 29, 2003, respectively. While the Company has historically paid quarterly cash dividends, there can be no assurance that the Company will continue to do so.

      Goodwill and Intangible Assets: In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. During the second quarter of 2002, the Company completed the transitional impairment test required by SFAS No. 142. As a result, the Company recorded an impairment loss of $25,332,000 which was offset by a benefit of $3,541,000 for the write-off of negative goodwill. The net amount of $21,791,000 has been recorded as a cumulative effect of change in accounting principle in the nine months ended September 30, 2002.

      At September 30, 2003 and December 31, 2002, intangible assets were as follows (in thousands):

			September 30, 2003					December 31, 2002
			Gross		Accumulated			Gross		Accumulated
			Amount		Amortization			Amount		Amortization
Intangible assets:
	Product rights		$	582,298	$	(152,566	)	$	511,556	$	(127,270	)
	Goodwill			13,077		—			261		—
		Total	$	595,375	$	(152,566	)	$	511,817	$	(127,270	)

      Estimated amortization expense for the years ending December 31, 2004, 2005, 2006, 2007 and 2008 is $48,000,000, $43,000,000, $43,000,000, $42,000,000 and $35,000,000, respectively.

      Stock-Based Compensation: The Company has adopted the disclosure-only provisions of SFAS No. 123 and SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. Compensation cost for stock-based compensation issued to employees has been measured using the intrinsic value method provided by Accounting Principles Board Opinion No. 25. Accordingly, no compensation cost has been recognized for options granted under the Company’s 2003 Equity Incentive Plan (which amends and restates the 1998 Stock Option Plan (the “Option Plan”)) as all options granted under the Option Plan had an exercise price equal to the market value of the underlying common stock on the date of grant (excluding options issued in exchange for Ribapharm Inc. stock options — See Note 2). Had compensation cost for the Option Plan been determined based on the fair value at the grant date for awards in the three and nine months ended September 30, 2003 and 2002 consistent with the provisions of SFAS No. 123, the Company’s net

7

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

income and earnings per share would have been the unaudited pro forma amounts indicated below (in thousands, except per share data):

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2003			2002			2003			2002
Net loss as reported		$	(82,401	)	$	(74,935	)	$	(53,860	)	$	(34,172	)
Compensation costs related to the Company’s employee stock Compensation plan, net			—			—			—			38,068
Stock based employee compensation expense
	Determined under fair value based method, net of related tax effects		(965	)		(406	)		(1,910	)		(25,999	)
Pro forma net loss		$	(83,366	)	$	(75,341	)	$	(55,770	)	$	(22,103	)
Earnings per share:
	Basic — as reported	$	(0.99	)	$	(0.90	)	$	(0.64	)	$	(0.41	)
	Basic — pro forma	$	(1.00	)	$	(0.90	)	$	(0.67	)	$	(0.27	)
	Diluted — as reported	$	(0.99	)	$	(0.90	)	$	(0.64	)	$	(0.18	)
	Diluted — pro forma	$	(1.00	)	$	(0.90	)	$	(0.67	)	$	(0.06	)

      Under the Option Plan, all outstanding options immediately vested as a result of the Change of Control that occurred as a result of the May 2002 Annual Meeting of Stockholders (See Note 6). The pro forma amounts for the three and nine months ended September 30, 2002 include the expense of all unvested options under the Option Plan vesting in these periods.

      Property, Plant and Equipment: During the third quarter of 2003 the Company approved its global manufacturing strategy. Under its manufacturing strategy, the goal is to establish a global manufacturing and supply chain network of five manufacturing sites which will result in the closing of eight of the Company’s current manufacturing sites. A review for potential impairment was performed in accordance with SFAS No. 144, Impairment of Long-Lived Assets. In determining asset groups, the Company grouped assets at the lowest level for which independent identifiable cash flows were available. In determining whether an asset was impaired, the Company compared undiscounted future cash flows and asset residual values to the asset group carrying value on a site by site basis. The impairment analysis indicated that the asset groups were not impaired as of September 30, 2003, therefore, no impairment losses were recognized in the third quarter of 2003. Based on the estimated remaining useful lives of the manufacturing sites to be disposed of, the book value would exceed the residual value on the estimated disposal date for five of the manufacturing sites. As a result, the Company has revised the depreciation period on these assets and will incur an additional annual depreciation expense of approximately $6,400,000 through the third quarter of 2005.

      Acquired In-Process Research and Development: In the quarter ended September 30, 2003, the Company incurred an expense of $117,609,000 associated with acquired in-process research and development (“IPR&D”) related to the Ribapharm Acquisition. The amount expensed as IPR&D represents an estimate of the fair value of purchased in-process technology for projects that, as of the acquisition date, had not yet reached technological feasibility and had no alternative future use. The data used to determine the respective fair values requires significant judgment, differences in those judgments would have the impact of changing the allocation of purchase price to other intangible assets, goodwill. The estimated fair value of these projects was based on the use of a discounted cash flow model (based on an estimate of future sales and a cross margin of using a rate of 25%). For each project, the estimated after-tax cash flows were probability weighted to take

8

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

account of the stage of completion and the risks surrounding the successful development and commercialization. These cash flows were then discounted to a present value using a discount rate of 15%. In addition, solely for the purposes of estimating the fair value of these IPR&D projects as of August 25, 2003, the following assumptions were made:

•  Future research and development costs of approximately $150,000,000 would be incurred to complete the IPR&D projects.

•  The IPR&D projects, which are in various stages of development from Phase I to Phase II clinical trials, are expected to reach completion by the end of 2006.

      The major risks and uncertainties associated with the timely and successful completion of these projects consist of the ability to confirm the safety and efficacy of the technology based on the data from clinical trials and obtaining necessary regulatory approvals. In addition, no assurance can be given that the underlying assumptions used to forecast the cash flows or the timely and successful completion of such projects will materialize, as estimated. For these reasons, among others, actual results may vary significantly from the estimated results. For example, in October 2003, Roche notified the Company that they are abandoning development of Levovirin.

      Reclassifications: Certain prior year amounts have been reclassified to conform with the current period presentation, with no effect on previously reported net income or stockholders’ equity.

2. Ribapharm

      In April 2002, the Company completed an underwritten public offering of 29,900,000 shares of common stock, par value $0.01 per share, of Ribapharm, previously a wholly-owned subsidiary, representing 19.93% of the total outstanding common stock of Ribapharm (the “Ribapharm Offering”). In connection with the Ribapharm Offering, the Company received net cash proceeds of $276,611,000 and recorded a gain on the sale of Ribapharm’s stock of $261,937,000, net of offering costs.

      In connection with the Ribapharm Offering, the Company paid cash bonuses to its officers, directors and employees totaling $47,839,000 in April 2002. The Company is seeking to recover a portion of these bonuses (See Note 9 Commitments and Contingencies — Derivative Actions). Additionally, the Company paid other professional fees of $13,000,000 related to the structuring of Ribapharm in April 2002. These amounts are included on the Company’s statements of income in selling, general and administrative expenses.

      In August 2003, the Company repurchased the approximately 20% minority interest in its Ribapharm subsidiary for an aggregated total purchase price of $207,438,000 (the “Ribapharm Acquisition”). The Company paid $6.25 in cash for each of the 29,900,703 outstanding publicly held shares of Ribapharm. Additionally, the Company included the fair value of the Company’s stock options issued in exchange for outstanding Ribapharm stock options in the purchase price. The fair value of stock options issued were determined based on a $15.43 stock price, the closing stock price on August 22, 2003, using the Black-Scholes option valuation model assuming an expected life of 4.2 years, weighted average risk-free rate of 2.3%, volatility of 62% and dividends of $0.31. The acquisition increased the Company’s ownership of Ribapharm to a 100% interest and was accounted for using the purchase method of accounting. The results of operations of Ribapharm have always been included in the consolidated income before minority interest of the Company. Prior to the acquisition, the minority interest in the Ribapharm income was excluded from the Company’s consolidated net income. Since the date of acquisition on August 25, 2003, no minority interest exists in Ribapharm and, accordingly, the consolidated net income includes the full amount of Ribapharm’s results from this date. As a result of the acquisition, minority interest included on the Company’s consolidated balance sheet relating to Ribapharm as of the acquisition date has been eliminated. The remaining minority interest as of September 30, 2003 relates to foreign subsidiaries.

9

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      The purchase price of the Ribapharm Acquisition was (in thousands):

Cash consideration		$	186,879
Fair value of the Company’s options issued			10,415
Transaction costs			10,144
	Total	$	207,438

      The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed as of the date of the Ribapharm Acquisition (in thousands):

In-process research and development	$	117,609
Ribavirin license agreements		67,376
Unearned compensation		2,700
Goodwill		12,845
Minority interest		33,859
Deferred tax liability		(26,951	)
	$	207,438

      The aggregate purchase price was allocated to identifiable intangible assets acquired based on estimates of fair value using a discounted cash flow model. The intangible asset related to the ribavirin license agreements with Schering and Roche is amortized using an estimated useful life of five years. Identifiable intangible assets related to Viramidine, Hepavir B and Levovirin totaled approximately $101,000,000, $12,000,000 and $5,000,000, respectively, and are expensed as in-process research and development as the technological feasibility of these assets has not occurred. Subsequent to the Ribapharm Acquisition, Roche notified the Company that it was no longer developing Levovirin. The Company recorded deferred compensation cost related to the unvested intrinsic value of the Company’s options issued in exchange for unvested Ribapharm options, which will be amortized over 3 1/2 years. The remaining excess of the aggregate purchase price over the fair value of the identifiable net assets acquired has been recognized as goodwill.

      The following unaudited pro forma financial information presents the combined results of the Company and Ribapharm as if the acquisition had occurred at the beginning of each period presented (in thousands except per share amounts):

		Three Months Ended					Nine Months Ended
		September 30,					September 30,
		2003		2002			2003		2002
Net revenue		$	167,507	$	171,651		$	509,711	$	537,468
Income before discontinued operations and accounting change			23,011		17,659			51,870		97,012
Net income (loss)			39,121		(72,974	)		65,862		(34,521	)
Basic net income (loss) per share:
	Income before discontinued operations and accounting change	$	0.28	$	0.21		$	0.62	$	1.17
Net income (loss)		$	0.47	$	(0.88	)	$	0.79	$	(0.42	)
Diluted net income (loss) per share:
	Income before discontinued operations and accounting change	$	0.27	$	0.21		$	0.61	$	1.15
Net income (loss)		$	0.46	$	(0.87	)	$	0.78	$	(0.18	)

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      The above pro forma financial information excludes the acquired in-process research and development charge noted above and includes adjustments for interest income on cash disbursed for the acquisition, amortization of identifiable intangible assets and adjustments for the expenses incurred by Ribapharm related to the exchange offer for all Ribapharm outstanding publicly held shares. The expenses incurred by Ribapharm amounted to $4,544,000 in the quarter ended September 30, 2003.

3. Discontinued Operations

      In June 2002, the Company initiated a strategic review that included retaining investment bankers and a consulting firm. As a result of this strategic review, in the second half of 2002 the Company made the decision to divest its Russian Pharmaceuticals segment, Biomedicals segment, Photonics business, raw materials businesses and manufacturing capability in Central Europe and Circe unit.

      The results of the discontinued businesses have been reflected as discontinued operations in the consolidated condensed financial statements in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The consolidated condensed financial statements have been reclassified to conform to discontinued operations presentation for all historical periods presented.

      On September 30, 2003, the Company sold the remaining assets of its Biomedicals segment, Dosimetry, for gross cash proceeds of $58,000,000. The Company recorded a net gain on disposal of discontinued operations of $23,288,000, net of a taxes of $15,526,000, related to the sale of Dosimetry in the quarter ended September 30, 2003.

      In June 2003, the Company sold its Russian Pharmaceuticals segment and certain assets of its Biomedicals segment. The Company received gross proceeds of $55,000,000 in cash for the Russian Pharmaceuticals segment and received 727,990 shares of its common stock that was held by the purchaser, which had a fair market value of approximately $12,369,000, for the assets of its Biomedicals segment. The Company recorded a net loss on disposal of discontinued operations of $7,942,000, net of a tax benefit of approximately $10,161,000, related to the sale of these businesses in the nine months ended September 30, 2003.

      Deferred tax assets of approximately $53,000,000 related to the businesses sold have been reclassified from net assets of discontinued operations to deferred tax assets, net, as of September 30, 2003 in the accompanying condensed consolidated balance sheets.

      The Company disposed of the Circe unit in the fourth quarter of 2002 for a nominal sales price.

      The Company disposed of its Photonics business in two stages. First, it discontinued the medical services business in September 2002. Second, the Company sold the laser device business in March 2003 for approximately $505,000.

      The Company is actively marketing for sale the raw materials businesses and manufacturing capability in Central Europe and is working toward disposing of these assets.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      Summarized selected financial information for discontinued operations for the three and nine months ended September 30, 2003 and 2002 is as follows (in thousands):

			Three Months Ended						Nine Months Ended
			September 30,						September 30,
			2003			2002			2003			2002
Revenue			$	10,342		$	49,008		$	111,836		$	165,880
Income (loss) before income taxes			$	3,492		$	(16,966	)	$	9,117		$	(28,257	)
Income tax benefit (provision)				(456	)		1,624			(1,603	)		1,903
	Income (loss) from discontinued operations, net			3,036			(15,342	)		7,514			(26,354	)
Income (loss) on disposal of discontinued operations				26,507			(118,438	)		10,370			(127,662	)
Income tax benefit (provision)				(13,433	)		43,147			(3,892	)		44,274
	Income (loss) on disposal of discontinued operations, net			13,074			(75,291	)		6,478			(83,388	)
		Income (loss) from discontinued operations	$	16,110		$	(90,633	)	$	13,992		$	(109,742	)

12

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      The assets and liabilities of discontinued operations are stated separately as of September 30, 2003 and December 31, 2002 on the accompanying consolidated condensed balance sheets. The major asset and liability categories are as follows (in thousands):

		September 30,		December 31,
		2003		2002
Cash		$	887	$	9,098
Accounts receivable, net			7,132		46,601
Inventories, net			12,123		54,306
Property, plant and equipment, net			5,836		29,481
Other assets			1,194		62,344
	Assets of discontinued operations	$	27,172	$	201,830
Accounts payable		$	4,106	$	20,010
Accrued liabilities			11,998		26,372
Other liabilities			3,112		1,686
	Liabilities of discontinued operations	$	19,216	$	48,068

      Included in accumulated other comprehensive loss are translation gains of $8,490,000 related to discontinued operations.

4. Non-recurring and Other Unusual Charges

      The Company recorded $23,920,000 and $204,958,000 of non-recurring and other unusual charges, which are included in general and administrative expenses, for the three months and nine months ended September 30, 2002, respectively. The following is a summary of the non-recurring and other unusual charges (in thousands):

	Three Months		Nine Months
	Ended		Ended
	September 30,		September 30,
	2002		2002
Executive and director bonuses paid in connection with the Ribapharm IPO (Note 2)	$	—	$	47,839
Professional fees related to Ribapharm (Note 2)		—		13,000
Compensation costs related to the Company’s employee stock compensation plan (Note 6)		—		61,400
Long-term incentive plan compensation costs (Note 6)		—		12,022
Severance costs (Note 6)		18,708		30,708
Asset impairments		—		9,100
Write-off of capitalized offering costs		—		18,295
Environmental remediation and related expenses		5,212		5,212
Costs incurred in the Company’s 2002 proxy contest		—		7,382
	$	23,920	$	204,958

      There were no non-recurring and other unusual charges in the three and nine months ended September 30, 2003.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      During 2002, based on a number of factors, including changes in market conditions and changes in strategic direction, the Company evaluated the net realizable value of certain long-lived assets, including capitalized offering costs related to the proposed public offering of ICN International AG, the Company’s corporate aircraft and other assets. The Company concluded that due to the passage of time and the strategic business review, the capitalized offering costs of ICN International AG of $18,295,000 should be written-off. Also, an impairment charge of $9,100,000 was recorded for the difference between the carrying value and the fair value of the corporate aircraft, as determined by appraisals.

      The Company incurred a significant amount of professional fees in connection with proxy contests in 2002. Proxy contest expenses were $7,382,000 for the nine months ended September 30, 2002.

5. Debt Repurchases

      On April 17, 2002, the Company used the proceeds of the Ribapharm Offering to complete its tender offer and consent solicitation for all of its outstanding 8 3/4% Senior Notes due 2008. The redemption of these notes resulted in a loss on extinguishment of debt of $43,268,000. In July and August 2002, the Company repurchased $59,410,000 principal amount of its 6 1/2% Convertible Subordinated Notes due 2008. In connection with these repurchases, the Company recorded a gain on early extinguishment of debt of $17,538,000.

6. Change of Control

      As a result of the May 29, 2002 Annual Meeting of Stockholders, three persons nominated by Franklin Mutual Advisors, LLC and Iridian Asset Management LLC were elected to the Board of Directors. Under the terms of employment agreements with some key executives, a long-term stock incentive plan and the Option Plan, the results of the 2002 election, together with the results of the 2001 election, constitute a change of control (the “Change of Control”).

      Under the terms of a long-term incentive plan, all restricted stock awards vested immediately upon the Change of Control on June 11, 2002. As a result, compensation expense of $12,022,000 was recorded in the nine months ended September 30, 2002.

      The Option Plan provides that all options immediately vested and that an option holder had sixty days following the Change of Control to elect to surrender his or her nonqualified options to the Company for a cash payment equal to the excess of the highest closing market price of the stock during the 90 days preceding the Change of Control, which was $32.50 per share, or the closing market price on the day preceding the date of surrender, whichever is higher, over the exercise price for the surrendered options. During the nine months ended September 30, 2002, the Company recorded a charge of $61,400,000 related to the cash payment obligation under the Option Plan.

      Under employment agreements the Company had with some of its former key executives, the Company had payment obligations that were triggered upon a termination of the executive’s employment either by the Company or the executive following the Change of Control. During the third quarter of 2002, the Company triggered its payment obligations and recorded an obligation for the payments to the executives totaling $15,507,000. The Company recorded expenses of $3,201,000 for employee termination and severance benefits in 2002 unrelated to the aforementioned executive employment agreements. This amount primarily relates to severance related to former employees and the restructuring of the Company’s ICN International headquarters in Basel, Switzerland. In addition, on June 19, 2002, Mr. Milan Panic, the Company’s former Chief Executive Officer and Chairman of the Board, resigned with immediate effect from his positions as Chairman and Chief Executive Officer and from all positions he held as a director or officer of any of the Company’s affiliates. Mr. Panic also resigned as one of the Company’s employees with effect from June 30, 2002 and is no

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

longer one of the Company’s directors. In connection with Mr. Panic’s termination, the Company recorded severance expense of $12,000,000 in the nine months ended September 30, 2002.

7. Earnings Per Share

      The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

			Three Months Ended						Nine Months Ended
			September 30,						September 30,
			2003			2002			2003			2002
Income:
	Numerator for basic earnings per share — income (loss) available to common stockholders		$	(98,511	)	$	15,698		$	(67,852	)	$	97,361
	Interest expense on convertible debt, net of tax			—			—			—			16,625
	Numerator for diluted earnings per share — income (loss) available to common stockholders after assumed conversions		$	(98,511	)	$	15,698		$	(67,852	)	$	113,986
Shares:
	Denominator for basic earnings per share — weighted-average shares outstanding			83,067			83,392			83,759			83,053
	Effect of dilutive securities:
		Employee stock options		—			92			—			838
		Convertible debt		—			—			—			15,132
		Other dilutive securities		—			—			—			—
	Dilutive potential common shares			—			92			—			15,970
	Denominator for diluted earnings per share — weighted-average shares adjusted for assumed conversions			83,067			83,484			83,759			99,023
Basic earnings per share:
	Income (loss) from continuing operations		$	(1.18	)	$	0.19		$	(0.81	)	$	1.17
	Discontinued operations, net of taxes			0.19			(1.09	)		0.17			(1.32	)
	Cumulative effect of change in accounting principle			—			—			—			(0.26	)
	Basic net loss per share		$	(0.99	)	$	(0.90	)	$	(0.64	)	$	(0.41	)
Diluted earnings per share:
	Income (loss) from continuing operations		$	(1.18	)	$	0.19		$	(0.81	)	$	1.15
	Discontinued operations, net of taxes			0.19			(1.09	)		0.17			(1.11	)
	Cumulative effect of change in accounting principle			—			—			—			(0.22	)
	Diluted net loss per share		$	(0.99	)	$	(0.90	)	$	(0.64	)	$	(0.18	)

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VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      For the three and nine months ended September 30, 2003, 2,961,002 and 4,966,041 weighted average stock options, respectively, and 13,591,690 shares from the effect of convertible debt, are not included in the computation of earnings per share as such securities are anti-dilutive.

8. Detail of Certain Accounts

		September 30,			December 31,
		2003			2002
		(In thousands)
Accounts receivable, net:
	Trade accounts receivable	$	103,220		$	100,724
	Royalties receivable		47,480			105,496
	Other receivables		13,599			17,202
			164,299			223,422
	Allowance for doubtful accounts		(7,938	)		(7,646	)
		$	156,361		$	215,776
Inventories, net:
	Raw materials and supplies	$	34,285		$	42,398
	Work-in-process		25,959			29,290
	Finished goods		43,148			28,234
			103,392			99,922
	Allowance for inventory obsolescence		(11,580	)		(11,060	)
		$	91,812		$	88,862
Property, plant and equipment, net:
	Property, plant and equipment, at cost	$	383,425		$	361,357
	Accumulated depreciation and amortization		(148,374	)		(118,469	)
		$	235,051		$	242,888

9. Commitments and Contingencies

      Ribapharm Tender Offer Litigation: In June 2003, seven purported class actions on behalf of certain stockholders of Ribapharm were filed against the Company, Ribapharm and certain directors and officers of Ribapharm in the Delaware Court of Chancery. Six of these complaints were consolidated under the caption In re Ribapharm Inc. Shareholders Litigation, Consol. C.A. No. 20337. The seventh suit has not yet been formally consolidated into C.A. No. 20337 but is proceeding in coordination with the consolidated case. On June 26, 2003, the plaintiffs in the consolidated action filed a First Amended Class Action Complaint naming only the Company as a defendant. The First Amended Class Action Complaint alleges, among other things, that the Company breached its fiduciary duties as a controlling stockholder of Ribapharm in connection with its tender offer for the shares of Ribapharm it did not already own. On August 4, 2003, the Company and the plaintiffs reached an agreement in principle to settle these lawsuits and, after settlement papers are prepared, will present that settlement to the Court of Chancery for its approval.

      On June 25, 2003, the Company instituted a suit captioned ICN Pharmaceuticals, Inc. v. Ribapharm, Inc., Daniel J. Paracka, Santo J. Costa, Gregory F. Boron, James Pieczynski and Andre Dimitriadis, C.A. No. 20387 for declaratory and injunctive relief against Ribapharm and certain of its directors in the Delaware Court of Chancery. This complaint alleges, among other things, that the defendants breached their fiduciary

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

duties and certain contracts by implementing a shareholder rights plan in response to the Company’s tender offer. The Company requested a preliminary injunction hearing prior to the expiration of the tender offer on July 22, 2003 and sought a temporary restraining order barring the defendants from taking certain actions with respect to Ribapharm’s newly enacted shareholders rights plan. On June 30, 2003, the Court of Chancery scheduled a preliminary injunction hearing for September 3, 2003. This hearing did not occur because the parties had reached an agreement in principle to settle this lawsuit.

      On June 27, 2003, a purported class action on behalf of certain stockholders of Ribapharm was filed against the Company in the Delaware Court of Chancery. This class action is captioned Maxine Phillips, Robert Garfield, Nora Mazzini, Andrew Samet, Kathleen A. Pasek, Richard Jacob and Steven Silverberg v. ICN Pharmaceuticals, Inc., C.A. No. 20391, and seeks a declaration that the shareholders rights plan is valid and enforceable. This action has been consolidated with the suit instituted by the Company on June 25, 2003 and captioned In re Ribapharm, Inc. Rights Plan Litigation, Consol. C.A. No. 20387. On August 4, 2003, the Company and the plaintiffs reached an agreement in principle to settle this lawsuit. Such settlement will be completed in combination with the settlement In re Ribapharm Inc. Shareholders Litigation, Consol. C.A. No. 20337.

      On June 3, 2003, a purported class action, captioned Len Brody v. Roberts A. Smith, Andre C. Dimitriadis, Santo J. Costa, James J. Pieczynski, Daniel J. Paracka, Gregory F. Boron, Ribapharm, Inc. and ICN Pharmaceuticals, Inc., Case No. 03 CC 00211, was filed in the Superior Court of Orange County, California, against the Company, Ribapharm and certain of Ribapharm’s officers and directors. The complaint in this action purports to assert the same claims, on behalf of the same class of plaintiffs and against the same defendants as in the seven lawsuits filed in Delaware that are described above. This California action has been stayed and a status conference has been set for November 18, 2003 in light of the settlement of the Delaware tender offer litigation. The settlement of the Delaware tender offer litigation will be designed to release the claims brought in this lawsuit, although the decision as to effect of that release will be up to the California court.

      In the opinion of management, the ultimate resolution of these matters will not have a material effect on the Company’s consolidated financial position, results of operations or liquidity.

      Derivative Actions: The Company is a nominal defendant in a shareholder derivative lawsuit pending in state court in Orange County, California. This lawsuit, which was filed on June 6, 2002, purports to assert derivative claims on behalf of the Company against certain current and/or former officers and directors of the Company. The lawsuit asserts claims for breach of fiduciary duties, abuse of control, gross mismanagement and waste of corporate assets. The plaintiff seeks, among other things, damages and a constructive trust over cash bonuses paid to the officer and director defendants in connection with the Ribapharm Offering (the “Ribapharm Bonuses”). Because it is a derivative lawsuit, the plaintiff does not seek recovery from the Company but rather on behalf of the Company.

      On October 1, 2002, several former and current directors of the Company, as individuals, as well as the Company, as a nominal defendant, were named as defendants in a second shareholder’s derivative complaint filed in Delaware Chancery Court. The complaint purports to state causes of action for violation of Delaware General Corporate Law Section 144, breach of fiduciary duties and waste of corporate assets in connection with the defendants’ management of the Company. Because it is a derivative lawsuit, the complaint does not seek recovery from the Company but rather on behalf or the Company. The allegations largely duplicate those contained in the derivative lawsuit filed in Orange County, California, but add a disclosure-based claim relating to the allegations of federal securities law violations made in the class actions.

      The Company established a Special Litigation Committee to evaluate the plaintiffs’ claims in both derivative actions. The Special Litigation Committee concluded that it would not be in the best interests of the Company’s shareholders to pursue many of the claims in these two lawsuits, but decided to pursue, through

16

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

litigation or settlement, claims arising from the April 2002 decision of the Board to approve the payment of approximately $50,000,000 in bonuses to various members of the Board and management arising from the initial public offering of Ribapharm. On April 25, 2003, the Company filed a motion to stay or dismiss the California plaintiff’s complaint in favor of the Company amending the existing Delaware derivative action to substitute the Company as the plaintiff. Following limited discovery pertaining to the Special Litigation Committee’s investigation, the Court granted the Company’s motion. The Court stayed the plaintiff’s prosecution of the claim concerning the Ribapharm Bonuses in favor of similar proceedings in Delaware, and dismissed each of the plaintiff’s remaining claims with prejudice. On June 27, 2003, pursuant to the Special Litigation Committee’s recommendation, the Company filed a motion in the Delaware derivative action to (a) realign itself as plaintiff in this action, (b) pursue the primary derivative claims relating to the Ribapharm Bonuses, (c) seek dismissal of the secondary derivative claims, and (d) settle certain claims with respect to certain of the defendants. The Court granted the Company’s motion for realignment on October 27, 2003. Additional aspects of the Company’s motion are still pending.

      Securities Class Actions: Since July 25, 2002, multiple class actions have been filed in the United States District Courts for the Eastern District of New York, the District of New Jersey and the Central District of California against the Company and some of its current and former executive officers. The lawsuits allege that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing false and misleading financial results to the market during different class periods ranging from May 3, 2001 to July 10, 2002, thereby artificially inflating the price of the Company’s stock. The lawsuits generally claim that the Company issued false and misleading statements regarding the Company’s earnings prospects and sales figures, its operations in Russia and the earnings and sales of its Photonics division. The plaintiffs generally seek to recover compensatory damages, including interest. The actions filed in the Eastern District of New York and the District of New Jersey have been transferred to the Central District of California by stipulation of the parties. The parties to all of the class actions pending in the Central District of California have filed an Initial Case Management Order seeking to have all related actions consolidated before the Honorable David O. Carter. The Company filed a motion to dismiss plaintiffs’ consolidated amended complaint on August 29, 2003, and a hearing on that motion is scheduled for December 22, 2003.

      On May 9, 2003, a bondholder filed a class action lawsuit in Orange County Superior Court against the Company and some of its current and former directors and executive officers. The lawsuit alleges that defendants violated Sections 11 and 15 of the Securities Act of 1933 by making false and misleading statements in connection with an offering of Convertible Subordinated Notes in November 2001, thereby artificially inflating the market price of the Notes. The plaintiffs generally seek to recover compensatory damages, including interest. The Company removed this action to federal court, and intends to file a motion to dismiss plaintiff’s complaint.

      Generic Litigation: Three generic pharmaceutical companies, Geneva Pharmaceuticals Technology Corporation, which merged into its parent, Geneva Pharmaceuticals, Inc. (“Geneva”), Three Rivers Pharmaceuticals, LLC (“Three Rivers”) and Teva Pharmaceuticals USA, Inc. (“Teva”), filed Abbreviated New Drug Applications (“ANDA”) with the FDA to market generic forms of ribavirin for use as part of a combination therapy for the treatment of hepatitis C. The Company sued all three of these pharmaceutical companies to prevent them from marketing a generic form of ribavirin in the United States market. The three cases were all before the same judge, and summary judgment motions were filed by the defendants. In July 2003, the U.S. District Court for the Central District of California issued a memorandum of decision and order granting the defendants their motion for summary judgment of non-infringement of the asserted patents in the patent infringement suit brought by the Company. The decision and order did not rule on defendants’ motion for summary judgment that the patents are invalid. This ruling permits the FDA to approve the defendant generic companies’ ANDAs, in their discretion. On July 17, 2003, the Company filed a Citizen’s Petition with the FDA requesting that the Commissioner of Food and Drugs refrain from approving ANDA

17

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

for ribavirin products with labeling that omits information about the product’s use in combination with PEG-Intron® (peginterferon alfa-2b). Action by the FDA on the Citizen’s Petition is pending. The successful entry of any generic pharmaceutical company into the U.S. market will have a material negative impact on the Company’s future U.S. royalty revenue. On August 11, 2003, the District Court ordered entry of judgment dismissing the action against Teva and Three Rivers based on its July decision. On September 10, 2003, the Company filed notices of appeal with respect to these judgments. The District Court also entered an order on October 14, 2003 certifying its July 2003 decision as a final appealable decision with respect Geneva, and on October 16, 2003, the Company filed a notice of appeal of the July decision in the Geneva actions.

      Patents: Various parties are opposing the Company’s ribavirin patents in actions before the European Patent Office, and the Company is responding to these oppositions. Regardless of the outcome of these oppositions, the Company believes the combination therapies marketed by Schering and Roche will continue to benefit from a period of data and marketing protection in the major markets of the European Union until 2009 for Schering and 2012 for Roche.

      Yugoslavia: In March 1999, arbitration was initiated in the following matters before the International Chamber of Commerce International Court of Arbitration: (a) State Health Fund of Serbia v. ICN Pharmaceuticals, Inc., Case No. 10 373/ AMW/ BDW, and (b) ICN Pharmaceuticals, Inc. v. Federal Republic of Yugoslavia and Republic of Serbia, Case No. 10 439/ BWD. At issue in these matters is the parties’ respective ownership percentages in ICN Yugoslavia, a joint venture formed by the parties’ purported predecessors-in-interest in 1990.

      In these proceedings, the Company has asserted claims and counterclaims against the Federal Republic of Yugoslavia and the Republic of Serbia for unlawful expropriation of its majority interest in the joint venture, failure to pay obligations in excess of $176,000,000, violation of a contractual right of first refusal regarding the minority owners’ sale of its interest, and failure to return the Company’s contributed intangible assets following partial appropriation of the Company’s majority interest. The State Health Fund of Serbia has asserted a claim against the Company for breach of the joint venture agreement based on the Company’s alleged failure to contribute certain intangible assets and alleged mismanagement.

      The arbitration hearings in this matter began in November 2002 and are continuing. The Tribunal has requested supplemental briefing and may order one or more rounds of additional hearings.

      Circe: The former shareholders (the “Circe Stockholders”) of Circe Biomedical, Inc. (“Circe”) filed in July 2003 a demand for arbitration claiming indemnification from the Company for approximately $10,000,000 of purported financial losses, based on provisions of an agreement entered into at the time the Company acquired Circe. The Circe Stockholders claim to have suffered such losses as a result of the Company’s alleged breach of its obligations to register for resale the Company shares issued to the Circe Stockholders as part of the purchase price for the Circe acquisition. The parties have selected an arbitrator, and the arbitration hearing is scheduled for March 22 – 26, 2004. The Company intends to vigorously defend against the claim.

      Russia: The Company is involved in various legal proceedings relating to its distribution company in Russia. These proceedings arise out of a claim relating to non-payment under a contract entered into in January 1995, prior to the Company’s acquisition of the Russian distribution company. The claimant, Minnex Trading Corporation (“Minnex”) in July 2001 initiated bankruptcy proceedings against OAO Pharmsnabsbyt (“PSS”), the Company’s Russian distribution company, in the Arbitration Court of Moscow Region, and seeks to recover $6,200,000 in damages, plus expenses. Certain other Valeant affiliates are also creditors of PSS, and have asserted claims in bankruptcy in excess of $12,000,000. Claims have also been made that the Company is responsible for PSS’s bankruptcy. Under certain circumstances, Russian law imposes liability on a company whose actions create liabilities or cause bankruptcy for its Russian subsidiary. The Company intends to vigorously assert its interests in this matter.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      Other: The Company has also identified potential violations of the U.S. Asset Control Regulations by its subsidiaries with respect to certain business transactions. The Company submitted a voluntary disclosure of the potential violations to the Office of Foreign Assets Control (“OFAC”), as well as a request for settlement. The Company does not expect any such settlement to have a material adverse impact on our financial situation or our ability to operate as planned. The Company is a party to other pending lawsuits or subject to a number of threatened lawsuits. While the ultimate outcome of pending and threatened lawsuits or pending violations cannot be predicted with certainty, and an unfavorable outcome could have a negative impact on the Company, at this time in the opinion of management, the ultimate resolution of these matters will not have a material effect on the Company’s consolidated financial position, results of operations or liquidity.

10. Business Segments

      The Company has four reportable pharmaceutical segments comprising the Company’s pharmaceutical operations in North America, Latin America, Europe and Asia, Africa and Australia. In addition, the Company has a research and development division (formerly Ribapharm). The segment reporting has been reclassified to conform to discontinued operations presentation for all periods presented. See Note 3 for discussion of discontinued operations.

19

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      The following table sets forth the amounts of segment revenues and operating income of the Company for each of the three months and nine months ended September 30, 2003 and 2002 (in thousands):

			Three Months Ended						Nine Months Ended
			September 30,						September 30,
			2003			2002			2003			2002
Revenues
Pharmaceuticals
	North America		$	29,403		$	16,757		$	70,837		$	78,151
	Latin America			34,746			31,985			94,802			94,019
	Europe			54,512			44,334			169,396			138,632
	Asia, Africa, Australia			12,629			15,208			37,921			40,298
		Total Pharmaceuticals		131,290			108,284			372,956			351,100
	Royalty revenues			36,217			63,367			136,755			186,368
		Consolidated revenues	$	167,507		$	171,651		$	509,711		$	537,468
Operating Income (Loss)
Pharmaceuticals
	North America		$	12,851		$	(1,012	)	$	18,897		$	22,612
	Latin America			11,840			11,191			30,219			32,442
	Europe			8,384			357			24,821			12,380
	Asia, Africa, Australia			1,819			(2,294	)		3,407			89
		Total Pharmaceuticals		34,894			8,242			77,344			67,523
Research and development division(1)				(101,279	)		46,926			(30,470	)		145,628
Consolidated segment operating income (loss)				(66,385	)		55,168			46,874			213,151
Corporate expenses				(13,040	)		(39,318	)		(45,082	)		(260,761	)
Interest income				953			1,458			3,066			4,434
Interest expense				(7,871	)		(9,189	)		(23,892	)		(34,381	)
Other, net				2,208			20,779			496			244,399
Income (loss) from continuing operations before provision for income taxes and minority interest			$	(84,135	)	$	28,898		$	(18,538	)	$	166,842

(1)  Includes expense associated with the write-off of acquired in-process research and development related to the Ribapharm Acquisition.

20

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      The following table sets forth the segment total assets of the Company as of September 30, 2003 and December 31, 2002 (in thousands):

			Total Assets
			September 30,		December 31,
			2003		2002
Pharmaceuticals
	North America		$	399,420	$	435,506
	Latin America			97,146		162,877
	Europe			321,390		292,047
	Asia, Africa, Australia			22,315		19,658
		Total Pharmaceuticals		840,271		910,088
Corporate				272,731		177,556
Research and development division				264,823		199,075
Discontinued operations				27,172		201,830
Total			$	1,404,997	$	1,488,549

11. Consolidating Financial Information

      The Company and Ribapharm are jointly and severally liable for the obligations under the 6 1/2% Subordinated Convertible Notes due 2008. The following consolidating condensed financial statements show the financial position, results of operations and cash flow for Valeant Pharmaceuticals International excluding Ribapharm, Ribapharm and eliminations necessary to arrive at the Company’s consolidated financial position, results of operations and cash flows for the periods presented.

21

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Balance Sheet as of September 30, 2003

(Unaudited, in thousands)

			Valeant									Valeant
			Excluding									Pharmaceuticals
			Ribapharm			Ribapharm			Eliminations			International
ASSETS
Current Assets:
	Cash and cash equivalents		$	178,500		$	122,528		$	—		$	301,028
	Accounts receivable, net			108,869			47,492			—			156,361
	Inventories, net			91,812			—			—			91,812
	Prepaid expenses and other current assets			12,591			4,180			—			16,771
		Total current assets		391,772			174,200			—			565,972
Property, plant and equipment, net				225,456			9,595			—			235,051
Deferred tax assets, net				86,986			2,734			—			89,720
Intangibles, net				364,523			78,286			—			442,809
Other assets				44,265			8			—			44,273
		Total non-current assets		721,230			90,623			—			811,853
Assets of discontinued operations				27,172			—			—			27,172
			$	1,140,174		$	264,823		$	—		$	1,404,997
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Trade payables		$	31,949		$	417		$	—		$	32,366
	Accrued liabilities			104,155			26,367			(6,305	)		124,217
	Notes payable and current portion of long-term debt			1,303			—			—			1,303
	Income taxes payable			22,335			5,915			—			28,250
	Intercompany payables (receivables)			(185,761	)		33,301			152,460			—
		Total current liabilities		(26,019	)		66,000			146,155			186,136
Long-term debt, less current portion				478,652			465,590			(465,590	)		478,652
Deferred income taxes and other liabilities				46,631			26,884			—			73,515
Minority interest				3,397			—			—			3,397
		Total non-current liabilities		528,680			492,474			(465,590	)		555,564
Liabilities of discontinued operations				19,216			—			—			19,216
Commitments and contingencies
Stockholders’ Equity:
	Common stock			831			1,500			(1,500	)		831
	Additional capital			1,020,829			(300,935	)		300,935			1,020,829
	Accumulated deficit			(355,958	)		5,784			20,000			(330,174	)
	Accumulated other comprehensive loss			(47,405	)		—			—			(47,405	)
		Total stockholders’ equity		618,297			(293,651	)		319,435			644,081
			$	1,140,174		$	264,823		$	—		$	1,404,997

22

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Balance Sheet as of December 31, 2002

(Unaudited, in thousands)

			Valeant									Valeant
			Excluding									Pharmaceuticals
			Ribapharm			Ribapharm			Eliminations			International
ASSETS
Current Assets:
	Cash and cash equivalents		$	165,434		$	79,750		$	—		$	245,184
	Accounts receivable, net			110,280			105,496			—			215,776
	Inventories, net			88,862			—			—			88,862
	Income taxes receivable			12,779			—			—			12,779
	Prepaid expenses and other current assets			13,381			591			—			13,972
		Total current assets		390,736			185,837			—			576,573
Property, plant and equipment, net				232,384			10,504			—			242,888
Deferred tax assets, net				36,446			2,734			—			39,180
Intangibles, net				384,547			—			—			384,547
Other assets				43,531			—			—			43,531
		Total non-current assets		696,908			13,238			—			710,146
Assets of discontinued operations				201,830			—			—			201,830
			$	1,289,474		$	199,075		$	—		$	1,488,549
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Trade payables		$	32,201		$	1,286		$	—		$	33,487
	Accrued liabilities			117,964			38,000			(13,871	)		142,093
	Notes payable and current portion of long-term debt			3,923			—			—			3,923
	Income taxes payable			(17,450	)		17,450			—			—
	Intercompany payables (receivables)			(40,766	)		39,266			1,500			—
		Total current liabilities		95,872			96,002			(12,371	)		179,503
Long-term debt, less current portion				481,548			465,590			(465,590	)		481,548
Deferred income taxes and other liabilities				51,581			707			—			52,288
Minority interest				23,452			—			—			23,452
		Total non-current liabilities		556,581			466,297			(465,590	)		557,288
Liabilities of discontinued operations				48,068			—			—			48,068
Commitments and contingencies
Stockholders’ Equity:
	Common stock			841			1,500			(1,500	)		841
	Additional capital			1,027,335			(479,461	)		479,461			1,027,335
	Accumulated deficit			(371,546	)		114,737			—			(256,809	)
	Accumulated other comprehensive loss			(67,677	)		—			—			(67,677	)
		Total stockholders’ equity		588,953			(363,224	)		477,961			703,690
			$	1,289,474		$	199,075		$	—		$	1,488,549

23

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Statement of Income for the three months ended September 30, 2003

(Unaudited, in thousands)

			Valeant									Valeant
			Excluding									Pharmaceuticals
			Ribapharm			Ribapharm			Eliminations			International
Revenues:
	Product sales		$	131,290		$	—		$	—		$	131,290
	Royalties			—			36,217			—			36,217
		Total revenues		131,290			36,217			—			167,507
Costs and expenses:
	Cost of goods sold			42,128			—			—			42,128
	Selling expenses			40,478			—			—			40,478
	General and administrative expenses			17,874			7,638			—			25,512
	Research and development costs			438			10,314			—			10,752
	Acquired in-process research and development			—			117,609			—			117,609
	Amortization expense			8,518			1,935			—			10,453
		Total expenses		109,436			137,496			—			246,932
		Income (loss) from operations		21,854			(101,279	)		—			(79,425	)
Other income, net, including translation and exchange				2,208			—			—			2,208
Interest income				643			310			—			953
Interest expense				(7,871	)		—			—			(7,871	)
Income (loss) from continuing operations before income taxes and minority interest				16,834			(100,969	)		—			(84,135	)
Provision for income taxes				7,152			5,568			—			12,720
Minority interest, net				56			—			1,600			1,656
	Income (loss) from continuing operations			9,626			(106,537	)		(1,600	)		(98,511	)
	Income from discontinued operations			16,110			—			—			16,110
	Net income (loss)		$	25,736		$	(106,537	)	$	(1,600	)	$	(82,401	)

24

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Statements of Income for the three months ended September 30, 2002

(Unaudited, in thousands)

			Valeant									Valeant
			Excluding									Pharmaceuticals
			Ribapharm			Ribapharm			Eliminations			International
Revenues:
	Product sales		$	108,284		$	—		$	—		$	108,284
	Royalties			—			63,367			—			63,367
		Total revenues		108,284			63,367			—			171,651
Costs and expenses:
	Cost of goods sold			39,769			—			—			39,769
	Selling expenses			40,140			—			—			40,140
	General and administrative expenses			50,851			2,922			710			54,483
	Research and development costs			671			13,518			(710	)		13,479
	Amortization expense			7,930			—			—			7,930
		Total expenses		139,361			16,440			—			155,801
		Income (loss) from operations		(31,077	)		46,927			—			15,850
Other income, net, including translation and exchange				4,253			—			—			4,253
Loss on sale of subsidiary stock				(1,012	)		—			—			(1,012	)
Gain on early extinguishment of debt				17,538			—			—			17,538
Intercompany interest				441			(441	)		—			—
Interest income				1,371			87			—			1,458
Interest expense				(9,189	)		—			—			(9,189	)
Income (loss) from continuing operations before income taxes and minority interest				(17,675	)		46,573			—			28,898
Provision for income taxes				(10,211	)		17,709			—			7,498
Minority interest, net				127			—			5,575			5,702
	Income (loss) from continuing operations			(7,591	)		28,864			(5,575	)		15,698
	Loss from discontinued operations			(90,633	)		—			—			(90,633	)
	Net income (loss)		$	(98,224	)	$	28,864		$	(5,575	)	$	(74,935	)

25

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Statement of Income for the nine months ended September 30, 2003

(Unaudited, in thousands)

			Valeant									Valeant
			Excluding									Pharmaceuticals
			Ribapharm			Ribapharm			Eliminations			International
Revenues:
	Product sales		$	372,956		$	—		$	—		$	372,956
	Royalties			—			136,755			—			136,755
		Total revenues		372,956			136,755			—			509,711
Costs and expenses:
	Cost of goods sold			131,295			—			—			131,295
	Selling expenses			121,146			—			—			121,146
	General and administrative expenses			62,623			18,174			—			80,797
	Research and development costs			194			29,507			—			29,701
	Acquired in-process research and development			—			117,609			—			117,609
	Amortization expense			25,436			1,935			—			27,371
		Total expenses		340,694			167,225			—			507,919
		Income (loss) from operations		32,262			(30,470	)		—			1,792
Other income, net, including translation and exchange				496			—			—			496
Intercompany interest				455			(455	)		—			—
Interest income				2,154			912			—			3,066
Interest expense				(23,892	)		—			—			(23,892	)
Income (loss) from continuing operations before income taxes and minority interest				11,475			(30,013	)		—			(18,538	)
Provision for income taxes				7,954			29,693			—			37,647
Minority interest, net				97			—			11,570			11,667
	Income (loss) from continuing operations			3,424			(59,706	)		(11,570	)		(67,852	)
	Income from discontinued operations			13,992			—			—			13,992
	Net income (loss)		$	17,416		$	(59,706	)	$	(11,570	)	$	(53,860	)

26

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Statement of Income for the nine months ended September 30, 2002

(Unaudited, in thousands)

			Valeant									Valeant
			Excluding									Pharmaceuticals
			Ribapharm			Ribapharm			Eliminations			International
Revenues:
	Product sales		$	351,100		$	—		$	—		$	351,100
	Royalties			—			186,368			—			186,368
		Total revenues		351,100			186,368			—			537,468
Costs and expenses:
	Cost of goods sold			113,360			—			—			113,360
	Selling expenses			119,120			—			—			119,120
	General and administrative expenses			283,941			6,999			2,172			293,112
	Research and development costs			3,957			33,741			(2,172	)		35,526
	Amortization expense			23,960			—			—			23,960
		Total expenses		544,338			40,740			—			585,078
		Income (loss) from operations		(193,238	)		145,628			—			(47,610	)
Other income, net, including translation and exchange				8,192			—			—			8,192
Gain on sale of subsidiary stock				261,937			—			—			261,937
Loss on early extinguishment of debt				(25,730	)		—			—			(25,730	)
Intercompany interest				614			(614	)		—			—
Interest income				4,335			99			—			4,434
Interest expense				(34,381	)		—			—			(34,381	)
Income from continuing operations before income taxes and minority interest				21,729			145,113			—			166,842
Provision for income taxes				3,657			55,154			—			58,811
Minority interest, net				180			—			10,490			10,670
Income from continuing operations				17,892			89,959			(10,490	)		97,361
Loss from discontinued operations				(109,742	)		—			—			(109,742	)
	Cumulative effect of change in accounting principle			(21,791	)		—			—			(21,791	)
	Net Income (loss)		$	(113,641	)	$	89,959		$	(10,490	)	$	(34,172	)

27

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Statement of Cash Flow for the nine months ended September 30, 2003

(Unaudited, in thousands)

				Valeant									Valeant
				Excluding									Pharmaceutical
				Ribapharm			Ribapharm			Eliminations			International
Cash flows from operating activities:
	Income (loss) from continuing operations			$	3,424		$	(59,706	)	$	(11,570	)	$	(67,852	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization			41,315			4,512			—			45,827
		Provision for losses on accounts receivable and inventory obsolescence			3,631			—			—			3,631
		Translation and exchange gains, net			(496	)		—			—			(496	)
		Other non-cash items			387			77			—			464
		Write-off of acquired in-process R&D			—			117,609			—			117,609
		Deferred income taxes			(7,455	)		—			—			(7,455	)
		Minority interest			97			—			11,570			11,667
	Change in assets and liabilities, net of effects of acquisitions:
		Accounts receivable			3,860			58,016			—			61,876
		Inventories			(510	)		—			—			(510	)
		Prepaid expenses and other assets			(6,626	)		(3,610	)		—			(10,236	)
		Trade payables and accrued liabilities			(37,921	)		(4,934	)		—			(42,855	)
		Income taxes payable			57,464			(11,882	)		—			45,582
		Other liabilities			(8,058	)		—			—			(8,058	)
		Funds provided to (from) intercompany			641			(641	)		—			—
		Cash flow from operating activities in continuing operations			49,753			99,441			—			149,194
		Cash flow from operating activities in discontinued operations			21,938			—			—			21,938
			Net cash provided by operating activities		71,691			99,441			—			171,132
Cash flows from investing activities:
	Capital expenditures				(7,574	)		(1,667	)		—			(9,241	)
	Proceeds from sale of assets				318			—			—			318
	Acquisition of license rights, product lines and businesses				(192,923	)		—			—			(192,923	)
	Cash flow from investing activities in continuing operations				(200,179	)		(1,667	)		—			(201,846	)
	Cash flow from investing activities in discontinued operations				104,276			—			—			104,276
		Net cash used in investing activities			(95,903	)		(1,667	)		—			(97,570	)
Cash flows from financing activities:
	Payments on long-term debt and notes payable				(6,797	)		—			—			(6,797	)
	Proceeds from exercise of stock options				317			—			—			317
	Dividends paid				(19,501	)		—			—			(19,501	)
	Funds provided to (from) intercompany				54,996			(54,996	)		—			—
	Funds received from discontinued operations				133,774			—			—			133,774
	Cash flow from financing activities in continuing operations				162,789			(54,996	)		—			107,793
	Cash flow from financing activities in discontinued operations				(134,070	)		—			—			(134,070	)
		Net cash provided by (used) in financing activities			28,719			(54,996	)		—			(26,277	)
Effect of exchange rate changes on cash and cash equivalents					966			—			—			966
Net increase in cash and cash equivalents					5,473			42,778			—			48,251
Cash and cash equivalents at beginning of period					173,914			79,750			—			253,664
Cash and cash equivalents at end of period					179,387			122,528			—			301,915
Cash and cash equivalents classified as part of discontinued operations					(887	)		—			—			(887	)
Cash and cash equivalents of continuing operations				$	178,500		$	122,528		$	—		$	301,028

28

VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Statement of Cash Flow for the nine months ended September 30, 2002

(Unaudited, in thousands)

				Valeant									Valeant
				Excluding									Pharmaceuticals
				Ribapharm			Ribapharm			Eliminations			International
Cash flows from operating activities:
	Income (loss) from continuing operations			$	17,892		$	89,959		$	(10,490	)	$	97,361
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Depreciation and amortization			40,721			2,037			—			42,758
		Provision for losses on accounts receivable and inventory obsolescence			4,374			—			—			4,374
		Translation and exchange (gains) losses, net			(8,192	)		—			—			(8,192	)
		Other non-cash items			44,286			—			—			44,286
		Write-off of acquired in-process R&D			—			—			—			—
		Deferred income taxes			34			—			—			34
		Minority interest			180			—			10,490			10,670
		Gain on sale of subsidiary stock			(261,937	)		—			—			(261,937	)
		Loss on extinguishment of debt			25,730			—			—			25,730
	Change in assets and liabilities, net of effects of acquisitions:
		Accounts receivable			93,057			(71,200	)		—			21,857
		Inventories			(4,300	)		—			—			(4,300	)
		Prepaid expenses and other assets			(20,199	)		(594	)		—			(20,793	)
		Trade payables and accrued liabilities			(949	)		11,567			—			10,618
		Income taxes payable			16,813			—			—			16,813
		Other liabilities			4,272			—			—			4,272
		Funds provided to (from) intercompany			(19,933	)		19,933			—			—
		Cash flow from operating activities in continuing operations			(68,151	)		51,702			—			(16,449	)
		Cash flow from operating activities in discontinued operations			8,065			—			—			8,065
			Net cash provided by (used in) operating activities		(60,086	)		51,702			—			(8,384	)
Cash flows from investing activities:
	Capital expenditures				(11,952	)		(1,641	)		—			(13,593	)
	Proceeds from sale of assets				356			—			—			356
	Proceeds from sale of subsidiary stock				276,611			—			—			276,611
	Acquisition of license rights, product lines and businesses				(26,765	)		—			—			(26,765	)
	Cash flow from investing activities in continuing operations				238,250			(1,641	)		—			236,609
	Cash flow from investing activities in discontinued operations				5,621			—			—			5,621
		Net cash (used in) provided by investing activities			243,871			(1,641	)		—			242,230
Cash flows from financing activities:
	Proceeds from issuance of long-term debt and notes payable				686			—			—			686
	Payments on long-term debt and notes payable				(273,630	)		—			—			(273,630	)
	Proceeds from exercise of stock options				12,892			—			—			12,892
	Dividends paid				(19,035	)		—			—			(19,035	)
	Repurchase of common stock				(31,955	)		—			—			(31,955	)
	Funds provided to (from) intercompany				(777	)		777			—			—
	Funds received from discontinued operations				8,706			—			—			8,706
	Cash flow from financing activities in continuing operations				(303,113	)		777			—			(302,336	)
	Cash flow from financing activities in discontinued operations				(8,513	)		—			—			(8,513	)
		Net cash used in financing activities			(311,626	)		777			—			(310,849	)
Effect of exchange rate changes on cash and cash equivalents					(161	)		—			—			(161	)
Net increase (decrease) in cash and cash equivalents					(128,002	)		50,838			—			(77,164	)
Cash and cash equivalents at beginning of period					325,253			—			—			325,253
Cash and cash equivalents at end of period					197,251			50,838			—			248,089
Cash and cash equivalents classified as part of discontinued operations					(13,332	)		—			—			(13,332	)
Cash and cash equivalents of continuing operations				$	183,919		$	50,838		$	—		$	234,757

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VALEANT PHARMACEUTICALS INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      The following discussion relates to the information presented in the Consolidated Condensed Financial Statements included in this Quarterly Report. With respect to certain items set forth in such Consolidated Condensed Financial Statements, management has sought, in connection with its discussion of the material changes in the Company’s financial condition and results of operations between the periods for which information is presented in the Consolidated Condensed Financial Statements, to identify and, in some cases, quantify, the material factors which contributed to such material changes. However, the quantification of such factors may result in the presentation of numerical measures that exclude amounts that are included in the most directly comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Management is providing this information because it believes that it is useful to enable readers to assess material changes in the Company’s financial condition and results of operations between the periods for which information is presented in the Financial Statements. In each instance, such information is presented immediately following (and in connection with an explanation of) the most directly comparable financial measure calculated in accordance with GAAP, and includes other material information necessary to reconcile the information with the comparable GAAP financial measure.

Results of Operations

      Certain financial information for the Company’s business segments is set forth below. This discussion should be read in conjunction with the Consolidated Condensed Financial Statements of the Company included elsewhere in this Quarterly Report. For additional financial information by business segment, see Note 10 of Notes to Consolidated Condensed Financial Statements included elsewhere in this Quarterly Report.

      The Company has four reportable pharmaceutical segments comprising the Company’s pharmaceutical operations in North America, Latin America, Europe and Asia, Africa and Australia. In addition, the Company has a research and development division (formerly Ribapharm). The segment reporting has been reclassified to conform to discontinued operations presentation for all periods presented. See Note 3 of Notes to Consolidated Condensed Financial Statements for the discussion of discontinued operations.

Revenues (in thousands)

			Three Months Ended						Nine Months Ended
			September 30,						September 30,
			2003			2002			2003			2002
Pharmaceuticals
	North America		$	29,403		$	16,757		$	70,837		$	78,151
	Latin America			34,746			31,985			94,802			94,019
	Europe			54,512			44,334			169,396			138,632
	Asia, Africa, Australia			12,629			15,208			37,921			40,298
		Total pharmaceuticals		131,290			108,284			372,956			351,100
Royalties				36,217			63,367			136,755			186,368
Total revenues			$	167,507		$	171,651		$	509,711		$	537,468
Cost of goods sold			$	42,128		$	39,769		$	131,295		$	113,360
Gross profit margin on product sales				68	%		63	%		65	%		68	%

Quarter Ended September 30, 2003 Compared to 2002

Pharmaceutical Revenues:

      In the North America Pharmaceuticals segment, revenues for the three months ended September 30, 2003 were $29,403,000 compared to $16,757,000 for the same period of 2002, an increase of $12,646,000

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(75%). The increase in 2003 is primarily due to revenues in the third quarter of 2002 being negatively impacted by the inventory reduction program at the Company’s wholesalers that began in June 2002. The Company completed the inventory reduction program in April 2003.

      In the Latin America Pharmaceuticals segment, revenues for the three months ended September 30, 2003 were $34,746,000, compared to $31,985,000 for the same period of 2002, an increase of $2,761,000 (9%). The increase is primarily due to price and volume increases of $4,142,000, partially offset by a 4% decrease in the value of currencies in the region of $1,381,000. The Company continues to see an impact from generic substitution in the Latin American market and is taking steps to realign and increase sales force in this region.

      In the Europe Pharmaceuticals segment, revenues for the three months ended September 30, 2003 were $54,512,000 compared to $44,334,000 for the same period of 2002, an increase of $10,178,000 (23%). The increase is primarily due to an increase in the value of currencies in the region relative to the U.S. Dollar, which resulted in an increase in revenues of $4,815,000. Additionally, excluding the effect of currencies, revenues in Poland increased $2,441,000.

      In the Asia, Africa and Australia (“AAA”) Pharmaceuticals segment, revenues for the three months ended September 30, 2003 were $12,629,000 compared to $15,208,000 for the same period of 2002, a decrease of $2,579,000 (17%). The decrease is primarily due to lower sales volume primarily related to a decrease in Reptilase sales partially off-set by an increase in sales of Nyal® products in Australia.

      Royalties: Royalty revenues represent amounts earned under the License and Supply Agreement with Schering-Plough Ltd. (“Schering”) (the “License Agreement”) and for fiscal 2003, under a license agreement with F. Hoffman-LaRoche Ltd. (“Roche”). Under the License Agreement, Schering licensed all oral forms of ribavirin for the treatment of chronic hepatitis C in combination with Schering’s alpha interferon (the “Combination Therapy”).

      On January 6, 2003, the Company and Roche reached agreement on a settlement of pending patent disputes over Roche’s combination anti-viral product containing Roche’s version of ribavirin, known as Copegus. Under the agreement, Roche may continue to register and commercialize Copegus globally. The financial terms of this settlement agreement include a license by the Company of ribavirin to Roche. The license authorizes Roche to make or have made and to sell Copegus under the Company’s patents. Roche pays royalty fees to the Company on all sales of Copegus for use in combination with interferon alfa or pegylated interferon alfa.

      Royalties earned for the three months ended September 30, 2003 from Schering and Roche were $36,217,000 compared to $63,367,000 for the same period of 2002, a decrease of $27,150,000 (43%). The Company believes that the decrease in royalties during the three months ended September 30, 2003, include the effects of increasing competition between Schering and Roche, Schering’s provision for estimated rebates on its U.S. sales of ribavirin and changes in trade inventory levels as reported to the Company by Schering. The Company has no information with regard to the basis for the rebate and return provision other than public statements by Schering suggesting generic competition in the last half of 2003 would have an impact on demand.

      Gross Profit: Gross profit margin on product sales increased to 68% for the three months ended September 30, 2003 compared to 63% for 2002. The increase in gross profit is primarily due to a change in the geographic mix in sales primarily related to higher sales in the U.S., which increased the Company’s overall margin, partially offset costs related the Company’s manufacturing rationalization project.

      Selling Expenses: Selling expenses were $40,478,000 for the three months ended September 30, 2003, compared to $40,140,000 for the same period in 2002, an increase of $338,000 (1%). As a percentage of sales, selling expenses decreased to 31% in the third quarter of 2003 from 37% in the same period in 2002, which reflects the Company’s intention of lowering overall costs.

      General and Administrative Expenses: General and administrative expenses were $25,512,000 for the three months ended September 30, 2003, compared to $54,483,000 for the same period in 2002, a decrease of $28,971,000. Included in general and administrative expenses for the quarter ended September 30, 2002 are

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reported non-recurring and other unusual charges of $23,920,000, which include severance costs of $18,708,000 and environmental remediation and related expenses of $5,212,000.

      The remaining decrease of $5,051,000 primarily reflects a reduction in corporate general and administrative expenses of $4,514,000 and lower general and administrative expenses in the pharmaceuticals segment related to the closing of the Company’s European headquarters in Basel, Switzerland in October 2002 of $2,023,000 and expenses related to flood damage in the Czech Republic of $1,577,000 in the third quarter of 2002. The decrease was partially offset by an increase in Ribapharm’s general and administrative expenses related to legal and professional fees of $4,544,000 incurred by Ribapharm in connection with the Ribapharm Acquisition.

      Research and Development: Research and development expenses for the 2003 third quarter were $10,752,000 compared to $13,479,000 for the same period in 2002. The decrease is primarily attributable to the timing of costs associated with the clinical trials of Viramidine and Hepavir B. It is expected that research and development expenses will increase in the fourth quarter of 2003 and in 2004 as the Company initiates Phase III studies of Viramidine and progress continues with the clinical trials of Hepavir B.

      Acquired In-Process Research and Development: In the quarter ended September 30, 2003, the Company incurred an expense of $117,609,000 associated with acquired in-process research and development (“IPR&D”) related to the Ribapharm Acquisition. The amount expensed as IPR&D represents an estimate of the fair value of purchased in-process technology for projects that, as of the acquisition date, had not yet reached technological feasibility and had no alternative future use. The data used to determine the respective fair values requires significant judgment, differences in those judgments would have the impact of changing the allocation of purchase price to other intangible assets, goodwill. The estimated fair value of these projects was based on the use of a discounted cash flow model (based on an estimate of future sales and a cross margin of using a rate of 25%). For each project, the estimated after-tax cash flows were probability weighted to take account of the stage of completion and the risks surrounding the successful development and commercialization. These cash flows were then discounted to a present value using a discount rate of 15%. In addition, solely for the purposes of estimating the fair value of these IPR&D projects as of August 25, 2003, the following assumptions were made:

•  Future research and development costs of approximately $150,000,000 would be incurred to complete the IPR&D projects.

•  The IPR&D projects, which are in various stages of development from Phase I to Phase II clinical trials, are expected to reach completion by the end of 2006.

      The major risks and uncertainties associated with the timely and successful completion of these projects consist of the ability to confirm the safety and efficacy of the technology based on the data from clinical trials and obtaining necessary regulatory approvals. In addition, no assurance can be given that the underlying assumptions used to forecast the cash flows or the timely and successful completion of such projects will materialize, as estimated. For these reasons, among others, actual results may vary significantly from the estimated results. For example, in October 2003, Roche notified the Company that they are abandoning development of Levovirin.

      Other Income, Net, Including Translation and Exchange: Other income, net, including translation and exchange was a gain of $2,208,000 for the three months ended September 30, 2003 compared to a gain of $4,253,000 for the same period in 2002, a change of $2,045,000. In the third quarter of 2003, the Company recorded translation and exchange gains primarily related to the Company’s dollar denominated net assets in Europe of $1,604,000 and in Canada of $1,090,000, partially off-set by translation losses in Mexico of $396,000. The Company is currently taking steps to mitigate the impact of foreign currency translation on the income statement.

      Gain (Loss) on Early Extinguishment of Debt: In the three months ended September 30, 2002, the Company recorded a gain on early extinguishment of $17,538,000 related to the repurchase of $59,410,000 principal amount of its 6 1/2% Convertible Subordinated Notes due 2008. In the nine months ended September 30, 2002, the Company recorded a loss on early extinguishment of debt of $25,730,000. The loss

32

was primarily related to a loss on extinguishment of debt of $43,268,000 related to the repurchase of the Company’s outstanding 8 3/4% Senior Notes due 2008, partially offset by a gain on early extinguishment of debt of $17,538,000 related to the repurchase of the Company’s 6 1/2% Convertible Subordinated Notes due 2008.

32.1

      Interest Expense and Income: Interest expense during the three months ended September 30, 2003 decreased $1,318,000 compared to the same period in 2002. The decrease was the result of the repurchase of $59,410,000 principal amount of the Company’s 6 1/2% Convertible Subordinated Notes due 2008 in July and August 2002. Interest income decreased from $1,458,000 in the third quarter of 2002 to $953,000 in the same period of 2003 due to lower yields on investments partially offset by an increase in interest-bearing cash.

      Income Taxes: The Company’s effective income tax rate for the three months ended September 30, 2003 was a negative 15% compared to 26% for the same period of 2002. The Company’s negative effective tax rate for 2003 was primarily due to the pre-tax loss resulting from the write-off of acquired IPR&D expenses in connection with the Ribapharm Acquisition which is not deductible for tax purposes. Excluding the effect of the acquired IPR&D write-off, the 2003 effective tax rate would have been 38%. The effective tax rate for 2002 reflects a tax benefit of $3,861,000 recognized in the third quarter of 2002 related to costs previously incurred in connection with a joint venture in China. Excluding the effect of this benefit, the Company had an effective tax rate of 39% for the three months ended September 30, 2002.

      Income (loss) from Discontinued Operations, Net of Taxes: Income (loss) from discontinued operations relating to the Company’s Russian Pharmaceuticals segment, Biomedicals segment, Photonics business and raw materials businesses and manufacturing capabilities in Central Europe was recorded as income of $16,110,000 for the three months ended September 30, 2003 compared to a loss of $90,633,000 for the same period in 2002. In September 2003, the Company sold the remaining assets of its Biomedicals segment, Dosimetry, for cash proceeds of $58,000,000 and recorded a net gain on disposal of $23,288,000, net of taxes of $15,526,000. The income in 2003 includes income from discontinued operations of $3,036,000. The loss for 2002 includes a net loss on disposal of discontinued operations of $75,291,000 due to impairments on the Russian Pharmaceutical business, Photonics business and Circe and a loss from discontinued operations of $15,342,000.

Nine Months Ended September 30, 2003 Compared to 2002

Pharmaceutical Revenues:

      In the North America Pharmaceuticals segment, revenues for the nine months ended September 30, 2003 were $70,837,000 compared to $78,151,000 for the same period of 2002, a decrease of $7,314,000 (9%). The decrease in 2003 sales is primarily due to reduced sales to wholesalers during the first four months of 2003 related to an inventory reduction program at the Company’s wholesalers, which the Company began in June 2002 and completed in April 2003.

      In the Latin America Pharmaceuticals segment, revenues for the nine months ended September 30, 2003 were $94,802,000 compared to $94,019,000 for the same period of 2002, an increase of $783,000 (1%). Revenues in Latin America were affected by a 10% decrease in the value of currencies in the region of $9,403,000, offset by price and volume increases.

      In the Europe Pharmaceuticals segment, revenues for the nine months ended September 30, 2003 were $169,396,000 compared to $138,632,000 for the same period of 2002, an increase of $30,764,000 (22%). The increase is primarily due to an increase in the value of currencies in the region relative to the U.S. Dollar, which resulted in an increase in revenues of $20,870,000. Additionally, excluding the effect of currencies, revenues in Poland increased $6,516,000 and revenues in Spain increased $1,632,000 primarily due to price increases and new product launches. Revenues in 2003 were affected by challenges with German health care reform, reference-pricing litigation in Spain and price controls in Italy.

      In the AAA Pharmaceuticals segment, revenues for the nine months ended September 30, 2003 were $37,921,000 compared to $40,298,000 for the same period of 2002, a decrease of $2,377,000 (6%). The decrease is due to lower sales volume in several products including Reptilase, partially offset by an increase in sales of Nyal products in Australia.

      Ribapharm Royalty Revenues: Royalties earned for the nine months ended September 30, 2003 were $136,755,000 compared to $186,368,000 for the same period of 2002, a decrease of $49,613,000 (27%). The Company believes that the decrease in royalties during the nine months ended September 30, 2003 includes

33

the effects of increasing competition between Schering and Roche, Schering’s provision for estimated rebates on its U.S. sales of ribavirin and changes in trade inventory levels as reported to Ribapharm by Schering. The Company has no information with regard to the basis for the rebate and return provision other than public statements made by Schering suggesting generic competition in the last half of 2003 would have an impact on demand.

      Gross Profit: Gross profit margin on product sales decreased to 65% for the nine months ended September 30, 2003 compared to 68% in 2002. The decrease in gross profit is primarily due a change in the geographic mix in sales, primarily in the U.S. and Europe, which lowered the Company’s overall gross profit margin, higher inefficiencies in the Company’s manufacturing operations in certain countries and costs related to a manufacturing rationalization project.

      Selling Expenses: Selling expenses were $121,146,000 for the nine months ended September 30, 2003, compared to $119,120,000 for the same period in 2002, an increase of $2,026,000 (2%). The increase reflects the Company’s increased promotional efforts, mainly in Europe of $5,559,000, partially offset by a decrease in selling expenses in North America Pharmaceuticals segment of $2,861,000.

      General and Administrative Expenses: General and administrative expenses were $80,797,000 for the nine months ended September 30, 2003, compared to $293,112,000 for the same period in 2002, a decrease of $212,315,000. Included in selling, general and administrative expenses for the nine months ended September 30, 2002, are non-recurring and other unusual charges of $204,958,000, which primarily include stock compensation costs related to the Company’s Change of Control under the Company’s Option Plan ($61,400,000); executive and director bonuses paid in connection with the Ribapharm Offering ($47,839,000); professional fees related to Ribapharm ($13,000,000); incentive compensation costs related to the accelerated vesting of restricted stock upon the Change of Control under the Company’s Long-Term Incentive Plan ($12,022,000); costs incurred in the Company’s 2002 proxy contest ($7,382,000); the write-down of the corporate airplane ($9,100,000); the write-off of ICN International AG capitalized offering costs ($18,295,000); and severance costs ($30,708,000).

      The remaining decrease of $7,357,000 reflects a reduction in corporate general and administrative expenses of $14,635,000, which is mainly attributable to expenses incurred in the nine months ended 2002 related to severance costs of $4,343,000, a compensation charge of $2,968,000 for the exercise of stock options, the write-off of deferred acquisition costs of $2,674,000 and lower general and administrative expenses in the pharmaceutical segment of $2,606,000 due primarily to the closing of the European headquarters in Basel, Switzerland. These expenses were partially offset by an increase in Ribapharm’s general and administrative expenses of $11,175,000 related to severance costs incurred early this year and legal and professional fees incurred in connection with the Ribapharm Acquisition.

      Research and Development: Research and development expenses for the nine months ended September 30, 2003 were $29,701,000, compared to $35,526,000 for the same period in 2002. The $5,825,000 decrease is primarily attributable to the timing of costs associated with the clinical trials of Viramidine^TM and Hepavir B^TM.

      Gain on Sale of Subsidiary Stock: In April 2002, the Company sold, through an underwritten public offering, 29,900,000 shares of common stock representing 19.93% of the total outstanding common stock of Ribapharm (the “Ribapharm Offering”). In connection with the Ribapharm Offering, the Company received net cash proceeds of $276,611,000 and recorded a gain on the sale of Ribapharm’s stock of $261,937,000, net of offering costs in the nine months ended September 30, 2002.

      Other Income, Net, Including Translation and Exchange: Other income, net, including translation and exchange was a gain of $496,000 for the nine months ended September 30, 2003, compared to a gain of $8,192,000 for the same period in 2002. In 2003, translation gains principally consisted of translation and exchange gains in Europe and AAA of $4,521,000 partially offset by transaction and exchange losses related to the Company’s dollar denominated net assets in Canada of $3,949,000.

      Interest Expense and Income: Interest expense during the nine months ended September 30, 2003 decreased $10,489,000 compared to the same period in 2002 due to repurchases of debt in 2002. Interest

34

income decreased $1,368,000 due to lower yields on investments partially offset by an increase in interest-bearing cash.

      Income Taxes: The Company’s effective income tax rate for the nine months ended September 30, 2003 was a negative 203% compared to 35% for the same period of 2002. The Company’s negative effective tax rate for 2003 was primarily due to the pre-tax loss resulting from the write-off of acquired IPR&D expenses in connection with the Ribapharm Acquisition which is not deductible for tax purposes. Excluding the effect of the acquired IPR&D write-off, the 2003 effective tax rate would have been 38%. The effective tax rate for 2002 reflects a tax benefit of $3,861,000 related to costs previously incurred in connection with a joint venture in China. Excluding the effect of this benefit, the Company had an effective tax rate of 38% for the nine months ended September 30, 2002.

      Minority Interest: Minority interest was $11,667,000 and $10,670,000 for the nine months ended September 30, 2003 and 2002, respectively. Minority interest primarily relates to the minority shareholders’ portion of the net income of Ribapharm. In connection with the Ribapharm Acquisition, Ribapharm became a wholly owned subsidiary of the Company and the Company will no longer record minority interest related to Ribapharm.

      Income (loss) from Discontinued Operations, Net of Taxes: Income (loss) from discontinued operations relating to the Company’s Russian Pharmaceuticals segment, Biomedicals segment, raw materials businesses and manufacturing capabilities in Central Europe and Photonics business (in 2002) and was income of $13,992,000 for the nine months ended September 30, 2003 compared to a loss of $109,742,000 for the same period in 2002. In the nine months ended September 30, 2003, the Company recorded income from discontinued operations of $7,514,000 primarily related to the Russian Pharmaceutical segment and the Biomedicals segment. These segments were sold in 2003 for a net gain on disposal of discontinued operations of $6,478,000. The loss for 2002 includes a net loss on disposal of discontinued operations of $83,388,000 due to impairments on the Russian Pharmaceutical business, Photonics business and Circe and a net loss from discontinued operations of $26,354,000.

Liquidity and Capital Resources

      Cash and cash equivalents totaled $301,028,000 at September 30, 2003 compared to $245,184,000 at December 31, 2002. Working capital was $379,836,000 at September 30, 2003 compared to $397,070,000 at December 31, 2002. The change in working capital of $17,234,000 is primarily attributable to the use of cash in the Ribapharm Acquisition of $186,879,000, partially offset by cash generated from operations, cash proceeds of $113,000,000 received in connection with the sale of the Russian Pharmaceuticals business and the Biomedicals Dosimetry business and the decrease in the royalty receivable from Schering.

      Cash provided by operating activities is expected to continue to be the Company’s primary recurring source of funds in 2003. During the nine months ended September 30, 2003, cash provided by operating activities totaled $171,132,000, compared to cash used in operating activities of $8,384,000 in 2002. During the nine months ended 2003, the Company recorded a non-cash write-off of in-process research and development of $117,609,000. During the nine months ended September 30, 2002, cash flow from operating activities was negatively impacted by certain non-recurring and other unusual cash payments. Those cash payments included cash paid for the compensation costs related to the change of control of the Company under the Company’s Option Plan ($61,400,000), costs incurred in the Company’s 2002 proxy contest ($7,382,000), professional fees related to Ribapharm ($13,000,000) and executive and director bonuses paid in connection with the Ribapharm Offering ($47,839,000).

      Cash (used in) provided by investing activities was $(97,570,000) for the nine months ended September 30, 2003 compared to $242,230,000 for the same period of 2002. In 2003, net cash used in investing activities consisted of payments for the acquisition of license rights, product lines and businesses of $192,923,000 related to the Ribapharm Acquisition and capital expenditures of $9,241,000 partially offset by investing activities in discontinued operations of $104,276,000 primarily related to net proceeds from the sale of the Russian Pharmaceuticals segment and the Biomedicals Dosimetry business. In 2002, net cash provided by investing activities consisted of proceeds from the sale of subsidiary stock of $276,611,000 partially offset by

35

the acquisition of license rights, product lines and businesses of $26,765,000 and payments for capital expenditures of $13,593,000.

      Cash used in financing activities totaled $26,277,000 for the nine months ended September 30, 2003, including cash dividends paid on common stock of $19,501,000 and payments on notes payable of $6,797,000. In 2002, cash used in financing activities totaled $310,849,000 for the nine months ended September 30, 2002, including payments on long-term debt of $273,630,000 principally consisting of the repurchase of $194,611,000 principal of the Company’s outstanding 8 3/4% Senior Notes and the repurchase of $59,410,000 principal of the Company’s 6 1/2% Convertible Subordinated Notes due 2008, the repurchase of an aggregate 1,146,000 shares of the Company’s common stock for $31,955,000 and cash dividends paid on common stock of $19,035,000 partially offset by proceeds from the exercise of employee stock options of $12,892,000.

      Management believes that the Company’s existing cash and cash equivalents and funds generated from operations will be sufficient to meet its operating requirements at least through September 30, 2004 and to fund anticipated acquisitions and capital expenditures and the Company’s research and development program. The Company may also seek additional debt financing or issue additional equity securities to finance future acquisitions. The Company funds its cash requirements primarily from cash provided by its operating activities. The Company’s sources of liquidity are its cash and cash equivalent balances and its cash flow from operations.

      In February and March 2003, Schering entered into license agreements with three generic pharmaceutical companies, which granted to each company a non-exclusive, non-sublicensable license to Schering’s U.S. ribavirin patents. In connection with the Company’s patent infringement suit against the same three pharmaceutical companies to prevent them from marketing a generic form of ribavirin in the U.S., the U.S. District Court for the Central District of California issued a memorandum of decision and order granting the generic pharmaceutical companies’ motion for summary judgment of non-infringement of the Company’s asserted patents. The decision and order did not rule on defendants’ motion for summary judgment that the patents are invalid. The Company filed a joint Citizen Petition with the FDA on July 17, 2003, and the Company has appealed the summary judgment decision. Competition from generic pharmaceutical companies could have a material negative impact on the Company’s future royalty revenue. With respect to Schering, royalties will be affected by the likelihood of reduced sales by Schering as well as a reduction in the royalty rate per the license agreement. With respect to Roche, under the license agreement, introduction of generics in any market will eliminate the obligation of Roche to pay royalties for sales in that market. See Note 9 of “Notes to Consolidated Condensed Financial Statements” regarding “Commitments and Contingencies — Generic Litigation.”

      While the Company has historically paid quarterly cash dividends, there can be no assurance that the Company will continue to do so.

      The Company evaluates the carrying value of its inventories on a regular basis, taking into account such factors as historical and anticipated future sales compared with quantities on hand, the price the Company expects to obtain for its products in their respective markets compared with historical cost, and the remaining shelf life of goods on hand. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company also evaluates the collectibility of its receivables on a regular basis. The Company’s methodology for establishing the allowance for bad debts varies with the regions in which it operates. The allowance for bad debts is based upon specific identification of customer accounts and the Company’s best estimate of the likelihood of potential loss, taking into account such factors as the financial condition and payment history of major customers. As of September 30, 2003, the Company believes that adequate provision has been made for inventory obsolescence and for anticipated losses on uncollectible accounts receivable.

      The Company is currently self-insured with respect to product liability claims. While to date no material adverse claim for personal injury resulting from allegedly defective products has been successfully maintained against the Company, a substantial claim, if successful, could have a negative impact on the Company’s liquidity and financial performance.

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Restructuring

     Discontinued Operations

      During 2002, the Company conducted a strategic review of its operations. As a result of that review, the Company now intends to emphasize its specialty pharmaceuticals business, to divest itself of those businesses that do not fit the Company’s strategic growth plans and to exert efforts to bring its overall cost structure in line with industry averages.

      As a result of this strategic review, the Company made the decision to divest its Russian Pharmaceuticals segment, Biomedicals segment, Photonics business, raw materials business and manufacturing capability in Central Europe and Circe unit. The results of these operations and the related financial position have been reflected as discontinued operations in the Company’s consolidated condensed financial statements in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The consolidated condensed financial statements have been reclassified to conform to the discontinued operations presentation for all historical periods presented.

      On September 30, 2003, the Company sold the remaining assets of its Biomedicals segment, Dosimetry, for gross cash proceeds of $58,000,000. The Company recorded a net gain on disposal of discontinued operations of $23,288,000, net of a taxes of $15,526,000 related to the sale of Dosimetry in the quarter ended September 30, 2003.

      In June 2003, the Company sold its Russian Pharmaceuticals segment and certain assets of its Biomedicals segment. The Company received gross proceeds of $55,000,000 in cash for the Russian Pharmaceuticals segment and received 727,990 shares of its common stock held by the purchaser, which had a fair market value of approximately $12,369,000 for the assets of its Biomedicals segment. The Company recorded a net loss on disposal of discontinued operations of $7,942,000 related to the sale of these businesses in the nine months ended September 30, 2003.

      The Company is actively marketing for sale the raw materials businesses and manufacturing capability in Hungary and the Czech Republic and is working toward disposing of these assets.

Ribapharm Acquisition

      As part of the Company’s overall restructuring strategy, the Company re-evaluated the ownership structure of Ribapharm. The Company determined that the benefits perceived at the time of the initial public offering of Ribapharm had diminished and that the potential advantages to the Company of repurchasing the publicly held shares of Ribapharm outweighed the advantages of continuing to maintain Ribapharm as a separate publicly-traded entity or completing a spin-off of Ribapharm. In August 2003, the Company repurchased the approximately 20% minority interest in its Ribapharm subsidiary for aggregated total purchase price of $207,438,000. The Company paid $6.25 in cash for each of the 29,900,703 outstanding publicly held shares of Ribapharm.

Global Manufacturing Strategy

      During the third quarter of 2003 the Company approved its global manufacturing strategy, which it announced in October 2003. Under its manufacturing strategy, the goal is to establish a global manufacturing and supply chain network of five manufacturing sites which will result in the closing of eight of the Company’s current manufacturing sites. A review for potential asset impairment was performed in accordance with SFAS No. 144 Impairment of Long-Lived Assets. In determining asset groups, the Company grouped assets at the lowest level for which independent identifiable cash flows were available. In determining whether an asset was impaired, the Company compared undiscounted future cash flows and asset residual values to the asset group carrying value on a site by site basis. The impairment analysis indicated that the asset groups were not impaired as of September 30, 2003, therefore, no impairment losses were recognized in the third quarter of 2003. Based on the estimated remaining useful lives of the manufacturing sites to be disposed of, the book value would exceed the residual value on the estimated disposal date for five of the manufacturing sites. As a

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result, the Company has revised the depreciation period on these assets and will incur an additional annual depreciation expense of approximately $6,400,000 through the third quarter of 2005.

      The Company is currently evaluating its disposal plan for each manufacturing site. The Company’s intention is to sell each site as an operating plant. However, the Company may not find buyers for the all of the manufacturing sites. Additionally, the Company may incur cash expenditures related to severance charges and other costs in disposing of these manufacturing sites. The Company has not determined what these cash costs would be at this time, if any.

Products in Development

      The Company expects its research and development expenses to increase in the future, of which a large percentage will be to support product development programs for Viramidine and Hepavir B. For Viramidine, the Company has conducted a Phase II study, which enrolled a total of 180 patients. The study also included an interim analysis performed on the first 160 patients who received at least 12 weeks therapy. Analysis of the 12-week data showed that Viramidine, in combination with a pegylated interferon, produced a clinically significant reduction in viral load. In addition, Viramidine, when compared with ribavirin, produced approximately half the drop in hemoglobin levels at treatment week four, which was maintained through week 12. The Company has drafted a protocol for the Phase III program for Viramidine and met with the FDA in September 2003 to discuss preliminary Phase II data and to discuss the possibility of early commencement and design of Phase III clinical trials in the United States and Europe. After that meeting the Company has decided that it will initiate Phase III studies of Viramidine. The Phase III program will consist of two global studies in 80 sites with approximately 1,000 patients in each study. The studies will compare Viramidine and ribavirin, each in conjunction with a pegylated interferon. The Company’s external research and development expenses for Viramidine are approximately $15,142,000 from inception through September 30, 2003.

      The Company initiated a Phase I clinical trial of Hepavir B in Europe in August 2002, and filed an Investigational New Drug (“IND”) application with the FDA in October 2002. The Company initiated a Phase I multiple rising dose safety trial in the United States in January 2003 and patient enrollment is progressing as planned. Additionally, the Company has identified specific investigators in Asia to conduct a similar multiple dose safety trial in anticipation of conducting Phase II trials in that region. The Company’s external research and development expenses for Hepavir B^TM are approximately $12,643,000 (including a milestone payment of $1,100,000) from inception through September 30, 2003.

Foreign Operations

      Approximately 63% and 54% of the Company’s revenues from continuing operations for the nine months ended September 30, 2003 and 2002, respectively, were generated from operations outside the United States. All of the Company’s foreign operations are subject to risks inherent in conducting business abroad, including possible nationalization or expropriation, price and currency exchange controls, fluctuations in the relative values of currencies, political instability and restrictive governmental actions. Changes in the relative values of currencies occur from time to time and may, in some instances, materially affect the Company’s results of operations. The effect of these risks remains difficult to predict.

Inflation and Changing Prices

      The effects of inflation are experienced by the Company through increases in the costs of labor, services and raw materials. The Company is subject to price control restrictions on its pharmaceutical products in the majority of countries in which it operates. While the Company attempts to raise selling prices in anticipation of inflation, the Company operates in some markets which have price controls that may limit its ability to raise prices in a timely fashion. Future sales and gross profit will be reduced if the Company is unable to obtain price increases commensurate with the levels of inflation.

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Item 3.      Quantitative and Qualitative Disclosures About Market Risk

      The Company’s business and financial results are affected by fluctuations in world financial markets. The Company evaluates its exposure to such risks on an ongoing basis, and reviews its risk management policy to manage these risks to an acceptable level, based on management’s judgment of the appropriate trade-off between risk, opportunity and costs. The Company does not hold any significant amount of market risk sensitive instruments whose value is subject to market price risk. The Company seeks to manage its foreign currency exposure by maintaining the majority of cash balances at foreign subsidiaries in the U.S. dollar and through operational means by managing local currency revenues in relation to local currency costs. The Company is currently taking steps to mitigate the impact of foreign currency on the income statement, which include hedging its foreign currency exposure through net investment hedges.

      In the normal course of business, the Company also faces risks that are either non-financial or non-quantifiable. Such risks principally include country risk, credit risk, and legal risk and are not discussed or quantified in the following analysis.

      Interest Rate Risk: The Company currently does not hold financial instruments for trading or speculative purposes. The financial assets of the Company are not subject to significant interest rate risk due to their short duration. At September 30, 2003, the Company had $12,742,000 of foreign denominated debt that would subject it to both interest and currency risk. The principal financial liabilities of the Company that are subject to interest rate risk are its fixed-rate long-term debt (principally its 6 1/2% Subordinated Convertible Notes due 2008) totaling approximately $465,590,000. The Company does not use any derivatives or similar instruments to manage its interest rate risk. A 100 basis-point increase in interest rates (approximately 15% of the Company’s weighted average interest rate on fixed-rate debt) affecting the Company’s financial instruments would have an immaterial effect on the Company’s nine month and third quarter 2003 pretax earnings. However, such a change would reduce the fair value of the Company’s fixed-rate debt instruments by approximately $16,700,000 as of September 30, 2003.

Item 4.      Controls and Procedures.

      Commencing with the fiscal quarter ended June 30, 2002, and continuing quarterly since then, the Company has instituted a program of questionnaires sent to, certifications provided by, and telephonic interviews conducted with individual officers or employees responsible for oversight and management of parts of the Company’s different business operations. The questionnaires, certifications and interviews are intended to reinforce the Company’s existing system of internal controls, and are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Such controls and procedures are also designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under that Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company’s Chief Executive Officer and Chief Financial Officer, with the participation of the Company’s management, have conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective in making known to them material information relating to the Company (including its consolidated subsidiaries required to be included in this report).

      There have been no changes in the Company’s internal controls over financial reporting known to the Chief Executive Officer or Chief Financial Officer, that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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FORWARD LOOKING STATEMENTS

      This Quarterly Report on Form 10-Q contains statements that constitute forward looking statements. Those statements appear in a number of places in this Quarterly Report on Form 10-Q. Examples of forward-looking statements include statements regarding, among other matters, the Company’s strategic review, the Company’s acquisition strategy, the Company’s reorganization plans, the Company’s expectations regarding sales of products by the North America Pharmaceutical segment, expectations regarding research and development costs during the remainder of 2003 and other factors affecting the Company’s financial condition or results of operations. In some cases, forward looking statements may be identified by terminology such as “may,” “will,” “intends,” “should,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of those terms or comparable terminology. Similarly, statements that describe the Company’s plans, strategies, intentions, expectations, objectives, goals or prospects are forward looking. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unexpected events.

      These forward looking statements are inherently subject to risk and uncertainties, and the Company can give no assurances that its expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond the control of the Company. These risk factors include, without limitation, those described below:

•  A substantial portion of the Company’s revenues are royalties generated from sales of ribavirin by the Company’s licensees. The launch of generic versions of ribavirin in the United States is expected soon. Additionally, there is the potential for other of the Company’s products to face generic competition. Sales of generic versions of the Company’s products may reduce future revenues, and may impact its ability to finance future research and development activities.

•  The future growth of the Company’s business is based upon the development and approval of new products, including Viramidine. The process of developing new drugs has an inherent risk of failure. Although certain of the Company’s research compounds show promise at their current stages of development, the Company may fail to commercialize them for various reasons. For example, they may turn out to be ineffective or unsafe in clinical or pre-clinical testing; their patent position may become compromised; other therapies may prove more safe or effective; or the prevalence of the disease for which they are being developed may decrease. Accordingly, the Company’s inability to successfully develop its products may negatively impact future revenues.

•  The Company will be able to protect the its products from generic substitution by third parties only to the extent that the its technologies are covered by valid and enforceable patents, are effectively maintained as trade secrets or are protected by data exclusivity. However, the Company’s presently pending or future patent applications may not issue as patents. Any patent issued may be challenged, invalidated, held unenforceable or circumvented. Furthermore, the Company’s patents may not be sufficiently broad to prevent third parties’ competing products.

•  The scope of protection afforded by a patent can be highly uncertain. A pending claim or a result unfavorable to the Company in a patent dispute may preclude development or commercialization of products or impact sales of existing products, and result in payment of monetary damages.

•  Uncertainties and delays inherent in the drug approval process in the United States and other countries can preclude or delay development and commercialization of the Company’s products.

•  The Company’s current business plan includes expansion through acquisitions in addition to the development of new products. If the Company is unable to successfully execute on its expansion plans, to find attractive acquisition candidates at appropriate prices, and to integrate successfully any acquired companies or products, the growth of the Company’s business will be impeded.

•  The Company and its competitors are always striving to develop products that are more effective, safer, more easily tolerated or less costly. If the Company’s competitors succeed in developing better

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	alternatives to the Company’s current products before it does, the Company will lose sales and revenues to their alternative products.
•	The pharmaceutical industry is subject to substantial government regulation, including the approval of new pharmaceutical products, labeling, advertising and, in some countries, pricing.
•	The Company sells products in many countries that are susceptible to significant foreign currency risk. The Company generally sells products in these countries for United States dollars. While this eliminates the Company’s direct currency risk, it increases the Company’s credit risk because if a local currency is devalued significantly it becomes more expensive for customers in that market to purchase the Company’s products in United States dollars. The Company currently does not enter into third party hedges to protect against foreign currency exposure.
•	A significant part of the Company’s revenue is derived from products manufactured by third parties. The Company relies on their quality level, compliance with FDA regulations and continuity of supply. Any failure by them in these areas could disrupt the Company’s product supply and negatively impact its revenue.
•	The Company has entered into an agreement granting Schering a limited right to commercialize its research compounds. The agreement could limit the Company’s ability to commercially exploit some of its potential products. This could impede the Company’s plans for growth.
•	If the Company is unsuccessful in the defense of current securities litigation, it may be ordered to pay significant monetary damages, which may have a material negative impact on the Company’s current financial position.
•	To purchase the Company’s products many patients rely on reimbursement by third party payors such as insurance companies, HMOs and government agencies. These third party payors are increasingly attempting to contain costs by limiting both coverage and the level of reimbursement of new drug products. The reimbursement levels established by third party payors in the future may not be sufficient for the Company to realize an appropriate return on the its investment in product development.
•	Some of the Company’s development programs are based on the library of nucleoside compounds it has developed. The Company’s nucleoside library is at risk of loss in earthquakes, fire and other natural disasters.
•	The Company has recently announced plans to sell eight manufacturing facilities and establish a new global manufacturing and supply chain network. If the Company is unsuccessful in its effort to execute on these plans it may not achieve anticipated cost savings. Additionally, there may be unforeseen costs and complications with this effort to rationalize the Company’s manufacturing operations.
•	All drugs have potential harmful side effects and can expose drug manufacturers and distributors to liability. The Company generally does not maintain product liability insurance. As a result, in the event one or more of the Company’s products is found to have harmed an individual or individuals, it may be responsible for paying all or substantially all damages awarded. Any product liability exposure and the Company’s lack of any insurance coverage may have a material negative impact on its financial position and results of operations.
•	Subject to the terms of the Company’s agreements with the its existing lenders, the Company may incur additional indebtedness from time to time to finance working capital needs, acquisitions, capital expenditures or for other purposes. There can be no assurance that financing will continue to be available on terms acceptable to the Company or at all. The absence of such financing will reduce the Company’s ability to respond to changing business and economic conditions, to fund scheduled investments and capital expenditures, to make future acquisitions and to absorb negative operating results.

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•  The Company is also subject to those risks and uncertainties described from time to time in Valeant’s filings with the Commission.

      The Company is subject to a Consent Order with the Securities and Exchange Commission, which among other things requires the Company to pre-clear all FDA-related press releases with the FDA, and permanently enjoins the Company from violating securities laws and regulations. The Consent Order also precludes protection for forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The existence of the permanent injunction under the Consent Order, and the lack of protection under the Safe Harbor may limit the Company’s ability to defend future allegations.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

      See Note 9 of Notes to Consolidated Condensed Financial Statements in Item 1 of Part I of this Quarterly Report, which is incorporated herein by reference.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

3.1	Restated Certificate of Incorporation, as amended to date.
15.1	Review Report of Independent Accountants
15.2	Awareness Letter of Independent Accountants
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350.

(b) Reports on Form 8-K

      The Company filed the following reports on Form 8-K during the quarter ended September 30, 2003:

1.	Current Report on Form 8-K dated July 14, 2003 (the date of the earliest event reported), filed on July 16, 2003, for the purpose of reporting certain information under Item 5.
2.	Current Report on Form 8-K dated August 25, 2003 (the date of the earliest event reported), filed on August 27, 2003, for the purpose of reporting certain information under Item 5.

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SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

VALEANT PHARMACEUTICALS INTERNATIONAL

Registrant

/s/ ROBERT W. O’LEARY

Robert W. O’Leary

Chairman of the Board and Chief Executive Officer

Date: November 12, 2003

/s/ BARY G. BAILEY

Bary G. Bailey

Executive Vice President and Chief Financial Officer

(principal financial and accounting officer)

Date: November 12, 2003

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EXHIBIT INDEX

Exhibit
	3	.1	Restated Certificate of Incorporation, as amended to date.
	15	.1	Review Report of Independent Accountants.
	15	.2	Awareness Letter of Independent Accountants.
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1	Certification of Chief Executive Officer and Chief Financial Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350.

EX-3.1

Exhibit 3.1

Amended and Restated Certificate of Incorporation of the Registrant, as amended through November 12, 2003. Changes made pursuant to the Certificate of Ownership and Merger filed with the Delaware Secretary of State on November 12, 2003 are shown in the following manner: additions deletions.

RESTATED CERTIFICATE OF INCORPORATION

OF

VALEANT PHARMACEUTICALS INTERNATIONAL

               First: The name of the Corporation is

                    ICN Pharmaceuticals, Inc.

                    Valeant Pharmaceuticals International.

               Second: The address of the Corporation’s registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.

               Third: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

               Fourth: The total number of shares of all classes of capital stock which the Corporation shall have the authority to issue is Two Hundred and Ten Million Shares (210,000,000) shares divided into two classes of which Ten Million (10,000,000) shares, par value $.01 per share, shall be designated Preferred Stock and Two Hundred Million (200,000,000) shares, par value $.01 per share, shall be designated Common Stock.

A. Preferred Stock

          1. Issuance. The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in one or more series, to establish the number of shares to be included in each such series, and to fix the designations, voting powers, preferences, and rights of the shares of each such series, and any qualifications, limitations or restrictions thereof.

          2. Series A Preferred Stock.

          Section 1. Designation and Amount. One million (1,000,000) shares of the Preferred Stock of the Corporation shall be designated as “Series A Participating Preferred Stock”, par value $.01 per share (the “Series A Preferred Stock”). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than that of the shares then outstanding plus the number of

shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation.

          Section 2. Dividends and Distributions.

               (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock of the Corporation ranking prior and superior to the shares of Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of assets legally available for the purpose, quarterly dividends payable in cash on the first business day of January, April, July and October in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock, par value $.01 per share, of the Corporation (the “Common Stock”) or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock.

               (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Preferred Stock shall nevertheless by payable on such subsequent Quarterly Dividend Payment Date.

               (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 30 days prior to the date fixed for the payment thereof.

          Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights:

               (A) Except as provided in paragraph C of this Section 3, and subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of Corporation.

               (B) Except as otherwise provided herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.

               (C) (i) If, on the date used to determine stockholders of record for any meeting of stockholders for the election of directors, a default in preference dividends (as defined in subparagraph (v) below) on the Series A Preferred Stock shall exist, the holders of the Series A Preferred Stock shall have the right, voting as a class described in subparagraph (ii) below, to elect two directors (in addition to the directors elected by holders of Common Stock of the Corporation). Such right may be exercised (a) at any meeting of stockholders for the election of directors or (b) at a meeting of the holders of shares of Voting Preferred Stock (as hereinafter defined), called for the purpose in accordance with the By-Laws of Corporation, until all such cumulative dividends (referred to above) shall have been paid in full or until non-cumulative dividends have been paid regularly for at least one year.

               (ii) The right of the holders of Series A Preferred Stock to elect two directors, as described above, shall be exercised as a class concurrently with the rights of holders of any other series of any class of preferred stock of the Corporation upon which voting rights to elect such directors have been conferred and are then exercisable. The Series A Preferred Stock and any additional series of such preferred stock which the Corporation may issue and which may provide for the right to vote with the Series A Preferred Stock are collectively referred to herein as “Voting Preferred Stock.”

               (iii) Each director elected by the holders of shares of Voting Preferred Stock shall be referred to herein as a “Preferred Director.” A Preferred Director so elected shall continue to serve as such director for a term of one year, except that upon any termination of the right of all of such holders to vote as a class for Preferred Directors, the term of office of such directors shall terminate. Any Preferred Director may be removed, without cause, by, and shall not be so removed except by, the vote of the holders of record of a majority of the outstanding shares of Voting Preferred Stock then entitled to vote for the election of directors, present (in person or by proxy) and voting together as single class (a) at a meeting of the stockholders, or (b) at a meeting of the holders of shares of such Voting Preferred Stock, called for that purpose in accordance with the By-laws of the Corporation.

               (iv) So long as a default in any preference dividends on the Series A Preferred Stock shall exist or the holders of any other series of Voting Preferred Stock shall be entitled to elect Preferred Directors, (a) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (b)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (b) in the case of the removal of any Preferred Director or in case there is no remaining Preferred Director, the vacancy or vacancies may be filled by the vote of the holders of the outstanding shares of Voting Preferred Stock then entitled to vote for the election of directors, present (in person or by proxy) and voting together as a single class, at such time as the removal shall be effected or such vacancies exist, as the case may be. Each director appointed as

aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director.

               (v) For purposes hereof, a “default in preference dividends” on Series A Preferred Stock shall be deemed to have occurred whenever the amount of cumulative and unpaid dividends on the Series A Preferred Stock shall be equivalent to six full quarterly dividends or more (whether or not consecutive), and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all cumulative dividends on all shares of the Series A Preferred Stock then outstanding shall have been paid through the last Quarterly Dividend Payment Date or until, but only until, non-cumulative dividends have been paid regularly for at least one year.

               (D) Except as set forth herein (or as otherwise required by applicable law), holders of Series A Preferred Stock shall have no general or special voting rights and their consent shall not be required for taking any corporate action.

          Section 4. Certain Restrictions.

               (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on the shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not

               (i) declare or pay dividends, or make any other distributions, on any shares of Common Stock or any other stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;

               (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled (based upon their respective liquidation values);

               (iii) redeem or purchase or otherwise acquire for consideration (except as provided in (iv) below) shares of Common Stock or any other stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (both as to dividends and upon dissolution liquidation, or winding up) to the Series A Preferred Stock;

               (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

               (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

          Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein or in any certificate of designation creating a series of Preferred Stock or as otherwise required by law.

          Section 6. Liquidation, Dissolution or Winding Up.

               (A) Subject to the prior and superior rights of holders of any shares of stock of the Corporation ranking prior and superior to the shares of Series A Preferred Stock with respect to rights upon liquidation dissolution or winding up (voluntary or otherwise), no distribution shall be made to the holders of Common Stock or any other shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared to the date of such payment (the “Series A Liquidation Preference”). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the “Capital Adjustment”) equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (subject to the provision for adjustment hereinafter set forth in subparagraph (C) below) (such number in clause (ii), the “Adjustment Number”). Following the payment of the full amount of the Series A Liquidation Preference and the Capital Adjustment in respect of all outstanding shares of Series A Preferred Stock and Common Stock, respectively, and subject to the rights of the holders of any other series of Preferred Stock then outstanding, holders of Series A Preferred Stock and holders of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively.

               (B) In the event that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of preferred stock of the Corporation, if any, which rank on a parity with the Series A Preferred Stock, then such remaining assets shall be distributed ratably to the holders of Series A Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences.

          Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then, in any such case, the shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged.

          Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable.

          Section 9. Ranking. The Series A Preferred Stock shall rank junior to all other series of Preferred Stock of the Corporation as to the payment of dividends and the distribution of assets, unless the terms of any series of Preferred Stock shall provide otherwise.

          Section 10. Amendment. The Restated Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Preferred Stock, voting separately as a class.

          Section 11. Adjustment. In the event the Corporation shall at any time after November 2, 1994 (the “Rights Record Date”) (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of Common Stock in a reclassification or change of the outstanding shares of Common Stock (including any such reclassification or change in connection with a merger in which the Corporation is the continuing or surviving Corporation), then in each such case (w) the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of Section 2(A) above, (x) the number of votes applicable to each share of Series A Preferred Stock immediately prior to such event under Section 3(A) above, (y) the adjustment number (for purposes of Section 6(A) above) and (z) the amount to which holders of shares of Series A Preferred were entitled immediately prior to such event under Section 7 above, shall be adjusted by multiplying such amount or number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

B. Common Stock

     1. Dividends. Subject to the preferential rights, if any, of the holders of any series of Preferred Stock then outstanding, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property or in shares of Common Stock or other securities of the Corporation.

     2. Voting Rights. Subject to the rights, if any, of the holders of any series of Preferred Stock then outstanding at every annual or special meeting of stockholders of the Corporation, every holder of Common Stock shall be entitled to one vote, in person or by proxy, for each share of Common Stock standing in his/her name on the books of the Corporation, on each matter voted upon by stockholders.

     3. Liquidation, Dissolution, or Winding Up. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, and subject to the preferential and other amounts, if any, to which the holders of any series of Preferred Stock then

outstanding shall be entitled, the holders of all outstanding shares of Common Stock shall be entitled to share ratably in the remaining net assets of the Corporation.

               Fifth: The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or this Restated Certificate of Incorporation directed or required to be exercised or done by the stockholders.

          A. Number of Directors. The number of directors of the Corporation (exclusive of directors to be elected by the holders of any one or more series of the Preferred Stock of the Corporation which may be outstanding, voting separately as a series or class) shall be fixed from time to time by action of not less than a majority of the members of the Board of Directors then in office, but in no event shall be less than three nor more than twenty.

          B. Classes. Except for any directors elected separately by the holders of any one or more series of Preferred Stock, the directors shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 1995 annual meeting of stockholders, the term of office of the second class to expire at the 1996 annual meeting of stockholders and the term of office of the third class to expire at the 1997 annual meeting of stockholders and at each annual meeting of stockholders following adoption of this Restated Certificate of Incorporation directors shall be elected to succeed those directors whose terms expire for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Directors need not be stockholders. All directors shall hold office until the expiration of the term for which elected and until their successors are elected, except in the case of the death, resignation, disqualification or removal of any director.

          C. Vacancies. Subject to the rights, if any, of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, disqualification or removal may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

          D. Removal. Except for any directors elected separately by the holders of any one or more series of Preferred Stock, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

               Sixth: Subject to the rights of the holders of any series of Preferred Stock, any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of the stockholders at an annual or special meeting duly called and may not be taken by written consent of the stockholders.

               Seventh: Subject to the rights of the holders of any series of Preferred Stock, special meetings of the stockholders, unless otherwise prescribed by statute, may be called at any time only by the Board of Directors or the Chairman of the Board of the Corporation.

               Eighth: At an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the annual meeting of stockholders (a) by, or at the direction of, the Board of Directors or (b) by a stockholder of the Corporation who complies with the procedures set forth in this Article Eighth. For business or a proposal to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the scheduled date of the annual meeting, regardless of any postponement, deferral or adjournment of that meeting to a later date; provided, however, that if less than 70 days’ notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the 10th day following the earlier of (i) the day on which such notice of the date of the meeting was mailed or (ii) the day on which such public disclosure was made.

          A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before an annual meeting of stockholders (i) a description, in 500 words or less, of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder’s notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder’s notice, (iv) a description, in 500 words or less, of any interest of the stockholder in such proposal and (v) a representation that the stockholder is a holder of record of stock of the Corporation and intends to appear in person or by proxy at the meeting to present the proposal specified in the notice. Notwithstanding anything in this Restated Certificate of Incorporation to the contrary, no business shall be conducted at a meeting of stockholders except in accordance with the procedures set forth in this Article Eighth.

          The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the procedures prescribed by this Article Eighth, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing, nothing in this Article Eighth shall be interpreted or construed to require the inclusion of information about any such proposal in any proxy statement distributed by, at the direction of, or on behalf of, the Board of Directors.

               Ninth: Subject to the rights, if any, of the holders of any series of Preferred Stock then outstanding, only persons nominated in accordance with the procedures set forth in this Article Ninth shall be eligible for election as directors. Nominations of persons for election to the Board may be made at an annual meeting of stockholders or special meeting of stockholders called by the Board of Directors for the purpose of electing directors (i) by or at the direction of the Board or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who

complies with the notice procedures set forth in this Article Ninth. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the scheduled date of the meeting, regardless of any postponement, deferral or adjournment of that meeting to a later date; provided, however, that if less than 70 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the 10th day following the earlier of (i) the day on which such notice of the date of the meeting was mailed or (ii) the day on which such public disclosure was made.

          A stockholder’s notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the Corporation which are beneficially owned by such person on the date of such stockholder’s notice and (d) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or any successor statute thereto (the “Exchange Act”) (including without limitation such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to the stockholder giving notice (a) the name and address, as they appear on the Corporation’s books, of such stockholder and any other stockholders known by such stockholder to be supporting such nominee(s), (b) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder’s notice and by any other stockholders known by such stockholder to be supporting such nominee(s) on the date of such stockholder’s notice, (c) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; and (iii) a description of all arrangements or understandings between the stockholder and each nominee and other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder.

               No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Article Ninth. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Article Ninth, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

               Tenth: The Board of Directors is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation. Any By-Laws made by the directors under the powers conferred hereby may be amended or repealed by the directors or by the stockholders. Notwithstanding the foregoing and anything contained in this Restated Certificate of Incorporation to the contrary, the By-Laws shall not be amended or repealed by the stockholders, and no provision inconsistent therewith shall be adopted by the stockholders, without the affirmative vote of the holders of at least 75% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

               Eleventh: Elections of directors need not be by written ballot unless the By-Laws of the Corporation shall otherwise provide.

               Twelfth: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided, however, that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct of a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is hereafter amended to permit further elimination or limitation of the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware as so amended. Any repeal or modification of this Article Twelfth shall not adversely affect any right or protection of a director of the Corporation in respect of any act or omission occurring prior to the time of such repeal or modification.

               Thirteenth: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of the General Corporation Law of the State of Delaware or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of the General Corporation Law of the State of Delaware order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the same reorganization shall, if sanctioned by the court to which said application has been made, be binding on all the creditors or class of creditors, and/or on all of the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

               Fourteenth:

          A. For purposes of this Article Fourteenth, the following terms shall be defined as follows:

     (1) The term “Business Combination” shall mean (a) any merger or consolidation of the Corporation or a Subsidiary with a Related Person, (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition other than in the ordinary course of business to or with a Related Person of any assets of the Corporation or a Subsidiary having an aggregate fair market value of $25,000,000 or more, (c) the issuance or transfer by the Corporation of any shares of Voting Stock or securities convertible into or exercisable for such shares (other than by way of pro rata distribution to all stockholders) to a Related Person, (d) any recapitalization, merger or

consolidation that would have the effect of increasing the voting power of a Related Person, (e) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation or a Subsidiary proposed, directly or indirectly, by or on behalf of a Related Person, (f) any merger or consolidation of the Corporation with another Person proposed, directly or indirectly, by or on behalf of a Related Person unless the entity surviving or resulting from such merger or consolidation has a provision in its certificate or articles of incorporation, charter or similar governing instrument which is substantially identical to this Article Fourteenth or (g) any agreement, contract or other arrangement or understanding providing, directly or indirectly, for any of the transactions described in this Paragraph A(1).

     (2) The term “Related Person” shall mean any individual, partnership, corporation, trust or other Person which, together with its “affiliates” and “associates”, as defined in Rule 12b-2 under the Exchange Act as in effect on January 1, 1993, and together with any other individual, partnership, corporation, trust or other Person with which it or they have any agreement, contract or other arrangement or understanding with respect to acquiring, holding, voting or disposing of Voting Stock, “beneficially owns” (within the meaning of Rule 13d-3 under the Exchange Act on said date) an aggregate of 10% or more of the outstanding Voting Stock. A Related Person, its affiliates and associates and all such other individuals, partnerships, corporations and other Persons with whom it or they have any such agreement, contract or other arrangement or understanding, shall be deemed a single Related Person for purposes of this Article Fourteenth; provided, however, that the members of the Board of Directors of the Corporation shall not be deemed to be associates or otherwise to constitute a Related Person solely by reason of their board membership. A person who is a Related Person as of (i) the time any definitive agreement relating to a Business Combination is entered into, (ii) the record date for the determination of stockholders entitled to notice of and to vote on a Business Combination or (iii) immediately prior to the consummation of a Business Combination, shall be deemed a Related Person for purposes of this Article Fourteenth.

     (3) The term “Continuing Director” shall mean any member of the Board of Directors of the Corporation who is not an “affiliate” or “associate” of the Related Person referred to in Paragraph A(2) of this Article Fourteenth and was a member of the Board of Directors prior to the time that such Related Person became a Related Person, and any successor of a Continuing Director who is unaffiliated with such Related Person and is recommended to succeed a Continuing Director by a majority of the Continuing Directors.

     4) The term “Person” shall mean any individual, firm, corporation or other entity.

     (5) The term “Subsidiary” shall mean any corporation or other entity of which the Person in question owns, directly or indirectly, not less than 50% of any class of equity securities or not less than 50% of the voting power of all securities of the Corporation entitled to vote generally in the election of directors.

     (6) The term “Voting Stock” shall mean any shares of the Corporation entitled to vote generally in the election of directors.

     7) The term “Entire Board of Directors” shall mean the total number of directors which the Corporation would have if there were no vacancies or unfilled newly created directorships.

     (8) The term “Market Value” shall mean the average of the high-and low-quoted sales price on the date in question (or, if there is no reported sale on such date, on the last preceding date on which any reported sale occurred) of a share on the Composite Tape for the New York Stock Exchange — Listed Stocks, or, if the shares are not listed or admitted to trading on such exchange, on the principal United States securities exchange registered under the Exchange Act on which the shares are listed or admitted to trading, or, if the shares are not listed or admitted to trading on any such exchange, the mean between the closing high bid and low-asked quotations with respect to a share on such date as quoted on the National Association of Securities Dealers Automated Quotations System, or any similar system then in use, or, if no such quotations are available, the fair market value on such date of a share as at least 66 2/3% of the Continuing Directors shall determine.

          B. In addition to any other vote required by this Restated Certificate of Incorporation or the General Corporation Law of the State of Delaware, the affirmative vote of the holders of not less than 85% of the outstanding Voting Stock held by stockholders other than a Related Person by or with whom or on whose behalf, directly or indirectly, a Business Combination is proposed, voting as a single class, shall be required for the approval or authorization of such Business Combination; provided, however, that the 85% voting requirement shall not be applicable and such Business Combination may be approved by the vote required by law, if any, or by any other provision of this Certificate of Incorporation if either:

     (1) The Business Combination is approved by the Board of Directors of the Corporation by the affirmative vote of at least 66 2/3% of the Continuing Directors, or

     (2) All of the following conditions are satisfied:

     (a) The aggregate amount of cash and the fair market value of the property, securities or other consideration to be received per share of capital stock of the Corporation in the Business Combination by the holders of capital stock of the Corporation, other than the Related Person involved in the Business Combination, shall not be less than the highest of (i) the highest per share price (including brokerage commissions, soliciting dealers’ fees, and dealer-management compensation, and with appropriate adjustments for recapitalizations, stock splits, stock dividends and like transactions and distributions) paid by such Related Person in acquiring any of its holdings of such class or series of capital stock, (ii) the highest per share Market Value of such class or series of capital stock within the twelve-month period immediately preceding the date the proposal for such Business Combination was first publicly announced or (iii) the book value per share of such class or series of capital stock, determined in accordance with generally accepted accounting principles, as of the last day of the month immediately preceding the date the proposal for such Business Combination was first publicly announced;

     (b) The consideration to be received in such Business Combination by holders of capital stock other than the Related Person involved shall, except to the extent that a shareholder agrees otherwise as to all or part of the shares which he or she owns, be in the same form and of the same kind as the consideration paid by the Related Person in acquiring capital stock already owned by it, provided, however, that if the Related Person

has paid for capital stock with varying forms of consideration, the form of consideration for shares of capital stock acquired in the Business Combination by the Related Person shall either be cash or the form used to acquire the largest number of shares of capital stock previously acquired by it; and

     (c) A proxy statement responsive to the requirements of the Exchange Act and regulations promulgated thereunder, whether or not the Corporation is then subject to such requirements, shall be mailed to the stockholders of the Corporation for the purpose of soliciting stockholder approval of such Business Combination and shall contain at the front thereof, in a prominent place, (i) any recommendations as to the advisability (or inadvisability) of the Business Combination which the Continuing Directors may choose to state and (ii) the opinion of a reputable investment banking firm selected by the Continuing Directors as to the fairness of the terms of such Business Combination, from a financial point of view, to the public stockholders (other than the Related Person) of the Corporation.

          C. A Related Person shall be deemed for purposes of this Article Fourteenth to have acquired a share of the Corporation at the time when such Related Person became the beneficial owner thereof (as such term is defined in Paragraph A(2) of this Article Fourteenth). With respect to shares owned by affiliates, associates and other Persons whose ownership is attributed to a Related Person, if the price paid by such Related Person for such shares is not determinable, the price so paid shall be deemed to be the higher of (i) the price paid upon acquisition thereof by the affiliate, associate or other Person or (ii) the Market Value of the shares in question at the time when the Related Person became the beneficial owner thereof.

          For purposes of this Article Fourteenth, in the event of a Business Combination upon consummation of which the Corporation would be the surviving corporation or would continue to exist (unless it is provided, contemplated or intended that as part of such Business Combination a plan of liquidation or dissolution of the Corporation will be effected), the term “other consideration to be received” in Paragraph B(2)(a) shall include (without limitation) common stock or other capital stock of the Corporation retained by stockholders of the Corporation (other than Related Persons who are parties to such Business Combination).

          Nothing contained in this Article shall be construed to relieve any Related Person from any fiduciary obligation imposed by law.

          D. Notwithstanding any other provision of this Restated Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be permitted by law), any amendment, addition, alteration, change or repeal of this Article Fourteenth, or any other amendment of this Restated Certificate of Incorporation inconsistent with or modifying or permitting circumvention of this Article Fourteenth, must first be proposed by the Board of Directors of the Corporation, upon the affirmative vote of at least two-thirds of the directors then in office at a duly constituted meeting of the Board of Directors called for such purpose, and thereafter approved by the affirmative vote of the holders of not less than 85% of the then outstanding Voting Stock held by stockholders other than a Related Person by or with whom or on whose behalf, directly or indirectly, a Business Combination is proposed, voting as a single class; provided, however, that this Paragraph D shall not apply to, and such 85% vote shall not be required for, any such amendment, addition,

alteration, change or repeal recommended to stockholders of the Corporation by the affirmative vote of not less than 66 2/3% of the Continuing Directors. For the purposes of this Paragraph D only, if at the time when any such amendment, addition, alteration, change or repeal is under consideration there is no proposed Business Combination, the term “Continuing Directors” shall be deemed to mean the Entire Board of Directors.

               Fifteenth: The Board of Directors, each committee of the Board of Directors and each individual director, in discharging their respective duties under applicable law and this Restated Certificate of Incorporation and in determining what they each believe to be in the best interests of the Corporation and its stockholders, may consider the effects, both short-term and long-term, of any action or proposed action taken or to be taken by the Corporation, the Board of Directors or any committee of the Board on the interests of (i) the employees, associates, associated physicians, distributors, patients or other customers, suppliers and/or creditors of the Corporation and its subsidiaries and (ii) the communities in which the Corporation and its subsidiaries own or lease property or conduct business, all to the extent that the Board of Directors or any committee of the Board of Directors or any individual director deems pertinent under the circumstances (including the possibility that the interests of the Corporation may best be served by the continued independence of the Corporation); provided, however, that the provisions of this Article Fifteenth shall not limit in any way the right of the Board of Directors to consider any other lawful factors in making its determinations, including, without limitation, the effects, both short-term and long-term, of any action or proposed action on the Corporation or its stockholders directly; and provided further that this Article Fifteenth shall be deemed solely to grant discretionary authority to the Board of Directors, each committee of the Board of Directors and each individual director and shall not be deemed to provide to any specific constituency any right to be considered.

               Sixteenth: Each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding (or any part thereof), whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an “indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as such director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the full extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), or by other applicable law as then in effect, against all expense, liability and loss (including attorneys’ fees, judgments, fines, excise taxes under the Employee Retirement Income Security Act of 1974, as amended from time to time (“ERISA”), penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such indemnitee in connection therewith. The Corporation shall not be required to indemnify any indemnitee in connection with a proceeding initiated by such indemnitee unless the initiation of such proceedings by the indemnitee was authorized by the Board of Directors of the Corporation.

          A. Procedure. Any indemnification under this Article Sixteenth (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he/she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment). Such determination shall be made (a) by a majority vote of the directors who were not parties to such action, suit or proceeding (the “Disinterested Directors”), even if less than a quorum or (b) if there are no Disinterested Directors or if the Disinterested Directors so direct, by independent legal counsel in a written opinion, or (c) by the stockholders.

          B. Advances for Expense. Costs, charges and expenses (including attorneys’ fees) incurred by a director or officer of the Corporation in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay all amounts so advanced in the event that it shall ultimately be determined that such director or officer is not entitled to be indemnified by the Corporation as authorized in this Article Sixteenth. Such costs, charges and expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the majority of the Disinterested Directors deems appropriate. The majority of the Disinterested Directors may, in the manner set forth above, and upon approval of such director, officer, employee or agent of the Corporation, authorize the Corporation’s counsel to represent such person, in any action, suit or proceeding whether or not the Corporation is a party to such action, suit or proceeding.

          C. Procedure for Indemnification. Any indemnification or advance of costs, charges and expenses under this Article Sixteenth, shall be made promptly, and in any event with 60 days upon the written request of the director, officer, employee or agent. The right to indemnification or advances as granted by this Article Sixteenth shall be enforceable by the director, officer, employee or agent in any court of competent jurisdiction, if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within 60 days. Such person’s costs and expenses incurred in connection with successfully establishing his/her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim under Section 145(c) of the General Corporation Law of the State of Delaware or for the advance of costs, charges and expenses under this Article Sixteenth where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in the General Corporation Law of the State of Delaware, as the same exists or hereafter may be amended (but, in case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its stockholder) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he/she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights that said law permitted the Corporation to provide prior to such amendment), nor the fact that there has been an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its

stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

          D. Other Rights; Continuation of Rights to Indemnification. The indemnification and advancement of expenses provided by this Article Sixteenth shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may by entitled under any law (common or statutory), by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his/her official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Corporation, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification under this Article Sixteenth shall be deemed to be a contract between the Corporation and each director, officer, employee or agent of the Corporation who serves or served in such capacity at any time while this Article Sixteenth is in effect. Any repeal or modification of this Article Sixteenth or any repeal or modification of relevant provisions of the General Corporation Law of the State of Delaware or any other applicable laws shall not in any way diminish any rights to indemnification of such director, officer, employee or agent or the obligation of the actions, transactions or facts occurring prior to the final adoption of such modification or repeal. For the purposes of this Article Sixteenth, references to “the Corporation” include all constituent corporations absorbed in consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article Sixteenth, with respect to the resulting or surviving corporation, as he would if he/she had served the resulting or surviving corporation in the same capacity.

          E. Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him/her and incurred by him/her or on his/her behalf in any such capacity, or arising out of his/her status as such, whether or not the Corporation would have the power to indemnify him/her against such liability under the provisions of this Article Sixteenth; provided, however, that such insurance is available on acceptable terms which determination shall be made by a vote of a majority of the Board of Directors.

          F. Savings Clause. If this Article Sixteenth or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person entitled to indemnification under the first paragraph of this Article Sixteenth as to all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes, penalties and amounts to be paid in settlement) actually and reasonable incurred or suffered by such person and for which indemnification is available to such person pursuant to this Article Sixteenth to the full extent permitted by any applicable portion of this Article Sixteenth that shall not have been invalidated and to the full extent permitted by applicable law.

               Seventeenth: In furtherance and not in limitation of the powers conferred by law or in this Restated Certificate of Incorporation, the Board of Directors (and any committee of the Board

of Directors) is expressly authorized, to the extent permitted by law, to take such action or actions as the Board or such committee may determine to be reasonably necessary or desirable to (A) encourage any person to enter into negotiations with the Board of Directors and management of the Corporation with respect to any transaction which may result in a change in control of the Corporation which is proposed or initiated by such person or (B) contest or oppose any such transaction which the Board of Directors or such committee determines to be unfair, abusive or otherwise undesirable with respect to the Corporation and its business, assets or properties or the stockholders of the Corporation, including, without limitation, the adoption of such plans or the issuance of such rights, options, capital stock, notes, debentures or other evidences of indebtedness or other securities of the Corporation, which rights, options, capital stock, notes, evidence of indebtedness and other securities (i) may be exchangeable for or convertible into cash or other securities on such terms and conditions as may be determined by the Board or such committee and (ii) may provide for the treatment of any holder or class of holders thereof designated by the Board of Directors or any such committee in respect of the terms, conditions, provisions and rights of such securities which is different from, and unequal to, the terms, conditions, provisions and rights applicable to all other holders thereof.

               Eighteenth: The Corporation reserves the right to amend, add, alter, change, repeal or adopt any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. In addition to any affirmative vote required by applicable law or any other provision of this Restated Certificate of Incorporation or specified in any agreement, and in addition to any voting rights granted to or held by the holders of any series of Preferred Stock, the affirmative vote of the holders of not less than 75% of the voting power of all securities of the Corporation entitled to vote generally in the election of directors shall be required to amend, add, alter, change, repeal or adopt any provisions inconsistent with Articles Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Twelfth, Thirteenth, Fifteenth, Sixteenth, Seventeenth, and Eighteenth of this Restated Certificate of Incorporation.

EX-15.1 4 a94433exv15w1.htm EXHIBIT 15.1

EXHIBIT 15.1

REVIEW REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders of
Valeant Pharmaceuticals International (formerly ICN Pharmaceuticals, Inc.)

We have reviewed the accompanying consolidated condensed balance sheet of Valeant Pharmaceuticals International (formerly ICN Pharmaceuticals, Inc.) and its subsidiaries as of September 30, 2003 and the related consolidated condensed statements of income and comprehensive income for each of the three-month and nine-month periods ended September 30, 2003 and 2002 and the consolidated condensed statements of cash flow for the nine-month periods ended September 30, 2003 and 2002. These consolidated condensed interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated condensed interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2002, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein), and in our report dated March 6, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the consolidated condensed balance sheet as of December 31, 2002, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Los Angeles, California
November 10 , 2003

EX-15.2 5 a94433exv15w2.htm EXHIBIT 15.2

EXHIBIT 15.2

AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS

November 12 , 2003

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Commissioners:

We are aware that our report dated November 10, 2003 on our review of interim financial information of Valeant Pharmaceuticals International (formerly ICN Pharmaceuticals, Inc.) (the “Company”) for the three and nine month periods ended September 30, 2003 and 2002 and included in the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2003 is incorporated by reference in its Registration Statements on Form S-8 (File Nos. 33-56971, 333-81383, 333-73098, 333-85572, 333-109877 and 333-109879) and on Form S-3 (File No. 333-10661, 333-67376, 333-88040 and 333-88042).

Very truly yours,

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Los Angeles, California

EX-31.1 6 a94433exv31w1.htm EXHIBIT 31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Robert W, O’Leary, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Valeant Pharmaceuticals International;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respect the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2003

/s/ ROBERT W. O’LEARY

Robert W. O’Leary
Chairman of the Board and Chief Executive Officer

EX-31.2 7 a94433exv31w2.htm EXHIBIT 31.2

EXHIBIT 31.2

I, Bary Bailey, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Valeant Pharmaceuticals International;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respect the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2003

/s/ BARY G. BAILEY

Bary G. Bailey
Executive Vice President and Chief Financial Officer

EX-15.1

Exhibit 15.1

EX-15.2

Exhibit 15.2

EX-31.1

Exhibit 31.1

EX-31.2

Exhibit 31.2

EX-32.1

EXHIBIT 32.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Valeant Pharmaceuticals International (the “Company”), does hereby certify that:

     The Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934 and information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 12, 2003	/s/ Robert W. O’Leary
	Robert W. O’Leary
	Chairman of the Board and Chief Executive Officer
Date: November 12, 2003	/s/ Bary G. Bailey
	Bary G. Bailey
	Executive Vice President and Chief Financial Officer

     A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----