SEC Reviewing Valeant's Use of 'Non-GAAP' Financial Measures
May 24 2016 - 02:22PM
Dow Jones News
By Michael Rapoport
The Securities and Exchange Commission has been reviewing
Valeant Pharmaceuticals International Inc.'s use of adjusted
"non-GAAP" financial measures, and criticized Valeant's disclosures
at one point as "potentially misleading," according to newly public
correspondence between the SEC and the company.
The SEC has taken issue with Valeant's practice of stripping out
acquisition-related costs from its non-GAAP measures given that the
company's business strategy was heavily dependent on acquisitions,
according to comment letters the SEC sent to the company starting
in December. The commission has also questioned Valeant's
disclosure of the tax effects of the costs it stripped out of its
non-GAAP measures.
The agency is "concerned with your overall format and
presentation of the non-GAAP measures and believe revisions to your
future earnings releases and investor materials are appropriate,"
the SEC's staff wrote to Valeant in a Dec. 4 letter.
In responses to the SEC letters, the Laval, Quebec-based company
defended its use of non-GAAP measures but said it would make
changes in its disclosures. A Valeant spokeswoman couldn't
immediately be reached for comment Tuesday.
Valeant's shares on Tuesday were trading down about 2% to
$25.69.
Non-GAAP measures are the metrics a company issues that don't
comply with generally accepted accounting principles, or GAAP, the
standard set of accounting rules in the U.S. Typically, they strip
out a variety of noncash and nonrecurring items from a company's
results, to present what companies contend is a clearer picture of
their continuing earnings and financial performance.
But many critics say companies use the tailored metrics to
burnish their results and make them look stronger than they really
are, stripping out items that shouldn't be omitted from any measure
of a company's performance. The use of non-GAAP measures is
increasing, and non-GAAP results often portray a far rosier picture
of companies' finances than the standard GAAP numbers, the critics
note.
Valeant has faced a string of questions over its accounting and
business practices in the past year, including its use of non-GAAP
numbers. As the SEC noted, over the past four years Valeant has
reported a total of about $9.8 billion in non-GAAP net income while
it has posted a GAAP loss of about $330 million over the same
period.
The SEC has recently been critical of companies' use of non-GAAP
measures, and SEC Chairman Mary Jo White has suggested new
regulations may be needed if companies abuse the current rules. The
rules allow companies to report non-GAAP metrics as long as they
also disclose the comparable GAAP numbers and detail the
differences between the two.
Write to Michael Rapoport at Michael.Rapoport@wsj.com
(END) Dow Jones Newswires
May 24, 2016 14:07 ET (18:07 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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