Monday, March 14, 2016

Questions for the Valeant conference call

Valeant is planning to have a conference call to "discuss preliminary fourth quarter 2015 financial results and update 2016 financial guidance".

It is "preliminary" because numbers have not been audited yet. I expect an audit statement to be coming. I have never had a major problem with Valeant's GAAP numbers (which are terrible). My objection to their numbers is largely to the non-GAAP earnings that they promulgate widely and which are widely quoted by analysts.

I suspect ultimately their auditor may not have major problems with the GAAP numbers (other than certifying that Valeant is a going concern). The GAAP numbers don't smell wrong.

In that vein I  have only main question.
Can you break down your guidance for non-GAAP "cash EPS" into your estimated GAAP earnings and your budgeted non-recurring or non-cash expenses (such as restructuring expenses or amortisation) that I should ignore for the purposes of your GAAP EPS?
I ask this because Valeant non-GAAP numbers ("cash EPS") bear only minimal resemblance to the numbers in the accounts. Some of the difference between GAAP EPS and "cash EPS" is clearly justified. Some less obviously.

But from the outside it looks like business divisions can make their non-GAAP numbers by producing reasonable enough GAAP numbers and then marking any inconvenient expenses as "non-recurring". If a budget for non-recurring expenses is published this will help vouch for the integrity of non-GAAP numbers.

There is a follow on question: given the GAAP numbers are "messy" some covenants will be broken.
Can we have a list of broken debt covenants and a list of the consequences of those breaches? To my understanding the main consequences are restrictions on further borrowings and cash-traps for the benefit of debt holders if businesses are sold. However the documents are extensive - and there may be issues I am unaware of.

Thanks in advance


1 comment:

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