SEC raises concerns about Valeant's use of "Non-GAAP" measures

May 24 (Reuters) - The Securities and Exchange Commission is
concerned about the way Canadian drugmaker Valeant
Pharmaceuticals International Inc VRX.TO has been disclosing
its "non-GAAP" financial measures, regulatory filings showed on
Tuesday.
The SEC has questioned Valeant's practice of stripping away
acquisition-related expenses from its "non-GAAP" or adjusted
metrics, given that the drugmaker had been fueling growth
through frenzied deal making.
In multiple letters, the SEC said Valeant's management is in
possession of all the facts, and urged for adequate and accurate
financial disclosures.
"We are 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 said in a letter to the company in February.
In response, the Laval, Quebec-based company defended its
use of non-GAAP measures but said it would make changes in its
disclosures.
Last summer, questions about Valeant's accounting and
business practices, coupled with U.S. lawmakers' concerns about
sharp price hikes, clouded the company's prospects.
The SEC also questioned Valeant's disclosure of the tax
effects of the costs it stripped out of its non-GAAP measures,
calling the strategy "potentially misleading".
Non-GAAP measures are metrics that don't comply with
generally accepted accounting principles, or GAAP, the standard
set of accounting rules in the United States.
Typically, they exclude non-cash and non-recurring items
from a company's results and is designed to present a truer
reflection of performance.
This correspondence, which demonstrates the SEC's lack of
comfort with Valeant's reporting, could add gravity to the
multiple investigations the company is currently embroiled in,
Wells Fargo (NYSE:WFC)'s David Maris said, cutting his target price to a
range of $25-$30 from $27-$31.
The troubled drugmaker filed its 2015 financial report last
month, allaying concerns about a possible default on its debt of
more than $30 billion.
The company missed an original March 15 deadline, citing an
in-house review of its accounting practices. The probe found
problems dating back to 2014.
Valeant's U.S.-listed shares closed down marginally at
$26.11, while the stock ended down nearly 5 percent at C$34.29
on the Toronto Stock Exchange.