Valeant: Cash Eps, Gaap Eps In Addition To Diverse Covenants

Today Valeant guided downwardly its so-called cash EPS. You tin laissez passer the axe uncovering the press unloosen at this link.

Lets simply accept the 3Q guidance equally published:

Q4 2015 Revised Guidance 

• Total Revenues previously $3.25 - $3.45 billion directly $2.7 - $2.8 billion
• Adjusted EPS* previously $4.00 - $4.20 directly $2.55 -$2.65
• Adjusted Cash Flow from Operations* previously greater than $1.0 billion, directly greater than $600 million

At the depression goal of this arrive at nosotros receive got reduced quarterly revenue from $3.25 billion to $2.8 billion dollars. This is $425 million. [The high-end of the reduction is $750 million.]

The reduction is - at this goal - $425 1000000 on $3.25 billion of sales. The depression goal is hence a xiii percent revenue reduction.

Here is what Valeant said almost Philidor on the October 26 call.

To quote: In Q3 2015, Philidor represented 6.8% of full Valeant revenue.

The reduction inwards revenue is almost twice the revenue running through Philidor.

Observation 1: The revenue driblet is to a greater extent than than simply Philidor. Something else is going on. 

The bull declaration to engagement is that Philidor is a minor percent of sales some of which volition endure caught elsewhere in addition to hence tin laissez passer the axe endure ignored. However the driblet inwards sales is twice Philidor (or to a greater extent than than twice Philidor for most points inwards the range). 

Second - the "adjusted EPS* drops from $4.00 - $4.20 to $2.55 -$2.65. This is a driblet at the minimum goal of $4.00 to $2.65 0r $1.35 per share.

There were - according to the final 10Q - 343,101,797 shares outstanding equally of Oct 19, 2015.

So so-called cash EPS volition autumn yesteryear roughly $463 1000000 at a minimum.

The autumn inwards cash-EPS is more than double the entire revenue of Philidor.

Again something other than Philidor has been broken here.

GAAP numbers in addition to debt covenants

Valeant tells the marketplace almost "cash EPS" - a mensurate that differs considerably from GAAP EPS.

The cash EPS numbers are non audited. The differences are differences you lot must trust the administration to honestly report.

However they are non the numbers equally reported inwards the 10-Q nor are they the numbers that are contained inwards the debt covenants. [See just one debt indenture at this link.]

Here is the P&L declaration for the final quarter in addition to nine months from the 10-Q.

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(All dollar amounts expressed inwards millions of U.S. dollars, except per percentage data)

(Unaudited)

	Three Months Ended September 30,								Nine Months Ended September 30,
	2015				2014				2015				2014
Revenues
Product sales	$	2,748.2			$	2,022.9			$	7,590.1			$	5,868.1
Other revenues	38.6				33.3				120.0				115.4
	2,786.8				2,056.2				7,710.1				5,983.5
Expenses
Cost of goods sold (exclusive of amortization in addition to impairments of
finite-lived intangible assets shown separately below)	634.6				545.8				1,864.9				1,619.5
Cost of other revenues	13.6				15.0				43.1				45.3
Selling, full general in addition to administrative	697.6				504.1				1,956.9				1,501.8
Research in addition to development	101.6				59.1				238.5				186.9
Amortization in addition to impairments of finite-lived intangible assets	679.2				393.1				1,629.8				1,113.9
Restructuring, integration in addition to other costs	75.6				61.7				274.0				337.4
In-process inquiry in addition to evolution impairments in addition to other charges	95.8				19.9				108.1				40.3
Acquisition-related costs	7.0				1.6				26.3				3.7
Acquisition-related contingent consideration	3.8				4.0				22.6				14.8
Other expense (income)	30.2				(232.0		)		213.2				(275.7		)
	2,339.0				1,372.3				6,377.4				4,587.9
Operating income	447.8				683.9				1,332.7				1,395.6
Interest income	0.7				0.8				2.5				3.8
Interest expense	(420.2		)		(258.4		)		(1,130.7		)		(746.1		)
Loss on extinguishment of debt	—				—				(20.0		)		(93.7		)
Foreign telephone substitution in addition to other	(34.0		)		(53.0		)		(99.5		)		(63.0		)
Gain on investments, net	—				3.4				—				5.9
(Loss) income earlier (recovery of) provision for income taxes	(5.7		)		376.7				85.0				502.5
(Recovery of) provision for income taxes	(57.4		)		100.3				10.4				124.4
Net income	51.7				276.4				74.6				378.1
Less: Net income (loss) attributable to noncontrolling interest	2.2				1.0				4.4				(0.5		)
Net income attributable to Valeant Pharmaceuticals International, Inc.	$	49.5			$	275.4			$	70.2			$	378.6
Earnings per percentage attributable to Valeant Pharmaceuticals International, Inc.:
Basic	$	0.14			$	0.82			$	0.21			$	1.13
Diluted	$	0.14			$	0.81			$	0.20			$	1.11
Weighted-average mutual shares (in millions)
Basic	344.9				335.4				340.8				335.2
Diluted	351.0				341.3				347.2				341.4

Note that operating income (earnings earlier involvement in addition to tax) for the tertiary quarter was $447.8 1000000 in addition to for the nine months was $1332.7 million.

Note that the minimum autumn inwards so-called "cash eps" inwards the quaternary quarter is larger than the entirety of operating income inwards the tertiary quarter. This should furnish some scale.

Here is the cash flow declaration from the final 10-Q.

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(All dollar amounts expressed inwards millions of U.S. dollars)

(Unaudited)

	Three Months Ended September 30,								Nine Months Ended September 30,
	2015				2014				2015				2014
Cash Flows From Operating Activities
Net income	$	51.7			$	276.4			$	74.6			$	378.1
Adjustments to reconcile cyberspace loss (income) to cyberspace cash provided yesteryear operating activities:
Depreciation in addition to amortization, including impairments of finite-lived intangible assets	726.4				439.3				1,768.4				1,248.1
Amortization in addition to write-off of debt discounts in addition to debt issuance costs	20.5				34.6				123.7				58.1
In-process inquiry in addition to evolution impairments	95.8				19.9				108.1				20.3
Acquisition accounting adjustment on inventory sold	27.2				12.4				97.7				21.9
Loss (gain) on disposal of assets, net	5.3				(254.5		)		9.2				(254.5		)
Acquisition-related contingent consideration	3.8				4.0				22.6				14.8
Allowances for losses on accounts receivable in addition to inventories	19.6				12.0				46.4				47.6
Deferred income taxes	(91.4		)		74.6				(79.0		)		63.2
Additions (reductions) to accrued legal settlements	25.6				(0.9		)		31.9				(48.2		)
Payments of accrued legal settlements	(26.2		)		(0.2		)		(32.1		)		(1.2		)
Share-based compensation	50.5				20.2				111.4				60.6
Excess taxation expense (benefits) from share-based compensation	3.9				(15.9		)		(21.7		)		(17.1		)
Foreign telephone substitution loss	31.0				55.1				96.6				62.4
Loss on extinguishment of debt	—				—				20.0				93.7
Payment of accreted involvement on contingent consideration	(7.7		)		(1.3		)		(19.8		)		(9.5		)
Other	0.2				9.7				(13.7		)		15.8
Changes inwards operating assets in addition to liabilities:
Trade receivables	(347.2		)		(121.4		)		(656.0		)		(205.2		)
Inventories	(45.6		)		(41.5		)		(132.4		)		(122.8		)
Prepaid expenses in addition to other electrical current assets	(88.5		)		5.5				(252.0		)		34.5
Accounts payable, accrued in addition to other liabilities	281.6				90.7				334.1				18.4
Net cash provided yesteryear operating activities	736.5				618.7				1,638.0				1,479.0
Cash Flows From Investing Activities
Acquisition of businesses, cyberspace of cash acquired	(115.8		)		(606.8		)		(14,001.7		)		(981.1		)
Acquisition of intangible assets in addition to other assets	(0.1		)		(74.3		)		(58.1		)		(105.8		)
Purchases of property, found in addition to equipment	(51.1		)		(39.6		)		(163.7		)		(211.2		)
Proceeds from sales in addition to maturities of short-term investments	32.5				—				50.2				—
Net village of assumed derivative contracts (Note 3)	—				—				184.6				—
Settlement of unusual currency forrad telephone substitution contracts	—				—				(26.3		)		—
Purchases of marketable securities	(24.2		)		—				(24.5		)		—
Purchase of equity method investment	—				—				—				(75.9		)
Proceeds from sale of assets in addition to businesses, cyberspace of costs to sell	2.5				1,477.0				2.8				1,479.8
Decrease (increase) inwards restricted cash in addition to cash equivalents	—				—				(5.2		)		—
Net cash (used in) provided yesteryear investing activities	(156.2		)		756.3				(14,041.9		)		105.8
Cash Flows From Financing Activities
Issuance of long-term debt, cyberspace of discount	—				555.0				16,925.8				963.4
Repayments of long-term debt	(29.0		)		(1,629.8		)		(1,387.2		)		(2,184.0		)
Repayments of convertible notes assumed	—				—				(3,122.8		)		—
Issuance of mutual stock, net	—				—				1,433.7				—
Repurchases of mutual shares	—				—				(50.0		)		—
Proceeds from practice of stock options	7.0				3.8				29.1				10.9
Excess taxation benefits from share-based compensation	(3.9		)		15.9				21.7				17.1
Payment of employee withholding taxation upon vesting of share-based awards	(24.3		)		(2.0		)		(85.8		)		(38.5		)
Payments of contingent consideration	(48.4		)		(14.4		)		(129.4		)		(96.6		)
Payments of financing costs	—				(10.2		)		(101.7		)		(18.8		)
Other	(9.9		)		(0.4		)		(10.2		)		(14.9		)
Net cash (used in) provided yesteryear financing activities	(108.5		)		(1,082.1		)		13,523.2				(1,361.4		)
Effect of telephone substitution charge per unit of measurement changes on cash in addition to cash equivalents	(9.8		)		(15.3		)		(21.9		)		(14.9		)
Net increment inwards cash in addition to cash equivalents	462.0				277.6				1,097.4				208.5
Cash in addition to cash equivalents, foremost of period	958.0				531.2				322.6				600.3
Cash in addition to cash equivalents, goal of period	$	1,420.0			$	808.8			$	1,420.0			$	808.8
Non-Cash Investing in addition to Financing Activities
Acquisition of businesses, contingent in addition to deferred consideration obligations at fair value	$	(108.7	)		$	(16.0	)		$	(783.3	)		$	(65.1	)
Acquisition of businesses, debt assumed	(6.1		)		(4.5		)		(3,129.2		)		(8.5		)

Depreciation in addition to amortization, including impairments of finite-lived intangible assets was $726.4 1000000 inwards the tertiary quarter in addition to $1,768.4 for the nine months.

In the tertiary quarter EBITDA (defined equally earnings earlier involvement in addition to taxation in addition to adding inwards depreciation in addition to amortisation) was $447.8 + $726.4 1000000 = $1174 million.

So so-called cash EPS volition autumn yesteryear roughly $463 1000000 at a minimum.

This agency that the run-rate GAAP EBITDA is $711 1000000 or less.

Debt restrictions

Here is a debt indenture. This debt indenture places restrictions on Valeant if the debt to EBITDA ratio direct house 3.5 times. These create non campaign an "event of default" but create bound Valeant's flexibility to purchase dorsum shares (they can't), incur most indebtedness or to brand other investments.

Given that debt is almost $30 billion in addition to EBITDA run-rate is almost $700 1000000 per quarter at that spot tin laissez passer the axe endure petty inquiry that Valeant is operating nether strict loan-covenant based restrictions.

In Pearson nosotros trust

Mike Pearson did non tell us almost Philidor.

Originally Valeant stated that they did non let on Philidor because their alternative fulfilment was a "competitive advantage". Later they declared that Philidor was non unusual - other companies used specialty pharmacies (p. 8).

Then Mike Pearson told us that the issues related to Philidor in addition to Philidor was 6.8 percent of revenue.

Then he guided downwardly revenue yesteryear to a greater extent than or less double the sales of Philidor.

Then he neglected to tell the marketplace he was operating nether covenants that confine many of his actions. In October Bill Ackman idea that Valeant mightiness buy-back stock at these depression prices. That is non possible.

Still despite these things it is clear that most the marketplace believes something akin to Valeant's so-called cash EPS.

The marketplace trusts Mr Pearson for the moment.

I am a gnarly immature homo however: I annotation the revenue autumn is roughly twice Philidor - then I know that I don't know what is going on in addition to I don't believe what I am told.

What you lot believe dearest readers silent is upward to you.




John