Valeant Pharmaceuticals International announced Tuesday that employee stock options dating back to 1982 were erroneously reported and will result in a cumulative pre-tax accounting charge of $31.1 million.
A special committee of the board of the Aliso Viejo drug company determined that the majority of the errors pertained to option grant dates selected by the previous management, which left in mid-2002.
The committee said prior management used a method of selecting option grant dates that was specifically tied to the lowest stock price during a given period.
Basing an options grant on the lowest stock price could potentially increase the value of the option when it is exercised.
Other broad-based options granted before 2002 appeared to be based on an event or when former chief executive Milan Panic agreed in principle to the grant, the company statement said.
Panic’s attorney, Pierce O’Donnell, said Panic had done nothing wrong, noting all the options accounting during his tenure had been approved by the company’s accountants, Coopers & Lybrand, and two law firms, Courdert Brothersand Fried Frank Harris Shriver & Jacobson LLP.
The special committee said there were option errors after the 2002 change in management, but they were due to flaws in the accounting processes used.
There was no evidence that current management was aware of the problem. The committee said none of the errors related to options granted to current Chief Executive Timothy C. Tyson, Chief Financial Officer Bary G. Bailey or members of the board.
Valeant said it has now filed its quarterly earnings report for the period ending Sept. 30, which was delayed pending the options review. The company reported net income of $13.7 million, reversing a $2.7 million loss in the third quarter of 2005.
For the first nine months of 2006, the company had a $34.8 million loss compared to a $143.4 million loss the previous year.
As result of the options findings, the company said it would restate earnings dating back to 2001. In coming days the company plans to file amended quarterly earnings reports for the quarters ended March 3, 2006, and June 30, 2006, and for its annual report for 2005.
Valeant is among nine Orange County companies that have investigated the timing and accounting of their stock options. Nationwide, more than 190 companies have undertaken options probes, according to Bloomberg News.
Contact the writer: 714-796-3646 or mmilbourn@ocregister.com
