UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the Quarterly Period Ended March 31, 2015 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the transition period from to
Commission file number: 001-3356220
ALBANY MOLECULAR
RESEARCH, INC.
(Exact name of registrant as specified in its
charter)
DELAWARE |
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14-1742717 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
26 Corporate Circle
Albany, New York 12212
(Address of principal executive offices)
(518) 512-2000
(Registrant’s telephone number, including
area code)
N/A
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer ¨ |
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Accelerated filer x |
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Non-accelerated filer ¨ |
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Smaller reporting company ¨ |
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date.
Class |
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Outstanding at April
30, 2015 |
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Common Stock, $.01 par value |
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33,118,416 excluding treasury shares of 5,496,150 |
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ALBANY MOLECULAR RESEARCH, INC.
INDEX
PART I
— FINANCIAL INFORMATION
Item 1. Condensed
Consolidated Financial Statements (Unaudited)
Albany Molecular Research, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
| |
Three Months Ended | |
(Dollars in thousands, except for per share data) | |
March 31, 2015 | | |
March 31, 2014 | |
| |
| | |
| |
Contract revenue | |
$ | 75,131 | | |
$ | 51,038 | |
Recurring royalties | |
| 6,685 | | |
| 8,283 | |
Total revenue | |
| 81,816 | | |
| 59,321 | |
| |
| | | |
| | |
Cost of contract revenue | |
| 58,139 | | |
| 41,610 | |
Technology incentive award | |
| 382 | | |
| 593 | |
Research and development | |
| 490 | | |
| 79 | |
Selling, general and administrative | |
| 17,474 | | |
| 10,629 | |
Postretirement benefit plan settlement gain | |
| −
| | |
| (1,285 | ) |
Restructuring charges | |
| 1,487 | | |
| 230 | |
Impairment charges | |
| 2,615 | | |
| −
| |
Total operating expenses | |
| 80,587 | | |
| 51,856 | |
| |
| | | |
| | |
Income from operations | |
| 1,229 | | |
| 7,465 | |
| |
| | | |
| | |
Interest expense, net | |
| (3,036 | ) | |
| (2,616 | ) |
Other income (expense), net | |
| 469 | | |
| (40 | ) |
| |
| | | |
| | |
(Loss) income before income tax expense | |
| (1,338 | ) | |
| 4,809 | |
| |
| | | |
| | |
Income tax expense | |
| 885 | | |
| 1,309 | |
| |
| | | |
| | |
Net (loss) income | |
$ | (2,223 | ) | |
$ | 3,500 | |
| |
| | | |
| | |
Basic and diluted (loss) income
per share | |
$ | (0.07 | ) | |
$ | 0.11 | |
See notes to unaudited condensed consolidated
financial statements.
Albany Molecular Research, Inc.
Condensed Consolidated Statements of Comprehensive
(Loss) Income
(unaudited)
| |
Three Months Ended March
31, | |
| |
2015 | | |
2014 | |
Net (loss) income | |
$ | (2,223 | ) | |
$ | 3,500 | |
Foreign currency translation (loss) gain | |
| (1,146 | ) | |
| 644 | |
Net actuarial gain related to pension
and postretirement benefits | |
| 154 | | |
| 85 | |
Total comprehensive (loss) income | |
$ | (3,215 | ) | |
$ | 4,229 | |
See notes to unaudited condensed consolidated
financial statements.
Albany Molecular Research, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(Dollars and shares in thousands, except
per share data) | |
March 31, 2015 | | |
December 31, 2014 | |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 28,515 | | |
$ | 46,995 | |
Restricted cash | |
| 3,675 | | |
| 4,052 | |
Accounts receivable, net | |
| 78,432 | | |
| 72,123 | |
Royalty income receivable | |
| 6,779 | | |
| 5,061 | |
Income tax receivable | |
| 2,465 | | |
| — | |
Inventory | |
| 53,504 | | |
| 49,880 | |
Prepaid expenses and other current assets | |
| 12,957 | | |
| 10,558 | |
Deferred income taxes | |
| 2,312 | | |
| 2,343 | |
Property and equipment held for
sale | |
| 1,132 | | |
| — | |
Total current assets | |
| 189,771 | | |
| 191,012 | |
| |
| | | |
| | |
Property and equipment, net | |
| 176,997 | | |
| 165,475 | |
Notes hedges | |
| 65,363 | | |
| 58,928 | |
Goodwill | |
| 92,859 | | |
| 61,778 | |
Intangible assets and patents, net | |
| 39,966 | | |
| 32,548 | |
Deferred income taxes | |
| 1,041 | | |
| 4,884 | |
Other assets | |
| 5,145 | | |
| 5,328 | |
Total assets | |
$ | 571,142 | | |
$ | 519,953 | |
Liabilities and Stockholders’
Equity | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 42,844 | | |
$ | 35,757 | |
Deferred revenue and licensing fees | |
| 9,848 | | |
| 11,171 | |
Arbitration reserve | |
| — | | |
| 327 | |
Income taxes payable | |
| — | | |
| 350 | |
Accrued pension benefits | |
| 651 | | |
| 638 | |
Current installments of long-term
debt | |
| 413 | | |
| 447 | |
Total current liabilities | |
| 53,756 | | |
| 48,690 | |
Long-term liabilities: | |
| | | |
| | |
Long-term debt, excluding current installments | |
| 200,493 | | |
| 159,980 | |
Notes conversion derivative | |
| 65,363 | | |
| 58,928 | |
Pension and postretirement benefits | |
| 7,941 | | |
| 8,167 | |
Other long-term liabilities | |
| 1,714 | | |
| 2,366 | |
Total liabilities | |
| 329,267 | | |
| 278,131 | |
Commitments and contingencies | |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | |
Preferred stock, $0.01 par value, 2,000 shares authorized,
none issued or outstanding | |
| — | | |
| — | |
Common stock, $0.01 par value, 50,000 shares authorized, 38,598 shares
issued as of March 31, 2015 and 38,098 shares issued as of December 31, 2014 | |
| 386 | | |
| 381 | |
Additional paid-in capital | |
| 247,614 | | |
| 243,874 | |
Retained earnings | |
| 77,409 | | |
| 79,632 | |
Accumulated other comprehensive
loss, net | |
| (15,426 | ) | |
| (14,434 | ) |
| |
| 309,983 | | |
| 309,453 | |
Less, treasury shares at cost, 5,495 shares as of
March 31, 2015 and 5,465 shares as of December 31, 2014 | |
| (68,108 | ) | |
| (67,631 | ) |
Total stockholders’ equity | |
| 241,875 | | |
| 241,822 | |
Total liabilities and stockholders’
equity | |
$ | 571,142 | | |
$ | 519,953 | |
See notes to unaudited condensed consolidated
financial statements.
Albany Molecular Research, Inc.
Condensed Consolidated Statements of Cash
Flows (unaudited)
| |
Three Months Ended | |
(Dollars in thousands) | |
March 31, 2015 | | |
March 31, 2014 | |
| |
| | |
| |
Operating activities | |
| | | |
| | |
Net (loss) income | |
$ | (2,223 | ) | |
$ | 3,500 | |
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities: | |
| | | |
| | |
Depreciation and intangible amortization | |
| 5,486 | | |
| 3,761 | |
Deferred financing amortization | |
| 267 | | |
| 301 | |
Accretion of discount on long-term debt | |
| 1,513 | | |
| 1,394 | |
Deferred income taxes | |
| 303 | | |
| 458 | |
Loss on disposal of property and equipment | |
| 84 | | |
| 48 | |
Impairment charges | |
| 2,615 | | |
| −
| |
Stock-based compensation expense | |
| 1,555 | | |
| 933 | |
Gain on settlement of post-retirement liability | |
| -
| | |
| (1,285 | ) |
Excess tax benefit of stock option exercises | |
| (1,153 | ) | |
| (635 | ) |
Changes in operating assets and liabilities that provide
(use) cash, net of impact of business combinations: | |
| | | |
| | |
Accounts receivable | |
| 1,186 | | |
| (6,166 | ) |
Royalty income receivable | |
| (1,718 | ) | |
| (844 | ) |
Inventory | |
| (3,380 | ) | |
| (3,288 | ) |
Prepaid expenses and other assets | |
| (1,784 | ) | |
| (892 | ) |
Accounts payable and accrued expenses | |
| 3,667 | | |
| (4,543 | ) |
Income taxes | |
| 1,678 | | |
| (1,015 | ) |
Deferred revenue and licensing fees | |
| (3,817 | ) | |
| 249 | |
Pension and postretirement benefits | |
| 24 | | |
| (47 | ) |
Other long-term liabilities | |
| 68 | | |
| (2 | ) |
Net cash provided by (used in) operating
activities | |
| 4,371 | | |
| (8,073 | ) |
| |
| | | |
| | |
Investing activities | |
| | | |
| | |
Purchase of businesses, net of cash acquired | |
| (59,317 | ) | |
| −
| |
Purchases of property and equipment | |
| (4,127 | ) | |
| (2,952 | ) |
Payments for patent applications and other costs | |
| (54 | ) | |
| (102 | ) |
Proceeds from disposal of property
and equipment | |
| 31 | | |
| − | |
Net cash used in investing activities | |
| (63,467 | ) | |
| (3,054 | ) |
| |
| | | |
| | |
Financing activities | |
| | | |
| | |
Borrowings on long-term debt | |
| 39,000 | | |
| −
| |
Principal payments on long-term debt | |
| (34 | ) | |
| (180 | ) |
Deferred financing costs | |
| 23 | | |
| (154 | ) |
Change in restricted cash | |
| 377 | | |
| 179 | |
Proceeds from sale of common stock | |
| 1,038 | | |
| 1,344 | |
Purchases of treasury stock | |
| (477 | ) | |
| (314 | ) |
Excess tax benefit of stock option
exercises | |
| 1,153 | | |
| 635 | |
Net cash provided by financing activities | |
| 41,080 | | |
| 1,510 | |
| |
| | | |
| | |
Effect of exchange rate changes
on cash and cash equivalents | |
| (464 | ) | |
| 312 | |
| |
| | | |
| | |
Decrease in cash and cash equivalents | |
| (18,480 | ) | |
| (9,305 | ) |
| |
| | | |
| | |
Cash and cash equivalents at beginning
of period | |
| 46,995 | | |
| 175,928 | |
| |
| | | |
| | |
Cash and cash equivalents at end
of period | |
$ | 28,515 | | |
$ | 166,623 | |
See notes to unaudited condensed consolidated
financial statements.
(All amounts in thousands, except per share amounts, unless otherwise
noted)
Note 1 — Summary of Operations and Significant Accounting
Policies
Nature of Business and Operations
Albany
Molecular Research, Inc. (the “Company”) is a leading global contract research and manufacturing organization
providing customers fully integrated drug discovery, development, and manufacturing services. We supply a broad range of services
and technologies supporting the discovery and development of pharmaceutical products, the manufacturing of Active Pharmaceutical
Ingredients (“API”) and the manufacturing of drug product for new and generic drugs, as well as research, development
and manufacturing for the agrochemical and other industries. With locations in the United States, Europe, and Asia, we maintain
geographic proximity to our customers and flexible cost models.
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In accordance with Rule 10-01, the unaudited
condensed consolidated financial statements do not include all of the information and footnotes required by U.S. generally accepted
accounting principles for complete consolidated financial statements. The year-end condensed consolidated balance sheet data was
derived from audited financial statements but does not include all disclosures required by U.S. generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered
necessary for a fair statement of the results for the interim period have been included. Operating results for the three months
ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31,
2015. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014.
The accompanying unaudited condensed consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiaries as of March 31, 2015. All intercompany
balances and transactions have been eliminated during consolidation. Assets and liabilities of non-U.S. operations are translated
at period-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the period.
Unrealized gains or losses resulting from translating non-U.S. currency financial statements are recorded in accumulated other
comprehensive loss in the accompanying unaudited condensed consolidated balance sheets. When necessary, prior years’ unaudited
condensed consolidated financial statements have been reclassified to conform to the current year presentation.
Use of Management Estimates
The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates included
in the accompanying consolidated financial statements include assumptions regarding the valuation of inventory, intangible assets,
and long-lived assets and assumptions associated with our accounting for business combinations. Other significant estimates include
assumptions utilized in determining actuarial obligations in conjunction with the Company’s pension and postretirement health
plans, the amount and realizabilty of deferred tax assets, assumptions utilized in determining stock-based compensation, as well
as those utilized in determining the value of both the notes hedges and the notes conversion derivative and the assumptions related
to the collectability of receivables. Actual results can vary from these estimates.
Contract Revenue Recognition
The Company’s contract revenue consists
primarily of amounts earned under contracts with third-party customers and reimbursed expenses under such contracts. Reimbursed
expenses consist of chemicals and other project specific costs. The Company also seeks to include provisions in certain contracts
that contain a combination of up-front licensing fees, milestone and royalty payments should the Company’s proprietary technology
and expertise lead to the discovery of new products that become commercial. Generally, the Company’s contracts may be terminated
by the customer upon 30 days’ to two years’ prior notice, depending on the terms and/or size of the contract.
The Company analyzes its agreements to determine whether the elements can be separated and accounted for individually or as a
single unit of accounting in accordance with the Financial Accounting Standards Board’s (the “FASB”) Accounting
Standards Codification (“ASC”) 605-25, “Revenue Arrangements with Multiple Deliverables,” and Staff Accounting
Bulletin (“SAB”) 104, “Revenue Recognition”. Allocation of revenue to individual elements that qualify
for separate accounting is based on the separate selling prices determined for each component, and total contract consideration
is then allocated pro rata across the components of the arrangement. If separate selling prices are not available, the Company
will use its best estimate of such selling prices, consistent with the overall pricing strategy and after consideration of relevant
market factors.
The Company generates contract revenue under
the following types of contracts:
Fixed-Fee. Under a fixed-fee contract,
the Company charges a fixed agreed upon amount for a deliverable. Fixed-fee contracts have fixed deliverables upon completion
of the project. Typically, the Company recognizes revenue for fixed-fee contracts after projects are completed, delivery is made
and title transfers to the customer, and collection is reasonably assured. In certain instances, the Company’s customers
request that the Company retain materials produced upon completion of the project due to the fact that the customer does not have
a qualified facility to store those materials or for other reasons. In these instances, the revenue recognition process is considered
complete when project documents have been delivered to the customer, as required under the arrangement, or other customer-specific
contractual conditions have been satisfied.
Full-time Equivalent (“FTE”).
An FTE agreement establishes the number of Company employees contracted for a project or a series of projects, the duration
of the contract period, the price per FTE, plus an allowance for chemicals and other project specific costs, which may or may
not be incorporated in the FTE rate. FTE contracts can run in one month increments, but typically have terms of six months or
longer. FTE contracts typically provide for annual adjustments in billing rates for the scientists assigned to the contract.
These contracts involve the Company’s
scientists providing services on a “best efforts” basis on a project that may involve a research component with a
timeframe or outcome that has some level of unpredictability. There are no fixed deliverables that must be met for payment as
part of these services. As such, the Company recognizes revenue under FTE contracts on a monthly basis as services are performed
according to the terms of the contract.
Time and Materials. Under a time
and materials contract, the Company charges customers an hourly rate plus reimbursement for chemicals and other project specific
costs. The Company recognizes revenue for time and material contracts based on the number of hours devoted to the project multiplied
by the customer’s billing rate plus other project specific costs incurred.
Recurring Royalty and Milestone Revenues
Recurring Royalty Revenue. Recurring
royalties include royalties under a license agreement with Sanofi based on the worldwide net sales of fexofenadine HCl, marketed
as Allegra in the Americas and Telfast elsewhere, as well as on sales of Sanofi’s authorized or licensed generics and sales
by certain authorized sub-licensees. The Company records royalty revenue in the period in which the net sales of Allegra/Telfast
occur, because it can reasonably estimate such royalties. Royalty payments from Sanofi are due within 45 days after each
calendar quarter and are determined based on net sales of Allegra/Telfast and Teva Pharmaceuticals’ net sales of generic
D-12 in that quarter. The Allegra royalties will cease in the second quarter of 2015. The Company receives additional royalties
in conjunction with a Development and Supply Agreement with Actavis, Inc. (“Actavis”). These royalties are earned
on net sales of generic products sold by Actavis. The Company records royalty revenue in the period in which the net sales of
this product occur. Royalty payments from Actavis are due within 60 days after each calendar quarter and are determined based
on sales of the qualifying products in that quarter.
Up-Front License Fees and Milestone Revenue.
The Company recognizes revenue from up-front non-refundable licensing fees on a straight-line basis over the period of the
underlying project. The Company will recognize revenue arising from a substantive milestone payment upon the successful achievement
of the event, and the resolution of any uncertainties or contingencies regarding potential collection of the related payment,
or if appropriate over the remaining term of the agreement.
Proprietary Drug Development Arrangements
The Company has discovered and conducted the
early development of several new drug candidates, with a view to out- licensing these candidates to partners for further development
in return for a potential combination of up-front license fees, milestone payments and recurring royalty payments if compounds
resulting from our intellectual property are successfully developed into new drugs and reach the market.
On October 20, 2005, the Company entered into
a License and Research Agreement with Bristol-Myers Squibb (“BMS”) for a program of compounds that encompass biogenic
amine reuptake inhibitors in development for the treatment of depression and other central nervous system disorders. As amended,
the agreement is referred to herein as the “BMS Agreement”.
In 2013, BMS announced the cessation of its
commercialization activities regarding the assets under the license. We are engaged in ongoing discussions with BMS as to the
disposition of these assets, which may or may not result in future payments to us under the BMS agreement. From our entry into
this BMS agreement through March 31, 2015, we have recorded $15.5 million from achieving certain milestones with BMS.
On December 20, 2010, the Company entered
into a Research Collaboration and License Agreement with Genentech, Inc. (“Genentech”) (the “Genentech Agreement”,
and collectively with the BMS Agreement, the “Agreements”) for a family of antibacterial compounds discovered from
the Company’s proprietary research of its natural products sample collection.
Under the terms of the Agreements, the Company
received upfront licensing fees and research funding to further develop the licensed compounds. In addition, the Company is eligible
to receive development and regulatory milestones for each licensed compound, as well as royalties on sales of commercialized compounds
if any.
In
2014, Genentech notified the Company that it was discontinuing its development of the licensed compounds. The viability
of this program is currently under consideration by Genentech; accordingly, this program may or may not result in future payments
to us.
Generic Parenteral Drug Product Arrangements
In 2014, the Company entered into development
and supply agreements with (“the Genovi Agreements”) Genovi Pharmaceuticals Limited (“Genovi”), to manufacture
select generic parenteral drug products for registration and subsequent commercialization in the U.S., Europe, and select emerging
markets.
Under the terms of the Genovi Agreements,
the Company may receive up to $3,236 in milestone payments for each drug product candidate upon achievement of certain development
milestones, including technology transfer activities, analytical development, and manufacture of regulatory submission batches.
Following U.S. Food and Drug Administration
approval, the Company will supply generic parenteral drug products to Genovi pursuant to the Genovi Agreements, and for certain
of these products, receive payments based on Genovi's sales of such products.
The Company has determined the milestones
contained in these Agreements to be substantive milestones in accordance with ASC 605-28-25, “Revenue Recognition –
Milestone Method” (“ASC 605”). In evaluating the milestones included in the Agreements, the Company considered
the following:
| · | The
Company considered each individual milestone to be commensurate with the enhanced value
of the underlying licensed intellectual property or drug product candidate as they are
advanced from the development stage to a commercialized product, and considered them
to be reasonable when evaluated in relation to the total agreement consideration, including
other milestones. |
| · | The
milestones are deemed to relate solely to past performance, as each milestone is payable
to the Company only after the achievement of the related event defined in the agreement,
and is not refundable if additional future success events do not occur. |
For both the three months ended March 31,
2015 and 2014, we have not recognized any revenue in milestone payments as contract revenue under the Genovi Agreements.
Cash, Cash Equivalents and Restricted Cash
Cash equivalents consist of money market accounts
and overnight deposits. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Restricted cash balances at March 31, 2015
and December 31, 2015, are required as collateral for the letters of credit associated with our debt agreements.
Long-Lived Assets
The Company assesses the impairment of a long-lived
asset group whenever events or changes in circumstances indicate that its carrying value may not be recoverable. Factors the Company
considers important that could trigger an impairment review include, among others, the following:
| · | a
significant change in the extent or manner in which a long-lived asset group is being
used; |
| · | a
significant change in the business climate that could affect the value of a long-lived
asset group; or |
| · | a
significant decrease in the market value of assets. |
If the Company determines
that the carrying value of long-lived assets may not be recoverable, based upon the existence of one or more of the above indicators
of impairment, the Company compares the carrying value of the asset group to the undiscounted cash flows expected to be generated
by the asset group. If the carrying value exceeds the undiscounted cash flows, an impairment charge is indicated. An impairment
charge is recognized to the extent that the carrying amount of the asset group exceeds its fair value and will reduce only the
carrying amounts of the long-lived assets.
Derivative
Instruments and Hedging Activities
The
Company accounts for derivatives in accordance with FASB ASC Topic 815, “Derivatives and Hedging”, which establishes
accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or
a liability measured at fair value. Additionally, changes in the derivative’s fair value shall be recognized currently in
earnings unless specific hedge accounting criteria are met.
Recently Issued Accounting Pronouncements
In April 2015, the FASB issued ASU No. 2015-03, “Simplifying
the Presentation of Debt Issuance Costs,” which updated guidance to clarify the required presentation of debt issuance costs.
The amended guidance requires that debt issuance costs be presented in the balance sheet as a direct reduction from the carrying
amount of the recognized debt liability, consistent with the treatment of debt discounts. Amortization of debt issuance
costs is to be reported as interest expense. The recognition and measurement guidance for debt issuance costs are
not affected by the updated guidance. The updated guidance is effective for reporting periods beginning after December 15,
2015. Early adoption is permitted. The Company does not expect this ASU to have a material impact on its consolidated
financial statements.
In June 2014, the FASB issued ASU No. 2014-12, "Compensation
- Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target
Could Be Achieved after the Requisite Service Period." This ASU requires that a performance target that affects vesting and
that could be achieved after the requisite service period, be treated as a performance condition. The performance target should
not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in
which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable
to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being
achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively
over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service
period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately
vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award
if the performance target is achieved. This ASU is effective for annual periods and interim periods within those annual periods
beginning after December 15, 2015. Earlier adoption is permitted. The Company does not expect this ASU to have a material impact
on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from
Contracts with Customers: (Topic 606)." This ASU affects any entity that either enters into contracts with customers to transfer
goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope
of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements
in ASC Topic 605, "Revenue Recognition," and most industry-specific guidance. In addition, the existing requirements
for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g.,
assets within the scope of ASC Topic 360, "Property, Plant, and Equipment," and intangible assets within the scope of
ASC Topic 350, "Intangibles-Goodwill and Other") are amended to be consistent with the guidance on recognition and measurement
(including the constraint on revenue) in this ASU. The core principle of the guidance is that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The amendments in this ASU are effective for annual reporting
periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is not permitted.
The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.
Note 2 — Earnings Per Share
The shares used in the computation of the
Company’s basic and diluted earnings (loss) per share are as follows:
| |
Three Months Ended
March 31, | |
| |
2015 | | |
2014 | |
Weighted average common shares outstanding - basic | |
| 32,827 | | |
| 31,282 | |
Dilutive effect of share-based compensation | |
| — | | |
| 1,073 | |
Weighted average common shares outstanding - diluted | |
| 32,827 | | |
| 32,355 | |
The Company has excluded certain outstanding
stock options, non-vested restricted stock and warrants from the calculation of diluted earnings per share for the three months
ended March 31, 2014 because of anti-dilutive effects. The Company has excluded all stock options and non-vested restricted shares
from the calculation of diluted earnings per share for the three months ended March 31, 2015 because the net loss causes these
outstanding stock options and non-vested restricted shares to be anti-dilutive. The weighted average number of anti-dilutive common
equivalents outstanding (before the effects of the treasury stock method) was 12,294 and 10,000 for the three months ended March
31, 2015 and 2014, respectively. These amounts are not included in the calculation of weighted average common shares outstanding.
Note 3 – Business Acquisitions
On January 8, 2015 the Company completed the purchase of all of
the outstanding equity interests of Aptuit's Glasgow, UK business (“Glasgow”) for total consideration of $23,467.
The Glasgow facility will extend the company’s capabilities to sterile injectable drug product pre-formulation, formulation and clinical
stage manufacturing. Glasgow has been assigned to the Drug Product segment.
The following table summarizes the preliminary
allocation of the purchase price to the fair value of the net assets acquired:
| |
January
8, 2015 | |
Assets Acquired | |
| | |
Accounts receivable | |
$ | 3,395 | |
Prepaid expenses and other current assets | |
| 259 | |
Inventory | |
| 1,479 | |
Property and equipment | |
| 4,285 | |
Intangible assets | |
| 4,700 | |
Goodwill | |
| 13,324 | |
Other long term assets | |
| 33 | |
Total assets acquired | |
$ | 27,475 | |
| |
| | |
Liabilities Assumed | |
| | |
Accounts payable and accrued expenses | |
$ | 1,544 | |
Deferred revenue | |
| 2,276 | |
Other long-term liabilities | |
| 188 | |
Total liabilities assumed | |
| 4,008 | |
Net assets acquired | |
$ | 23,467 | |
The goodwill of $13,324 is primarily attributed
to the synergies expected to arise after the acquisition and is not deductible for tax purposes.
On February
13, 2015 the Company completed the purchase of assets and assumed certain liabilities of Aptuit's SSCI/West Lafayette, Indiana
business (“SSCI”) for total consideration of $35,850. SSCI brings extensive material science knowledge and technology
and expands the Company’s capabilities in analytical testing to include peptides, proteins and oligonucleotides. SSCI has
been assigned to the Discovery and Development Services (“DDS”)
segment.
The following table summarizes the preliminary
allocation of the purchase price to the fair value of the net assets acquired:
| |
February
13,
2015 | |
Assets Acquired | |
| | |
Accounts receivable | |
$ | 2,327 | |
Prepaid expenses and other current assets | |
| 801 | |
Property and equipment | |
| 12,026 | |
Intangible assets | |
| 3,560 | |
Goodwill | |
| 17,830 | |
Other long term assets | |
| 171 | |
Total assets acquired | |
$ | 36,715 | |
| |
| | |
Liabilities Assumed | |
| | |
Accounts payable and accrued expenses | |
$ | 647 | |
Deferred revenue | |
| 218 | |
Total liabilities assumed | |
| 865 | |
Net assets acquired | |
$ | 35,850 | |
The goodwill of $17,830 is primarily attributed
to the synergies expected to arise after the acquisition and is deductible for tax purposes.
For both Glasgow and SSCI, final valuations
will be completed to determine the fair value of the acquired property and equipment and any potential identifiable intangibles,
which may result in changes to the above preliminary estimated fair values, as well as changes to the allocated goodwill.
Revenue and net income from Glasgow for the
period January 9, 2015 to March 31, 2015 was $3,959 and $1,096, respectively. Revenue and net income from SSCI for the period
February 13, 2015 to March 31, 2015 was $1,961 and $224, respectively.
The following table shows the unaudited combined
condensed pro forma statements of operations for the three months ended March 31, 2015 and 2014, respectively, as if the Glasgow
and SSCI acquisitions had occurred on January 1, 2014. This pro forma information does not purport to represent what the Company’s
actual results would have been if the acquisitions had occurred as of the date indicated or what such results would be for any
future periods.
| |
Three
months ended March 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | |
Total revenues | |
$ | 89,248 | | |
$ | 64,708 | |
Net (loss) income | |
| (471 | ) | |
| 2,301 | |
(Loss) Earnings per share: | |
| | | |
| | |
Basic | |
$ | (0.01 | ) | |
$ | 0.07 | |
Diluted | |
$ | (0.01 | ) | |
$ | 0.07 | |
For the three month periods ended March 31,
2015 and 2014, pre-tax net loss(income) was adjusted by reducing expenses by $985 for acquisition related costs and by increasing
expenses by $985 for acquisition related costs.
For the three months ended March 31,
2015 pre-tax net loss was adjusted by increasing expenses by $168 for purchase accounting related depreciation and
amortization. For the three months ended March 31, 2014 pre-tax net income was adjusted by increasing expenses by $471 for
purchase accounting related depreciation and amortization.
The Company funded the acquisitions of SSCI
and Glasgow utilizing the proceeds from a $75,000 senior secured credit agreement that was completed in October of 2014. The Company
did not have sufficient cash on hand to complete these acquisitions as of January 1, 2014. For the purposes of presenting the
pro forma combined condensed statement of operations for the three months ended March 31, 2014, the Company has included the assumption
of bridge financing as of January 1, 2014 to fund the acquisition of SSCI and Glasgow as of that date. The pro forma combined
condensed statement of operations for the three months reflects the recognition of interest expense on the assumed bridge financing
for the period January 1, 2014 to March 31, 2014, using the rate of interest that the Company paid on its senior secured credit
facility. For the three months ended March 31, 2015, pre-tax net income was adjusted by $98 of pro forma interest expense on the
senior secured facility to assume that the amount had been outstanding for the entire three month period. For the three months
ended March 31, 2014, pre-tax net income was adjusted by $375 of pro forma interest expense on the senior secured facility.
Note 4 — Inventory
Inventory consisted of the following as of March 31, 2015 and December
31, 2014:
| |
March 31, 2015 | | |
December 31, 2014 | |
Raw materials | |
$ | 23,418 | | |
$ | 24,298 | |
Work in process | |
| 8,630 | | |
| 4,563 | |
Finished goods | |
| 21,456 | | |
| 21,019 | |
Total inventories, at cost | |
$ | 53,504 | | |
$ | 49,880 | |
Note 5 –Debt
The following table summarizes long-term debt:
| |
March 31, 2015 | | |
December 31,
2014 | |
Convertible senior notes, net of unamortized
debt discount | |
$ | 124,210 | | |
$ | 122,696 | |
Revolving credit facility | |
| 74,000 | | |
| 35,000 | |
Industrial development authority bond | |
| 2,390 | | |
| 2,390 | |
Capital leases – equipment | |
| 303 | | |
| 336 | |
Other debt | |
| 3 | | |
| 5 | |
| |
| 200,906 | | |
| 160,427 | |
Less current portion | |
| (413 | ) | |
| (447 | ) |
Total long-term debt | |
$ | 200,493 | | |
$ | 159,980 | |
The aggregate maturities of long-term debt, exclusive
of unamortized debt discount of $25,790 at March 31, 2015, are as follows:
2015 (remaining) | |
$ | 413 | |
2016 | |
| 448 | |
2017 | |
| 74,397 | |
2018 | |
| 150,348 | |
2019 | |
| 350 | |
Thereafter | |
| 740 | |
Total | |
$ | 226,696 | |
Convertible Senior Notes
On December 4, 2013, the Company completed
a private offering of $150,000 aggregate principal amount of 2.25% Cash Convertible Senior Notes (the “Notes”), dated
as of December 4, 2013 between the Company and Wilmington Trust, National Association, as Trustee. The Notes will mature
on November 15, 2018, unless earlier repurchased or converted into cash in accordance with their terms prior to such date and
interest is paid in arrears semiannually on each May 15 and November 15 at an annual rate of 2.25% beginning on May 15, 2014.
The Notes were offered and sold only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933,
as amended (the "Securities Act").
The Notes are not convertible into the Company's
common stock or any other securities under any circumstances. Holders may convert their Notes solely into cash at their option
at any time prior to the close of business on the business day immediately preceding May 15, 2018 only under the following circumstances:
(1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2013 (and only during such calendar
quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive)
during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is
greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period
after any five consecutive trading day period in which the trading price per thousand dollars principal amount of Notes for each
trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common
stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after
May 15, 2018 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders
may convert their Notes solely into cash at any time, regardless of the foregoing circumstances. Upon conversion, in lieu of receiving
shares of the Company's common stock, a holder will receive, per thousand dollars principal amount of Notes, an amount in cash
equal to the settlement amount, determined in the manner set forth in the indenture.
The initial conversion rate is 63.9844 shares
of the Company's common stock per thousand dollars principal amount of Notes (equivalent to an initial conversion price of approximately
$15.63 per share of common stock). The conversion rate is subject to adjustment in some events as described in the Indenture but
will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to
the maturity date, the Company has agreed to pay a cash make-whole premium by increasing the conversion rate for a holder who
elects to convert its Notes in connection with such a corporate event in certain circumstances as described in the indenture.
The Company may not redeem the Notes prior
to the maturity date, and no sinking fund is provided for the Notes.
The cash conversion feature of the Notes (“Notes
Conversion Derivative”) requires bifurcation from the Notes in accordance with ASC Topic 815, Derivatives and Hedging,
and is accounted for as a derivative liability. The fair value of the Notes Conversion Derivative at the time of issuance of the
Notes was $33,600 and was recorded as original debt discount for purposes of accounting for the debt component of the Notes. This
discount is amortized as interest expense using the effective interest method over the term of the Notes. For the three months
ended March 31, 2015, the Company recorded $1,514 of amortization of the debt discount as interest expense based upon an effective
rate of 7.69%.
The components of the Notes were as follows:
| |
March 31, 2015 | | |
December 31, 2014 | |
Principal amount | |
$ | 150,000 | | |
$ | 150,000 | |
Unamortized debt discount | |
| 25,790 | | |
| 27,304 | |
Net carrying amount of Notes | |
$ | 124,210 | | |
$ | 122,696 | |
In connection with the pricing of the Notes,
on November 19, 2013, the Company entered into cash convertible note hedge transactions (“Notes Hedges”) relating
to a notional number of shares of the Company's common stock underlying the Notes to be issued by the Company with two counterparties
(the "Option Counterparties"). The Notes Hedges, which are cash-settled, are intended to reduce the Company’s
exposure to potential cash payments that we are required to make upon conversion of the Notes in excess of the principal amount
of converted notes if our common stock price exceeds the conversion price. The Notes Hedges are accounted for as a derivative
instrument in accordance with ASC Topic 815. The aggregate cost of the note hedge transaction was $33,600.
At the same time, the Company also entered
into separate warrant transactions with each of the Option Counterparties initially relating, in the aggregate, to 9,598 shares
of the Company's common stock underlying the note hedge transactions. The cash convertible note hedge transactions are intended
to offset cash payments due upon any conversion of the Notes. However, the warrant transactions could separately have a dilutive
effect to the extent that the market price per share of the Company's common stock (as measured under the terms of the warrant
transactions) exceeds the applicable strike price of the warrants. The initial strike price of the warrants is $18.9440 per
share, which is 60% above the last reported sale price of the Company's common stock of $11.84 on November 19, 2013 and proceeds
of $23,100 were received from the Option Counterparties from the sale of the warrants.
Aside from the initial payment of a $33,600
premium to the Option Counterparties, the Company is not required to make any cash payments to the Option Counterparties under
the Note Hedges and will be entitled to receive from the Option Counterparties an amount of cash, generally equal to the amount
by which the market price per share of common stock exceeds the strike price of the Note Hedges during the relevant valuation
period. The strike price under the Note Hedges is initially equal to the conversion price of the Notes. Additionally, if the market
price per share of the Company's common stock, as measured under the warrant transactions, exceeds the strike price of the warrants
during the measurement period at the maturity of the warrants, the Company will be obligated to issue to the Option Counterparties
a number of shares of the Company's common stock in an amount based on the excess of such market price per share of the Company's
common stock over the strike price of the warrants. The Company will not receive any proceeds if the warrants are exercised.
Neither the Notes Conversion Derivative nor
the Notes Hedges qualify for hedge accounting, thus any changes in the fair market value of the derivatives is recognized immediately
in the statement of operations. As of March 31, 2015 and March 31, 2014, the changes in fair market value of the Notes Conversion
Derivative and the Notes Hedges were equal, therefore there was no change in fair market value that was recognized in the statement
of operations.
The following table summarizes the fair value
and the presentation in the consolidated balance sheet:
| |
Location on Balance Sheet | |
March 31, 2015 | | |
December 31, 2014 | |
Notes Hedges | |
Other assets | |
$ | 65,363 | | |
$ | 58,928 | |
Notes Conversion Derivative | |
Other liabilities | |
$ | (65,363 | ) | |
$ | (58,928 | ) |
Term Loan and Revolving Credit Facility
In April 2012, the Company entered into a
$20,000 credit facility consisting of a 4-year, $5,000 term loan and a $15,000 revolving line of credit. In April 2014, the Company
utilized the balance of restricted cash to pay off the balance of the term loan, thereby eliminating the term loan liability.
In June 2014, the Company terminated the credit agreement while still maintaining the letters of credit, thus requiring the Company
to continue to maintain restricted cash to collateralize these letters of credit.
The balance required to be maintained as restricted
cash must be at least 110% of the maximum potential amount of the outstanding letters of credit. As of March 31, 2015, the
Company had $3,123 of outstanding letters of credit secured by restricted cash.
On October 24, 2014, the Company entered into
a $50,000 senior secured credit agreement (the “Credit Agreement”) consisting of a 3-year, $50,000 revolving credit
facility, which includes a $15,000 sublimit for the issuance of standby letters of credit and a $5,000 sublimit for swing line
loans. The Credit Agreement also included an accordion feature that, subject to securing additional commitments from existing
lenders or new lending institutions, would have allowed the Company to increase the aggregate commitments under the Credit Agreement
by up to $10,000. On December 23, 2014, the Credit Agreement was amended to increase the available commitment to $75,000, increasing
and using the accordion feature in its entirety. The amount available to be borrowed under the Credit Agreement at March 31, 2015
was $40.
Borrowings made under the Credit Agreement
bear interest at (a) the one-month, three-month or six-month LIBOR rate (the “LIBOR Rate”) or (b) a base rate determined
by reference to the highest of (i) the Barclays Bank PLC prime rate, (ii) the United States federal funds rate plus 0.50% and
(iii) a daily rate equal to the one-month LIBOR Rate plus 1.0% (the “Base Rate”), plus an applicable margin of 2.25%
per annum for LIBOR Rate loans and 1.25% per annum for Base Rate loans. As of March 31, 2015 the interest rate on the Credit Agreement
was 2.52%.
The Credit Agreement contains financial covenants,
including maximum total leverage ratio and minimum consolidated current assets and extends for the remaining term of the agreement.
As of March 31, 2015, the Company was in compliance with its current financial covenants.
IDA Bonds
The Company maintains variable interest rate
industrial development authority (“IDA”) bonds due in increasing annual installments through 2021. Interest payments
are due monthly with a current interest rate of 0.09% at March 31, 2015. The amount outstanding as of March 31, 2015 was $2,390.
Note 6 — Restructuring
and Impairment
In April 2015,
the Company announced a restructuring plan with respect to certain operations in the UK, within its Active Pharmaceutical Ingredients
(“API”) business segment. In connection with the restructuring plan, the Company expects to cease all operations at
its Holywell, UK facility effective in the fourth quarter or before December 31, 2015. The Company recorded $1,263 reduction in
force and termination benefits related to the UK facility during the three months ended March 31, 2015. The Company expects to
incur cash charges related to other transition activities, in addition to non-cash fixed asset impairment and accelerated depreciation
charges, the majority of which will be recognized within the first three quarters of 2015.
In conjunction with the
Company’s actions to cease operations at its Holywell, UK facility, the Company also recorded property and equipment impairment
charges of $2,550 in the API segment in the three months ended March 31, 2015. These charges are included under the caption “Impairment
charges” on the Consolidated Statement of Operations. The Company is in the process of assessing which fixed assets will
be transferred to other Company facilities. Equipment that will not be transferred or recovered through sale may be subject to
accelerated depreciation over the remaining operating period of the facility.
In the third quarter of 2014, the Company
recorded restructuring charges related to optimizing the Singapore facility’s footprint. In April 2014, the Company announced
a restructuring plan transitioning Discovery and Development Services (“DDS”) activities at its Syracuse, N.Y. site
to other sites within AMRI and ceased operations in Syracuse, NY at the end of June 2014. The actions taken are consistent with
the Company’s ongoing efforts to consolidate its facility resources to more effectively utilize its discovery and development
resource pool and to further reduce its facility cost structure.
Restructuring charges for the three months
ended March 31, 2015 were $1,487, consisting primarily of UK termination charges as well as, lease termination and other charges
associated with the previously announced restructuring at our Singapore and Syracuse, NY facilities.
The following table displays the restructuring activity and liability
balances for the three month period ended and as of March 31, 2015:
| |
Balance at January
1, 2015 | | |
Charges/ (reversals) | | |
Amounts
Paid | | |
Foreign Currency
Translation & Other Adjustments | | |
Balance
at March 31, 2015 | |
| |
| | |
| | |
| | |
| | |
| |
Termination benefits and personnel realignment | |
$ | 226 | | |
$ | 1,256 | | |
$ | (92 | ) | |
$ | −
| | |
$ | 1,390 | |
Lease termination and relocation charges | |
| 3,280 | | |
| 103 | | |
| (1,465 | ) | |
| (45 | ) | |
| 1,873 | |
Other | |
| −
| | |
| 128 | | |
| (95 | ) | |
| −
| | |
| 33 | |
Total | |
$ | 3,506 | | |
$ | 1,487 | | |
$ | (1,652 | ) | |
$ | (45 | ) | |
$ | 3,296 | |
Termination benefits and
personnel realignment costs related to severance packages, outplacement services, and career counseling for employees affected
by the restructuring. Lease termination charges relate to estimated costs associated with exiting a facility, net of estimated
sublease income.
Restructuring charges are included under the
caption “Restructuring charges” in the consolidated statements of operations for the three months ended March 31,
2015 and 2014 and the restructuring liabilities are included in “Accounts payable and accrued expenses” and “other
long-term liabilities” on the consolidated balance sheets at March 31, 2015 and December 31, 2014.
Anticipated cash outflow
related to the restructuring reserves as of March 31, 2015 for the remainder of 2015 is approximately $1,633.
The Company is currently
marketing its Syracuse, NY facility for sale, within its DDS operating segment. The facility is classified as for held for sale
in accordance with ASC Topic 360, “Property, Plant and Equipment”, as amended by ASU 2014-08, “Reporting Discontinued
Operations and Disclosures of Components of an Entity”. The long-lived assets associated with the Syracuse, NY facility
have been segregated to a separate line item on the consolidated balance sheet until they are sold and depreciation expense on
the location has ceased. The carrying value of the facility is $1,132 at March 31, 2015.
Note 7 — Goodwill and Intangible Assets
The changes in the carrying amount of goodwill
for the three months ended March 31, 2015 were as follows:
| |
DDS | | |
API | | |
Drug Product | | |
Total | |
Balance as of December 31, 2014 | |
$ | - | | |
$ | 16,899 | | |
$ | 44,879 | | |
$ | 61,778 | |
Goodwill acquired | |
| 17,830 | | |
| - | | |
| 13,324 | | |
| 31,154 | |
Foreign exchange translation | |
| - | | |
| - | | |
| (73 | ) | |
| (73 | ) |
Balance as of March 31, 2015 | |
$ | 17,830 | | |
$ | 16,899 | | |
$ | 58,130 | | |
$ | 92,859 | |
The components of intangible assets are as follows:
| |
Cost | | |
Impairment | | |
Accumulated
Amortization | | |
Net | | |
Amortization
Period |
March 31,
2015 | |
| | | |
| | | |
| | | |
| | | |
|
Patents and Licensing Rights | |
$ | 6,417 | | |
$ | (65 | ) | |
$ | (5,355 | ) | |
$ | 997 | | |
2-16 years |
Customer Relationships | |
| 39,415 | | |
| - | | |
| (2,356 | ) | |
| 37,059 | | |
5-20 years |
Trademarks | |
| 2,190 | | |
| - | | |
| (280 | ) | |
| 1,910 | | |
5 years |
Total | |
$ | 48,022 | | |
$ | (65 | ) | |
$ | (7,991 | ) | |
$ | 39,966 | | |
|
| |
Cost | | |
Impairment | | |
Accumulated
Amortization | | |
Net | | |
Amortization
Period |
December 31,
2014 | |
| | | |
| | | |
| | | |
| | | |
|
Patents and Licensing Rights | |
$ | 4,716 | | |
$ | (2,443 | ) | |
$ | (1,781 | ) | |
$ | 492 | | |
2-16 years |
Customer Relationships | |
| 32,315 | | |
| - | | |
| (1,679 | ) | |
| 30,636 | | |
5-20 years |
Trademarks | |
| 1,600 | | |
| - | | |
| (180 | ) | |
| 1,420 | | |
5 years |
Total | |
$ | 38,631 | | |
$ | (2,443 | ) | |
$ | (3,640 | ) | |
$ | 32,548 | | |
|
Amortization expense related to intangible
assets was $750 and $111 for the three months ended March 31, 2015 and 2014, respectively. The weighted average amortization period
is 16.6 years.
The following chart represents estimated future
annual amortization expense related to intangible assets:
Year ending December 31, | |
| |
2015 (remaining) | |
$ | 2,330 | |
2016 | |
| 2,785 | |
2017 | |
| 2,785 | |
2018 | |
| 2,779 | |
2019 | |
| 2,519 | |
Thereafter | |
| 26,768 | |
Total | |
$ | 39,966 | |
Note 8 — Share-Based Compensation
During the three months ended March 31, 2015
and 2014, the Company recognized total share based compensation cost of $1,555 and $933, respectively.
The Company grants share-based compensation,
including restricted shares, under its 2008 Stock Option and Incentive Plan, as well as its 1998 Employee Stock Purchase Plan.
Restricted Stock
A summary of unvested restricted stock activity during the three
months ended March 31, 2015 is presented below:
| |
Number of Shares | | |
Weighted Average Grant Date
Fair Value Per
Share | |
Outstanding, January 1, 2015 | |
| 923 | | |
$ | 11.26 | |
Granted | |
| 352 | | |
$ | 15.99 | |
Vested | |
| (134 | ) | |
$ | 9.91 | |
Forfeited | |
| (74 | ) | |
$ | 7.55 | |
Outstanding, March 31, 2015 | |
| 1,067 | | |
$ | 12.85 | |
As of March 31, 2015, there was $12,051 of
total unrecognized compensation cost related to unvested restricted shares. That cost is expected to be recognized over a weighted-average
period of 3.21 years. Of the 1,067 restricted shares outstanding, the Company currently expects 1,057 shares to vest.
Stock Options
The fair value of each stock option award
is estimated at the date of grant using the Black-Scholes valuation model based on the following assumptions:
| |
For the Three
Months Ended | |
| |
March 31, 2015 | | |
March 31, 2014 | |
Expected life in years | |
| 5 | | |
| 5 | |
Risk free interest rate | |
| 1.59 | % | |
| 1.52 | % |
Volatility | |
| 41.69 | % | |
| 53.03 | % |
Dividend yield | |
| — | | |
| — | |
A summary of stock option activity under the
Company’s Stock Option and Incentive Plans during the three month period ended March 31, 2015 is presented below:
| |
Number of Shares | | |
Weighted Average Exercise Price Per Share | | |
Weighted Average Remaining Contractual Term (Years) | | |
Aggregate Intrinsic Value | |
Outstanding, January 1, 2015 | |
| 1,804 | | |
$ | 6.18 | | |
| | | |
| | |
Granted | |
| 266 | | |
$ | 16.93 | | |
| | | |
| | |
Exercised | |
| (194 | ) | |
$ | 3.34 | | |
| | | |
| | |
Forfeited | |
| (138 | ) | |
$ | 5.64 | | |
| | | |
| | |
Expired | |
| — | | |
| — | | |
| | | |
| | |
Outstanding, March 31, 2015 | |
| 1,738 | | |
$ | 6.05 | | |
| 7.15 | | |
$ | 16,360 | |
Options exercisable, March 31, 2015 | |
| 1,092 | | |
$ | 8.18 | | |
| 6.16 | | |
$ | 12,610 | |
The weighted average fair value of stock options
granted for the three months ended March 31, 2015 and 2014 was $6.51 and $4.85, respectively. As of March 31, 2015, there was
$2,915 of total unrecognized compensation cost related to unvested stock options. That cost is expected to be recognized over
a weighted-average period of 2.94 years. Of the 1,738 stock options outstanding, the Company currently expects 1,706 options to
vest.
Employee Stock Purchase Plan
During the three months ended March 31, 2015
and 2014, 28 and 36 shares, respectively, were issued under the Company’s 1998 Employee Stock Purchase Plan (“ESPP”).
During the three months ended March 31, 2015
and 2014, cash received from stock option exercises and employee stock purchases under the ESPP was $1,038 and $1,344, respectively.
The excess tax benefit realized for the tax deductions from share based compensation was $1,153 and $635 for the three months
ended March 31, 2015 and 2014, respectively.
Note 9 — Operating Segment Data
The Company has organized its operations into
the Discovery and Development Services (“DDS”), Large Scale API (“API”) and Drug Products segments. The
DDS segment includes activities such as drug lead discovery, optimization, drug development and small scale commercial manufacturing.
API includes pilot to commercial scale manufacturing of active pharmaceutical ingredients and intermediates and high potency and
controlled substance manufacturing. Drug Product includes formulation through commercial scale production of complex liquid-filled
and lyophilized injectable formulations. Corporate activities include sales and marketing and administrative functions, as well
as research and development costs that have not been allocated to the operating segments. Prior period disclosures have been adjusted
to reflect the changes in reportable segments that took place in the third quarter of 2014 in conjunction with the purchase of
OsoBio.
The following table contains earnings data by operating segment,
reconciled to totals included in the unaudited condensed consolidated financial statements:
| |
Contract Revenue | | |
Milestone & Recurring Royalty Revenue | | |
Income (Loss) from
Operations | | |
Depreciation and Amortization | |
For the three months ended March 31, 2015 | |
| | | |
| | | |
| | | |
| | |
DDS | |
$ | 19,263 | | |
$ | 3,817 | | |
$ | 8,722 | | |
$ | 1,805 | |
API | |
| 37,848 | | |
| 2,868 | | |
| 6,797 | | |
| 2,421 | |
Drug Product | |
| 18,020 | | |
| — | | |
| 3,185 | | |
| 1,260 | |
Corporate | |
| — | | |
| — | | |
| (17,475 | ) | |
| — | |
Total | |
$ | 75,131 | | |
$ | 6,685 | | |
$ | 1,229 | | |
$ | 5,486 | |
| |
Contract Revenue (a) | | |
Milestone & Recurring Royalty Revenue | | |
Income (Loss) from
Operations | | |
Depreciation and
Amortization | |
For the three months ended March 31, 2014 | |
| | |
| | |
| | |
| |
DDS | |
$ | 18,990 | | |
$ | 5,975 | | |
$ | 8,461 | | |
$ | 1,751 | |
API | |
| 29,760 | | |
| 2,308 | | |
| 10,083 | | |
| 1,726 | |
Drug Product | |
| 2,288 | | |
| — | | |
| (450 | ) | |
| 284 | |
Corporate | |
| — | | |
| — | | |
| (10,629 | ) | |
| — | |
Total | |
$ | 51,038 | | |
$ | 8,283 | | |
$ | 7,465 | | |
$ | 3,761 | |
| (a) | A
portion of the 2014 amounts were reclassified from DDS to API to better align business
activities within the Company’s reporting segments. This reclassification impacted
contract revenues for 2014. |
The following table summarizes other information by segment as
of and for the three month period ended March 31, 2015:
| |
DDS | | |
API | | |
Drug Product | | |
Total | |
Long-lived assets | |
$ | 78,159 | | |
$ | 103,058 | | |
$ | 128,605 | | |
$ | 309,822 | |
Total assets | |
| 162,147 | | |
| 274,193 | | |
| 134,802 | | |
| 571,142 | |
Goodwill included in total assets | |
| 17,830 | | |
| 16,899 | | |
| 58,130 | | |
| 92,859 | |
Investments in unconsolidated affiliates | |
| 956 | | |
| - | | |
| - | | |
| 956 | |
Capital expenditures | |
| 1,493 | | |
| 2,211 | | |
| 423 | | |
| 4,127 | |
The following table summarizes other information by segment as
of and for the three month period ended March 31, 2014:
| |
DDS | | |
API | | |
Drug Product | | |
Total | |
Long-lived assets | |
$ | 56,106 | | |
$ | 67,915 | | |
$ | 6,377 | | |
$ | 130,398 | |
Total assets | |
| 291,905 | | |
| 194,206 | | |
| 15,380 | | |
| 501,491 | |
Investments in unconsolidated affiliates | |
| 956 | | |
| - | | |
| - | | |
| 956 | |
Capital expenditures | |
| 794 | | |
| 1,966 | | |
| 192 | | |
| 2,952 | |
Note 10 — Financial Information by Customer Concentration
and Geographic Area
Total contract revenue from DDS’s three
largest customers each represented approximately 11%, 10% and 4% for the three months ended March 31, 2015, and approximately
9%, 8% and 8%, of DDS’s total contract revenue for the three months ended March 31, 2014.
Total contract revenue from API’s largest
customer, GE Healthcare (“GE”), represented 25% and 34% of API’s total contract revenue for the three months
ended March 31, 2015 and 2014, respectively. API’s second largest customer represented 16% of API’s total contract
revenue for both the three months ended March 31, 2015 and 2014.
Total contract revenue from Drug Product’s
three largest customers each represented approximately 12%, 12% and 11% for the three months ended March 31, 2015 and 29%, 17%
and 17% for the three months ended March 31, 2014, respectively.
The Company’s total contract revenue
for the three months ended March 31, 2015 and 2014 was recognized from customers in the following geographic regions:
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
United States | |
| 69 | % | |
| 63 | % |
Europe | |
| 25 | | |
| 25 | |
Asia | |
| 4 | | |
| 9 | |
Other | |
| 2 | | |
| 3 | |
Total | |
| 100 | % | |
| 100 | % |
Long-lived assets by geographic region are
as follows:
| |
March 31, 2015 | | |
December 31, 2014 | |
United States | |
$ | 269,535 | | |
$ | 238,780 | |
Asia | |
| 15,205 | | |
| 14,986 | |
Europe | |
| 25,082 | | |
| 6,035 | |
Total long-lived assets | |
$ | 309,822 | | |
$ | 259,801 | |
Note 11 — Legal Proceedings
The Company, from time to time, may be involved
in various claims and legal proceedings arising in the ordinary course of business. Except as noted below, the Company is not
currently a party to any such claims or proceedings which, if decided adversely to the Company, would either individually or in
the aggregate have a material adverse effect on the Company’s business, financial condition, results of operations or cash
flows.
On November 12, 2014, a purported class action
lawsuit, John Gauquie v. Albany Molecular Research, Inc., et al., No. 14-cv-6637, was filed against the Company and certain
of its current and former officers in the United States District Court for the Eastern District of New York. The complaint
alleges claims under the Securities Exchange Act of 1934 arising from the Company’s August 5, 2014 announcement of its financial
results for the second quarter of 2014, including that the OsoBio New Mexico facility experienced a power interruption in July
2014, which would have a material impact on the Company’s results. The complaint alleges that the price of the Company’s
stock was artificially inflated between August 5, 2014 and November 5, 2014, and seeks certification as a class action, unspecified
monetary damages and attorneys’ fees and costs.
Allegra:
As of early in the first quarter of 2014,
the Company settled all of the pending United States and foreign litigations surrounding the marketing of generic versions of
Allegra and Allegra-D products. All of the prior legal proceedings have been settled or resolved to the mutual satisfaction of
the parties and the related litigations have been dismissed by the mutual consent of the parties. The Company, along with Aventis
Pharmaceuticals Inc., the U.S. pharmaceutical business of Sanofi, pursued those prior legal proceedings against several companies
seeking to market or which are currently marketing generic versions of Allegra and Allegra-D products. In accordance with the
Company’s agreements with Sanofi, Sanofi bears the external legal fees and expenses for these legal proceedings, but in
general, the Company must consent to any settlement or other arrangement with any third party. Under those same agreements, the
Company received royalties from Sanofi and certain approved sub-licensees on U.S. Patent No. 5,578,610 until it expired in November
2013, and will receive royalties on U.S. Patent No. 5,750,703 until its expiration in 2015, unless those patents are earlier determined
to be invalid. The Company is also entitled to receive certain royalties from Sanofi and certain approved sub-licensees through
mid-2015, unless the relevant patent(s) are earlier determined to be invalid.
Note 12 – Fair Value
The Company uses a framework for measuring
fair value in generally accepted accounting principles and making disclosures about fair value measurements. A three-tiered
fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value.
These tiers include:
Level 1 – defined as quoted prices in
active markets for identical instruments;
Level 2 – defined as inputs other than
quoted prices in active markets that are either directly or indirectly observable; and Level 3 – defined as unobservable
inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company determines the
fair value of its financial instruments using the following methods and assumptions:
Cash and cash equivalents,
restricted cash, receivables, and accounts payable: The carrying amounts reported in the consolidated balance sheets
approximate their fair value because of the short maturities of these instruments.
Convertible senior notes, derivatives and hedging instruments:
The fair values of the Company’s Notes, which differ from their carrying values, are influenced by interest rates and
the Company's stock price and stock price volatility and are determined by prices for the Notes observed in market trading, which
are level 2 inputs. The estimated fair value of the Notes at March 31, 2015 was $191,063. The Notes Hedges and the Notes Conversion
Derivative are measured at fair value using level 2 inputs. These instruments are not actively traded and are valued using an
option pricing model that uses observable market data for all inputs, such as implied volatility of the Company's common stock,
risk-free interest rate and other factors.
Long-term debt, other
than convertible senior notes: The carrying value of long-term debt approximated fair value at March 31, 2015 and December
31, 2014 due to the resetting dates of the variable interest rates.
Note 13 – Accumulated Other Comprehensive Loss, Net
The activity related to accumulated other comprehensive loss, net
was as follows:
| |
Pension and postretirement benefit plans | | |
Foreign currency adjustments | | |
Total Accumulated Other Comprehensive Loss | |
Balance at December 31, 2014, net of tax | |
$ | (6,374 | ) | |
$ | (8,060 | ) | |
$ | (14,434 | ) |
Net current period change, net of tax | |
| 154 | | |
| (1,146 | ) | |
| (992 | ) |
Balance at March 31, 2015, net of tax | |
$ | (6,220 | ) | |
$ | (9,206 | ) | |
$ | (15,426 | ) |
The following table provides additional details of the amounts
recognized into net earnings from accumulated other comprehensive loss, net:
| |
Three Months
Ended March 31, 2015 | | |
Three Months
Ended March 31, 2014 | |
| |
| | |
| |
Actuarial losses (a) | |
$ | 237 | | |
$ | 156 | |
Total before tax effect | |
| 237 | | |
| 156 | |
Tax benefit on amounts reclassified into earnings | |
| (83 | ) | |
| (55 | ) |
| |
$ | 154 | | |
$ | 101 | |
(a) Amounts represent amortization
of net actuarial loss from shareholders’ equity into postretirement benefit plan cost. This amount was primarily recognized
as cost of contract revenue in the consolidated statement of operations.
Note 14 – Employee Benefit Plans
In the first quarter of
2014, the union ratified an action to settle the medical component of the post-retirement plan, significantly reducing the level
of benefits available to the participants. As a result, the Company recorded $1,285 of operating income in the first quarter of
2014 due to the settlement of this obligation.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion of our results of
operations and financial condition should be read in conjunction with the accompanying Condensed Consolidated Financial Statements
and the Notes thereto included within this report. This quarterly report on Form 10-Q contains “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These statements may be identified by forward-looking words such as “may,” “could,”
“should,” “would,” “will,” “intend,” “expect,” “anticipate,”
“believe,” and “continue” or similar words, and include, but are not limited to, statements concerning
the Company’s relationship with its largest customers, the Company’s collaboration with Bristol-Myers Squibb (“BMS”)
and Genentech, expected benefits from the acquisitions of Cedarburg Pharmaceuticals, Inc. (“Cedarburg”), the Glasgow,
UK business (“Glasgow”), our SSCI/West Lafayette business (“SSCI”) and Oso Biopharmaceuticals Manufacturing,
LLC (“OsoBio”), statements regarding the business interruption event at the Albuquerque, New Mexico facility and the
time and resources involved in the remediation thereof and the impact of such event on the Company’s results of operations,
past and future acquisitions or divestitures, earnings, contract revenues, costs and margins, patent protection, Allegra®
and Actavis royalty revenue, statements regarding pending litigation matters, government regulation, retention and recruitment
of employees, customer spending and business trends, foreign operations, including increasing options and solutions for customers,
business growth and the expansion of the Company’s global market, clinical supply manufacturing, management’s strategic
plans, drug discovery, product commercialization, license arrangements, research and development projects and expenses, revenue
and expense expectations for future periods, long-lived asset impairment, pension and postretirement benefit costs, competition
and tax rates. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties
and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed
in any forward-looking statements. Factors that could cause such differences include, but are not limited to, those discussed
in Part I, Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the year ended December 31,
2014, as filed with the Securities and Exchange Commission on March 16, 2015, and Part II Item 1A, “Risk Factors,”
in this Form 10-Q. All forward-looking statements are made as of the date of this report, and we do not undertake to update any
such forward-looking statements in the future, except as required by law. References to “AMRI”, the “Company,”
“we,” “us,” and “our,” refer to Albany Molecular Research, Inc. and its subsidiaries, taken
as a whole.
Overview
We are a leading
global contract research and manufacturing organization providing customers fully integrated drug discovery, development, and
manufacturing services. We supply a broad range of services and technologies supporting the discovery and development of pharmaceutical
products, the manufacturing of active pharmaceutical ingredients and the manufacturing of drug product for new and generic drugs,
as well as research, development and manufacturing for the agrochemical and other industries. With locations in the United States,
Europe, and Asia, we maintain geographic proximity to our customers and flexible cost models.
We continue to integrate our research and
manufacturing facilities worldwide, increasing our access to key global markets and enabling us to provide our customers with
a flexible combination of high quality services and competitive cost structures to meet their individual outsourcing needs.
Our service offerings range from early stage discovery through formulation and manufacturing. We believe that the ability to partner
with a single provider is of significant benefit to our customers as we are able to provide them with a more efficient transition
of experimental compounds through the research and development process, ultimately reducing the time and cost involved in bringing
these compounds from concept to market. Compounds discovered and/or developed in our contract research facilities can then be
more easily transitioned to production at our large-scale manufacturing facilities for use in clinical trials and, ultimately,
commercial sales if the product meets regulatory approval.
In addition to providing an integrated services
model for outsourcing, we offer our customers the option of insourcing. With our world class expertise in managing high performing
groups of scientists, this option allows us to embed our scientists into the customer’s facility allowing the customer to
cost-effectively leverage their unused laboratory space.
As our customers continue to seek innovative
new strategies for R&D efficiency and productivity, we are aggressively realigning our business and resources to address their
needs. We use a cross-functional approach that maximizes the strengths of both insourcing and outsourcing, by leveraging AMRI’s
people, know-how, facilities, expertise and global project management to provide exactly what is needed across the discovery,
development or manufacturing process. We have also streamlined our sales and marketing organization to optimize cross-selling
opportunities and have enhanced our commitment to quality with the appointment of key personnel, underscoring our dedication to
client service. Our improved organizational structure, combined with more focused marketing efforts, should enable us to continue
to drive long term growth and profitability.
Over the last few years, we have implemented
a number of organizational and rationalization initiatives and acquired new businesses to better align our operations to most
efficiently support our customer’s needs and grow our revenue and overall profitability. The goal of these restructuring
activities has been to advance our strategy of increasing global competitiveness and managing costs by aligning resources to meet
shifting customer demand and market preferences, while optimizing our location footprint. Our acquisitions enhance and complement
our existing service offerings and are expected to contribute to our growth.
Our backlog of open manufacturing orders and
accepted service contracts was $172.9 million at March 31, 2015 as compared to $115.9 million at March 31, 2014. Our manufacturing
and services contracts are completed over varying durations, from short to extended periods of time.
We believe our aggregate backlog as of any
date is not necessarily a meaningful indicator of our future results for a variety of reasons. First, contracts vary in duration,
and therefore the timing and amount of revenues recognized from backlog can vary from period to period. Second, the Company’s
manufacturing and services contracts are of a nature that a customer may, at its option, cancel or delay the timing of delivery,
which would change our projections concerning the timing and extent to which revenue may be recognized. In addition, the value
of the Company’s services contracts that are conducted on a time and materials or full-time equivalent basis are based on
estimates, from which actual revenue generated could vary. Finally, there is no assurance that projects included in backlog will
not be terminated or delayed at any time by customers or regulatory authorities. We cannot provide any assurance that we will
be able to realize all or most of the net revenues included in backlog or estimate the portion to be filled in the current year.
Results of Operations – Three Months ended March 31, 2015 Compared to Three Months Ended March 31, 2014
Our total revenue for the quarter ended March
31, 2015 was $81.8 million, which included $75.1 million from our contract service business and $6.7 million from royalties on
sales of Allegra/Telfast and certain products sold by Actavis. Consolidated gross margin was 22.7% for the quarter ended March
31, 2015 as compared to 18.5% for the quarter ended March 31, 2014.
During the three months ended March 31, 2015,
cash provided by operations was $4.4 million compared to cash used in operations of $8.1 million for the same period of 2014.
The change from the three months ended March 31, 2015 was primarily driven by a decrease in accounts receivable balances, as well
as an increase in accounts payable and accrued expenses during the quarter.
During the three months ended March 31, 2015, we spent $4.1 million on capital expenditures, primarily related to growth and maintenance
of our existing facilities. During the three months ended March 31, 2015, we spent $23.5 million to acquire
Glasgow and $35.8 million to acquire SSCI. Our net loss
was $2.2 million during the three months ended March 31, 2015, largely due to the impact of restructuring and property impairment
charges related to the closing of our UK facility.
Operating Segment Data
We’ve organized our operations into
the Discovery and Development Services (“DDS”), Large Scale API (“API”) and Drug Products segments. The
DDS includes activities such as drug lead discovery, optimization, drug development and small scale commercial manufacturing.
API includes pilot to commercial scale manufacturing of active pharmaceutical ingredients and intermediates and high potency and
controlled substance manufacturing. Drug Product includes formulation through commercial scale production of complex liquid-filled
and lyophilized injectable formulations. Corporate activities include sales and marketing and administrative functions, as well
as research and development costs that have not been allocated to the operating segments. Prior period disclosures have been adjusted
to reflect the changes in reportable segments that took place in the third quarter of 2014 in conjunction with the purchase of
OsoBio.
A portion of the 2014 amounts were reclassified
from DDS to API to better align business activities within our reporting segments. This reclassification impacted contract revenue
and cost of revenues for 2014.
Revenue
Total contract revenue
Contract revenue consists primarily of fees
earned under manufacturing or service contracts with third-party customers. Our contract revenues for each of our DDS, API and
Drug Product segments were as follows:
| |
Three Months Ended March 31, | |
(in thousands) | |
2015 | | |
2014 | |
| |
| | |
| |
DDS | |
$ | 19,263 | | |
$ | 18,990 | |
API | |
| 37,848 | | |
| 29,760 | |
Drug Product | |
| 18,020 | | |
| 2,288 | |
Total | |
$ | 75,131 | | |
$ | 51,038 | |
DDS contract revenue for the three months
ended March 31, 2015 remained consistent from 2014 primarily due to incremental
revenue from our acquisition of the SSCI business in February 2015, offset by decreases in our U.S. chemistry services and U.S.
development and small-scale services. We currently expect DDS contract revenue for full year 2015 to increase from amounts
in 2014 driven by improved facility utilization at all of our sites as well as incremental revenue from our acquisition of the
SSCI business.
API contract revenue for the three months
ended March 31, 2015 increased from 2014 primarily due to an increase
in commercial demand at our existing U.S. manufacturing facilities as well as incremental revenue of $3.1 million from the Cedarburg
acquisition which we completed in April 2014. These increases were partially offset by a decrease in demand in large-scale services
at our facility in the UK. We currently expect continued growth in API contract revenue for full year 2015 due to on-going
demand for our commercial and clinical manufacturing services worldwide, and full
year revenue from Cedarburg.
Drug Product contract revenue for the three
months ended March 31, 2015 increased from 2014 due to $11.3 million
in revenue from the acquisition of OsoBio, $4.0 million from our acquisition of the Glasgow, UK facility in January 2015, and
increased demand at our Burlington, MA facility. We currently expect continued growth in Drug Product contract revenue
for full year 2015 due to a full year of revenue from OsoBio,
the incremental revenue from our Glasgow, UK facility and continued demand at our Burlington facility.
Recurring royalty revenue
Three Months Ended March 31, | |
2015 | | |
2014 | |
(in thousands) | |
$ | 6,685 | | |
$ | 8,283 | |
The largest portion of our recurring royalties
relates to worldwide sales of Allegra/Telfast and Sanofi over-the-counter product and authorized generics. Additionally, beginning
in the third quarter of 2012 we have earned recurring royalty revenue in conjunction with a Development and Supply Agreement with
Actavis.
Recurring royalties decreased during the three
months ended March 31, 2015 as compared to 2014 as a result of additional
patent expirations. These amounts were partially offset by an increase in Actavis royalties during the period. We currently
expect full year 2015 recurring royalties to decline due to the expiration of the patents underlying the Allegra royalties in
the second quarter of 2015.
The recurring royalties we receive on the
sales of Allegra/Telfast have historically provided a material portion of our revenues, earnings and operating cash flows. We
have been issued various United States and international patents covering fexofenadine HC1 and certain related manufacturing processes.
These U.S. patents began to expire in November 2013. The international patents began to expire in 2014 and most of these patents
are covered by our license agreements with Sanofi. We continue to develop our business in an effort to supplement the revenues,
earnings and operating cash flows that have historically been provided by Allegra/Telfast royalties.
Costs and Expenses
Cost of contract revenue
Cost of contract revenue consists of compensation and associated
fringe benefits for employees, chemicals, depreciation and other indirect project related costs. Cost of contract revenue for
our DDS, API and Drug Product segments were as follows:
| |
Three Months Ended March 31, | |
Segment | |
2015 | | |
2014 | |
(in thousands) | |
| | |
| |
DDS | |
$ | 14,756 | | |
$ | 15,627 | |
API | |
| 28,583 | | |
| 23,245 | |
Drug Product | |
| 14,800 | | |
| 2,738 | |
Total | |
$ | 58,139 | | |
$ | 41,610 | |
| |
| | | |
| | |
DDS Gross Margin | |
| 23.4 | % | |
| 17.7 | % |
API Gross Margin | |
| 24.5 | % | |
| 21.9 | % |
Drug Product Gross Margin | |
| 17.9 | % | |
| (19.7 | )% |
Total Gross Margin | |
| 22.7 | % | |
| 18.5 | % |
DDS contract revenue gross margin percentage
increased for the three months ended March 31, 2015 compared to the same period in 2014. This increase is primarily due to cost
reduction initiatives and facility optimization. We currently expect DDS contract margin for 2015 to improve over amounts recognized
in 2014 primarily due to the full year benefit of previous cost reduction initiatives and facility optimization.
API contract revenue gross margin percentage
increased for the three months ended March 31, 2015 compared to the same period in 2014 due to an increase in higher margin commercial
sales. We currently expect improvement in API contract margins for 2015 driven by an increase in capacity utilization at all of
our large-scale facilities worldwide.
Drug Product contract revenue gross margin
percentage increased for the three months ended March 31, 2015 compared to the same period in 2014 primarily due to the addition
of revenue from higher gross margin products sold by OsoBio, which was acquired in July 2014, the benefit of the Glasgow business
acquired in January 2015 and increased utilization at our Burlington, MA facility. We currently expect continued improvement in
Drug Product contract margins for 2015 driven by these factors and also by increased overall capacity utilization.
Technology incentive award
We maintain a Technology Development Incentive
Plan, the purpose of which is to stimulate and encourage novel innovative technology developments by our employees. This plan
allows eligible participants to share in a percentage of the net revenue earned by us relating to patented technology with respect
to which the eligible participant is named as an inventor or made a significant intellectual contribution. To date, the royalties
from Allegra are the main driver of the awards. The incentive awards were as follows:
Three Months Ended March 31, | |
2015 | | |
2014 | |
(in thousands) | |
$ | 382 | | |
$ | 593 | |
We expect technology incentive award expense
to generally fluctuate directionally and proportionately with fluctuations in Allegra royalties in future periods. Technology
incentive award expense decreased for the three months ended March 31, 2015 as compared to the same period in the prior year due
to the decrease in Allegra recurring royalty revenue as discussed above.
Research and development
Research and development (“R&D”)
expense consists of compensation and benefits for scientific personnel for work performed on proprietary technology R&D projects,
costs of chemicals, materials, outsourced activities and other out of pocket costs and overhead costs.
Our R&D activities are primarily accounted
for in our API segment and relate to the potential manufacture of new products, the development of processes for the manufacture
of generic products with commercial potential, and the development of alternative manufacturing processes.
Research and development expenses were as
follows:
Three Months Ended March 31, | |
2015 | | |
2014 | |
(in thousands) | |
$ | 490 | | |
$ | 79 | |
R&D expense for the three months ended
March 31, 2015 increased compared to the same period in 2014 relating primarily to development efforts towards new niche generic
products. We currently expect 2015 R&D expense to be generally consistent with 2014.
Selling, general and administrative
Selling, general and administrative (“SG&A”)
expenses consist of compensation and related fringe benefits for sales, marketing, operational and administrative employees, professional
service fees, marketing costs and costs related to facilities and information services. SG&A expenses were as follows:
Three Months Ended March 31, | |
2015 | | |
2014 | |
(in thousands) | |
$ | 17,474 | | |
$ | 10,629 | |
SG&A expenses for the three months ended
March 31, 2015 increased compared to the same period in 2014 primarily due to costs associated with investments made to grow the
business, merger and acquisition activities, including the acquisitions of Glasgow and SSCI as well as incremental SG&A costs,
including amortization of identifiable intangible assets, from the acquired businesses. We currently expect SG&A expenses
for 2015 to increase due to a full year of operations at our Cedarburg and OsoBio locations, and incremental costs as a result
of the acquisitions of Glasgow and SSCI in early 2015, but to remain relatively flat as a percentage of revenue when compared
to 2014.
Postretirement benefit plan settlement
gain
Three Months Ended March 31, | |
2015 | | |
2014 | |
(in thousands) | |
$ | −
| | |
$ | (1,285 | ) |
In the first quarter of 2014, we recognized
a gain on settlement of post-retirement liability in the API segment.
Restructuring
Three Months Ended March 31, | |
2015 | | |
2014 | |
(in thousands) | |
$ | 1,487 | | |
$ | 230 | |
In the first quarter of 2015, we announced a proposal, subject
to consultation with our UK workforce, to close our UK facility in Holywell, Wales, within the API segment. Following the consultation
process, on April 2, 2015, we announced a restructuring plan and expectation to cease operations at the UK facility in Holywell,
Wales by December 31, 2015. These actions taken are consistent with our ongoing efforts to consolidate our facility resources
to more effectively utilize our resource pool and to further reduce our facility cost structure.
Restructuring charges for the three months
ended March 31, 2015 consist primarily of personnel realignment costs and termination costs of the UK facility, and also include
costs associated with the closure of the Syracuse, NY and Bothell, WA sites, which ceased operations in 2014 and 2012, respectively.
During the first quarter of 2014, we recorded
restructuring charges of $0.2 million primarily related to the administrative costs associated with finalizing the closure of
our Hungarian legal entity and our facility in Budapest, Hungary.
Impairment Charges
Three Months Ended March 31, | |
2015 | | |
2014 | |
(in thousands) | |
$ | 2,615 | | |
$ | −
| |
In the first quarter of 2015, we recorded
property and equipment impairment charges of $2.6 million in our API segment associated with the Company’s decision to cease
operations at our UK facility in Holywell, Wales. There were no similar charges taken in the first quarter of 2014.
Interest expense, net
| |
Three Months Ended March 31, | |
(in thousands) | |
2015 | | |
2014 | |
| |
| | |
| |
Interest expense | |
$ | (3,042 | ) | |
$ | (2,619 | ) |
Interest income | |
| 6 | | |
| 3 | |
Interest expense, net | |
$ | (3,036 | ) | |
$ | (2,616 | ) |
Net interest expense increased for the three
months ended March 31, 2015 from the same period in 2014 primarily due to increased levels of outstanding debt used to finance
our acquisitions as well as an increase in amortization of deferred financing costs related to our line of credit.
Other income (expense), net
Three Months Ended March 31, | |
2015 | | |
2014 | |
(in thousands) | |
$ | 469 | | |
$ | (40 | ) |
Other income for the three months ended March
31, 2015 was primarily related to rates associated with foreign currency transactions.
Income tax expense
Three Months Ended March 31, | |
2015 | | |
2014 | |
(in thousands) | |
$ | 885 | | |
$ | 1,309 | |
Income tax expense for the three months ended March 31, 2015 decreased
as compared to the same period in the prior year due to a decrease in pre-tax income at the Company’s U.S. locations, partially
offset by changes in the composition of pre-tax income and losses in relation to the applicable tax rates at our various locations
worldwide.
Liquidity and Capital Resources
We have historically funded our business through
operating cash flows and proceeds from borrowings. As of March 31, 2015, we had $32.2 million in cash, cash equivalents, and restricted
cash and $200.9 million in bank and other related debt.
During the first quarter of 2015, we generated
cash of $4.4 million from operating activities, compared to cash used in operations of $8.1 million during the same period in
2014. The increase was primarily driven by an increase in cash collections
from customer receivables within the quarter and an increase in accounts payable and accrued expenses during the quarter.
During the first quarter of 2015, cash used
in investing activities was $63.5 million, resulting primarily from the use of $35.8 million in cash to acquire SSCI, $23.5 million
to acquire the facility in Glasgow, UK, and $4.1 million used for the acquisition of property and equipment. Additionally, during
the first quarter of 2015, we generated cash of $41.1 million from financing activities, relating primarily from borrowings on
our revolving line of credit and proceeds from stock issuances resulting from exercises of stock options and employee stock purchase
plan purchases.
Working capital, defined as current assets
less current liabilities, was $136.0 million at March 31, 2015 as compared to $142.3 million as of December 31, 2014. This decrease
primarily relates to a decrease in cash to fund acquisitions and increases in accounts payable and accrued liabilities.
In December 2013, we issued $150 million of
2.25% Cash Convertible Senior Notes (the “Notes”), which generated net proceeds of $134.8 million, which includes
the associated warrants, convertible note hedges and bank fees. In connection with the offering of these Notes, we entered into
convertible note hedging transactions with two counterparties. We also entered into warrant transactions in which we sold warrants
of our common stock to the counterparties. We paid the counterparties approximately $33.6 million for the convertible note hedge
and received approximately $23.1 million from the counterparties for the warrants. See Note 5 for additional information regarding
these transactions.
In April 2012, we entered into a $20.0 million
credit facility consisting of a 4-year, $5.0 million term loan and a $15.0 million revolving line of credit. In April 2014, we
utilized our restricted cash to pay off the balance of the term loan, thereby eliminating the term loan liability. In June 2014
we terminated the credit agreement while still maintaining the letters of credit, thus requiring us to continue to maintain certain
restricted cash to collateralize these letters of credit.
The balance required to be maintained as restricted
cash must be at least 110% of the maximum potential amount of the outstanding letters of credit. As of March 31, 2015 we
had $3.1 million of outstanding letters of credit secured by restricted cash of $3.7 million. The amount available to be borrowed
under the revolving line of credit at March 31, 2015 was $40,000.
On October 24, 2014, we entered into a $50.0
million senior secured credit agreement (the “Credit Agreement”) consisting of a 3-year, $50.0 million revolving credit
facility, which includes a $15.0 million sublimit for the issuance of standby letters of credit and a $5.0 million sublimit for
swing line loans. The Credit Agreement also included an accordion feature that, subject to securing additional commitments from
existing lenders or new lending institutions, allowing us to increase the aggregate commitments under the Credit Agreement by
up to $10.0 million. On December 23, 2014, the Credit Agreement was amended to increase the available commitment to $75.0 million,
increasing and using the accordion feature in its entirety. At March 31, 2015, the amount available to be borrowed under this
agreement is zero.
Borrowings made under the Credit Agreement
bear interest at (a) the one-month, three-month or six-month LIBOR rate (the “LIBOR Rate”) or (b) a base rate determined
by reference to the highest of (i) the Barclays Bank PLC prime rate, (ii) the United States federal funds rate plus 0.50% and
(iii) a daily rate equal to the one-month LIBOR Rate plus 1.0% (the “Base Rate”), plus an applicable margin of 2.25%
per annum for LIBOR Rate loans and 1.25% per annum for Base Rate loans. As of March 31, 2015 the interest rate on the Credit Agreement
was 2.5%.
The disclosure of payments we have committed
to make under our contractual obligations is set forth under the heading “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources” under Item 7 of our Annual Report on
Form 10-K for the fiscal year ended December 31, 2014. Outside of the borrowings on the revolving line of credit, there have
been no material changes to our contractual obligations at March 31, 2015. As of March 31, 2015, we had no off-balance sheet arrangements
as defined in Item 303(a)(4) of the Securities and Exchange Commission’s Regulation S-K.
We expect that additional future capital expansion
and acquisition activities, if any, could be funded with cash on hand, cash from operations, borrowings under our credit facility
and/or the issuance of equity or debt securities. There can be no assurance that attractive acquisition opportunities will be
available to us or will be available at prices and upon such other terms that are attractive to us. We regularly evaluate potential
acquisitions of other businesses, products and product lines and may hold discussions regarding such potential acquisitions. In
addition, in order to meet our long-term liquidity needs or consummate future acquisitions, we may incur additional indebtedness
or issue additional equity or debt securities, subject to market and other conditions. There can be no assurance that such additional
financing will be available on terms acceptable to us or at all. The failure to raise the funds necessary to finance our future
cash requirements or consummate future acquisitions could adversely affect our ability to pursue our strategy and could negatively
affect our operations in future periods.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to business combinations,
inventories, goodwill and intangibles, other long-lived assets, derivative instruments and hedging activities, pension and postretirement
benefit plans, income taxes and contingencies, among other effects. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
We refer to the policies and estimates set
forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Critical Accounting Estimates” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. There have
been no material changes or modifications to the policies since December 31, 2014.
Recently Issued Accounting Pronouncements
In April 2015, the FASB issued ASU No 2015-03, “Simplifying
the Presentation of Debt Issuance Costs,” which updated guidance to clarify the required presentation of debt issuance costs.
The amended guidance requires that debt issuance costs be presented in the balance sheet as a direct reduction from the carrying
amount of the recognized debt liability, consistent with the treatment of debt discounts. Amortization of debt issuance
costs is to be reported as interest expense. The recognition and measurement guidance for debt issuance costs are
not affected by the updated guidance. The updated guidance is effective for reporting periods beginning after December 15,
2015. Early adoption is permitted. We do not expect this ASU to have a material impact on our consolidated financial
statements.
In June 2014, the FASB issued ASU No. 2014-12, "Compensation
- Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target
Could Be Achieved after the Requisite Service Period." This ASU requires that a performance target that affects vesting and
that could be achieved after the requisite service period, be treated as a performance condition. The performance target should
not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in
which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable
to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable
of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized
prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the
requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those
awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible
to vest in the award if the performance target is achieved. This ASU is effective for annual periods and interim periods within
those annual periods beginning after December 15, 2015. Earlier adoption is permitted. We do not expect this ASU to have
a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from
Contracts with Customers: (Topic 606)." This ASU affects any entity that either enters into contracts with customers to transfer
goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope
of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements
in ASC Topic 605, "Revenue Recognition," and most industry-specific guidance. In addition, the existing requirements
for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g.,
assets within the scope of ASC Topic 360, "Property, Plant, and Equipment," and intangible assets within the scope of
ASC Topic 350, "Intangibles-Goodwill and Other") are amended to be consistent with the guidance on recognition and measurement
(including the constraint on revenue) in this ASU. The core principle of the guidance is that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The amendments in this ASU are effective for annual reporting
periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is not permitted.
We are currently evaluating the impact this ASU will have on our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
There have been no material changes with respect
to the information on Quantitative and Qualitative Disclosures about Market Risk appearing in Part II, Item 7A to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As required by rule 13a-15(b) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the Company’s last fiscal quarter our
management conducted an evaluation with the participation of our Chief Executive Officer and Chief Financial Officer regarding
the effectiveness of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures,
we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and our management was required to apply its judgment in evaluating and implementing
possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of the Company’s last fiscal quarter, our disclosure controls and procedures were effective in that
they provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s
rules and forms, including ensuring that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. We intend
to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting,
on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems
evolve with our business.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s
internal control over financial reporting identified in connection with the evaluation of such internal control that occurred
during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Please refer to Part 1 – Note 11 to
the condensed consolidated financial statements for details and history on outstanding litigation.
Item 1A. Risk Factors
In addition to the other information set forth
in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part II, "Item
1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014, which could materially affect our
business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks
facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also
may materially adversely affect our business, financial condition and/or operating results. There are no material changes to the
Risk Factors described in our Annual Report on Form 10-K for the year ended December 31, 2014.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
The following table represents share repurchases
during the three months ended March 31, 2015:
Period | |
(a) Total Number of Shares Purchased (1) | | |
(b) Average Price
Paid Per
Share | | |
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | |
(d) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program |
January 1, 2015 – January 31, 2015 | |
| 15,313 | | |
$ | 15.89 | | |
N/A | |
N/A |
February 1, 2015 – February 28, 2015 | |
| 12,720 | | |
$ | 16.33 | | |
N/A | |
N/A |
March 1, 2015 – March 31, 2015 | |
| 1,524 | | |
$ | 17.40 | | |
N/A | |
N/A |
Total | |
| 29,557 | | |
$ | 16.16 | | |
N/A | |
N/A |
(1) Consists of shares repurchased by the Company for certain
employee’s restricted stock that vested to satisfy minimum tax withholding obligations that arose on the vesting of the
restricted stock.
Item 6. Exhibits
Exhibit |
|
|
Number |
|
Description |
|
|
|
31.1 |
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the
Securities Exchange Act of 1934. |
|
|
|
31.2 |
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the
Securities Exchange Act of 1934. |
|
|
|
32.1 |
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
|
|
|
32.2 |
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
|
|
|
101 |
|
XBRL (eXtensible Business Reporting Language). The
following materials from Albany Molecular Research, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2015, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the
Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows and (v) notes to consolidated
financial statements. |
* This certification
is not “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the
Securities Act or the Securities Exchange Act.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
ALBANY MOLECULAR RESEARCH, INC. |
|
|
|
Date: May 8, 2015 |
By: |
/s/ Felicia Ladin |
|
|
|
Felicia Ladin |
|
|
Senior Vice President, Chief Financial Officer and Treasurer
(Duly Authorized Officer and Principal Financial Officer) |
Exhibit 31.1
CERTIFICATION
I, William S. Marth certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Albany
Molecular Research, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s internal control
over financial reporting. |
Date May 8, 2015 |
/s/ William S. Marth |
|
|
Name: William S. Marth |
|
Title: President and Chief Executive Officer |
|
Principal Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Felicia Ladin certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Albany
Molecular Research, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s internal control
over financial reporting. |
Date: May 8, 2015 |
/s/ Felicia Ladin |
|
|
Name: Felicia Ladin |
|
Title: Senior Vice President, Chief Financial Officer and Treasurer |
|
Principal Financial Officer |
Exhibit 32.1
CERTIFICATION
The undersigned officer
of Albany Molecular Research, Inc. (the “Company”) hereby certifies to his knowledge that the Company’s
Quarterly Report on Form 10-Q to which this certification is attached (the “Report”), as filed with the Securities
and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable,
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the
Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification
is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”)
promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance
with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed “filed” for purposes
of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed
to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference.
Date: May 8, 2015 |
|
|
/s/ William S. Marth |
|
|
Name: William S. Marth |
|
Title: President and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION
The undersigned officer of Albany Molecular
Research, Inc. (the “Company”) hereby certifies to his knowledge that the Company’s Quarterly Report on
Form 10-Q to which this certification is attached (the “Report”), as filed with the Securities and Exchange Commission
on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of the Company. This certification is provided solely
pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated
under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii)
of Item 601(b)(32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of
the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by
reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates
it by reference.
Date: May 8, 2015 |
/s/ Felicia Ladin |
|
|
Name: Felicia Ladin |
|
Title: Senior Vice President, Chief Financial Officer and Treasurer |
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