NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
|
1.
|
Summary of 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 consolidated financial statements include
the accounts of Albany Molecular Research, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions
have been eliminated in consolidation. When necessary, prior years’ consolidated financial statements have been reclassified
to conform to the current year presentation. 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. Gains or losses
resulting from translating non-U.S. currency financial statements are recorded in the consolidated statements of comprehensive
(loss) income and in accumulated other comprehensive loss in the accompanying consolidated balance sheets.
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 and goodwill impairment assessment.
Other significant estimates include assumptions utilized in determining actuarial obligations in conjunction with the Company’s
pension and postretirement health plans, the amount and realizability 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.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
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 and when delivery is
made or title and risk of loss otherwise 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 have historically related to 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. These royalty payments ceased in May 2015 due to the expiration of patents under
the license agreement. The Company currently receives royalties in conjunction with a Development and Supply Agreement with Allergan,
plc (“Allergan”). These royalties are earned on net sales of generic products sold by Allergan. The Company records
royalty revenue in the period in which the net sales of this product occur. Royalty payments from Allergan are due within 60 days
after each calendar quarter and are determined based on sales of the qualifying products in that quarter. The Company also receives
royalties on certain other products.
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.
In 2014, the Company entered into development
and supply agreements with Genovi Pharmaceuticals Limited which have subsequently been transferred to HBT Labs, Inc. (“HBT”)
to manufacture select generic parenteral drug products for registration and subsequent commercialization in the U.S., Europe,
and select emerging markets.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
Under the terms of these HBT Agreements, the
Company may receive milestone payments for each drug product candidate upon achievement of certain developments milestones including
technology transfer activities, analytical development activities, and manufacture of regulatory submission batches. Following
U.S. Food and Drug Administration approval, the Company will supply generic parenteral drug products to HBT pursuant to the HBT
Agreements and receive payments based on HBT's sales of such products.
The Company has determined these milestones
payments to be substantive milestones in accordance with ASC 605-28-25, “Revenue Recognition – Milestone Method”
(“ASC 605”). In evaluating these milestones, the Company considered the following:
|
·
|
Each
individual milestone is considered 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 the years ended December 31, 2015, 2014,
and 2013, no milestone revenue was recognized by the Company.
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. The Company does not anticipate
milestone or recurring royalty payments under its current license arrangements to have a significant impact on the Company’s
consolidated operating results, financial position, or cash flows.
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.
The Company maintains letters of credit requiring
the maintenance of a certain restricted cash balance to collateralize outstanding letters of credit.
Allowance for Doubtful Accounts:
The Company records an allowance for doubtful
accounts for estimated receivable losses. Management reviews outstanding receivable balances on a regular basis in order to assess
the collectability of these balances, and adjusts the allowance for doubtful accounts accordingly. The allowance and related accounts
receivable are reduced when the account is deemed uncollectible.
Allowances for doubtful accounts were $1,096
and $1,274 as of December 31, 2015 and 2014, respectively.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
Inventory:
Inventory consists primarily of commercially
available fine chemicals used as raw materials, work-in-process and finished goods in the Company’s large-scale manufacturing
plants. Manufacturing inventories are valued on a first-in, first-out (“FIFO”) basis. Inventories are stated at the
lower of cost or market. The Company writes down inventories equal to the difference between the cost of inventory and the estimated
market value based upon assumptions about future demand and market conditions. Any such write-down, which represents a new cost
basis for the inventory, results in a charge to operations.
Property
and Equipment:
Property and equipment are initially recorded
at cost or, if acquired as part of a business combination, at fair value. Expenditures for maintenance and repairs are expensed
when incurred. When assets are sold, retired, or otherwise disposed of, the applicable costs and accumulated depreciation are
removed from the accounts and the resulting gain or loss is recognized.
Depreciation is determined using the straight-line
method over the estimated useful lives of the individual assets. Accelerated methods of depreciation have been used for income
tax purposes.
The Company provides for depreciation of property
and equipment over the following estimated useful lives:
Laboratory
equipment and fixtures
|
|
7-18
years
|
|
Office
equipment
|
|
3-7
years
|
|
Computer
equipment
|
|
3-5
years
|
|
Buildings
|
|
39
years
|
|
Leasehold improvements are amortized over
the lesser of the useful life of the asset or the lease term.
Equity Investments:
The Company maintains an equity investment
in a company that has operations in areas within the Company’s strategic focus. This investment is in a leveraged start-up
company and was recorded at historical cost. The Company accounts for this investment using the cost method of accounting as the
Company’s ownership interest in the investee is below 20% and the Company does not have the ability to exercise significant
influence over the investee.
The Company records an impairment charge when
an investment has experienced a decline in value that is other-than-temporary. Future adverse changes in market conditions or
poor operating results of underlying investments could result in the Company’s inability to recover the carrying value of
the investment thereby requiring an impairment charge in the future.
The carrying value of the equity investment
at December 31, 2015 and 2014 was $956 and is included within “other assets” on the accompanying consolidated
balance sheets.
Business Combinations:
In accordance with the accounting guidance
for business combinations, the Company used the acquisition method of accounting to allocate costs of acquired businesses to the
assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of
acquired businesses over the fair values of the assets acquired and liabilities assumed were recognized as goodwill. The valuations
of the acquired assets and liabilities will impact the determination of future operating results. In addition to using management
estimates and negotiated amounts, the Company used a variety of information sources to determine the estimated fair values of
the assets and liabilities, including third-party appraisals for the estimated value and lives of identifiable intangible assets
and property and equipment. The business and technical judgment of management and third-party experts was used in determining
the useful lives of finite-lived intangible assets in accordance with the accounting guidance for goodwill and intangible assets
and patents.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
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.
Goodwill:
The Company tests goodwill for
impairment annually and whenever events or circumstances make it more likely than not that impairment may have occurred, such
as a significant adverse change in the business climate or a decision to sell or dispose of a reporting unit. The goodwill is
tested for impairment at the reporting unit level, which is at the operating segment or one level below (known as a
component). If a component has similar economic characteristics, the components are to be aggregated and tested at the
operating segment level. The goodwill impairment test was performed for Drug Discovery Services (“DDS”), Active
Pharmaceutical Ingredients (“API”), and Drug Product Manufacturing (“DPM”) based on the manner in
which the Company operates its businesses and goodwill is recoverable. The Company’s operating segments have been
determined to be reporting units because the products, processes, and customers are similar and resources are managed at
the segment level. The total goodwill related to DDS, API and DPM is $45,987, $46,182 and $77,302, respectively.
The Company tests goodwill for impairment
by either performing a qualitative evaluation or a two-step quantitative test. The qualitative evaluation is an assessment of factors,
including reporting unit specific operating results as well as industry, market, and general economic conditions, to determine
whether it is more likely than not that the fair values of reporting unit is less than its carrying amount, including goodwill.
Depending on the factors specific to some or all of our reporting units, the Company may be required to perform a two-step quantitative
test. A qualitative assessment was performed for the DDS reporting unit given that the goodwill in this unit relates to an acquisition
made in 2015. A quantitative assessment was performed for both API and DPM. The Company concluded there were no impairments as
of October 1, 2015, our annual impairment testing date. Additionally, the Company considered the qualitative factors for each component
subsequent to the annual impairment testing date and through December 31, 2015 noting no indicators of potential impairment.
The valuations for API and DPM used
in the quantitative goodwill assessment were based on the discounted cash flow method using projected financial information
of the reporting unit, including projected revenue on generic drug products in development and expected to be commercialized.
Consideration was given to a market approach as a possible indication of value but not weighted. Key assumptions used in the
discounted cash flow method include prospective financial information and the discount rate or weighted-average cost of
capital (WACC). The prospective financial information includes Company-prepared five year projections, which are based on
information available to management as of October 1, 2015 and includes projected revenue on generic drug products in
development and expected to be commercialized in the five-year period. The long-term sales growth rate assumed for both API
and DPM was 3%. The WACC takes into consideration the capital structure of both the Company and peer groups for each of the
businesses. In addition, the WACC includes a market equity and country specific risk premium. The country specific risk
premium is based on a blended average of the geographies in which the business units operate. A discount rate was estimated
and applied to each of our two revenue streams, specifically contract revenue and royalties on long-term collaboration
agreements. The discount rates for the contract revenue were 10.5% and 10.0% for API and DPM, respectively. The discount
rates for the royalty revenue were 23.5% for both API and DPM, given the higher level of uncertainty surrounding these cash
flows.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The estimated fair value for the DPM business
compared to its carrying value was relatively close given that DPM is primarily comprised of recent acquisitions. The estimated
fair value of the DPM business exceeded carrying value by only 1%. The future projections have included discounted cash flows for
our current DPM manufacturing and development business as well as separate projections of estimated royalties on the long-term
collaboration agreements. The achievement of these royalties could be impacted based on the complexity to develop the product,
the number of competitors in the market, and the timing of the product launch. These risks have been contemplated in our projections.
If our DPM business is unable to achieve the future projections of the manufacturing and development business or the projections
of estimated royalties on the long-term collaboration agreements, some or all of the goodwill allocated to DPM may be impaired.
Patents, Patent Application Costs, Trademarks,
Tradenames, Customer Relationships and In-process Research & Development:
Customer relationships and trademarks are
being amortized on a straight-line basis over their estimated useful lives ranging from five to twenty years. Acquired tradenames
are not amortized, but instead are periodically reviewed for impairment.
The costs of patents issued and acquired are
being amortized on the straight-line basis over the estimated remaining lives of the issued patents. Patent application and processing
costs are capitalized and amortized over the estimated life once a patent is acquired or expensed in the period the patent application
is denied or the related appeal process has been exhausted. An impairment charge is recognized to the extent that the carrying
amount of the intangible asset group exceeds its fair value and will reduce only the carrying amounts of the intangible assets.
The costs of in-process research and development
(“IPR&D”), related to the Company’s business combination with Gadea, were recorded at fair value on the
acquisition date. IPR&D intangible assets are considered indefinite-lived intangible assets until completion or abandonment
of the associated research and development efforts. IPR&D is not amortized but is reviewed for impairment at least annually,
or when events or changes in the business environment indicate the carrying value may be impaired.
Pension and
Postretirement Benefits:
The Company maintains pension and postretirement
benefit costs and liabilities that are developed from actuarial valuations. Inherent in these valuations are key assumptions,
including actuarial mortality assumptions, discount rates and expected return on plan assets, which are updated on an annual basis.
The Company considers current market conditions, including changes in interest rates, in making these assumptions. Changes in
the related pension and postretirement benefit costs may occur in the future due to changes in the assumptions.
Loss Contingencies:
Loss contingencies are recorded as liabilities
when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required
when there is a reasonable possibility that the ultimate loss will be material. Contingent liabilities are often resolved over
long time periods. Estimating probable losses requires analyses that often depend on judgments about potential actions by third
parties such as regulators. The Company enlists the technical expertise of its internal resources in evaluating current exposures
and potential outcomes, and will utilize third party subject matter experts to supplement these assessments as circumstances dictate.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
Research and Development:
Research and development costs are charged
to operations when incurred and are included in operating expenses.
Income Taxes:
Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are recognized for the income tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. A valuation allowance is provided for when it is determined
that deferred tax assets are not recoverable based on an assessment of estimated future taxable income that incorporates ongoing,
prudent and feasible tax-planning strategies.
Additionally, a tax position is a position
in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current
or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (likelihood of
greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax
positions that meet the more likely than not threshold are measured using a probability-weighted approach.
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 a derivative’s fair value shall be recognized currently in earnings unless specific hedge accounting criteria
are met. If the specific hedge accounting criteria is met, then changes in fair value are recorded in accumulative other comprehensive
income (loss).
Stock-Based
Compensation:
The Company records compensation expense associated
with stock options and other equity based compensation by establishing fair value as the measurement objective in accounting for
share-based payment transactions with employees and directors and recognizing expense on a straight-line basis over the applicable
vesting period.
Earnings Per Share:
The Company computes net (loss) earnings per
share by dividing net (loss) earnings available to common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share would reflect the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company (such as stock options).
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The following table provides basic and diluted earnings (loss)
per share calculations:
|
|
Year Ended December 31, 2015
|
|
|
Year Ended December 31, 2014
|
|
|
Year Ended December 31, 2013
|
|
|
|
Net
Loss
|
|
|
Weighted
Average
Shares
|
|
|
Per Share
Amount
|
|
|
Net
Loss
|
|
|
Weighted
Average
Shares
|
|
|
Per Share
Amount
|
|
|
Net
Income
|
|
|
Weighted
Average
Shares
|
|
|
Per Share
Amount
|
|
Basic (loss) earnings per share
|
|
$
|
(2,301
|
)
|
|
|
33,169
|
|
|
$
|
(0.07
|
)
|
|
$
|
(3,278
|
)
|
|
|
31,526
|
|
|
$
|
(0.10
|
)
|
|
$
|
11,768
|
|
|
|
30,912
|
|
|
$
|
0.38
|
|
Dilutive effect of share-based equity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
936
|
|
|
|
(0.01
|
)
|
Diluted (loss) earnings per share
|
|
$
|
(2,301
|
)
|
|
|
33,169
|
|
|
$
|
(0.07
|
)
|
|
$
|
(3,278
|
)
|
|
|
31,526
|
|
|
$
|
(0.10
|
)
|
|
$
|
11,768
|
|
|
|
31,848
|
|
|
$
|
0.37
|
|
The Company has excluded all outstanding stock
options and non-vested restricted shares from the calculation of diluted earnings per share for the years ended December 31, 2015
and 2014 because the net loss causes these outstanding stock options and non-vested restricted shares to be anti-dilutive. The
Company has excluded certain outstanding stock options and non-vested restricted shares from the calculation of diluted earnings
per share for the year ended December 31, 2013 because of anti-dilutive effects.
The weighted average number of anti-dilutive
common equivalents outstanding was 11,971, 12,502, and 1,363 for the years ended December 31, 2015, 2014 and 2013, respectively,
and were excluded from the calculation of diluted earnings (loss) per share.
Restructuring Charges:
The Company accounts for its restructuring
costs as required by FASB ASC Subtopic 420-10, “Accounting for Costs Associated with Exit or Disposal Activities”,
which requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at
its fair value in the period in which the liability is incurred, except for one-time termination benefits that meet certain requirements.
Subsequent Events:
The Company evaluates subsequent events at
the date of the balance sheet as well as conditions that arise after the balance sheet date but before the consolidated financial
statements are issued. The effects of conditions that existed at the date of the balance sheet date are recognized in the consolidated
financial statements. Events and conditions arising after the balance sheet date but before the consolidated financial statements
are issued are evaluated to determine if disclosure is required to keep the consolidated financial statements from being misleading.
To the extent such events and conditions exist, if any, disclosures are made regarding the nature of events and the estimated
financial effects for those events and conditions. For purposes of preparing the accompanying consolidated financial statements
and the notes to these consolidated financial statements, the Company evaluated subsequent events through the date the accompanying
consolidated financial statements were issued.
Recent Accounting Pronouncements:
Accounting Pronouncements Issued But Not Yet Adopted
In February 2016, the Financial Accounting Standards Board ("FASB”)
issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)”. The new standard establishes
a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet
for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification
affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach
is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating
the impact this ASU will have on its consolidated financial statements.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
In July 2015, the FASB issued ASU No. 2015-11,
“Simplifying the Measurement of Inventory.” This ASU simplifies the measurement of inventory by requiring certain
inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years
beginning after December 15, 2016 and for interim periods therein. The Company is currently evaluating the impact this ASU will
have 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. In July 2015, the FASB deferred the effective date of ASU 2014-09.
This ASU is now effective for calendar years beginning after December 15, 2017. Early adoption is not permitted. The Company
is currently evaluating the impact this ASU will have on its consolidated financial statements.
In August 2014, the FASB issued ASU, No. 2014-15, “Presentation of Financial Statements-Going Concern
(Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, which defines
management’s responsibility to assess an entity’s ability to continue as a going concern, and to provide related footnote
disclosures if there is substantial doubt about its ability to continue as a going concern.
The
pronouncement is effective for annual reporting periods ending after December 15, 2016, with early adoption permitted. The
Company does not expect this ASU to have a material impact on its consolidated financial statements.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
Accounting Pronouncements Recently Adopted
In November 2015,
the FASB issued
ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes,” (“ASU 2015-17”), which amends the accounting
guidance related to balance sheet classification of deferred taxes. The amendment requires that deferred tax assets and liabilities
be classified as noncurrent in the statement of financial position, thereby simplifying the current guidance that requires an entity
to separate deferred tax assets and liabilities into current and noncurrent amounts. ASU 2015-17 will be effective beginning in
the first quarter of fiscal year 2018. Early adoption is permitted. The amendment can be adopted either prospectively or retrospectively.
The Company has prospectively adopted this ASU during the fourth quarter of 2015 and reflected its impact in its consolidated financial
statements.
In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying
the Accounting for Measurement-Period Adjustments”. ASU No. 2015-16 requires that an acquirer recognize adjustments to provisional
amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined
and sets forth new disclosure requirements related to the adjustments. The new standard is effective for fiscal years beginning
after December 15, 2015 and for interim periods therein with early adoption permitted. The Company adopted this ASU during 2015;
see note 2 for discussion on adjustments to provisional accounting for business combinations related to interim periods in 2015.
In May 2015, the FASB issued ASU No. 2015-07, “Fair Value
Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”.
The ASU applies to entities that measure an investment’s fair value using the net asset per share (or an equivalent) practical
expedient, while the amendments of the ASU eliminate the requirement to classify the investment within the fair value hierarchy.
In addition, the requirement to make specific disclosures for all investments eligible to be assessed at fair value with the net
asset value per share practical expedient has been removed. Instead, such disclosures are restricted only to investments that the
entity has decided to measure using the practical expedient. The amendments in this ASU apply for fiscal years starting after December
15, 2015, and the interim periods within. The amendments are to be applied retrospectively to all periods offered, with early adoption
permitted. The Company adopted this ASU during 2015 and it did not have a material impact on the consolidated financial statements.
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 update requires retrospective application and represents
a change in accounting principles.
The updated guidance is effective for reporting periods
beginning after December 15, 2015, with early adoption permitted. The Company has adopted this ASU during 2015
and has reflected $9,823 and $4,085 as reduction of long-term debt at December 31, 2015 and December 31, 2014, respectively. Previously,
these costs were recorded as part of other assets.
2015 Acquisitions
Whitehouse Laboratories
On December 15, 2015, we acquired all the
outstanding equity interests of Whitehouse Analytical Laboratories, LLC (“Whitehouse”), a leading provider of testing
services that includes chemical and material analysis, method development and validation and quality control verification services
to the pharmaceutical, medical device and personal care industries. Whitehouse offers a comprehensive array of testing solutions
for life sciences from materials and excipients, container qualification and container closure integrity testing, routine analytical
chemistry, drug delivery systems and device qualification programs, packaging, distribution, and stability and storage programs.
The aggregate purchase price is $55,924 (net of cash acquired of $377), including $2,000 in shares of AMRI common stock that were
contingent upon Whitehouse achieving certain 2015 targets. Whitehouse offers a comprehensive array of testing solutions for life
sciences from materials and excipients, container qualification and container closure integrity testing, routine analytical chemistry,
drug delivery systems and device qualification programs, packaging, distribution, and stability and storage programs.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The aggregate purchase price has been preliminarily allocated based on an estimate of the fair value of assets
and liabilities acquired as of the acquisition date. The allocation of acquisition consideration for Whitehouse is based on estimates,
assumptions, valuations and other studies which have not yet been finalized in order to make a definitive allocation. The Company
is finalizing the allocation of purchase price to property and equipment and working capital. Allocation adjustments are not expected
to be significant. The following table summarizes the allocation of the preliminary aggregate purchase price to the estimated fair
value of the net assets acquired:
|
|
December
15, 2015
|
|
Assets Acquired
|
|
|
|
|
Accounts receivable
|
|
$
|
2,084
|
|
Prepaid expenses and other current assets
|
|
|
34
|
|
Property and equipment
|
|
|
982
|
|
Intangible assets
|
|
|
26,200
|
|
Goodwill
|
|
|
26,670
|
|
Total assets acquired
|
|
$
|
55,970
|
|
|
|
|
|
|
Liabilities Assumed
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
46
|
|
Total liabilities assumed
|
|
|
46
|
|
Net assets acquired
|
|
$
|
55,924
|
|
The Company has attributed the goodwill of
$26,670 to additional market opportunities that the Whitehouse business offers within the DDS segment. The goodwill is deductible
for tax purposes. Intangible assets acquired consisted of customer lists of $25,600, with an estimated life of 13 years and a
tradename of $600, with an estimated life of 8 years.
In March 2016, it was determined that Whitehouse met the contingency terms of the agreement which resulted
in the issuance of 137,080 shares of AMRI common stock (approximately $2,000) in March 2016. This contingent value is included
in the aggregate purchase price.
Gadea Grupo
On July 16, 2015, the Company completed
the purchase of Gadea Grupo Farmaceutico, S.L. (“Gadea”), a contract manufacturer of complex API and finished drug
product. Gadea operates within the Company's API and DPM segments. The aggregate net purchase price is $126,896 (net of cash
acquired of $10,961), which included the issuance of 2,200 shares of common stock, valued at $40,568, with the balance comprised
of $96,961 in cash plus a working capital adjustment of $328. The purchase price has been allocated based on an estimate of the
fair value of assets and liabilities acquired as of the acquisition date. The following table summarizes the allocation of the
aggregate purchase price to the estimated fair value of the net assets acquired:
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
|
|
July 16,
2015
|
|
Assets Acquired
|
|
|
|
|
Accounts receivable
|
|
$
|
23,756
|
|
Prepaid expenses and other current assets
|
|
|
2,563
|
|
Inventory
|
|
|
47,400
|
|
Property and equipment
|
|
|
29,389
|
|
Deferred tax assets
|
|
|
1,115
|
|
Intangible assets
|
|
|
58,200
|
|
Goodwill
|
|
|
50,147
|
|
Other long term-assets
|
|
|
2,053
|
|
Total assets acquired
|
|
$
|
214,623
|
|
|
|
|
|
|
Liabilities Assumed
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
16,561
|
|
Debt
|
|
|
44,523
|
|
Income taxes payable
|
|
|
5,920
|
|
Deferred income taxes
|
|
|
19,179
|
|
Other long-term liabilities
|
|
|
1,544
|
|
Total liabilities assumed
|
|
|
87,727
|
|
Net assets acquired
|
|
$
|
126,896
|
|
The Company has attributed the goodwill
of $50,147 to an expanded global footprint and additional market opportunities that the Gadea business offers. The goodwill has
been allocated between business segments, with API of $29,668 and DPM of $20,479, and is not deductible for tax purposes. Intangible
assets acquired consisted of customer relationships of $24,000 (with an estimated life of 13 years), a tradename of $4,100 (with
an indefinite estimated life), intellectual property of $11,900 (with an estimated life of 15 years), in-process research and
development of $18,000 (with an indefinite estimated life), and $200 of order backlog.
The purchase price allocation was adjusted in the fourth quarter of 2015, which resulted in a net reduction of goodwill of approximately $1,500 primarily for identified in-process
research and development intangible assets of $18,000, a reduction in value of the previously-recognized intangible assets of
$7,800, and a reduction in the fair value of property and equipment of $9,300. Additionally, an adjustment to the
purchase price consideration was made to recognize the discount associated with the 2,200 shares of restricted shares issued
in conjunction with the Gadea acquisition in the amount of $3,177. The impact to depreciation and amortization expense was
not significant. The Company will finalize the purchase price allocation in the first half of 2016. Allocation adjustments
are not expected to be significant.
SSCI
On February 13, 2015 the Company completed
the purchase of assets and assumed certain liabilities of Aptuit's Solid State Chemical Information business, now AMRI SSCI, LLC
(“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 DDS segment.
The following table summarizes the final
allocation of the purchase price to the fair value of the net assets acquired:
|
|
February 13,
2015
|
|
Assets Acquired
|
|
|
|
|
Accounts receivable
|
|
$
|
2,255
|
|
Prepaid expenses and other current assets
|
|
|
802
|
|
Property and equipment
|
|
|
11,971
|
|
Intangible assets
|
|
|
2,370
|
|
Goodwill
|
|
|
19,317
|
|
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
|
|
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The goodwill of $19,317 is primarily attributed
to the synergies expected to arise after the acquisition and is deductible for tax purposes. Intangible assets acquired consisted
of patents of $2,370 (with an estimated life of 10 years).
Glasgow
On January 8, 2015 the Company completed
the purchase of all of the outstanding equity interests of Aptuit's Glasgow, UK business, now Albany Molecular Research (Glasgow)
Limited (“Glasgow”) for total consideration of $23,805 (net of cash acquired of $146). 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 DPM segment.
The following table summarizes the final
allocation of the purchase price to the fair value of the net assets acquired:
|
|
January 8,
2015
|
|
Assets Acquired
|
|
|
|
|
Accounts receivable
|
|
$
|
3,381
|
|
Prepaid expenses and other current assets
|
|
|
1,144
|
|
Inventory
|
|
|
244
|
|
Property and equipment
|
|
|
4,285
|
|
Intangible assets
|
|
|
6,100
|
|
Goodwill
|
|
|
12,505
|
|
Deferred tax asset
|
|
|
1,274
|
|
Other long term-assets
|
|
|
33
|
|
Total assets acquired
|
|
$
|
28,966
|
|
|
|
|
|
|
Liabilities Assumed
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,510
|
|
Deferred revenue
|
|
|
1,935
|
|
Deferred tax liabilities
|
|
|
1,528
|
|
Other long-term liabilities
|
|
|
188
|
|
Total liabilities assumed
|
|
|
5,161
|
|
Net assets acquired
|
|
$
|
23,805
|
|
The goodwill of $12,505 is primarily attributed
to the synergies expected to arise after the acquisition and is not deductible for tax purposes. Intangible assets acquired consisted
of customer relationships of $6,100 (with an estimated life of 8 years).
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The following table shows revenue and operating income for the 2015 business combinations included in these
consolidated financial statements:
2014 Acquisitions
OsoBio
On July 1, 2014, the Company completed
the purchase of all of the outstanding equity interests
of Oso Biopharmaceuticals Manufacturing, LLC (“OsoBio”),
a contract manufacturer of highly complex injectable drug products located in Albuquerque, NM. The acquisition of OsoBio extends
our industry leading expertise in developing and manufacturing highly complex injectable drug products and provides customers a
single source to address all their sterile fill/finish needs – from discovery to phase 1 development complete to commercial
supply. The aggregate purchase price was $109,194. OsoBio has been assigned to the DPM segment.
The following table summarizes the allocation
of the purchase price to the fair value of the net assets acquired:
|
|
July 1, 2014
|
|
Assets Acquired
|
|
|
|
|
Cash
|
|
$
|
2,223
|
|
Accounts receivable
|
|
|
6,270
|
|
Inventory
|
|
|
6,459
|
|
Prepaid expenses and other current assets
|
|
|
1,992
|
|
Property and equipment
|
|
|
35,476
|
|
Customer relationships
|
|
|
19,400
|
|
Trademarks
|
|
|
1,200
|
|
Goodwill
|
|
|
44,879
|
|
Total assets acquired
|
|
$
|
117,899
|
|
|
|
|
|
|
Liabilities Assumed
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
7,129
|
|
Deferred revenue
|
|
|
943
|
|
Other long-term liabilities
|
|
|
633
|
|
Total liabilities assumed
|
|
|
8,705
|
|
Net assets acquired
|
|
$
|
109,194
|
|
The goodwill of $44,879 is primarily attributed
to the synergies expected to arise after the acquisition and is deductible for tax purposes. Intangible assets acquired consisted
of customer relationships of $19,400 (with an estimated life of 20 years) and trademarks of $1,200 (with an estimated life of 5
years).
Cedarburg
On April 4, 2014, the Company completed
the purchase of all of the outstanding shares of Cedarburg Pharmaceuticals, Inc. (“Cedarburg”), a contract developer
and manufacturer of technically complex active pharmaceutical ingredients for both generic and branded customers, located in Grafton,
WI. The transaction is consistent with the Company’s strategy to be the preeminent supplier of custom and complex drug development
services and product to both the branded and generic pharmaceutical industry. The aggregate purchase price was $39,028. Cedarburg
has been assigned to the API segment.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The following table summarizes the allocation
of the purchase price to the fair value of the net assets acquired:
|
|
April 4, 2014
|
|
Assets Acquired
|
|
|
|
|
Cash
|
|
$
|
247
|
|
Accounts receivable
|
|
|
837
|
|
Inventory
|
|
|
3,463
|
|
Prepaid expenses and other current assets
|
|
|
549
|
|
Property and equipment
|
|
|
8,351
|
|
Customer relationships
|
|
|
12,100
|
|
Trademarks
|
|
|
400
|
|
Goodwill
|
|
|
16,899
|
|
Total assets acquired
|
|
$
|
42,846
|
|
|
|
|
|
|
Liabilities Assumed
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,697
|
|
Deferred revenue
|
|
|
489
|
|
Capital lease obligations
|
|
|
566
|
|
Restructuring liabilities
|
|
|
1,038
|
|
Deferred tax liabilities
|
|
|
28
|
|
Total liabilities assumed
|
|
|
3,818
|
|
Net assets acquired
|
|
$
|
39,028
|
|
The goodwill of $16,899 is primarily attributed
to the synergies expected to arise after the acquisition and is not deductible for tax purposes. Intangible assets acquired consisted
of customer relationships of $12,100 (with an estimated life of 20 years) and trademarks of $400 (with an estimated life of 5 years).
The following table shows revenue and operating
income for the 2015 business combinations included in these consolidated financial statements:
|
|
Whitehouse
|
|
|
Gadea
|
|
|
SSCI
|
|
|
Glasgow
|
|
Period
|
|
December 15-
December 31,
2015
|
|
|
July 16 –
December 31,
2015
|
|
|
February 13-
December 31,
2015
|
|
|
January 9-
December 31,
2015
|
|
Revenue
|
|
$
|
505
|
|
|
$
|
44,821
|
|
|
$
|
14,862
|
|
|
$
|
15,810
|
|
Operating income
|
|
$
|
204
|
|
|
$
|
2,802
|
|
|
$
|
2,925
|
|
|
$
|
3,673
|
|
The following table shows revenue and operating
income for the 2014 business combinations included in these consolidated financial statements:
|
|
OsoBio
|
|
|
Cedarburg
|
|
Period
|
|
July 1-
December 31,
2014
|
|
|
April 4 –
December 31,
2014
|
|
Revenue
|
|
$
|
16,721
|
|
|
$
|
9,945
|
|
Operating loss
|
|
$
|
(7,345
|
)
|
|
$
|
(849
|
)
|
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The following table shows the unaudited
pro forma statements of operations for the years ended December 31, 2015, 2014 and 2013, respectively, as if the Whitehouse, Gadea,
Glasgow and SSCI acquisitions had occurred on January 1, 2014 and as if the OsoBio and Cedarburg acquisitions had occurred on January
1, 2013. 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.
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Total revenue
|
|
$
|
462,696
|
|
|
$
|
404,584
|
|
|
$
|
310,579
|
|
Net income (loss)
|
|
$
|
11,837
|
|
|
$
|
(2,382
|
)
|
|
$
|
9,877
|
|
Pro forma shares – basic
|
|
|
34,458
|
|
|
|
33,827
|
|
|
|
30,912
|
|
Pro forma shares – diluted
|
|
|
35,622
|
|
|
|
33,827
|
|
|
|
31,848
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.34
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.32
|
|
Diluted
|
|
$
|
0.33
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.31
|
|
The following table shows the pro forma adjustments
made to the weighted average shares outstanding for the periods noted:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Weighted average common shares outstanding – basic
|
|
|
33,169
|
|
|
|
31,526
|
|
|
|
30,912
|
|
Pro forma impact of acquisition consideration
|
|
|
1,289
|
|
|
|
2,301
|
|
|
|
—
|
|
Pro forma weighted average shares – basic
|
|
|
34,458
|
|
|
|
33,827
|
|
|
|
30,912
|
|
Dilutive effect of warrants and share-based compensation
|
|
|
1,164
|
|
|
|
—
|
|
|
|
936
|
|
Pro forma weighted average shares – diluted
|
|
|
35,622
|
|
|
|
33,827
|
|
|
|
31,848
|
|
For the years ended December 31, 2015,
2014 and 2013, pre-tax net income was adjusted for acquisition related costs by reducing expenses by $2,235, $1,676 and by increasing
expense of $1,629, respectively.
For the years ended December 31, 2015,
2014 and 2013 pre-tax net income was adjusted by increasing expenses by $3,439, $6,052 and $3,199, respectively, for purchase accounting
related depreciation and amortization.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
For the year ended December 31, 2014, the
estimated acquisition accounting adjustment for inventory of $14,650 was included in cost of contract revenue to show the proforma
impact of the Gadea acquisition occurring on January 1, 2014. This amount is recognized over time into cost of revenue based on
Gadea’s inventory turns. For the year ended December 31, 2015, a pro forma adjustment was made to reduce cost of revenue
by $8,152.
The Company partially funded the acquisition of Whitehouse utilizing the proceeds from a $30,000 revolving
line of credit. For purposes of presenting the pro forma statements of operations for the years ended December 31, 2015 and 2014,
the Company has assumed that it borrowed on the revolving line of credit on January 1, 2014 for an amount sufficient to fund the
cash consideration to acquire Whitehouse as of that date. The pro forma statements of operations for the years ended December 31,
2015 and 2014 reflect the recognition of interest expense that would have been incurred on the revolving line of credit had it
been entered into on January 1, 2014. The Company has recorded $1,488 of pro forma interest expense on the revolving line of credit
for the purposes of presenting the pro forma statements of operations for the years ended December 31, 2015 and 2014, respectively.
The Company partially funded the acquisition
of Gadea utilizing the proceeds from a $200,000 term loan that was provided for in conjunction with a $230,000 senior secured credit
agreement (the “Credit Agreement”) with Barclays Bank PLC that was completed in July 2015 (see note 5). The Company
did not have sufficient cash on hand to complete the acquisition as of January 1, 2014. For the purposes of presenting the pro
forma statements of operations for the years ended December 31, 2015 and 2014, the Company has assumed that it entered into a Credit
Agreement on January 1, 2014 for an amount sufficient to fund the preliminary cash consideration to acquire Gadea as of that date.
The pro forma statements of operations for the years ended December 31, 2015 and 2014 reflect the recognition of interest expense
that would have been incurred on the Credit Agreement had it been entered into on January 1, 2014. The Company has recorded $4,208
of pro forma interest expense on the Credit Agreement for the purposes of presenting the pro forma statements of operations for
the year ended December 31, 2015, and $8,417 for the year ended December 31, 2014, respectively.
The Company funded the acquisitions of SSCI and Glasgow utilizing the proceeds from a $75,000
senior secured credit agreement that was in place at the dates of acquisition for SSCI and Glasgow. 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 statement of operations
for the year ended December 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 statements of operations for the year reflects the recognition
of interest expense on the assumed bridge financing for the period January 1, 2014 to December 31, 2014, using the rate of interest
that the Company paid on its senior secured credit facility. For the year ended December 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
year. For the year ended December 31, 2014, pre-tax net income was adjusted by $1,500 of pro forma interest expense on the senior
secured facility.
The Company funded the acquisitions of Cedarburg and OsoBio utilizing the proceeds from a private offering
of $150,000 aggregate principal amount of 2.25% Cash Convertible Senior Notes (the “Notes”) that was completed in December
2013. The Company did not have sufficient cash on hand to complete these acquisitions as of January 1, 2013. For the purposes of
presenting the pro forma combined condensed statement of operations for the year ended December 31, 2013, the Company has included
the assumption of bridge financing as of January 1, 2013 to fund the acquisition of Cedarburg and OsoBio as of that date. The pro
forma combined condensed statement of operations for the year ended December 31, 2013 reflects the recognition of interest expense
on the assumed bridge financing for the period January 1, 2013 to December 4, 2013 using the rate of interest that the Company
paid on its term loan facility, at which point it is further assumed that a portion of the Notes financing would have been utilized
to satisfy the bridge financing. For the year ended December 31, 2013, pre-tax net income was adjusted by $10,074 of pro forma
interest expense on the bridge financing.
2015 Activities
In April 2015, the Company announced a restructuring plan with respect to certain operations in the UK,
within its API business segment. In connection with the restructuring plan, the Company ceased all operations at its Holywell,
UK facility effective in the fourth quarter of 2015. The Company recorded $3,375 in charges for reduction in force and termination
benefits related to the UK facility during the year ended December 31, 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 $3,090 in
the API segment during the year ended December 31, 2015. These charges are included under the caption “impairment charges”
on the consolidated statement of operations. Also in 2015, the Company made additional resource changes at its Singapore site (within
the DDS segment) to optimize the cost profile of the facility, which resulted in a restructuring charge of $1,323.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
Restructuring charges for the year ended December
31, 2015 were $5,988, consisting primarily of UK termination charges and costs associated with the transfer of continuing products
from the Holywell, UK facility to our other manufacturing locations, resource optimization charges at our Singapore facility and
lease termination and other charges associated with the previously announced restructuring at the Company’s Syracuse, NY
facility.
2014 Activities
In the third quarter of 2014, the Company
recorded restructuring charges related to optimizing both the Singapore and Hyderabad, India facilities. In the second quarter
of 2014, the Company announced a restructuring plan transitioning activities at its Syracuse, NY site to the Company’s
other sites and ceased operations in Syracuse 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.
In connection with these activities, the Company
recorded restructuring charges in its DDS operating segment of $3,357 during 2014. These amounts primarily consisted of termination
benefits, lease termination settlements, and charges related to additional operating costs of the Syracuse site.
In conjunction with the Cedarburg acquisition
in April 2014, the Company assumed a restructuring liability of $1,134 related to Cedarburg’s Denver, Colorado facility
consisting of lease termination and related costs. Cedarburg commenced this restructuring activity during the fourth quarter of
2013.
Prior Activities
During 2012, the Company announced its decisions
to cease operations at its Budapest, Hungary and Bothell, WA facilities. The goal of these restructuring activities was to advance
the Company’s continued strategy of increasing global competitiveness and remaining diligent in managing costs by improving
efficiency and customer service and by realigning resources to meet shifting customer demand and market preferences, while optimizing
our location footprint. In connection with these activities, the Company recorded restructuring charges in its DDS operating segment
of $525, $481, and $6,538 during 2015, 2014 and 2013, respectively.
The following tables displays the restructuring
activity and liability balances for the years ended and as of December 31, 2015 and 2014:
|
|
Balance at
January 1,
2015
|
|
|
Charges/
(reversals)
|
|
|
Amounts
Paid
|
|
|
Foreign
Currency
Translation &
Other
Adjustments
(1)
|
|
|
Balance at
December 31,
2015
|
|
Termination benefits and personnel realignment.
|
|
$
|
226
|
|
|
$
|
3,350
|
|
|
$
|
(3,004
|
)
|
|
$
|
(33
|
)
|
|
$
|
539
|
|
Lease termination and relocation charges
|
|
|
3,280
|
|
|
|
1,275
|
|
|
|
(1,721
|
)
|
|
|
(681
|
)
|
|
|
2,153
|
|
Other
|
|
|
-
|
|
|
|
1,363
|
|
|
|
(1,228
|
)
|
|
|
(135
|
)
|
|
|
-
|
|
Total
|
|
$
|
3,506
|
|
|
|
5,988
|
|
|
$
|
(5,953
|
)
|
|
$
|
(849
|
)
|
|
$
|
2,692
|
|
|
(1)
|
Included
in restructuring charges are non-cash accelerated depreciation charges of $577 related
to our Singapore facility and $201 related to our Holywell, UK facility.
|
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
|
|
Balance at
January 1,
2014
|
|
|
Charges/
(reversals)
|
|
|
Amounts
Paid
|
|
|
Foreign
Currency
Translation &
Other
Adjustments
(2)
|
|
|
Balance at
December 31,
2014
|
|
Termination benefits and personnel realignment.
|
|
$
|
323
|
|
|
$
|
1,722
|
|
|
$
|
(1,816
|
)
|
|
|
(3
|
)
|
|
$
|
226
|
|
Lease termination and relocation charges
|
|
|
3,582
|
|
|
|
1,455
|
|
|
|
(2,846
|
)
|
|
|
1,089
|
|
|
|
3,280
|
|
Other
|
|
|
471
|
|
|
|
405
|
|
|
|
(877
|
)
|
|
|
1
|
|
|
|
-
|
|
Total
|
|
$
|
4,376
|
|
|
|
3,582
|
|
|
$
|
(5,539
|
)
|
|
$
|
1,087
|
|
|
$
|
3,506
|
|
|
(2)
|
Included
in lease termination and relocation charges are adjustments for restructuring accruals
assumed in conjunction with the Cedarburg acquisition in the second quarter of 2014 of
$1,134.
|
Termination benefits and personnel realignment
costs relate 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 years ended December 31, 2015,
2014, and 2013 and the restructuring liabilities are included in “Accounts payable and accrued expenses” and “other
long-term liabilities” on the consolidated balance sheets at December 31, 2015 and 2014.
In conjunction with the Company’s
actions to optimize its location footprint, the Company also recorded property and equipment impairment charges of $3,705, $5,392,
and $1,857 during the years ended December 31, 2015, 2014, and 2013, respectively. The 2015 charges were in the API and DDS segments,
while the 2014 and 2013 charges were in the DDS segment. Included in the 2014 charges was $1,666 related to the Singapore facility,
and $3,718 related to the impairment of the Syracuse facility as well as certain equipment located at that facility. Included in
the 2013 charges was $1,323 of impairment charges related to the disposition of certain movable equipment located at the former
Hungary facility. These charges are included under the caption “Property and equipment impairment” on the consolidated
statement of operations for the years ended December 31, 2015, 2014 and 2013, respectively.
Inventory consisted of the following at December 31,
2015 and 2014:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Raw materials
|
|
$
|
37,483
|
|
|
$
|
24,298
|
|
Work in process
|
|
|
29,341
|
|
|
|
4,563
|
|
Finished goods
|
|
|
22,407
|
|
|
|
21,019
|
|
Total inventories
|
|
$
|
89,231
|
|
|
$
|
49,880
|
|
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
|
5.
|
Property and Equipment
|
Property and equipment consists of the following:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Laboratory equipment and fixtures
|
|
$
|
228,737
|
|
|
$
|
163,106
|
|
Office equipment
|
|
|
39,864
|
|
|
|
42,064
|
|
Leasehold improvements
|
|
|
38,528
|
|
|
|
39,066
|
|
Buildings
|
|
|
75,092
|
|
|
|
82,201
|
|
Land
|
|
|
10,975
|
|
|
|
7,772
|
|
|
|
|
393,196
|
|
|
|
334,209
|
|
Less accumulated depreciation and amortization
|
|
|
(209,942
|
)
|
|
|
(187,035
|
)
|
|
|
|
183,254
|
|
|
|
147,174
|
|
Construction-in-progress
|
|
|
26,254
|
|
|
|
18,301
|
|
|
|
$
|
209,508
|
|
|
$
|
165,475
|
|
Depreciation and amortization expense of property and equipment
was approximately $22,655, $16,804, and $15,151 for the years ended December 31, 2015, 2014 and 2013, respectively.
As discussed in Note 3, the Company recorded long-lived asset impairment charges of $3,705, $5,392, and $1,857
for the years ended December 31, 2015, 2014 and 2013, respectively. For 2015, this amount represents the impairment of fixed assets
in the UK and the write-down of the Syracuse, NY building (currently classified as held for sale).
|
6.
|
Goodwill and Intangible Assets
|
The changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2014 were as follows:
|
|
DDS
|
|
|
API
|
|
|
DPM
|
|
|
Total
|
|
Balance as of December 31, 2013
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Goodwill acquired
|
|
|
-
|
|
|
|
16,899
|
|
|
|
44,879
|
|
|
|
61,778
|
|
Balance as of December 31, 2014
|
|
|
-
|
|
|
|
16,899
|
|
|
|
44,879
|
|
|
|
61,778
|
|
Goodwill acquired
|
|
|
45,987
|
|
|
|
29,668
|
|
|
|
32,984
|
|
|
|
108,639
|
|
Foreign exchange translation
|
|
|
-
|
|
|
|
(385
|
)
|
|
|
(561
|
)
|
|
|
(946
|
)
|
Balance as of December 31, 2015
|
|
$
|
45,987
|
|
|
$
|
46,182
|
|
|
$
|
77,302
|
|
|
$
|
169,471
|
|
The components of intangible assets are as follows:
|
|
Cost
|
|
|
Impairment
|
|
|
Accumulated
Amortization
|
|
|
Foreign
exchange
translation
|
|
|
Net
|
|
|
Amortization
Period
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and Licensing Rights
|
|
$
|
20,352
|
|
|
$
|
(2,508
|
)
|
|
$
|
(3,004
|
)
|
|
$
|
(165
|
)
|
|
$
|
14,675
|
|
|
2-16 years
|
Customer Relationships
|
|
|
86,774
|
|
|
|
-
|
|
|
|
(4,303
|
)
|
|
|
(408
|
)
|
|
|
82,063
|
|
|
5-20 years
|
Tradename
|
|
|
4,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(57
|
)
|
|
|
4,043
|
|
|
indefinite
|
In-Process Research and Development
|
|
|
18,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(250
|
)
|
|
|
17,750
|
|
|
indefinite
|
Trademarks
|
|
|
2,200
|
|
|
|
-
|
|
|
|
(727
|
)
|
|
|
-
|
|
|
|
1,473
|
|
|
5 years
|
Order Backlog
|
|
|
200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200
|
|
|
n/a
|
Total
|
|
$
|
131,626
|
|
|
$
|
(2,508
|
)
|
|
$
|
(8,034
|
)
|
|
$
|
(880
|
)
|
|
$
|
120,204
|
|
|
|
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
|
|
Cost
|
|
|
Impairment
|
|
|
Accumulated
Amortization
|
|
|
Foreign
exchange
translation
|
|
|
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 for the years
ended December 31, 2015, 2014 and 2013 was $4,394, $1,549, and $429, respectively. The weighted average amortization period
is 12.9 years.
As a result of a semi-annual review of the Company’s proprietary drug development programs in 2014,
it was concluded that the Company will no longer actively pursue partnering opportunities for all programs that we were not already
partnered and will not continue to fund additional patent filing or required maintenance costs for these programs. Based on the
aforementioned conclusions, the Company recorded intangible asset impairment charges in the DDS segment of $2,443 for the year
ended December 31, 2014, which is included under the caption “Impairment charges” in the consolidated statements of
operations.
The following chart represents estimated future
annual amortization expense related to intangible assets:
Year ending December 31,
|
|
|
|
|
2016
|
|
$
|
7,574
|
|
2017
|
|
|
7,563
|
|
2018
|
|
|
7,563
|
|
2019
|
|
|
7,562
|
|
2020
|
|
|
7,556
|
|
Thereafter
|
|
|
60,393
|
|
Total
|
|
$
|
98,211
|
|
The following table summarizes long-term debt:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Convertible senior notes, net of unamortized debt discount
|
|
$
|
128,917
|
|
|
$
|
122,696
|
|
Term loan, net of unamortized discount
|
|
|
198,343
|
|
|
|
─
|
|
Revolving credit facility
|
|
|
30,000
|
|
|
|
35,000
|
|
Industrial development authority bond
|
|
|
2,080
|
|
|
|
2,390
|
|
Various borrowings with institutions, Gadea loans
|
|
|
39,655
|
|
|
|
─
|
|
Capital leases – equipment & other
|
|
|
111
|
|
|
|
341
|
|
|
|
|
399,106
|
|
|
|
160,427
|
|
Less deferred financing fees
|
|
|
(9,823
|
)
|
|
|
(4,085
|
)
|
Less current portion
|
|
|
(15,591
|
)
|
|
|
(447
|
)
|
Total long-term debt
|
|
$
|
373,692
|
|
|
$
|
155,895
|
|
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The aggregate maturities of long-term debt, exclusive of unamortized
debt discount of $22,740 at December 31, 2015, are as follows:
2016
|
|
$
|
15,591
|
|
2017
|
|
|
11,945
|
|
2018
|
|
|
354,563
|
|
2019
|
|
|
6,148
|
|
2020
|
|
|
32,319
|
|
Thereafter
|
|
|
1,280
|
|
Total
|
|
$
|
421,846
|
|
Term Loan and Revolving Credit Facility
On August 19, 2015, the Company entered into
the Second Amended and Restated Credit Agreement (the “Second Restated Credit Agreement”) with Barclays Bank PLC,
as Administrative Agent, Collateral Agent, L/C Issuer and Swing Line Lender, and the other lenders party thereto.
The Second Restated Credit Agreement, subject
to the terms and conditions set forth therein, provides for a $200 million six-year term loan and a $30.0 million five-year revolving
credit facility, which includes a $10.0 million sublimit for the issuance of standby letters of credit and a $5.0 million sublimit
for swingline loans. The proceeds of any borrowings under the Second Restated Credit Agreement are used for working capital and
other of the Company’s or the Company’s subsidiaries’ general corporate purposes, subject to the terms and conditions
set forth in the Second Restated Credit Agreement. The revolving credit facility is due in 2020 and bears interest of 5.07% at
December 31, 2015.
At the Company’s election, term loans
made under the Second Restated Credit Agreement initially bear interest at the Adjusted Eurodollar Rate (as defined below) plus
4.75% or the Base Rate (as defined below) plus 3.75%. Upon achievement of a certain senior secured leverage ratio, the rates will
step down to 4.50% and 3.50%, respectively. The Base Rate is defined, for any day, a fluctuating rate per annum equal to the highest
of (i) the federal funds rate plus ½ of 1.00%, (ii) the prime rate in effect on such day and (iii) the Adjusted Eurodollar
Rate for a one month interest period beginning on such day (or, if such day is not a business day, the immediately preceding business
day) plus 1.00%; provided that, in the case of the term loans, the Base Rate shall at all times be deemed to be not less than the
2.00%. The Adjusted Eurodollar Rate means for the interest period for each Eurodollar loan comprising part of the same group, the
quotient obtained (expressed as a decimal, carried out to five decimal places) by dividing (i) the applicable Eurodollar rate for
such interest period by (ii) 1.00% minus the Eurodollar reserve percentage; provided that, in the case of the term loans only,
the Adjusted Eurodollar Rate shall at all times be deemed to be not less than 1.00%.
The Second Restated Credit Agreement includes
a springing maturity provision such that the loans under the Second Restated Credit Agreement will mature six months prior to
the maturity date of the Notes if more than $25,000 of the Notes (as defined below) are outstanding and the secured leverage ratio
is greater than 1.50 to 1.00 on such date.
The obligations under the Second Restated
Credit Agreement are guaranteed by certain domestic subsidiaries of the Company (each a “Guarantor”) and are secured
by first priority liens on, and security interests in, substantially all of the present and after-acquired assets of the Company
and each Guarantor subject to certain customary exceptions.
The Second Restated Credit Agreement contains
customary representations and warranties relating to the Company and its subsidiaries. The Second Restated Credit Agreement also
contains certain affirmative and negative covenants including negative covenants that limit or restrict, among other things, liens,
indebtedness, investments and acquisitions, mergers and fundamental changes, asset sales, restricted payments, changes in the nature
of the business, transactions with affiliates and other matters customarily restricted in such agreements. The Second Restated
Credit Agreement is also subject to certain customary “Market Flex” provisions, which, if utilized, could alter certain
of the terms.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
In December of 2015, the Company borrowed $30,000 on its line of credit in order to partially finance the
acquisition of Whitehouse. The amount available on the line of credit is $0 at December 31, 2015.
On October 24, 2014, the Company entered
into a $50,000 senior secured credit agreement (the “Credit Agreement”) consisting of a three-year, $50,000 revolving
credit facility, which included 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 (“Amendment No 1. to the Credit Agreement”).
On July 16, 2015, the Company entered into
an Amendment and Restatement to the Credit Agreement (the “Amended and Restated Credit Agreement”). The Amended and
Restated Credit Agreement permitted the Company to repay the entire outstanding principal outstanding under Amendment No. 1 to
the Credit Agreement and to apply that prepayment on a non-pro rata basis among the lenders under Amendment No. 1 to the Credit
Agreement. The Company used the proceeds from borrowings under the Amended and Restated Credit Agreement to repay the entire outstanding
principal outstanding under the Amendment No. 1 to the Credit Agreement on July 16, 2015 and amended the Credit Agreement.
In June 2014, the Company terminated its
previous credit agreement while still maintaining 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 December 31, 2015, the Company had $2,789 of outstanding
letters of credit and bankers’ guarantees secured by restricted cash of $2,966.
The components of the term loan and revolving
credit facility were as follows:
|
|
December 31,
2015
|
|
Principal amount – term loan
|
|
$
|
200,000
|
|
Revolving credit facility
|
|
|
30,000
|
|
Unamortized debt discount
|
|
|
(1,657
|
)
|
Net carrying amount of revolving credit facility
|
|
$
|
228,343
|
|
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”), between
the Company and Wilmington Trust, National Association, as Trustee. The Notes 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").
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
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 years ended
December 31, 2015 and 2014, the Company recorded $6,564 and $5,765, respectively, 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:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Principal amount
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Unamortized debt discount
|
|
|
(21,083
|
)
|
|
|
(27,304
|
)
|
Net carrying amount of Notes
|
|
$
|
128,917
|
|
|
$
|
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 Hedges 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 was
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.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
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 December 31, 2015 and 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
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Notes Hedges
|
|
Other assets
|
|
$
|
76,393
|
|
|
$
|
58,928
|
|
Notes Conversion Derivative
|
|
Other liabilities
|
|
$
|
(76,393
|
)
|
|
$
|
(58,928
|
)
|
Loans with various institutions –
Gadea Loans
In connection with the Gadea acquisition,
the Company assumed various unsecured debt instruments as part of the transaction totaling $39,655 at December 31, 2015. These
loans are issued by various financial institutions and public bodies, have interest rates ranging from 0.5% to 2.21% (generally
at a rate equivalent to the Euribor plus a market spread or a fixed rate) and have various due dates ranging from March 2016 to
August 2022. The loans are all euro-denominated, with payments made on a monthly, quarterly and biannual basis.
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 0.15% at December 31, 2015. The amount outstanding as of December 31, 2015 was
$2,080.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The components of (loss) income before taxes
and income tax (benefit) expense are as follows:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
(Loss) income before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
(9,589
|
)
|
|
$
|
(5,598
|
)
|
|
$
|
19,490
|
|
Foreign
|
|
|
6,120
|
|
|
|
130
|
|
|
|
213
|
|
|
|
$
|
(3,469
|
)
|
|
$
|
(5,468
|
)
|
|
$
|
19,703
|
|
Income tax (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(2,213
|
)
|
|
$
|
(280
|
)
|
|
$
|
7,067
|
|
State
|
|
|
159
|
|
|
|
─
|
|
|
|
─
|
|
Foreign
|
|
|
3,799
|
|
|
|
191
|
|
|
|
743
|
|
|
|
$
|
1,745
|
|
|
|
(89
|
)
|
|
|
7,810
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,112
|
)
|
|
|
(1,552
|
)
|
|
|
227
|
|
State
|
|
|
(3
|
)
|
|
|
(13
|
)
|
|
|
─
|
|
Foreign
|
|
|
(1,798
|
)
|
|
|
(536
|
)
|
|
|
(102
|
)
|
|
|
|
(2,913
|
)
|
|
|
(2,101
|
)
|
|
|
125
|
|
|
|
$
|
(1,168
|
)
|
|
$
|
(2,190
|
)
|
|
$
|
7,935
|
|
The differences between income tax (benefit) expense and income
taxes computed using a federal statutory rate of 35% for the years ended December 31, 2015, 2014 and 2013, were as follows:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
US Federal income tax (benefit) expense at statutory rate
|
|
$
|
(1,214
|
)
|
|
$
|
(1,914
|
)
|
|
$
|
6,896
|
|
Increase (reduction) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal benefit and valued credits
|
|
|
11,207
|
|
|
|
(220
|
)
|
|
|
—
|
|
Rate differential on foreign operations
|
|
|
(930
|
)
|
|
|
(1,108
|
)
|
|
|
(1,018
|
)
|
Domestic production deduction
|
|
|
—
|
|
|
|
—
|
|
|
|
(602
|
)
|
Change in valuation allowance
|
|
|
(9,948
|
)
|
|
|
(508
|
)
|
|
|
4,518
|
|
Research and development credits
|
|
|
(500
|
)
|
|
|
—
|
|
|
|
(723
|
)
|
Employee Stock Purchase Plan
|
|
|
152
|
|
|
|
105
|
|
|
|
85
|
|
Acquisition costs
|
|
|
471
|
|
|
|
195
|
|
|
|
—
|
|
Increase (reduction) in uncertain tax position reserves
|
|
|
293
|
|
|
|
(180
|
)
|
|
|
77
|
|
Enhanced Capital Allowance - Singapore
|
|
|
(330
|
)
|
|
|
—
|
|
|
|
—
|
|
Write-off of Hungary deferred tax asset
|
|
|
—
|
|
|
|
3,206
|
|
|
|
—
|
|
Other, net
|
|
|
(369
|
)
|
|
|
(1,766
|
)
|
|
|
(1,298
|
)
|
|
|
$
|
(1,168
|
)
|
|
$
|
(2,190
|
)
|
|
$
|
7,935
|
|
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The tax effects of temporary differences giving rise to significant
portions of the deferred tax assets and liabilities are as follows:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Nondeductible accrued expenses
|
|
$
|
548
|
|
|
$
|
880
|
|
Library amortization and impairment charges
|
|
|
1,582
|
|
|
|
1,695
|
|
Inventories
|
|
|
1,867
|
|
|
|
1,181
|
|
State tax credit carry-forwards
|
|
|
-
|
|
|
|
5,845
|
|
Investment write-downs and losses
|
|
|
867
|
|
|
|
867
|
|
Deferred income
|
|
|
-
|
|
|
|
255
|
|
Share-based compensation
|
|
|
2,483
|
|
|
|
1,821
|
|
Goodwill and intangibles
|
|
|
3,445
|
|
|
|
5,062
|
|
Arbitration reserve
|
|
|
-
|
|
|
|
115
|
|
Restructuring
|
|
|
3,778
|
|
|
|
3,332
|
|
Pension
|
|
|
3,191
|
|
|
|
3,618
|
|
Net operating loss carry-forwards
|
|
|
15,594
|
|
|
|
22,651
|
|
Federal tax credit carry-forward
|
|
|
114
|
|
|
|
-
|
|
|
|
|
33,469
|
|
|
|
47,322
|
|
Less valuation allowance
|
|
|
(10,947
|
)
|
|
|
(20,895
|
)
|
Deferred tax assets, net
|
|
|
22,522
|
|
|
|
26,427
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment depreciation differences
|
|
|
(11,148
|
)
|
|
|
(12,282
|
)
|
Prepaid real estate taxes
|
|
|
(267
|
)
|
|
|
(239
|
)
|
Goodwill and intangibles
|
|
|
(20,186
|
)
|
|
|
(5,976
|
)
|
Other, net
|
|
|
(984
|
)
|
|
|
(703
|
)
|
Net deferred tax (liability) asset
|
|
$
|
(10,063
|
)
|
|
$
|
7,227
|
|
The Company has tax-effected foreign net
operating loss carry-forwards (“NOLs”) of $4,348, which begin to expire in various years beginning in 2016, and tax-effected
foreign NOLs of $4,247, which do not expire. The Company has tax-effected U.S. Federal NOL’s carryforwards of $6,999
that begin to expire in 2025. The Company has U.S. Federal research tax credit carryforwards of $114 which will begin to expire
in 2035.
In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income and carry back opportunities in
making this assessment. Based upon the level of projected future taxable income over the periods in which the deferred tax assets
are deductible, a valuation allowance is included in deferred tax assets above as follows:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
U.S.
|
|
$
|
945
|
|
|
$
|
12,048
|
|
Foreign
|
|
|
10,002
|
|
|
|
8,847
|
|
Total valuation allowance
|
|
$
|
10,947
|
|
|
$
|
20,895
|
|
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The
Company has determined that the remaining net deferred tax assets are more likely than not to be realized, and therefore no additional
valuation allowance is required. This determination was based on the evaluation of the recoverability of these future tax deductions
and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary
differences and forecasted operating earnings with focus on the Company’s U.S. operations. In 2014, NOLs and tax credits
in New York State were offset by full valuation allowances because the Company did not project sufficient taxable income to utilize
these attributes. During 2015, the Company wrote down the deferred tax assets and associated valuation allowances on the New York
NOLs and tax credits since the Company will have a zero New York state tax rate. The tax effect of this is reflected on the rate
reconciliation state taxes line item.
This is the primary change
in the U.S. valuation allowance during 2015. The increase in the foreign valuation allowance is primarily related to the net increase
of current year NOLs. The amount of the deferred tax asset considered realizable could be reduced if estimates of future taxable
income during the carry forward period are reduced.
A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows:
|
|
2015
|
|
|
2014
|
|
Balance at January 1
|
|
$
|
495
|
|
|
$
|
675
|
|
Increases related to tax positions
|
|
|
256
|
|
|
|
146
|
|
Decreases related to tax positions
|
|
|
(65
|
)
|
|
|
(326
|
)
|
Increases for acquired uncertain tax positions
|
|
|
1,919
|
|
|
|
-
|
|
Balance at December 31
|
|
$
|
2,605
|
|
|
$
|
495
|
|
As of December 31, 2015, the total amount
of gross unrecognized tax benefits, which excludes interest and penalties, was $2,605. The 2015 balance is primarily related to
uncertain tax positions at the Company’s newly foreign acquired entities. The statute of limitation on the foreign acquired
entities will expire in 2016 through 2019. As of December 31, 2014, the total amount of gross unrecognized tax benefits, which
excludes interest and penalties, was $495.
The Company classifies
interest and, if applicable, penalties for any unrecognized tax benefits as a component of income tax expense. As of December 31,
2015, the Company had accumulated interest and penalties of $164 and $187 respectively. Also as of December 31, 2014, the Company
had not accrued any interest related to its uncertain tax positions as the amount is immaterial.
The Company files U.S. income tax returns,
as well as multiple state and foreign jurisdiction tax returns. The Company had a tax holiday in Singapore through March of 2015
resulting in a zero tax rate on current income through March 2015. The Company’s U.S. federal income tax returns have been
examined by the Internal Revenue Service through the year ended December 31, 2010. All significant state matters have been
concluded for years through 2010 and foreign matters have been concluded for years through 2005.
The Company has not provided for U.S. income taxes on undistributed earnings of its foreign subsidiaries
totaling approximately $36,400 because management considers such earnings to be reinvested indefinitely outside of the U.S.
If the earnings are distributed in the future, the Company may be subject to both foreign withholding taxes and U.S. income
taxes that may not be fully offset by foreign tax credits, however calculations of the potential tax liability are not necessary
or practicable as of December 31, 2015.
|
9.
|
Share-based Compensation
|
During the years ended December 31, 2015,
2014 and 2013, the Company recognized total share-based compensation cost of $6,291, $4,122, and $2,620, respectively, and received
cash from stock option exercises and employee stock purchase plan purchases in the amount of $3,458, $2,313, and $1,527, respectively.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The following are the shares of common stock
reserved for issuance at December 31, 2015:
|
|
Number of
Shares
|
|
Stock Option Plans
|
|
|
3,417
|
|
Employee Stock Purchase Plan
|
|
|
564
|
|
Shares reserved for issuance
|
|
|
3,981
|
|
Employee Stock Purchase Plan
The Company’s 1998 Employee Stock Purchase
Plan (the “Purchase Plan”) was adopted during August 1998 and amended, most recently in June 2015. Up to 1,600
shares of common stock may be issued under the Purchase Plan, which is administered by the Compensation Committee of the Board
of Directors. The Purchase Plan establishes two stock offering periods per calendar year, the first beginning on January 1
and ending on June 30, and the second beginning on July 1 and ending December 31. All U.S. employees who work more
than twenty hours per week are eligible for participation in the Purchase Plan. Employees who are deemed to own greater than
5% of the combined voting power of all classes of stock of the Company are not eligible for participation in the Purchase Plan.
During each offering, an employee may purchase shares under the Purchase Plan by authorizing payroll deductions
up to 10% of their cash compensation during the offering period. The maximum number of shares to be issued to any single employee
during an offering period is limited to 2 shares. At the end of the offering period, the accumulated payroll deductions will
be used to purchase common stock on the last business day of the offering period at a price equal to 85% of the closing price of
the common stock on the first or last day of the offering period, whichever is lower.
The 15% discount and the look-back feature
are considered compensatory items for which expense must be recognized. The Company values Purchase Plan shares as a combination
position consisting of 15% of a share of non-vested stock and 85% of a six-month stock option. The value of the non-vested stock
is estimated based on the fair market value of the Company’s common stock at the beginning of the offering period. The value
of the stock option is calculated using the Black-Scholes valuation model using historical expected volatility percentages, a
risk free interest rate equal to the six-month U.S. Treasury rate at the beginning of the offering period, and an expected life
of six months. The resulting per-share value is multiplied by the shares estimated to be purchased during the offering period
based on historical experience to arrive at a total estimated compensation cost for the offering period. The estimated compensation
cost is recognized on a straight-line basis over the offering period.
During the years ended December 31, 2015,
2014 and 2013, 73, 75, and 163 shares, respectively, were issued under the Purchase Plan.
Stock Option Plan
The Company has adopted the 2008 Stock Option
Incentive Plan, as amended (the “2008 Option Plan”), through which incentive stock options or non-qualified stock
options, as well as other equity instruments such as restricted shares, may be issued. In addition, certain stock options are
outstanding which were issued under stock option plans that have subsequently expired. Incentive stock options granted to employees
may not be granted at prices less than 100% of the fair market value of the Company’s common stock at the date of option
grant. Non-qualified stock options may be granted to employees, directors, advisors, consultants and other key persons of the
Company at prices established at the date of grant, and may be less than the fair market value at the date of grant. All stock
options may be exercised at any time, after vesting, over a ten-year period subsequent to the date of grant. The Company has a
variety of vesting schedules for the stock options that have been granted to employees and non-employee directors. The Company
has elected to record the compensation expense associated with these options on a straight-line basis over the vesting term. Non-qualified
stock option vesting terms are established at the date of grant, but have a duration of not more than ten years.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The per share weighted-average fair value
of stock options granted is determined using the Black-Scholes option pricing model with the following weighted-average assumptions:
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Expected life in years
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Interest rate
|
|
|
1.59
|
%
|
|
|
1.52
|
%
|
|
|
0.90
|
%
|
Volatility
|
|
|
42
|
%
|
|
|
53
|
%
|
|
|
55
|
%
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Following is a summary of the status of stock option activity during
2015, 2014 and 2013:
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
(Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2013
|
|
|
2,389
|
|
|
$
|
5.90
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
354
|
|
|
|
6.78
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(310
|
)
|
|
|
3.01
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(211
|
)
|
|
|
6.52
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(176
|
)
|
|
|
15.24
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2013
|
|
|
2,046
|
|
|
$
|
5.62
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
327
|
|
|
|
10.37
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(380
|
)
|
|
|
4.34
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(98
|
)
|
|
|
6.67
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(91
|
)
|
|
|
11.73
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2014
|
|
|
1,804
|
|
|
$
|
6.18
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
266
|
|
|
|
16.93
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(428
|
)
|
|
|
5.74
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(202
|
)
|
|
|
6.85
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(1
|
)
|
|
|
10.11
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2015
|
|
|
1,439
|
|
|
$
|
8.20
|
|
|
|
6.6
|
|
|
$
|
16,763
|
|
Options exercisable, December 31, 2015
|
|
|
900
|
|
|
$
|
5.84
|
|
|
|
5.6
|
|
|
$
|
12,605
|
|
The weighted average fair value per share
of stock options granted during the years ended December 31, 2015, 2014 and 2013 was $6.51, $4.85, and $3.22, respectively.
The total intrinsic value of stock options exercised during the years ended December 31, 2015, 2014 and 2013 was $5,555,
$4,262, and $2,125, respectively. The excess tax benefit for tax deductions from stock option exercises was $2,108 and $1,642
during the years ended December 31, 2015 and 2014.
As of December 31, 2015, there was $1,741
of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted-average
period of 2.5 years. The total fair value of shares vested during the years ended December 31, 2015, 2014 and 2013 was approximately
$940, $871, and $783, respectively. Of the 1,439 stock options outstanding, we currently expect all options to vest.
Restricted Stock
The Company also issues restricted shares of common stock of the Company under the 2008 Option Plan. The shares
are issued as restricted stock and are held in the custody of the Company until all vesting restrictions are satisfied. The vesting
of restricted stock is either time-based or performance-based. The time-based restricted stock granted to certain employees generally
vests 25% per year over four years. The performance-based restricted stock will vest if the Company achieves certain goals in respect
to the Company’s share price compared to the Russell 2000 Stock Index over the applicable performance period. If the vesting
terms under which the award was granted are not satisfied, the shares are forfeited. Restricted stock is valued based on the fair
value of the shares on the grant date, and is amortized to expense on a straight-line basis over the applicable vesting period.
The Company reduces the straight-line compensation expense by an estimated forfeiture rate to account for the estimated impact
of shares of restricted stock that are expected to be forfeited before becoming fully vested. This estimate is based on the Company’s
historical forfeiture experience.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
Following is a summary of the restricted stock
activity during 2015, 2014 and 2013:
|
|
Number of
Shares
|
|
|
Weighted
Average Grant Date
Fair Value
|
|
Outstanding, January 1, 2013
|
|
|
468
|
|
|
$
|
5.85
|
|
Granted
|
|
|
266
|
|
|
|
7.37
|
|
Vested
|
|
|
(175
|
)
|
|
|
6.95
|
|
Forfeited
|
|
|
(50
|
)
|
|
|
5.64
|
|
Outstanding, December 31, 2013
|
|
|
509
|
|
|
$
|
6.28
|
|
Granted
|
|
|
691
|
|
|
|
13.02
|
|
Vested
|
|
|
(205
|
)
|
|
|
5.74
|
|
Forfeited
|
|
|
(72
|
)
|
|
|
8.63
|
|
Outstanding, December 31, 2014
|
|
|
923
|
|
|
$
|
11.26
|
|
Granted
|
|
|
470
|
|
|
|
16.95
|
|
Vested
|
|
|
(229
|
)
|
|
|
10.67
|
|
Forfeited
|
|
|
(144
|
)
|
|
|
10.65
|
|
Outstanding, December 31, 2015
|
|
|
1,020
|
|
|
$
|
13.71
|
|
During the years ended December 31, 2015
and 2014, a total of 144 and 72 shares, respectively, with an unrecognized compensation expense of $1,535 and $622, respectively,
were forfeited. The amount amortized to expense during years ended December 31, 2015, 2014 and 2013, net of the impact of
forfeitures, was approximately $4,000, $2,558, and $1,070, respectively. As of December 31, 2015, there was $10,182 of total
unrecognized compensation cost related to non-vested restricted shares. That cost is expected to be recognized over a weighted-average
period of 2.8 years. Of the 1,020 restricted shares outstanding, we currently expect all shares to vest.
|
10.
|
Employee Benefit Plans
|
Defined Contribution Plans
The Company maintains a savings and profit sharing plan under section 401(k) of the Internal Revenue
Code covering all eligible U.S. non-union employees. Employees must complete one calendar month of service and be over 20.5 years
of age as of the plan’s entry dates. Participants may contribute up to 100% of their compensation, subject to IRS limitations.
The Company currently makes matching contributions equal to 100% of the participant’s contributions to the Plan for each
payroll period up to the first 4% of Plan Compensation. The Company then matches 50% on the next 2% of Plan Compensation, to a
maximum company match of 5%. In addition, the Company has reserved the right to make discretionary profit sharing contributions
to employee accounts. The Company has made no discretionary profit sharing contributions. Employer matching contributions are fully
(100%) vested after completion of two years of service. Employer matching contributions were approximately $3,326, $1,821, and
$1,784 for the years ended December 31, 2015, 2014 and 2013, respectively.
The Company also sponsors a savings and
profit sharing plan under section 401(k) of the Internal Revenue Code covering U.S. based union employees. Employees
must complete one calendar month of service and there is no age requirement as of the plan’s entry dates. Participants may
contribute up to 100% of their regular wages, subject to IRS limitations, and the Company matches 50% of each dollar contributed
by the employee up to 10% of their wages. In addition, the Company has reserved the right to make discretionary profit sharing
contributions to employee accounts. The Company has made no discretionary profit sharing contributions. Employer matching contributions
were $145, $131, and $129 for the years ended December 31, 2015, 2014 and 2013, respectively.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
Defined Benefit and Postretirement Welfare
Plan
AMRI Rensselaer maintains a non-contributory
defined benefit plan (salaried and hourly) and a non-contributory, unfunded post-retirement welfare plan, covering substantially
all employees. Benefits for the salaried defined benefit plan are based on salary and years of service. Benefits for the hourly
defined benefit plan (for union employees) are based on negotiated benefits and years of service. The hourly defined benefit plan
is covered under a collective bargaining agreement with the International Chemical Workers Union which represents the hourly workforce
at AMRI Rensselaer.
Effective June 5, 2003, the Company eliminated
the accumulation of additional future benefits under the non-contributory, unfunded postretirement welfare plan for salaried employees.
Effective August 1, 2003, the Company curtailed the salaried defined benefit pension plan and effective March 1, 2004,
the Company curtailed the hourly defined benefit pension plan.
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.
The Company recognizes the overfunded or underfunded
status of its postretirement plans in its consolidated balance sheet and recognizes changes in that funded status in the year
in which the changes occur. Additionally, the Company is required to measure the funded status of a plan as of the end of its
fiscal year.
The following table provides a reconciliation
of the changes in the plans’ benefit obligations and fair value of the plans’ assets during the years ended December 31,
2015 and 2014, and a reconciliation of the funded status to the net amount recognized in the consolidated balance sheets as of
December 31 (the plans’ measurement dates) of both years:
|
|
Pension Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1
|
|
$
|
28,295
|
|
|
$
|
24,581
|
|
|
$
|
49
|
|
|
$
|
1,347
|
|
Service cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest cost
|
|
|
955
|
|
|
|
1,018
|
|
|
|
—
|
|
|
|
—
|
|
Actuarial loss (gain)
|
|
|
(1,908
|
)
|
|
|
4,279
|
|
|
|
—
|
|
|
|
—
|
|
Benefits paid
|
|
|
(1,640
|
)
|
|
|
(1,583
|
)
|
|
|
—
|
|
|
|
(13
|
)
|
Settlement of obligation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,285
|
)
|
Benefit obligation at December 31
|
|
|
25,702
|
|
|
|
28,295
|
|
|
|
49
|
|
|
|
49
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
|
19,540
|
|
|
|
19,058
|
|
|
|
—
|
|
|
|
—
|
|
Actual return on plan assets
|
|
|
(272
|
)
|
|
|
1,486
|
|
|
|
—
|
|
|
|
—
|
|
Employer contributions
|
|
|
637
|
|
|
|
579
|
|
|
|
—
|
|
|
|
—
|
|
Benefits paid
|
|
|
(1,640
|
)
|
|
|
(1,583
|
)
|
|
|
—
|
|
|
|
—
|
|
Fair value of plan assets at December 31
|
|
|
18,265
|
|
|
|
19,540
|
|
|
|
—
|
|
|
|
—
|
|
Funded status
|
|
$
|
(7,437
|
)
|
|
$
|
(8,755
|
)
|
|
$
|
(49
|
)
|
|
$
|
(49
|
)
|
The Company included $793 and $(2,234) in
other comprehensive income for the years ended December 31, 2015 and 2014, respectively, which represent the respective fluctuations
in the unrecognized actuarial gains and losses, net of related tax impacts.
At December 31, 2015 and 2014, the accumulated
benefit obligation (the actuarial present value of benefits, vested and non-vested, earned by employees based on current and past
compensation levels) for the Company’s pension plan totaled $25,702 and $28,295, respectively.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The following table provides the components of net periodic benefit
cost (income) for the years ended December 31:
|
|
Pension Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
63
|
|
Interest cost
|
|
|
955
|
|
|
|
1,018
|
|
|
|
917
|
|
|
|
48
|
|
Expected return on plan assets
|
|
|
(1,302
|
)
|
|
|
(1,254
|
)
|
|
|
(1,292
|
)
|
|
|
—
|
|
Amortization of net loss
|
|
|
885
|
|
|
|
613
|
|
|
|
822
|
|
|
|
1
|
|
Net periodic benefit cost
|
|
$
|
538
|
|
|
$
|
377
|
|
|
$
|
447
|
|
|
$
|
112
|
|
Recognized in AOCI (pre-tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Net actuarial loss
|
|
|
9,119
|
|
|
|
10,337
|
|
|
|
6,902
|
|
|
|
44
|
|
Total recognized in AOCI (pre-tax)
|
|
$
|
9,119
|
|
|
$
|
10,337
|
|
|
$
|
6,902
|
|
|
$
|
46
|
|
Total recognized in consolidated statement of operations and AOCI
|
|
$
|
9,657
|
|
|
$
|
10,714
|
|
|
$
|
7,349
|
|
|
$
|
158
|
|
The following assumptions were used to determine the periodic pension
cost for the defined benefit pension plans for the year ended December 31:
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Discount rate
|
|
|
3.90
|
%
|
|
|
3.50
|
%
|
|
|
4.25
|
%
|
Expected return on plan assets
|
|
|
7.50
|
%
|
|
|
7.30
|
%
|
|
|
7.70
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The discount rates utilized for determining
the Company’s pension obligation and net periodic benefit cost were selected using high-quality long-term corporate bond
indices as of the plan’s measurement date. The rate selected as a result of this process was substantiated by comparing
it to the composite discount rate that produced a liability equal to the plan’s expected benefit payment stream discounted
using the Citigroup Pension Discount Curve (“CPDC”). The CPDC was designed to provide a means for plan sponsors to
value the liabilities of their postretirement benefit plans. The CPDC is a yield curve of hypothetical double-A zero coupon bonds
with maturities up to 30 years. This curve includes adjustments to eliminate the call features of corporate bonds. As a result
of this modeling process, the discount rate was 3.9% at December 31, 2015 and 3.5% at December 31, 2014.
The following assumptions were used to determine
the periodic postretirement benefit cost for the postretirement welfare plan for the year ended December 31:
|
|
2013
|
|
Health care cost trend rate assumed for next year
|
|
|
7.25
|
%
|
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
|
|
|
5.0
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
2022
|
|
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The Company’s pension plan weighted-average asset allocations
at December 31 by asset category are as follows:
|
|
2015
|
|
|
2014
|
|
|
|
Market Value
|
|
|
%
|
|
|
Market Value
|
|
|
%
|
|
Mutual Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
7,921
|
|
|
|
43
|
%
|
|
$
|
8,644
|
|
|
|
44
|
%
|
Debt securities
|
|
|
8,598
|
|
|
|
47
|
|
|
|
8,969
|
|
|
|
46
|
|
Real estate
|
|
|
1,012
|
|
|
|
6
|
|
|
|
1,083
|
|
|
|
6
|
|
Commodities
|
|
|
585
|
|
|
|
3
|
|
|
|
635
|
|
|
|
3
|
|
Other
|
|
|
149
|
|
|
|
1
|
|
|
|
209
|
|
|
|
1
|
|
Total
|
|
$
|
18,265
|
|
|
|
100
|
%
|
|
$
|
19,540
|
|
|
|
100
|
%
|
Based on the three-tiered fair value hierarchy,
all pension plan assets’ fair values can be determined by their quoted market price and therefore have been determined to
be Level I as of December 31, 2015.
The overall objective of the Company’s
defined benefit plans is to provide the means to pay benefits to participants and their beneficiaries in the amounts and at the
times called for by the plan. This is expected to be achieved through the investment of the Company’s contributions and
other assets and by utilizing investment policies designed to achieve adequate funding over a reasonable period of time.
Defined benefit plan assets are invested so
as to achieve a competitive risk adjusted rate-of-return on portfolio assets, based on levels of liquidity and investment risk
that is prudent and reasonable under circumstances which exist from time to time.
While the Company’s primary objective
is the preservation of capital, it also adheres to the theory of capital market pricing which maintains that varying degrees of
investment risk should be rewarded with compensating returns.
The asset allocation decision includes consideration
of the non-investment aspects of the Company’s defined benefit plans, including future retirements, lump-sum elections,
contributions, and cash flow. These actual characteristics of the plan place certain demands upon the level, risk, and required
growth of trust assets. The Company regularly conducts analyses of the plan’s current and likely future financial status
by forecasting assets, liabilities, benefits and contributions over time. In so doing, the impact of alternative investment policies
upon the plan’s financial status is measured and an asset mix which balances asset returns and risk is selected. The Company’s
plan policies of preservation of capital, return expectations and investment diversification are all measured during these reviews
to aid in the determination of asset class and risk allocation.
The Company’s decision with regard to
asset mix is reviewed periodically. Asset mix guidelines include target allocations and permissible ranges for each asset category.
Assets are monitored on an ongoing basis and rebalanced as required to maintain an asset mix within the permissible ranges. The
guidelines will change from time to time, based on an ongoing evaluation of the plan’s tolerance of investment risk.
To determine the expected long-term rate of
return on pension plan assets, the Company considers current and expected asset allocations, as well as historical and expected
returns on various categories of plan assets. In developing future return expectations for the Company’s pension plan’s
assets, the Company evaluates general market trends as well as key elements of asset class returns such as expected earnings growth,
yields and spreads across a number of potential scenarios.
The 2015 target allocation was as follows:
Equity securities
|
|
|
44
|
%
|
Debt securities
|
|
|
45
|
|
Real estate
|
|
|
5
|
|
Commodities
|
|
|
4
|
|
Other
|
|
|
2
|
|
Total
|
|
|
100
|
%
|
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The market-related value of plan assets is
used in developing the expected rate of return on plan assets. In developing the expected rate of return, the market-related value
of plan assets phases in recognition of capital appreciation by recognizing investment gains and losses over a four-year period
at 25% per year.
The expected future benefit payments are as
follows for the years ending December 31:
|
|
Pension
Benefits
|
|
2016
|
|
$
|
1,653
|
|
2017
|
|
|
1,657
|
|
2018
|
|
|
1,674
|
|
2019
|
|
|
1,654
|
|
2020
|
|
|
1,653
|
|
2021 - 2025
|
|
|
8,058
|
|
Based on current actuarial assumptions, the Company expects to
contribute $578 to its pension plan in 2016.
The Company leases both facilities and equipment
used in its operations and classifies those leases as operating leases. The Company has long-term operating leases for a substantial
portion of its research and development laboratory facilities. The expiration dates on the present leases range from January 2016
to September 2021. The leases contain renewal options at the option of the Company. The Company is responsible for paying the
cost of utilities, operating costs, and increases in property taxes at its leased facilities.
Future minimum lease payments under non-cancelable
operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2015 are as follows:
Year ending December 31,
|
|
|
|
|
2016
|
|
$
|
4,964
|
|
2017
|
|
|
3,685
|
|
2018
|
|
|
3,100
|
|
2019
|
|
|
1,789
|
|
2020
|
|
|
881
|
|
Thereafter
|
|
|
265
|
|
Total
|
|
$
|
14,684
|
|
Rental expense amounted to approximately $3,984,
$3,022, $3,243 during the years ended December 31, 2015, 2014, and 2013, respectively.
Minimum lease payments have not been reduced
by minimum sublease rentals of $947 due in the future under non-cancelable leases.
|
12.
|
Related Party Transactions
|
(a) Technology Development Incentive
Plan
In 1993, the Company adopted a Technology
Development Incentive Plan to provide a method to stimulate and encourage novel technology developments. This program has been
subsequently discontinued, however eligible participants are able to share in awards based on a percentage of the licensing, royalty
or milestone revenue received by the Company, as defined by the Plan.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
In 2015, 2014, and 2013, the Company awarded
Technology Incentive Compensation (“TIC”) relating to the invention of the active ingredient in Allegra. The inventor
is Thomas D’Ambra, the Company’s former President and Chief Executive Officer and current Chairman of the Board of
Directors. Additionally, in 2012, the Company granted awards to employees in relation to milestone payments for its proprietary
amine neurotransmitter reuptake inhibitors as a result of successful licensing of this technology to BMS. The amounts awarded
and included in the consolidated statements of operations for all TIC awards for the years ended December 31, 2015, 2014
and 2013 are $554, $1,621, and $2,767, respectively. Included in accrued compensation in the accompanying consolidated balance
sheets at both December 31, 2015 and 2014 are unpaid Technology Development Incentive Compensation awards of $0 and $351,
respectively.
(b) Contract Revenue
The Company’s current Chief Executive
Officer was previously President and Chief Executive Officer of, a global pharmaceutical company to which the Company provided
a variety of services in 2015, 2014 and 2013. The Company received $3,322, $3,395, and $1,446 in contract revenue from this
customer in 2015, 2014 and 2013, respectively.
On February 4, 2016, Anthony J. Maddaluna
was elected to the Board of Directors. Mr. Maddaluna is the Executive Vice President/ President of Pfizer Global Supply, a pharmaceutical
company to which Company provided a variety of services in 2015, 2014 and 2013. The Company received $5,553, $8,133 and $6,093
in contract revenue from this customer and its affiliates in 2015, 2014 and 2013, respectively.
On February 17, 2016, David H. Deming was
elected to the Board of Directors. Mr. Deming and the Company’s Chief Executive Officer are members of the Sorrento Therapeutics,
Inc. Board of Directors, a pharmaceutical company to which the Company provided services in 2015. The Company received $64 in
contract revenue from this customer in 2015.
Litigation:
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. The complaint was amended on March 31, 2015 to request certification of
a class of investors during the period between August 5, 2014 and November 5, 2014. On October 2, 2015, the Company submitted
a motion to dismiss the complaint, as amended.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
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 received royalties on U.S. Patent No. 5,750,703 until its expiration in 2015.
In 2013, the Company settled litigation that
was brought by a former vendor related to a contract cancellation, and the litigation was terminated. The Company recorded
a charge of $1,920 in 2013 representing the payment made upon finalizing the settlement agreement.
Other:
During the second quarter of 2015, the
Company received a business interruption insurance recovery of $600, relating to the OsoBio facility. This amount was recorded
as Other income in the consolidated statement of operations. The Company has submitted additional claims related to this event,
which are currently under evaluation by the carrier. The ultimate outcome of the claims are unknown at this time.
The Company has completed an environmental
remediation assessment associated with groundwater contamination at its Rensselaer, NY location. Ongoing costs associated with
the remediation include biannual monitoring and reporting to the State of New York’s Department of Environmental Conservation.
Under the remediation plan, the Company was required to pay for monitoring and reporting into 2019. Under a 1999 agreement with
the facility’s previous owner, the Company’s maximum liability under the remediation is $5,500. For the years ended
December 31, 2015, 2014 and 2013, no costs have been paid by the Company.
|
14.
|
Concentration of Business and Geographic Information
|
Total percentages of contract revenues by
each segment’s three largest customers for years ended December 31, 2015, 2014 and 2013 are indicated in the following table:
|
|
Year
ended December 31,
|
|
|
2015
|
|
2014
|
|
2013
|
DDS
|
|
10%, 8%, 4%
|
|
9%, 8%, 8%
|
|
8%, 7%, 7%
|
API
|
|
20%, 9%, 7%
|
|
22%, 18%, 10%
|
|
25%, 15%, 8%
|
DPM
|
|
15%, 12%, 6%
|
|
18%, 11%, 9%
|
|
22%, 18%, 12%
|
Total contract revenue from GE Healthcare
(“GE”), the Company’s largest customer, represented 11%, 13% and 13% of the Company’s total contract revenue
for the years ended December 31, 2015, 2014 and 2013. The Company’s second largest customer represented 5%, 10% and 8% of
total contract revenue for the years ended December 31, 2015, 2014, and 2013, respectively.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
Contract revenue by geographic region, based
on the location of the customer, and expressed as a percentage of total contract revenue follows:
|
|
Year Ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
United States
|
|
|
64
|
%
|
|
|
68
|
%
|
|
|
60
|
%
|
Europe
|
|
|
26
|
%
|
|
|
23
|
%
|
|
|
19
|
%
|
Asia
|
|
|
6
|
%
|
|
|
7
|
%
|
|
|
13
|
%
|
Other countries
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
8
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Long-lived assets by geographic region are
as follows:
|
|
2015
|
|
|
2014
|
|
United States
|
|
$
|
323,667
|
|
|
$
|
238,780
|
|
Asia
|
|
|
14,336
|
|
|
|
14,986
|
|
Europe
|
|
|
161,696
|
|
|
|
6,035
|
|
Total long-lived assets
|
|
$
|
499,699
|
|
|
$
|
259,801
|
|
The Company has organized its operations into
the Discovery and Development Services (“DDS”), Active Pharmaceutical Ingredients API (“API”) and Drug
Product Manufacturing (“DPM”) 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. DPM includes pre-formulation, formulation
and process development 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.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
|
|
Contract
Revenue
|
|
|
Milestone &
Recurring
Royalty
Revenue
|
|
|
Income
(Loss)
from
Operations
|
|
|
Depreciation
and
Amortization
|
|
For the year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DDS
|
|
$
|
89,973
|
|
|
$
|
5,541
|
|
|
$
|
25,979
|
|
|
$
|
8,568
|
|
API
|
|
|
204,868
|
|
|
|
12,077
|
|
|
|
50,479
|
|
|
|
12,547
|
|
DPM
|
|
|
89,897
|
|
|
|
—
|
|
|
|
14,585
|
|
|
|
5,934
|
|
Corporate (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
(77,394
|
)
|
|
|
—
|
|
Total
|
|
$
|
384,738
|
|
|
$
|
17,618
|
|
|
$
|
13,649
|
|
|
$
|
27,049
|
|
|
(1)
|
The Corporate entity consists primarily of the general
and administrative activities of the Company.
|
|
|
Contract
Revenue(a)
|
|
|
Milestone &
Recurring
Royalty
Revenue
|
|
|
Income
(Loss)
from
Operations
|
|
|
Depreciation
and
Amortization
|
|
For the year ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DDS
|
|
$
|
74,611
|
|
|
$
|
16,257
|
|
|
$
|
17,208
|
|
|
$
|
6,904
|
|
API
|
|
|
146,474
|
|
|
|
9,610
|
|
|
|
42,713
|
|
|
|
8,776
|
|
DPM
|
|
|
29,619
|
|
|
|
—
|
|
|
|
(5,300
|
)
|
|
|
2,673
|
|
Corporate (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
(48,897
|
)
|
|
|
—
|
|
Total
|
|
$
|
250,704
|
|
|
$
|
25,867
|
|
|
$
|
5,724
|
|
|
$
|
18,353
|
|
|
(a)
|
A portion of the 2014 amounts were reclassified from DDS
to API to better align business activities within segments. This reclassification impacted contract revenues for 2014.
|
|
|
Contract
Revenue (a)
|
|
|
Milestone &
Recurring
Royalty
Revenue
|
|
|
Income
(Loss)
from
Operations
|
|
|
Depreciation
and
Amortization
|
|
For the year ended December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DDS
|
|
$
|
77,418
|
|
|
$
|
27,612
|
|
|
$
|
27,139
|
|
|
$
|
7,597
|
|
API
|
|
|
125,870
|
|
|
|
8,962
|
|
|
|
39,072
|
|
|
|
6,838
|
|
DPM
|
|
|
6,713
|
|
|
|
—
|
|
|
|
(3,780
|
)
|
|
|
1,130
|
|
Corporate (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
(42,256
|
)
|
|
|
—
|
|
Total
|
|
$
|
210,001
|
|
|
$
|
36,574
|
|
|
$
|
20,175
|
|
|
$
|
15,565
|
|
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
The following tables summarize other information
by segment as of December 31, 2015, 2014 and 2013:
2015
|
|
DDS
|
|
|
API
|
|
|
DPM
|
|
|
Total
|
|
Long-lived assets
|
|
$
|
136,903
|
|
|
$
|
201,219
|
|
|
$
|
161,577
|
|
|
$
|
499,699
|
|
Goodwill included in long-lived assets
|
|
|
45,987
|
|
|
|
46,182
|
|
|
|
77,302
|
|
|
|
169,471
|
|
Total assets
|
|
|
174,203
|
|
|
|
523,036
|
|
|
|
168,328
|
|
|
|
865,567
|
|
Investments in unconsolidated affiliates
|
|
|
956
|
|
|
|
—
|
|
|
|
—
|
|
|
|
956
|
|
Capital expenditures
|
|
|
7,181
|
|
|
|
10,159
|
|
|
|
4,701
|
|
|
|
22,041
|
|
2014
|
|
DDS
|
|
|
API
|
|
|
DPM
|
|
|
Total
|
|
Long-lived assets
|
|
$
|
64,392
|
|
|
$
|
88,028
|
|
|
$
|
107,381
|
|
|
$
|
259,801
|
|
Goodwill included in long-lived assets
|
|
|
—
|
|
|
|
16,899
|
|
|
|
44,879
|
|
|
|
61,778
|
|
Total assets
|
|
|
100,804
|
|
|
|
276,668
|
|
|
|
138,396
|
|
|
|
515,868
|
|
Investments in unconsolidated affiliates
|
|
|
956
|
|
|
|
—
|
|
|
|
—
|
|
|
|
956
|
|
Capital expenditures
|
|
|
4,271
|
|
|
|
10,262
|
|
|
|
2,656
|
|
|
|
17,189
|
|
2013
|
|
DDS
|
|
|
API
|
|
|
DPM
|
|
|
Total
|
|
Long-lived assets
|
|
$
|
70,565
|
|
|
$
|
61,548
|
|
|
$
|
6,471
|
|
|
$
|
138,584
|
|
Goodwill included in long-lived assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total assets
|
|
|
240,311
|
|
|
|
184,594
|
|
|
|
15,279
|
|
|
|
440,184
|
|
Investments in unconsolidated affiliates
|
|
|
956
|
|
|
|
—
|
|
|
|
—
|
|
|
|
956
|
|
Capital expenditures
|
|
|
2,900
|
|
|
|
7,898
|
|
|
|
337
|
|
|
|
11,135
|
|
|
16.
|
Fair Value of Financial Instruments
|
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 December 31, 2015 was $201,938. 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.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
Interest rate swaps:
At December 31, 2015, the Company had contracted a derivative financial instrument to reduce the impact
of fluctuations in variable interest rates on a loan that a financial institution granted in February 2015, which is a level 2
input. The estimated fair value of the swap at December 31, 2015 was $48. The Company hedges the interest risk of the initial amount
of the aforementioned bank loan through an interest rate swap. In this arrangement, the interest rates are exchanged so that the
Company receives from the financial institution a variable rate of the 3-month Euribor, in exchange for a fixed interest payment
for the same nominal (0.3%). The variable interest rate received for the derivative offsets the interest payment on the hedged
transaction, with the end result being a fixed interest payment on the hedged financing. At December 31, 2015, the derivative financial
instrument had not been designated as a hedge.
To determine the fair value of the interest rate swap, the Company
uses cash flow discounting based on the implicit rates determined by the euro interest rate curve, according to market conditions
at the valuation date.
Instrument
|
|
Nominal Amount
at 12/31/2015
|
|
|
Contract
Date
|
|
Contract
Date
Expiration
|
|
Interest
Rate
Payable
|
|
Interest Rate
Receivable
|
Interest rate swap
|
|
$
|
6,371
|
|
|
2/19/2015
|
|
2/19/2020
|
|
3-month Euribor
|
|
Fixed rate of 0.30%
|
Long-term debt, other than convertible
senior notes:
The carrying value of long-term debt approximated fair value at December 31, 2015 due to the resetting
dates of the variable interest rates.
Nonrecurring Measurements:
The Company has assets, including intangible
assets, property and equipment, and equity method investments which are not required to be carried at fair value on a recurring
basis but are subject to fair value adjustments only in certain circumstances. If certain triggering events occur such that a
non-financial instrument is required to be evaluated for impairment, a resulting asset impairment would require that the non-financial
instrument be recorded at the lower of historical cost or its fair value.
The fair values of these assets are then determined
by the application of a discounted cash flow model using Level 3 inputs. Cash flows are determined based on Company estimates
of future operating results, and estimates of market participant weighted average costs of capital (“WACC”) are used
as a basis for determining the discount rates to apply the future expected cash flows, adjusted for the risks and uncertainty
inherent in the Company’s internally developed forecasts.
Although the fair value amounts have been
determined by the Company using available market information and appropriate valuation methodologies, the estimates presented
are not necessarily indicative of the amounts that the Company could realize in current market exchanges.
In 2015, 2014 and 2013, the Company recorded
long-lived asset impairment charges of $3,770, $7,835, and $1,857, respectively, in its DDS and API segments primarily associated
with the Company’s decision to cease operations at its Holywell, UK, Syracuse, NY, Budapest, Hungary and Bothell, WA facilities,
as well as improving the footprint at the Singapore and Hyderabad facilities. Also, in 2014 we recorded intangible asset impairment
charges in our DDS segment related to certain proprietary drug development programs that will no longer be pursued.
These long-lived asset impairment charges
are included under the caption “Impairment charges” in the consolidated statements of operations for the years ended
December 31, 2015, 2014 and 2013.
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
|
17.
|
Accumulated Other Comprehensive Loss
|
The accumulated balances for each classification
of other comprehensive loss are as follows:
|
|
Pension and
postretirement
benefit plans
|
|
|
Foreign
currency
adjustments
|
|
|
Total
Accumulated
Other
Comprehensive
Loss
|
|
Balance at January 1, 2012, net of tax
|
|
$
|
(5,687
|
)
|
|
$
|
(4,608
|
)
|
|
$
|
(10,295
|
)
|
Net current period change, net of tax
|
|
|
1,547
|
|
|
|
(2,529
|
)
|
|
|
(982
|
)
|
Balance at December 31, 2013, net of tax
|
|
$
|
(4,140
|
)
|
|
$
|
(7,137
|
)
|
|
$
|
(11,277
|
)
|
Net current period change, net of tax
|
|
|
(2,234
|
)
|
|
|
(923
|
)
|
|
|
(3,157
|
)
|
Balance at December 31, 2014, net of tax
|
|
$
|
(6,374
|
)
|
|
$
|
(8,060
|
)
|
|
$
|
(14,434
|
)
|
Net current period change, net of tax
|
|
|
793
|
|
|
|
(4,760
|
)
|
|
|
(3,967
|
)
|
Balance at January 1, 2015, net of tax
|
|
$
|
(5,581
|
)
|
|
$
|
(12,820
|
)
|
|
$
|
(18,401
|
)
|
Amounts recognized into net earnings from accumulated other comprehensive
loss related to the actuarial losses on pension and postretirement benefits were $793, $398 and $535 for the years ended December
31, 2015, 2014 and 2013, respectively. The amount reclassified out of accumulated other comprehensive loss related to cumulative
translation loss related to a foreign subsidiary dissolution was $734 in 2014.
|
18.
|
Selected Quarterly Consolidated Financial Data
(unaudited)
|
The following tables present unaudited consolidated
financial data for each quarter of 2015 and 2014:
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract revenue
|
|
$
|
75,132
|
|
|
$
|
85,226
|
|
|
$
|
101,348
|
|
|
$
|
123,032
|
|
Recurring royalties and milestones
|
|
|
6,685
|
|
|
|
4,322
|
|
|
|
3,231
|
|
|
|
3,380
|
|
Total revenue
|
|
|
81,817
|
|
|
|
89,548
|
|
|
|
104,579
|
|
|
|
126,412
|
|
Income (loss) from operations
|
|
|
1,230
|
|
|
|
6,167
|
|
|
|
10
|
|
|
|
6,242
|
|
Net income (loss)
|
|
|
(2,223
|
)
|
|
|
2,307
|
|
|
|
(4,170
|
)
|
|
|
1,785
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.07
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.12
|
)
|
|
$
|
0.05
|
|
Diluted
|
|
$
|
(0.07
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.12
|
)
|
|
$
|
0.05
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract revenue
|
|
$
|
51,038
|
|
|
$
|
61,474
|
|
|
$
|
57,481
|
|
|
$
|
80,711
|
|
Recurring royalties and milestones
|
|
|
8,283
|
|
|
|
6,705
|
|
|
|
4,990
|
|
|
|
5,889
|
|
Total revenue
|
|
|
59,321
|
|
|
|
68,179
|
|
|
|
62,471
|
|
|
|
86,600
|
|
Income (loss) from operations
|
|
|
7,465
|
|
|
|
5,082
|
|
|
|
(9,735
|
)
|
|
|
2,912
|
|
Net income (loss)
|
|
|
3,500
|
|
|
|
3,724
|
|
|
|
(8,641
|
)
|
|
|
(1,861
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
0.12
|
|
|
$
|
(0.27
|
)
|
|
$
|
0.06
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
0.12
|
|
|
$
|
(0.27
|
)
|
|
$
|
0.06
|
|
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
(In thousands, except for per share amounts)
In the first quarter of 2015, the Company
recorded $1,263 reduction in force and termination benefits primarily related to the UK facility (in the API segment) and property
and equipment impairment charges of $2,550. In the second quarter of 2015, the Company recorded restructuring charges of $1,632
in the API segment consisting primarily of UK termination charges and costs associated with the transfer of continuing products
from the Holywell facility to other manufacturing locations. During the fourth quarter of 2015, the Company recorded a restructuring
charge of $2,160 related to workforce termination charges at its facility in Singapore (in the DDS segment) and costs association
with the closure of the Holywell facility.
In the first quarter of 2014, the Company
recorded a gain on the settlement of our postretirement benefit plan obligation of $1,285. In the third quarter of 2014, the Company
recorded property, plant and equipment charges of $5,392 in the DDS segment primarily related to its Syracuse, NY and Singapore
facilities. In the fourth quarter of 2014, the Company recorded intangible asset impairment charges of $2,443 in its DDS segment
related to certain proprietary drug development programs that are no longer be pursued.