Angiotech Announces Financial Results for the Second Quarter Ended June 30, 2012
VANCOUVER, Aug. 14, 2012 /PRNewswire/ – Angiotech Pharmaceuticals, Inc.
(“Angiotech”) announced that it released its financial results for the
second quarter ended June 30, 2012.
Angiotech will host a conference call discussing its first quarter
financial results on August 15, 2012 at 1:00 PM ET (10:00 AM PT).
Details regarding the conference call can be found on Angiotech’s
website at www.angiotech.com.
“We are extremely pleased to announce our third consecutive quarter of
significantly improved financial results. Our improved revenue growth,
cash flows, liquidity and profitability are a culmination of the hard
work and dedication of our team following the conclusion of our
restructuring and business change initiatives last year,” said Thomas
Bailey, Angiotech’s President and CEO.
“In addition, as a result of our improved business performance, we were
recently able to complete an important transaction that extends the
maturity date of much of our outstanding debt to December 2016. Our
exchange offer transaction was strongly supported by our existing
creditors and was substantially oversubscribed, and we look forward to
using this transaction as a launch point for certain new strategic
initiatives we are contemplating for 2013 and beyond,” said Mr. Bailey.
Selected important recent developments, and certain highlights from the
second quarter ended June 30, 2012, include:
-- Refinancing of $225 million of Senior Floating Rate
Notes.Angiotech recently concluded a transaction to exchange a
portion of its outstanding Senior Floating Rate Notes due
December 1, 2013 (the "Existing Notes") for new 9% Senior Notes
due December 1, 2016 (the "New Notes").This refinancing
transaction significantly alleviates our near term refinancing
risk, due to the three-year extension of the maturity date for
the New Notes. In addition, by re-domiciling the New Notes in
the U.S., the after-tax cash cost of the New Notes is expected
to be substantially similar to the Existing Notes. On July 3,
2012, Angiotech launched an offer to exchange up to a maximum
of $200 million in aggregate principal amount of the
outstanding Existing Notes ("Maximum Principal Exchange
Amount") for the New Notes issued by Angiotech Pharmaceuticals
(US), Inc. pursuant to an Offering Memorandum and Consent
Solicitation Statement (the "Exchange Offer"). On July 27,
2012, as a result of significant demand for New Notes by
holders of our Existing Notes, we elected to amend the Exchange
Offer to increase the Maximum Principal Exchange Amount to $225
million. On August --13, 2012, $225 million of the $255.5
million tendered Existing Notes were irrevocably extinguished
and exchanged, on a pro rata basis, for approximately $230
million of New Notes. All Existing Notes that were tendered by
the prescribed July 23, 2012 early tender date, which
represented the substantial majority of Existing Notes
tendered, received New Notes with a principal amount
constituting a 2% premium (the "Early Tender Premium") to the
principal amount of the Existing Notes so exchanged. We expect
that the remaining $100 million of Existing Notes may be repaid
with excess cash generated from operations or potential
contingent consideration to be received from the Quill
transaction discussed below, or refinanced at or prior to their
maturity.
-- Revenue.During the quarter ended June 30, 2012, our Medical
Device Products segment generated higher revenue than any of
the previous five quarters. During the three months ended
June 30, 2012 our Medical Device Products recorded sales growth
of 8% as compared to the same period in 2011. Overall, we
expect to observe continued sales growth in our Medical Device
Products throughout the remainder of 2012 as compared to 2011.
Improved sales growth in our Medical Device Products segment is
primarily the result of the following factors: (i) improved
commercial and operational focus on our most significant and
competitive product lines subsequent to the conclusion of our
balance sheet and corporate restructuring efforts;
(ii) continued growth of our proprietary Quill(TM) product
line; and (iii) stabilization and growth of our medical device
component manufacturing business, with growth observed in both
existing and new medical device component customers.
-- Adjusted EBITDA and Debt Reduction.For the three months ended
June 30, 2012, we reported Adjusted EBITDA of $18.5 million,
which represents a 79% increase over Adjusted EBITDA of $10.3
million reported during the same period in 2011. Adjusted
EBITDA associated with our Medical Device Products segment was
$14.5 million during the three months ended June 30, 2012,
representing a 187% increase as compared to the same period in
2011. The remaining $4.0 million of Adjusted EBITDA recorded
during the period was derived primarily from royalties received
from our partners Boston Scientific Corporation and Cook
Medical, Inc. relating to sales of TAXUS and Zilver PTX
drug-eluting coronary stents, respectively. The significant
improvement in our Adjusted EBITDA over the prior period was
achieved through a combination of the growth in our Medical
Device Products revenue as noted above, as well as savings that
have been achieved from certain of our cost reduction and
business restructuring initiatives that were substantively
concluded in December of 2011.
-- Operating Cash Flow and Liquidity.During the three months ended
June 30, 2012, we reported positive cash flows from our
operations of $23.4 million. This included $20.0 million
received as a result of the transaction with Ethicon, Inc. (see
below). This was the fourth consecutive quarter in which we
have generated positive operating cash flows. This improvement
in operating cash flows has positively impacted our total
liquidity and capital resources. As at June 30, 2012, our cash
and cash equivalents and short term investments totaled $58.6
million, and our available borrowing capacity under our
revolving credit facility was $21.1 million, as compared to
$25.4 million and $21.3 million as at December 31, 2011,
respectively. We expect further significant improvements to our
liquidity and capital resources in upcoming quarters, due to
the improved profitability of our business as compared to prior
periods, and as we continue to work with Ethicon to achieve the
product development and launch milestones as described below.
-- Net Debt Reduction and Credit Statistics. As at June 30, 2012,
we had no borrowings outstanding under our revolving credit
facility. Our ratio of Net Debt to last 12 months Adjusted
EBITDA decreased from 6.1 as at December 31, 2011 to 4.1 as at
June 30 2012. Furthermore, based on annualizing our six months
ended June 30, 2012 Adjusted EBITDA results, our ratio of Net
Debt to Adjusted EBITDA would be 3.3.
-- Business Strategy and Cost Realignment. As previously
announced, during the quarter ended December 31, 2011, we
implemented various restructuring initiatives to better align
our expense levels with our business model and capital
structure; including headcount and other cost reductions in
certain areas where our investment levels were high relative to
our current sales or profitability, and the elimination of
certain research and development programs. Through these
changes, we achieved cost savings of $1.6 million (39%
decrease) and $4.1 million (48% decrease) in our research and
development expenses during the three and six months ended
June 30, 2012, respectively, as compared to the same periods in
2011. Similarly, we achieved cost savings of $1.3 million (7%
decrease) and $2.2 million (6% decrease) in our selling,
general and administrative expenses during the three and six
months ended June 30, 2012, respectively, as compared to the
same periods in 2011. We expect to continue various initiatives
to improve our business profitability and cost structure in
future periods. Most significantly, in May 2012 we announced
plans to conclude manufacturing activities at our facility in
Denmark, and to move operations to selected other, lower cost
locations in the U.S. to ensure certain of our interventional
oncology product lines can remain competitive. This cost
reduction project is currently in process, and we expect to
conclude such activities in early 2013, subsequent to which we
expect to begin realizing significant reductions in production
costs, in particular for our Skater(TM) drainage catheter
product line, which is one of our largest single product lines.
-- Transaction with Ethicon, Inc. for proprietary Quill
technology.As previously announced on April 4, 2012, we and
certain of our subsidiaries recently entered into agreements
with Ethicon LLC and/or Ethicon, Inc. (collectively "Ethicon"),
a unit of Johnson & Johnson, Inc., which concluded the sale of
certain intellectual property to Ethicon related to our Quill
technology. We also entered into a Manufacturing and Supply
Agreement ("MSA"), pursuant to which we will exclusively
manufacture knotless wound closure products that utilize the
Quill technology for Ethicon for an undisclosed term. On
April 4, 2012, we received an initial payment of $20 million
from Ethicon related to the acquisition of this Quill related
intellectual property. In addition, we may earn up to an
additional $42 million in contingent cash consideration from
Ethicon, which will be paid out in various installments subject
to (i) our transfer of certain know-how to Ethicon and (ii) the
achievement of certain product development and launch
milestones. In addition, a worldwide, royalty free license to
all Quill intellectual property sold to Ethicon has been
granted to us, thereby enabling us to continue to manufacture,
market and sell Quill in any manner or market at our
discretion.
Financial Information
This press release contains financial data derived from the unaudited
consolidated financial statements for the three and six months ended
June 30, 2012, the two months ended June 30, 2011 and the one and four
months ended April 30, 2011. This press release should, therefore, be
read in conjunction with our full unaudited interim consolidated
financial statements and Management’s Discussion and Analysis for three
and six months ended June 30, 2012, which were filed on Form 10-Q on
August 14, 2012 with the United States (U.S.) Securities and Exchange
Commission (“SEC”) and posted on the Investor section of our website at
www.angiotech.com.
Amounts, unless specified otherwise, are expressed in U.S. dollars.
Financial results are reported in accordance with U.S. GAAP unless
otherwise noted.
Non-GAAP Financial Information
Certain financial measures in this press release are prepared in
accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).
In addition, we have presented adjusted earnings before interest,
taxes, depreciation and amortization (“Adjusted EBITDA”), which is a
non-GAAP financial metric that excludes certain non-cash and
non-recurring items. Management uses Adjusted EBITDA to establish
operational goals, and believes that this metric may assist investors
in evaluating the results of our business and analyzing the underlying
trends over time. In addition, our creditors may monitor this metric to
measure compliance with certain financial covenants in our lending
agreements, or assess the operating and cash flow performance of our
business. Investors should consider our non-GAAP Adjusted EBITDA in
addition to, and not as a substitute for, or as superior to, financial
metrics prepared in accordance with GAAP. A reconciliation of our
non-GAAP Adjusted EBITDA to our GAAP-based net income or loss has been
included in the appendix to this press release. We have also included
explanations about our use of Adjusted EBITDA and a detailed
description of the adjustments made.
Fresh Start Accounting
On May 12, 2011 we implemented a recapitalization transaction which,
among other things, eliminated our $250 million 7.75% Senior
Subordinated Notes due in 2014 and $16 million of related interest
obligations in exchange for new common shares in Angiotech (the
“Recapitalization Transaction”). In connection with this
Recapitalization Transaction, we were required to adopt fresh start
accounting in accordance with ASC # 852–Reorganization on April 30, 2011 (the “Convenience Date”). The adoption of fresh start
accounting resulted in a new entity for financial reporting purposes.
Angiotech is therefore referred to as the “Predecessor Company” for all
periods preceding the Convenience Date and the “Successor Company” for
all periods subsequent to the Convenience Date. However, we believe
that the comparison of results from the three and six months ended
June 30, 2012 and 2011 still provides the best comparison and analysis
of our operating results.
Upon implementation of fresh start accounting, the estimated
reorganization value was allocated to our assets based on their
estimated fair values; the deficit, additional paid-in-capital and
other comprehensive income balances were eliminated; and debt and
equity balances were revalued at their estimated fair values. Our
estimated reorganization value was determined in collaboration with an
independent financial advisor specifically for the purposes of fresh
start accounting. As our estimated reorganization value is inherently
subject to significant uncertainties, there is no assurance that the
estimates and assumptions used in these valuations will be realized and
actual results may differ materially. After the estimated
reorganization value was assigned to tangible assets and identifiable
intangible assets, the excess of the estimated reorganization value
over and above the identifiable net asset values was recorded as
goodwill.
For further discussion of fresh start accounting and its impact on
historical operating results, please refer to our audited consolidated
financial statements and Management, Discussion and Analysis for the
eight months ended December 31, 2011 filed on Form 10-K with the SEC on
March 29, 2012.
ANGIOTECH PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts expressed in thousands of U.S. dollars, except share and
per share data)
(Unaudited)
Successor Company Predecessor Company Combined
Three months ended Two months ended One month ended Three months ended
June 30, June 30, April 30, June 30,
2012 2011 2011 2011
REVENUE
Product sales, $ 56,523 $ 35,902 $ 16,365 $ 52,267
net
Royalty 4,804 1,068 5,285 6,353
revenue
License fees 11 -- 24 24
61,338 36,970 21,674 58,644
EXPENSES
Cost of 27,322 26,934 8,291 35,225
products sold
License and 63 50 -- 50
royalty fees
Research and 2,423 2,829 1,156 3,985
development
Selling, 17,784 12,781 6,191 18,972
general and
administration
Depreciation 8,428 5,690 3,088 8,778
and
amortization
Write-down of -- -- 570 570
assets held
for sale
Write-down of 692 -- -- --
property,
plant and
equipment
56,712 48,284 19,296 67,580
Operating 4,626 (11,314) 2,378 (8,936)
income (loss)
Other income
(expenses)
Foreign 214 492 (366) 126
exchange
(loss) gain
Other income 240 112 10 122
Interest (4,306) (3,032) (2,217) (5,249)
expense
Impairments (68) -- --
and realized
losses on
investments
Total other (3,920) (2,428) (2,573) (5,001)
expenses
Income (loss) 706 (13,742) (195) (13,937)
before
reorganization
items and
income taxes
Reorganization -- -- 329,826 329,826
items
Gain on -- -- 67,307 67,307
extinguishment
of debt and
settlement of
other
liabilities
Income (loss) 706 (13,742) 396,938 383,196
before income
taxes
Income tax 3,654 506 (581) (75)
expense
(recovery)
Net (loss) (2,948) (14,248) 397,519 383,271
income
Basic and
diluted net
(loss) income
per common
share $ (0.23) (1) $ (1.12) (1) $ 4.67 (2)
Basic and
diluted
weighted
average number
of common
shares
outstanding
(in thousands) 12,826 12,721 85,185
(1) There is no dilutive effect on basic weighted average common
shares outstanding for the three months ended June 30, 2012 and
the two months ended June 30, 2011, as Angiotech was in a net loss
position during both periods.
(2) There was no dilutive effect on the basic weighted average common
shares outstanding for the one and four months ended April 30,
2011 given that the impact of stock options was anti-dilutive.
ANGIOTECH PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts expressed in thousands of U.S. dollars, except share and
per share data)
(Unaudited)
Successor Company Predecessor Company Combined
Six months ended Two months ended Four months ended Six months ended
June 30, June 30, April 30, June 30,
2012 2011 2011 2011
REVENUE
Product sales, $ 111,147 $ 35,902 $ 69,198 $ 105,100
net
Royalty 10,722 1,068 10,941 12,009
revenue
License fees 20 -- 127 127
121,889 36,970 80,266 117,236
EXPENSES
Cost of 52,006 26,934 32,219 59,153
products sold
License and 174 50 68 118
royalty fees
Research and 4,408 2,829 5,686 8,515
development
Selling, 35,431 12,781 24,846 37,627
general and
administration
Depreciation 17,451 5,690 14,329 20,019
and
amortization
Write-down of -- -- 570 570
assets held
for sale
Write-down of
property,
plant and
equipment 865 -- 215 215
110,335 48,284 77,933 126,217
Operating 11,554 (11,314) 2,333 (8,981)
income (loss)
Other income
(expenses)
Foreign (56) 492 (646) (154)
exchange
(loss) gain
Other income 902 112 34 146
Interest (8,558) (3,032) (10,327) (13,359)
expense
Impairments
and realized
losses on
investments (349) -- -- --
Total other (8,061) (2,428) (10,939) (13,367)
expenses
Income (loss)
before
reorganization
items and
income taxes 3,493 (13,742) (8,606) (22,348)
Reorganization -- -- 321,084 321,084
items
Gain on
extinguishment
of debt and
settlement of
other
liabilities -- -- 67,307 67,307
Income (loss)
before income
taxes 3,493 (13,742) 379,785 366,043
Income tax 6,440 506 267 773
expense
(recovery)
Net (loss) (2,947) (14,248) 379,518 365,270
income
Basic and
diluted net
(loss) income
per common
share $ (0.23) (1) $ (1.12) (1) $ 4.46 (2)
Basic and
diluted
weighted
average number
of common
shares
outstanding
(in thousands) 12,818 12,721 85,185
(1) There is no dilutive effect on basic weighted average common
shares outstanding for the three months ended June 30, 2012 and
the two months ended June 30, 2011, as Angiotech was in a net loss
position during both periods.
(2) There was no dilutive effect on the basic weighted average common
shares outstanding for the one and four months ended April 30,
2011 given that the impact of stock options was anti-dilutive.
ANGIOTECH PHARMACEUTICALS INC.
CONSOLIDATED BALANCE SHEETS
(All amounts expressed in thousands of U.S. dollars, except share data)
(Unaudited)
Successor Company
June 30, December 31,
2012 2011
ASSETS
Current assets
Cash and cash equivalents $ 57,991 $ 22,173
Short-term investments 644 3,259
Accounts receivable 30,419 28,238
Income tax receivable 524 1,462
Inventories 38,179 34,304
Deferred income taxes, current portion 6,026 3,995
Deferred financing costs, current portion 434 --
Prepaid expenses and other current assets 2,973 3,167
Total current assets 137,190 96,598
Property, plant and equipment 35,427 39,189
Intangible assets 326,981 343,066
Goodwill 123,242 123,228
Deferred income taxes, non-current portion 2,566 2,165
Deferred financing costs, non-current 300 --
portion
Other assets 310 3,860
Total assets 626,016 608,106
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities 25,658 30,537
Deferred income taxes, current portion -- --
Income taxes payable 5,658 2,023
Interest payable 1,406 1,450
Deferred revenue, current portion 6,205 496
Revolving credit facility -- 40
Total current liabilities 38,927 34,546
Deferred revenue, non-current portion 18,069 3,771
Deferred income taxes, non-current portion 94,286 92,634
Other tax liabilities 6,118 5,729
Debt 325,000 325,000
Other liabilities -- 19
Total non-current liabilities 443,473 427,153
Shareholders' equity
Sucessor share capital 203,360 203,719
Authorized:
Unlimited number of common shares,
without par value
Common shares issued and outstanding:
December 31, 2011 - 12,556,673
June 30, 2012 - 12,526,702
Additional paid-in capital 9,349 8,552
Accumulated deficit (63,393) (60,446)
Accumulated other comprehensive income (5,700) (5,418)
Total shareholders' equity 143,616 146,407
Total liabilities and shareholders' equity $ 626,016 $ 608,106
Forward Looking Statements
Statements contained in this press release that are not based on
historical fact, including without limitation statements containing the
words “believes,” “may,” “plans,” “will,” “estimates,” “continues,”
“anticipates,” “intends,” “expects” and similar expressions, constitute
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995 and constitute
“forward-looking information” within the meaning of applicable Canadian
securities laws. All such statements are made pursuant to the “safe
harbor” provisions of applicable securities legislation.
Forward-looking statements may involve, but are not limited to,
comments with respect to our objectives and priorities in 2012 and
beyond, our strategies or future actions, our targets, expectations for
our financial condition and the results of, or outlook for, our
operations, research and development and product and drug development.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
events or developments to be materially different from any future
results, events or developments expressed or implied by such
forward-looking statements. Many such known risks, uncertainties and
other factors are taken into account as part of our assumptions
underlying these forward-looking statements and include, among others,
the following: general economic and business conditions in the United
States, Canada and the other regions in which we operate; market
demand; technological changes that could impact our existing products
or our ability to develop and commercialize future products;
competition; existing governmental legislation and regulations and
changes in, or the failure to comply with, governmental legislation and
regulations; availability of financial reimbursement coverage from
governmental and third-party payers for products and related
treatments; adverse results or unexpected delays in pre-clinical and
clinical product development processes; adverse findings related to the
safety and/or efficacy of our products or products sold by our
partners; decisions, and the timing of decisions, made by health
regulatory agencies regarding approval of our technology and products;
the requirement for substantial funding to conduct research and
development, to expand manufacturing and commercialization activities;
and any other factors that may affect our performance. In addition, our
business is subject to certain operating risks that may cause any
results expressed or implied by the forward-looking statements in this
press release to differ materially from our actual results. These
operating risks include: our ability to attract and retain qualified
personnel; our ability to successfully complete pre-clinical and
clinical development of our products; changes in our business strategy
or development plans; our failure to obtain patent protection for
discoveries; loss of patent protection resulting from third-party
challenges to our patents; commercialization limitations imposed by
patents owned or controlled by third parties; our ability to obtain
rights to technology from licensors; liability for patent claims and
other claims asserted against us; our ability to obtain and enforce
timely patent and other intellectual property protection for our
technology and products; the ability to enter into, and to maintain,
corporate alliances relating to the development and commercialization
of our technology and products; market acceptance of our technology and
products; our ability to successfully manufacture, market and sell our
products; the availability of capital to finance our activities; our
ability to service our debt obligations; and any other factors
referenced in our other filings with the SEC. For a more thorough
discussion of the risks associated with our business, see the “Risk
Factors” section in our quarter report for the three and six months
ended June 30, 2012 filed with the SEC on August 30, 2012 on Form 10Q.
Given these uncertainties, assumptions and risk factors, investors are
cautioned not to place undue reliance on such forward-looking
statements. Except as required by law, we disclaim any obligation to
update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained in this
press release to reflect future results, events or developments.
(©)2012 Angiotech Pharmaceuticals, Inc. All Rights Reserved.
About Angiotech
Angiotech develops, manufactures and markets medical device products and
technologies, primarily within the areas of interventional oncology,
wound closure and ophthalmology. Our strategy is to utilize our precision manufacturing capabilities and
our highly targeted sales and marketing capabilities to offer novel or
differentiated medical device products to patients, physicians and
other medical device manufacturers or distributors. For additional
information about Angiotech, please visit our website at
www.angiotech.com.
Appendix A: Presentation of Non-GAAP Financial Information
The financial results presented in this press release include Adjusted
EBITDA, which is a non-GAAP financial measure.
Economic Substance of Non-GAAP Financial Measures
Our non-GAAP Adjusted EBITDA excludes certain non-cash, non-recurring
and non-operating items, which may be unpredictable, volatile and not
directly correlated to our operating performance. We believe exclusion
of these items from our GAAP-based net loss may provide the following
advantages: (i) improved understanding of trends underlying our
business and performance; (ii) improved consistency across periods when
measuring and assessing our operating performance; (iii) improved
understanding of the cash flow and cash earnings generated by our
business in a given period and as compared to prior periods; and
(iv) improved comparability of our operating results to those of
similar companies in our industry.
Examples of these non-cash, non-recurring and non-operating items may
include: integration and restructuring expenses, reorganization
adjustments, retrospective adjustments driven by accounting policy
changes, financing charges, asset write-downs, impairment charges,
foreign exchange fluctuations, stock-based compensation expense,
acquisition related amortization charges and certain extraordinary
litigation expenses. A detailed discussion of the excluded items is
provided below (see “Description of Adjustments”).
Investors are cautioned that Adjusted EBITDA does not have any
standardized meaning prescribed by GAAP and may not be comparable to
similar measures presented by other issuers. Our non-GAAP Adjusted
EBITDA is a supplemental metric and should not be viewed as a
substitute for, or superior to, financial results and measures prepared
in accordance with GAAP. We have prepared a reconciliation of our
non-GAAP Adjusted EBITDA to our GAAP-based net income (loss) included
in this Appendix. Management compensates for certain material
limitations that may be applicable to our use of Adjusted EBITDA by
reviewing our operating results that have been prepared in accordance
with GAAP.
Use of Non-GAAP Financial Measures
Management uses Adjusted EBITDA when setting corporate and operational
goals, and evaluating operating performance in connection with:
-- Presenting, comparing and assessing the financial results and
forecasts reported to our Board of Directors.
-- Evaluating, managing and benchmarking our operating
performance.
-- Analyzing underlying trends in our business.
-- Evaluating market position and performance relative to our
competitors, many of which use the same or similar performance
metrics.
-- Establishing internal operating budgets and goals.
-- Determining compensation under bonus or other incentive
programs.
-- Enhancing comparability from period to period.
-- Assessing compliance with credit facility covenants.
-- Providing vital information in assessing cash flows to service
our significant debt obligations.
-- Comparing performance with internal forecasts and targeted
business models.
-- Evaluating and valuing potential acquisition candidates.
The adjustments used to compute our non-GAAP Adjusted EBITDA are
consistent with those excluded from operating results that may be used
by our chief operating decision maker to make operating decisions and
assess performance. We have provided this information to enable
investors to analyze our operating results in the same way that
management may use this information to assess our business relative to
other periods, our business objectives and similar companies in our
industry.
ANGIOTECH PHARMACEUTICALS, INC.
CALCULATION OF ADJUSTED EBITDA
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands U.S.$) 2012 2011 2012 2011
GAAP net income (loss) (2,948) $ 383,271 (2,947) $ 365,270
Interest expense on 4,306 5,249 8,558 13,359
long-term debt
Income tax expense 3,654 (75) 6,440 773
Depreciation and 9,536 9,667 19,505 21,934
Amortization
EBITDA 14,548 398,112 31,556 401,336
Adjustments:
Non-recurring revenue, (11) (24) (20) (127)
net of license fees
(a)
BSC royalty revenue -- (1,333) -- (1,333)
accrual (a)
Non-recurring 2,017 488 3,432 43
restructuring related
charges (b)
Reorganization items 932 (329,826) 1,632 (321,084)
and non-recurring
transaction fees (c)
Stock-based 746 70 1,318 364
compensation (d)
Litigation expenses (e) -- 19 -- 164
Non-recurring -- 9,808 -- 9,808
production charge (f)
Foreign exchange loss (214) (126) 56 154
(gain) (g)
Non-recurring gains and (240) (122) (902) (146)
other income (i)
Impairment charges and 760 570 1,214 785
realized losses on
investments and other
long-lived assets (h)
Gain on extinguishment -- (67,307) -- (67,307)
of debt (i)
Adjusted EBITDA $ 18,538 $ 10,329 $ 38,286 $ 22,657
For an explanation of the adjustments used to derive our Adjusted
EBITDA, please refer to the corresponding discussion in the
"Description of Adjustments" section below.
Description of Adjustments
The following provides an explanation of each of the items that
management has adjusted to derive its non-GAAP Adjusted EBITDA for the
three and six months ended June 30, 2012.
(a) Non-Recurring Revenue and Other Revenue Adjustments
Our Adjusted EBITDA for the three and six months ended June 30, 2012 and
2011 exclude certain non-recurring and non-operating license revenue
that is reported as part of our GAAP-based revenue.
We generally record royalty revenue from Boston Scientific (“BSC”) on a
cash basis due to the difficulty and unpredictability of estimating
BSC’s royalty before the reports and payments are received by the
Company. This results in a lag of approximately one quarter between the
times that the revenues are reported by BSC and subsequently received
and recognized by us. For the purposes of implementing fresh start
accounting on April 30, 2011, we were required to estimate the amount
of BSC royalties that were earned during the month of April 2011 but
expected to be received in August 2011. As a result, our GAAP net
income for the three and six months ended June 30, 2011 includes a $1.3
million adjustment for this revenue accrual. We have added back this
accrual-based revenue adjustment to our Adjusted EBITDA for the three
and six months ended June 30, 2011.
(b) Non-Recurring Restructuring-Related Charges
Our Adjusted EBITDA excludes certain expenses or recoveries related to
corporate reorganization or plant restructuring activities that we are
pursuing. These amounts, which are added back or deducted from our
GAAP-based net income (loss) as appropriate, primarily represent
severance costs; asset write-offs; contract renegotiation or
termination fees; and other expenses associated with plant closures,
transfers of production lines from one facility to another and plant
headcount optimization initiatives that are not reasonably expected to
recur in the future.
Our Adjusted EBITDA for the three months ended June 30, 2012 excludes
the following restructuring charges: a $1.0 million fee paid to Biopsy
Sciences, LLC to eliminate all future financial obligations owing under
the original January 22, 2007 Asset Purchase and Assignment Agreement and Amended and Restated License Agreement, $0.5 million of charges related to the restructuring of our Vancouver
head-office and $0.1 million of costs associated with restructuring
initiatives at certain of our manufacturing facilities.
Our Adjusted EBITDA for the three months ended June 30, 2011 excludes
the following restructuring charges: $0.4 million of costs associated
with the movement of our Quill(TM) Knotless Tissue Closure device production line from our Reading,
Pennsylvania facility to our Puerto Rico facility, and $0.1 million of
severance costs related to headcount reductions and residual
reorganization costs from the 2008 closure of our Syracuse, New York
manufacturing facility.
Our Adjusted EBITDA for the six months ended June 30, 2012 excludes the
following restructuring charges: a $1.0 million fee paid to Biopsy
Sciences, LLC to eliminate all future financial obligations owing under
the original January 22, 2007 Asset Purchase and Assignment Agreement and Amended and Restated License Agreement, $1.1 million of non-recurring compensation and severance costs related
to retention initiatives and headcount reductions in our research and
development, sales and marketing and finance departments, $0.9 million
of charges related to the restructuring of our Vancouver head-office,
and $0.1 million of costs associated with restructuring initiatives at
certain of our manufacturing facilities.
Our Adjusted EBITDA for the six months ended June 30, 2011 excludes the
following restructuring charges: $0.8 million of costs associated with
the movement of our Quill(TM) Knotless Tissue Closure device production line from our Reading,
Pennsylvania facility to our Puerto Rico facility; $0.1 million of
severance costs related to headcount reductions and residual
reorganization costs from the 2008 closure of our Syracuse, New York
manufacturing facility ; $0.2 million of restoration costs related to
our decision to downsize our rentable space at one of our manufacturing
facilities; $0.1 million of severance costs related to headcount
reductions in our research and development department; a $0.4 million
settlement fee related to the termination of property lease; a $1.0
million non-cash recovery on our rent expense resulting from an
acceleration of the impact of certain leasehold inducements received in
prior years, associated with our recent decision to downsize our
rentable space at our Vancouver based head-office; and a $0.6 million
recovery on a lease obligation that was previously recorded for a
property lease that has since been terminated.
(c) Reorganization Items and Other Non-Recurring Transaction Fees
Our Adjusted EBITDA excludes certain extraordinary and non-recurring
costs related to significant corporate transactions. These amounts are
adjusted from our GAAP-based net (loss) income because they are highly
variable and specific to the extent and nature of the transaction being
undertaken. As these expenses are not directly correlated to our
day-to-day operating performance and are due to transaction or related
financing decisions made by us that are infrequent or volatile in
nature and specific to the situation at that time, inclusion of these
charges in our financial results makes it more difficult to compare our
performance to that of prior periods or similar companies in our
industry, or to assess the cash flow generation of our operations.
Our Adjusted EBITDA for the three months ended June 30, 2012 excludes:
$0.9 million of non-recurring transaction fees and expenses that were
incurred in connection with the completion of the transaction with
Ethicon as described above.
Our Adjusted EBITDA for the three months ended June 30, 2011 excludes
net reorganization gains, fees and expenses of $329.8 million related
to our Recapitalization Transaction. The $329.8 million of net
reorganization gains, fees and expenses consists of: (i) $341.2 million
of non-cash gains realized due to fresh start accounting related
adjustments; (ii) $9.0 million of professional fees paid to advisors
for legal, accounting and other financial consulting services; (iii) a
$0.8 million incentive fee payable under the terms of the Key Incentive
Employment Plan (“KEIP”) implemented as part of our Recapitalization
Transaction, which is net of a $0.2 million tax recovery; (iv) a $1.4
million charge to stock based compensation expense related to the
cancellation of the Predecessor Company’s existing options and awards
in accordance with the terms of the Recapitalization Transaction; and
(v) $0.2 million cost adjustment for additional insurance costs
required to indemnify existing directors and officers for a period of
six years after the completion of the Recapitalization Transaction.
Our Adjusted EBITDA for the six months ended June 30, 2012 excludes $1.6
million of non-recurring transaction fees and expenses that were
incurred in connection with the completion of the transaction with
Ethicon as described above.
Our Adjusted EBITDA for the six months June 30, 2011 excludes net
reorganization gains, fees and expenses of $321.1 million related to
our Recapitalization Transaction. The $321.1 million of reorganization
gains, fees and expenses consists of: (i) $341.2 million of non-cash
gains realized due to fresh start accounting related adjustments;
(ii) $17.9 million of professional fees paid to advisors for legal,
accounting and other financial consulting services; (iii) $1.6 million
of additional insurance costs required to indemnify existing directors
and officers for a period of six years after the completion of the
Recapitalization Transaction; (iv) a $0.8 million incentive fee payable
under the terms of the KEIP, which is net of a $0.2 million tax
recovery; (v) a $1.5 million recovery of prior year royalty fees that
resulted from a Settlement and License Termination Agreement negotiated
with our partner Rex Medical, LLP as part of the Recapitalization
Transaction; and a $1.4 million charge to stock based compensation
expense related to the cancellation of the Predecessor Company’s
existing options and awards in accordance with the terms of the
Recapitalization Transaction.
(d) Stock-Based Compensation Expense
Our Adjusted EBITDA excludes amounts recorded for stock-based
compensation expense. Stock-based compensation expense is added back to
our GAAP-based net income (loss) because it is a non-cash charge
required by GAAP, which represents an estimated additional cost
associated with the issuance of restricted stock, restricted stock
units and stock options to management and employees as part of their
compensation. Such compensation expense is a non-cash expense
calculated using the Black-Scholes or other similar methodology to
derive the expected fair value of awards issued to employees under the
Company’s stock based compensation plans. Fair value calculations may
be highly subjective, because they are dictated by the specific
assumptions and inputs used in the model. Key assumptions and inputs
may include our estimated stock price on the day the calculation is
completed, the historical volatility of the Predecessor Company’s stock
price, historical volatilities of our industry peer groups, the
estimated risk-free rate of return offered by the market and other
factors, which are not directly correlated to our day-to-day operating
performance and are difficult to determine, predict or forecast. In
these respects and others (including the methodology that may be used
to calculate such expense), methods and data that may be used to
complete the calculation of stock-based compensation expense may vary
widely from period to period or from company to company.
Inclusion of stock based compensation in our results makes it difficult
to assess our operational cash flows as well as measure and compare our
performance to that of similar companies in our industry, our operating
goals or our performance in prior periods.
Our Adjusted EBITDA for the three and six months ended June 30, 2012
excludes stock-based compensation expense of $0.7 million and $1.3
million, respectively.
Our Adjusted EBITDA for the three and six months ended June 30, 2011
excludes stock-based compensation expense of $0.1 million and $0.4
million, respectively.
(e) Litigation-Related Charges
Our Adjusted EBITDA excludes certain litigation-related charges, which
are incurred in connection with extraordinary litigation matters that
are inherently unpredictable, highly variable from period to period,
are not reasonably expected to recur in future periods or are not
related to the day to day operational activities of our business.
No litigation related charges were adjusted from our GAAP-based net
income for the three and six months ended June 30, 2012 to derive our
Adjusted EBITDA metric. Our Adjusted EBITDA for the three and six
months ended June 30, 2011 excludes litigation-related charges of nil
and $0.2 million, respectively.
(f) Non-Recurring Production Charges
Our Adjusted EBITDA excludes amounts recorded for certain extraordinary
and non-recurring production costs. These amounts are adjusted from our
Adjusted EBITDA because they are unplanned, difficult to predict and
related to one-time events not expected to recur from period to period.
Net income for the three and six months ended June 30, 2011 includes
$9.8 million in additional cost of products sold expense related to the
revaluation of inventory from $37.5 million to $60.1 million in
connection with the Company’s implementation of fresh start accounting
on April 30, 2011. Given that this is a non-cash, non-recurring charge,
we have added back this $9.8 million fresh start accounting related
adjustment to our Adjusted EBITDA for the three and six months ended
June 30, 2011.
(g) Foreign Exchange Gains and Losses
Our Adjusted EBITDA excludes amounts recorded for certain foreign
exchange gains and losses. These amounts, which are added back to our
GAAP-based net income (loss), primarily represent expenses related to
differences arising from translating assets held by us in foreign
territories and denominated in foreign currencies, into our reporting
currency. These foreign currency assets fund our research and
development activities in Canada, and are unique to our current
operational structure. As they have no bearing on our day-to-day
operations, operating decisions or our ability to fund or manage our
operations or research and development programs, we exclude them from
our non-GAAP Adjusted EBITDA.
Our Adjusted EBITDA for the three and six months ended June 30, 2012
excludes net foreign exchange gains of $0.2 million and net foreign
exchange losses of $0.1 million, respectively.
Our Adjusted EBITDA for the three and six months ended June 30, 2011
excludes net foreign exchange gains of $0.1 million and net foreign
exchange losses of $0.2 million, respectively.
(h) Impairment Charges and Unrealized Losses on Investments and Other
Long-Lived Assets
Our Adjusted EBITDA excludes certain write-downs of investments or other
long-lived assets, for which the carrying values are impaired and
unlikely to recover. These amounts are added back to our GAAP-based net
income (loss) because they are typically non-recurring, non-operating
and non-cash write-downs or expense items, thus making it difficult to
compare our operating performance in the period the impairment expense
is incurred to our operating performance in other periods, or to the
operating performance of similar companies in our industry. Management
typically excludes these charges from our operating goals, forecasts,
budgets and other non-GAAP financial measures.
Our Adjusted EBITDA for the three months ended June 30, 2012 excludes: a
$0.7 million write-down of leasehold improvements related to our
downsizing of our Vancouver facility, a $0.1 million net realized loss
on the sale of a portion of our holdings in a publicly traded
biotechnology company and $0.02 million of net unrealized gains on the
remaining shares currently held, which have been trading below their
carrying value and which management intends to sell in the near term.
Our Adjusted EBITDA for the six months ended June 30, 2012 excludes: a
$0.7 million write-down of leasehold improvements related to our
downsizing of our Vancouver facility, a $0.2 million write-down of
certain manufacturing equipment related to the termination of one of
our product development projects, a $0.3 million loss realized on the
sale of a portion of our holdings in a publicly traded biotechnology
company; and a $0.04 million unrealized loss on the remaining shares
currently held, which have been trading below their carrying value and
which management intends to sell in the near term.
Our Adjusted EBITDA for the three months ended June 30, 2011 excludes a
$0.6 million non-cash impairment charge recorded in April 2011 related
to a property based in Vancouver, Canada that was sold in May 2011. In
addition to the above noted non-cash impairment charge, our Adjusted
EBITDA for the six months ended June 30, 2011 excludes a $0.2 million
write-down of leasehold improvements related to our downsizing of
rentable space at one of our manufacturing facilities.
(i) Non-Recurring Gains and Other Income
Our Adjusted EBITDA excludes certain extraordinary and non-recurring
gains. These amounts are adjusted from our GAAP-based metrics because
they are unplanned, difficult to predict and related to one-time events
not expected to recur from period to period.
Our Adjusted EBITDA for the three months ended June 30, 2012 excludes
net gains of $0.6 million from the sale of certain lab equipment in
connection with the shutdown of our research and development facilities
at our Vancouver headquarters. In addition to this non-recurring gain,
our Adjusted EBITDA for the six months ended June 30, 2012 also
excludes a $0.2 million gain from the sale of certain manufacturing
equipment.
Our Adjusted EBITDA for the three and six months ended June 30, 2011
excludes a $67.3 million gain related to the settlement and
extinguishment of our $250 million Subordinated Notes, $16 million of
related interest obligations and $4.1 million of certain other
liabilities that were subject to compromise as part of the
Recapitalization Transaction.
Material Limitations
While we believe our measure of Adjusted EBITDA is a useful financial
metric for the reasons stated above, there may be certain inherent
limitations in this non-GAAP metric, including but not limited to:
-- Exclusion of amortization and depreciation expense from our
Adjusted EBITDA does not take into account the need for future
capital spending, whether this is to support growth or to
replace assets which are subject to wear and tear.
-- Exclusion of write-downs, amortization and depreciation from
our Adjusted EBITDA does not take into consideration the
potential tax impacts or obligations which can materialize into
actual future cash flows.
-- As we use our own approach for calculating our Adjusted EBITDA,
other companies may not make the same adjustments or disclose
their financial data in a manner that would allow comparison of
their results to our adjusted results, thus decreasing
comparability of our adjusted financial measures as comparative
analytical tools.
-- Non-GAAP based adjustments may not take into account the full
economic cost of running our business. For example, financing
costs are required to raise capital, which is used to fund
operations. Adjusted financial measures do not necessarily
reflect these considerations.
As noted above, our Adjusted EBITDA is not a substitute for our
GAAP-derived financial measures and statements. Adjusted EBITDA is used
by management to supplement our GAAP disclosures and help investors and
lenders gain a better understanding of our operating performance. It
also provides investors, lenders, and our Board of Directors with
access to the same data used by management to assess our operating
performance. Management compensates for the foregoing limitations by
ensuring that our GAAP disclosures are transparent and sufficient to
provide readers with the information required to reconcile financial
results and form unbiased conclusions.
SOURCE Angiotech Pharmaceuticals, Inc.
