VANCOUVER, Aug. 9, 2011 /PRNewswire/ - Angiotech Pharmaceuticals, Inc. today announced that it released its financial results for the second quarter ended June 30, 2011.
As announced previously, Angiotech will host a conference call discussing its second quarter financial results on Thursday, August 11, 2011 at 11:00 AM ET (8:00 AM PT). Details regarding the conference call can be found on Angiotech’s website at www.angiotech.com.
Financial Information
This press release contains financial data derived from the unaudited consolidated financial statements for the quarters ended June 30, 2011 and 2010. Full unaudited consolidated interim financial statements and Management’s Discussion and Analysis for the three months ended June 30, 2011 will be filed on Form 10-Q on August 9, 2011 with the relevant regulatory agencies, as well as posted on the Investor’s 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 United States 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 in our business over time. In addition, our various creditors may use this measure to establish financial metrics we must meet to remain in compliance with certain financial covenants in our lending agreements, or to assess the operating performance 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 measures prepared in accordance with GAAP. A reconciliation of our non-GAAP Adjusted EBITDA to our GAAP-based net 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.
Recent Events
Completion of Recapitalization Transaction. On May 12, 2011 we emerged from creditor protection proceedings under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”) with the Supreme Court of British Columbia. The completion of this process, 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 issued (the “Recapitalization Transaction”). The completion of the Recapitalization Transaction is expected to significantly improve Angiotech’s future cash flows, liquidity and capital resources and credit profile. For more detailed information on the Recapitalization Transaction, refer to our 2010 Annual Report filed on Form 10-K with the SEC on March 16, 2011 and our unaudited consolidated interim financial statements and Management, Discussion and Analysis for the quarters ended March 31, 2011 and June 30, 2011 filed on Forms 10-Q with the SEC on May 16, 2011 and August 9, 2011, respectively.
Amendment to Credit Facility. On July 14, 2011, we entered into the First Amendment to our new revolving credit facility (the “Exit Facility”) with Wells Fargo. The First Amendment amends the Exit Facility to remove the requirement that we maintain $5 million in Excess Availability, and requires us to maintain $15 million in Excess Availability plus Qualified Cash (both as defined under the Exit Facility), of which at least $5 million must be comprised of Qualified Cash. The net effect of the terms of the First Amendment is to provide Angiotech with $5 million of additional borrowing availability under the Exit Facility as of the date of the First Amendment.
Fresh Start Accounting
As noted above under “Recent Events”, on May 12, 2011 we implemented the Recapitalization Transaction. In connection with the Recapitalization Transaction, we adopted fresh start accounting in accordance with ASC # 852 - Reorganization on April 30, 2011 (the “Convenience Date”). As such, material adjustments resulting from the reorganization and application of fresh-start accounting have therefore been reflected in the May 1, 2011 consolidated balance sheet and the consolidated statements of operations for the one and four months ended April 2011. Given that the Recapitalization Transaction and adoption of fresh-start accounting resulted in a new entity for financial reporting purposes, Angiotech is 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.
Upon implementation of fresh start accounting, we allocated an estimated reorganization enterprise value, as determined for purposes of the fresh start accounting exercise in collaboration with an independent financial advisor, to the various asset classes on our balance sheet based on their estimated fair values, and eliminated our deficit, additional paid-in-capital and other comprehensive income balances. We also recorded the Successor Company’s debt and equity at their estimated fair values. The estimated reorganization value was first assigned to tangible assets and identifiable intangible assets, and the excess of the estimated reorganization value over and above the identifiable net asset values was recorded as goodwill.
As a result of this exercise, we recorded net gains of $341.2 million resulting from the adjustment of the carrying values of the Successor Company’s assets and liabilities to their estimated fair values. The following table summarizes the April 30, 2011 impact of these fair value adjustments:
| in 000’s Debit / (Credit) | |||
| Inventory | $ 19,616 | ||
| Deferred income tax assets, current | (2,741) | ||
| Deferred income tax assets, non-current | (122) | ||
| Assets held for sale | 143 | ||
| Property, plant and equipment | 7,423 | ||
| Intangible assets | 250,466 | ||
| Goodwill | 121,738 | ||
| Deferred financing costs | (4,372) | ||
| Deferred leasehold inducements | 3,485 | ||
| Deferred income tax liabilities, current | (3,544) | ||
| Deferred income tax liabilities, non-current | (60,263) | ||
| Other tax liabilities | 0 | ||
| Other liabilities | 9,388 | ||
| Net gains from fresh start accounting | 341,217 | ||
While the adoption of fresh-start accounting has resulted in a new reporting entity, we believe that the comparison of results from the periods comprising the three and six months ended June 30, 2011 versus results as reported for the three and six months ended June 30, 2010 provides the best comparison of and analysis of our operating results.
In addition, certain of these fresh start accounting related adjustments are expected to make it difficult to compare certain aspects of our operating results in some cases on a temporary basis, such as with inventory and cost of products sold, and in some cases on a permanent basis, such as with intangible assets and Amortization Expense.
With respect to cost of products sold, due to the significant addition of value ascribed to our existing inventory balances as a result of the fresh start accounting exercise, our reported cost of products sold is expected to be recorded at materially greater levels per dollar of sales for a period of approximately 4 months, after which such reported levels of cost of products sold are expected to approximate the levels observed prior to the implementation of fresh start accounting. Specifically, cost of products sold increased by $7.3 million to $35.2 million for the three months ended June 30, 2011, as compared to $27.9 million for the three months ended June 30, 2010. The 26% increase in cost of products sold is primarily due to the $9.8 million non-cash increase in the cost of inventory for the two months ended June 30, 2011 resulting from the revaluation of our existing inventory from $37.5 million to $57.1 million in connection with the implementation of fresh start accounting as at April 30, 2011. Furthermore, the decline in our Medical Products consolidated reported gross margin to 32.7% for the three months ended June 30, 2011 compared to 47.4% for the three months ended June 30, 2010 is primarily due to the impact of the fair value adjustment to inventory described. Excluding the impact of these fresh start accounting adjustments, cost of products sold for the period would have been $25.4 million, and our consolidated gross margin would have been 51.5%.
