American Oriental Bioengineering Reports Second Quarter 2011 Financial Results

Aug 09, 2011, 16:01 ET from American Oriental Bioengineering, Inc.

NEW YORK, Aug. 9, 2011 /PRNewswire-Asia-FirstCall/ -- American Oriental Bioengineering, Inc. (NYSE: AOB), (the "Company" or "AOB"), a pharmaceutical company dedicated to improving health through the development, manufacture and commercialization of a broad range of prescription and over-the-counter ("OTC") products, today announced financial results for the second quarter ended June 30, 2011.

Second Quarter 2011 Financial Performance

In the second quarter of 2011, revenue decreased to $54.1 million from $77.3 million in the same period of 2010.

  • The Company generated revenue of $50.3 million from its manufacturing business in the second quarter of 2011 compared with $73.7 million in the prior year period. Revenue from pharmaceutical products decreased to $40.7 million from $63.8 million in the prior year period. Nutraceutical products generated revenue of approximately $9.5 million in the second quarter of 2011, compared to $9.9 million in the prior year period. We decreased the manufacturing of certain generic drugs strategically shifted the products mix toward higher-margin products from lower margin products in order to minimize the impact from the increased cost of certain raw materials and the continuing government price cut on certain products.
  • The Company generated $3.8 million from its distribution business, Nuo Hua, in the second quarter of 2011, an increase of 5.2% from $3.6 million in the prior year period.

Gross profit in the second quarter of 2011 was $25.8 million compared to $39.8 million in the second quarter of 2010. Gross margin was 47.8% compared to 51.5% in the prior year period. The margin pressure was mainly caused by the increased costs of certain raw materials and newly levied urban construction and maintenance tax and educational surcharge to foreign invested companies in China since December, 2010.

Operating income in the second quarter of 2011 decreased to $6.3 million compared with $9.1 million in the prior year period. Total operating expenses decreased 36.4% to $19.6 million from $30.8 million in the prior year period. Selling, general and administrative expenses decreased 32.4% to $11.3 million from $16.7 million in the prior year period. The decrease reflects management's continuing efforts to stringently control the spending. Advertising expense decreased 63.1% to $3.4 million in the second quarter of 2011 from $9.2 million in the prior year period, reflecting reduced advertising efforts on some of OTC drugs to correspond to the Company's selective product sales strategy and optimal product portfolio. Research and development expenses decreased 3.9% to $3.1 million from $3.3 million in the prior year period while the company continues to invest in its innovation and technology improvement.

The Company generated a gain of $1.4 million due to changes in ownership of unconsolidated entities, including investments in Nuo Hua Affiliate and Aoxing Pharmaceutical Company, Inc. ("AXN").

Net income attributable to controlling interest for the second quarter of 2011 was $3.6 million, or $0.05 per diluted share, compared to $5.1 million, or $0.07 per diluted share, in the prior year period.

First Half 2011 Financial Performance

Revenue for the first half of 2011 decreased to $106.1 million from $131.0 million in the prior year period. In the first half of 2011, gross profit was $50.9 million, compared to $68.1 million in the prior year period. Operating income in the first half of 2011was $11.8 million, compared to $15.5 million in the prior year period. Net income attributable to controlling interest in the first half of 2011 was $4.5 million, or $0.06 per diluted share, compared to $8.2 million, or $0.11 per diluted share, in the prior year period.

Balance Sheet

Our cash position at June 30, 2011 was $75 million, representing a decrease of $19.5 million compared with our cash position of $94.6 million at December 31, 2010. The decrease was mainly attributable to the decrease of investing activities of $35.7 million and partially offset by the increase from the operating and financing activities of $12.2 million and $0.2 million in the first half of 2011, respectively.

The Company generated approximately $12.2 million of operating cash flow in the first half of 2011, representing an increase of $4.4 million compared with cash flows from operations of $7.7 million for the same period of 2010 mainly from the collection of accounts and notes receivable of $19.2 million.

Our net cash used in investing activities amounted to $35.7 million in the first half of 2011 including cash outflows for a deposit of $23.8 million for a long-lived asset to be acquired, which will allow us to have the right to establish a TCM raw material trading center in Northeast China approved by SFDA. The investment is intended to be integrated with our competitive infrastructure and whole supply chain management, providing a platform for the Company to start a TCM raw material trading business, offering a long term steadier supply of quality raw materials with manageable costs covering Northeast China and generating new profit stream in addition to our existing product portfolio.

We also paid $8.5 million for purchases of construction in progress in the first half of 2011 for the expansion and upgrade of our manufacturing facilities to complement capacity improvement and efficiency enhancement.

We maintain a significant level of working capital. Our working capital decreased to $138.5 million at June 30, 2011, as compared to $162.2 million at December 31, 2010, primarily due to a decrease in cash and cash equivalents by $19.5 million, a decrease in net accounts and notes receivable by $19.0 million and partially offset by an increase of net inventories of $11.9 million.

Mr. Tony Liu, Chairman and Chief Executive Officer of AOB, commented, "Our second quarter 2011 financial results were in line with our expectations considering the increased costs of certain raw materials and the government's price reduction on certain drugs. The financial performance reflects our continuing efforts on profitability and cost control, which largely absorbed revenue pressure and mitigated margin decline. We are also excited to benefit from our long-term investments in R&D both domestically and internationally."

Conference Call

The Company will hold a conference call at 8:00 am ET on Wednesday, August 10, 2011, to discuss its results. Listeners may access the call by dialing 1-800-299-0148 or 1-617-801-9711 for international callers, access code: 43793141. A webcast will also be available through AOB's website at www.bioaobo.com. A replay of the call will be available through August 17, 2011. Listeners may access the replay by dialing 1-888-286-8010 or 1-617-801-6888 for international callers, access code: 22224178.

About American Oriental Bioengineering, Inc.

American Oriental Bioengineering, Inc. is a pharmaceutical company dedicated to improving health through the development, manufacture and commercialization of a broad range of prescription and over the counter products.  

Safe Harbor Statement

Statements made in this press release are forward-looking and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995.  Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements.  The economic, competitive, governmental, technological and other factors identified in the Company's filings with the Securities and Exchange Commission may cause actual results or events to differ materially from those described in the forward looking statements in this press release.  The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise.

Contact:

ICR, LLC

Christine Duan or Ashley Ammon

203-682-8200

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

THREE MONTHS ENDED JUNE 30

SIX MONTHS ENDED JUNE 30

2011

2010

2011

2010

Revenues

$

54,051,796

$

77,296,212

$

106,053,906

$

131,045,980

Cost of sales

28,206,945

37,455,860

55,133,145

62,968,907

GROSS PROFIT

25,844,851

39,840,352

50,920,761

68,077,073

Selling, general & administrative expenses

11,258,098

16,663,566

22,497,345

27,406,278

Advertising costs

3,399,355

9,217,247

7,220,503

15,965,717

Research and development costs

3,125,276

3,250,882

5,826,488

6,029,691

Depreciation and amortization

1,784,380

1,622,989

3,555,091

3,219,947

Total operating expenses

19,567,109

30,754,684

39,099,427

52,621,633

INCOME FROM OPERATIONS

6,277,742

9,085,668

11,821,334

15,455,440

Equity in earnings (losses) from unconsolidated entities

551,461

(296,301)

141,575

(41,086)

Gain (loss) on changes in ownership of unconsolidated entities

1,417,878

125,502

1,417,878

(12,240)

Interest expense, net

(1,518,810)

(1,371,246)

(3,032,395)

(2,937,031)

Other income (expenses), net

11,887

(30,039)

437,767

(17,792)

INCOME BEFORE INCOME TAXES

6,740,158

7,513,584

10,786,159

12,447,291

Income tax

3,169,813

2,395,850

6,294,668

4,211,780

NET INCOME

3,570,345

5,117,734

4,491,491

8,235,511

Net loss attribute to non-controlling interest

10,673

6,476

13,679

11,876

NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST

3,581,018

5,124,210

4,505,170

8,247,387

OTHER COMPREHENSIVE INCOME

8,277,811

1,843,654

11,410,277

1,936,503

COMPREHENSIVE INCOME

$

11,858,829

$

6,967,864

$

15,915,447

$

10,183,890

EARNINGS PER COMMON SHARE

Basic

$

0.05

$

0.07

$

0.06

$

0.11

Diluted

$

0.05

$

0.07

$

0.06

$

0.11

WEIGHTED AVERAGE SHARES OUTSTANDING

Basic

74,675,136

74,743,986

74,788,633

74,680,327

Diluted

76,621,881

75,857,073

76,328,242

75,502,489

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

  (UNAUDITED)

JUNE 30,

DECEMBER 31,

2011

2010

CURRENT ASSETS

Cash and cash equivalents

$

75,030,526

$

94,568,520

Restricted Cash

1,306,706

537,297

Accounts and notes receivable, net

61,582,172

80,598,919

Inventories, net

24,562,693

12,665,586

Advances to suppliers and prepaid expenses

18,038,742

14,246,144

Deferred tax assets

319,197

649,503

Other current assets

2,867,258

2,986,005

Total Current Assets

183,707,294

206,251,974

LONG-TERM ASSETS

Property, plant and equipment, net

110,060,705

109,547,616

Land use rights, net

157,244,683

155,433,311

Other long term assets

38,112,044

8,167,880

Construction in progress

31,479,655

22,516,044

Other intangible assets, net

13,539,694

14,889,127

Goodwill

33,164,121

33,164,121

Other long-term investment

41,772,510

-

Investments in and advances to equity investments

19,759,725

59,068,491

Deferred tax assets

90,519

147,024

Unamortized financing costs

1,895,259

2,359,404

Total Long-Term Assets

447,118,915

405,293,018

TOTAL ASSETS

$

630,826,209

$

611,544,992

LIABILITIES AND SHAREHOLDERS’ EQUITY

JUNE 30,

DECEMBER 31,

2011

2010

CURRENT LIABILITIES

Accounts payable

$

14,663,333

$

10,716,686

Notes payable

1,306,706

537,297

Other payables and accrued expenses

14,175,197

18,039,557

Taxes payable

2,550,152

1,237,169

Short-term bank loans

8,166,337

6,957,258

Current portion of long-term bank loans

62,148

61,405

Other liabilities

4,107,599

6,284,107

Deferred tax liabilities

171,650

243,304

Total Current Liabilities

45,203,122

44,076,783

LONG-TERM LIABILITIES

Long-term bank loans, net of current portion

648,560

679,866

Deferred tax liabilities

15,671,928

15,837,479

Unrecognized tax benefits

6,666,147

5,050,157

Convertible Notes

115,000,000

115,000,000

Total Long-Term Liabilities

137,986,635

136,567,502

TOTAL LIABILITIES

183,189,757

180,644,285

EQUITY

SHAREHOLDERS’ EQUITY

Preferred stock, $0.001 par value; 2,000,000 shares authorized;

1,000,000 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively

1,000

1,000

Common stock, $0.001 par value; 150,000,000 shares authorized;

78,915,514 shares and 78,598,604 shares issued as of June 30, 2011 and December 31, 2010, respectively; 78,466,351 shares and 78,598,604 shares outstanding as of June 30, 2011 and December 31, 2010, respectively

78,915

78,598

Common stock to be issued

157,333

350,500

Additional paid-in capital

205,149,497

203,322,671

Retained earnings (the restricted portion of retained earnings is

$26,471,124 at both June 30, 2011 and December 31, 2010)

212,020,274

207,515,104

Less: Treasury stock, at cost (449,163 shares and nil as of June 30, 2011 and December 31, 2010, respectively)

(799,999)

-

Less: Prepaid forward repurchase contract

(29,998,616)

(29,998,616)

Accumulated other comprehensive income

60,536,528

49,126,251

Total Shareholders’ Equity

447,144,932

430,395,508

Non-controlling Interest

491,520

505,199

TOTAL EQUITY

447,636,452

430,900,707

TOTAL LIABILITIES AND EQUITY

$

630,826,209

$

611,544,992

SOURCE American Oriental Bioengineering, Inc.



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