American Oriental Bioengineering Reports Third Quarter 2011 Financial Results

Nov 14, 2011, 18:03 ET from American Oriental Bioengineering, Inc.

JERSEY CITY, N.J., Nov. 14, 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 third quarter ended September 30, 2011.

2011 Third Quarter Financial Results

Total Revenue for the third quarter of 2011 was $53.9 million, compared to $91.5 million in the same period of 2010. We strategically shift the products mix, decreasing the manufacturing of certain generic drugs from lower margin products toward higher-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.

  • Revenue from manufacturing business was $49.1 million for the third quarter of 2011, compared to $ 87.5 million in the same period of 2010.
  • Revenue from pharmaceutical products was $40.3 million in the third quarter of 2011, compared to $77.2 million in the same period of 2010.
  • Revenue from nutraceutical products was $8.8 million in the third quarter of 2011, compared to $10.3 million in the same period of 2010.
  • Revenue from distribution business was $4.9 million for the third quarter of 2011, compared to $4.1 million in the same period of 2010.

Gross profit for the third quarter of 2011 was $25.2 million, compared to $47.3 million in the same period of 2010. Gross margin for the third quarter of 2011 was 46.7%, compared to 51.7% in the same period of 2010. 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.

Selling, general and administrative expenses for the third quarter of 2011 were $12.1 million, which represented a decrease of 42.3% from $20.9 million for the same period of 2010. As a percentage of total revenue, selling, general and administrative expenses decreased to 22.4% for the third quarter of 2011 from 22.9% in the same period of 2010. The decrease reflects management's continuing focus on the efficiency of the business through existing and newly identified process improvements and cost reduction initiatives.

Advertising expense for the third quarter of 2011 were $3.0 million, which represented a decrease of 73.0% from $ 11.0 million for the same period of 2010. As a percentage of total revenue, advertising expenses decreased to 5.5% for the third quarter of 2011 from 12.0% in the same period of 2010. The decrease reflects 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 for the third quarter of 2011 were $2.8 million, compared to $4.7 million for the same period of 2010. Expressed as a percentage of revenue, research and development costs were 5.2% for both the third quarter of 2011 and 2010. Our research and development activities consist of near term, middle term and long term stages which contribute to both our current and future business strategies.

Income from operations for the third quarter of 2011 was $8.2 million, compared to $ 9.0 million in the same period of 2010.  

Net Income attributable to controlling interest for the third quarter of 2011 was $ 7.7 million, or $ 0.10 per diluted share, compared to $4.2 million, or $ 0.06 per diluted share, in the same period of 2010.

First Nine Months of 2011 Financial Performance

Total revenue for the nine months of 2011 was $ 160.0 million, compared to $ 222.6 million in the same period of 2010. Gross profit for the first nine months of 2011, was $76.1 million, compared to $ 115.4 million in the same period of 2010.  Operating income for the nine months of 2011was $ 20.0 million, compared to $ 24.4 million in the same period of 2010.  Net income attributable to controlling interest for the first nine months of 2011 was $ 11.2 million, or $ 0.15 per diluted share, compared to $ 12.5 million, or $ 0.17 per diluted share, in the same period of 2010.  

Balance Sheet

Our cash position as of September 30, 2011 was $ 83.0 million, compared to $ 94.6 million as of December 31, 2010. The decrease was mainly attributable to the decrease of investing activities of $39.6 million and partially offset by the operating and financing activities of $ 20.8 million and $2.0 million.

The Company generated approximately $ 20.8 million of operating cash flow in the nine months of 2011, representing an increase of $ 13.5 million, compared to $ 7.3 million for the same period of 2010. The increase was primarily due to the collection of accounts and notes receivable of $16.6 million.

Our net cash used in investing activities amounted to $ 39.6 million in the nine months of 2011, including cash outflows for a deposit of $ 30.4 million, which allow us to have the right to establish a TCM raw material trading center in Northeast China approved by the China's SFDA amounted to $26,503,473. 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.

We have paid $8.9 million construction in progress during the nine months of 2011, for the expansion and upgrade of our manufacturing facilities to complement capacity improvement and efficiency enhancement.

Our working capital decreased to $ 184.6 million as of September 30, 2011, compared to $200.7 million as of December 31, 2010. The decrease was primarily due to the decrease in cash and cash equivalents by $11.6 million and decrease in net accounts and notes receivable by $ 16.5 million, partially offset by the increase of net inventories at $ 11.5 million.

Mr. Tony Liu, Chairman and Chief Executive Officer of AOB, commented: "China remains as a major commercial opportunity with significant growth potential. Leaving aside near-term healthcare reform policy headwinds, we keep long-term positive view on the pharmaceutical business. The financial results demonstrate our ability to execute and deliver on a consistent basis. We are fully committed to executing our growth strategy, driving innovation and delivering value to our customers and our shareholders."

Conference Call To be announced as soon as the conference call number is arranged, expected in the hour.

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:

American Oriental Bioengineering, Inc.

Hong Zhu

(646) 367-1765

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

SEPTEMBER 30,

DECEMBER 31,

2011

2010

(RESTATED)

CURRENT ASSETS

Cash and cash equivalents

$

83,018,431

$

94,568,520

Restricted Cash

654,977

537,297

Accounts and notes receivable, net

64,117,238

80,598,919

Inventories, net

24,201,066

12,665,586

Advances to suppliers and prepaid expenses

19,547,924

14,246,144

Deferred tax assets

221,222

649,503

Receivable for disposal of investment

39,832,547

38,567,410

Other current assets

1,839,855

2,986,005

Total Current Assets

233,433,260

244,819,384

LONG-TERM ASSETS

Property, plant and equipment, net

136,405,433

109,547,616

Land use rights, net

157,892,698

155,433,311

Other long term assets

12,281,370

8,167,880

Construction in progress

32,378,396

22,516,044

Other intangible assets, net

12,858,509

14,889,127

Investments in and advances to equity investments

18,922,088

19,179,235

Goodwill

33,164,121

33,164,121

Deferred tax assets

84,176

147,024

Unamortized financing costs

1,580,721

2,359,404

Total Long-Term Assets

405,567,512

365,403,762

TOTAL ASSETS

$

639,000,772

$

610,223,146

LIABILITIES AND SHAREHOLDERS’ EQUITY

SEPTEMBER 30,

DECEMBER 31,

2011

2010

(RESTATED)

CURRENT LIABILITIES

Accounts payable

$

14,304,039

$

10,716,686

Notes payable

654,977

537,297

Other payables and accrued expenses

14,987,564

18,039,557

Taxes payable

845,753

1,237,169

Short-term bank loans

12,766,861

6,957,258

Current portion of long-term bank loans

62,472

61,405

Other liabilities

5,160,521

6,284,107

Deferred tax liabilities

87,382

243,304

Total Current Liabilities

48,869,569

44,076,783

LONG-TERM LIABILITIES

Long-term bank loans, net of current portion

631,990

679,866

Deferred tax liabilities

14,263,066

15,837,479

Unrecognized tax benefits

7,874,802

6,055,656

Convertible Notes

109,500,000

115,000,000

Total Long-Term Liabilities

132,269,858

137,573,001

TOTAL LIABILITIES

181,139,427

181,649,784

EQUITY

SHAREHOLDERS’ EQUITY

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

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

1,000

1,000

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

78,952,544 shares and 78,598,604 shares issued as of September 30, 2011 and December 31, 2010, respectively; 78,503,381 shares and 78,598,604 shares outstanding as of September 30, 2011 and December 31, 2010, respectively

78,952

78,598

Common stock to be issued

224,333

350,500

Additional paid-in capital

205,971,757

203,322,671

Retained earnings (the restricted portion of retained earnings is

$26,293,785 at both September 30, 2011 and December 31, 2010)

216,442,093

205,260,681

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

(799,999)

-

Less: Prepaid forward repurchase contract

(29,998,616)

(29,998,616)

Accumulated other comprehensive income

65,421,859

49,053,329

Total Shareholders’ Equity

457,341,379

428,068,163

Non-controlling Interest

519,966

505,199

TOTAL EQUITY

457,861,345

428,573,362

TOTAL LIABILITIES AND EQUITY

$

639,000,772

$

610,223,146

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME 

  (UNAUDITED)  

THREE MONTHS ENDED

NINE MONTHS ENDED

SEPTEMBER 30

SEPTEMBER 30

2011

2010

2011

2010

(RESTATED)

(RESTATED)

Revenues

$

53,934,602

$

91,533,044

$

159,988,508

$

222,579,024

Cost of sales

28,730,424

44,250,846

83,863,569

107,219,753

GROSS PROFIT

25,204,178

47,282,198

76,124,939

115,359,271

Selling, general & administrative expenses

12,080,424

20,920,522

34,577,769

48,326,800

Advertising costs

2,964,877

10,983,946

10,185,380

26,949,663

Research and development costs

2,825,967

4,724,703

8,652,455

10,754,394

Depreciation and amortization

1,804,888

1,682,058

5,359,979

4,902,005

Debt extinguishment (gain)

(2,666,829)

-

(2,666,829)

-

Total operating expenses

17,009,327

38,311,229

56,108,754

90,932,862

INCOME FROM OPERATIONS

8,194,851

8,970,969

20,016,185

24,426,409

Equity in (losses) earnings from unconsolidated entities

(796,727)

242,183

(857,811)

201,097

Impairment Loss on eqiuty investment

-

(1,083,637)

-

(1,083,637)

Gain (loss) on changes in ownership of unconsolidated entities

-

-

658,540

(12,240)

Interest expense, net

(1,802,954)

(1,456,062)

(4,850,651)

(4,393,093)

Other (expenses) income, net

(116,196)

(67,548)

321,571

(85,340)

INCOME BEFORE INCOME TAXES

5,478,974

6,605,905

15,287,834

19,053,196

Provision for income taxes

(2,203,013)

2,366,398

4,091,655

6,578,178

NET INCOME

7,681,987

4,239,507

11,196,179

12,475,018

Net (income) loss attributable to non-controlling interest

(28,446)

7,679

(14,767)

19,555

NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST

7,653,541

4,247,186

11,181,412

12,494,573

OTHER COMPREHENSIVE INCOME

5,020,779

7,780,438

16,368,530

9,716,941

COMPREHENSIVE INCOME

$

12,674,320

$

12,027,624

$

27,549,942

$

22,211,514

EARNINGS PER COMMON SHARE

Basic

$

0.10

$

0.06

$

0.15

$

0.17

Diluted

$

0.10

$

0.06

$

0.15

$

0.17

WEIGHTED AVERAGE SHARES OUTSTANDING

Basic

74,845,855

74,934,428

74,801,120

74,765,028

Diluted

76,524,003

75,965,266

76,307,044

75,647,024

SOURCE American Oriental Bioengineering, Inc.