Company Quick10K Filing
Akorn
Price4.08 EPS-3
Shares127 P/E-1
MCap517 P/FCF108
Net Debt632 EBIT-425
TEV1,150 TEV/EBIT-3
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-02-26
10-Q 2019-09-30 Filed 2019-10-31
10-Q 2019-06-30 Filed 2019-08-02
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-01
10-Q 2018-09-30 Filed 2018-11-06
10-Q 2018-06-30 Filed 2018-08-01
10-Q 2018-03-31 Filed 2018-05-02
10-K 2017-12-31 Filed 2018-02-28
10-Q 2017-09-30 Filed 2017-11-01
10-Q 2017-06-30 Filed 2017-07-31
10-Q 2017-03-31 Filed 2017-05-04
10-K 2016-12-31 Filed 2017-03-01
10-Q 2016-09-30 Filed 2016-11-03
10-Q 2016-06-30 Filed 2016-08-04
10-Q 2016-03-31 Filed 2016-05-16
10-K 2015-12-31 Filed 2016-05-10
10-Q 2015-09-30 Filed 2016-06-02
10-Q 2015-06-30 Filed 2016-06-02
10-Q 2015-03-31 Filed 2016-06-02
10-K 2014-12-31 Filed 2015-03-17
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-11
10-Q 2014-03-31 Filed 2014-05-12
10-K 2013-12-31 Filed 2014-03-14
10-Q 2013-09-30 Filed 2013-11-12
10-Q 2013-06-30 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-10
10-Q 2012-09-30 Filed 2012-11-09
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-03-15
10-Q 2011-09-30 Filed 2011-11-09
10-Q 2011-06-30 Filed 2011-08-09
10-Q 2011-03-31 Filed 2011-05-10
10-K 2010-12-31 Filed 2011-03-14
10-Q 2010-09-30 Filed 2010-11-09
10-Q 2010-06-30 Filed 2010-08-09
10-Q 2010-03-31 Filed 2010-05-10
10-K 2009-12-31 Filed 2010-03-16
8-K 2020-06-17
8-K 2020-05-20
8-K 2020-05-20
8-K 2020-05-11
8-K 2020-04-27
8-K 2020-04-22
8-K 2020-04-01
8-K 2020-03-28
8-K 2020-03-13
8-K 2020-03-03
8-K 2020-02-26
8-K 2020-02-12
8-K 2020-02-04
8-K 2020-01-22
8-K 2019-12-16
8-K 2019-12-11
8-K 2019-11-22
8-K 2019-11-12
8-K 2019-11-05
8-K 2019-11-05
8-K 2019-10-31
8-K 2019-09-10
8-K 2019-08-09
8-K 2019-08-01
8-K 2019-07-30
8-K 2019-06-25
8-K 2019-05-30
8-K 2019-05-20
8-K 2019-05-07
8-K 2019-05-06
8-K 2019-05-01
8-K 2019-04-16
8-K 2019-03-21
8-K 2019-03-01
8-K 2019-02-28
8-K 2019-02-20
8-K 2019-01-24
8-K 2019-01-09
8-K 2018-12-31
8-K 2018-12-27
8-K 2018-12-20
8-K 2018-12-11
8-K 2018-12-07
8-K 2018-11-26
8-K 2018-11-06
8-K 2018-10-29
8-K 2018-10-18
8-K 2018-10-10
8-K 2018-10-05
8-K 2018-10-01
8-K 2018-08-01
8-K 2018-05-02
8-K 2018-04-23
8-K 2018-04-22
8-K 2018-02-28
8-K 2018-02-26

AKRX 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements.
Note 1 - Business and Basis of Presentation
Note 2 - Summary of Significant Accounting Policies
Note 3 - Equity Compensation Plans
Note 4 - Accounts Receivable, Sales and Allowances
Note 5 - Inventories, Net
Note 6 - Property, Plant and Equipment, Net
Note 7 - Goodwill and Other Intangible Assets, Net
Note 8 - Financing Arrangements
Note 9 - Earnings per Share
Note 10 - Segment Information
Note 11 - Commitments and Contingencies
Note 12 - Customer, Supplier and Product Concentration
Note 13 - Income Taxes
Note 14 - Related Party Transactions
Note 15 - Recently Issued and Adopted Accounting Pronouncements
Note 16 - Leasing Arrangements
Note 17 - Pension Plan and 401(K) Program
Note 18 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 exhibit311-03312020.htm
EX-31.2 exhibit312-03312020.htm
EX-32.1 exhibit321-03312020.htm
EX-32.2 exhibit322-03312020.htm

Akorn Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.21.81.30.90.40.02012201420172020
Assets, Equity
0.30.20.1-0.1-0.2-0.32012201420172020
Rev, G Profit, Net Income
0.60.40.1-0.1-0.4-0.62012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
FOR THE QUARTERLY PERIOD ENDEDMARCH 31, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____________   TO ____________                    

COMMISSION FILE NUMBER: 001-32360

AKORN, INC.
(Exact Name of Registrant as Specified in its Charter)
Louisiana72-0717400
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification No.)
  
1925 W. Field Court,Suite 300 
Lake Forest, Illinois60045
(Address of Principal Executive Offices)(Zip Code)

(847279-6100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, No Par ValueAKRXThe NASDAQ Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesNo


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes

No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[1]


YesNo
At April 30, 2020, there were 133,151,671 shares of common stock, no par value, outstanding.
[2]



  
 Page
PART I. FINANCIAL INFORMATION 
ITEM 1. Financial Statements (unaudited). 
Condensed Consolidated Balance Sheets - March 31, 2020 and December 31, 2019
Condensed Consolidated Statements of Comprehensive (Loss) - Three months ended March 31, 2020 and 2019
Condensed Consolidated Statements of Shareholders’ Equity - Three months ended March 31, 2020 and 2019
Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2020 and 2019
PART II. OTHER INFORMATION 
 
SIGNATURES 
  
EXHIBIT INDEX 

[3]


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.



AKORN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
[4]


March 31, 2020
(Unaudited)
December 31,
2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents$72,181  $144,804  
Trade accounts receivable, net187,218  134,173  
Inventories, net172,597  170,047  
Prepaid expenses and other current assets58,868  31,023  
TOTAL CURRENT ASSETS490,864  480,047  
PROPERTY, PLANT AND EQUIPMENT, NET294,499  295,533  
OTHER LONG-TERM ASSETS  
Goodwill  267,923  
Intangible assets, net209,659  215,801  
Right-of-use assets, net - Operating leases21,982  22,445  
Other non-current assets15,271  6,890  
TOTAL OTHER LONG-TERM ASSETS246,912  513,059  
TOTAL ASSETS$1,032,275  $1,288,639  
LIABILITIES AND SHAREHOLDERS’ EQUITY  
CURRENT LIABILITIES  
Trade accounts payable$31,118  $44,958  
Income taxes payable181    
Accrued royalties8,953  5,956  
Accrued compensation24,563  13,005  
Current portion of long-term debt (net of deferred financing costs)853,627  843,328  
Accrued administrative fees30,537  31,725  
Current portion of accrued legal fees and contingencies14,873  23,673  
Current portion of lease liability - Operating leases2,401  2,290  
Accrued expenses and other liabilities19,350  20,652  
TOTAL CURRENT LIABILITIES985,603  985,587  
LONG-TERM LIABILITIES  
Deferred tax liability  225  
Uncertain tax liabilities2,684  2,633  
Long-term lease liability - Operating leases21,427  22,021  
Long-term portion of accrued legal fees and contingencies31,160  33,000  
Pension obligations and other liabilities10,895  10,881  
TOTAL LONG-TERM LIABILITIES66,166  68,760  
TOTAL LIABILITIES1,051,769  1,054,347  
SHAREHOLDERS’ EQUITY  
Preferred stock, $1 par value - 5,000,000 shares authorized; no shares issued or outstanding at March 31, 2020 and December 31, 2019.    
Common stock, no par value – 150,000,000 shares authorized; 126,276,438 and 126,145,832 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively.598,873  595,521  
Accumulated deficit(590,665) (333,938) 
Accumulated other comprehensive (loss)(27,702) (27,291) 
TOTAL SHAREHOLDERS’ EQUITY(19,494) 234,292  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$1,032,275  $1,288,639  
 See notes to condensed consolidated financial statements.
[5]



AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(In Thousands, Except Per Share Data)
(Unaudited) 
 Three Months Ended
March 31,
 20202019
Revenues, net$204,693  $165,871  
Cost of sales (exclusive of amortization of intangibles, included within operating expenses below)110,149  112,358  
GROSS PROFIT94,544  53,513  
Selling, general and administrative expenses65,056  72,498  
Research and development expenses9,811  8,714  
Amortization of intangibles6,142  11,065  
Impairment of goodwill267,923  15,955  
Impairment of intangible assets  10,354  
Litigation rulings, settlements and contingencies(7,470) 410  
TOTAL OPERATING EXPENSES341,462  118,996  
OPERATING (LOSS)(246,918) (65,483) 
Amortization of deferred financing costs(8,629) (1,304) 
Interest expense, net(24,364) (14,327) 
Other non-operating (expense) income, net(261) 353  
(LOSS) BEFORE INCOME TAXES(280,172) (80,761) 
Income tax (benefit)/provision(23,445) 1,420  
NET (LOSS)$(256,727) $(82,181) 
NET (LOSS) PER COMMON SHARE:   
Net (Loss) per Common Share, basic and diluted$(2.01) $(0.65) 
SHARES USED IN COMPUTING NET (LOSS) PER COMMON SHARE:  
WEIGHTED AVERAGE BASIC AND DILUTED127,648  125,566  
COMPREHENSIVE (LOSS):  
Net (loss)$(256,727) $(82,181) 
Unrealized holding (loss) on available-for-sale securities, net of tax of $0 and $0 for the three month periods ended March 31, 2020 and 2019, respectively.(1)   
Foreign currency translation (loss)(524) (424) 
Pension liability adjustment gain/(loss), net of tax of ($29) and $30 for the three month periods ended March 31, 2020 and 2019, respectively.114  (116) 
COMPREHENSIVE (LOSS) $(257,138) $(82,721) 
See notes to condensed consolidated financial statements.
[6]


AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019
(In Thousands)

 SharesCommon StockAccumulated DeficitOther
Comprehensive
(Loss)
Total
BALANCES AT DECEMBER 31, 2019126,146  $595,521  $(333,938) $(27,291) $234,292  
Consolidated net (loss)—  —  (256,727) —  (256,727) 
Compensation and share issuances related to restricted stock awards195  2,606  —  —  2,606  
Stock-based compensation expense - stock options—  825  —  —  825  
Foreign currency translation (loss)—  —  —  (524) (524) 
Stock compensation plan withholdings for employee taxes(65) (79) —  —  (79) 
Unrealized holding (loss) on available-for-sale securities—  —  —  (1) (1) 
Akorn AG pension liability adjustment—  —  —  114  114  
Employee stock purchase plan expense—    —  —    
BALANCES AT MARCH 31, 2020 (unaudited)126,276  $598,873  $(590,665) $(27,702) $(19,494) 


  SharesCommon StockAccumulated DeficitOther
Comprehensive
(Loss)
Total
BALANCES AT DECEMBER 31, 2018125,492  $574,553  $(107,168) $(23,519) 443,866  
Consolidated net (loss)—  —  (82,181) —  (82,181) 
Compensation and share issuances related to restricted stock awards
121  3,110  —  —  3,110  
Stock-based compensation expense - stock options—  1,381  —  —  1,381  
Foreign currency translation (loss)—  —  —  (424) (424) 
Stock compensation plan withholdings for employee taxes
(34) (116) —  —  (116) 
Unrealized holding loss on available-for-sale securities
—  —  —      
Akorn AG pension liability adjustment
—  —  —  (116) (116) 
Employee stock purchase plan expense
  229  —  —  229  
BALANCES AT MARCH 31, 2019 (unaudited)125,579  $579,157  $(189,349) $(24,059) $365,749  

See notes to condensed consolidated financial statements.


[7]


AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 Three Months Ended
March 31,
 20202019
OPERATING ACTIVITIES:  
Net (loss)$(256,727) $(82,181) 
Adjustments to reconcile consolidated net (loss) to net cash (used in) operating activities:  
Depreciation and amortization13,874  18,750  
Amortization of debt financing costs8,629  1,304  
Impairment of intangible assets  10,354  
Goodwill impairment267,923  15,955  
Fixed asset impairment and other  10,089  
Non-cash stock compensation expense3,431  4,720  
Non-cash interest expense1,670    
Deferred income taxes, net(225) (28) 
Other(83) (31) 
Changes in operating assets and liabilities:
Other non-current assets(8,565) 584  
Trade accounts receivable(53,009) (21,283) 
Inventories, net(2,486) 10,819  
Prepaid expenses and other current assets(27,895) 1,079  
Trade accounts payable(10,057) 722  
Accrued legal fees and contingencies(10,640) (2,703) 
Uncertain tax liabilities51  1,420  
Accrued expenses and other liabilities12,680  (33) 
NET CASH (USED IN) OPERATING ACTIVITIES$(61,429) $(30,463) 
INVESTING ACTIVITIES:  
Proceeds from disposal of assets386    
Purchases of property, plant and equipment(11,531) (10,059) 
NET CASH (USED IN) INVESTING ACTIVITIES$(11,145) $(10,059) 
FINANCING ACTIVITIES:  
Stock compensation plan withholdings for employee taxes(79)   
Payment of contingent acquisition liabilities  (116) 
Lease payments$(6) $(335) 
NET CASH (USED IN) FINANCING ACTIVITIES$(85) $(451) 
Effect of exchange rate changes on cash and cash equivalents(37) 54  
(DECREASE) IN CASH AND CASH EQUIVALENTS$(72,696) $(40,919) 
Cash, cash equivalents, and restricted cash at beginning of period145,607  225,794  
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$72,911  $184,875  
SUPPLEMENTAL DISCLOSURES:  
Amount paid for interest$23,803  $16,314  
Amount (received) for income taxes, net$(56) $(14,526) 
Additional capital expenditures included in accounts payable$2,514  $4,641  
Standstill Agreement related non-cash interest$1,670  $  
See notes to condensed consolidated financial statements.
[8]


AKORN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Note 1 — Business and Basis of Presentation
 
Business: Akorn, Inc., together with its wholly owned subsidiaries (“Akorn,” the “Company,” “we,” “our” or “us”) is a specialty pharmaceutical company that develops, manufactures and markets generic and branded prescription pharmaceuticals, branded as well as private-label over-the-counter consumer health products and animal health pharmaceuticals. We are an industry leader in the development, manufacturing and marketing of specialized generic pharmaceutical products in alternative dosage forms. We focus on difficult-to-manufacture sterile and non-sterile dosage forms including, but not limited to, ophthalmics, injectables, oral liquids, otics, topicals, inhalants and nasal sprays.
 
Akorn, Inc. is a Louisiana corporation founded in 1971 in Abita Springs, Louisiana. In 1997, we relocated our corporate headquarters to the Chicago, Illinois area and currently maintain our principal corporate offices in Lake Forest, Illinois. We have pharmaceutical manufacturing facilities in Decatur, Illinois; Somerset, New Jersey; Amityville, New York; Hettlingen, Switzerland; and Paonta Sahib, Himachal Pradesh, India. We operate a central distribution warehouse in Gurnee, Illinois and additional distribution facilities in Amityville, New York and Decatur, Illinois. Our research and development (“R&D”) centers are located in Vernon Hills, Illinois and Cranbury, New Jersey. We maintain other corporate offices in Ann Arbor, Michigan and New Delhi, India.

During the three month periods ended March 31, 2020 and 2019, the Company reported results for two reportable segments: Prescription Pharmaceuticals and Consumer Health. For further detail concerning our reportable segments please see Note 10 Segment Information.

Our common shares are currently traded on The NASDAQ Global Select Market under the ticker symbol AKRX. Our principal corporate office is located at 1925 West Field Court Suite 300, Lake Forest, Illinois 60045, with telephone number (847) 279-6100.

The Second Amended Standstill Agreement, the Sale Process, the Toggle Event and the Chapter 11 Cases: As further described in Note 8 — Financing Arrangements, on February 12, 2020, Akorn, Inc. and certain of its subsidiaries (together with Akorn, Inc., the “Company Loan Parties”) entered into a Second Amendment to Standstill Agreement and Third Amendment to Credit Agreement (the “Second Amended Standstill Agreement”) to the Company’s Loan Agreement, dated as of April 17, 2014 (as amended, supplemented or otherwise modified, the “Term Loan Agreement”), among the Company Loan Parties, the lenders thereunder (the “Lenders”) and Wilmington Savings Fund Society, FSB, as successor administrative agent (the “Administrative Agent”) with an ad hoc group of Lenders (the “Ad Hoc Group”) and certain other Lenders (together with the Ad Hoc Group, the “Standstill Lenders”). Pursuant to the terms of the Second Amended Standstill Agreement, the duration of the “Standstill Period” was extended from February 7, 2020, until the earliest of the delivery of a notice of termination of the Standstill Period by the Standstill Lenders upon the occurrence of a default under the loan agreement, or a breach of, or non-compliance with certain provisions of the Second Amended Standstill Agreement. Among other things, the Second Amended Standstill Agreement also (i) provides that, during the extended Standstill Period, neither the Administrative Agent nor the Lenders may exercise their default-related rights and remedies with respect to specified events of default under the Term Loan Agreement, and (ii) provides that the Company will market and conduct a sale process (the “Sale Process”) for substantially all of its assets in accordance with certain milestones, which milestones depend upon whether the bids submitted and then in effect in connection with the Sale Process are sufficient to pay all obligations under the Term Loan Agreement.

As of March 28, 2020, there were no bids in the Sale Process sufficient to pay all obligations under the Term Loan Agreement and an immediate Event of Default under the Term Loan Agreement occurred (“Toggle Event”). As a result, as of April 1, 2020, the alternative milestones for the Sale Process set forth in the Second Amended Standstill Agreement apply, which provide that, among other things, the Company shall commence one or more cases under Chapter 11 (“Chapter 11 Cases”) of title 11 of the U.S. Code (the “Bankruptcy Code”) on or before May 1, 2020. The Company did not satisfy the milestone requirement to commence the Chapter 11 Cases on or before May 1, 2020 and continues to engage in discussions with the Standstill Lenders regarding the Sale Process and the Chapter 11 Cases. See Note 18 - Subsequent Events for further details.

The COVID-19 Pandemic: A novel strain of coronavirus (COVID-19) was declared a global pandemic by the World Health Organization in March 2020. The COVID-19 pandemic has caused national and global economic and financial market disruptions. Although the pandemic did not significantly impact the Company’s business operations during the quarter ended
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March 31, 2020, the pandemic had a negative effect on the capital markets and availability of funds for potential bidders in our sale process, and the pandemic could have far reaching impacts on the Company’s business, operations, and financial results and conditions, directly and indirectly, including without limitation impacts on the health of the Company’s management and employees, manufacturing, distribution, marketing and sales operations, customer and consumer behaviors, and on the overall economy. The Company cannot predict the duration or magnitude of the pandemic which may have a material adverse effect on the Company’s sale process, future financial position, results of operations, and liquidity. The Company will continue to monitor the events and circumstances surrounding the COVID-19 pandemic, which may require adjustments to the Company’s estimates and assumptions in the future. The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic ends.

Basis of Presentation: The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and accordingly do not include all the information and footnotes required by GAAP for annual financial statements. In the opinion of management, all adjustments of a normal and recurring nature considered necessary for a fair presentation have been included in these financial statements. Operating results for the three month period ended March 31, 2020, is not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and footnotes for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2020.
 
Note 2 — Summary of Significant Accounting Policies
 
Consolidation:  The accompanying condensed consolidated financial statements include the accounts of Akorn, Inc. and its wholly owned domestic and foreign subsidiaries. All inter-company transactions and balances have been eliminated in consolidation, and the financial statements of Akorn India Private Limited (“AIPL”) and Akorn AG have been translated from Indian Rupees to U.S. Dollars and Swiss Francs to U.S. Dollars, respectively, based on the currency translation rates in effect during the period or as of the date of consolidation, as applicable. The Company is not involved with variable interest entities.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Significant estimates and assumptions for the Company relate to the allowances for chargebacks, rebates, product returns, coupons, promotions and doubtful accounts, as well as the reserve for slow-moving and obsolete inventories, the carrying value and lives of goodwill and intangible assets, the useful lives of fixed assets, impairments of fixed assets, impairments of goodwill and intangible assets, the carrying value of deferred income tax assets and liabilities, the assumptions underlying share-based compensation and accrued but unreported employee benefit costs and legal settlement accruals.
 
Going Concern: In connection with the preparation of the financial statements as of and for the three month period ended March 31, 2020, the Company conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the entity’s ability to continue as a going concern within one year after the date of the issuance of the financial statements to be issued. As of March 31, 2020, the Company had cash and cash equivalents of $72.2 million, working capital deficit of $(494.7) million and accumulated deficit of $(590.7) million. The Company had a loss from operations of $(246.9) million and a net loss of $(256.7) million for the three month period ended March 31, 2020.

As further described in Note 8 — Financing Arrangements, on February 12, 2020, the Company Loan Parties and the Standstill Lenders entered into the Second Amended Standstill Agreement to the Term Loan Agreement. Pursuant to the terms of the Second Amended Standstill Agreement, the duration of the “Standstill Period” was extended from February 7, 2020, until the earliest of the delivery of a notice of termination of the Standstill Period by the Standstill Lenders upon the occurrence of a default under the Term Loan Agreement, or a breach of, or non-compliance with certain provisions of the Second Amended Standstill Agreement. Among other things, the Second Amended Standstill Agreement also (i) provides that, during the extended Standstill Period, neither the Administrative Agent nor the Lenders may exercise their default-related rights and remedies with respect to specified events of default under the Term Loan Agreement, and (ii) provides that the Company will market and conduct the Sale Process for substantially all of its assets in accordance with certain milestones, which milestones depend upon whether the bids submitted and then in effect in connection with the Sale Process are sufficient to pay all obligations under the Term Loan Agreement.

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As of March 28, 2020, there were no bids in the Sale Process sufficient to pay all obligations under the Term Loan Agreement and the Toggle Event occurred. As a result, as of April 1, 2020, the alternative milestones for the Sale Process set forth in the Second Amended Standstill Agreement apply, which provide that, among other things, the Company shall commence the Chapter 11 Cases on or before May 1, 2020. The Company did not satisfy the milestone requirement to commence the Chapter 11 Cases on or before May 1, 2020 and continues to engage in discussions with the Standstill Lenders regarding the Sale Process and the Chapter 11 Cases.

We evaluated the impact of the Second Amended Standstill Agreement, including the alternative milestones detailed in the therein, on the Company’s ability to continue as a going concern. Accordingly, the impact of toggling to the alternative milestones and the recurring losses from operations and net working capital deficiency create substantial doubt about our ability to continue as a going concern within one year after the date the accompanying financial statements are filed.

For more information on the alternative milestones set forth in the Second Amended Standstill Agreement, see Note 18 — Subsequent Events.

Revenue Recognition:  Revenue is recognized at a point in time upon the transfer of control of the Company’s products, which occurs upon delivery for substantially all of the Company’s sales. The promises within the contract that are distinct are primarily the Company’s supply of products, which represents a single performance obligation. The consideration the Company receives in exchange for its goods or services is only recognized when it is probable that a significant reversal will not occur. The consideration to which the Company expects to be entitled includes a stated list price, less various forms of variable consideration. The Company makes significant estimates for related variable consideration at the point of sale, including chargebacks, rebates, product returns and other discounts and allowances. All sales taxes are excluded from the transaction price. The Company expenses contract fulfillment costs when incurred since the amortization period would have been less than one year. Payment terms are primarily less than 90 days.
 
Provision for estimated chargebacks, rebates, discounts, managed care rebates, product returns and doubtful accounts is made at the time of sale and is analyzed and adjusted, if necessary, at each balance sheet date.

Freight:  The Company records shipping and handling expense related to product sales as cost of sales.

Cash and Cash Equivalents: The Company considers all unrestricted, highly liquid investments with maturity of three months or less when acquired, to be cash and cash equivalents. At March 31, 2020 and December 31, 2019, approximately $0.7 million and $0.8 million, respectively, of cash held by AIPL was restricted, and was reported within prepaid expenses and other current assets.

The following table sets forth the components of the Company’s cash, cash equivalents, and restricted cash as reported in the condensed consolidated statement of cash flows for the three month periods ended March 31, 2020 and 2019 (in thousands):

Cash, Cash Equivalents, and Restricted CashThree Months Ended
March 31,
 20202019
Cash and cash equivalents$72,181  $184,090  
Restricted cash730  785  
Total cash, cash equivalents, and restricted cash$72,911  $184,875  

Accounts Receivable: Trade accounts receivable are stated at their net realizable value.  The nature of the Company’s business involves, in the ordinary course, significant judgments and estimates relating to chargebacks, coupon redemption, product returns, rebates, discounts given to customers and allowances for doubtful accounts.  Certain rebates, chargebacks and other credits are recorded as deductions to the Company’s trade accounts receivable where applicable, based on product and customer specific terms.

Unless otherwise noted, the provisions and allowances for the following customer deductions are reflected in the accompanying condensed consolidated financial statements as reductions of revenues and trade accounts receivable, respectively.

Chargebacks: The Company enters into contractual agreements with certain third parties such as retailers, hospitals, group-purchasing organizations (“GPOs”) and managed care organizations to sell certain products at predetermined prices.
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Similarly, we maintain an allowance for rebates and discounts related to billbacks, wholesaler fee for service contracts, GPO administrative fees, government programs, prompt payment and other adjustments with certain customers. Most of the parties have elected to have these contracts administered through wholesalers that buy the product from the Company and subsequently sell it to these third parties. As noted elsewhere, these wholesalers represent a significant percentage of the Company’s gross sales. When a wholesaler sells products to one of these third parties that are subject to a contractual price agreement, the difference between the price paid to the Company by the wholesaler and the price under the specific contract is charged back to the Company by the wholesaler. It typically takes four to six weeks from the time of sale to the wholesaler until the processing of the chargeback. The Company tracks sales and submitted chargebacks by product number and contract for each wholesaler. Utilizing this information, the Company estimates a chargeback percentage for each product and records an allowance as a reduction to gross sales when the Company records its sale of the products. The Company reduces the chargeback allowance when a chargeback request from a wholesaler is processed. Actual chargebacks processed by the Company can vary materially from period to period based upon actual sales volume through the wholesalers. However, the Company’s provision for chargebacks is fully reserved for at the time revenues are recognized.

Management obtains product inventory reports from certain wholesalers to aid in analyzing the reasonableness of the chargeback allowance and to monitor whether wholesaler inventory levels significantly exceed customer demand. The Company assesses the reasonableness of its chargeback allowance by applying a product chargeback percentage that is based on a combination of historical activity and future price and mix expectations to the quantities of inventory on hand at the wholesalers according to wholesaler inventory reports. In addition, the Company estimates the percent of gross sales generated through direct and indirect sales channels and the percent of contract versus non-contract revenue in the period, as these each affect the estimated reserve calculation. In accordance with its accounting policy, the Company also estimates the percent of wholesaler inventory that will ultimately be sold to third parties that are subject to contractual price agreements based on a trend of such sales through wholesalers. The Company uses this percentage estimate until historical trends indicate that a revision should be made. On an ongoing basis, the Company evaluates its actual chargeback rate experience, and new trends are factored into its estimates each quarter as market conditions change.

For the three month period ended March 31, 2020, the Company incurred a chargeback provision of $156.3 million, or 36.4% of gross sales of $429.4 million, compared to $205.4 million, or 44.8% of gross sales of $458.6 million in the prior year period. The dollar decrease and percent decrease from the comparative period were due to product mix as well as decreases in wholesale acquisition cost of certain products compared to prior year.

The Company ensures that the chargeback rate as a percent of gross sales is reasonable through inspection of contractual obligations, review of historical trends and evaluation of recent activity. Furthermore, other events that could materially alter chargeback rates include: changes in product pricing or contract pricing structures as a result of competitive market dynamics or negotiations with customers, changes in demand for specific products due to external factors such as competitor supply position or consumer preferences and customer shifts in buying patterns from direct to indirect through wholesalers, which could either individually or in aggregate increase or decrease the chargeback rate depending on the direction and velocity of the change(s).

To better understand the impact of changes in chargeback reserve based on circumstances that are not fully outside of the Company’s control, for instance, the ratio of sales subject to chargeback to indirect sales, the Company performs a sensitivity analysis. Holding all other assumptions constant, for a 199 basis point (“BP”) change in the ratio of sales subject to chargeback to indirect sales would increase the chargeback reserve by $0.4 million or decrease the chargeback reserve by $0.7 million depending on the change in the direction of the ratio. Fundamentally, the BP change calculation is determined based on the six month trend of the average ratio of sales subject to chargeback to indirect sales. Due to the competitive generic pharmaceutical industry and our experience with wholesalers’ strategy and shifts in contracted and non-contracted indirect sales, we believe that the six month trend of the proportion of direct to indirect sales provides a representative basis for sensitivity analysis.

Rebates, Administrative Fees and Others: The Company maintains an allowance for rebates, administrative fees and others, related to contracts and other rebate programs that it has in place with certain customers. Rebates, administrative fees and other percentages vary by product and by volume purchased by each eligible customer. The Company tracks sales by product number for each eligible customer and then applies the applicable rebate, administrative fees and other percentage, using both historical trends and actual experience to estimate its rebates, administrative fees and others allowances. The Company reduces gross sales and increases the rebates, administrative fees and others allowance by the estimated rebates, administrative fees and others amounts when the Company sells its products to eligible customers. The Company reduces the rebate allowance when it processes a customer request for a rebate. At each balance sheet date, the Company analyzes the allowance for rebates, administrative fees and others
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against actual rebates processed and makes adjustments as appropriate. The amount of actual rebates processed can vary materially from period to period as discussed below.

The allowance for rebates, administrative fees and others further takes into consideration price adjustments which are credits issued to reflect increases or decreases in the invoice or contract prices of the Company’s products. In the case of a price decrease, a shelf-stock adjustment credit may be given for product remaining in customer’s inventories at the time of the price reduction and is reserved at the point of sale. Contractual price protection results in a similar credit when the invoice or contract prices of the Company’s products increase, effectively allowing customers to purchase products at previous prices for a specified period of time. Amounts recorded for estimated shelf-stock adjustments and price protection are based upon specified terms with customers, estimated changes in market prices, and estimates of inventory held by customers. The Company regularly monitors these and other factors and evaluates the reserve as additional information becomes available.

Similar to rebates, the reserve for administrative fees and others represents those amounts processed related to contracts and other fee programs which have been in place with certain entities, but they are settled through cash payment to these entities and accordingly are accounted for as a current liability. Otherwise, administrative fees and others operate similarly to rebates.

For the three month period ended March 31, 2020, the Company incurred rebates, administrative fees and others of $52.8 million, or 12.3% of gross sales of $429.4 million, compared to $64.3 million, or 14.0% of gross sales of $458.6 million in the prior year period. The dollar and percent decreases from the comparative period were primarily due to lower failure to supply claims, decreases in contract prices and product mix. The Company ensures that this rate as a percent of gross sales is reasonable through inspection of contractual obligations, review of historical trends and evaluation of recent activity. Furthermore, other events that could materially alter rebates, administrative fees and others rates include: changes in product pricing or contract pricing structures as a result of competitive market dynamics or negotiations with customers, changes in demand for specific products due to external factors such as competitor supply position or consumer preferences and customer shifts in buying patterns from direct to indirect through wholesalers, which could either individually or in aggregate increase or decrease the rebate rate depending on the direction and velocity of the change(s).

To better understand the impact of changes in reserves for rebates, administrative fees and others based on circumstances that are not fully outside the Company’s control, for instance, the proportion of direct to indirect sales subject to rebates, administrative fees and others, the Company performs a sensitivity analysis. Holding all other assumptions constant, for a 199 BP change in the ratio of sales subject to rebates, administrative fees and others to indirect sales would increase the reserve for rebates, administrative fees and others by seventeen thousand dollars or decrease the same reserve by $0.1 million depending on the direction of the change in the ratio. Fundamentally, the BP change calculation is determined based on the six month trend of the average ratio of sales subject to rebates, administrative fees and others to indirect sales. Due to the competitive generic pharmaceutical industry and our experience with wholesalers’ strategy and shifts in contracted and non-contracted indirect sales, we believe the six month trend of the average ratio of sales subject to rebates, administrative fees and others to indirect sales provides a representative basis for sensitivity analysis.

Sales Returns:  Certain of the Company’s products are sold with the customer having the right to return the product within specified periods. Provisions are made at the time of sale based upon historical experience. Historical factors, such as recall events as well as pending new developments like comparable product approvals or significant pricing movement that may impact the expected level of returns, are taken into account to determine the appropriate reserve estimate at each balance sheet date. As part of the evaluation of the reserve required, the Company considers actual returns to date that are in process, wholesaler inventory levels, and the expected impact of any product recalls to assess the magnitude of unconsumed product that may result in sales returns to the Company in the future. The sales returns level can be impacted by factors such as overall market demand and market competition and availability of substitute products which can increase or decrease the pull through for sales of the Company’s products and ultimately impact the level of sales returns.

For the three month period ended March 31, 2020, the Company incurred a return provision of $4.3 million, or 1.0% of gross sales of $429.4 million, compared to $11.9 million, or 2.6% of gross sales of $458.6 million in the prior year period. The decrease in product returns for the three month period ended March 31, 2020, as compared to the same period in 2019, was primarily due to the unfavorable outcome on disputed returns claims processed in 2019 that were related to 2018 sales. The Company ensures that this rate as a percent of gross sales is reasonable through inspection of historical trends and evaluation of recent activity. Furthermore, other events that could materially alter return rates such as consumer demand shifts by products,
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which could either increase or decrease the return rate depending on the product or products specifically demanded and ultimately returned.

To better understand the impact of changes in return reserve based on certain circumstances, the Company performs a sensitivity analysis. Holding all other assumptions constant, for an average 0.6 months change in the lag from the time of sale to the time the product return is processed, this change would result in an increase of $0.2 million or decrease of $0.6 million in return reserve expense if the lag increases or decreases, respectively. The average 0.6 months change in the lag from the time of sale to the time the product return is processed was determined based on the difference between the high and low lag time for the past six month historical activities. This sensitivity analysis is a change from the three month period ended March 31, 2019, which was determined based on the average variances for the last twelve months of returns activity. The prior method was needed to give a measurable variance to calculate a sensitivity. Due to the change in the volume and type of products sold by the Company in the recent past, we have determined that the lag calculation provides a reasonable basis for sensitivity analysis.

Allowance for Coupons, Advertising, Promotions and Co-Pay Discount Cards: The Company issues coupons from time to time that are redeemable against certain of our Consumer Health products. In addition to coupons, from time to time the Company authorizes various retailers to run in-store promotions and co-pay discounts for its products. At the point of sale, the Company records an estimate of the dollar value of coupons expected to be redeemed, the dollar amount owed back to the retailer and the co-pay discount as variable consideration since the Company intends to continue to issue coupons, advertising promotion and co-pay discounts. The coupon estimate is based on historical experience and is adjusted as needed based on actual redemptions. Upon receiving confirmation that an advertising promotion was run, the Company adjusts the estimate of the dollar amount expected to be owed back to the retailer as needed. This estimate is then adjusted to actual upon receipt of an invoice from the retailer. Additionally, the Company provides consumer co-pay discount cards, administered through outside agents, to provide discounted products when redeemed. The Company records an estimate of the dollar value of co-pay discounts expected to be utilized based on historical experience and adjusts as needed based on actual experience.

Doubtful Accounts: Provisions for doubtful accounts, which reflect trade receivable balances owed to the Company that are believed to be uncollectible, are recorded as a component of selling, general and administrative (“SG&A”) expenses. In estimating the allowance for doubtful accounts, the Company considers its historical experience with collections and write-offs, the credit quality of its customers and any recent or anticipated changes thereto, and the outstanding balances and past due amounts from its customers. Note that in the ordinary course of business, and consistent with our peers, we may from time to time offer extended payment terms to our customers as an incentive for new product launches or in other circumstances in accordance with standard industry practices. These extended payment terms do not represent a significant risk to the collectability of accounts receivable as of the period-end. Accounts are considered past due when they remain uncollected beyond the due date specified in the applicable contract or on the applicable invoice, whichever is deemed to take precedence.

Inventories: Inventories are stated at the lower of cost and net realizable value (“NRV”) (see Note 5 Inventories, Net). The Company maintains an allowance for slow-moving and obsolete inventory as well as inventory where the cost is in excess of its NRV. For finished goods inventory, the Company estimates the amount of inventory that may not be sold prior to its expiration or is slow-moving based upon recent sales activity by unit and wholesaler inventory information. The Company also analyzes its raw material and component inventory for slow-moving items and NRV.

The Company capitalizes inventory costs associated with its products prior to regulatory approval when, based on management judgment, future commercialization is considered probable and future economic benefit is expected to be realized. The Company assesses the regulatory approval process and where the product stands in relation to that approval process including any known constraints or impediments to approval. The Company also considers the shelf life of the product in relation to the product timeline for approval.

Property, Plant and Equipment: Property, plant and equipment is stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method in amounts considered sufficient to amortize the cost of the assets to operations over their estimated useful lives.

Intangible Assets: Intangible assets consist primarily of goodwill, which is carried at its initial value, subject to impairment testing, In-Process Research and Development (“IPR&D”), which is accounted for as an indefinite-lived intangible asset, subject to impairment testing until completion or abandonment of the project, and product licensing costs, trademarks and other such costs, which are capitalized and amortized on a straight-line basis over their useful lives, normally ranging from one year to thirty years. The Company regularly assesses its amortizable intangible assets for impairment based on several factors, including estimated fair value and anticipated cash flows. If the Company incurs additional costs to renew or extend the life of an intangible asset, such costs are added to the remaining unamortized cost of the asset, if any, and the sum is amortized over
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the extended remaining life of the asset. Goodwill is tested for impairment annually or more frequently if changes in circumstances or the occurrence of events suggest that impairment may exist. Goodwill impairment assessments are performed at the reporting unit level. The goodwill assessment involves a one-step comparison of the reporting unit’s fair value to its carrying value, including goodwill (“Step 1”). If the reporting unit’s fair value exceeds its carrying value, no further procedures are required. However, if the reporting unit’s fair value is less than the carrying value, an impairment charge is recorded for the difference between the fair value and carrying value of the reporting unit. The Company uses widely accepted valuation techniques to determine the fair value of its reporting units used in its annual goodwill impairment analysis. The Company’s valuation is primarily based on qualitative and quantitative assessments regarding the fair value of the reporting unit relative to its carrying value. The Company models the fair value of the reporting unit based on projected earnings and cash flows of the reporting unit. Where available and as appropriate, comparative market multiples are used in conjunction with the results of the discounted cash flows. The Company engages third-party valuation consultants to assist in evaluating the Company's estimated fair value calculations. Impairments are recorded within the impairment of goodwill and impairment of intangibles line in the condensed consolidated statements of comprehensive (loss).

Long-Lived Asset Impairments: Property, plant and equipment are reviewed whenever events or changes in circumstances occur that indicate possible impairment. If events or changes in circumstances occur that indicate possible impairment, our impairment review is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of our assets and liabilities. Impairment occurs when the carrying value of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset or asset group. When impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair value of the asset or asset group and an impairment charge is recorded for the difference between the carrying value and the estimated fair value. There are a number of uncertain factors or events that exist which may result in a future triggering events and require an additional interim impairment analysis that could result in material non-cash impairment charges.

Leases: The Company leases real and personal property in the normal course of business under various operating leases and other insignificant finance leases, including non-cancelable and month-to-month agreements. Our leases have initial lease terms of one to ten years, some of which include options to extend and/or terminate the lease. When deemed reasonably certain of exercise, the renewal options are included in the determination of the lease term and lease payment obligation. The Company’s lease agreements do not contain any material variable lease payments, material residual value guarantees or any material restrictive covenants. Certain leases have free rent periods or escalating rent payment provisions. Leases with an initial term of twelve months or less (“Short-term leases”) are not recorded on the condensed consolidated balance sheet. We recognize rent expense on a straight-line basis over the lease term. Right-of-use (“ROU”) assets, net represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. The operating lease ROU assets also include any lease prepayments and are reduced by any lease incentives. When readily determinable, the Company uses the implicit rate in determining the present value of lease payments. When the lease agreement does not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at the lease commencement date, including the lease term. See Note 16 — Leasing Arrangements for more information.

Earnings per Share: Basic net (loss) per share is based upon the weighted average common shares outstanding. Diluted net (loss) per share is based upon the weighted average number of common shares outstanding, including the dilutive effect, if any, of stock options and restricted stock using the treasury stock method. Anti-dilutive shares are excluded from the computation of diluted net (loss) per share.

Income Taxes: Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and net operating income/loss and other tax credit carry-forwards. These items are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce the deferred income tax assets to the amount that is more likely than not to be realized. See Note 13 — Income Taxes for more information.

Fair Value of Financial Instruments: The Company applies ASC 820 - Fair Value Measurement, which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 - Fair Value Measurement defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 - Fair Value Measurement generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own
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assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability, and are to be developed based on the best information available in the circumstances.

The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The levels within the valuation hierarchy are described below:

Level 1—Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities. The carrying value of the Company's cash and cash equivalents are considered Level 1 assets.

Level 2—Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals. The Company has no Level 2 assets or liabilities in any of the periods presented.

Level 3—Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.

The following table summarizes the basis used to measure the fair values of the Company’s financial instruments (amounts in thousands):

Fair Value Measurements at Reporting Date, Using:
DescriptionMarch 31, 2020Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents$72,181  $72,181  $  $  

DescriptionDecember 31, 2019Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents$144,804  $144,804  $  $  

Stock-Based Compensation: Stock-based compensation cost is estimated at grant date based on the fair value of the award, and the cost is recognized as expense ratably over the vesting period. The Company uses the Black-Scholes-Merton model for estimating the grant date fair value of stock options. Determining the assumptions to be used in the model is highly subjective and requires judgment. The Company uses an expected volatility that is based on the historical volatility of its common stock. The expected life assumption is based on historical employee exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the average market rate on U.S. Treasury securities of similar term in effect during the quarter in which the options were granted. The dividend yield reflects the Company’s historical experience as well as future expectations over the expected term of the option. The Company estimates forfeitures at the time of grant and revises the estimate in subsequent periods, as necessary, if actual forfeitures differ from initial estimates.

The stock-based compensation expense related to performance share units (“PSUs”) is estimated at grant date based on the fair value of the award. For PSUs granted with vesting subject to market conditions, the fair value of the award is determined at grant date using the Monte Carlo model, and expense is recognized ratably over the requisite service period regardless of whether or not the market condition is satisfied. For PSUs granted with vesting subject to performance conditions, the fair value of the award is based on the market price of the underlying shares on grant date. Expense from such awards is recognized ratably over the vesting period, but is based upon an ongoing evaluation of the number of shares expected to vest and will be adjusted to reflect those awards that do ultimately vest.
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The stock-based compensation expense related to restricted stock unit awards (“RSUs”) is based on the fair value of the underlying shares on date of grant. Expense is recognized ratably over the vesting period, reduced by an estimate of future forfeitures.

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Note 3 — Equity Compensation Plans

The Company maintains equity compensation plans that allow the Company’s Board of Directors to grant stock options and other equity awards to eligible employees, officers, directors and consultants.  On April 27, 2017, the Company’s shareholders voted to approve the Akorn, Inc. 2017 Omnibus Incentive Compensation Plan (the “Omnibus Plan”), setting aside 8.0 million shares of the Company’s common stock for issuance pursuant to equity awards. Subsequently, at the 2019 Annual Meeting of Shareholders on May 1, 2019, the Company’s shareholders approved a 4.4 million increase to the shares available for awards granted under the Omnibus Plan, raising the overall total to 12.4 million shares. The Omnibus Plan replaced the Akorn, Inc. 2014 Stock Option Plan (as amended and restated “2014 Plan”), which was approved by shareholders at the Company's 2014 Annual Meeting of Shareholders on May 2, 2014 and subsequently amended by proxy vote of the Company’s shareholders on December 16, 2016. The 2014 Plan had reserved 7.5 million shares for issuance upon the grant of stock options, restricted stock units (“RSUs”), performance share unit awards (“PSUs”) or various other instruments to employees, officers, directors, and consultants.  Following shareholder approval of the Omnibus Plan, no new awards could be granted under the 2014 Plan, although previously granted awards remain outstanding pursuant to their original terms.

As of March 31, 2020, there were approximately 1.9 million stock options and thirty-one thousand two hundred sixty-six RSU shares outstanding under the 2014 Plan.

Under the Omnibus Plan, there were approximately 2.7 million stock option award shares, 4.3 million RSU shares and 0.9 million PSU shares outstanding as of March 31, 2020. As of March 31, 2020, approximately 3.6 million shares remained available for future award grants under the Omnibus Plan.

Also outstanding as of March 31, 2020, were inducement awards consisting of 0.4 million stock option award shares, 0.4 million RSU shares and 0.2 million PSU shares granted under Nasdaq Listing Rule 5635(c)(4). Such shares were granted outside of the Omnibus Plan, but are otherwise subject to the terms and conditions of the Omnibus Plan.

The Company accounts for stock-based compensation in accordance with ASC Topic 718 - Compensation — Stock Compensation. Accordingly, stock-based compensation cost for stock options and RSUs is estimated at the grant date based on the fair value of the award, and the cost is recognized as expense ratably over the vesting period. The Company uses the Black-Scholes-Merton model for estimating the grant date fair value of stock options. Determining the assumptions that enter into the model is highly subjective and requires judgment. The Company uses an expected volatility that is based on the historical volatility of its stock. The expected life assumption is based on historical employee exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the average market rate on U.S. Treasury securities in effect during the quarter in which the options were granted. The dividend yield reflects historical experience as well as future expectations over the expected term of the option. The Company estimates forfeitures at the time of grant and revises in subsequent periods, as necessary, if actual forfeitures differ from those estimates.

All RSUs are valued at the closing market price of the Company’s common stock on the day of grant and the total value of the units is recognized as expense ratably over the vesting period of the grant. PSU awards granted with vesting subject to market conditions are valued at date of grant through a Monte Carlo simulation model. The calculated grant-date fair value is recognized as expense ratably over the vesting period, subject to forfeiture estimates. PSU awards granted with vesting subject to, and determined based on achievement of, performance conditions are valued at date of grant based on the closing price of the Company’s stock and anticipated vesting level at grant date. The awards are re-evaluated quarterly to determine the vesting level that is more likely than not to be achieved, and cumulative expense is adjusted accordingly.

The Company uses the single-award method for allocating compensation cost related to stock options to each period. The following table sets forth the components of the Company’s share-based compensation expense for the three month periods ended March 31, 2020 and 2019 (in thousands):

Three Months Ended
March 31,
20202019
Stock options$825  $1,381  
Employee stock purchase plan  229  
Restricted stock units and Performance share units2,606  3,110  
Total stock-based compensation expense$3,431  $4,720  

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Stock Option Awards

From time to time, the Company has granted stock option awards to certain employees, executives and directors. The stock option awards generally vest 25% per year on each of the first four anniversaries of the grant date. Set forth in the following table are the weighted-average assumptions used in estimating the grant date fair value of the stock options granted under the Company's equity compensation plans during the three month periods ended March 31, 2020 and 2019, respectively, along with the weighted-average grant date fair values:

Three Months Ended
March 31,
20202019
Expected volatility60.0 %66.8 %
Expected life (in years)6.36.2
Risk-free interest rate1.0 %2.5 %
Dividend yield    
Weighted-average grant date fair value per stock option$0.59  $2.44  
Forfeiture rate8.0 %8.0 %

The table below sets forth a summary of stock option activity within the Company’s stock-based compensation plans for the three month period ended March 31, 2020:

Number of
Options
(in thousands)
Weighted
Average
Exercise Price