AVNR » Topics » Recent Accounting Pronouncements

These excerpts taken from the AVNR 10-K filed Dec 17, 2008.
Recent Accounting Pronouncements
 
See Note 2, “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements and their effect, if any, on the Company.
 
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
 
As described below, we are exposed to market risks related to changes in interest rates. Because substantially all of our revenue, expenses, and capital purchasing activities are transacted in U.S. dollars, our exposure to foreign currency exchange rates is immaterial. However, in the future we could face increasing exposure to foreign currency exchange rates if we expand international distribution of docosanol 10% cream and purchase additional services from outside the U.S. Until such time as we are faced with material amounts of foreign currency exchange rate risks, we do not plan to use derivative financial instruments, which can be used to hedge such risks. We will evaluate the use of derivative financial instruments to hedge our exposure as the needs and risks should arise.
 
Recent
Accounting Pronouncements



 



See Note 2, “Summary of Significant Accounting
Policies” in the Notes to Consolidated Financial Statements
for a discussion of recent accounting pronouncements and their
effect, if any, on the Company.


 















Item 7A.  

Quantitative
and Qualitative Disclosures About Market Risk



 



As described below, we are exposed to market risks related to
changes in interest rates. Because substantially all of our
revenue, expenses, and capital purchasing activities are
transacted in U.S. dollars, our exposure to foreign
currency exchange rates is immaterial. However, in the future we
could face increasing exposure to foreign currency exchange
rates if we expand international distribution of docosanol 10%
cream and purchase additional services from outside the
U.S. Until such time as we are faced with material amounts
of foreign currency exchange rate risks, we do not plan to use
derivative financial instruments, which can be used to hedge
such risks. We will evaluate the use of derivative financial
instruments to hedge our exposure as the needs and risks should
arise.


 




This excerpt taken from the AVNR 10-K filed Dec 21, 2007.
Recent accounting pronouncements
 
FASB Interpretation No. 48 (“FIN 48”).  In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB No. 109” which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken. Additionally, FIN 48 provides guidance on derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. The accounting provisions of FIN 48 will be effective for us beginning October 1, 2007. We are in the process of determining the effect, if any, of the adoption of FIN 48 will have on our consolidated financial statements.
 
Financial Accounting Standards No. 157 (“FAS 157”).  In September 2006, the FASB issued FAS 157, “Fair Value Measurements.” FAS 157 defines fair value, established a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We do not expect the adoption of FAS 157 to significantly affect our consolidated financial condition or results of operations.
 
Financial Accounting Standards No. 159 (“FAS 159”).  In February 2007, the FASB issued FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities— Including an amendment of FASB Statement 115, which provides companies with an option to measure eligible financial assets and liabilities in their entirety at fair value. The fair value option may be applied instrument by instrument, and may be applied only to entire instruments. If a company elects the fair value option for an eligible item, changes in the item’s fair value must be reported as unrealized gains and losses in earnings at each subsequent reporting date. FAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is evaluating the options provided under FAS 159 and their potential impact on its financial condition and results of operations if implemented. We do not expect the adoption of FAS 159 to significantly affect our consolidated financial condition or results of operations.
 
Staff Accounting Bulletin No. 108 (“SAB 108”).  In September 2006, the SEC released SAB 108 to address diversity in practice regarding consideration of the effects of prior year errors when quantifying misstatements in current year financial statements. The SEC staff concluded that registrants should quantify financial statement errors using both a balance sheet approach and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 states that if correcting an error in the current year materially affects the current year’s income statement, the prior period financial statements must be restated. SAB 108 is effective for fiscal years ending after November 15, 2006. The Company adopted SAB 108 in fiscal 2007. The adoption of SAB 108 did not materially affect the Company’s consolidated financial statements.
 
3.   Acquisition of Alamo Pharmaceuticals, Inc. / Sale of Fazaclo
 
On May 24, 2006, pursuant to a Unit Purchase Agreement dated May 22, 2006 (the “Acquisition Agreement”), we acquired all of the outstanding equity interests in Alamo from the former members of Alamo (the “Selling Holders”) for approximately $30.0 million in consideration, consisting of approximately $4.0 million in cash, $25.1 million in promissory notes and $912,000 in acquisition-related transaction costs. The purchase price


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Avanir Pharmaceuticals
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
exceeded the net assets acquired resulting in the recognition of $22.1 million of goodwill. The results of operations of Alamo have been included in our consolidated financial statements since the date of acquisition. The Company intended to leverage the FazaClo sales force to assist with the commercial launch of Zenvia, which was planned for early 2007; however, due to the receipt of the approvable letter and resulting delay in the planned launch of Zenvia, we entered into an agreement to sell FazaClo in July 2007. Details of the sale of FazaClo are described below.
 
In connection with the Alamo acquisition, we also agreed to pay the Selling Holders up to an additional $39,450,000 in revenue-based earn-out payments, based on future sales of FazaClo (clozapine USP), an orally disintegrating drug for the treatment of refractory schizophrenia. On May 15, 2007, we issued an additional $2,000,000 promissory note based on FazaClo sales rates through that quarter and on August 15, 2007, we issued a second promissory note, also in the principal amount of $2,000,000. The remaining earn-out payments of $35,450,000 are based on the achievement of certain target levels of FazaClo sales in the U.S. from the closing date of the acquisition through December 31, 2018. In connection with the FazaClo sale, Azur assumed these remaining contingent payment obligations; however, we are still contingently liable in the event of default by Azur.
 
We also previously agreed to pay the Selling Holders one-half of all net licensing revenues that we may receive through December 31, 2018 from licenses of FazaClo outside of the U.S., if any (“Non-US Licensing Revenues”). There were no Non-US Licensing Revenues through August 3, 2007, the date of sale of FazaClo, and these future obligations have been assumed by Azur as described below. We also agreed to apply 20% of any future net offering proceeds to repay the promissory notes and through June 30, 2007, we paid approximately $6.1 million of the principal amounts due under the notes. In August 2007, we paid an additional $11 million of outstanding principal and interest under these notes and amended our agreement with the Selling Holders to partially suspend the early payment obligations remaining under the promissory notes.
 
This excerpt taken from the AVNR 10-K filed Dec 18, 2006.
Recent accounting pronouncements
 
Financial Accounting Standards No. 154 (“FAS 154”).  In May 2005, the FASB issued FAS 154, “Accounting Changes and Error Corrections.” FAS 154 establishes retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. FAS 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is


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Avanir Pharmaceuticals
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

impracticable. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of FAS 154 to significantly affect our financial condition or results of operations.
 
Financial Accounting Standards No. 155 (“FAS 155”).  In February 2006, the FASB issued FAS 155, “Accounting for Certain Hybrid Financial Instruments,” an amendment of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”) and Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“FAS 140”). With respect to FAS 133, FAS 155 simplifies accounting for certain hybrid financial instruments by permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation and eliminates the interim guidance in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets,” which provided that beneficial interests in securitized financial assets are not subject to the provision of FAS 133. With respect to FAS 140, FAS 155 eliminates a restriction on the passive derivative instruments that a qualifying special-purpose entity may hold. FAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. We do not expect the adoption of FAS 155 to significantly affect our financial condition or results of operations.
 
FASB Interpretation No. 48 (“FIN 48”).  In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes” which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. The accounting provisions of FIN 48 will be effective for us beginning October 1, 2007. We are in the process of determining the effect, if any, the adoption of FIN 48 will have on our financial statements.
 
Financial Accounting Standards No. 157 (“FAS 157”).  In September 2006, the FASB issued FAS 157, “Fair Value Measurements.” FAS 157 defines fair value, established a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We do not expect the adoption of FAS 157 to significantly affect our financial condition or results of operations.
 
Financial Accounting Standards No. 158 (“FAS 158”).  In September 2006, the FASB issued FAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an Amendment of FASB Statements No. 87, 88, 106 and 132(R).” FAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize the changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. FAS 158 is effective for us as of the end of the fiscal year ending after December 15, 2006. We do not expect the adoption of FAS 158 to significantly affect our financial condition or results of operations.
 
Staff Accounting Bulleting No. 108 (“SAB 108”).  In September 2006, the SEC released SAB 108 to address diversity in practice regarding consideration of the effects of prior year errors when quantifying misstatements in current year financial statements. The SEC staff concluded that registrants should quantify financial statement errors using both a balance sheet approach and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 states that if correcting an error in the current year materially affects the current year’s income statement, the prior period financial statements must be restated. SAB 108 is effective for fiscal years ending after November 15, 2006. We do not expect the adoption of SAB 108 to significantly affect our financial condition or results of operations.
 
FASB Staff Position No. FAS 123R-5 (“FAS 123R-5”).  In October 2006, the FASB issued FAS 123R-5, “Amendment of FASB Staff Position FAS 123R-1,” to address whether a modification of an instrument in connection


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Avanir Pharmaceuticals
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

with an equity restructuring should be considered a modification for purposes of applying FAS 123R-1, “Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. FAS 123(R).” The provisions in FAS 123R-5 are effective for us in the quarter beginning January 1, 2007. We do not expect the adoption of FAS 123R-5 to significantly affect our financial condition or results of operations.
 
4.   Alamo Acquisition
 
On May 24, 2006, pursuant to a Unit Purchase Agreement dated May 22, 2006 (the “Acquisition Agreement”), we acquired all of the outstanding equity interests in Alamo from the former members of Alamo (the “Selling Holders”) for approximately $30.0 million in consideration, consisting of approximately $4.0 million in cash, $25.1 million in promissory notes and $912,000 in acquisition related transaction costs. The purchase price exceeded the net assets acquired resulting in the recognition of $22.1 million goodwill. The results of operations of Alamo have been included in our consolidated financial statements since the date of acquisition.
 
We also agreed to pay up to an additional $39,450,000 in revenue-based earn-out payments, based on future sales of FazaClo (clozapine USP), Alamo’s orally disintegrating drug for the treatment of refractory schizophrenia. These earn-out payments are based on FazaClo sales in the United States from the closing date of the acquisition through December 31, 2018 (the “Contingent Payment Period”) and are payable to the Selling Holders as follows:
 
  •  A promissory note that would have been issuable in the principal amount of $4,000,000 if FazaClo sales, as reported by IMS Health Incorporated, for each of the months of April and May 2006 exceeded $1,266,539. Since the closing of the acquisition, we have determined that FazaClo sales for the months April and May 2006 did not satisfy this condition and thus this promissory note will not be issued pursuant to this contingency.
 
  •  If the preceding condition is not satisfied, then (A) a promissory note, in the principal amount of $2,000,000, payable one time if monthly FazaClo net product sales, as reported by us, exceed $1,000,000 for each of the three months in a given fiscal quarter during the Contingent Payment Period, and (B) an additional promissory note in the principal amount of $2,000,000, payable one time if monthly FazaClo net product sales, as reported by us, exceed $1,500,000 for each of the three months in a given fiscal quarter during the Contingent Payment Period. As discussed in Note 3, “Summary of Significant Accounting Policies — Revenue Recognition — Product Sales — FazaClo,” all revenue from FazaClo shipments since acquisition date are deferred; therefore, monthly FazaClo net product sales in the quarter ended September 30, 2006 did not meet these conditions at September 30, 2006.
 
  •  A one-time cash payment of $10,450,000 if FazaClo net product sales, as reported by us, exceed $40.0 million over four consecutive fiscal quarters during the Contingent Payment Period.
 
  •  A one-time cash payment of $25,000,000 if FazaClo net product sales, as reported by us, exceed $50.0 million over four consecutive fiscal quarters during the Contingent Payment Period.
 
Any of these additional revenue-based earn-out payments that are ultimately paid upon satisfying the contingent conditions above will be treated as additional consideration and recorded as goodwill.
 
We have also agreed to pay the Selling Holders one-half of all net licensing revenues that we received during the Contingent Payment Period from licenses of FazaClo outside of the United States (“Non-US Licensing Revenues”). Any amounts paid to the Selling Holders on Non-US Licensing Revenues will be recognized in the consolidated statement of operations in the period such amounts are paid.


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Avanir Pharmaceuticals
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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