You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q, or Quarterly Report, and the audited consolidated financial statements and notes thereto for the year ended
December 31, 2020and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2020filed with the SECon February 26, 2021, or Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Our actual results may differ materially from those discussed below. Please see "Forward-Looking Statements" and "Risk Factors" included in Part I, Item 1A of our Annual Report for factors that could cause or contribute to such differences.
Caution Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "would" "could," "should," "potential," "seek," "evaluate," "pursue," "continue," "design," "impact," "affect," "forecast," "target," "outlook," "initiative," "objective," "designed," "priorities," "goal," or the negative of such terms and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements are based on assumptions and expectations that may not be realized and are inherently 19 --------------------------------------------------------------------------------
subject to risks, uncertainties and other factors, many of which cannot be predicted with precision and some of which may not even be anticipated.
Forward-looking statements contained in this quarterly report include, among others, statements regarding:
? our estimates regarding expenses, future revenue, cash flow, capital requirements and timing and availability of and the need for additional financing; ? our ability to maintain or expand our relationships, profitability and contracts with our key commercial partners, including the impact of changes in consumer demand for the products we manufacture for our commercial partners; ? our ability to grow and diversify our business with new customers, including our ability to meet desired project outcomes with development customers; ? the extent to which the ongoing COVID-19 pandemic continues to disrupt our business operations and financial condition and the business operations and financial condition of our customers and suppliers, including our ability to initiate and continue relationships with third-party clinical research organizations and manufacturers and third-party logistics providers given recent supply chain challenges; ? our ability to operate under increased leverage and associated lending covenants; to pay existing required interest and principal amortization payments when due; and/or to obtain acceptable refinancing alternatives; ? the performance of third-party suppliers upon which we depend for Active Pharmaceutical Ingredients, or APIs, excipients, capsules, reagents, etc., and other third parties involved with maintenance of our facilities and equipment; ? our ability to obtain and maintain patent protection for applicable products and defend our intellectual property rights against third-parties; ? pharmaceutical industry market forces that may impact our commercial customers' success and continued demand for the products we produce; ? our ability to recruit and retain key scientific, technical, business development, and management personnel and our executive officers, including as a result of our enforcement of state and federal vaccine mandates; ? our ability to comply with stringent
U.S.and foreign government regulation in the manufacture of pharmaceutical products, including Good Manufacturing Practice, or cGMP, compliance and U.S. Drug Enforcement Agency, or DEA, compliance and other relevant regulatory authorities applicable to our business; and ? our ability to integrate the IriSysbusiness successfully and the risk that we may not realize the expected benefits of such acquisition. We may not achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the Annual Report, particularly under "Risk Factors," that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations or investments we may make. You should read this Quarterly Report and the documents that we incorporate by reference herein completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements. 20 --------------------------------------------------------------------------------
We are a dedicated contract development and manufacturing organization, or CDMO, dedicated to solving complex formulation and manufacturing challenges primarily in small molecule therapeutic development. We leverage our formulation and development expertise to develop and manufacture pharmaceutical products using proprietary delivery technologies and know-how for partners who develop and commercialize or plan to commercialize these products. In 2020, we launched our clinical trials support services capabilities, which includes preparation of clinical trial supplies, as well as specialized services dedicated to the development and Good Manufacturing Practices, or GMP, of high-potency products. In
August 2021, we acquired IriSys, a San Diego-based CDMO that possesses capabilities that complement and expand those of Recro. We operate a 97,000 square foot, DEA-licensed manufacturing facility in Gainesville, Georgia, a 24,000 square foot development, high-potency product and clinical packaging facility in Gainesville, Georgiathat we opened in October 2018, and a 24,500 square foot development and cGMP facility in San Diego, Californiathat was part of the IriSysacquisition. We currently develop and/or manufacture the following key products with our key commercial partners: Ritalin LA®, Focalin XR®, Verelan PM®, Verelan SR®, Verapamil PM, Verapamil SR, and Donnatal®, as well as supporting development stage products. Our manufacturing and development capabilities include formulation, product development from formulation through clinical trial and commercial manufacturing, and specialized capabilities for solid oral dosage forms, extended release and controlled substance manufacturing, as well as high potency development and manufacturing. With the acquisition of IriSys, our capabilities have been expanded beyond oral solid dose to include sterile injectables oral liquids, tablets, topicals, liquid/powder filled capsules, ophthalmic droppers, liposomes and nano/microparticles. In addition, the acquisition adds new capabilities in the areas of aseptic fill/finish and lyophilization and established bi-coastal footprint from which to better serve clients within the U.S., as well as globally. In a typical collaboration, we work with our partners to develop product candidates, or new formulations of existing product candidates, and may license certain intellectual property to such partners. We also typically exclusively manufacture and supply clinical and commercial supplies of these proprietary products and product candidates. We have used cash flow generated by our business primarily to fund the growth of our CDMO business, to fund a historical acute care research and development business that was spun off in 2019, and to make payments under our credit facility. We believe our business will continue to contribute cash to fund our growth, make payments under our credit facility and other general corporate purposes.
We continue to closely monitor developments related to the COVID-19 pandemic, which continues to have adverse effects on the
U.S.and world economies, including the commercial activities of our customers and their peers. While we are committed to continue providing essential pharmaceutical products to our customers, we are also taking all necessary measures to protect the health and safety of our employees. These developments include: Operations. We are continuing to follow appropriate safety protocols including strict social distancing and other protective measures for employees supporting essential operations at our plant. We are also supporting continued remote work arrangements for other personnel not required to work on site. Business development. We continue to experience lower than expected growth in our development business, which we believe is partially attributable to COVID-19. We have responded to these challenges by adopting new methods for meeting and contacting customers. Meanwhile, some customers have begun easing restrictions, but these measures vary among customers and from state to state. Other customers continue to delay their development plans for a variety of reasons such as concerns about the timing of clinical trials. Manufacturing demand. We believe that there continues to be lower end-user demand for some of the commercial products we manufacture as compared to periods prior to the onset of the COVID-19 pandemic. Third party national data demonstrates that there was a meaningful impact of COVID-19 on the reduction of total prescriptions filled by patients across most therapeutic areas, including chronic cardiovascular and pediatric medications. Logistics challenges. As global logistics and supply chain issues continue to present obstacles to the U.S.economy and our business, we will continue to work to overcome these challenges. We also expect to continue facing inflationary pressure on raw materials, labor and logistics. During the three months ended September 30, 2021, we experienced minimal supply chain disruption. 21 -------------------------------------------------------------------------------- Our sales and manufacturing operations for the nine months ended September 30, 2021were disrupted as a result of the pandemic because of production slowdowns, stoppages and decreased demand for the products we manufacture. While we are not currently expecting that future results will be materially impacted by the pandemic, there can be no assurance that such future results will not be impacted. While vaccines have proven effective in reducing the severity and mortality of COVID-19, including the variants that have evolved to date, the overall vaccination rate in the United Stateshas not reached the level required for herd immunity. Certain variants of COVID-19, such as the delta variant, are proving to be more easily spread than earlier variants. We may also be adversely impacted by broader economic effects associated with the pandemic such as inflation, changes in laws and general volatility in the markets. The continued low vaccination rate, and the emergence of new variants, which could prove resistant to existing vaccines, could again result in major disruptions to businesses and markets worldwide and our business, results of operations and financial condition could be materially and adversely affected. We will continue to closely monitor any developments.
We recognize three types of income: manufacturing, profit sharing, and research and development.
Manufacturing We recognize manufacturing revenue from the sale of products we manufacture for our commercial partners. Manufacturing revenues are recognized upon transfer of control of a product to a customer, generally upon shipment, based on a transaction price that reflects the consideration we expect to be entitled to as specified in the agreement with the commercial partner, which could include pricing and volume-based adjustments.
We recognize profit-sharing or royalty revenue, collectively referred to as profit-sharing revenue, related to the sale of products by our commercial partners that incorporate our technologies. Profit-sharing revenues are generally recognized under the terms of the applicable license, development and/or supply agreement. For arrangements that include sales-based profit-sharing and the license is deemed to be the predominant item to which the profit-sharing relates, we recognize revenue when the related sales occur by the commercial partner. For arrangements that include sales-based profit-sharing and the license is not deemed to be the predominant item to which the profit-sharing relates, we recognize revenue when the performance obligation to which the profit-sharing has been allocated has been satisfied, which is upon transfer of control of a product to a customer. In these cases, significant judgment is required to calculate the estimated variable consideration from such profit-sharing using the expected value method based on historical commercial partner pricing and deductions. Estimated variable consideration is partially constrained due to the uncertainty of price adjustments made by our commercial partners, which are outside of our control. Factors causing price adjustments by our commercial partners include increased competition in the products' markets, mix of volume between the commercial partners' customers, and changes in government pricing.
Research and development
Research and development revenue includes services associated with formulation, process development, clinical trial material and clinical trial support services, as well as custom development of manufacturing processes and analytical methods for a customer's non-clinical, clinical and commercial products. Such revenues are recognized at a point in time or over time depending on the nature and particular facts and circumstances associated with the contract terms. In contracts that specify milestones, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. Milestone payments related to arrangements under which we have continuing performance obligations are deferred and recognized over the period of performance. Milestone payments that are not within our control, such as submission for approval to regulators by a commercial partner or approvals from regulators, are not considered probable of being achieved until those submissions are submitted by the customer or approvals are received. 22
-------------------------------------------------------------------------------- In contracts that require revenue recognition over time, we utilize input or output methods, depending on the specifics of the contract, that compare the cumulative work-in-process to date to the most current estimates for the entire performance obligation. Under these contracts, the customer typically owns the product details and process, which have no alternative use. These projects are customized to each customer to meet its specifications and typically only one performance obligation is included. Each project represents a distinct service that is sold separately and has stand-alone value to the customer. The customer also retains control of its product as the product is being created or enhanced by our services and can make changes to its process or specifications upon request.
Cost of sales and selling, general and administrative expenses
Cost of sales consists of inventory costs, including production wages, material costs and overhead, and other costs related to the recognition of revenue. Selling, general and administrative expenses consists of salaries and related costs for corporate administrative, public company costs, business development personnel as well as legal, patent-related expenses and consulting fees. Public company costs include compliance, auditing services, tax services, insurance and investor relations. With the
August 2021acquisition of IriSys, we have been integrating and reorganizing our collective employee base to support a multi-site organization. As a result, we are reevaluating our expense classification policies which may result in material reclassification in the fourth quarter of 2021. We expect our business development expenses to increase during the remainder of 2021 as we continue to expand our sales team in various geographies, in anticipation of business growth from new formulation and development capabilities as well as the expansion of the team through the acquisition of IriSys. For the first nine months of 2021, we qualified for approximately $4.4 millionof federal employee retention credits. The employee retention credits are recognized as offsets to our expenses in the same period that the related employee expenditures are recognized. The expense offset for the three and nine months ended September 30, 2021was approximately $1.9 millionand $3.6 million, respectively, and we expect to recognize an additional expense offset of $0.8 millionin the fourth quarter of 2021. We do not expect to qualify for any additional credits based on recent legislative activity.
Amortization of intangible assets
Historically, we recognized amortization expense related to an intangible asset for our profit-sharing and contract manufacturing relationships on a straight-line basis over an estimated useful life of six years. Amortization stopped when the intangible asset reached the end of its useful life in
April 2021. With the acquisition of IriSys, we are recognizing amortization expense related to acquired customer relationships, backlog and trademarks and trade names on a straight-line basis over an estimated useful life of 12, 2.4, and 1.5 years, respectively. Interest expense Interest expense for the periods presented primarily relates to our Athyrium senior secured term loans and the amortization of related financing costs. In addition, following the acquisition of IriSys, there is additional interest expense related to interest on the sellers note which was a component of the IriSysacquisition purchase price.
Net operating losses and tax deferrals
December 31, 2020, we had federal net operating loss, or NOL, carry forwards of approximately $130.6 million, $122.4 millionof which have an indefinite carry forward period. The remaining $8.2 millionof federal NOL carry forwards, $127.4 millionof state NOL carry forwards and federal and state research and development tax credit carryforwards of $4.4 millionare also available to offset future taxable income, but they will begin to expire at various dates beginning in 2028 if not utilized. We believe that it is more likely than not that the deferred income tax assets associated with our U.S.operations will not be realized, and as such, there is a full valuation allowance against our U.S.deferred tax assets. 23 --------------------------------------------------------------------------------
Results of operations
Comparison of the third quarters 2021 and 2020
Three months ended September 30, (in millions) 2021 2020 Revenue $ 18.2 $ 19.3 Operating expenses: Cost of sales (excluding amortization of intangible assets) 13.2 11.7 Selling, general and administrative 4.6 4.4 Amortization of intangible assets 0.1 0.7 Total operating expenses 17.9 16.8 Operating income (loss) 0.3 2.5 Interest expense (3.8 ) (4.6 ) Net loss $ (3.5 ) $ (2.1 )
Returned. The decline of
Cost of sales. The increase of
$1.5 millionwas primarily due to costs from the San Diegofacility due to the acquisition of IriSysand is partially offset by lower costs due to certain employment incentive tax credits in 2021. Selling, general and administrative. The increase of $0.2 millionwas primarily related to deal and integration costs related to the acquisition of IriSysand business development expenses associated with our San Diegoteam offset by lower public company costs and stock-based compensation expense. Amortization of intangible assets. The decrease of $0.6 millionwas because the amortization of CDMO royalties and contract manufacturing relationships acquired in 2015 ended on April 10, 2021offset by amortization related to the acquisition of IriSysfor acquired customer relationships, backlog and trademarks and trade names. Interest expense. The decrease of $0.8 millionwas primarily due to reduced term loan borrowings under the Credit Agreement with Athyrium as well as a decrease in the LIBOR base rate of interest on our term loans under the Credit Agreement. This decrease was partially offset by an increase in interest from the sellers note which was a component of the IriSysacquisition purchase price.
Comparison of the first nine months 2021 and 2020
Nine months ended September 30, (in millions) 2021 2020 Revenue $ 53.1 $ 56.6
Operating expenses: Cost of sales (excluding amortization of intangible assets)
39.8 41.6 Selling, general and administrative 13.1 14.1 Amortization of intangible assets 0.9 2.0 Total operating expenses 53.8 57.7 Operating loss (0.7 ) (1.1 ) Interest expense (11.7 ) (14.7 ) Gain on extinguishment of debt 3.4 - Net loss $ (9.0 ) $ (15.8 ) Revenue. The decrease of
$3.5 millionwas primarily the result of the discontinuation of two commercial product lines by our commercial partners announced in the first quarter of 2020 as well as decreased product sales from one of our commercial partners due to timing of customer orders. During the 2021 period, increased product sales from one of our commercial partners, increased revenue due to the acquisition of IriSysas well as higher revenues from our clinical trial materials new business growth activities, have partially offset the decrease. 24
-------------------------------------------------------------------------------- Cost of sales. The decrease of
$1.8 millionwas primarily due to lower commercial manufacturing volumes and reflects lower costs due to the prior year reduction in force as well as certain employment incentive tax credits in 2021 offset by costs from the San Diegofacility due to the acquisition of IriSys. Selling, general and administrative. The decrease of $1.0 millionwas primarily related to lower public company costs and stock-based compensation expense offset by expenses related to the acquisition of IriSysand business development expenses associated with our San Diegoteam. Amortization of intangible assets. The decrease of $1.2 millionwas because the amortization of CDMO royalties and contract manufacturing relationships acquired in 2015 ended on April 10, 2021offset by amortization related to the acquisition of IriSysfor acquired customer relationships, backlog and trademarks and trade names. Interest expense. The decrease of $3.0 millionwas primarily due to reduced term loan borrowings under the Credit Agreement with Athyrium as well as a decrease in the LIBOR base rate of interest on our term loans under the Credit Agreement. This decrease was partially offset by an increase in interest from the sellers note which was a component of the IriSysacquisition purchase price.
Gain on extinction of debt. In
Liquidity and capital resources
Since our inception, we have financed our operations and capital expenditures primarily from the issuance of equity and debt. During the nine months ended
September 30, 2021, our capital expenditures were $2.8 millionto scale and support our expansion of capabilities. We are party to a credit agreement with Athyrium, or the Credit Agreement, which has been fully drawn. The Credit Agreement requires us to repay the outstanding principal amount of $100.0 millionon December 31, 2023. The Credit Agreement also includes certain financial covenants that the Company will need to satisfy on a monthly and quarterly basis, including: 1) maintaining a permitted net leverage ratio, calculated as our indebtedness, net of cash and cash equivalents, divided by EBITDA, each as defined in the Credit Agreement; and 2) a minimum amount of cash and cash equivalents on hand. We are also party to an amended common stock purchase agreement with Aspire Capital Fund LLC, or Aspire Capital. The amended agreement provides that, upon the terms and subject to the conditions and limitations set forth in the agreement, Aspire Capitalis committed to purchase, at our sole election, up to an aggregate value of $41.2 millionin shares of common stock. As of September 30, 2021, there is availability to issue up to $30.0 millionor 6,199,299 shares of common stock under the 2019 Common Stock Purchase Agreement. In August 2021, we acquired IriSysfor $50.2 millionby paying $24.0 millionin cash, net of cash acquired, and issuing a note and equity with fair values of $5.3 millionand $20.9 million, respectively, to the former equity holders of IriSys. We may require additional financing and if we do, we may raise such additional funds through debt refinancing, bank or other loans, through strategic development, licensing activities, sale of assets and/or marketing arrangements or through public or private sales of equity or debt securities from time to time. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely impact our growth plans and our financial condition or results of operations. Further, our ability to access capital market or otherwise raise capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United Statesand worldwide resulting from the ongoing COVID-19 pandemic. Additional debt or equity financing, if available, may be dilutive to the holders of our common stock and may involve significant cash payment obligations and covenants that restrict our ability to operate our business or to access capital. 25 --------------------------------------------------------------------------------
Sources and uses of cash Nine months ended September 30, (amounts in millions) 2021 2020 Net cash provided by (used in) continuing operations: Operating activities $ 6.4 $ 6.4 Investing activities (26.8 ) (5.5 ) Financing activities 20.1 2.6 Net cash (used in) provided by continuing operations $ (0.3 )
Net cash used in discontinued operations $ - $ (1.2 ) Cash flows from operating activities represent our net loss as adjusted for stock-based compensation, depreciation, non-cash interest expense, amortization of intangibles, a gain on extinguishment of debt and changes in operating assets and liabilities. Cash flows from operations were relatively flat for the first nine months of 2021 compared to 2020.
Net cash used in investing activities includes
The net cash flow generated by financing activities in the first nine months of 2021 mainly includes the net proceeds from an issuance of common shares of
The net cash used in discontinued operations in 2020 was intended to settle outstanding debts related to our former research and development activity in acute care.
Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:
? the extent to which we in-license, acquire or invest in products, businesses and technologies; ? the timing and extent of our manufacturing and capital expenditures; ? our ability to maintain or expand our relationships and contracts with our commercial partners; ? our ability to grow and diversify our business with new customers, including our ability to meet desired project outcomes with development customers; ? our ability to regain profitability; ? our ability to comply with stringent
U.S.& foreign government regulation in the manufacture of pharmaceutical products, including cGMP and U.S.DEA requirements; ? our ability to raise additional funds through equity or debt financings or sale of certain assets; ? the costs of preparing, submitting and prosecuting patent applications and maintaining, enforcing and defending intellectual property claims; and ? the extent to which health epidemics and other outbreaks of communicable diseases, including the ongoing COVID-19 pandemic, could disrupt our operations or materially and adversely affect our business and financial conditions. We might use existing cash and cash equivalents on hand, additional debt, equity financing, sale of assets or out-licensing revenue or a combination thereof to fund our operations or acquisitions. If we increase our debt levels, we might be restricted in our ability to raise additional capital and might be subject to financial and restrictive covenants. Our shareholders may experience dilution as a result of the issuance of additional equity or debt securities. This dilution may be significant depending upon the amount of equity or debt securities that we issue and the prices at which we issue any securities. 26 --------------------------------------------------------------------------------
The table below reflects our contractual commitments as of
September 30, 2021: Payments due by period Less than More than (in millions) Total 1 year 1-3 years 3-5 years 5 years Debt obligations (1): Principal $ 106.5 $ 2.0 $ 104.1 $ 0.1 $ 0.3Interest 11.3 5.0 6.1 0.1 0.1 Purchase obligations (2) 4.5 4.0 0.5 - - Operating leases (3) 10.8 1.1 2.3 2.3 5.1 Other long-term liabilities (4) 1.3 1.0 0.3 - - Total $ 134.4 $ 13.1 $ 113.3 $ 2.5 $ 5.5(1) Debt obligations consist of principal, an exit fee of 1% of that principal, and interest on $100.0 millionof outstanding term loans under our credit facility with Athyrium, $6.1 millionof notes issued to the former members of IriSysand a small finance lease. Because the Athyrium term loans bear interest at a variable rate based on LIBOR, we estimated future interest commitments utilizing the LIBOR rate as of September 30, 2021. In accordance with U.S.GAAP, the future interest obligations are not recorded on our consolidated balance sheet. (2) Purchase obligations consist of cancelable and non-cancelable purchase commitments related to inventory, capital expenditures and other goods or services. In accordance with U.S.GAAP, these obligations are not recorded on our consolidated balance sheets. (3) We are party to two operating leases for development facilities in Californiaand Georgiathat end in 2031 and 2025, respectively. The leases each include options to extend at our discretion. (4) We have entered into employment agreements with each of our named executive officers that provide for, among other things, severance commitments of up to $1.3 millionshould we terminate the named executive officers for convenience or if certain events occur following a change in control. In addition, we would be subject to other contingencies of up to $3.6 millionin the aggregate if certain events occur following a change in control; because these obligations are contingent, the amounts are not included in the table above.
Off-balance sheet provisions
We have no off-balance sheet arrangement as defined in Article 303 (a) (4) of Regulation SK.
Critical accounting conventions and estimates
The following complements the accounting policies and critical estimates disclosed in the “Management Commentary and Analysis of the Financial Condition and Results of Operations” section of our Annual Report.
Business acquisitions are accounted for in accordance with Accounting Standards Codification, or ASC, Topic 805, Business Combinations. In purchase accounting, identifiable assets acquired and liabilities assumed, are recognized at their estimated fair values at the acquisition date, and any remaining purchase price is recorded as goodwill. In determining the fair values of the consideration transferred, the assets acquired and the liabilities assumed, we make significant estimates and assumptions, particularly with respect to long-lived tangible and intangible assets. Critical estimates used in valuing tangible and intangible assets include, but are not limited to, future expected cash flows, discount rates, market prices and asset lives. While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business acquisition date, our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchase price allocation period, which is generally one year from the business acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. For changes in the valuation of intangible assets between preliminary and final purchase price allocation, the related amortization is adjusted in the period it occurs. Subsequent to the purchase price allocation period any adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is determined. 27
Although our estimates of fair value are based upon assumptions believed to be reasonable, actual results may differ. See note 3 to the consolidated financial statements contained in Part I, Item 1 for more information related to the acquisition of
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