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Akorn Reports 2011 Fourth Quarter And Year-End Financial Results

Non-GAAP Financial Measures

In addition to reporting all financial information required in accordance with generally accepted accounting principles (GAAP), Akorn is also reporting Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted share, which are non-GAAP financial measures. Since Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted share are not GAAP financial measures, they should not be used in isolation or as a substitute for consolidated statements of operations and cash flow data prepared in accordance with GAAP. In addition, Akorn’s definitions of Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted share may not be comparable to similarly titled non-GAAP financial measures reported by other companies. For a full reconciliation of Adjusted EBITDA and Adjusted net income to GAAP net income (loss), please see the attachments to this earnings release.

Adjusted EBITDA, as defined by the company, is calculated as follows:

Net income (loss), plus:
  • Interest income (expense), net
  • Provision for income taxes
  • Depreciation and amortization
  • Non-cash expenses, such as share-based compensation expense, changes in the fair value of warrants, and deferred financing cost amortization
  • Other adjustments, such as equity in earnings of unconsolidated joint venture related to the sale of the joint venture's assets, and amortization of the fair value adjustment to inventory acquired through business acquisitions

Adjusted net income, as defined by the company, is calculated as follows:

Income (loss) before income taxes, plus:
  • Intangible asset amortization
  • Non-cash expenses, such as non-cash interest, share-based compensation expense, changes in the fair value of warrants, and deferred financing cost amortization
  • Other adjustments, such as equity in earnings of unconsolidated joint venture related to the sale of the joint venture's assets, and amortization of the fair value adjustment to inventory acquired through business acquisitions
  • Less an estimated cash tax provision, net of the benefit from utilizing NOL carry-forwards.

Adjusted net income per diluted share is equal to Adjusted net income divided by the actual or anticipated diluted share count for the applicable period.
       
AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
 
 
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
  2011     2010     2011     2010  
 
Revenues $ 42,625 $ 24,045 $ 136,920 $ 86,409
Cost of sales   17,050     11,286     57,231     43,944  
GROSS PROFIT 25,575 12,759 79,689 42,465
 
Selling, general and administrative expenses 9,596 6,591 33,135 22,721
Research and development expenses 3,792 1,872 11,555 6,975
Amortization of intangibles   659     255     1,733     1,497  
TOTAL OPERATING EXPENSES   14,047     8,718     46,423     31,193  
 
OPERATING INCOME 11,528 4,041 33,266 11,272
 
Amortization of deferred financing costs (187 ) (2,021 ) (1,948 ) (2,841 )
Interest expense, net (997 ) (191 ) (2,283 ) (942 )
Non-cash interest expense - convertible notes (914 ) - (2,109 ) -
Equity in earnings of unconsolidated joint venture 20 22,033 14,550 23,368
Change in fair value of warrants liability - - - (8,881 )
Other non-operating expenses   (170 )   -     (170 )   -  
INCOME BEFORE INCOME TAXES 9,280 23,862 41,306 21,976
Income tax provision (benefit)   3,547     115     (1,707 )   152  
NET INCOME $ 5,733   $ 23,747   $ 43,013   $ 21,824  
 
NET INCOME PER SHARE:
BASIC $ 0.06   $ 0.25   $ 0.45   $ 0.24  
DILUTED $ 0.05   $ 0.23   $ 0.41   $ 0.22  
 
SHARES USED IN COMPUTING NET INCOME
PER SHARE:
BASIC   94,761     93,872     94,549     92,801  
DILUTED   105,985     103,336     103,912     99,250  
 

 
AKORN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE DATA
   
 
DECEMBER 31, DECEMBER 31,
2011 2010
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 83,962 $ 41,623
Trade accounts receivable, net 25,307 11,270
Inventories 35,456 18,917
Deferred taxes, current 9,344 -
Prepaid expenses and other current assets   3,071     1,803  
TOTAL CURRENT ASSETS 157,140 73,613
PROPERTY, PLANT AND EQUIPMENT, NET 44,389 32,731
OTHER LONG-TERM ASSETS:
Goodwill 11,863 -
Other intangibles, net 80,838 3,122
Deferred financing costs 3,864 1,545
Other   10,242     105  
TOTAL OTHER LONG-TERM ASSETS   106,807     4,772  
TOTAL ASSETS $ 308,336   $ 111,116  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 17,874 $ 4,894
Accrued compensation 5,094 3,396
Accrued expenses and other liabilities 5,321 3,473
Advance from unconsolidated joint venture   -     10,177  
TOTAL CURRENT LIABILITIES 28,289 21,940
LONG-TERM LIABILITIES:
Convertible notes due 2016 100,808 -
Purchase consideration payable - Lundbeck 13,841 -
Deferred taxes, non-current 4,933 -
Lease incentive obligations 958 1,125
Product warranty liability   1,299     1,299  
TOTAL LONG-TERM LIABILITIES   121,839     2,424  
TOTAL LIABILITIES   150,128     24,364  
SHAREHOLDERS' EQUITY:
Common stock, no par value -- 150,000,000 shares authorized, 94,936,282 and 93,975,334 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively
 
212,636 182,466
Warrants to acquire common stock 17,946 19,673
Accumulated deficit   (72,374 )   (115,387 )
TOTAL SHAREHOLDERS' EQUITY   158,208     86,752  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 308,336   $ 111,116  
 

AKORN, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
IN THOUSANDS (UNAUDITED)
             
 
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
  2011     2010     2011     2010  
OPERATING ACTIVITIES
Net income $ 5,733 $ 23,747 $ 43,013 $ 21,824
Adjustments to reconcile net income to net cash provided by operating activities:
 
Depreciation and amortization 1,545 1,145 5,246 5,030
Write-off and amortization of deferred financing fees 187 2,021 1,948 2,841
Non-cash stock compensation expense 1,392 742 5,159 2,737
Non-cash change in fair value of warrants liability - - - 8,881
Non-cash interest on convertible notes 914 - 2,109 -
Equity in earnings of unconsolidated joint venture (20 ) (22,033 ) (14,550 ) (23,368 )
Changes in operating assets and liabilities:
Trade accounts receivable (5,601 ) 489 (13,581 ) (2,045 )
Inventories (1,143 ) (816 ) (9,307 ) (5,750 )
Deferred tax assets, net 2,277 - (4,411 ) -
Prepaid expenses and other current assets 33 (1,261 ) (183 ) 233
Supply agreement termination liabilities - - - (1,500 )
Trade accounts payable 1,064 (645 ) 5,892 1,608
Accrued expenses and other liabilities   644     1,796     1,668     1,791  
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,025 5,185 23,003 12,282
 
INVESTING ACTIVITIES
Payments for acquisitions and equity investments (45,000 ) - (81,734 ) -
Purchases of property, plant and equipment (4,725 ) (2,066 ) (14,849 ) (4,710 )
Distribution from unconsolidated joint venture - 35,158 3,881 36,265
Purchase of product licensing rights   -     -     (5,678 )   -  
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (49,725 ) 33,092 (98,380 ) 31,555
 
FINANCING ACTIVITIES
Proceeds from issuance of convertible notes - - 120,000 -
Debt financing costs (415 ) - (5,098 ) -
Repayments of subordinated debt - related party (6,439 ) (6,439 )
Repayments of line of credit - - - (3,000 )
Net proceeds from common stock offering and warrant exercises - - 1,727 4,969
Proceeds under stock option and stock purchase plans   469     287     1,087     639  
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES   54     (6,152 )   117,716     (3,831 )
 
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (42,646 ) 32,125 42,339 40,006
Cash and cash equivalents at beginning of period   126,608     9,498     41,623     1,617  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 83,962   $ 41,623   $ 83,962   $ 41,623  

 
AKORN, INC.
RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED EBITDA
IN THOUSANDS (UNAUDITED)
         
 
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2011 2010 2011 2010
 
NET INCOME $ 5,733 $ 23,747 $ 43,013 $ 21,824
 
ADJUSTMENTS TO ARRIVE AT EBITDA:
Depreciation expense 886 890 3,513 3,533
Amortization expense 659 255 1,733 1,497
Interest expense, net 997 191 2,283 942
Non-cash interest expense - convertible notes 914 - 2,109 -
Income tax provision   3,547   115     (1,707 )   152  
EBITDA $ 12,736 $ 25,198 $ 50,944 $ 27,948
 
NON-CASH AND OTHER NON-RECURRING INCOME
AND EXPENSES:
Non-cash stock compensation expense 1,392 742 5,159 2,737
Change in fair value of warrants liability - - - 8,881
Write-off and amortization of deferred financing costs 187 2,021 1,948 2,841
Equity in earnings of unconsolidated joint venture that is related to the sale of the joint venture's assets
- (21,563 ) (13,380 ) (21,563 )
Amortization of the fair value adjustment to AVR's acquired inventory
  47   -     600     -  
ADJUSTED EBITDA $ 14,362 $ 6,398   $ 45,271   $ 20,844  
 

 
AKORN, INC.
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA (UNAUDITED)
         
 
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2011 2010 2011 2010
 
INCOME BEFORE INCOME TAXES $ 9,280 $ 23,862 $ 41,306 $ 21,976
 
ADJUSTMENTS TO ARRIVE AT ADJUSTED NET INCOME:
Non-cash stock compensation expense 1,392 742 5,159 2,737
Non-cash interest expense - convertible notes 914 - 2,109 -
Amortization expense 659 255 1,733 1,497
Write-off and amortization of deferred financing costs 187 2,021 1,948 2,841
Change in fair value of warrants liability - - - 8,881
Equity in earnings of unconsolidated joint venture that is related to the sale of the joint venture's assets
- (21,563 ) (13,380 ) (21,563 )
Amortization of the fair value adjustment to AVR's acquired inventory
  47   -     600     -  
 
ADJUSTED INCOME BEFORE INCOME TAXES 12,479 5,317 39,475 16,369
 
ADJUSTED INCOME TAX PROVISION   1,061   26     3,355     113  
 
ADJUSTED NET INCOME $ 11,418 $ 5,291   $ 36,120   $ 16,256  
 
ADJUSTED NET INCOME PER DILUTED SHARE $ 0.11 $ 0.05   $ 0.35   $ 0.16  
 

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