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Akorn Reports Third Quarter 2012 Financial Results

Stocks in this article: AKRX

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

Income 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, amortization of the fair value adjustment to inventory acquired through business acquisitions, and Kilitch Drugs (India) Limited acquisition related expense
  • 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.

The Company believes that Adjusted net income and Adjusted net income per diluted shares are meaningful financial indicators, to both Company management and investors, in that they exclude non-cash income and expense items that have no impact on current or future cash flows, as well as other income and expense items that are not expected to recur and therefore are not reflective of continuing operating performance. Adjusted net income and Adjusted net income per diluted share provide the Company and investors with income figures that would be expected to be more aligned with cash flows than GAAP net income, which includes a host of non-cash income and expense items.

While the Company uses Core business revenue, Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted share in managing and analyzing its business and financial condition and believes these non-GAAP financial measures to be useful to investors in evaluating the Company’s performance, each of these financial measures has certain shortcomings. Core business revenue does not provide a full picture of the Company’s historical revenues. Adjusted EBITDA does not take into account the impact of capital expenditures on either the liquidity or the GAAP financial performance of the Company and likewise omits share-based compensation expenses, which may vary over time and may represent a material portion of overall compensation expense. Adjusted net income does not take into account non-cash expenses that reflect the amortization of past expenditures, or include stock-based compensation, which is an important and material element of the Company’s compensation package for its directors, officers and other key employees. Due to the inherent limitations of each of these non-GAAP financial measures, the Company’s management utilizes comparable GAAP financial measures to evaluate the business in conjunction with Adjusted EBITDA and encourages investors to do likewise.

                 
AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
 
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
  2012     2011     2012     2011  
 
Revenues $ 69,634 $ 36,703 $ 184,638 $ 94,295
Cost of sales   29,541     14,725     77,917     40,181  
GROSS PROFIT 40,093 21,978 106,721 54,114
 
Selling, general and administrative expenses 12,346 8,669 33,625 22,983
Acquisition-related costs 511 337 9,155 556
Research and development expenses 2,874 3,109 9,824 7,763
Amortization of intangibles   1,759     509     5,076     1,074  
TOTAL OPERATING EXPENSES   17,490     12,624     57,680     32,376  
 
OPERATING INCOME 22,603 9,354 49,041 21,738
 
Amortization of deferred financing costs (193 ) (165 ) (581 ) (1,761 )
Non-cash interest expense (1,228 ) (909 ) (3,615 ) (1,195 )
Interest expense, net (959 ) (973 ) (3,009 ) (1,286 )
Equity in earnings of unconsolidated joint venture   -     -     -     14,530  
INCOME BEFORE INCOME TAXES 20,223 7,307 41,836 32,026
Income tax provision (benefit)   6,470     (6,217 )   15,269     (5,254 )
NET INCOME $ 13,753   $ 13,524   $ 26,567   $ 37,280  
 
NET INCOME PER SHARE:
BASIC $ 0.14   $ 0.14   $ 0.28   $ 0.39  
DILUTED $ 0.12   $ 0.13   $ 0.24   $ 0.36  
 
SHARES USED IN COMPUTING NET INCOME
PER SHARE:
BASIC   95,078     94,650     95,128     94,477  
DILUTED   110,430     104,188     111,388     103,524  
 
COMPREHENSIVE INCOME:
Net income 13,753 13,524 26,567 37,280
Foreign currency translation gain (loss)   3,268     -     (3,692 )   -  
Comprehensive income   17,021     13,524     22,875     37,280  

         
AKORN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE DATA
   
SEPTEMBER 30 DECEMBER 31,
2012 2011
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 38,402 $ 83,962
Trade accounts receivable, net 44,536 25,307
Inventories 50,230 35,456
Deferred taxes, current 6,380 8,153
Prepaid expenses and other current assets   3,896     3,071  
TOTAL CURRENT ASSETS 143,444 155,949
PROPERTY, PLANT AND EQUIPMENT, NET 78,152 44,389
OTHER LONG-TERM ASSETS:
Goodwill 32,369 11,863
Product licensing rights, net 64,186 67,822
Other intangibles, net 17,375 13,016
Deferred financing costs 3,279 3,864
Deferred taxes, non-current 1,938
Long-term investments 10,284 10,137
Other   200     105  
TOTAL OTHER LONG-TERM ASSETS   129,631     106,807  
TOTAL ASSETS $ 351,227   $ 307,145  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 17,478 $ 17,874
Accrued compensation 4,816 5,094
Contingent consideration payable 3,250 -
Accrued expenses and other liabilities   13,750     5,321  
TOTAL CURRENT LIABILITIES 39,294 28,289
LONG-TERM LIABILITIES:
Convertible notes due 2016 103,653 100,808
Purchase consideration payable 14,910 13,841
Deferred taxes, non-current 1,686 3,742
Product warranty liability 1,299 1,299
Lease incentive obligations and Other long-term liabilities   874     958  
TOTAL LONG-TERM LIABILITIES   122,422     120,648  
TOTAL LIABILITIES   161,716     148,937  
SHAREHOLDERS' EQUITY:
Common stock, no par value -- 150,000,000 shares authorized, 95,314,602
and 94,936,282 shares issued and outstanding at September 30, 2012
and December 31, 2011, respectively 221,064 212,636
Warrants to acquire common stock 17,946 17,946
Accumulated deficit (45,807 ) (72,374 )
Accumulated other comprehensive loss   (3,692 )   -  
TOTAL SHAREHOLDERS' EQUITY   189,511     158,208  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 351,227   $ 307,145  

 
AKORN, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
IN THOUSANDS (UNAUDITED)
                   
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
  2012     2011     2012     2011  

(Restated)

(Restated)

OPERATING ACTIVITIES
Net income $ 13,753 $ 13,524 $ 26,567 $ 37,280
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization

2,921

1,392 8,240 3,701
Write-off and amortization of deferred financing fees 193 165 581 1,761
Non-cash stock compensation expense 1,868 1,273 5,049 3,767
Non-cash interest expense 1,228 - 3,615 -
Deferred tax assets, net (3,061 ) (6,688 ) 200 (6,688 )
Excess tax benefit from stock compensation (812 ) - (2,407 )
Amortization of debt discount - 909 - 1,195
Equity in earnings of unconsolidated joint venture - - - (14,530 )
Changes in operating assets and liabilities:

 

Trade accounts receivable (7,228 ) (2,912 ) (17,208 ) (7,980 )
Inventories (3,519 ) (4,643 ) (13,080 ) (8,164 )
Prepaid expenses and other current assets 19 904 (1,052 ) (216 )
Trade accounts payable 1,281 851 (733 ) 3,066
Accrued expenses and other liabilities   8,383     2,111     11,540     1,024  
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,026 6,886 21,312 14,216
 
INVESTING ACTIVITIES
Payments for acquisitions and equity investments - (10,723 ) (55,224 ) (36,734 )
Purchases of property, plant and equipment (2,503 ) (3,130 ) (14,756 ) (8,362 )
Distribution from unconsolidated joint venture - 750 - 3,881
Purchase of product licensing rights   -     (1,678 )   -     (5,678 )
NET CASH USED IN INVESTING ACTIVITIES (2,503 ) (14,781 ) (69,980 ) (46,893 )
 
FINANCING ACTIVITIES
Proceeds from issuance of convertible notes - - - 120,000
Debt financing costs - (96 ) - (4,683 )
Net proceeds from common stock offering and warrant exercises - - - 1,727
Excess tax benefit from stock compensation 812 - 2,407 -
Proceeds under stock option and stock purchase plans   449     116     972     618  
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,261 20 3,379 117,662
 
Effect of changes in exchange rates on cash & cash equivalents   208     -     (271 )   -  
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 13,992 (7,875 ) (45,560 ) 84,985
Cash and cash equivalents at beginning of period   24,410     134,483     83,962     41,623  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,402   $ 126,608   $ 38,402   $ 126,608  
 

                 
AKORN, INC.
RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED EBITDA
IN THOUSANDS (UNAUDITED)
 
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
  2012   2011     2012   2011  
 
NET INCOME $ 13,753 $ 13,524 $ 26,567 $ 37,280
 
ADJUSTMENTS TO ARRIVE AT EBITDA:
Depreciation expense 1,156 883 3,158 2,627
Amortization expense 1,759 509 5,076 1,074
Interest expense, net 959 973 3,009 1,286
Non-cash interest expense 1,228 909 3,615 1,195
Income tax provision   6,470   (6,217 )   15,269   (5,254 )
EBITDA $ 25,325 $ 10,581 $ 56,694 $ 38,208
 
NON-CASH AND OTHER NON-RECURRING INCOME
AND EXPENSES:
Kilith acquisition related expense 511 - 8,835
Non-cash stock compensation expense 1,868 1,273 5,049 3,767
Write-off and amortization of deferred financing costs 193 165 581 1,761
Equity in earnings of unconsolidated joint venture that
is related to the sale of the joint venture's assets - - - (13,380 )
Amortization of the fair value adjustment to AVR's
acquired inventory   -   (124 )   -   553  
ADJUSTED EBITDA $ 27,897 $ 11,895   $ 71,159 $ 30,909  
 
 
AKORN, INC.
RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED NET INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA (UNAUDITED)
 
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
  2012   2011     2012   2011  
 
INCOME BEFORE INCOME TAXES $ 20,223 $ 7,307 $ 41,836 $ 32,026
 
ADJUSTMENTS TO ARRIVE AT ADJUSTED NET INCOME:
Kilitch acquisition related expense 511 - 8,835 -
Non-cash stock compensation expense 1,868 1,273 5,049 3,767
Non-cash interest expense 1,228 909 3,615 1,195
Amortization expense 1,759 509 5,076 1,074
Write-off and amortization of deferred financing costs 193 165 581 1,761
Equity in earnings of unconsolidated joint venture that
is related to the sale of the joint venture's assets - - - (13,380 )
Amortization of the fair value adjustment to AVR's
acquired inventory   -   (124 )   -   553  
 
ADJUSTED INCOME BEFORE INCOME TAXES 25,782 10,039 64,992 26,996
 
ADJUSTED INCOME TAX PROVISION   9,823   853     21,953   2,295  
 
ADJUSTED NET INCOME $ 15,959 $ 9,186   $ 43,039 $ 24,701  
 
ADJUSTED NET INCOME PER DILUTED SHARE $ 0.14 $ 0.09   $ 0.39 $ 0.24  
 




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