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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
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COMMISSION FILE NUMBER: 0-13976
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AKORN, INC.
(Exact Name of Registrant as Specified in its Charter)
LOUISIANA 72-0717400
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2500 MILLBROOK DRIVE
BUFFALO GROVE, ILLINOIS 60089
(Address of Principal Executive Offices) (Zip Code)
(847) 279-6100
(Issuer's telephone number)
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Indicate by check mark whether the issuer (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.
Yes x No
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At April 28, 2000 there were 18,984,752 shares of common stock, no par value,
outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Page
----
Condensed Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 2
Condensed Consolidated Statements of Income -
Three months ended March 31, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999 4
Notes to Condensed Consolidated Financial
Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 6
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 6. Exhibits and Reports on Form 8-K
The information contained in this filing, other than historical information,
consists of forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from those described in such
statements. Such statements regarding the timing of acquiring, developing and
financing new products, of bringing them on line and of deriving revenues and
profits from them, as well as the effect of those revenues and profits on the
company's margins and financial position, is uncertain because many of the
factors affecting the timing of those items are beyond the company's control.
1
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AKORN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
(UNAUDITED)
March 31, December 31,
2000 1999*
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 538 $ 25
Trade accounts receivable, net 19,457 17,695
Inventory 17,548 16,473
Prepaid expenses and other assets 2,213 1,658
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TOTAL CURRENT ASSETS 39,756 35,851
OTHER ASSETS 19,055 19,435
PROPERTY, PLANT AND EQUIPMENT, NET 23,580 20,812
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TOTAL ASSETS $82,391 $76,098
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LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Current installments of long-term debt
and capital lease obligations $ 1,351 $ 1,346
Trade accounts payable 3,868 4,523
Accrued compensation 254 1,049
Accrued expenses and other liabilities 1,645 2,775
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TOTAL CURRENT LIABILITIES 7,118 9,693
LONG-TERM DEBT AND
CAPITAL LEASE OBLIGATIONS 35,882 30,643
OTHER LONG-TERM LIABILITIES 1,372 1,372
SHAREHOLDERS' EQUITY
Common stock 21,227 19,392
Retained earnings 16,792 14,998
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TOTAL SHAREHOLDERS' EQUITY 38,019 34,390
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $82,391 $76,098
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*Condensed from audited consolidated financial statements
See notes to condensed consolidated financial statements.
2
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AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
Three months ended
March 31,
2000 1999
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Net sales $ 16,644 $ 14,719
Cost of sales 8,231 7,283
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GROSS PROFIT 8,413 7,436
Selling, general and
administrative expenses 3,775 4,002
Amortization of intangibles 380 702
Research and development 734 462
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4,889 5,166
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OPERATING INCOME 3,524 2,270
Interest expense (672) (533)
Interest and other income, net 40 293
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(632) (240)
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INCOME BEFORE INCOME TAXES 2,892 2,030
Income taxes 1,098 572
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NET INCOME $ 1,794 $ 1,458
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PER SHARE:
NET INCOME - BASIC $ 0.10 $ 0.08
======== ========
NET INCOME - DILUTED $ 0.09 $ 0.08
======== ========
WEIGHTED AVERAGE
SHARES OUTSTANDING - BASIC 18,802 18,143
======== ========
- DILUTED 19,710 18,737
======== ========
See notes to condensed consolidated financial statements.
3
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AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
Three months ended
March 31,
2000 1999
-------- --------
OPERATING ACTIVITIES
Net income $ 1,794 $ 1,458
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 830 1,140
Changes in operating assets and liabilities (5,971) (3,290)
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NET CASH USED BY OPERATING ACTIVITIES (3,347) (692)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (3,218) (905)
Product licensing/acquisition costs -- (462)
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NET CASH USED IN INVESTING ACTIVITIES (3,218) (1,367)
FINANCING ACTIVITIES
Repayment of long-term debt (7,757) (5,140)
Increased borrowings under long-term debt agreement 13,000 7,100
Proceeds from exercise of stock options 1,835 57
Reductions in capital lease obligations -- (39)
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 7,078 1,978
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DECREASE IN CASH AND
CASH EQUIVALENTS 513 (81)
Cash and cash equivalents at beginning of period 25 736
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 538 $ 655
======== ========
See notes to condensed consolidated financial statements.
4
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AKORN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Akorn, Inc. and its wholly owned subsidiaries (the Company).
Intercompany transactions and balances have been eliminated in consolidation.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and accordingly
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 2000 are not necessarily indicative of the
results that may be expected for a full year. For further information, refer to
the consolidated financial statements and footnotes for the year ended December
31, 1999, included in the Company's Annual Report on Form 10-K.
5
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AKORN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO 1999
The following table sets forth, for the periods indicated, net sales by segment,
excluding intersegment sales:
Three Months Ended
March 31,
2000 1999
--------------------------
(in thousands)
Ophthalmic segment $ 7,179 $ 7,709
Injectable segment 9,465 7,010
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Total net sales $16,644 $14,719
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Consolidated net sales increased 13.1% in the quarter ended March 31, 2000
compared to the same period in 1999. Ophthalmic segment sales decreased 6.9%,
reflecting the loss of sales of certain products previously sourced from third
parties which are no longer available to the Company at competitive prices.
Injectable division sales increased 35.0% compared to the same period in 1999
due to strong anesthesia and antidote sales and increased contract manufacturing
activity.
Consolidated gross profit increased 13.1% during the quarter, with gross margins
remaining flat at 51%. Margins for the ophthalmic division decreased from 55% to
52%, reflecting proportionally greater sales of the basic generic product line
as well as underabsorption of plant overhead expenses at the Somerset facility.
Margins for the injectable division increased from 45% to 53%, primarily due to
improved absorption of plant overhead expenses at the Decatur facility. The
Company incurred unfavorable manufacturing variances of $385,000 at its
Somerset, NJ facility and $55,000 at its Decatur, IL facility. Management
expects the Decatur facility to operate at full absorption levels for the
remainder of the year, but the Somerset facility should continue to produce
unfavorable variances until additional product approvals are obtained at the
facility or additional third-party manufacturing business is contracted.
Selling, general and administrative (SG&A) expenses decreased 5.7% during the
quarter ended March 31, 2000 as compared to the same period in 1999, primarily
reflecting decreased compensation related expenses. The percentage of SG&A
expenses to sales decreased from 27.2% to 22.7%, reflecting the decreases noted
above. Amortization of intangibles decreased from $702,000 to $380,000, or 45.9%
over the prior year quarter, reflecting the expiration of a purchased patent in
mid-1999.
Research and development (R&D) expense increased 58.9% in the quarter, to
$734,000 from $462,000 for the same period in 1999. The increase reflects
expenses related to clinical trials. Management expects total R&D expenses in
2000 to increase over prior year levels.
Interest expense of $672,000 was up 26.1% on higher interest rates and higher
outstanding debt balances. Other income of $40,000 relates to the sale of unused
trademark rights.
The Company's effective tax rate for the quarter was 38.0% compared to 28.2% for
the prior-year period. The unusually low effective rate in 1999 reflects the
effect of amended returns filed in 1999 for prior years. Management expects the
effective rate for the remaining quarters of 2000 to approximate 38.5%. The
Company reported net income of $1,794,000 or $0.09 per diluted share for the
three months ended March 31, 2000, compared to $1,458,000 or $0.08 per diluted
share for the comparable prior year quarter.
6
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FINANCIAL CONDITION AND LIQUIDITY
Working capital at March 31, 2000 was $32.6 million compared to $26.2 million at
December 31, 1999. At March 31, 2000 the Company had $11.5 million of financing
available under its line of credit. Management believes that existing cash and
cash flows from operations are sufficient to handle the Company's working
capital requirements for the immediate future, but that additional financing
will be necessary for acquisitions. There is no guarantee that such financing
will be available or available at an acceptable cost.
For the quarter ended March 31, 2000, the Company used $3,347,000 in cash from
operations to finance its working capital requirements, primarily an increase in
accounts receivable and inventory. Investing activities, which primarily relate
to purchase of equipment and in progress construction, required $3,218,000 in
cash. Investment activities provided $7,078,000 in cash, primarily the result of
increased borrowings against the line of credit and the exercise of stock
options.
YEAR 2000 ISSUES
The Company established a process to identify and resolve the business issues
associated with Year 2000 and expended resources to ensure that its critical
processes were Year 2000 compliant. The Company did not experience any business
disruptions associated with Year 2000. The Company will continue to monitor its
computer applications throughout Year 2000 to ensure that any latent Year 2000
matters are addressed promptly.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain legal proceedings in which the registrant, Akorn, Inc. (the
"Company"), is involved are described in Item 3 to the Company's Form
10-K for the year ended December 31, 1999 and in Note O to the
consolidated financial statements included in that report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended March 31, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11.1) Computation of Earnings (Loss) per Share
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
7
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AKORN, INC.
/s/ Rita J. McConville
----------------------
Rita J. McConville
Vice President, Chief Financial Officer and Secretary
(Duly Authorized and Principal Financial Officer)
Date: April 28, 2000
8
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AKORN, INC.
EXHIBIT 11.1
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended March 31,
2000 1999
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Income:
Income applicable to common stock $ 1,794 $ 1,458
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Weighted average number of shares outstanding 18,802 18,143
Net income per share - basic $ 0.10 $ 0.08
Additional shares assuming conversion
of options and warrants 908 594
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Pro forma shares 19,710 18,737
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Net income per share - diluted $ 0.09 $ 0.08
======= =======
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from consolidated financial
statements for the quarter ended March 31, 2000 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 537,887
<SECURITIES> 0
<RECEIVABLES> 21,541,605
<ALLOWANCES> (2,085,037)
<INVENTORY> 17,547,886
<CURRENT-ASSETS> 39,755,451
<PP&E> 26,873,607
<DEPRECIATION> (12,127,719)
<TOTAL-ASSETS> 82,391,280
<CURRENT-LIABILITIES> 7,118,215
<BONDS> 0
0
0
<COMMON> 21,227,183
<OTHER-SE> 16,792,031
<TOTAL-LIABILITY-AND-EQUITY> 82,391,280
<SALES> 16,644,350
<TOTAL-REVENUES> 16,644,350
<CGS> 8,231,527
<TOTAL-COSTS> 8,231,527
<OTHER-EXPENSES> 4,848,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 672,265
<INCOME-PRETAX> 2,892,203
<INCOME-TAX> 1,097,832
<INCOME-CONTINUING> 1,794,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,794,372
<EPS-BASIC> .10
<EPS-DILUTED> .09
</TABLE>
