Hi-Tech Pharmacal Reports Sales of $50.5 Million for the First Quarter Ended July 31, 2013

  Hi-Tech Pharmacal Reports Sales of $50.5 Million for the First Quarter Ended
  July 31, 2013

Business Wire

AMITYVILLE, N.Y. -- September 9, 2013

Hi-Tech Pharmacal Co., Inc. (NASDAQ:HITK) today reported results for the
Company’s fiscal first quarter ended July 31, 2013.

  *Net sales of $50.5 million for the first quarter compared to $52.0 million
    for the same prior year period
  *GAAP income of $4.6 million or $0.33 per diluted share for the first
    quarter
  *Adjusted non-GAAP net income of $6.1 million or $0.44 per diluted share
    for the first quarter

                                
                                    First Quarter
                                     2013            2012
Net sales                           $ 50,501,000         $ 52,043,000
GAAP net income                     $ 4,550,000          $ 6,004,000
Adjusted non-GAAP net income        $ 6,071,000          $ 7,137,000
GAAP Diluted EPS                    $ 0.33               $ 0.44
Adjusted non-GAAP Diluted EPS       $ 0.44               $ 0.53
Diluted Shares                        13,751,000           13,550,000

(see Table I for reconciliation to GAAP numbers)

Quarterly Results

For the three months ended July 31, 2013, the Company reported net sales of
$50,501,000, a decrease of 3% from $52,043,000 for the same period last year.

During the quarter ended July 31, 2013, net sales of generic pharmaceutical
products were $43,529,000, a decrease of 5% compared to $45,922,000 for the
same fiscal 2013 period. The primary reason for the change was a decrease in
sales of Fluticasone Propionate nasal spray. Sales of Fluticasone Propionate
nasal spray totaled $11,900,000, down from $22,000,000 in the same fiscal 2013
period as the Company sold fewer units at lower average prices after the
Company lost a major customer. This sales decline was partially offset by
sales of new products such as Flunisolide, launched in June 2013, and
increases in sales of Buprenorphine, Lidocaine/Prilocaine, Clobetasol and
Dorzolamide products.

Sales for the Health Care Products division (“HCP”), which markets the
Company’s branded OTC products, increased 15% to $3,483,000 for the three
months ended July 31, 2013 compared to $3,026,000 for the same fiscal period
in the prior year. The increase was primarily due to higher sales of MagOx^®
and a reduction in the use of promotional discounts for Nasal Ease^®.

Sales for ECR Pharmaceuticals (“ECR”), which markets the Company’s branded
prescription products, were $3,489,000 for the three months ended July 31,
2013, up 13% from $3,095,000 for the same period in the prior year. The
increase was primarily due to higher sales of TussiCaps^®.

Cost of sales decreased to $25,076,000 for the three months ended July 31,
2013 from $26,722,000, and decreased as a percentage of sales to 50% from 51%
of sales. The decrease in cost of goods sold as a percentage of net sales is
primarily due to lower input costs and new manufacturing equipment the has
enabled productivity improvements. A decrease in pricing promotions in the HCP
division also contributed to this trend.

Selling, general and administrative expenses increased to $12,942,000 from
$10,631,000, a 22% increase compared to the same fiscal 2013 period. The
increase was primarily due to an increase in selling, marketing and contract
costs at the ECR subsidiary. An increase in stock-based compensation, as well
as increases in legal costs in the generic division and at the corporate level
also contributed to the increase in SG&A. As a percentage of sales, SG&A
increased to 26% from 20% for the three months ended July 31, 2013.

Amortization expense for the quarter ended July 31, 2013 was $1,658,000, a
decrease of 6% from $1,757,000 for the comparable fiscal 2013 period.

For the three months ended July 31, 2013, Research and Development costs
decreased by 11% to $3,959,000 from $4,472,000 for the comparable fiscal 2013
period as a result of less spending on internal projects for the generic
division.

In the first quarter of 2014, the Company established a $700,000 accrual for
the settlement of a class action lawsuit relating to the advertising of HCP’s
Sinus Buster^®.

The Company reported adjusted non-GAAP quarterly net income of $6,071,000 or
$0.44 per fully diluted share for the three months ended July 31, 2013,
compared to adjusted non-GAAP net income of $7,137,000 or $0.53 per fully
diluted share for the same period in the prior year.

On August 27, 2013, the Company entered into a definitive agreement under
which Akorn, Inc. (“Akorn”) will acquire the Company for cash. Under the terms
of the agreement, Akorn will acquire the Company for $640,000,000, or $43.50
per share. Akorn intends to fund the transaction through a combination of
Hi-Tech cash assumed and approximately $600,000,000 in term loan borrowings.
As of the quarter ended July 31, 2013, the Company had $108,283,000 in cash
and cash equivalents. The acquisition will be subject to customary conditions,
including termination of the waiting period under the provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Pending the
satisfaction of such customary conditions, the Company anticipates closing the
transaction in the first quarter of 2014.

Non-GAAP Financial Measures

The Company is disclosing non-GAAP financial measures when providing financial
results. Primarily due to amortization expense, the Company believes that an
evaluation of its ongoing operations (and comparisons of its current
operations with historical and future operations) would be difficult if the
disclosure of its financial results were limited to financial measures
prepared only in accordance with accounting principles generally accepted in
the U.S. (“GAAP”). In addition to disclosing its financial results determined
in accordance with GAAP, the Company is disclosing certain non-GAAP results
that exclude items such as amortization expense and other costs related to
settlements and loss contingency accruals in order to supplement investors'
and other readers' understanding and assessment of the Company's financial
performance, because the Company's management uses these measures internally
for forecasting, budgeting and measuring its operating performance. Whenever
the Company uses such a non-GAAP measure, it will provide a reconciliation of
non-GAAP financial measures to the most closely applicable GAAP financial
measure. Investors and other readers are encouraged to review the related GAAP
financial measures and the reconciliation of non-GAAP measures to their most
closely applicable GAAP measure set forth below and should consider non-GAAP
measures only as a supplement to, not as a substitute for or as a superior
measure to, measures of financial performance prepared in accordance with
GAAP.

Conference Call Information

The Company will hold a conference call to discuss its financial results
today, September 9, 2013, at 10 a.m. Eastern Time.

To access the conference call, dial toll free 877-415-3182, or 857-244-7325
for international callers, five minutes before the conference. The passcode of
the conference call is 69737154.

A replay of the conference call will be available after 12:00 p.m. on
September 9, 2013, for one week by calling toll free 888-286-8010, or
617-801-6888 for international callers. The passcode for the replay is
85541072. Additionally, the conference call will be available on the Hi-Tech
Pharmacal Investor Relations web page at www.hitechpharm.com.

Other Information

Hi-Tech is a specialty pharmaceutical company developing, manufacturing and
marketing generic and branded prescription and OTC products. The Company
specializes in difficult to manufacture liquid and semi-solid dosage forms and
produces a range of sterile ophthalmic, otic and inhalation products. The
Company’s Health Care Products division is a leading developer and marketer of
OTC products for the diabetes marketplace. Hi-Tech’s ECR Pharmaceuticals
subsidiary markets branded prescription products.

This press release contains certain future projections and forward-looking
statements (statements which are not historical facts) with respect to the
anticipated future performance of Hi-Tech made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
future projections and forward-looking statements are not assurances, promises
or guarantees and investors are cautioned that all future projections and
forward-looking statements involve significant business, economic and
competitive risks and uncertainties, many of which are beyond Hi-Tech’s
ability to control or estimate precisely, including, but not limited to, (1)
the impact of competitive products and pricing, (2) product demand and market
acceptance, (3) new product development, (4) the regulatory environment, (5)
reliance on key strategic alliances, (6) availability of raw materials, (7)
fluctuations in operating results, (8) loss of customers or employees, (9) the
possibility that legal proceedings may be instituted against Hi-Tech, (10) the
occurrence of any event, change or other circumstances that could give rise to
the termination of Hi-Tech’s merger agreement with Akorn, (11) the failure to
obtain Hi-Tech stockholder approval of the merger with Akorn or the failure to
satisfy any of the other closing conditions to the merger, (12) the failure of
Akorn to obtain the necessary financing arrangements set forth in the
commitment letter providing for its financing of the merger, (13) risks
related to disruption of management’s attention from Hi-Tech’s ongoing
business operations due to the transaction, (14) the effect of the
announcement of the merger on the ability of Hi-Tech to retain and hire key
personnel and maintain relationships with its customers, suppliers and others
with whom it does business, or on its operating results and business
generally, and (15) other results and other risks detailed from time to time
in Hi-Tech’s filings with the Securities and Exchange Commission. The actual
results will vary from the projected results and such variations may be
material. These statements are based on management’s current expectations and
assumptions concerning the future performance of Hi-Tech and are naturally
subject to uncertainty and changes in circumstances. No representations or
warranties are made as to the accuracy or completeness of any of the
information contained herein, including, but not limited to, any assumptions
or projections contained herein or forward-looking statements based thereon.
We caution you not to place undue reliance upon any such forward-looking
statements which speak only as of the date made, except to the extent
specifically dated as of an earlier date. Hi-Tech is under no obligation, and
expressly disclaims any such obligation, to update, alter or correct any
inaccuracies herein, whether as a result of new information, future events or
otherwise.

This press release does not constitute a solicitation of any vote or approval.
In connection with the proposed transaction, Hi-Tech will file with the
Securities and Exchange Commission (“SEC”) a proxy statement and mail or
otherwise provide it to its stockholders. BEFORE MAKING ANY VOTING DECISION,
HI-TECH’S STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT IN ITS ENTIRETY
WHEN IT BECOMES AVAILABLE AND ANY OTHER DOCUMENTS FILED WITH THE SEC IN
CONNECTION WITH THE PROPOSED MERGER OR INCORPORATED BY REFERENCE THEREIN
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER AND
THE PARTIES TO THE PROPOSED MERGER. Hi-Tech’s stockholders and other investors
will be able to obtain a free copy of the proxy statement (when available), as
well as other filings containing information about Hi-Tech and Akorn, without
charge, at the SEC’s Internet site (http://www.sec.gov). Copies of the proxy
statement and other documents filed by Hi-Tech with the SEC may also be
obtained, without charge, by directing a request to Hi-Tech Pharmacal Co.,
Inc., 369 Bayview Avenue, Amityville, New York 11701, Attention: Investor
Relations, Telephone: (631) 789-8228.

Participants in the Solicitation

Hi-Tech and its directors and executive officers may be deemed, under SEC
rules, to be participants in the solicitation of proxies from the stockholders
of Hi-Tech in connection with the proposed transaction. Information regarding
the names, affiliations and interests of these persons in the proposed
transaction will be included in the Hi-Tech proxy statement referred to above
when it is filed with the SEC. Additional information regarding the directors
and executive officers of Hi-Tech is also included in Hi-Tech’s 2013 annual
report, which was filed with the SEC on July 11, 2013. These documents are or
will be available free of charge at the SEC’s web site (http://www.sec.gov)
and from Investor Relations at Hi-Tech at the address described above.

                                       
                                           Three Months Ended July 31,
                                            2013            2012       
Net sales                                  $ 50,501,000         $ 52,043,000
Cost of goods sold                          25,076,000         26,722,000 
Gross profit                                 25,425,000           25,321,000
Costs and expenses:
Selling, general and administrative          12,942,000           10,631,000
expense
Amortization expense                         1,658,000            1,757,000
Research and product development             3,959,000            4,472,000
costs
Royalty income                               (294,000   )         (635,000   )
Contract research (income)                   (499,000   )         —
Settlements and loss contingencies           700,000              —
Interest expense                             107,000              156,000
Interest (income) and other                 (38,000    )        (46,000    )
Total                                      $ 18,535,000        $ 16,335,000 
Income before provision for income           6,890,000            8,986,000
taxes
Provision for income tax expense            2,340,000          2,982,000  
Net income                                 $ 4,550,000         $ 6,004,000  
Basic earnings per share                   $ 0.34              $ 0.46       
Diluted earnings per share                 $ 0.33              $ 0.44       
Weighted average common shares               13,580,000           13,069,000
outstanding, basic
Effect of potential common shares           171,000            481,000    
Weighted average common shares              13,751,000         13,550,000 
outstanding, diluted
                                                                


Table I
Hi-Tech Pharmacal Co., Inc.
Reconciliation of Non-GAAP Measures
                 
                     Three Months Ended July 31,
                     2013                                                           2012                                                       
                     GAAP              Non-GAAP              Non-GAAP             GAAP              Non-GAAP              Non-GAAP
                                          Adjustments              As Adjusted                               Adjustments              As Adjusted
Net sales            $ 50,501,000         $ —                      $ 50,501,000         $ 52,043,000         $ —                      $ 52,043,000
Cost of goods         25,076,000         —                      25,076,000         26,722,000         —                      26,722,000 
sold
Gross profit           25,425,000           —                        25,425,000           25,321,000           —                        25,321,000
Costs and
expenses:
Selling,
general and
administrative
expense                12,942,000           —                        12,942,000           10,631,000           —                        10,631,000
Amortization           1,658,000            1,658,000(a )            —                    1,757,000            1,757,000(a )            —
expense
Research and
product
development            3,959,000            —                        3,959,000            4,472,000            —                        4,472,000
costs
Royalty income         (294,000   )         —                        (294,000   )         (635,000   )         —                        (635,000   )
Contract
research
(income)               (499,000   )         —                        (499,000   )         —                    —                        —
Settlements
and loss
contingencies          700,000              700,000(b   )            —                    —                    —                        —
Interest               107,000              —                        107,000              156,000              —                        156,000
expense
Interest
(income) and
other                 (38,000    )        —                      (38,000    )        (46,000    )        —                      (46,000    )
Total                $ 18,535,000        $ 2,358,000             $ 16,177,000        $ 16,335,000        $ 1,757,000             $ 14,578,000 
Income (loss)
before
provision for
income
taxes                  6,890,000            (2,358,000  )            9,248,000            8,986,000            (1,757,000  )            10,743,000
Provision for
income
tax expense           2,340,000          (837,000    )(c)        3,177,000          2,982,000          (624,000    )(c)        3,606,000  
(benefit)
Net income           $ 4,550,000         $ (1,521,000  )          $ 6,071,000         $ 6,004,000         $ (1,133,000  )          $ 7,137,000  
(loss)
Basic earnings
(loss)
per share            $ 0.34                                       $ 0.45              $ 0.46                                       $ 0.55       
Diluted
earnings
(loss) per           $ 0.33                                       $ 0.44              $ 0.44                                       $ 0.53       
share
Weighted
average
common shares
outstanding,           13,580,000                                    13,580,000           13,069,000                                    13,069,000
basic
Effect of
potential
common shares         171,000                                     171,000            481,000                                     481,000    
Weighted
average
common shares
outstanding,          13,751,000                                  13,751,000         13,550,000                                  13,550,000 
diluted
                                                                                                                                      

(a)    Amortization expense
(b)       Net charge related to settlements and loss contingencies
(c)       Total tax effect for non-GAAP pre-tax adjustments measured at
          enacted statutory rates

Contact:

Hi-Tech Pharmacal Co., Inc.
William Peters, 631-789-8228
CFO
 
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