UNITED STATES
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended September 30, 2003 |
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to |
Commission File No. 0-24425
King Pharmaceuticals, Inc.
|
Tennessee
|
54-1684963 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
|
501 Fifth Street, Bristol, TN
|
37620 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (423) 989-8000
Indicate by check mark whether the Registrant (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 o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o
Number of shares outstanding of Registrant’s common stock as of November 10, 2003: 241,140,832
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
KING PHARMACEUTICALS, INC.
| September 30, | ||||||||||
| 2003 | December 31, | |||||||||
| (unaudited) | 2002 | |||||||||
| ASSETS | ||||||||||
|
CURRENT ASSETS:
|
||||||||||
|
Cash and cash equivalents
|
$ | 118,504 | $ | 588,225 | ||||||
|
Restricted cash
|
122,253 | — | ||||||||
|
Marketable securities
|
— | 227,263 | ||||||||
|
Accounts receivable, net of allowance for
doubtful accounts of $9,720 and $7,513
|
229,305 | 159,987 | ||||||||
|
Inventories
|
251,728 | 167,153 | ||||||||
|
Deferred income taxes
|
101,516 | 106,168 | ||||||||
|
Prepaid expenses and other current assets
|
14,133 | 12,906 | ||||||||
|
Total current assets
|
837,439 | 1,261,702 | ||||||||
|
Property, plant and equipment, net
|
247,155 | 217,114 | ||||||||
|
Intangible assets, net
|
1,785,838 | 1,219,571 | ||||||||
|
Goodwill
|
126,616 | 12,742 | ||||||||
|
Other assets (includes $46,120 of restricted cash)
|
103,470 | 39,531 | ||||||||
|
Deferred income tax assets
|
9,287 | — | ||||||||
|
Total assets
|
$ | 3,109,805 | $ | 2,750,660 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
|
CURRENT LIABILITIES:
|
||||||||||
|
Accounts payable
|
$ | 55,729 | $ | 49,889 | ||||||
|
Accrued expenses
|
493,030 | 297,528 | ||||||||
|
Income taxes payable
|
62,255 | 21,247 | ||||||||
|
Current portion of long-term debt
|
1,176 | 1,300 | ||||||||
|
Total current liabilities
|
612,190 | 369,964 | ||||||||
|
Long-term debt:
|
||||||||||
|
Convertible debentures
|
345,000 | 345,000 | ||||||||
|
Senior subordinated notes
|
93 | 93 | ||||||||
|
Deferred income taxes
|
— | 33,596 | ||||||||
|
Other long-term liabilities
|
152,400 | 70,824 | ||||||||
|
Total liabilities
|
1,109,683 | 819,477 | ||||||||
|
Commitments and contingencies (note 8)
|
||||||||||
|
Shareholders’ equity
|
2,000,122 | 1,931,183 | ||||||||
|
Total liabilities and shareholders’ equity
|
$ | 3,109,805 | $ | 2,750,660 | ||||||
See accompanying notes.
1
KING PHARMACEUTICALS, INC.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||||
|
Revenues:
|
|||||||||||||||||||
|
Net sales
|
$ | 407,929 | $ | 300,708 | $ | 1,090,881 | $ | 815,278 | |||||||||||
|
Royalty revenue
|
16,275 | 14,997 | 47,876 | 41,025 | |||||||||||||||
|
Total revenues
|
424,204 | 315,705 | 1,138,757 | 856,303 | |||||||||||||||
|
Operating costs and expenses:
|
|||||||||||||||||||
|
Cost of revenues, exclusive of depreciation shown
below
|
90,421 | 63,562 | 262,569 | 166,898 | |||||||||||||||
|
Selling, general and administrative
|
89,124 | 46,473 | 210,935 | 132,484 | |||||||||||||||
|
Co-promotion fees
|
46,109 | 53,652 | 163,049 | 134,747 | |||||||||||||||
|
Total selling, general, and administrative
|
135,233 | 100,125 | 373,984 | 267,231 | |||||||||||||||
|
Research and development
|
8,758 | 6,448 | 29,487 | 18,779 | |||||||||||||||
|
Research and development — in process
upon acquisition
|
— | — | 193,000 | — | |||||||||||||||
|
Total research and development
|
8,758 | 6,448 | 222,487 | 18,779 | |||||||||||||||
|
Depreciation and amortization
|
39,698 | 15,603 | 83,323 | 43,743 | |||||||||||||||
|
Intangible asset impairment
|
— | — | 110,970 | — | |||||||||||||||
|
Gain on sale of products
|
(10,312 | ) | — | (10,312 | ) | — | |||||||||||||
|
Total operating costs and expenses
|
263,798 | 185,738 | 1,043,021 | 496,651 | |||||||||||||||
|
Operating income
|
160,406 | 129,967 | 95,736 | 359,652 | |||||||||||||||
|
Other income (expense):
|
|||||||||||||||||||
|
Interest income
|
1,037 | 5,952 | 5,729 | 17,410 | |||||||||||||||
|
Interest expense
|
(3,669 | ) | (3,143 | ) | (10,137 | ) | (9,028 | ) | |||||||||||
|
Valuation benefit (charge) —
convertible notes receivable
|
9,338 | 548 | 24,952 | (27,378 | ) | ||||||||||||||
|
Other, net
|
(36 | ) | 87 | (134 | ) | (994 | ) | ||||||||||||
|
Total other income (expense)
|
6,670 | 3,444 | 20,410 | (19,990 | ) | ||||||||||||||
|
Income before income tax
|
167,076 | 133,411 | 116,146 | 339,662 | |||||||||||||||
|
Income tax expense
|
60,989 | 49,166 | 52,267 | 125,699 | |||||||||||||||
|
Net income
|
$ | 106,087 | $ | 84,245 | $ | 63,879 | $ | 213,963 | |||||||||||
|
Income per common share:
|
|||||||||||||||||||
|
Basic:
|
|||||||||||||||||||
|
Net income
|
$ | 0.44 | $ | 0.35 | $ | 0.27 | $ | 0.87 | |||||||||||
|
Diluted:
|
|||||||||||||||||||
|
Net income
|
$ | 0.44 | $ | 0.35 | $ | 0.26 | $ | 0.87 | |||||||||||
See accompanying notes.
2
KING PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| Accumulated | ||||||||||||||||||||||
| Common Stock | Other | |||||||||||||||||||||
| Retained | Comprehensive | |||||||||||||||||||||
| Shares | Amount | Earnings | Income | Total | ||||||||||||||||||
|
Balance at December 31, 2001
|
247,692,984 | $ | 1,361,563 | $ | 546,721 | $ | — | $ | 1,908,284 | |||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||
|
Net income
|
— | — | 213,963 | — | 213,963 | |||||||||||||||||
|
Unrealized gain on marketable securities, net of
tax
|
— | — | — | 423 | 423 | |||||||||||||||||
|
Total comprehensive income
|
214,386 | |||||||||||||||||||||
|
Stock repurchases
|
(6,828,680 | ) | (155,390 | ) | — | — | (155,390 | ) | ||||||||||||||
|
Exercise of stock options
|
397,916 | 3,996 | — | — | 3,996 | |||||||||||||||||
|
Balance at September 30, 2002
|
241,262,220 | $ | 1,210,169 | $ | 760,684 | $ | 423 | $ | 1,971,276 | |||||||||||||
|
Balance at December 31, 2002
|
240,624,751 | $ | 1,201,897 | $ | 729,241 | $ | 45 | $ | 1,931,183 | |||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||
|
Net income
|
— | — | 63,879 | — | 63,879 | |||||||||||||||||
|
Unrealized gain on marketable securities, net of
tax
|
— | — | — | 1,341 | 1,341 | |||||||||||||||||
|
Foreign currency translation
|
— | — | — | 144 | 144 | |||||||||||||||||
|
Total comprehensive income
|
65,364 | |||||||||||||||||||||
|
Exercise of stock options
|
512,476 | 3,575 | — | — | 3,575 | |||||||||||||||||
|
Balance at September 30, 2003
|
241,137,227 | $ | 1,205,472 | $ | 793,120 | $ | 1,530 | $ | 2,000,122 | |||||||||||||
See accompanying notes.
3
KING PHARMACEUTICALS, INC.
| Nine Months Ended | ||||||||||
| September 30, | ||||||||||
| 2003 | 2002 | |||||||||
|
Cash flows from operating activities
|
$ | 368,485 | $ | 325,552 | ||||||
|
Cash flows from investing activities:
|
||||||||||
|
Purchases of marketable securities
|
(25,903 | ) | (597,873 | ) | ||||||
|
Proceeds from the sale of marketable securities
|
253,097 | 457,461 | ||||||||
|
Transfer (to)/from restricted cash
|
(48,083 | ) | — | |||||||
|
Loans receivable
|
8,668 | — | ||||||||
|
Purchases of property, plant and equipment
|
(33,530 | ) | (48,771 | ) | ||||||
|
Acquisition of primary care business of Elan
|
(761,745 | ) | — | |||||||
|
Purchase of convertible senior notes
|
— | (10,044 | ) | |||||||
|
Acquisition of Meridian Medical Technologies,
Inc., net of cash acquired
|
(238,498 | ) | — | |||||||
|
Purchase of product rights
|
(9,000 | ) | (120,300 | ) | ||||||
|
Proceeds from sale of products
|
13,310 | — | ||||||||
|
Proceeds from sale of assets
|
261 | 4,358 | ||||||||
|
Net cash used in investing activities
|
(841,423 | ) | (315,169 | ) | ||||||
|
Cash flows from financing activities:
|
||||||||||
|
Proceeds from exercise of stock options, net
|
3,555 | 3,996 | ||||||||