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 March 31, 2004 |
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 May 7, 2004: 241,383,201
PART I — FINANCIAL INFORMATION
| Item 1. | Financial Statements |
KING PHARMACEUTICALS, INC.
| March 31, | December 31, | |||||||||
| 2004 | 2003 | |||||||||
| ASSETS | ||||||||||
|
Current Assets:
|
||||||||||
|
Cash and cash equivalents
|
$ | 161,326 | $ | 146,053 | ||||||
|
Restricted cash
|
147,410 | 133,969 | ||||||||
|
Accounts receivable, net of allowance for
doubtful accounts of $9,295 and $11,055
|
193,002 | 246,417 | ||||||||
|
Inventories
|
251,193 | 260,886 | ||||||||
|
Deferred income taxes
|
127,589 | 124,930 | ||||||||
|
Prepaid expenses and other current assets
|
46,048 | 30,036 | ||||||||
|
Assets related to discontinued operations
|
1,530 | 4,012 | ||||||||
|
Total current assets
|
928,098 | 946,303 | ||||||||
|
Property, plant and equipment, net
|
263,216 | 257,659 | ||||||||
|
Goodwill
|
134,892 | 121,355 | ||||||||
|
Intangible assets, net
|
1,484,708 | 1,552,492 | ||||||||
|
Other assets (includes restricted cash of $660
and $30,265)
|
45,988 | 76,117 | ||||||||
|
Deferred income taxes
|
62,215 | 19,307 | ||||||||
|
Assets related to discontinued operations
|
30,469 | 204,501 | ||||||||
|
Total assets
|
$ | 2,949,586 | $ | 3,177,734 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
|
Current Liabilities:
|
||||||||||
|
Accounts payable
|
$ | 49,306 | $ | 83,078 | ||||||
|
Accrued expenses
|
480,589 | 506,033 | ||||||||
|
Income taxes payable
|
51,530 | 79,641 | ||||||||
|
Notes payable
|
7,437 | — | ||||||||
|
Current portion of long-term debt
|
4 | 97 | ||||||||
|
Total current liabilities
|
588,866 | 668,849 | ||||||||
|
Long-term debt
|
345,000 | 345,000 | ||||||||
|
Other liabilities
|
83,585 | 121,705 | ||||||||
|
Total liabilities
|
1,017,451 | 1,135,554 | ||||||||
|
Commitments and contingencies
(Note 9)
|
||||||||||
|
Shareholders’ equity
|
1,932,135 | 2,042,180 | ||||||||
|
Total liabilities and shareholders’ equity
|
$ | 2,949,586 | $ | 3,177,734 | ||||||
See accompanying notes.
1
KING PHARMACEUTICALS, INC.
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2004 | 2003 | ||||||||||
|
Revenues:
|
|||||||||||
|
Net sales
|
$ | 273,887 | $ | 322,997 | |||||||
|
Royalty revenue
|
16,757 | 15,424 | |||||||||
|
Total revenues
|
290,644 | 338,421 | |||||||||
|
Operating costs and expenses:
|
|||||||||||
|
Cost of revenues, exclusive of depreciation shown
below
|
87,714 | 79,441 | |||||||||
|
Selling, general and administrative, exclusive of
co-promotion fees
|
86,602 | 44,115 | |||||||||
|
Co-promotion fees
|
27,504 | 61,700 | |||||||||
|
Total selling, general and administrative expenses
|
114,106 | 105,815 | |||||||||
|
Research and development
|
16,023 | 9,636 | |||||||||
|
Research and development-in process upon
acquisition
|
— | 18,000 | |||||||||
|
Total research and development
|
16,023 | 27,636 | |||||||||
|
Depreciation and amortization
|
39,318 | 17,637 | |||||||||
|
Intangible asset impairment
|
34,936 | 110,970 | |||||||||
|
Gain on sale of intangible assets
|
(858 | ) | — | ||||||||
|
Total operating costs and expenses
|
291,239 | 341,499 | |||||||||
|
Operating loss
|
(595 | ) | (3,078 | ) | |||||||
|
Other income (expense):
|
|||||||||||
|
Interest income
|
1,054 | 2,494 | |||||||||
|
Interest expense
|
(3,105 | ) | (3,034 | ) | |||||||
|
Valuation (charge) benefit —
convertible notes receivable
|
(49 | ) | 7,967 | ||||||||
|
Other, net
|
(703 | ) | (83 | ) | |||||||
|
Total other (expense) income
|
(2,803 | ) | 7,344 | ||||||||
|
(Loss) income from continuing operations before
income taxes
|
(3,398 | ) | 4,266 | ||||||||
|
Income tax (benefit) expense
|
(1,048 | ) | 8,676 | ||||||||
|
Loss from continuing operations
|
(2,350 | ) | (4,410 | ) | |||||||
|
Discontinued operations:
|
|||||||||||
|
Loss from discontinued operations, including
expected loss on disposal
|
(171,242 | ) | (4,382 | ) | |||||||
|
Income tax benefit
|
(62,532 | ) | (1,599 | ) | |||||||
|
Total loss from discontinued operations
|
(108,710 | ) | (2,783 | ) | |||||||
|
Net loss
|
$ | (111,060 | ) | $ | (7,193 | ) | |||||
|
Loss per common share:
|
|||||||||||
|
Basic:
|
|||||||||||
|
Loss from continuing operations
|
$ | (0.01 | ) | $ | (0.02 | ) | |||||
|
Total loss from discontinued operations
|
(0.45 | ) | (0.01 | ) | |||||||
|
Net loss
|
$ | (0.46 | ) | $ | (0.03 | ) | |||||
|
Diluted:
|
|||||||||||
|
Loss from continuing operations
|
$ | (0.01 | ) | $ | (0.02 | ) | |||||
|
Total loss from discontinued operations
|
(0.45 | ) | (0.01 | ) | |||||||
|
Net loss
|
$ | (0.46 | ) | $ | (0.03 | ) | |||||
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, 2002
|
240,624,751 | $ | 1,201,897 | $ | 729,241 | $ | 45 | $ | 1,931,183 | |||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||
|
Net loss
|
— | — | (7,193 | ) | — | (7,193 | ) | |||||||||||||||
|
Net unrealized gain on marketable securities, net
of tax of $137
|
— | — | 254 | 254 | ||||||||||||||||||
|
Foreign currency translation, net of tax of $(28)
|
— | — | — | (52 | ) | (52 | ) | |||||||||||||||
|
Total comprehensive loss
|
(6,991 | ) | ||||||||||||||||||||
|
Stock option activity
|
266,319 | 1,883 | — | — | 1,883 | |||||||||||||||||
|
Balance at March 31, 2003
|
240,891,070 | $ | 1,203,780 | $ | 722,048 | $ | 247 | $ | 1,926,075 | |||||||||||||
|
Balance at December 31, 2003
|
241,190,852 | $ | 1,205,970 | $ | 835,097 | $ | 1,113 | $ | 2,042,180 | |||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||
|
Net loss
|
— | — | (111,060 | ) | — | (111,060 | ) | |||||||||||||||
|
Net unrealized loss on marketable securities, net
of tax of $(16)
|
— | — | (30 | ) | (30 | ) | ||||||||||||||||
|
Foreign currency translation, net of tax of $56
|
— | — | — | 99 | 99 | |||||||||||||||||
|
Total comprehensive loss
|
(110,991 | ) | ||||||||||||||||||||
|
Stock option activity
|
177,792 | 946 | — | — | 946 | |||||||||||||||||
|
Balance at March 31, 2004
|
241,368,644 | $ | 1,206,916 | $ | 724,037 | $ | 1,182 | $ | 1,932,135 | |||||||||||||
See accompanying notes.
3
KING PHARMACEUTICALS, INC.
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| 2004 | 2003 | |||||||||
|
Cash flows from operating activities of
continuing operations
|
$ | 60,318 | $ | 79,425 | ||||||
|
Cash flows from investing activities of
continuing operations:
|
||||||||||
|
Transfer to restricted cash
|
(351 | ) | — | |||||||
|
Purchases of marketable securities
|
— | (25,903 | ) | |||||||
|
Proceeds from sale of marketable securities
|
— | 253,097 | ||||||||
|
Proceeds from loan receivable
|
248 | 3,711 | ||||||||
|
Purchases of property, plant and equipment
|
(12,585 | ) | (12,842 | ) | ||||||
|
Proceeds from sale of property and equipment
|
— | 12 | ||||||||
|
Payment of contingent consideration
|
(36,000 | ) | — | |||||||
|
Investment in Meridian Medical
Technologies, Inc., net of cash acquired
|
— | (237,682 | ) | |||||||
|
Purchases of product rights
|
— | (9,000 | ) | |||||||
|
Net cash used in investing activities of
continuing operations
|
(48,688 | ) | (28,607 | ) | ||||||
|
Cash flows from financing activities of
continuing operations:
|
||||||||||
|
Proceeds from exercise of stock options, net
|
946 | 1,864 | ||||||||
|
Payments on other long-term debt and capital
lease obligations
|
(93 | ) | (50 | ) | ||||||
|
Debt issuance costs
|
— | (214 | ) | |||||||
|
Net cash provided by financing activities of
continuing operations
|
853 | 1,600 | ||||||||
|
Net cash provided by (used in) discontinued
operations
|
2,790 | (1,738 | ) | |||||||
|
Increase in cash and cash equivalents
|
15,273 | 50,680 | ||||||||
|
Cash and cash equivalents, beginning of period
|
146,053 | 588,225 | ||||||||
|
Cash and cash equivalents, end of period
|
$ | 161,326 | $ | 638,905 | ||||||
See accompanying notes.
4
KING PHARMACEUTICALS, INC.
| 1. | General |
The accompanying unaudited interim condensed consolidated financial statements of King Pharmaceuticals, Inc. (“King” or the “Company”) have been prepared by the Company in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of items of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. These consolidated statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The year-end condensed balance sheet was derived from the audited consolidated financial statements but does not include all disclosures required by generally accepted accounting principles.
These consolidated financial statements include the accounts of King and all of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Certain amounts from prior consolidated financial statements have been reclassified to conform to the presentation in 2004.
| 2. | Stock Compensation |
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation.” Accordingly, since options were granted at fair value, no compensation cost has been recognized for stock options granted to date. Had compensation cost for these plans been determined for options granted, consistent with SFAS No. 123, the Company’s net income and diluted income per common share would have decreased to the following pro forma amounts:
| Three Months Ended | |||||||||
| March 31, | |||||||||