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 June 30, 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 August 5, 2004: 241,559,586
PART I — FINANCIAL INFORMATION
| Item 1. | Financial Statements |
KING PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||||
| 2004 | 2003 | |||||||||
| ASSETS | ||||||||||
|
Current Assets:
|
||||||||||
|
Cash and cash equivalents
|
$ | 106,807 | $ | 146,053 | ||||||
|
Restricted cash
|
129,738 | 133,969 | ||||||||
|
Accounts receivable, net of allowance for
doubtful accounts of $9,455 and $11,055
|
255,697 | 246,417 | ||||||||
|
Inventories
|
236,855 | 260,886 | ||||||||
|
Deferred income taxes
|
179,283 | 124,930 | ||||||||
|
Prepaid expenses and other current assets
|
64,534 | 30,036 | ||||||||
|
Assets related to discontinued operations
|
1,031 | 4,012 | ||||||||
|
Total current assets
|
973,945 | 946,303 | ||||||||
|
Property, plant and equipment, net
|
273,468 | 257,659 | ||||||||
|
Goodwill
|
134,892 | 121,355 | ||||||||
|
Intangible assets, net
|
1,447,109 | 1,552,492 | ||||||||
|
Other assets (includes restricted cash of $660
and $30,265)
|
45,926 | 76,117 | ||||||||
|
Deferred income taxes
|
57,585 | 19,307 | ||||||||
|
Assets related to discontinued operations
|
30,469 | 204,501 | ||||||||
|
Total assets
|
$ | 2,963,394 | $ | 3,177,734 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
|
Current Liabilities:
|
||||||||||
|
Accounts payable
|
$ | 61,125 | $ | 83,078 | ||||||
|
Accrued expenses
|
580,155 | 506,033 | ||||||||
|
Income taxes payable
|
26,182 | 79,641 | ||||||||
|
Current portion of long-term debt
|
— | 97 | ||||||||
|
Total current liabilities
|
667,462 | 668,849 | ||||||||
|
Long-term debt
|
345,000 | 345,000 | ||||||||
|
Other liabilities
|
81,032 | 121,705 | ||||||||
|
Total liabilities
|
1,093,494 | 1,135,554 | ||||||||
|
Commitments and contingencies (Note 9)
|
||||||||||
| Shareholders’ equity | 1,869,900 | 2,042,180 | ||||||||
|
Total liabilities and shareholders’ equity
|
$ | 2,963,394 | $ | 3,177,734 | ||||||
See accompanying notes.
1
KING PHARMACEUTICALS, INC.
| Three Months Ended | Six Months Ended | ||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||||||||||||
|
Revenues:
|
|||||||||||||||||||
|
Net sales
|
$ | 254,021 | $ | 350,839 | $ | 527,909 | $ | 673,836 | |||||||||||
|
Royalty revenue
|
21,119 | 16,176 | 37,875 | 31,600 | |||||||||||||||
|
Total revenues
|
275,140 | 367,015 | 565,784 | 705,436 | |||||||||||||||
|
Operating costs and expenses:
|
|||||||||||||||||||
|
Cost of revenues, exclusive of depreciation shown
below
|
85,411 | 91,644 | 173,125 | 171,085 | |||||||||||||||
|
Selling, general and administrative, exclusive of
co-promotion fees
|
104,125 | 72,949 | 190,727 | 117,064 | |||||||||||||||
|
Co-promotion fees
|
20,823 | 55,241 | 48,327 | 116,941 | |||||||||||||||
|
Total selling, general and administrative expense
|
124,948 | 128,190 | 239,054 | 234,005 | |||||||||||||||
|
Research and development
|
17,478 | 11,093 | 33,501 | 20,729 | |||||||||||||||
|
Research and development-in process upon
acquisition
|
— | 175,000 | — | 193,000 | |||||||||||||||
|
Total research and development
|
17,478 | 186,093 | 33,501 | 213,729 | |||||||||||||||
|
Depreciation and amortization
|
38,466 | 20,637 | 77,784 | 38,274 | |||||||||||||||
|
Intangible asset impairment
|
— | — | 34,936 | 110,970 | |||||||||||||||
|
Medicaid related charge (Note 9)
|
65,000 | — | 65,000 | — | |||||||||||||||
|
Merger related costs (Note 12)
|
3,126 | — | 3,126 | — | |||||||||||||||
|
Restructuring charges (Note 11)
|
6,153 | — | 6,153 | — | |||||||||||||||
|
Gain on sale of products (Note 6)
|
(3,421 | ) | — | (4,279 | ) | — | |||||||||||||
|
Total operating costs and expenses
|
337,161 | 426,564 | 628,400 | 768,063 | |||||||||||||||
|
Operating loss
|
(62,021 | ) | (59,549 | ) | (62,616 | ) | (62,627 | ) | |||||||||||
|
Other income (expense):
|
|||||||||||||||||||
|
Interest income
|
1,081 | 2,199 | 2,135 | 4,693 | |||||||||||||||
|
Interest expense
|
(3,266 | ) | (3,435 | ) | (6,371 | ) | (6,469 | ) | |||||||||||
|
Valuation (charge) benefit —
convertible notes receivable
|
(2,438 | ) | 7,647 | (2,487 | ) | 15,614 | |||||||||||||
|
Other, net
|
1,168 | (15 | ) | 465 | (98 | ) | |||||||||||||
|
Total other (expense) income
|
(3,455 | ) | 6,396 | (6,258 | ) | 13,740 | |||||||||||||
|
Loss from continuing operations before income
taxes
|
(65,476 | ) | (53,153 | ) | (68,874 | ) | (48,887 | ) | |||||||||||
|
Income tax expense (benefit)
|
152 | (16,653 | ) | (896 | ) | (7,977 | ) | ||||||||||||
|
Loss from continuing operations
|
(65,628 | ) | (36,500 | ) | (67,978 | ) | (40,910 | ) | |||||||||||
|
Discontinued operations (Note 8):
|
|||||||||||||||||||
|
Income (loss) from discontinued operations,
including expected loss on disposal
|
3,332 | 2,338 | (167,910 | ) | (2,044 | ) | |||||||||||||
|
Income tax expense (benefit)
|
1,243 | 853 | (61,289 | ) | (746 | ) | |||||||||||||
|
Total income (loss) from discontinued
operations
|
2,089 | 1,485 | (106,621 | ) | (1,298 | ) | |||||||||||||
|
Net loss
|
$ | (63,539 | ) | $ | (35,015 | ) | $ | (174,599 | ) | $ | (42,208 | ) | |||||||
|
(Loss) income per common share:
|
|||||||||||||||||||
|
Basic:
|
|||||||||||||||||||
|
Loss from continuing operations
|
$ | (0.27 | ) | $ | (0.15 | ) | $ | (0.28 | ) | $ | (0.17 | ) | |||||||
|
Total gain (loss) from discontinued
operations
|
0.01 | — | (0.44 | ) | (0.01 | ) | |||||||||||||
|
Net loss
|
$ | (0.26 | ) | $ | (0.15 | ) | $ | (0.72 | ) | $ | (0.18 | ) | |||||||
|
Diluted:
|
|||||||||||||||||||
|
Loss from continuing operations
|
$ | (0.27 | ) | $ | (0.15 | ) | $ | (0.28 | ) | $ | (0.17 | ) | |||||||
|
Total gain (loss) from discontinued
operations
|
0.01 | — | (0.44 | ) | (0.01 | ) | |||||||||||||
|
Net loss
|
$ | (0.26 | ) | $ | (0.15 | ) | $ | (0.72 | ) | $ | (0.18 | ) | |||||||
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 loss:
|
||||||||||||||||||||||
|
Net loss
|
— | — | (42,208 | ) | — | (42,208 | ) | |||||||||||||||
|
Net unrealized gain on marketable securities, net
of tax of $400
|
— | — | — | 742 | 742 | |||||||||||||||||
|
Foreign currency translation, net of tax of $45
|
— | — | — | 83 | 83 | |||||||||||||||||
|
Total comprehensive loss
|
(41,383 | ) | ||||||||||||||||||||
|
Stock option activity
|
404,701 | 2,785 | — | — | 2,785 | |||||||||||||||||
|
Balance at June 30, 2003
|
241,029,452 | $ | 1,204,682 | $ | 687,033 | $ | 870 | $ | 1,892,585 | |||||||||||||
|
Balance at December 31, 2003
|
241,190,852 | $ | 1,205,970 | $ | 835,097 | $ | 1,113 | $ | 2,042,180 | |||||||||||||
|
Comprehensive loss:
|
||||||||||||||||||||||
|
Net loss
|
— | — | (174,599 | ) | — | (174,599 | ) | |||||||||||||||
|
Net unrealized loss on
|
||||||||||||||||||||||
|
marketable securities, net
|
||||||||||||||||||||||
|
of tax of $28
|
— | — | — | (53 | ) | (53 | ) | |||||||||||||||
|
Foreign currency translation,
|
||||||||||||||||||||||
|
net of tax of $26
|
— | — | — | 48 | 48 | |||||||||||||||||