BRISTOL, Tenn., Dec. 8 /PRNewswire-FirstCall/ -- King Pharmaceuticals,
Inc. (NYSE: KG) today reported that it will restate its previously reported
financial results for 2002, 2003 and the first six months of 2004 to give
earlier recognition to expenses primarily relating to product returns. King
is continuing to evaluate whether financial results for any earlier periods
require restatement. The Company believes the restatement will have no effect
on King's reported net sales results for any future periods.
King made the determination to restate prior period results in connection
with its previously announced review of its reserve for product returns. King
determined that a thorough evaluation of its returns reserve was prudent in
light of the high level of product returns it experienced in connection with
the successful implementation of inventory management agreements with the
Company's key wholesale customers and information obtained pursuant to such
agreements. As a result, King has not formally closed or reported final
financial results for the third quarter of 2004, but instead announced
preliminary financial results on October 28, 2004.
King has determined, through discussions by management and the audit
committee with the Company's independent auditors, that the restatement is
necessitated due to methodological flaws concerning the timing of expense
recognition for product returns. Accordingly, the Company determined on
December 7, 2004, that it is required to restate its previously reported
financial results for 2002, 2003 and the first six months of 2004, and such
previously reported financial results should no longer be relied upon. The
errors made resulted from policies adopted in good faith and after discussion
with the Company's independent auditors. The primary effect of this
restatement will be to record in prior periods expenses relating to product
returns that previously were or would have been recognized during the first
nine months of 2004. The restatement will also shift to earlier periods other
immaterial expenses and other items that were or would have been recognized
during the first nine months of 2004, which the Company has now determined
should have been recognized in earlier periods.
Excluding the effect of a change to King's previously released preliminary
financial results for the three and nine months ended September 30, 2004 which
is discussed below, the restatement is expected to increase King's previously
announced preliminary net sales for the first nine months of 2004 by $54.3
million, and preliminary net income for the first nine months of 2004 by $36.5
million, or $0.15 per share. The restatement is also expected to decrease
previously reported net sales and net income in prior periods by approximately
the same aggregate amounts. Separate and apart from changes arising from the
restatement, King has recorded as a subsequent event an additional special
item in the third quarter ended September 30, 2004 resulting in a charge of
$4.7 million, $3.0 million net of tax, to reflect an impairment of intangible
assets associated with Tapazole(R) (methimazole tablets, USP) and Procanbid(R)
(procainamide hydrochloride extended-release tablets).
As a result of the restatement, net sales in 2003 are expected to be
reduced by $16.5 million. Net income in 2003 is expected to be reduced by
$13.9 million, or $0.06 per share. With respect to the remaining $37.6
million of net sales, and $23.8 million of net income relating to the above-
described errors that arose prior to 2003, the Company is still in the process
of determining whether those amounts should all be reflected in 2002, or
whether financial results for 2000 and/or 2001 should also be restated. In
accordance with generally accepted accounting principles, errors should be
corrected in the period in which they arose unless they were not material
either to that period or to the subsequent period in which they otherwise
would be recorded. The Company has not yet completed its evaluation of the
errors that arose in 2000 and 2001. The Company expects to complete its
evaluation, and provide appropriate disclosure of the final financial results
for the third quarter of 2004 and restated financial results for previously
reported periods, prior to year-end.
The errors which give rise to the restatement discussed above are
unrelated to the ongoing investigations of the Company by the U.S. Securities
and Exchange Commission ("SEC") and the Office of the Inspector General
("OIG") of the Department of Health and Human Services.
As previously reported, Mylan Laboratories Inc. and King have signed a
definitive agreement under which Mylan is to acquire King in a stock-for-stock
merger transaction. The transaction is subject to certain closing conditions,
including a condition that would permit Mylan not to close the merger if there
were a restatement of King's previously issued financial statements. The
Company has informed Mylan of the matters described in this release. Mylan
has not notified the Company as to whether it intends to assert that it will
not close the merger with King as a result of the restatement.
About King Pharmaceuticals
King, headquartered in Bristol, Tennessee, is a vertically integrated
branded pharmaceutical company. King, an S&P 500 Index company, seeks to
capitalize on opportunities in the pharmaceutical industry through the
development, including through in-licensing arrangements and acquisitions, of
novel branded prescription pharmaceutical products in attractive markets and
the strategic acquisition of branded products that can benefit from focused
promotion and marketing and product life-cycle management.
About Forward-looking Statements
This release contains forward-looking statements which reflect
management's current views of future events and operations, including, but not
limited to, statements pertaining to the completion of King's evaluation of
its historical reserve for returns; statements pertaining to the effect of the
restatement on King's previously issued financial statements and future
financial results; and statements pertaining to the planned disclosure of
final financial results for the third quarter of 2004 and restated financial
results for previously reported periods prior to year-end.
These forward-looking statements involve certain significant risks and
uncertainties, and actual results may differ materially from the forward-
looking statements. Some important factors which may cause actual results to
differ materially from the forward-looking statements include: dependence on
the final outcome of the evaluation of the Company's historical reserve for
product returns; and dependence on the Company's ability to provide its
disclosures as planned. Other important factors that may cause actual results
to differ materially from the forward-looking statements are discussed in the
"Risk Factors" section and other sections of King's Form 10-K for the year
ended December 31, 2003 and Form 10-Q for the second quarter ended June 30,
2004 which are on file with the SEC. King does not undertake to publicly
update or revise any of its forward-looking statements even if experience or
future changes show that the indicated results or events will not be realized.
SOURCE King Pharmaceuticals, Inc.
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http://www.kingpharm.com
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CONTACT:
James E. Green, Executive Vice President,
Corporate Affairs of King Pharmaceuticals, Inc., +1-423-989-8125
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