<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT FOR ISSUERS SUBJECT TO THE
1934 REPORTING REQUIREMENTS
FORM 8-K/A
Pursuant to Secion 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 22, 1998
-------------------------------
KING PHARMACEUTICALS, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 0--24425 54-1684963
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
501 Fifth Street, Bristol, Tennessee 37620
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (423) 989-8000
-----------------------------
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
<PAGE> 2
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<S> <C>
(a) Special Purpose Financial Statements of Businesses Acquired.
ALTACE PRODUCT LINE OF HOECHST MARION ROUSSEL, INC. AND HOECHST MARION ROUSSEL DEUTSCHLAND GMBH
Independent Auditors' Report................................................................... F-1
Special Purpose Statement of Product Contribution for the nine months ended September 30, 1998
and the years ended December 31, 1997 and 1996........................................ F-2
Notes to Special Purpose Statement of Product Contribution..................................... F-3
SILVADENE PRODUCT LINE OF HOECHST MARION ROUSSEL, INC.
Independent Auditors' Report................................................................... F-5
Special Purpose Statement of Product Contribution for the nine months ended September 30, 1998
and the years ended December 31, 1997 and 1996........................................ F-6
Notes to Special Purpose Statement of Product Contribution..................................... F-7
AVC PRODUCT LINE OF HOECHST MARION ROUSSEL, INC.
Independent Auditors' Report................................................................... F-9
Special Purpose Statement of Product Contribution for the nine months ended September 30, 1998
and the years ended December 31, 1997 and 1996........................................ F-10
Notes to Special Purpose Statement of Product Contribution..................................... F-11
(b) Unaudited Pro Forma Consolidated Financial Information.
Unaudited Pro Forma Consolidated Financial Statements................................................... F-13
King Pharmaceuticals, Inc. Unaudited Pro Forma Consolidated Balance Sheet
as of September 30, 1998....................................................................... F-14
Notes to Unaudited Pro Forma Consolidated Balance Sheet................................................. F-15
King Pharmaceuticals, Inc. Pro Forma Consolidated Statement of Operations
for the Twelve Months Ended December 31, 1997.................................................. F-17
King Pharmaceuticals, Inc. Pro Forma Consolidated Statement of Operations
for the Nine Months Ended September 30, 1998................................................... F-18
Notes To Unaudited Pro Forma Consolidated Statements of Operations...................................... F-19
</TABLE>
- 1 -
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Hoechst Marion Roussel, Inc.:
We have audited the accompanying statement of product contribution for the
Altace Product Line of Hoechst Marion Roussel, Inc. and Hoechst Marion Roussel
Deutschland GmbH for the nine-month period ended September 30, 1998 and for the
years ended December 31, 1997 and 1996. The statement of product contribution is
the responsibility of Hoechst Marion Roussel, Inc. and Hoechst Marion Roussel
Deutschland GmbH management. Our responsibility is to express an opinion on this
special purpose statement based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of product contribution is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of product contribution.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statement of product contribution. We believe that our audits provide a
reasonable basis for our opinion.
The operations covered by the statement of product contribution referred to
above have no separate legal status or existence. The accompanying statement was
prepared as described in note 1 to present the direct revenues and direct
expenses of the Altace Product Line and is not intended to be a complete
presentation of the Altace Product Line. Furthermore, the amounts in the
accompanying statement are not necessarily indicative of the costs and expenses
that would have resulted if the Altace Product Line had been operated as a
separate entity.
In our opinion, the statement referred to above presents fairly, in all
material respects, the statement of product contribution for the Altace Product
Line for the nine-month period ended September 30, 1998 and for the years ended
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Kansas City, MO
December 17, 1998
F-1
<PAGE> 4
ALTACE PRODUCT LINE
OF HOECHST MARION ROUSSEL, INC. AND
HOECHST MARION ROUSSEL DEUTSCHLAND GMBH
SPECIAL PURPOSE STATEMENT OF PRODUCT CONTRIBUTION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS FOR THE YEARS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, -------------------
1998 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $66,892 $83,671 $88,154
------- ------- -------
Cost of sales............................................... 3,758 5,238 9,441
Royalty expense............................................. 1,672 2,092 2,204
Advertising and promotion expense........................... 15,578 12,549 11,650
Selling expense............................................. 19,457 17,600 14,234
------- ------- -------
Total costs and expenses.......................... 40,465 37,479 37,529
------- ------- -------
Net product contribution.......................... $26,427 $46,192 $50,625
======= ======= =======
</TABLE>
See accompanying notes to the special purpose statement of product contribution.
F-2
<PAGE> 5
ALTACE PRODUCT LINE
OF HOECHST MARION ROUSSEL, INC. AND
HOECHST MARION ROUSSEL DEUTSCHLAND GMBH
NOTES TO SPECIAL PURPOSE STATEMENT OF PRODUCT CONTRIBUTION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
1. OWNERSHIP/BASIS OF PRESENTATION
The Altace Product Line (the "Product") includes all rights, title, and
interest within the United States. Hoechst Marion Roussel, Inc. and Hoechst
Marion Roussel Deutschland GmbH (the "Company") are negotiating the sale of the
U. S. rights of this product to King Pharmaceuticals, Inc. to sell, market, and
distribute the Product in the United States. The Company will continue to supply
finished goods and samples under a separate supply agreement for a minimum of
five years.
Historically, financial statements were not prepared for the Product. These
statements have been developed from the historical accounting records of the
Company and represent the direct revenues and direct expenses, only, of the
Product. All of the estimates in the financial statements, as described in note
2, are based on the assumptions that Company management believes are reasonable.
However, these estimates are not necessarily indicative of the net sales and
costs that would have resulted if the Product had been operated as a separate
entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME RECOGNITION
Sales and related cost of sales are included in income when goods are
shipped to the customer.
NET SALES
Net sales include certain sales deductions. Sales deductions are presented
on an accrual basis and include deductions specifically attributable to the
Product and deductions allocated to the Product by management. The types of
deductions included in the calculation of net sales are as follows:
- Sales Rebates -- Managed care and Medicaid rebates are charged to the
Product monthly, using actual cash rebate payments and monthly accruals.
Bid chargebacks are allocated to the Product monthly, based on actual
sales.
- Cash Discounts -- Cash discounts are allocated to the Product monthly, as
a percentage of actual Product gross sales to total gross sales of the
Company.
- Sales Returns -- Sales returns are directly attributable to identifiable
products based on actual sales returns.
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, -----------------
1998 1997 1996
------------- ------- -------
(in thousands)
<S> <C> <C> <C>
Gross sales............................................ $78,108 $97,439 $99,908
Less:
Sales rebates........................................ 8,836 10,732 8,856
Cash discounts....................................... 1,562 1,949 1,998
Sales returns........................................ 818 1,087 900
------- ------- -------
Net sales.................................... $66,892 $83,671 $88,154
======= ======= =======
</TABLE>
F-3
<PAGE> 6
ALTACE PRODUCT LINE
OF HOECHST MARION ROUSSEL, INC. AND
HOECHST MARION ROUSSEL DEUTSCHLAND GmbH
NOTES TO SPECIAL PURPOSE STATEMENT OF PRODUCT CONTRIBUTION -- (Continued)
COST OF SALES
Elements of cost of sales include raw materials, direct labor, plant
overhead, and manufacturing variances. Certain of these costs are specifically
identifiable to specific brands, and the remaining costs are allocated based on
the Product's percentage of total production for the production facility.
Inventories are valued at the lower of cost or market. The cost of
inventories has been determined using the last-in, first-out (LIFO) method of
valuation.
Depreciation of plant facilities is computed using the straight-line method
based on estimated useful lives of the assets. Generally, the lives of buildings
range from thirty to forty years, and five to ten years for machinery and
equipment.
Production of the Product was transferred from the Company's manufacturing
facility in Bridgewater, New Jersey to the Company's manufacturing facility in
Kansas City, Missouri during the last half of 1996. This transfer resulted in
larger than expected manufacturing variances and an increase in cost of sales
for the Product in 1996.
ROYALTY EXPENSE
The Company pays quarterly royalties based upon net sales of the Product.
This royalty is paid quarterly based upon 2.5% of net sales.
ADVERTISING AND PROMOTION EXPENSE
Advertising and promotion costs include professional advertising costs,
promotional tools, and samples.
SELLING EXPENSE
Selling costs consist primarily of sales force employment costs (salaries
and bonuses). These costs are allocated based on actual sales force
documentation of sales calls, itemized by product.
USE OF ESTIMATES
The preparation of the financial statement of Altace Product Contribution
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported amounts of gross
profit for the nine-month period ended September 30, 1998 and years ended
December 31, 1997 and 1996. Actual results could differ from those estimates.
3. SIGNIFICANT CUSTOMERS
The Product had U. S. sales to four customers representing approximately
72% of sales for the nine-month period ended September 30, 1998. The Product had
U.S. sales to four customers representing approximately 77% of sales for the
year ended December 1997 and U.S. sales to four customers representing
approximately 73% of sales for the year ended December 31, 1996.
F-4
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Hoechst Marion Roussel, Inc.:
We have audited the accompanying statement of product contribution for the
Silvadene Product Line of Hoechst Marion Roussel, Inc. for the nine-month period
ended September 30, 1998 and for the years ended December 31, 1997 and 1996. The
statement of product contribution is the responsibility of Hoechst Marion
Roussel, Inc. management. Our responsibility is to express an opinion on this
special purpose statement based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of product contribution is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of product contribution.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statement of product contribution. We believe that our audits provide a
reasonable basis for our opinion.
The operations covered by the statement of product contribution referred to
above have no separate legal status or existence. The accompanying statement was
prepared as described in note 1 to present the direct revenues and direct
expenses of the Silvadene Product Line and is not intended to be a complete
presentation of the Silvadene Product Line. Furthermore, the amounts in the
accompanying statement are not necessarily indicative of the costs and expenses
that would have resulted if the Silvadene Product Line had been operated as a
separate entity.
In our opinion, the statement referred to above presents fairly, in all
material respects, the statement of product contribution for the Silvadene
Product Line for the nine-month period ended September 30, 1998 and for the
years ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Kansas City, MO
December 11, 1998
F-5
<PAGE> 8
SILVADENE PRODUCT LINE
OF HOECHST MARION ROUSSEL, INC.
SPECIAL PURPOSE STATEMENT OF PRODUCT CONTRIBUTION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ---------------
1998 1997 1996
------------- ------ ------
<S> <C> <C> <C>
Net sales................................................... $2,314 $3,320 $3,646
------ ------ ------
Cost of sales............................................... 701 1,281 1,190
------ ------ ------
Net product contribution.......................... $1,613 $2,039 $2,456
====== ====== ======
</TABLE>
See accompanying notes to the special purpose statement of product contribution.
F-6
<PAGE> 9
SILVADENE PRODUCT LINE
OF HOECHST MARION ROUSSEL, INC.
NOTES TO SPECIAL PURPOSE STATEMENT OF PRODUCT CONTRIBUTION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
1. OWNERSHIP/BASIS OF PRESENTATION
The Silvadene Product Line (the "Product") includes all rights, title, and
interest within the United States. Hoechst Marion Roussel, Inc. (the "Company"
or "HMRI") is negotiating the sale of its worldwide rights of this product to
King Pharmaceuticals, Inc. to sell, market, and distribute the Product. The
Company will continue to supply finished goods and samples under a separate
supply agreement for two years.
Historically, financial statements were not prepared for the Product. These
statements have been developed from the historical accounting records of the
Company and represent the direct revenues and direct expenses, only, of the
Product. All of the estimates in the financial statements, as described in note
2, are based on the assumptions that Company management believes are reasonable.
However, these estimates are not necessarily indicative of the net sales and
costs that would have resulted if the Product had been operated as a separate
entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME RECOGNITION
Sales and related cost of sales are included in income when goods are
shipped to the customer.
NET SALES
Net sales include certain sales deductions. Sales deductions are presented
on an accrual basis and include deductions specifically attributable to the
Product and deductions allocated to the Product by management. The types of
deductions included in the calculation of net sales are as follows:
- Sales Rebates -- Managed care and Medicaid rebates are allocated to the
Product monthly, using actual cash rebate payments. Bid chargebacks are
allocated to the Product monthly, based on actual sales.
- Cash Discounts -- Cash discounts are allocated to the Product monthly, as
a percentage of actual Product gross sales to total gross sales of the
Company.
- Sales Returns -- Sales returns are directly attributable to identifiable
products based on actual sales returns.
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ---------------
1998 1997 1996
------------- ------ ------
(in thousands)
<S> <C> <C> <C>
Gross sales.............................................. $2,790 $4,199 $4,479
Less:
Sales rebates.......................................... 340 725 591
Cash discounts......................................... 56 84 89
Sales returns.......................................... 80 70 153
------ ------ ------
Net sales...................................... $2,314 $3,320 $3,646
====== ====== ======
</TABLE>
F-7
<PAGE> 10
SILVADENE PRODUCT LINE
OF HOECHST MARION ROUSSEL, INC.
NOTES TO SPECIAL PURPOSE STATEMENT OF PRODUCT CONTRIBUTION -- (CONTINUED)
COST OF SALES
Elements of cost of sales include raw materials, direct labor, and plant
overhead. Certain of these costs are specifically identifiable to specific
brands, and the remaining costs are allocated based on the Product's percentage
of total production for the Company.
Inventories are valued at the lower of cost or market. The cost of
inventories has been determined using the last-in, first-out (LIFO) method of
valuation.
Depreciation of plant facilities is computed using the straight line method
based on estimated useful lives of the assets. Generally, the lives for
buildings are thirty to forty years, and five to ten years for machinery and
equipment.
USE OF ESTIMATES
The preparation of the financial statements of Silvadene Product
Contribution in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect certain
reported amounts of gross profit for the nine-month period ended September 30,
1998 and for the years ended December 31, 1997 and 1996. Actual results could
differ from those estimates.
3. SIGNIFICANT CUSTOMERS
The Product had sales to four customers representing approximately 71% of
sales for the nine-month period ended September 30, 1998. The Product had sales
to four customers representing approximately 73% of sales for the year ended
December 1997 and sales to four customers representing approximately 62% of
sales for the year ended December 31, 1996.
F-8
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Hoechst Marion Roussel, Inc.:
We have audited the accompanying statement of product contribution for the
AVC Product Line of Hoechst Marion Roussel, Inc. for the nine-month period ended
September 30, 1998 and for the years ended December 31, 1997 and 1996. The
statement of product contribution is the responsibility of Hoechst Marion
Roussel, Inc. management. Our responsibility is to express an opinion on this
special purpose statement based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of product contribution is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of product contribution.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statement of product contribution. We believe that our audits provide a
reasonable basis for our opinion.
The operations covered by the statement of product contribution referred to
above have no separate legal status or existence. The accompanying statement was
prepared as described in note 1 to present the direct revenues and direct
expenses of the AVC Product Line and is not intended to be a complete
presentation of the AVC Product Line. Furthermore, the amounts in the
accompanying statement are not necessarily indicative of the costs and expenses
that would have resulted if the AVC Product Line had been operated as a separate
entity.
In our opinion, the statement referred to above presents fairly, in all
material respects, the statement of product contribution for the AVC Product
Line for the nine-month period ended September 30, 1998 and for the years ended
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Kansas City, MO
December 11, 1998
F-9
<PAGE> 12
AVC PRODUCT LINE
FOR HOECHST MARION ROUSSEL, INC.
SPECIAL PURPOSE STATEMENT OF PRODUCT CONTRIBUTION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ---------------
1998 1997 1996
------------- ------ ------
<S> <C> <C> <C>
Net sales................................................... $ 848 $1,460 $2,284
------ ------ ------
Cost of sales............................................... 209 288 446
------ ------ ------
Net product contribution.................................. $ 639 $1,172 $1,838
====== ====== ======
</TABLE>
See accompanying notes to the special purpose statement of product contribution.
F-10
<PAGE> 13
AVC PRODUCT LINE OF
HOECHST MARION ROUSSEL, INC.
NOTES TO SPECIAL PURPOSE STATEMENT OF PRODUCT CONTRIBUTION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
1. OWNERSHIP/BASIS OF PRESENTATION
The AVC Product Line (the "Product") includes all rights, title, and
interest within the United States. Hoechst Marion Roussel, Inc. (the "Company"
or "HMRI") is negotiating the sale of its worldwide rights of this product to
King Pharmaceuticals, Inc. to sell, market, and distribute the Product. The
Company will continue to supply finished goods and samples under a separate
supply agreement for two years.
Historically, financial statements were not prepared for the Product. These
statements have been developed from the historical accounting records of the
Company and represent the direct revenues and direct expenses, only, of the
Product. All of the estimates in the financial statements, as described in note
2, are based on the assumptions that Company management believes are reasonable.
However, these estimates are not necessarily indicative of the net sales and
costs that would have resulted if the Product had been operated as a separate
entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME RECOGNITION
Sales and related cost of sales are included in income when goods are
shipped to the customer.
NET SALES
Net sales include certain sales deductions. Sales deductions are presented
on an accrual basis and include deductions specifically attributable to the
Product and deductions allocated to the Product by management. The types of
deductions included in the calculation of net sales are as follows:
- Sales Rebates -- Medicaid rebates are allocated to the Product monthly,
using actual cash rebate payments. Bid chargebacks are allocated to the
Product monthly, based on actual sales.
- Cash Discounts -- Cash discounts are allocated to the Product monthly, as
a percentage of actual Product gross sales to total gross sales of the
Company.
- Sales Returns -- Sales returns are directly attributable to identifiable
products based on actual sales returns.
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ---------------
1998 1997 1996
------------- ------ ------
(in thousands)
<S> <C> <C> <C>
Gross sales.............................................. $1,244 $1,992 $2,881
Less:
Sales rebates.......................................... 80 178 270
Cash discounts......................................... 25 40 58
Sales returns.......................................... 291 314 269
------ ------ ------
Net sales...................................... $ 848 $1,460 $2,284
====== ====== ======
</TABLE>
F-11
<PAGE> 14
AVC PRODUCT LINE OF
HOECHST MARION ROUSSEL, INC.
NOTES TO SPECIAL PURPOSE STATEMENT OF PRODUCT CONTRIBUTION -- (CONTINUED)
COST OF SALES
Elements of cost of sales include raw materials, direct labor, and plant
overhead. Certain of these costs are specifically identifiable to specific
brands, and the remaining costs are allocated based on the Product's percentage
of total production for the Company.
Inventories are valued at the lower of cost or market. The cost of
inventories has been determined using the last-in, first-out (LIFO) method of
valuation.
Depreciation of plant facilities is computed using the straight line method
based on estimated useful lives of the assets. Generally, the lives of buildings
range from thirty to forty years, and five to ten years for machinery and
equipment.
USE OF ESTIMATES
The preparation of the financial statements of AVC Product Contribution in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts of gross
profit for the nine-month period ended September 30, 1998 and for the years
ended December 31, 1997 and 1996. Actual results could differ from those
estimates.
3. SIGNIFICANT CUSTOMERS
The Product had sales to four customers representing approximately 69% of
sales for the nine-month period ended September 30, 1998. The Product had sales
to five customers representing approximately 85% of sales for the year ended
December 1997 and sales to four customers representing approximately 70% of
sales for the year ended December 31, 1996.
F-12
<PAGE> 15
KING PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial information of
King Pharmaceuticals, Inc. (the "Company") is based on the historical financial
statements of the Company, adjusted to give pro forma effect to the following
(collectively, the "Transactions"): (i) the acquisition of three branded
pharmaceutical products from Hoechst Marion Roussel, Inc. (the "Altace
Acquisition"), (ii) the receipt and use of proceeds from the six year $75.0
million revolving line of credit, six year $150.0 million amortizing Tranche A
loan facility and eight year $275.0 million Tranche B loan facility (the "Senior
Credit Facility") and the issuance of an aggregate of $75.0 million notes due in
2007 to Hoechst Marion Roussel, Inc. (the "HMR Notes") (the "Altace Financing")
and (iii) the following product acquisitions (collectively, the "Product
Acquisitions"): the Proctocort product line on January 22, 1997, the Cortisporin
product line on March 21, 1997, the Viroptic product line on May 15, 1997, the
Neosporin Polysporin, Septra, Proloprim, Mantadil and Kemadrin product lines
from Glaxo Wellcome, Inc. (the "Glaxo Acquisition") on November 14, 1997,
Warner-Lambert Company's Sterile Products Operations (the "Sterile Products
Acquisition") on February 27, 1998, and the Menest product line on June 30,
1998.
The unaudited pro forma consolidated balance sheet as of September 30, 1998
gives effect to the Altace Acquisition and the Altace Financing as if those
transactions occurred on September 30, 1998. The unaudited pro forma
consolidated statements of operations for the year ended December 31, 1997 and
the nine months ended September 30, 1998 give effect to the Transactions as if
they had occurred on January 1, 1997. The unaudited pro forma adjustments are
based upon available information and certain assumptions that the Company
believes are reasonable under the circumstances. The unaudited pro forma
consolidated financial statements do not purport to represent what the Company's
results of operations or financial condition would actually have been had the
Transactions in fact occurred on such dates, nor do they purport to project the
Company's results of operations or financial condition for any future period or
date. The information set forth below should be read in conjunction with the
special purpose statements of product contribution (contained herein) for the
nine months ended September 30, 1998 and the years ended December 31, 1997 and
1996, the Company's unaudited consolidated financial statements and notes
thereto as of and for the nine months ended September 30, 1998 (which are
contained in the Company's Form 10-Q for the nine months ended September 30,
1998, and the audited consolidated financial statements and notes thereto as of
December 31, 1997 and 1996 and for the three years ended December 31, 1997
(which are included in the Company's registration statement filed on Form S-1
(Registration No. 333-38753)).
The Product Acquisitions and the Altace Acquisition have all been accounted
for as purchases. Under purchase accounting, the total purchase price and fair
value of the liabilities assumed are allocated to the tangible assets of the
Company based upon their respective fair values as of the purchase date in
accordance with Accounting Principles Board Opinion No. 16. A preliminary
allocation of the purchase price of the Altace Acquisition has been made in the
accompanying unaudited pro forma consolidated financial statements based on
Company estimates. The actual allocation of purchase cost and the resulting
effect on income from operations may differ from the pro forma amounts included
therein; however, the Company does not expect the final allocations to differ
materially from the preliminary allocations.
F-13
<PAGE> 16
KING PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,988 $ $ 2,988
Accounts receivable, net.................................. 37,869 37,869
Inventories............................................... 28,253 28,253
Deferred income taxes..................................... 2,013 2,013
Prepaid expenses and other assets......................... 1,641 1,641
-------- --------
Total current assets.............................. 72,764 72,764
Property, plant and equipment, net.......................... 91,702 91,702
Intangible assets........................................... 119,334 362,500 (1) 481,834
Other assets................................................ 6,883 12,117 (2) 19,000
-------- --------
Total assets...................................... $290,683 $665,300
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt:
Term loans............................................. $ 6,376 $ 3,874 (3) $ 10,250
Other.................................................. 1,867 1,867
Accounts payable.......................................... 17,791 17,791
Accrued expenses.......................................... 13,574 4,057 (4) 17,631
Income taxes payable...................................... 6,756 (2,753) (5) 4,003
-------- --------
Total current liabilities......................... 46,364 51,542
-------- --------
Long-term debt:
Revolving credit facility................................. 6,000 13,000 (6) 19,000
Term loans................................................ 129,181 285,569 (7) 414,750
Other..................................................... 8,076 8,076
HMR Notes................................................. -- 75,000 (7) 75,000
Deferred income taxes....................................... 2,763 2,763
-------- --------
Total liabilities................................. 192,384 571,131
-------- --------
Shareholders' equity
Common shares............................................. 66,572 66,572
Retained earnings......................................... 32,323 (4,130) (8) 28,193
Due from related party.................................... (596) (596)
-------- --------
Total shareholders' equity........................ 98,299 94,169
-------- --------
Total liabilities and shareholders' equity........ $290,683 $665,300
======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
F-14
<PAGE> 17
KING PHARMACEUTICALS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Reflects the acquisition of the branded pharmaceutical products Altace,
Silvadene and AVC from Hoechst Marion Roussel Roussel, Inc. ("HMR") for a
purchase price of $362.5 million.
(2) Other assets -- to reflect adjustments to record the following (in
thousands):
<TABLE>
<S> <C>
To record deferred financing costs related to the Senior
Credit Facility........................................ $17,500
To record deferred financing costs related to the HMR
Notes.................................................. 1,500
To eliminate unamortized deferred financing costs related
to the prior bank facility............................. (6,883)
-------
Total........................................... $12,117
=======
</TABLE>
(3) Current portion of long-term debt -- to reflect adjustments to record the
following (in thousands):
<TABLE>
<S> <C>
Proceeds from the term loans under the Senior Credit
Facility............................................... $ 10,250
Repayment of term loans under the prior bank facility..... (6,376)
--------
$ 3,874
========
</TABLE>
(4) Accrued expenses -- to reflect adjustments to record the following (in
thousands):
<TABLE>
<S> <C>
To record accrual for unpaid fees associated with issuance
of the HMR Notes....................................... $ 1,500
To record accrual for unpaid fees associated with the
Senior Credit Facility................................. 2,557
-------
Total........................................... $ 4,057
=======
</TABLE>
(5) Income taxes payable--to reflect adjustments to record the following (in
thousands):
<TABLE>
<S> <C>
To record income tax benefit related to write-off of
deferred financing costs from the prior bank facility
at an assumed 40% tax rate(a).......................... $(2,753)
=======
</TABLE>
- ---------------
(a) Adjustment to reflect a 40% effective tax rate applied to the
incremental pro forma income before income taxes. A reconciliation of
the statutory tax rate to the assumed pro forma tax rate is provided
below:
<TABLE>
<S> <C>
Federal statutory rate...................................... 35.0%
State taxes, net of federal benefit......................... 4.0
Other....................................................... 1.0
----
40.0%
====
</TABLE>
(6) Revolving credit facility -- to reflect adjustments to record the following
(in thousands):
<TABLE>
<S> <C>
Proceeds from the Senior Credit Facility.................. $19,000
Repayment of the prior bank facility...................... (6,000)
-------
Total............................................. $13,000
=======
</TABLE>
F-15
<PAGE> 18
KING PHARMACEUTICALS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET -- (CONTINUED)
(7) Long-term debt -- to reflect adjustments to record the following (in
thousands):
<TABLE>
<S> <C>
Proceeds from the term loans under the Senior Credit
Facility............................................... $414,750
Repayment of term loans under the prior bank facility..... (129,181)
--------
$285,569
========
Proceeds from the issuance of the HMR Notes............... $ 75,000
========
</TABLE>
(8) Retained earnings -- to reflect adjustments to record the following (in
thousands):
<TABLE>
<S> <C>
To record the write-off of the unamortized deferred
financing costs from the prior bank facility, net of
tax.................................................... $(4,130)
=======
</TABLE>
F-16
<PAGE> 19
KING PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE PRO FORMA FOR ALTACE ALTACE
COMPANY THE PRODUCT ACQUISITION ACQUISITION
ACTUAL ACQUISITIONS(1) ACTUAL(2) OTHER(3) ADJUSTMENTS PRO FORMA
------- --------------- ----------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues........................ $47,909 $124,263 $88,451 $727 $ -- $213,441
------- -------- ------- ---- -------- --------
Cost of sales......................... 13,034 60,711 6,807 291 1,698(4) 69,507
Royalty expense....................... -- -- 2,092 -- -- 2,092
------- -------- ------- ---- -------- --------
Gross profit.......................... 34,875 63,552 79,552 436 (1,698) 141,842
Selling, general and administrative... 19,123 27,145 30,149 -- (8,206)(5) 49,088
Depreciation and amortization......... 2,395 10,004 -- -- 14,500(6) 24,504
------- -------- ------- ---- -------- --------
Operating income (loss)............... 13,357 26,403 49,403 436 (7,992) 68,250
Interest expense...................... (2,749) (15,655) -- -- (34,218)(7) (49,873)
Other income, net..................... (28) (28) -- -- -- (28)
------- -------- ------- ---- -------- --------
Income (loss) before income taxes..... 10,580 10,720 49,403 436 (42,210) 18,349
Income tax (benefit) expense.......... 3,968 4,024 -- -- 3,052(8) 7,076
------- -------- ------- ---- -------- --------
Net income (loss)..................... $6,612 $ 6,696 $49,403 $436 $(45,262) $ 11,273
======= ======== ======= ==== ======== ========
Income per common share:
Basic and diluted................... $ 0.25 $ 0.43
======= ========
Weighted average common shares used in
computing income per common share:
Basic and diluted................... 26,270 26,270
======= ========
</TABLE>
F-17
<PAGE> 20
KING PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE PRO FORMA FOR ALTACE ALTACE
COMPANY THE PRODUCT ACQUISITION ACQUISITION
ACTUAL ACQUISITIONS(1) ACTUAL(2) OTHER(3) ADJUSTMENTS PRO FORMA
-------- --------------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......................... $113,330 $125,064 $70,054 $353 $ -- $195,471
-------- -------- ------- ---- -------- --------
Cost of sales........................... 41,933 46,524 4,668 141 1,449(4) 52,782
Royalty expense......................... -- -- 1,672 -- -- 1,672
-------- -------- ------- ---- -------- --------
Gross profit............................ 71,397 78,540 63,714 212 (1,449) 141,017
Selling, general and administrative..... 25,040 26,118 35,035 -- (18,563)(5) 42,590
Depreciation and amortization........... 6,506 7,702 -- -- 10,875(6) 18,577
-------- -------- ------- ---- -------- --------
Operating income (loss)................. 39,851 44,720 28,679 212 6,239 79,850
Interest expense........................ (10,729) (12,521) -- -- (25,664)(7) (38,185)
Other income, net....................... 120 120 -- -- -- 120
-------- -------- ------- ---- -------- --------
Income (loss) before income taxes....... 29,242 32,319 28,679 212 (19,425) 41,785
Income tax (benefit) expense............ 11,183 12,414 -- -- 3,786(8) 16,200
-------- -------- ------- ---- -------- --------
Income before extraordinary item........ 18,059 19,905 28,679 212 (23,211) 25,585
Extraordinary item...................... (286) -- -- -- -- --
-------- -------- ------- ---- -------- --------
Net income (loss)....................... $17,773 $ 19,905 $28,679 $212 $(23,211) $ 25,585
======== ======== ======= ==== ======== ========
Basic and diluted income per common
share:
Income before extraordinary item...... $ 0.61 $ 0.87
Extraordinary item.................... (0.01) --
-------- --------
Net income............................ $ 0.60 $ 0.87
======== ========
Weighted average common shares used in
computing basic and diluted income per
common share:......................... 29,461 29,461
======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Operations.
F-18
<PAGE> 21
KING PHARMACEUTICALS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) The following unaudited pro forma consolidated financial information of the
Company is based on the historical financial statements of the Company,
adjusted to give pro forma effect to the Product Acquisitions and the
receipt and use of proceeds from the prior bank facility incurred in
February 1998.
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1997 and the nine months ended September 30, 1998, give
effect to the above as if they had occurred on January 1, 1997. The
unaudited pro forma adjustments set forth below are based upon available
information and assumptions that the Company believes are reasonable under
the circumstances. The pro forma consolidated statement of operations does
not purport to project the Company's results of operations for any future
period. The information set forth below should be read together with the
Company's consolidated financial statements and related notes.
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER PRO FORMA
THE ACQUIRED STERILE FOR THE
COMPANY CORTISPORIN GLAXO PRODUCTS PRODUCTS MENEST PRODUCT
ACTUAL ACTUAL(A) ACTUAL(B) ACTUAL(C) ACTUAL(D)(E) ACTUAL(F) ADJUSTMENTS ACQUISITIONS
------- ----------- --------- --------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues............. $47,909 $3,342 $11,171 $2,323 $58,317 $1,201 $ -- $124,263
Cost of sales.............. 13,034 430 4,058 232 46,793 198 (4,034)(g) 60,711
Royalty expense............ -- -- -- -- -- -- -- --
------- ------ ------- ------ ------- ------ -------- --------
Gross profit............... 34,875 2,912 7,113 2,091 11,524 1,003 4,034 63,552
Selling, general and
administrative........... 19,123 198 539 150 7,537 -- (402)(h) 27,145
Depreciation and
amortization............. 2,395 -- -- -- -- -- 7,609(i) 10,004
------- ------ ------- ------ ------- ------ -------- --------
Operating income (loss).... 13,357 2,714 6,574 1,941 3,987 1,003 (3,173) 26,403
Interest expense........... (2,749) -- -- -- -- -- (12,906)(j) (15,655)
Other income, net.......... (28) -- -- -- -- -- -- (28)
------- ------ ------- ------ ------- ------ -------- --------
Income (loss) before income
taxes.................... 10,580 2,714 6,574 1,941 3,987 1,003 (16,079) 10,720
Income tax (benefit)
expense.................. 3,968 -- -- -- -- -- 56(k) 4,024
------- ------ ------- ------ ------- ------ -------- --------
Net income(loss)........... $6,612 $2,714 $ 6,574 $1,941 $ 3,987 $1,003 $(16,135) $ 6,696
======= ====== ======= ====== ======= ====== ======== ========
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
THE COMPANY STERILE PRODUCTS MENEST FOR THE
ACTUAL ACTUAL(D) ACTUAL(F) ADJUSTMENTS PRODUCT ACQUISITIONS
----------- ---------------- --------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
Total revenues........................... $113,330 $10,844 $890 $ -- $125,064
-------- ------- ---- ------- --------
Cost of sales............................ 41,933 5,314 108 (831)(g) 46,524
Royalty expense.......................... -- -- -- -- --
-------- ------- ---- ------- --------
Gross profit............................. 71,397 5,530 782 831 78,540
Selling, general and administrative...... 25,040 1,001 -- 77(h) 26,118
Depreciation and amortization............ 6,506 -- -- 1,196(i) 7,702
-------- ------- ---- ------- --------
Operating income (loss).................. 39,851 4,529 782 (442) 44,720
Interest expense......................... (10,729) -- -- (1,792)(j) (12,521)
Other income, net........................ 120 -- -- -- 120
-------- ------- ---- ------- --------
Income (loss) before income taxes........ 29,242 4,529 782 (2,234) 32,319
Income tax (benefit) expense............. 11,183 -- -- 1,231(k) 12,414
-------- ------- ---- ------- --------
Income before extraordinary item......... 18,059 4,529 782 (3,465) 19,905
Extraordinary item....................... (286) -- -- 286(l) --
-------- ------- ---- ------- --------
Net income (loss)........................ $ 17,773 $ 4,529 $782 $(3,179) $ 19,905
======== ======= ==== ======= ========
</TABLE>
F-19
<PAGE> 22
KING PHARMACEUTICALS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
- ---------------
(a) Represents the historical results for the Cortisporin product line
for the period prior to the acquisitions on March 21, 1997.
(b) Represents the historical results for the product lines included in
the Glaxo Acquisition for the period prior to the acquisition on
November 14, 1997.
(c) Represents the combined historical results for the Proctocort and
Viroptic product lines for the periods prior to the acquisitions on
January 22, 1997 and May 15, 1997, respectively.
(d) Represents the historical results for the product lines included in
the Sterile Products Acquisition for the period prior to the
acquisition on February 27, 1998.
(e) Of the total products acquired in the Sterile Products Acquisition,
one product, Fluogen, had gross sales of $23.0 million and $22.3
million in 1995 and 1996, respectively, but was not sold in 1997.
Fluogen was subject to a voluntary recall due to shelf life potency
concerns in 1996. Subsequent testing has established Fluogen's
shelf life potency and the Company reintroduced Fluogen in 1998. As
a result of Fluogen's not being sold, cost of goods sold in 1997
included approximately $7.1 million of unabsorbed overhead and
approximately $4.3 million of obsolete inventory.
(f) Represents the historical results for the Menest product line for
the period prior to its acquisition on June 30, 1998.
(g) Reflects the reclassification of depreciation expense of
approximately $4.0 million and $0.8 million from the Sterile
Products Acquisition to be consistent with the presentation of the
Company's financial statements for the year ended December 31, 1997
and the nine months ended September 30, 1998, respectively.
(h) The Company calculated the total selling, general and
administrative costs that would have been required had the
Cortisporin, Glaxo, Sterile Products, Proctocort and Viroptic
acquisitions been consummated as of January 1, 1997 and compared
this to the amount reflected in the historical financial statements
of the Company and the above acquisitions. There were additional
costs of $1.8 million and $0.1 million for the year ended December
31, 1997 and the nine months ended September 30, 1998,
respectively. The $1.8 million for the year ended December 31, 1997
was offset by the elimination of a voluntary severance charge of
$2.2 million related to the Sterile Products Acquisition.
(i) Includes amortization of intangible assets over 10 to 25 years for
the Proctocort and Viroptic Acquisitions and 25 years for the Glaxo
Acquisition, the Sterile Products Acquisition and the acquisition
of Menest, and depreciation of fixed assets from the Sterile
Products Acquisition over periods of 5 to 40 years.
(j) Represents increased interest expense based upon the pro forma
debt incurred under the prior bank facility at the rates indicated
below as if the Prior Bank Facility had been incurred as of the
beginning of the periods presented as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Revolving credit facility ($7.0 million) at
8%......................................... $ 560 $ 93
Tranche A loan ($90.0 million) at 8%......... 7,200 1,200
Tranche B loan ($85.0 million) at 8.25%...... 7,012 1,168
Amortization of financing costs on above
debt....................................... 883 150
Adjustment to net interest from assumed
retirement of existing debt................ (2,749) (819)
------- ------
$12,906 $1,792
======= ======
</TABLE>
(k) Adjustment to reflect a 40% effective tax rate applied to the
incremental pro forma net income before income taxes. A
reconciliation of the statutory tax rate to the assumed pro forma
tax rate is provided as follows:
<TABLE>
<S> <C>
Federal statutory rate...................................... 35.0%
State taxes, net of federal benefit......................... 4.0
Other....................................................... 1.0
----
40.0%
====
</TABLE>
(l) Reflects the elimination of an extraordinary loss of approximately
$0.3 million for the nine months ended September 30, 1998 related
to the write-off of certain debt issuance costs.
F-20
<PAGE> 23
KING PHARMACEUTICALS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
- ---------------
(2) Represents the historical results of the product lines included in the
Altace Acquisition (other than the historical international results of
Silvadene and AVC) for the periods prior to such Acquisition on December 22,
1998. See the special purpose statements of product contribution and related
notes included elsewhere in this Form 8-K/A.
(3) Represents the historical international results of Silvadene and AVC for the
periods prior to the acquisition on December 22, 1998. These results have
been determined by the Company solely based upon information provided to it
by HMR.
(4) Reflects additional costs of approximately $1.7 million and $1.5 million for
the year ended December 31, 1997 and the nine months ended September 30,
1998, based upon the five-year agreement with HMR to supply the Company with
Altace at a fixed contract cost.
(5) The Company has determined that the selling and advertising and promotion
expenses reported in the special purpose statements of product contribution
for the Altace Acquisition would not be reflective of the costs the Company
would have incurred utilizing its existing infrastructure and marketing
approach. As a result, the adjustment reflects a reduction of approximately
$8.2 million for the year ended December 31, 1997 which consists of $9.7
million of estimated selling costs savings, less $3.3 million of incremental
selling costs, plus $1.8 million of general and administrative cost savings.
For the nine months ended September 30, 1998, the $18.6 million adjustment
consists of $11.0 million of selling costs savings, plus $7.6 million of
general and administrative cost savings. The savings in selling costs were
determined as follows (in thousands, except full-time equivalent
representatives):
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Average selling cost per HMR
representative....................... $166.1 $ 129.7
Average selling cost per Company
representative....................... 75.0 56.3
------ -------
Savings per representative... $ 91.1 $ 73.4
====== =======
Full-time equivalent representatives... 106 150
------ -------
Estimated total savings...... $9,657 $11,010
====== =======
</TABLE>
The Company estimated that incremental selling costs for 44 additional
sales representatives of approximately $3.3 million would have been
incurred for the year ended December 31, 1997.
F-21
<PAGE> 24
KING PHARMACEUTICALS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
The Company estimated the total advertising and promotion costs, general,
administrative and distribution costs and the costs associated with the
implementation of the transitional services agreement that would have been
required had the Altace Acquisition been consummated as of January 1, 1997
and compared this to the amounts reflected in the special purpose
statements of product contribution for the Altace Acquisition. The
estimated savings is based on utilizing the Company's current
infrastructure and more limited advertising and promotion as compared to
that of HMR, offset in part by an increase in sampling costs. The Company
has estimated the savings in general and administrative costs related to
the Altace Acquisition as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
HMR reported:
Advertising and promotion as reported in the
special purpose statements of product
contribution............................... $12,549 $15,578
Company estimated costs:
Advertising and promotion.................... $ 9,200 $ 6,900
General, administrative and distribution..... 500 375
Transitional services agreement.............. 1,000 750
------- -------
Subtotal................................... 10,700 8,025
------- -------
$ 1,849 $ 7,553
======= =======
</TABLE>
(6) Represents amortization of intangible assets over 25 years for the Altace
Acquisition.
(7) Adjustment to reflect the increase in interest expense as a result of the
Altace Financing (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------ -------------------------
<S> <C> <C>
Revolving credit facility ($19.0 million at
8.56%)...................................... $ 1,626 $ 1,220
Tranche A loan ($150.0 million at 8.56%)...... 12,840 9,630
Tranche B loan ($275.0 million at 9.06%)...... 24,915 18,686
HMR Notes ($75.0 million at 10.0%)............ 7,500 5,625
Amortization of finance costs on above debt... 2,632 1,974
Adjustment to net interest from assumed
retirement of existing debt................. (15,295) (11,471)
-------- --------
$ 34,218 $ 25,664
======== ========
</TABLE>
(8) Adjustment to reflect a 40% effective tax rate applied to the incremental
pro forma net income before income taxes. A reconciliation of the statutory
tax rate to the assumed pro forma tax rate is provided below:
<TABLE>
<S> <C>
Federal statutory rate...................................... 35.0%
State taxes, net of federal benefit......................... 4.0
Other....................................................... 1.0
----
40.0%
====
</TABLE>
F-22
<PAGE> 25
(c) Exhibits.
The following exhibit is filed pursuant to Item 601 of
Regulation S-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KING PHARMACEUTICALS, INC.
Date: February 8, 1999
By: /s/ Brian G. Shrader
--------------------------------
Brian G. Shrader
Chief Financial Officer
