King Pharmaceuticals Reports Year-End and Fourth-Quarter 2006 Financial Results

King Pharmaceuticals, Inc. (NYSE:KG) announced today that total revenues increased 12% to a record high $1.99 billion during the year ended December 31, 2006, compared to $1.77 billion for 2005. Reported net income equaled $289 million and diluted earnings per share equaled $1.19 during the year ended December 31, 2006, compared to net income of $118 million and diluted earnings per share of $0.49 during the prior year. Excluding special items, net earnings increased to $423 million and diluted earnings per share increased to $1.74 for the twelve months ended December 31, 2006, from net earnings of $400 million and diluted earnings per share of $1.66 in 2005. Net income and diluted earnings per share, as reported and excluding special items, also achieved record highs in 2006. For the fourth quarter ended December 31, 2006, total revenues increased 21% to $513 million compared to $423 million in the fourth quarter of 2005. Reported net income equaled $37 million and diluted income per share equaled $0.15 during the fourth quarter of 2006, compared to a net loss of $95 million and diluted loss per share of $0.39 in the same period of the prior year. Excluding special items, net earnings equaled $99 million and diluted earnings per share equaled $0.41 during the fourth quarter ended December 31, 2006, compared to net earnings of $92 million and diluted earnings per share of $0.38 in the fourth quarter of 2005. Brian A. Markison, President and Chief Executive Officer of King, stated, "During 2006, King Pharmaceuticals achieved many important accomplishments which we believe are representative of the successful execution of our strategy for growth. Most notably, we continued to maximize the value of our existing products as evidenced by our record high total revenues of $1.99 billion. We also successfully focused our resources and talents on strengthening our product portfolio, particularly through our acquisition of AVINZA® (morphine sulfate extended release), a true once-a-day formulation of morphine.” Mr. Markison continued, "More recently, we expanded our THROMBIN-JMI® (thrombin, topical, bovine, USP) franchise with our acquisition of an exclusive license to Vascular Solutions’ hemostatic products, enabling King to offer physicians an even wider array of means to administer our topical hemostatic agent.” Mr. Markison added, "2006 was a productive year for our R&D organization. As previously announced, Dr. Eric Carter joined the Company as Chief Science Officer and we look forward to his leadership as we continue to advance our portfolio of compounds in development.” King’s Phase III products are led by REMOXY™, an abuse-deterrent formulation of long-acting oxycodone, which the Company is developing with Pain Therapeutics, Inc. Other Phase III products include our ramipril/hydrochlorothiazide combination product, VANQUIX®, a diazepam-filled auto-injector for breakthrough epileptic seizures, and binodenoson, the Company’s second generation cardiac stress imaging agent. King’s Phase II compounds include bremelanotide, a treatment for sexual dysfunction in both men and women, which is the subject of the Company’s collaboration with Palatin Technologies, Inc. and MRE-0094, a wound healing agent for the treatment of diabetic foot ulcers. The Company is also developing T-62, a potential major advance in the treatment of neuropathic pain, which is expected to enter Phase II clinical trials during the first half of this year. As of December 31, 2006, the Company’s cash and cash equivalents and investments in debt securities totaled approximately $1.0 billion. During the fourth quarter of 2006 and for the year ended December 31, 2006, the Company generated cash flow from operations of approximately $168 million and $466 million, respectively. Joseph Squicciarino, King’s Chief Financial Officer, stated, "Our 2006 accomplishments provide us with a solid foundation for the coming year. In 2007, we will continue to prudently invest in research and development and focus our business development initiatives on expanding our development pipeline, as we work to add value for our shareholders. Accordingly, we plan to invest more in research and development this year than we did in 2006.” Net revenue from branded pharmaceuticals totaled $455 million for the fourth quarter of 2006, a 25% increase from the fourth quarter of 2005, and equaled $1.7 billion for the year ended December 31, 2006, a 12% increase from $1.5 billion during the prior year. ALTACE® (ramipril) net sales totaled $181 million during the fourth quarter and $653 million for the year ended December 31, 2006, compared to $150 million during the fourth quarter and $554 million during the twelve months ended December 31, 2005. Net sales of SKELAXIN® (metaxalone) totaled $113 million during the fourth quarter and $415 million for the year ended December 31, 2006, compared to $70 million during the fourth quarter and $345 million during the twelve months ended December 31, 2005. THROMBIN-JMI® net sales totaled $56 million during the fourth quarter and $247 million for the year ended December 31, 2006, compared to $51 million during the fourth quarter and $221 million during the twelve months ended December 31, 2005. Net sales of SONATA® (zaleplon) totaled $22 million during the fourth quarter and $86 million for the year ended December 31, 2006, compared to $25 million during the fourth quarter and $83 million during the twelve months ended December 31, 2005. LEVOXYL® (levothyroxine sodium tablets, USP) net sales totaled $27 million during the fourth quarter and $112 million for the year ended December 31, 2006, compared to $22 million during the fourth quarter and $140 million during the twelve months ended December 31, 2005. Wholesale inventories of King’s key branded products were all below one month as of December 31, 2006. King’s Meridian Medical Technologies business contributed revenue totaling $32 million during the fourth quarter of 2006 and $165 million for the twelve months ended December 31, 2006, compared to $32 million during the fourth quarter and $129 million during the twelve months ended December 31, 2005. Royalty revenues, derived primarily from ADENOSCAN® (adenosine), totaled $20 million during the fourth quarter of 2006 and $80 million for the year ended December 31, 2006. For the fourth quarter and twelve months ended December 31, 2006, net revenue from contract manufacturing equaled $3 million and $17 million, respectively. Webcast Information King will conduct a webcast today which may include discussion of the Company’s marketed products, pipeline, strategy for growth, financial results and expectations, and other matters relating to its business. Interested persons may listen to the webcast on Wednesday, February 28, 2007, at 11:00 a.m., E.S.T. by clicking the following link to register and then joining the live event with the same URL: http://www.kingpharm.com/web_casts.asp If you are unable to participate during the live event, the webcast will be archived on King’s web site at the same link for not less than 14 days after the webcast. About Special Items Under Generally Accepted Accounting Principles ("GAAP”), reported "net earnings” and "diluted earnings per share” include special items. In addition to the reported results determined in accordance with GAAP, King provides its net earnings and diluted earnings per share results for the quarters and twelve months ended December 31, 2006 and 2005, excluding special items. These non-GAAP financial measures exclude special items which are those particular material income or expense items that King considers to be unrelated to the Company’s ongoing, underlying business, non-recurring, or not generally predictable. Such items include, but are not limited to, merger and restructuring expenses; non-capitalized expenses associated with acquisitions, such as in-process research and development charges and one-time inventory valuation adjustment charges; charges resulting from the early extinguishment of debt; asset impairment charges; expenses of drug recalls; and gains and losses resulting from the divestiture of assets. King believes the identification of special items enhances the analysis of the Company’s ongoing, underlying business and the analysis of the Company’s financial results when comparing those results to that of a previous or subsequent like period. However, it should be noted that the determination of whether to classify an item as a special item involves judgments by King’s management. A reconciliation of non-GAAP financial measures referenced herein and King’s reported financial results determined in accordance with GAAP is provided below. 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. 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 expected advances in the Company’s development pipeline, including advances with respect to the development of T-62; statements pertaining to the Company’s expected investment in research and development for 2007; statements pertaining to the Company’s business development initiatives; statements pertaining to the Company’s planned use of cash; and statements pertaining to the Company’s planned webcast to discuss its fourth quarter and year-end 2006 results. 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 King’s ability to continue to acquire branded products, including products in development; dependence on King’s ability to continue to successfully execute the Company’s strategy and to continue to capitalize on strategic opportunities in the future for sustained long-term growth; dependence on King’s ability to successfully integrate its acquisitions; dependence on the Company’s ability to continue to advance the development of its pipeline products as planned; dependence on the high cost and uncertainty of research, clinical trials, and other development activities involving pharmaceutical products in which King has an interest; dependence on the unpredictability of the duration and results of the U. S. Food and Drug Administration’s ("FDA”) review of Investigational New Drug applications ("IND”), New Drug Applications ("NDA”), and Abbreviated New Drug Applications ("ANDA”) and/or the review of other regulatory agencies worldwide that relate to those projects; dependence on the availability and cost of raw materials; dependence on no material interruptions in supply by contract manufacturers of King’s products; dependence on the potential effect on sales of the Company’s existing branded pharmaceutical products as a result of the potential development and approval of a generic substitute for any such product or other new competitive products; dependence on the potential effect of future acquisitions and other transactions pursuant to the Company’s growth strategy; dependence on whether King incurs research and development expenses as planned; dependence on King’s compliance with FDA and other government regulations that relate to the Company’s business; dependence on King’s ability to conduct its webcast as currently planned on February 28, 2007; dependence on changes in general economic and business conditions; changes in current pricing levels; changes in federal and state laws and regulations; changes in competition; unexpected changes in technologies and technological advances; and manufacturing capacity constraints. 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, 2005 and Form 10-Q for the quarter ended September 30, 2006, which are on file with the U.S. Securities and Exchange Commission ("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.   KING PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)       December 31, December 31, 2006  2005    ASSETS Current assets: Cash and cash equivalents $ 113,777  $ 30,014  Investments in debt securities 890,185  494,663  Restricted cash -  130,400  Accounts receivable, net 265,467  223,581  Inventories 215,458  228,063  Deferred income tax assets 81,991  81,777  Prepaid expenses and other current assets 106,595  59,291  Total current assets 1,673,473  1,247,789  Property, plant and equipment, net 307,036  302,474  Intangible assets, net 851,391  967,194  Goodwill 121,152  121,152  Deferred income tax assets 271,554  231,032  Marketable securities 11,578  18,502  Other assets 93,347  77,099  Total assets $ 3,329,531  $ 2,965,242    LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 77,158  $ 84,539  Accrued expenses 510,137  519,620  Income taxes payable 30,501  22,301  Current portion of long-term debt -  345,000  Total current liabilities 617,796  971,460    Long-term debt 400,000  -  Other liabilities 23,129  20,360  Total liabilities 1,040,925  991,820    Commitments and contingencies Shareholders’ equity: Common shares no par value, 600,000,000 shares authorized, 243,151,223 and 242,493,416 shares issued and outstanding, respectively 1,244,986  1,213,482  Retained earnings 1,043,902  754,953  Accumulated other comprehensive income (282) 4,987  Total shareholders’ equity 2,288,606  1,973,422  Total liabilities and shareholders’ equity $ 3,329,531  $ 2,965,242  KING PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) (in thousands, except per share data)       Three Months Ended Twelve Months Ended December 31, December 31, 2006    2005  2006    2005  REVENUES: Total revenues $ 512,914  $ 423,285  $ 1,988,500  $ 1,772,881  OPERATING COSTS AND EXPENSES: Cost of revenues, exclusive of depreciation, amortization and impairments shown below 113,883  74,305  419,808  331,564  Excess purchase commitment -  (4,527) -  (6,109) Writeoff of acquisition related inventory step-up/recall -  (2,470) -  (2,470) Total cost of revenues 113,883  67,308  419,808  322,985  Selling, general and administrative, exclusive of co-promotion fees 130,465  97,029  450,982  389,672  Special legal and professional fees 1,142  6,511  105  19,779  Arbitration settlement 45,128  -  45,128  -  Mylan transaction costs -  -  -  3,898  Co-promotion fees 55,135  60,546  217,750  223,134  Total selling, general, and administrative expense 231,870  164,086  713,965  636,483  Depreciation and amortization 35,318  34,351  144,591  147,049  Accelerated depreciation 1,486  -  2,958  -  Research and development 40,665  20,994  143,596  74,015  Research and development-In-process upon acquisition -  188,711  110,000  188,711  Intangible asset impairment 47,563  94,131  47,842  221,054  Restructuring charges -  1,577  3,194  4,180  Gain on sale of products -  (217) -  (1,675) Total operating costs and expenses 470,785  570,941  1,585,954  1,592,802    OPERATING INCOME (LOSS) 42,129  (147,656) 402,546  180,079  OTHER INCOME (EXPENSE): Interest expense (1,932) (3,055) (9,857) (11,931) Interest income 9,310  6,712  32,152  18,175  Loss on investment -  -  -  (6,182) (Loss) gain on early extinguishment of debt (70) -  628  -  Other, net (544) 21  (1,157) (2,026) Total other income (expense) 6,764  3,678  21,766  (1,964) INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 48,893  (143,978) 424,312  178,115  Income tax expense (benefit) 11,799  (49,817) 135,730  61,485  INCOME (LOSS) FROM CONTINUING OPERATIONS 37,094  (94,161) 288,582  116,630  DISCONTINUED OPERATIONS: (Loss) income from discontinued operations (203) (731) 572  1,876  Income tax (benefit) expense (73) (316) 205  673  Total (loss) income from discontinued operations (130) (415) 367  1,203  NET INCOME (LOSS) $ 36,964  $ (94,576) $ 288,949  $ 117,833    Basic net income (loss) per common share $ 0.15  $ (0.39) $ 1.19  $ 0.49    Diluted net income (loss) per common share $ 0.15  $ (0.39) $ 1.19  $ 0.49    Shares used in basic net income (loss) per share 242,298  241,794  242,196  241,751  Shares used in diluted net income (loss) per share 243,062  241,794  242,799  241,903    KING PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF INCOME EXCLUDING SPECIAL ITEMS - NON GAAP (in thousands, except per share data) (Unaudited)     Three Months Ended Twelve Months Ended December 31, December 31, 2006    2005  2006    2005  REVENUES: Total revenues $ 512,914  $ 423,285  $ 1,988,500  $ 1,772,881  OPERATING COSTS AND EXPENSES: Cost of revenues, exclusive of depreciation and amortization shown below 113,883  74,305  419,808  331,564  Selling, general and administrative, exclusive of co-promotion fees 130,465  97,029  450,982  389,672  Co-promotion fees 55,135  60,546  217,750  223,134  Total selling, general, and administrative expense 185,600  157,575  668,732  612,806  Depreciation and amortization 35,318  34,351  144,591  147,049  Research and development 40,665  20,994  143,596  74,015  Total operating costs and expenses 375,466  287,225  1,376,727  1,165,434    OPERATING INCOME 137,448  136,060  611,773  607,447  OTHER INCOME (EXPENSE): Interest expense (1,932) (3,055) (9,857) (11,931) Interest income 9,310  6,712  32,152  18,175  Other, net (544) 21  (1,157) (2,026) Total other income 6,834  3,678  21,138  4,218  INCOME BEFORE INCOME TAXES 144,282  139,738  632,911  611,665  Income tax expense 45,532  47,419  210,222  211,186  NET INCOME $ 98,750  $ 92,319  $ 422,689  $ 400,479      Basic net income per common share $ 0.41  $ 0.38  $ 1.75  $ 1.66    Diluted net income per common share $ 0.41  $ 0.38  $ 1.74  $ 1.66    Shares used in basic net income per share 242,298  241,794  242,196  241,751  Shares used in diluted net income per share 243,062  242,121  242,799  241,903    KING PHARMACEUTICALS, INC. RECONCILIATION OF NON-GAAP MEASURES (in thousands, except per share data) (Unaudited)     The following tables reconcile Non-GAAP measures to amounts reported under GAAP:       Three Months Ended December 31, 2006 Twelve Months Ending December 31, 2006 EPS EPS   Net income, excluding special items $ 98,750  $ 422,689  Diluted income per common share, excluding special items $ 0.41  $ 1.74  SPECIAL ITEMS: Special legal and professional fees (selling, general, and administrative) (1,142) (0.00) (105) (0.00) Arbitration settlement (selling, general, and administrative) (45,128) (0.19) (45,128) (0.19) Accelerated depreciation (other operating costs and expenses) (1,486) (0.01) (2,958) (0.01) Research and development -In-process upon acquisition (other operating costs and expenses) -  -  (110,000) (0.45) Intangible asset impairment (other operating costs and expenses) (47,563) (0.20) (47,842) (0.20) Restructuring charges (other operating costs and expenses) -  -  (3,194) (0.01) (Loss) gain on early extinguishment of debt (other income (expense)) (70) (0.00) 628  0.00  (Loss) income from discontinued operations (203) (0.00) 572  0.00  Total special items before income taxes (95,592) (0.40) (208,027) (0.86) Income tax benefit from special items 33,806  0.14  74,287  0.31  Net income $ 36,964    $ 288,949    Diluted income per common share, as reported under GAAP $ 0.15  $ 1.19            Three Months Ended December 31, 2005 Twelve Months Ending December 31, 2005 EPS EPS   Net income, excluding special items $ 92,319  $ 400,479  Diluted income per common share, excluding special items $ 0.38  $ 1.66  SPECIAL ITEMS: Excess purchase commitment (cost of goods sold) 4,527  0.02  6,109  0.03  Writeoff of acquisition related inventory step-up/recall (cost of goods sold) 2,470  0.01  2,470  0.01  Special legal and professional fees (selling, general, and administrative) (6,511) (0.03) (19,779) (0.08) Mylan transaction costs (selling, general, and administrative) -  -  (3,898) (0.02) Research and development -In-process upon acquisition (other operating costs and expenses) (188,711) (0.78) (188,711) (0.78) Intangible asset impairment (other operating costs and expenses) (94,131) (0.39) (221,054) (0.91) Restructuring charges (other operating costs and expenses) (1,577) (0.00) (4,180) (0.02) Gain on sale of products (other operating costs and expenses) 217  0.00  1,675  0.01  Loss on investment (other income (expense)) -  -  (6,182) (0.03) (Loss) income from discontinued operations (731) (0.00) 1,876  0.01  Total special items before income taxes (284,447) (1.17) (431,674) (1.78) Income tax benefit from special items 97,552  0.40  149,028  0.61  Net (loss) income $ (94,576)   $ 117,833    Diluted (loss) income per common share, as reported under GAAP $ (0.39) $ 0.49  KING PHARMACEUTICALS, INC. SUMMARY RECONCILIATION OF SPECIAL ITEMS FOR THE FOURTH QUARTERS ENDED DECEMBER 31, 2006 AND 2005   King recorded special items during the fourth quarter ended December 31, 2006, resulting in a net charge of $96 million, or $62 million net of tax, primarily due to (i) an intangible asset impairment charge totaling $48 million related to Intal® and Tilade®, and (ii) a $45 million charge for an arbitration award liability arising from the Company's termination of a Sonata® development agreement.   During the fourth quarter ended December 31, 2005, King recorded special items resulting in a net charge of $284 million, or $187 million net of tax, primarily due to (i) a $189 million charge for acquired in-process research and development associated with King's entry into a strategic collaboration with Pain Therapeutics, Inc. regarding Remoxy(TM) and up to three additional abuse-deterrent opioid painkillers, and (ii) intangible asset impairment charges totaling $94 million primarily related to Sonata® and Corzide®. KING PHARMACEUTICALS, INC. SUMMARY RECONCILIATION OF SPECIAL ITEMS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005   King recorded special items during the year ended December 31, 2006, resulting in a net charge of $208 million, or $134 million net of tax, primarily due to (i) a $110 million charge for acquired in-process research and development associated with King's entry into a strategic collaboration with Arrow and certain of its affiliates to commercialize novel formulations of ramipril, (ii) an intangible asset impairment charge totaling $48 million related to Intal® and Tilade®, and (iii) a $45 million charge for an arbitration award liability arising from the Company's termination of a Sonata® development agreement.   During the year ended December 31, 2005, King recorded special items resulting in a net charge of $432 million, or $283 million net of tax, primarily due to (i) intangible asset impairment charges totaling $221 million primarily related to Sonata® and Corzide®, (ii) a $189 million charge for acquired in-process research and development associated with King's entry into a strategic collaboration with Pain Therapeutics, Inc. regarding Remoxy(TM) and up to three additional abuse-deterrent opioid painkillers, and (iii) a charge of $20 million primarily related to professional fees associated with government inquiries and private plaintiff securities litigation.