WOODCLIFF LAKE, N.J., July 10 /PRNewswire-FirstCall/ -- Par Pharmaceutical Companies, Inc. today filed with the U.S. Securities and Exchange Commission its Form 10-Q/A that restates previously issued consolidated financial statements for the first quarters of 2006 and 2005. Par previously disclosed that, due to inadvertent accounting errors, it would restate its consolidated financial statements for certain prior periods. Today, Par also filed its Form 10-Q/A for the second quarter of 2006. This filing supplements the company’s original Form 10-Q filing which did not include Part I, Item 1 (Condensed Consolidated Financial Statements) and Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations). Par intends to file its Form 10-Q/A for the third quarter of 2006, its Form 10-K for 2006 and its Form 10-Q for the first quarter of 2007 at the earliest practicable date.
The table below sets forth the impact of the restatement adjustments on the company’s reported net income for the three months ended April 1, 2006.
Net Income (in millions) 2006 Previously Reported Net Income $8.4 Restatement Adjustments: Pre-tax Restatement Adjustments (6.1) Tax effect of Restatement Adjustments 2.2 After tax Restatement Adjustments (3.9) Net Income, as Restated $4.5
The restatement adjustments relate primarily to write-offs of inventory and increases in revenue reserves.
The restatement has not impacted the company’s ongoing sales and operations. Par currently has cash, cash equivalents and available for sale securities on hand of approximately $325 million, including approximately $60 million of non-recurring net collections principally relating to business development activities, tax refunds, the sale of certain investments and settlements with various partners and customers. There has been no increase in the company’s borrowings in 2006 or 2007. Par’s cash balances are subject to fluctuation based upon the timing of payments due to the company’s distribution agreement partners.
Second-Quarter and Six-Month Results
For the second quarter ended July 1, 2006, Par reported total revenues of $195.2 million and a net loss of $7.2 million, or $0.21 loss per diluted share. This is compared with reported revenues of $131.6 million, net income of $7.2 million and diluted earnings per share of $0.21 for the same period in 2005. For the six months ended July 1, 2006, Par reported total revenues of $367.6 million and a net loss of $2.7 million, or $0.08 loss per diluted share. This is compared with reported revenues of $234.6 million, net income of $8.2 million and diluted earnings per share of $0.24 for the first six months of 2005. Second-quarter reported, or GAAP results, include a write-off of approximately $10.0 million of accounts receivable relating to invalid customer deductions, the collection of which the company has determined it would no longer pursue, and more than $5.0 million of expense relating to the write-down of an equity investment and an arbitration settlement, both of which are discussed in more detail below. Adjusting for these items, net income for the second quarter 2006 was $2.1 million, or $0.06 per diluted share, and net income for the first six months of 2006 was $6.6 million, or $0.19 per diluted share.
Effective January 1, 2006, Par began recording stock-based compensation in accordance with SFAS 123R. As a result, Par recognized $3.4 million of stock option expense in the second quarter of 2006 and $7.4 million of stock option expense for the first six months of 2006.
Second-Quarter Review
For the second quarter of 2006, total revenues increased 48 percent compared with the same period a year ago, due primarily to the introduction of new products. Among the products introduced since the second quarter of 2005, fluticasone nasal spray achieved sales of $77.2 million; cabergoline contributed sales of $11.9 million; sales of Megace(R) ES reached $8.5 million; and the various amoxicillin products totaled $8.3 million in the second quarter of 2006. Partially offsetting these increases were reduced sales of tramadol HCl and acetaminophen tablets, which declined by $30.7 million from the second quarter of 2005, and paroxetine, which decreased by $10.6 million from the second quarter of 2005, due to competitive pressures.
Par’s second quarter gross margin was 28 percent of sales, compared to 48 percent in 2005. The decrease in the company’s gross margin reflects, in part, the introduction of fluticasone nasal spray, the amoxicillin products and cefprozil. After profit sharing arrangements with the company’s partners, these products have significantly lower gross margin percentages than many of the products sold by the company in the second quarter of 2005. Reduced sales of higher margin tramadol HCl and acetaminophen tablets also contributed to the lower quarterly gross margin. Other factors reducing the company’s gross margin included increased inventory write-offs of $3.2 million and an increased amortization expense of $2 million relating to new product acquisitions.
Second-quarter selling, general and administrative (SG&A) expense increased 72 percent to $42.9 million. This increase was primarily driven by the previously discussed $10 million write-off of accounts receivable, marketing and selling support behind the company’s first branded product, Megace(R) ES, which was launched in the third quarter of 2005, and the implementation of SFAS 123R. Research and development (R&D) expense decreased 3 percent to $17.6 million in the second quarter of 2006.
In August 2006, Par and its distribution partner, Genpharm Inc., entered into a settlement agreement of arbitration proceedings to resolve ongoing disputes between the two parties. Par recorded $1.5 million of expenses in the second quarter of 2006 as a result of this settlement, $1.25 million of which was recorded in other expense, net. The remainder was included in R&D expense.
In the second quarter of 2006, Par wrote down its equity investment in Abrika Pharmaceuticals LLP resulting in an expense of $3.8 million because the terms of the merger agreement between Abrika and the Actavis Group, dated November 20, 2006, indicated that Par’s investment was impaired. In June 2007, Par received $4.6 million for its equity stake in Abrika.
For a copy of Par’s Form 10-Q/As for the quarterly periods ended April 1, 2006 and July 1, 2006, visit Investors/SEC Filings on the Par Web site at www.parpharm.com.
Non-GAAP Measures
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). In an effort to provide investors with additional information regarding the company’s results and to provide a meaningful year-over-year comparison of the company’s financial performance, we sometimes use non-GAAP financial measures as defined by the Securities and Exchange Commission. The differences between the U.S. GAAP and non-GAAP financial measures are reconciled in the attached. In presenting comparable results, the company discloses non-GAAP financial measures when it believes such measures will be useful to investors in evaluating the company’s underlying business performance. Management uses the non-GAAP financial measures to evaluate the company’s financial performance against internal budgets and targets. In addition, management internally reviews the results of the company excluding the impact of certain items as it believes that these non-GAAP financial measures are useful for evaluating the company’s core operating results and facilitating comparison across reporting periods. Importantly, the company believes non-GAAP financial measures should be considered in addition to, and not in lieu of U.S. GAAP financial measures. The company’s non-GAAP financial measures may be different from non-GAAP financial measures used by other companies.
About Par
Par Pharmaceutical Companies, Inc. develops, manufactures and markets generic drugs and innovative branded pharmaceuticals for specialty markets. For press release and other company information, visit www.parpharm.com.
Safe Harbor Statement
Certain statements in this press release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent any statements made in this news release contain information that is not historical, these statements are essentially forward- looking and as such, are subject to risks and uncertainties, including the extent and impact of litigation arising out of the accounting issue described in this and prior public announcements, including the lawsuit brought against the company by the trustee for the company’s Senior Subordinated Convertible Notes seeking an accelerated payment of the $200 million of principal of and accrued interest on the notes or, in the alternative, damages, the difficulty of predicting FDA filings and approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, uncertainty of patent litigation filed against the company, availability of raw materials, the regulatory environment, fluctuations in operating results and other risks and uncertainties detailed from time to time in the company’s filings with the Securities and Exchange Commission (SEC), such as the company’s reports on Form 10-K, Form 10-Q, and Form 8-K, and amendments thereto. The company can make no assurance as to the potential effects of the restatement, including the effects of any investigations, informal or otherwise, conducted by the SEC, or other entities, or lawsuits filed against the company in connection therewith. Any forward-looking statements included in this press release are made as of the date here of only, based on information available to the company as of the date hereof, and, subject to any applicable law to the contrary, the company assumes no obligation to update any forward-looking statements.
PAR PHARMACEUTICAL COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) April 1, December 31, ASSETS 2006 2005 (Restated) Current assets: Cash and cash equivalents $45,702 $93,477 Available for sale debt and marketable equity securities 103,092 103,066 Accounts receivable, net 151,362 62,362 Inventories 107,562 96,393 Prepaid expenses and other current assets 14,393 18,759 Deferred income tax assets 75,678 69,256 Income taxes receivable 18,859 18,859 Assets held for sale - 1,944 Total current assets 516,648 464,116 Property, plant and equipment, at cost less accumulated depreciation and amortization 86,983 87,570 Available for sale debt and marketable equity securities 4,143 3,741 Investment in joint venture 4,161 4,153 Other investments 23,651 21,741 Intangible assets, net 45,509 36,235 Goodwill 58,729 58,729 Deferred charges and other assets 17,306 8,828 Non-current deferred income tax assets, net 50,274 50,917 Total assets $807,404 $736,030 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Short-term and current portion of long-term debt $1,905 $3,011 Accounts payable 50,736 56,412 Payables due to distribution agreement partners 99,751 46,937 Accrued salaries and employee benefits 7,729 12,780 Accrued expenses and other current liabilities 28,372 25,739 Income taxes payable 19,106 9,683 Liabilities held for sale - 1,944 Total current liabilities 207,599 156,506 Long-term debt, less current portion 201,953 202,001 Other long-term liabilities 345 335 Commitments and contingencies Stockholders’ equity: Preferred stock, par value $0.0001 per share; authorized 6,000,000 shares; no shares issued and outstanding - - Common stock, par value $0.01 per share; authorized: 90,000,000 shares; issued: 35,885,074 and 35,114,026 shares 359 351 Additional paid-in capital 232,371 217,403 Retained earnings 198,028 193,515 Accumulated other comprehensive loss (506) (1,903) Treasury stock, at cost, 866,042 and 848,588 shares (32,745) (32,178) Total stockholders’ equity 397,507 377,188 Total liabilities and stockholders’ equity $807,404 $736,030 PAR PHARMACEUTICAL COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended April 1, April 2, 2006 2005 (Restated) (Restated) Revenues: Net product sales $169,037 $93,330 Other product related revenues 3,281 9,644 Total revenues 172,318 102,974 Cost of goods sold 123,150 65,679 Gross margin 49,168 37,295 Operating expenses: Research and development 13,852 15,384 Selling, general and administrative 28,342 20,377 Total operating expenses 42,194 35,761 Operating income 6,974 1,534 Other expense, net (39) (26) Equity loss from joint venture (253) (36) Net investment gain - 1,353 Interest income 1,983 1,331 Interest expense (1,694) (1,715) Income from continuing operations before provision for income taxes 6,971 2,441 Provision for income taxes 2,457 785 Income from continuing operations 4,514 1,656 Discontinued operations: Loss from discontinued operations - (1,156) Benefit for income taxes - (439) Loss from discontinued operations - (717) Net income $4,514 $939 Basic income (loss) per share of common stock: Income from continuing operations $ 0.13 $ 0.05 Loss from discontinued operations - (0.02) Net income $0.13 $ 0.03 Diluted income (loss) per share of common stock: Income from continuing operations $ 0.13 $ 0.05 Loss from discontinued operations - (0.02) Net income $0.13 $ 0.03 Weighted average number of common shares outstanding: Basic 34,259 34,137 Diluted 34,766 34,646 PAR PHARMACEUTICAL COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) July 1, December 31, ASSETS 2006 2005 Current assets: Cash and cash equivalents $65,024 $93,477 Available for sale debt and marketable equity securities 98,121 103,066 Accounts receivable, net 125,924 62,362 Inventories 109,305 96,393 Prepaid expenses and other current assets 12,016 18,759 Deferred income tax assets 75,678 69,256 Income taxes receivable 18,859 18,859 Assets held for sale - 1,944 Total current assets 504,927 464,116 Property, plant and equipment, at cost less accumulated depreciation and amortization 89,419 87,570 Available for sale debt and marketable equity securities 4,151 3,741 Investment in joint venture 4,224 4,153 Other investments 19,558 21,741 Intangible assets, net 42,443 36,235 Goodwill 58,729 58,729 Deferred charges and other assets 16,324 8,828 Non-current deferred income taxes, net 50,507 50,917 Total assets $790,282 $736,030 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Short-term and current portion of long-term debt $833 $3,011 Accounts payable 45,740 56,412 Payables due to distribution agreement partners 103,935 46,937 Accrued salaries and employee benefits 10,378 12,780 Accrued expenses and other current liabilities 17,058 25,739 Income taxes payable 15,057 9,683 Liabilities held for sale - 1,944 Total current liabilities 193,001 156,506 Long-term debt, less current portion 201,908 202,001 Other long-term liabilities 345 335 Stockholders’ equity: Preferred Stock, par value $.0001 per share, authorized 6,000,000 shares; none issued and outstanding - - Common Stock, par value $.01 per share, authorized 90,000,000 shares, issued 35,903,728 and 35,114,026 shares 359 351 Additional paid-in-capital 237,412 217,403 Retained earnings 190,824 193,515 Accumulated other comprehensive loss (822) (1,903) Treasury stock, at cost 869,845 and 848,588 shares (32,745) (32,178) Total stockholders’ equity 395,028 377,188 Total liabilities and stockholders’ equity $790,282 $736,030 PAR PHARMACEUTICAL COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three months ended Six months ended July 1, July 2, July 1, July 2, 2006 2005 2006 2005 (Restated) (Restated) Revenues: Net product sales $190,583 $127,473 $359,620 $220,802 Other product related revenues 4,655 4,127 7,937 13,772 Total revenues 195,238 131,600 367,557 234,574 Cost of goods sold 140,471 67,886 263,621 133,565 Gross margin 54,767 63,714 103,936 101,009 Operating expenses: Research and development 17,557 18,032 31,409 33,416 Selling, general and administrative 42,941 24,946 71,283 45,323 Total operating expenses 60,498 42,978 102,692 78,739 Operating (loss) income (5,731) 20,736 1,244 22,270 Other expense, net (1,108) (181) (1,146) (207) Equity loss from joint venture (225) (106) (479) (142) Net investment loss (3,773) (6,477) (3,773) (5,124) Interest income 1,973 1,110 3,956 2,441 Interest expense (1,693) (1,719) (3,388) (3,434) (Loss) income from continuing operations before (benefit) provision for income taxes (10,557) 13,363 (3,586) 15,804 (Benefit) provision for income taxes (3,352) 5,311 (896) 6,096 (Loss) income from continuing operations (7,205) 8,052 (2,690) 9,708 Discontinued operations: Loss from discontinued operations - (1,338) - (2,494) Benefit for income taxes - (508) - (947) Loss from discontinued operations - (830) - (1,547) Net (loss) income $(7,205) $7,222 $(2,690) $8,161 Basic earnings (loss) per share of common stock: (Loss) income from continuing operations $(0.21) $0.24 $(0.08) $0.28 Loss from discontinued operations - (0.03) - (0.04) Net (loss) income $(0.21) $0.21 $(0.08) $0.24 Diluted earnings (loss) per share of common stock: (Loss) income from continuing operations $(0.21) $0.23 $(0.08) $0.28 Loss from discontinued operations - (0.02) - (0.04) Net (loss) income $(0.21) $0.21 $(0.08) $0.24 Weighted average number of common shares outstanding: Basic 34,454 34,186 34,368 34,081 Diluted 34,454 34,467 34,368 34,487 Reconciliation Between Reported(GAAP) and Adjusted Net Income (Loss) (In thousands, except share data) (Unaudited) Three Months Ended July 1, July 2, 2006 2005 Reported Net Income (Loss) ($7,205) $7,222 Write-off of Accounts Receivable Relating to Invalid Customer Deductions 9,965 - Net Investment Loss 3,773 6,477 Arbitration Settlement 1,502 - Estimated tax on adjustments (5,944) (2,526) Adjusted Net Income (non-GAAP measure) $2,091 $11,173 Diluted Earnings (Loss) Per Share: Reported ($0.21) $0.21 Adjusted (non-GAAP measure) $0.06 $0.32 Six Months Ended July 1, July 2, 2006 2005 Reported Net Income (Loss) ($2,690) $8,161 Write-off of Accounts Receivable Relating to Invalid Customer Deductions 9,965 - Net Investment Loss 3,773 5,124 Arbitration Settlement 1,502 - Estimated tax on adjustments (5,944) (1,998) Adjusted Net Income (non-GAAP measure) $6,606 $11,287 Diluted Earnings (Loss) Per Share: Reported ($0.08) $0.24 Adjusted (non-GAAP measure) $0.19 $0.33
Par Pharmaceutical Companies, Inc.
CONTACT: Investors, Stephen J. Mock, or media, Peter Wolf, both of ParPharmaceutical Companies, Inc., +1-201-802-4000
Web site: http://www.parpharm.com//
