-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TUP6fPRqmupp9wPZ9sa4W2hnXS1PLz/gj9/KkxveKBcXXhURDda+TGUwgGJjOk+X nDb3T62mHeteLgwN+GEwjA== 0001011240-98-000064.txt : 19981118 0001011240-98-000064.hdr.sgml : 19981118 ACCESSION NUMBER: 0001011240-98-000064 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KV PHARMACEUTICAL CO /DE/ CENTRAL INDEX KEY: 0000057055 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 430618919 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09601 FILM NUMBER: 98749471 BUSINESS ADDRESS: STREET 1: 2503 S HANLEY RD CITY: ST LOUIS STATE: MO ZIP: 63144 BUSINESS PHONE: 3146456600 MAIL ADDRESS: STREET 1: 2503 S HANLEY RD CITY: ST LOUIS STATE: MO ZIP: 63144 10-Q 1 FORM 10-Q FOR PERIOD ENDING 09/30/98 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (X) Quarterly report for the quarterly period ended September 30, 1998 OR ( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Commission file number 1-9601 K-V PHARMACEUTICAL COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 43-0618919 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2503 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63144 - -------------------------------------------------------------------------------- (Address or principal executive offices) (Zip Code) (314) 645-6600 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Title of Class of Number of Shares Common Stock Outstanding as of this Report Date ----------------- ---------------------------------- Class A Common Stock, par value $.01 per share 11,816,681 Class B Common Stock, par value $.01 per share 6,394,091 PART 1 FINANCIAL INFORMATION KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Six Months Ended September 30, 1998 and 1997 (Unaudited)
For the Three For the Six Months Ended Months Ended ----------------------------- ---------------------------- 09/30/98 09/30/97 09/30/98 09/30/97 -------- -------- -------- -------- Net Revenues $26,405,634 $21,770,489 $52,075,305 $39,883,537 ----------- ----------- ----------- ----------- Costs and Expenses: Manufacturing costs and expenses 14,646,533 12,427,769 29,801,420 22,649,059 Research and development 1,662,020 1,461,396 3,305,472 2,969,117 Selling and administrative 5,329,972 4,243,114 10,186,481 7,832,632 Amortization of intangible assets 40,155 67,344 82,459 117,358 ---------- ---------- ---------- ----------- Total costs and expenses 21,678,680 18,199,623 43,375,832 33,568,166 ---------- ---------- ---------- ---------- Operating income 4,726,954 3,570,866 8,699,473 6,315,371 ---------- ---------- ---------- ---------- Other income (expense): Interest expense (112,292) (131,724) (225,774) (206,676) Interest and other income 341,250 116,578 632,133 208,392 ---------- ---------- ---------- ---------- Total other income (expense) 228,958 (15,146) 406,359 1,716 ---------- ---------- ---------- ---------- Income before income taxes 4,955,912 3,555,720 9,105,832 6,317,087 Provision for income taxes 1,894,000 1,373,588 3,473,500 2,294,088 ---------- ---------- ---------- ---------- Net Income $ 3,061,912 $ 2,182,132 $ 5,632,332 $ 4,022,999 =========== =========== =========== =========== Net Income per Common Share-Basic (after deducting preferred dividends of $105,438 in each of the three- month periods and $210,876 in each of the six-month periods of 1998 and 1997, respectively. $ 0.16 $ 0.11 $ 0.30 $ 0.21 ===== ===== ===== ===== Net Income per Common Share-Diluted $ 0.15 $ 0.11 $ 0.28 $ 0.20 ===== ===== ===== =====
See Accompanying Notes to Consolidated Financial Statements KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 1998 and March 31, 1998 (Unaudited) 09/30/98 03/31/98 -------- -------- ASSETS - ------ Current Assets: Cash and equivalents $24,612,361 $18,157,595 Receivables 12,729,437 15,304,340 Inventories 17,646,275 15,606,037 Deferred income taxes 2,949,434 2,949,434 Prepaid and other 303,130 541,989 -------------- ------------ Total Current Assets 58,240,637 52,559,395 Net property and equipment 13,558,406 12,436,533 Goodwill and Other 3,143,841 3,364,899 ------------- ------------ TOTAL ASSETS $74,942,884 $68,360,827 =========== =========== LIABILITIES - ----------- Current Liabilities: Accounts payable $ 7,361,746 $ 4,280,492 Accrued liabilities 9,819,117 12,317,432 Current maturities of long-term debt 558,333 558,333 ------------- ------------ Total Current Liabilities 17,739,196 17,156,257 Long-term debt 4,785,556 4,902,222 Deferred income taxes 535,000 535,000 Other long-term liabilities 1,862,409 1,603,131 ------------ ------------ Total Liabilities 24,922,161 24,196,610 ----------- ------------ Commitments and Contingencies SHAREHOLDERS' EQUITY - -------------------- Preferred stock 2,410 2,410 Class A common stock 118,484 117,601 Class B common stock 64,335 64,429 Additional paid-in capital 34,476,594 34,042,044 Retained earnings 15,413,853 9,992,686 Less cost of Class A and Class B common stock in treasury (54,953) (54,953) ------------ ------------ Total Shareholders' Equity 50,020,723 44,164,217 ------------ ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $74,942,884 $68,360,827 =========== =========== See Accompanying Notes to Consolidated Financial Statements KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended September 30, 1998 and 1997 (Unaudited) 1998 1997 --------- ----------- OPERATING ACTIVITIES Net Income $5,632,332 $ 4,022,999 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 871,694 912,210 Changes in operating assets and liabilities: Decrease (increase) in receivables 2,574,904 (6,994,574) Net (increase) in inventories and other current assets (1,801,905) (3,467,078) Increase in accounts payable and accrued liabilities 583,466 5,194,632 Increase in other liabilities 259,278 78,408 ----------- ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 8,119,769 (253,403) ----------- ------------ INVESTING ACTIVITIES Purchase of property and equipment, net (1,911,107) (2,975,969) Other, net 138,308 (460,480) ----------- ------------ NET CASH USED IN INVESTING ACTIVITIES (1,772,799) (3,436,449) ----------- ------------ FINANCING ACTIVITIES Principal payments on long-term debt (116,667) (92,036) Dividends paid on Preferred Stock (210,876) (210,876) Exercise of Common Stock options 435,339 77,824 ----------- ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 107,796 (225,088) ----------- ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,454,766 (3,914,940) CASH AND CASH EQUIVALENTS AT: BEGINNING OF YEAR 18,157,595 7,627,523 END OF PERIOD ----------- ------------ $24,612,361 $ 3,712,583 =========== ============ Non-cash investing and financing activities: Portion of building acquired through proceeds from a term loan $3,500,000 ========== See Accompanying Notes to Consolidated Financial Statements NOTES TO SUMMARIZED CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION The interim financial statements presented here have been prepared in conformity with the accounting principles and practices and methods of applying the same (including consolidating practices) reflected in the Annual Report of the Company on Form 10-K for the year ended March 31, 1998 filed with the Commission, except that detailed footnotes and schedules are not included. Reference is hereby made to the footnotes and schedules contained in the Annual Report. All significant intercompany balances and transactions have been eliminated and, in the opinion of management, all adjustments, which are of a normal recurring nature only, necessary to present a fair statement of the results of the Company and its subsidiaries have been made. Earnings per share amounts for all periods have been presented and, where necessary, restated to conform to the requirements of Statement of Financial Accounting Standards No. 128. NOTE B - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
For the Three Months Ended For The Six Months Ended -------------------------------- ------------------------------- Numerator: 09/30/98 09/30/97 09/30/98 09/30/97 -------- -------- -------- -------- Net income $ 3,061,912 $ 2,182,132 $ 5,632,332 $ 4,022,999 Preferred Stock dividends (105,438) (105,438) (210,876) (210,876) ------------ ------------ ------------ ----------- Numerator for basic earnings per share--income available to common shareholders 2,956,474 2,076,694 5,421,456 3,812,123 Effect of dilutive securities: Preferred Stock dividends 105,438 - 210,876 - ------------ ----------- ------------ ---------- Numerator for diluted earnings per share-income available to common shareholders after assumed conversions $3,061,912 $2,076,694 $5,632,332 $3,812,123 ========== ========== ========== ========== Denominator: Denominator for basic earnings per share--weighted-average shares 18,198,107 18,084,587 18,171,608 18,074,982 ---------- ---------- ---------- ----------- Effect of dilutive securities: Employee stock options 917,819 552,625 919,001 531,137 Convertible Preferred Stock 903,750 - 903,750 - ---------- ---------- ----------- ----------- Dilutive potential Common Shares 1,821,569 552,625 1,822,751 531,137 ---------- ---------- ----------- ----------- Denominator for diluted earnings per share--adjusted weighted-average shares and assumed conversions 20,019,676 18,637,212 19,994,359 18,606,119 ========== ========== ========== ========== Basic Earnings per Share (1): $0.16 $0.11 $0.30 $0.21 ===== ===== ===== ===== Diluted Earnings per Share (1) (2): $0.15 $0.11 $0.28 $0.20 ===== ===== ===== ===== (1) The two-class method for Class A and Class B Common Stock is not presented because the earnings per share are equivalent to the if converted method since dividends were not declared or paid and each class of common stock has equal ownership of the Company. (2) An option to purchase Class A Common Stock sold in connection with an agreement entered into in January 1996 is not included in the computation of diluted EPS because the options' minimum exercise price was greater than the average market price of the Class A Common shares. This option expired on 9/29/98.
Any forward-looking statements set forth in this Report are necessarily subject to significant uncertainties and risks. When used in this Report, the words "believes," "anticipates," "intends," "expects," and similar expressions are intended to identify forward-looking statements. Actual results could be materially different as a result of various possibilities. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Item 2. Management's Discussion and Analysis of Results of Operations, and Liquidity and Capital Resources -------------------------------------------------------------- (a) Results of Operations --------------------- Revenues. Consolidated revenues for the second quarter of fiscal 1999 totaled $26.4 million compared to $21.8 million for the second quarter of fiscal 1998, an increase of $4.6 million, or 21%. Year-to-date consolidated revenues were $52.1 million, an increase of $12.2 million, or 31%, compared to the same period last year. The increase in revenues for both the quarter and year-to-date is primarily attributable to new products and continued volume growth of existing products. ETHEX sales increased by $4.4 million, or 25%, in the second quarter and were up $11.1 million, or 35%, year-to-date over the same periods of the prior year. Particle Dynamics and Contract Services combined revenues increased $.2 million, or 5%, in the second quarter and were up $1.1 million, or 13%, year-to-date over the same periods of the prior year. Costs and Expenses. Manufacturing costs decreased to 55% of net sales in the quarter ended September 30, 1998 from 57% in the same period last year. Year-to-date manufacturing costs remained constant at 57% of net sales in 1998 and 1997. These changes were primarily attributable to changes in the mix of products sold. Research and development costs increased $.2 million, or 14%, for the quarter ended September 30, 1998, compared to the same quarter of the prior year. Year-to-date, these costs increased $.3 million, or 11%, compared to the same period of the prior year. These increases were primarily due to increased personnel and supply costs to support higher levels of research activity and expenditures for clinical studies in connection with new product development. Selling and administrative expenses increased $1.1 million, or 26%, for the quarter ended September 30, 1998, compared to the same period of the prior fiscal year. Year-to-date selling and administrative expenses increased $2.4 million, or 30%, over the same period last year. Increased expenditures were primarily related to higher marketing, selling and administrative costs associated with new product introductions and planned expansion into marketing of brand name products. Income taxes were provided at an effective rate of 38% for the six months ended September 30, 1998, compared to 36% for the same period last year. The increase was attributable to the utilization of certain tax credits during fiscal 1998 that are not available for fiscal 1999. Net Income. As a result of the factors described above, net income improved $.9 million, or 40%, for the second quarter of fiscal 1999 and $1.6 million, or 40% for the year-to-date, compared to the same periods of the prior year. (b) Liquidity and Capital Resources ------------------------------- The following table sets forth selected balance sheet ratios at September 30, 1998, March 31, 1998 and September 30, 1997. ($ in 000's) ------------ 9/30/98 3/31/98 9/30/97 ---------- ----------- ----------- Working Capital Ratio 3.3 to 1 3.1 to 1 3.5 to 1 Debt to Debt-Plus-Equity .10 to 1 .11 to 1 .14 to 1 Total Liabilities to Equity .50 to 1 .55 to 1 .46 to 1 Cash and Equivalents $24,612 $18,158 $ 3,713 Working Capital $40,501 $35,403 $26,147 Long-Term Liabilities $ 7,183 $ 7,040 $ 6,336 Stockholders' Equity $50,021 $44,164 $36,974 Working capital for the six months ended September 30, 1998, increased $5.1 million, or 14%, due primarily to an increase in current assets reflecting higher inventories to support increased sales and seasonal business requirements, a decrease in receivables and a $6.5 million increase in cash. The increase in cash for the six month period is due primarily to the addition of the Company's net income and a decrease in accounts receivable due to the timing of sales and collections. This was partially offset by higher levels of inventory and accounts payable related to increased purchases of raw and packaging material to support planned production requirements. These changes in the components of current assets and liabilities along with the Company's net income resulted in cash provided by operations of $8.1 million for the first six months of fiscal 1999, compared to a $.3 million deficit for the same period last year. The debt to debt plus equity and total liabilities to equity ratios at September 30, 1998, improved as a result of the company's net income. Investing activities for the six months ended September 30, 1998, reflected capital expenditures of $1.9 million, with funds being provided from operations. The Company has been able to pass along to its customers at least a portion of cost increases in labor, manufacturing and raw material related to operations, except where competitive conditions existing in the market place have prevented it from passing along such cost increases to its customers. It is not meaningful to compare changing prices because the products produced, product mix sold and sources of raw materials have varied substantially. The Company anticipates increasing expenditures for research, clinical, regulatory and marketing efforts relating to the development and commercialization of proprietary new products and advanced technology products and their marketing. The Company believes funds generated from operating activities and existing cash, together with the funds available under its credit facility will be adequate to fund the Company's short-term needs. Year 2000 Project. The Company utilizes computer technologies throughout its business to effectively carry out its day-to-day operations. Computer technologies include both information technology in the form of hardware and software, as well as embedded technology in the Company's facilities and equipment. Similar to most companies, the Company must determine whether its systems are capable of recognizing and processing date-sensitive information properly as the year 2000 approaches. The Company is utilizing a multi-phased concurrent approach to address this issue. The phases included in the Company's approach are the awareness, assessment, remediation, validation and implementation phases. The Company has completed the awareness phase and is very active in the assessment and remediation phases. The Company has initiated formal communications and has developed a monitoring program with all of its significant suppliers and critical business partners to determine year 2000 compliance of its dependents and will develop appropriate contingency plans to minimize interrupts in business in the event a third party is unable to perform. An interruption of the Company's ability to conduct its business due to a year 2000 readiness problem could have a material adverse effect on the Company. The Company is continuing to assess such third-party risks. The Company is not presently aware of any such significant exposure; however, there can be no guarantee that the systems of third parties on which the Company relies will be converted in a timely manner or that a failure to properly convert by another company would not have a material adverse effect on the Company. The Company currently intends to substantially complete the other phases of the year 2000 project, including development of contingency plans in the event of disruptions in obtaining needed supplies and services, prior to June 30, 1999. The costs associated with the project are not expected to exceed $700,000 (of which approximately $400,000 has been incurred as of September 30, 1998), and are not deemed to materially impact the Company's consolidated financial position, results of operations or cash flows in future periods. The Company is actively correcting and replacing the identified systems which are not year 2000 ready in order to ensure the Company's ability to continue to meet its internal needs and those of its customers and suppliers. The Company presently believes that the most reasonably likely worst-case scenarios that the Company might confront with respect to Year 2000 issues have to do with third parties not being Year 2000 compliant. The Company is presently evaluating vendor and customer compliance and will develop contingency plans, such as alternate vendor opportunities, after obtaining compliance evaluations. Based upon the planning completed to date, the Company believes that, with modifications to existing software, conversions to new software, and appropriate remediation of embedded chip equipment, the Year 2000 issue is not reasonably likely to pose significant operational problems for the Company's information technology systems and embedded chip equipment as so modified and converted. PART II. OTHER INFORMATION Item 5: Other Information - -------------------------- On November 5, 1998, Norman D. Schellenger was appointed to the Board of Directors of the Company for a term expiring in 2001. Mr. Schellenger brings to KV's Board over 35 years of sales, marketing and general management experience and expertise in the pharmaceutical industry including 28 years with A.H. Robins, serving as General Manager of its prescription pharmaceutical businesses and as president of Whitby Pharmaceuticals, building the sales force to over 350 representatives. He retired in January 1997. Mr. Schellenger has also been a member of the Board of Directors of the National Pharmaceutical Council. Item 6: Exhibits and Reports on Form 8-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. KV PHARMACEUTICAL COMPANY Date: November 13, 1998 By: /s/ Marc S. Hermelin --------------------------------- Marc S. Hermelin Vice Chairman of the Board Date: November 13, 1998 By: /s/ Gerald R. Mitchell --------------------------------- Gerald R. Mitchell Vice President - Finance Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS MAR-31-1999 APR-01-1998 SEP-30-1998 24,612,361 0 12,935,362 205,925 17,646,275 58,240,637 29,981,494 (16,423,088) 74,942,884 17,739,196 4,785,556 0 2,410 182,819 49,835,494 74,942,884 52,075,305 52,707,438 29,801,420 13,441,575 82,459 50,378 225,774 9,105,832 3,473,500 5,632,332 0 0 0 5,632,332 .30 .28
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