-----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, VUY+Q2FKOhco1a+wmymstyuHrjj8m2zb+PRfSSLJWBqxDdmQc+4qzZvqjRC9hGW2 Mf0T8h7G/RoVqK2ofZD61w== /in/edgar/work/20000815/0001011240-00-000078/0001011240-00-000078.txt : 20000922 0001011240-00-000078.hdr.sgml : 20000921 ACCESSION NUMBER: 0001011240-00-000078 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KV PHARMACEUTICAL CO /DE/ CENTRAL INDEX KEY: 0000057055 STANDARD INDUSTRIAL CLASSIFICATION: [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: 701136 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 0001.txt FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 6/30/00 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 June 30, 2000 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 Identification No.) incorporation or organization) 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 12,257,351 Class B Common Stock, par value $.01 per share 6,945,500 1 PART I FINANCIAL INFORMATION 2 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended June 30, 2000 and 1999 (In thousands, except per share data) (Unaudited) 2000 1999 -------- -------- Net Revenues $ 38,810 $ 32,794 Costs and Expenses: Manufacturing costs and expenses 16,195 16,532 Research and development 2,548 1,828 Selling and administrative 12,178 8,046 Amortization of intangible assets 599 500 -------- -------- Total costs and expenses 31,520 26,906 -------- -------- Operating income 7,290 5,888 -------- -------- Other income (expense): Interest expense (350) (581) Interest and other income 24 145 -------- -------- Total other income (expense) (326) (436) -------- -------- Income before income taxes 6,964 5,452 Provision for income taxes 2,611 2,073 -------- -------- Net Income $ 4,353 $ 3,379 ======== ======== Net Income per Common Share-Basic $ 0.22 $ 0.18 ======== ======== Net Income per Common Share-Diluted $ 0.21 $ 0.17 ======== ======== See Accompanying Notes to Consolidated Financial Statements 3 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Three Months Ended June 30, 2000 and 1999 (In thousands) (Unaudited) 2000 1999 -------- --------- Net income $ 4,353 $ 3,379 -------- --------- Other comprehensive income, net of tax: Unrealized losses on securities: Unrealized losses arising during period - (24) Reclassification adjustment for losses included in net income - 9 -------- --------- Other comprehensive income - (15) -------- --------- Comprehensive Income $ 4,353 $ 3,364 ======== ========= 4 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2000 (Unaudited) and March 31, 2000 (Audited) (In thousands, except share data) 06/30/00 03/31/00 ASSETS ---------- ----------- Current Assets: Cash and cash equivalents $ 4,089 $ 3,443 Trade receivables, less allowance for doubtful accounts of $622 and $635 at June 30, 2000 and March 31, 2000, respectively 24,896 23,681 Other receivables 4,608 395 Inventories 31,189 30,114 Deferred income taxes 2,972 3,138 Prepaid and other current assets 373 242 ---------- ----------- Total Current Assets 68,127 61,013 Property and equipment, less accumulated depreciation of $19,579 and $19,422 at June 30 and March 31, 2000, respectively 33,049 32,173 Intangibles and other assets, less accumulated amortization of $4,563 and $4,087 at June 30 and March 31, 2000, respectively 46,720 47,132 Deferred income taxes 90 67 ---------- ----------- TOTAL ASSETS $ 147,986 $ 140,385 ========== =========== LIABILITIES Current Liabilities: Accounts payable $ 8,505 $ 10,843 Accrued liabilities 10,245 10,945 Current maturities of long-term debt 1,659 1,659 ---------- ----------- Total Current Liabilities 20,409 23,447 Long-term debt 18,682 16,779 Other long-term liabilities 2,423 2,360 ---------- ----------- TOTAL LIABILITIES 41,514 42,586 ---------- ----------- SHAREHOLDERS' EQUITY 7% Cumulative Convertible Preferred Stock, $.01 par value; $25.00 stated and liquidation value; 840,000 shares authorized; issued and outstanding - 240,000 shares at June 30 and March 31 (convertible into Class A shares at a ratio of 3.75 to one) 2 2 Class A and Class B Common Stock, $.01 par value; 150,000,000 and 75,000,000 shares authorized, respectively; Class A-issued 12,292,970 and 12,261,999 as of June 30, 2000 and March 31, 2000, respectively 123 123 Class B-issued 6,981,119 and 6,607,112 as of June 30, 2000 and March 31, 2000, respectively (convertible into Class A shares on a one-for-one basis) 70 66 Additional paid-in capital 45,285 40,864 Retained earnings 61,047 56,799 Less: Treasury stock, 35,619 shares each of Class A and Class B Common Stock, at cost (55) (55) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 106,472 97,799 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 147,986 $ 140,385 ========== ========== See Accompanying Notes to Consolidated Financial Statements 5 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended June 30, 2000 and 1999 (In thousands) (Unaudited) 2000 1999 ------- -------- OPERATING ACTIVITIES Net Income $ 4,353 $ 3,379 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,330 954 Change in deferred taxes 143 (24) Change in deferred compensation 63 64 Changes in operating assets and liabilities: Increase in trade receivables (1,215) (2,500) Increase in other receivables (71) (307) Decrease in receivable, arbitration award - 13,253 (Increase) decrease in inventories (1,075) 204 Increase in prepaid and other assets (318) (44) Decrease in accounts payable and accrued liabilities (3,038) (7,758) ------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 172 7,221 ------- -------- INVESTING ACTIVITIES Purchase of property and equipment, net (1,607) (2,189) Sale of marketable securities - 2,543 ------- -------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,607) 354 ------- -------- FINANCING ACTIVITIES Principal payments on long-term debt (97) (5,097) Proceeds from credit facility 2,000 - Dividends paid on Preferred Stock (105) (105) Exercise of Common Stock options 283 623 ------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,081 (4,579) ------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 646 2,996 CASH AND CASH EQUIVALENTS AT: BEGINNING OF YEAR 3,443 2,617 ------- -------- END OF PERIOD $ 4,089 $ 5,613 ======= ======== Non-cash financing activities Notes receivable from exercise of Common Stock options $ 4,142 See Accompanying Notes to Consolidated Financial Statements 6 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, 2000 filed with the Securities & Exchange 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 of a normal recurring nature, which are necessary to present a fair statement of the results of the Company and its subsidiaries, have been made. NOTE B - OTHER RECEIVABLES Other receivables included $4.142 million of notes receivable, due on demand, received in conjunction with the exercise of stock options. The notes are collateralized by the related stock and were paid subsequent to June 30, 2000. Interest was payable at 6.25%. NOTE C - INVENTORIES Inventories consist of (in 000's): June 30, 2000 March 31, 2000 ------------- -------------- Finished goods $16,529 $15,990 Work-in-process 2,258 2,544 Raw materials and supplies 13,105 12,642 ------ ------ 31,892 31,176 Reserve for obsolescence (703) (1,062) ---- ------ $31,189 $30,114 ======= ======= 7 NOTE D - EARNINGS PER SHARE The following table is presented in thousands, except per share data, and sets forth the computation of basic and diluted earnings per share: For the Three Months Ended June 30, Numerator: 2000 1999 --------- -------- Net income $ 4,353 $ 3,379 Preferred Stock dividends (105) (105) -------- -------- Numerator for basic earnings per share--income available to common shareholders 4,248 3,274 Effect of dilutive securities: Preferred Stock dividends 105 105 -------- -------- Numerator for diluted earnings per share--income available to common shareholders after assumed conversions $ 4,353 $ 3,379 ======== ======== Denominator: Denominator for basic earnings per Share--weighted-average shares 19,022 18,373 -------- -------- Effect of dilutive securities: Stock options 906 609 Convertible Preferred Stock 900 900 -------- -------- Dilutive potential Common Shares 1,806 1,509 -------- -------- Denominator for diluted earnings per share--adjusted weighted-average shares and assumed conversions 20,828 19,882 ======== ======== Basic Earnings per Share (1): $ 0.22 $ 0.18 ======== ======== Diluted Earnings per Share (1) (2): $ 0.21 $ 0.17 ======== ======== (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) Employee stock options to purchase 16,000 shares at June 30, 2000 and 61,750 shares at June 30, 1999 are not included in the computation of diluted earnings per share because they are anti-dilutive. The exercise prices of these options exceeded the average market prices of the shares under option in each respective period. 8 NOTE E - SEGMENT FINANCIAL INFORMATION The reportable segments of the Company are branded products, specialty generics, specialty materials and contract services. Segment operating results are measured based on income before taxes and are determined based on each segment's direct revenues and expenses. The majority of research and development, corporate general and administrative expenses, amortization and interest expense, as well as interest and other income, are not allocated to segments.
3 Months ended Branded Specialty Specialty Contract All ($ in 000s) June 30 Products Generics Materials Services Other Consolidated -------- --------- --------- ---------- --------- --------- ------------ Total revenues 2000 $ 3,892 $ 30,200 $ 3,823 $ 882 $ 13 $ 38,810 1999 2,648 25,389 4,094 573 90 32,794 - ------------------------------------------------------------------------------------------------------- Income before taxes 2000 (2,372) 15,729 901 191 (7,485) 6,964 1999 99 10,644 843 (169) (5,965) 5,452 - ------------------------------------------------------------------------------------------------------- Identifiable assets 2000 6,739 32,230 7,819 32,191 69,007 147,986 1999 3,175 26,901 6,890 18,319 63,797 119,082 - ------------------------------------------------------------------------------------------------------- Property and 2000 95 -- 27 970 515 1,607 equipment additions 1999 -- -- -- 1,855 334 2,189 - ------------------------------------------------------------------------------------------------------- Depreciation and 2000 26 30 38 592 644 1,330 amortization 1999 11 30 34 366 513 954 - -------------------------------------------------------------------------------------------------------
9 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 any revisions to these forward-looking statements 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 Financial Condition (a) Results of Operations Revenues. Consolidated net revenues for the first quarter of fiscal 2001 ended June 30, 2000 increased $6 million, or 18.3%, to $38.8 million from $32.8 million for the same period last year. The increase in revenues was due primarily to higher sales of branded products and specialty generics. Branded product sales by the Company's Ther-Rx subsidiary increased $1.2 million, or 47%, during the quarter to $3.9 million from the marketing and sales of new products launched since the first quarter of the prior year. Ther-Rx introduced Gynazole-1(TM), a prescription product that is designed to treat vaginal yeast infections with one dose, at the end of the first quarter. Specialty generic sales by the Company's ETHEX subsidiary increased $4.8 million, or 18.9%, during the quarter to $30.2 million due primarily to new products added to the cardiovascular and women's health care categories ($3.6 million), increased volume on existing products in the cardiovascular and pain management categories ($.8 million) and higher average pricing on existing products in the cardiovascular category ($.4 million). ETHEX introduced three new products during the first quarter including the generic alternative to IMDUR(R) by Schering, for which the Company received ANDA approval in March 2000. 10 Costs and Expenses. Manufacturing costs decreased slightly (2%) during the quarter to $16.2 million from $16.5 million last year due to lower costs on higher Ther-Rx sales volume, relatively flat costs on higher ETHEX sales volume and lower costs reflecting lower sales volume in Particle Dynamics, the Company's specialty materials subsidiary. Ther-Rx costs declined and ETHEX costs remained relatively flat due to lower sales volume of higher cost outsourced products. Manufacturing costs as a percent of revenues declined 8.7% to 41.7% from 50.4% last year due to the effects of favorable product mix and pricing. Of the 8.7% decrease, changes in product mix accounted for 8% and pricing accounted for 0.7% of the change. The improvement in product mix reflects an increase in the relative contribution of higher margin branded product sales and new generic product introductions during the quarter. Research and development costs increased $.7 million, or 39.4%, to $2.5 million during the quarter from $1.8 million in last year's first quarter. The increase was primarily due to payments related to product co-development arrangements. Selling and administrative expenses increased $4.2 million, or 51.4%, to $12.2 million during the quarter from $8 million in last year's first quarter. As a percent of revenues, selling and administrative expenses increased to 31.4% from 24.5% last year. The increase was due primarily to the Company's investment in building the Ther-Rx sales force and marketing expenses related to the expansion of its branded product line. Selling and marketing expenses associated with this expansion increased $3.9 million over the same period last year to $5.7 million for the quarter. Amortization expense increased $.1 million related to the amortization of the rights to the PreCare(R) product acquired from UCB Pharma in August 1999. Interest expense decreased $.2 million during the quarter compared to the same period last year due to reduction in long-term debt. 11 Net Income. As a result of the factors described above, net income improved $1.0 million, or 28.8%, to $4.4 million in the first quarter of fiscal 2001 from net income of $3.4 million in the first quarter of fiscal 2000. (b) Liquidity and Capital Resources Cashflow. Cash provided by operating activities was $.2 million for the first quarter of fiscal 2001, a decrease of $7.1 million, or 97%, over the first quarter of last year, primarily due to the collection of a non-recurring arbitration award of $8.3 million (net of taxes) during the first quarter of the prior fiscal year. This reduction in cashflow was partially offset by a $1.4 million increase in net income before depreciation and amortization. The Company's working capital, adjusted for taxes of $5 million accrued for the arbitration award, was substantially the same as last year, increasing by $.1 million to $5.6 million for the quarter. Investing activities for the first quarter of fiscal 2001 included capital expenditures of $1.6 million for the purchase of production equipment and upgrading the Company's information systems. Financing activities included reduction of long-term debt of $.1 million and additional borrowings of $2 million to fund working capital and capital expenditures. The Company believes that existing cash generated from operating activities and funds available under its credit facility will be adequate to fund operating activities for the presently foreseeable future including the payment of short term and long term debt obligations, capital improvements, product development activities and expansion of marketing capabilities for the branded pharmaceutical business. Balance Sheet and Ratios. The following table sets forth selected balance sheet data and financial ratios at June 30 and year-end March 31, 2000: ($ in 000's) ------------------------------ 6/30/00 3/31/00 ------- ------- Working Capital $ 47,718 $37,566 Long-term debt 18,682 16,779 Shareholders' Equity 106,472 97,799 Working capital ratio 3.3 to 1 2.6 to 1 Long-term debt to equity .18 to 1 .17 to 1 12 Working capital increased $10.2 million during the first quarter, compared to the balance at the end of fiscal 2000, as current assets increased $7.1 million, or 12 %, while current liabilities decreased $3.1 million, or 13%. The increase in current assets was due primarily to higher accounts receivable from increased sales in the specialty generics business and higher inventories of branded products. Current liabilities decreased primarily due to a $2.2 million decrease in trade accounts payable from the timing of inventory purchases. The debt to equity ratio increased during the quarter due primarily to a net increase of $1.9 million in long-term debt, partially offset by an increase in shareholder's equity attributable to the Company's net income for the period. Inflation. The Company believes that the net effect of inflation on its operations has been minimal during the current quarter and the prior year. In addition, changes in the mix of products sold and the effect of competition have made a comparison of changes in selling prices less meaningful relative to changes in the overall rate of inflation during the quarter and prior year. Item 3. Variable Rate Risks Advances to the Company under the Company's credit facility bear interest at a rate which varies consistent with increases or decreases in the publicly-announced prime rate [and/or the LIBOR rate with respect to LIBOR- related loans, if any]. These rates have gradually increased over the past several years. A material increase in such rates, however, could significantly increase borrowing expenses. For example, an increase of 1% in the prime rate would increase the borrowing expense to the Company by approximately $130,000 annually on the principal balance of the Company's credit facility at June 30, 2000. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities and Use of Proceeds On May 10, 2000, the Company issued 300,000 shares of Class B Common Stock upon the exercise of certain options. The aggregate exercise price was $3,564,300. The issuance of such shares was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders in the quarter ended June 30, 2000. Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 27. Financial Data Schedule (Filed in EDGAR version only). (b) Reports on Form 8-K There were no Current Reports on Form 8-K filed during the quarter ended June 30, 2000. 14 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: August 14, 2000 /s/ Marc S. Hermelin ----------------- ---------------------------------- Marc S. Hermelin Vice Chairman of the Board and Chief Executive Officer Date: August 14, 2000 /s/ Gerald R. Mitchell ----------------- ---------------------------------- Gerald R. Mitchell Vice President - Treasurer and Chief Financial Officer 15 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 1,000 3-MOS MAR-31-2001 APR-01-2000 JUN-30-2000 4,089 0 25,518 622 31,189 68,127 52,628 19,579 147,986 20,409 5,682 0 2 193 106,277 147,986 38,810 38,834 0 16,195 15,325 0 350 6,964 2,611 4,353 0 0 0 4,353 0.22 0.21
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