-----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, QheH7hV5Q7CcnVVGhGN6eM1R7QGOzX2X4LebwVjNd1DZ1l7t6++/K1iKXiQWSbYn +PcRfrDSkLmSUfN+JCIc4A== 0001011240-01-500048.txt : 20010815 0001011240-01-500048.hdr.sgml : 20010815 ACCESSION NUMBER: 0001011240-01-500048 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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: 1934 Act SEC FILE NUMBER: 001-09601 FILM NUMBER: 1712898 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 kv10q080901.txt K-V PHARMACEUTICAL 10-Q, 080901 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, 2001 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 Outstanding Common Stock as of this Report Date ----------------- ---------------------------- Class A Common Stock, par value $.01 per share 20,015,276 Class B Common Stock, par value $.01 per share 10,585,443 PART I FINANCIAL INFORMATION K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended June 30, 2001 and 2000 (In thousands, except per share data) (Unaudited)
2001 2000 Net Revenues $47,628 $38,810 Costs and Expenses: Manufacturing costs 17,575 16,195 Research and development 2,534 2,548 Selling and administrative 17,996 12,178 Amortization of intangible assets 642 599 ------- ------- Total costs and expenses 38,747 31,520 ------- ------- Operating income 8,881 7,290 ------- ------- Other income (expense): Interest expense (103) (350) Interest and other income 105 24 ------- ------- Total other income (expense) 2 (326) ------- ------- Income before income taxes 8,883 6,964 Provision for income taxes 3,220 2,611 ------- ------- Net Income $ 5,663 $ 4,353 ======= ======= Net Income per Common Share-Basic $0.19 $0.15 ===== ===== Net Income per Common Share-Diluted $0.18 $0.14 ===== ===== See Accompanying Notes to Consolidated Financial Statements
K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2001 (Unaudited) and March 31, 2001 (Audited) (In thousands, except share data) 06/30/01 03/31/01 ASSETS Current Assets: Cash and cash equivalents $ 11,852 $ 4,128 Receivables, less allowance for doubtful accounts of $333 and $448 at June 30, 2001 and March 31, 2001, respectively 29,687 26,259 Inventories 29,346 32,211 Prepaid and other assets 1,922 3,804 Deferred income taxes 1,633 1,644 -------- -------- Total Current Assets 74,440 68,046 -------- -------- Property and equipment, less accumulated depreciation and amortization 37,439 36,847 Intangibles and other assets, net of accumulated amortization 46,024 46,524 -------- -------- TOTAL ASSETS $157,903 $151,417 ======== ======== LIABILITIES Current Liabilities: Accounts payable $ 4,759 $ 6,349 Accrued liabilities 12,388 10,067 Current maturities of long-term debt 3,045 712 -------- -------- Total Current Liabilities 20,192 17,128 Long-term debt 2,669 5,080 Other long-term liabilities 2,609 2,534 Deferred income taxes 797 733 -------- -------- TOTAL LIABILITIES 26,267 25,475 -------- -------- SHAREHOLDERS' EQUITY 7% Cumulative Convertible Preferred Stock, $.01 par value; $25.00 stated and liquidation value; 840,000 shares authorized; issued and outstanding - 40,000 shares at June 30, 2001 and 240,000 shares at March 31, 2001, respectively (convertible into Class A shares at a ratio of 5.625 to one) - 2 Class A and Class B Common Stock, $.01 par value; 150,000,000 and 75,000,000 shares authorized, respectively; Class A-issued 20,068,594 and 18,896,945 as of June 30, 2001 and March 31, 2001, respectively 200 189 Class B-issued 10,638,871 and 10,663,574 as of June 30, 2001 and March 31, 2001, respectively (convertible into Class A shares on a one-for-one basis) 107 107 Additional paid-in capital 45,832 45,792 Retained earnings 85,552 79,907 Less: Treasury stock, 53,318 shares of Class A and 53,428 shares of Class B Common Stock at June 30, 2001 and March 31, 2001 (55) (55) -------- -------- TOTAL SHAREHOLDERS' EQUITY 131,636 125,942 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $157,903 $151,417 ======== ======== See Accompanying Notes to Consolidated Financial Statements
K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended June 30, 2001 and 2000 (In thousands) (Unaudited) 2001 2000 OPERATING ACTIVITIES Net Income $ 5,663 $ 4,353 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,574 1,330 Change in deferred taxes 75 143 Change in deferred compensation 75 63 Changes in operating assets and liabilities: Increase in receivables, net (3,428) (1,215) Decrease (increase) in inventories 2,865 (1,075) Decrease (increase) in prepaid and other assets 1,741 (389) Increase (decrease) in accounts payable and accrued liabilities 730 (3,038) ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 9,295 172 ------- ------- INVESTING ACTIVITIES Purchase of property and equipment, net (1,524) (1,607) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (1,524) (1,607) ------- ------- FINANCING ACTIVITIES Principal payments on long-term debt (78) (97) Proceeds from credit facility - 2,000 Dividends paid on Preferred Stock (18) (105) Exercise of Common Stock options 49 283 ------- ------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (47) 2,081 ------- ------- INCREASE IN CASH AND CASH EQUIVALENTS 7,724 646 CASH AND CASH EQUIVALENTS AT: BEGINNING OF YEAR 4,128 3,443 ------- ------- END OF PERIOD $11,852 $4,089 ======= ======= Non-cash financing activities Notes receivable from exercise of Common Stock options - $4,142 See Accompanying Notes to Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending March 31, 2002. For further information refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2001. NOTE B - INVENTORIES Inventories consist of (in 000's): June 30, 2001 March 31, 2001 Finished goods $13,182 $15,119 Work-in-process 3,679 3,604 Raw materials and supplies 13,505 14,076 ------- ------- 30,366 32,799 Reserve for obsolescence (1,020) (588) ------- ------- $29,346 $32,211 ======= ======= NOTE C - CONVERTIBLE PREFERRED STOCK CONVERSION During the quarter ended June 30, 2001, 200,000 shares of Convertible Preferred Stock were converted, at a conversion rate of 5.625 to 1, into 1,125,000 Class A Common Shares. Undeclared and unaccrued cumulative preferred dividends decreased to $365,600 or $9.14 per share on the remaining 40,000 convertible preferred shares outstanding from the $2.194 million at March 31, 2001. 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: 2001 2000 ------- ------- Net income $ 5,663 $ 4,353 Preferred Stock dividends (18) (105) ------- ------- Numerator for basic earnings per share--income available to common shareholders 5,645 4,248 Effect of dilutive securities: Preferred Stock dividends 18 105 ------- ------- Numerator for diluted earnings per share--income available to common shareholders after assumed conversions $ 5,663 $ 4,353 ======= ======= Denominator: Denominator for basic earnings per share--weighted-average shares 29,485 28,533 ------- ------- Effect of dilutive securities: Stock options 1,208 1,359 Convertible Preferred Stock 1,325 1,350 ------- ------- Dilutive potential Common Shares 2,533 2,709 ------- ------- Denominator for diluted earnings per share--adjusted weighted-average shares and assumed conversions 32,018 31,242 ======= ======= Basic Earnings per Share (1): $ 0.19 $ 0.15 ======= ======= Diluted Earnings per Share (1) (2): $ 0.18 $ 0.14 ======= ======= (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 13,500 shares at June 30, 2001 and 24,000 shares at June 30, 2000 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.
NOTE E - SEGMENT FINANCIAL INFORMATION The reportable segments of the Company are branded products, specialty generics, specialty materials and contract services. Segment profits 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 and are included in the "All Other" category in the following segment information.
3 Months ended Branded Specialty Specialty Contract All ($ in 000's) June 30 Products Generics Materials Services Other Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------------- Total Revenues 2001 $ 8,711 $33,971 $ 4,219 $ 649 $ 78 $ - $ 47,628 2000 3,892 30,200 3,823 882 13 - 38,810 - ------------------------------------------------------------------------------------------------------------------------- Segment Profits 2001 512 16,704 809 46 (9,188) - 8,883 2000 (2,372) 15,729 901 191 (7,485) - 6,964 - ------------------------------------------------------------------------------------------------------------------------- Identifiable Assets 2001 7,174 35,536 7,697 37,006 71,648 (1,158) 157,903 2000 6,739 32,230 7,819 32,191 70,165 (1,158) 147,986 - ------------------------------------------------------------------------------------------------------------------------- Property and 2001 2 21 77 1,021 403 - 1,524 Equipment Additions 2000 55 - 27 970 555 - 1,607 - ------------------------------------------------------------------------------------------------------------------------- Depreciation and 2001 16 21 37 761 739 - 1,574 Amortization 2000 26 30 38 592 644 - 1,330 - -------------------------------------------------------------------------------------------------------------------------
NOTE F - RECENTLY ISSUED ACCOUNTING STANDARD In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interest method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company's previous business combinations were accounted for using the purchase method. As of June 30, 2001, the net carrying amount of goodwill is $598,000 and other intangible assets is $41.718 million. Amortization expense during the three-month period ended June 30, 2001 was $586,000. Currently, the Company is assessing but has not yet determined how the adoption of SFAS 141 and SFAS 142 will impact its financial position and results of operations. "Safe Harbor" Statement The materials in this Form 10-Q may contain various forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 ("PSLRA") and which may be based on or include assumptions, concerning K-V's operations, future results and prospects. Such statements may be identified by the use of words like "plans", "expect", "aim", "believe", "projects", "anticipate", "intend", "estimate", "will", "should", "could" and other expressions that indicate future events and trends. All statements that address expectations or projections about the future, including without limitation, statements about the Company's strategy for growth, product development, market positions, expenditures and financial results, are forward-looking statements. All forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the "safe harbor" provisions, K-V provides the following cautionary statements identifying important economic, political and technology factors which, among others, could cause the actual results or events to differ materially from those set forth or implied by the forward-looking statements and related assumptions. Such factors include (but are not limited to) the following: (1) changes in the current and future business environment, including interest rates and capital and consumer spending; (2) the difficulty of predicting FDA approvals; (3) acceptance and demand for new pharmaceutical products; (4) the impact of competitive products and pricing; (5) new product development and launch; (6) reliance on key strategic alliances; (7) the availability of raw materials; (8) the regulatory environment; (9) fluctuations in operating results; (10) the difficulty of predicting the pattern of inventory movements by the Company's customers; (11) the impact of competitive response to the Company's efforts to leverage its brand power with product innovation, promotional programs, and new advertising; and, (12) the risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. This discussion of uncertainties is by no means exhaustive, but is designed to highlight important factors that may impact the Company's outlook. 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 2002 ended June 30, 2001 increased $8.8 million, or 23%, to $47.6 million from $38.8 million for the same period last year. The increase was due primarily to higher net sales of branded and specialty generic products. Branded product sales increased $4.8 million, or 123%, over last year to $8.7 million reflecting increases in all product categories. Sales of the PreCare prenatal family of products increased $1.9 million, or 113%, due to continued volume-driven increases in market share and sales in the cardiovascular line increased $2.4 million as customer inventories returned to more normal levels compared to the prior year's period. Gynazole-1, introduced in last year's first quarter, has continued to increase its market share with sales increasing 61% over last year. Specialty generic sales increased $3.8 million, or 12%, over last year to $34.0 million. The increase was due to new products introduced in the latter part of the prior year ($3.9 million), new products introduced during the quarter ($.7 million) and net volume increases across the existing product lines ($1.4 million). These increases were partially offset by price erosion of $2.2 million. Costs and Expenses. Manufacturing costs increased 8.5 % during the quarter to $17.6 million from $16.2 million last year, significantly below the 23% increase in overall revenues. As a result, manufacturing costs decreased as a percentage of revenues to 37% from 42% in the prior year driven by volume efficiencies and lower revenue-sharing costs. This improvement also reflects a favorable product mix due to the significant increase in branded product sales during the quarter. Branded products accounted for 18% of total revenues, as compared to 10% in the first quarter of last year. Research and development expenses were relatively flat with last year. The prior year included $.6 million of payments in the first quarter related to product co-development projects, which did not recur this year. This was offset by higher costs associated with clinical testing relative to the Company's internal product development efforts and higher payroll related expenses due to the expansion of the Company's research and development staff. Selling and administrative expenses increased $5.8 million, or 48%, compared to the prior year's quarter. The increase was due primarily to higher selling and marketing expenses of $3.2 million associated with the expansion of the branded product sales force and volume driven allowances on specialty generic sales increases. Corporate administrative expenses were higher due to increases in payroll and related expenses associated with expansion of the Company's administrative infrastructure and higher professional fees. Interest expense decreased $.2 million during the quarter compared to last year due to reduction in long-term debt. Net Income. As a result of the factors described above, net income improved $1.3 million, or 30%, to $5.7 million in the first quarter of fiscal 2002 from net income of $4.4 million in the first quarter of fiscal 2001. (b) Liquidity and Capital Resources Cash provided by operating activities was $9.3 million for the first quarter of fiscal 2002, an increase of $9.1 million over the first quarter of last year. The increase in cash flow was due to higher net income, lower inventories and other assets and an increase in accrued liabilities, partially offset by higher accounts receivable and lower accounts payable. The decrease in inventories was due primarily to lower finished goods inventories of specialty generic products due to higher sales toward the end of the quarter. In addition, inventories of branded and specialty material products decreased due to higher sales. Other assets decreased $1.7 million. The increase in accrued liabilities was due primarily to an increase of $3.3 million in accrued income taxes due to the timing of the quarterly tax payment. The increase in accounts receivable reflects the timing of orders for specialty generic products. The reduction in accounts payable was due to lower trade payables reflecting the timing of various material purchases. Long-term debt decreased due to the reclassification of a $2.3 million term loan to a current liability, which the Company is in the process of refinancing. Investing activities were confined to capital expenditures of $1.5 million and were primarily for machinery and equipment for the upgrade and expansion of the Company's pharmaceutical manufacturing capacity. The Company continues to examine opportunities to expand its business through product and company acquisitions. The Company's capital resources, financial condition and results of operations could be materially impacted if the Company were to complete one or more of such acquisitions. The Company intends to use its available cash to help in funding its acquisitions. As such, cash has been invested in short-term, highly liquid instruments. 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. Inflation. Although at reduced levels in recent years, inflation continues to apply upward pressure on the cost of goods and services used by the Company. However, the Company believes that the net effect of inflation on its operations has been minimal during the past three years. In addition, changes in the mix of products sold and the effect of competition has made a comparison of changes in selling prices less meaningful relative to changes in the overall rate of inflation over the past three years. 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]. A material increase in such rates could significantly increase borrowing expenses. The Company did not have any cash borrowings under this facility at June 30, 2001. PART II. - OTHER INFORMATION Not applicable. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. K-V PHARMACEUTICAL COMPANY Date: August 14, 2001 By /s/ Marc S. Hermelin -------------------------------------- Vice Chairman of the Board (Principal Executive Officer) Date: August 14, 2001 By /s/ Gerald R. Mitchell -------------------------------------- Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----