-----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, BkCcSuJZkGznIXkcfNaHReDs503zq7xTbXPJAoGJAqiHx21BUqhubY8jBZBjWpO6 K5V1Ot3m3bpI3Gos5PpcoQ== 0001011240-99-000080.txt : 19991117 0001011240-99-000080.hdr.sgml : 19991117 ACCESSION NUMBER: 0001011240-99-000080 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99754208 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 THE QUARTER ENDED SEPTEMBER 30, 1999 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, 1999 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 of 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 12,184,585 Class B Common Stock, par value $.01 per share 6,576,641 1 PART 1 FINANCIAL INFORMATION 2
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) (DOLLARS IN 000'S) FOR THE THREE FOR THE SIX MONTHS ENDED MONTHS ENDED ------------------------- -------------------------- 9/30/99 9/30/98 9/30/99 9/30/98 ------- -------- ------- -------- Net Revenues $36,011 $26,406 $68,805 $52,075 ------- ------- ------- ------- Costs and Expenses: Manufacturing costs and expenses 15,693 14,647 32,225 29,801 Research and development 2,076 1,662 3,904 3,305 Selling and administrative 10,401 5,330 18,447 10,187 Amortization of intangible assets 569 40 1,069 82 ------ ------- ------ ------ Total costs and expenses 28,739 21,679 55,645 43,375 ------ ------ ------ ------ Operating income 7,272 4,727 13,160 8,700 ------ ------ ------ ------ Other income (expense): Interest expense (503) (112) (1,084) (226) Interest and other income 79 341 225 632 ------ ------ ------- ------ Total other income (expense) (424) 229 (859) 406 ------ ------ ------- ------ Income before income taxes 6,848 4,956 12,301 9,106 Provision for income taxes 2,601 1,894 4,674 3,474 ------ ------ ------- ------- Net Income $ 4,247 $ 3,062 $ 7,627 $ 5,632 ======= ======= ======= ======= Net Income per Common Share-Basic (after deducting preferred dividends of $105 and $105 for the three month periods and $211 and $210 for the six-month periods of 1999 and 1998, respectively) $0.22 $0.16 $0.40 $0.30 ===== ===== ===== ===== Net Income per Common Share-Diluted $0.21 $0.15 $0.38 $0.28 ===== ===== ===== =====
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) (DOLLARS IN 000'S)
FOR THE THREE FOR THE SIX MONTHS ENDED MONTHS ENDED --------------------- ---------------------- 9/30/99 9/30/98 9/30/99 9/30/98 ------- ------- ------- ------- Net income $4,247 $3,062 $7,627 $5,632 ------ ------ ------ ------ Other comprehensive income, net of tax: Unrealized losses on securities: Unrealized holding losses arising during period (2) - (10) - Reclassification adjustment for losses included in net income 25 - 18 - -------- ------- -------- ------ Other comprehensive income 23 - 8 - ------ Comprehensive income $4,270 $3,062 $7,635 $5,632 ====== ====== ====== ======
4 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1999 AND MARCH 31, 1999 (DOLLARS IN 000'S) UNAUDITED 09/30/99 03/31/99 ASSETS --------- --------- Current Assets: Cash and equivalents $1,602 $ 2,617 Marketable securities, available-for-sale 1,999 7,523 Receivables 24,088 18,988 Receivable, arbitration award - 13,253 Inventories 28,085 23,653 Deferred income taxes 3,390 3,379 Prepaid and other current assets 172 168 ---------- ------------- Total Current Assets 59,336 69,581 Net property and equipment, less accumulated depreciation 23,991 18,967 Intangibles and other assets, net of amortization 47,305 39,442 ---------- ---------- TOTAL ASSETS $130,632 $127,990 ======== ======== LIABILITIES Current Liabilities: Accounts payable $ 9,508 $ 8,667 Accrued liabilities 13,444 17,090 Current maturities of long-term debt 1,644 712 ---------- ---------- Total Current Liabilities 24,596 26,469 Long-term debt 22,297 31,490 Deferred income taxes 379 379 Other long-term liabilities 2,232 2,104 ---------- ---------- TOTAL LIABILITIES 49,504 60,442 --------- -------- Commitments and Contingencies 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 and 241,000 shares as of September 30, 1999 and March 31, 1999, respectively (convertible into Class A shares 2 2 at a ratio of 3.75 to one) Class A and Class B Common Stock, $.01 par value; 150,000,000 and 75,000,000 shares authorized, respectively; Class A-issued 12,220,204 and 11,941,776 as of September 30, 1999 and March 31, 1999, respectively 122 120 Class B-issued 6,612,260 and 6,525,180 as of September 30, 1999 and March 31, 1999, respectively (convertible into Class A shares on a one-for-one basis) 66 64 Additional paid-in capital 40,682 34,531 Retained earnings 40,328 32,911 Accumulated comprehensive loss, net (17) (25) Less: Treasury Stock 35,619 shares each of Class A and Class B Common Stock, at cost (55) (55) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 81,128 67,548 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $130,632 $127,990 ======== ======== SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) (DOLLARS IN 000'S) 1999 1998 -------- ------- OPERATING ACTIVITIES Net Income $ 7,627 $ 5,632 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,019 872 Changes in deferred taxes (11) - Changes in deferred compensation 128 259 Changes in operating assets and liabilities: (Increase) decrease in receivables (5,100) 2,575 Decrease in receivable arbitration award 13,253 - Increase in inventories (4,432) (2,040) (Increase) decrease in prepaids and other assets (471) 376 (Decrease) increase in accounts payable and accrued liabilities (2,806) 583 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 10,207 8,257 --------- --------- INVESTING ACTIVITIES Purchase of property and equipment, net (5,973) (1,911) Sale of marketable securities 5,532 - Product acquisition (3,033) - --------- ------- NET CASH (USED IN) INVESTING ACTIVITIES (3,474) (1,911) --------- ------- FINANCING ACTIVITIES Principal payments on long-term debt (9,193) (116) Dividends paid on Preferred Stock (210) (211) Exercise of Common Stock options 1,655 435 --------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (7,748) 108 --------- --------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,015) 6,454 CASH AND CASH EQUIVALENTS AT: BEGINNING OF YEAR 2,617 18,158 ------- ------- END OF PERIOD $1,602 $24,612 ====== ======= NON-CASH INVESTING AND FINANCING ACTIVITIES: Portion of product acquisition acquired through issuance of: Short-term debt $ 932 - Common stock $4,500 - SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 NOTES TO SUMMARIZED CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION The interim financial statements presented here have been prepared in conformity with the accounting principles and practices and methods of applying the same (including consolidating practices) reflected in the Annual Report of the Company on Form 10-K for the year ended March 31, 1999 filed with the Commission, except that detailed footnotes and schedules are not included. Reference is hereby made to the footnotes and schedules contained in the Annual Report. All significant intercompany balances and transactions have been eliminated and, in the opinion of management, all adjustments, which are of a normal recurring nature only, necessary to present a fair statement of the results of the Company and its subsidiaries have been made. NOTE B - INVENTORIES Inventories consist of ($ in 000's): September 30, 1999 March 31, 1999 ------------------ -------------- Finished products $12,661 $11,411 Work-in-process 3,307 2,282 Raw materials and supplies 12,117 9,960 --------- --------- $28,085 $23,653 ======= ======= NOTE C - 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: 9/30/99 9/30/98 9/30/99 9/30/98 ------- ------- ------- ------- Net income $ 4,247 $ 3,062 $ 7,627 $ 5,632 Preferred Stock dividends (105) (105) (210) (211) -------- -------- -------- -------- Numerator for basic earnings per Share-income available to common Shareholders 4,142 2,957 7,417 5,421 Effect of dilutive securities: Preferred Stock dividends 105 105 210 211 -------- -------- -------- -------- Numerator for diluted earnings per Share-income available to common Shareholders after assumed conversions $4,247 $3,062 $7,627 $5,632 ====== ====== ====== ====== DENOMINATOR: Denominator for basic earnings per Share-weighted-average shares 18,693 18,198 18,533 18,172 ------- ------- ------- ------- Effect of dilutive securities: Employee stock options 623 918 595 919 Convertible Preferred Stock 900 904 900 904 ------ ------ --------- --------- Dilutive potential Common Shares 1,523 1,822 1,495 1,823 ----- ----- -------- -------- Denominator for diluted earnings per share-adjusted weighted-average shares and assumed conversions 20,216 20,020 20,028 19,995 ====== ====== ====== ====== BASIC EARNINGS PER SHARE (1): $0.22 $0.16 $0.40 $0.30 ===== ===== ===== ===== DILUTED EARNINGS PER SHARE (1) (2): $0.21 $0.15 $0.38 $0.28 ===== ===== ===== ===== (1) The two-class method for Class A and Class B Common Stock is not presented because the earnings per share are equivalent to the if converted method since dividends were not declared or paid and each class of common stock has equal ownership of the Company. (2) Employee stock options to purchase 179,250 shares at September 30, 1999 and 750 shares at September 30, 1998 of Class A and Class B Common Stock are not included in the computation of diluted earnings per share because their exercise price was greater than the average market price during the quarter and as such are considered anti-dilutive.
NOTE D - SEGMENT FINANCIAL INFORMATION The reportable segments of the Company are specialty generics and contract services. Segment operating results are measured based on income before taxes.
Corporate Specialty Contract All Expenses and Generics Services Other Eliminations Consolidated --------- -------- -------- ------------ ------------ For the Three Months Ended September 30, 1999 ($ in 000's) - -------------------------------- Revenues $26,286 $10,934 $8,892 $(10,101) $36,011 Depreciation and amortization 22 439 34 569 1,064 Income before income taxes 12,139 513 1,280 (7,084) 6,848 Capital expenditures 202 3,543 39 - 3,784 For the Three Months Ended September 30, 1998 ($ in 000's) - -------------------------------- Revenues $22,294 $6,385 $3,447 $(5,720) $26,406 Depreciation and amortization 18 361 20 40 439 Income before income taxes 9,464 (595) 624 (4,537) 4,956 Capital expenditures 20 1,323 24 - 1,367 For the Six Months Ended September 30, 1999 ($ in 000's) - ------------------------------- Revenues $51,675 $21,743 $15,752 $(20,365) $68,805 Depreciation and amortization 63 792 68 1,096 2,019 Income before income taxes 22,782 344 2,295 (13,120) 12,301 Total assets 26,435 49,472 13,062 41,663 130,632 Capital expenditures 202 5,699 72 - 5,973 For the Six Months Ended September 30, 1998 ($ in 000's) - -------------------------------- Revenues $42,947 $12,870 $7,223 $(10,965) $52,075 Depreciation and amortization 36 712 41 83 872 Income before income taxes 17,389 (702) 1,308 (8,889) 9,106 Total assets 14,645 47,704 7,471 5,123 74,943 Capital expenditures 28 1,859 24 - 1,911
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 net revenues for the second quarter of fiscal 2000 ended September 30, 1999 increased $9.6 million, or 36.4%, to $36 million from $26.4 million for the same period last year. Year-to-date consolidated net revenues were $68.8 million, an increase of $16.7 million, or 32.1%, over the same period last year. The increases in revenues for the quarter and year-to-date were due primarily to higher sales of new brand-name products and specialty generics. Brand product sales through the Company's Ther-Rx Corporation subsidiary were $4.6 million for the quarter and $7.2 million year-to-date all of which are incremental to the prior year given the start-up of Ther-Rx late in the fourth quarter of last fiscal year. Sales benefited from the acquisition in August 1999 of the PreCare(R) line of prenatal vitamins from UCB Pharma and the subsequent introductions of Pre-Care(R) Chewables and PremesisRx(TM) under the PreCare(R) line of women's health care pharmaceuticals. PreCare(R) Chewables is the world's first prescription chewable prenatal vitamin. PremesisRx(TM) is a prescription product designed to reduce pregnancy-related nausea when used in conjunction with a physician-prescribed regimen to minimize nausea. The Company plans to introduce additional products in the coming months. Specialty generic sales through the Company's ETHEX Corporation subsidiary increased $4 million, or 17.9%, for the quarter and were up $8.7 million, or 20.3%, year-to-date over the same periods of the prior year. The increases in both periods were due to new products introduced this year and last year ($3.9 million for the quarter and $6.3 million year-to-date) and selective price increases ($2.7 million for the quarter and $3.9 million year-to-date). COSTS AND EXPENSES. Manufacturing costs as a percent of revenue declined for the quarter and year-to-date due to the effects of favorable pricing and product mix. The improvement in product mix reflects the increase in the relative contribution of higher margin branded sales to total sales. For the quarter, manufacturing costs declined to 43.6% from 55.5% in the prior year and for the year-to-date to 46.8% from 57.2% last year. The components of the change are shown in the following table: % Revenue --------------------------- Quarter Year-to-Date ------- ------------ FY 99 Manufacturing Costs 55.5 57.2 Change due to: Product Mix/Volume (11.7) (10.4) Selling Pricing (3.5) (2.8) Manufacturing Costs 3.3 2.8 ------ ------ FY 00 Manufacturing Costs 43.6 46.8 ====== ====== Research and development expense increased $.4 million, or 25%, for the quarter and $.6 million, or 18%, for the year-to-date compared to the same periods of the prior year. The increase in expense in both periods is due primarily to higher research costs to support clinical testing programs in support of the Company's new products. Selling and administrative expenses increased $5.1 million, or 95%, for the quarter and $8.3 million, or 81%, for the year-to-date compared to the same periods of the prior year. The increase in both periods is due primarily to the Company's continued investment in expanding the sales force for its Ther-Rx brand-name marketing division. Selling expenses associated with this effort were $3.3 million for the quarter and $5.1 million for the year-to-date. Marketing expenses to support the continued growth of the specialty generics business increased $.6 million and $1.1 million for the quarter and year-to-date, respectively. Amortization expense increased $.5 million for the quarter and $1 million for the year-to-date due to the amortization of product rights acquired in March 1999 and August 1999. Interest expense, net of interest income, increased $.7 million in the quarter and is up $1.3 million for the year-to-date on higher borrowings incurred to finance product acquisitions and facilities expansion. NET INCOME. As a result of the factors described above, net income improved $1.2 million, or 38.7% to $4.2 million for the quarter ending September 30, 1999 compared to the same period last year. For the six months ended September 30, 1999 net income improved $2 million, or 35.4% to $7.6 million compared to the same period of the prior year. (B) LIQUIDITY AND CAPITAL RESOURCES CASHFLOW. Cash provided by operations was $10.3 million for the first six months of fiscal 2000, an increase of $2.2 million, or 27%, over the first six months of fiscal 1999. The increase in operating cash flow compared with last year was due to higher net income, depreciation, amortization and other non-cash charges ($3 million) and the collection of an arbitration award ($13.3 million). These increases were largely offset by a $14. 1 million increase in the net use of working capital over the same period last year. This net increase in the use of working capital consisted of increases in trade accounts receivable ($7.7 million), inventories ($2.4 million) and other current assets ($.6 million) to support business growth, and decreases in accounts payable and accrued expenses ($3.4 million). The increase in trade accounts receivable reflects the $16.7 million growth in net sales over the same period last year, and includes the impact of the new products launched by Ther-Rx and ETHEX. Inventories increased in anticipation of customer needs during the upcoming cough cold season and in support of the recent new product launches. The decreases in accounts payable and accrued liabilities were due primarily to a decrease in accrued income taxes paid during the first quarter in connection with the arbitration award recorded in fiscal 1999. Investing activities for the first six months of fiscal 2000 included cash outlays for capital expenditures of $6 million and product acquisitions of $3 million, partially offset by cash provided by the sale of $5.5 million of marketable securities. Capital expenditures were primarily for production equipment, laboratory improvements and the upgrade of the Company's business software and network systems. During the second quarter, the Company acquired the worldwide rights to PreCare(R) for approximately $8.5 million, consisting of $3 million cash, $4.5 million Class A Common Stock and a $1 million note. Marketable securities were sold to pay down long-term debt. The Company paid down long-term debt totaling $9 million during the first six months of fiscal 2000. The Company believes that existing cash and securities balances, together with cash generated from operating activities and funds available under its credit facility, will be adequate to fund operating activities for the presently foreseeable future, including the payment of short-term and long-term obligations, capital improvements, product development activities and the expansion of marketing capabilities for the brand pharmaceutical business. BALANCE SHEET AND RATIOS. The following table sets forth selected balance sheet data and financial ratios as of September 30 and year-end March 31, 1999: - -------------------------------------------------------------------------------- ($ in 000's) September 99 March 99 ------------ ---------- Working capital................................ $ 34,740 $ 43,112 Long-term debt................................. 22,297 31,490 Shareholders' equity........................... 81,128 67,548 Working capital ratio.......................... 2.4 2.6 Long-term debt to equity....................... 0.27 0.47 - -------------------------------------------------------------------------------- Working capital decreased $8.4 million during the first six months of fiscal 2000 compared with the balance at the end of fiscal 1999. Current assets decreased $10.3 million, or 15%, while current liabilities decreased $1.9 million, or 7%. The decrease in current assets was due primarily to the collection of the $13.3 million arbitration award included in receivables at year-end, the proceeds of which were used to pay income taxes ($6 million), capital expenditures ($2.2 million) and long-term debt ($9.2 million). Current liabilities decreased due to a $5.3 million reduction in accrued income taxes, partially offset by a $.9 million increase in short-term debt related to the PreCare(R) acquisition, a $.9 million increase in accounts payable from higher inventory levels, and a $1.6 million increase in marketing and promotional accruals in connection with new product launches. The working capital ratio dipped slightly to 2.4 to 1 from 2.6 to 1 at year-end as current assets declined at a faster rate than current liabilities. The long-term debt to equity ratio improved during the first six months of fiscal 2000 due to the repayment of $9.2 million in long-term debt and the increase in shareholders' equity attributable to the Company's net income for the period. 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 was minimal during the first six months of fiscal 2000 and fiscal 1999. 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 first six months of fiscal 2000 and fiscal 1999. 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 other 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, validation, remediation and implementation phases. The Company has completed the awareness, assessment and validation phases and has a few remaining tasks in the remediation and implementation phases. The costs associated with the project are not expected to exceed $766,000 (of which approximately $699,000 had been incurred as of September 30, 1999), and are not deemed to materially impact the Company's consolidated financial position, results of operations or cash flows in future periods. The Company has scheduled the remediation and testing of the remaining software or machinery tasks 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 is finalizing formal communications with all of its significant suppliers and critical business partners to determine year 2000 compliance of its dependents and has developed contingency plans to minimize interruptions 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 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 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 has developed contingency plans 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. The Company expects to complete the few remaining tasks in the remediation and implementation phases of its Year 2000 compliance program by the end of the calendar year. However, the costs and results of the Company's Year 2000 program and the extent of any impact on the Company's operations could vary materially from those stated herein. PART II. OTHER INFORMATION ITEM 2: CHANGE IN SECURITIES On August 2, 1999, the Company issued 259,110 shares of Class A Common Stock to UCB PHIP, Inc. ("UCB") in connection with the Company's acquisition of the Precare(R) product line from UCB and UCB Pharma, Inc. The shares were issued under the exemption from registration in Section 4(2) of the Securities Act of 1933, as amended. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of Shareholders of the Company held July 1, 1999, the Shareholders re-elected Marc S. Hermelin to serve a three-year term as a Class A Director. The vote tabulation was as follows: Votes in Favor 5,072,921 Votes Withheld 995 Abstentions 101,550 ITEM 5: OTHER INFORMATION None. 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. Date: November 15, 1999 /s/ Marc S. Hermelin ----------------------- ------------------------------------------ Marc S. Hermelin Vice Chairman of the Board and Chief Executive Officer Date: November 15, 1999 /s/ Gerald R. Mitchell ----------------------- ------------------------------------------ Gerald R. Mitchell Vice President-Finance Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS MAR-31-2000 APR-01-1999 SEP-30-1999 1,602 1,999 25,089 1,001 28,085 59,336 23,991 0 130,632 24,596 22,297 0 2 188 0 130,632 68,805 0 0 32,225 23,420 0 1,084 12,301 4,674 7,627 0 0 0 7,627 .40 .38
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