<PAGE> 1
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, 1995
--------------------------
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
------ -------
<TABLE>
<CAPTION>
Title of Class of Number of Shares
Common Stock Outstanding as of this Report Date
----------------- ----------------------------------
<S> <C>
Class A Common Stock, par value $.01 per share 6,792,531
Class B Common Stock, par value $.01 per share 4,692,694
</TABLE>
<PAGE> 2
PART I
FINANCIAL INFORMATION
2
<PAGE> 3
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended September 30, 1995 and 1994
(Unaudited)
<CAPTION>
For the Three For the Six
Months Ended Months Ended
------------------------ ---------------------------
09/30/95 09/30/94 09/30/95 09/30/94
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $11,207,601 $ 8,335,237 $ 23,427,704 $ 16,211,513
----------- ------------ ------------ ------------
Costs and Expenses:
Manufacturing costs 5,571,139 5,603,458 12,228,762 11,665,124
Research and development 1,074,310 1,066,120 2,119,814 2,365,661
Selling and administrative 2,998,444 2,680,929 6,154,547 5,736,039
Interest expense 411,386 306,215 727,931 562,209
Amortization of intangible
assets 192,871 162,966 436,079 325,685
----------- ------------ ------------ ------------
Total Costs & Expenses 10,248,150 9,819,688 21,667,133 20,654,718
----------- ------------ ------------ ------------
Income (loss) before income
taxes 959,451 (1,484,451) 1,760,571 (4,443,205)
Provision for income taxes:
Current 30,000 - 60,000 -
Deferred - - - -
----------- ------------ ------------ ------------
Total 30,000 - 60,000 -
----------- ------------ ------------ ------------
Net Income (loss) $ 929,451 $ (1,484,451) $ 1,700,571 $ (4,443,205)
=========== ============ ============ ============
Net Income (loss) per Common
Share (after deducting
preferred dividends:
$105,438 for the three months
ended September 30, 1995 and
1994 and $210,876 for the
six months ended September 30,
1995 and 1994). $0.07 $(0.14) $0.13 $(0.42)
===== ======= ===== =======
See accompanying notes to financial statements.
</TABLE>
3
<PAGE> 4
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and March 31, 1995
(Unaudited)
<CAPTION>
09/30/95 03/31/95
-------- --------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and equivalents $ 219,953 $ 1,075,713
Receivables 9,040,615 7,893,585
Inventories 8,957,778 6,591,587
Prepaid and other 206,115 266,951
----------- -----------
Total Current Assets 18,424,461 15,827,836
----------- -----------
Property and equipment 20,408,371 19,995,369
Less accumulated depreciation and amortization (12,514,333) (11,827,495)
----------- -----------
Net Property and Equipment 7,894,038 8,167,874
----------- -----------
Deferred Improved Drug Entities(TM) 2,621,103 2,962,827
Goodwill and other 2,324,283 2,069,245
----------- -----------
TOTAL ASSETS $31,263,885 $29,027,782
=========== ===========
LIABILITIES
- -----------
Current Liabilities:
Current maturities of long-term debt $ 1,948,576 $ 1,814,682
Accounts payable 2,606,692 2,565,247
Accrued liabilities 3,047,992 2,521,162
----------- -----------
Total Current Liabilities 7,603,260 6,901,091
----------- -----------
Long-term debt 10,795,587 11,233,418
Other long-term liabilities 990,161 919,091
----------- -----------
Total Liabilities 19,389,008 19,053,600
----------- -----------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock 2,410 2,410
Class A common stock 68,162 67,629
Class B common stock 47,164 47,187
Additional paid-in capital 23,906,337 23,706,723
Retained deficit (12,094,243) (13,794,814)
Less cost of Class A and Class B
common stock in treasury (54,953) (54,953)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 11,874,877 9,974,182
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $31,263,885 $29,027,782
=========== ===========
See accompanying notes to financial statements.
</TABLE>
4
<PAGE> 5
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Six Months Ended September 30, 1995 and 1994
(Unaudited)
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ 1,700,571 $(4,443,205)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 1,122,917 943,328
Changes in operating assets and liabilities:
(Increase) decrease in receivables (1,147,030) 1,107,435
Net (increase) decrease in inventories
and other current assets (2,305,355) 291,872
Increase in accounts payable
and accrued liabilities 568,275 2,239,386
Increase (decrease) in other 71,070 -
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 10,448 138,816
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment, net (413,002) (264,116)
Other, net (349,393) (97,628)
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (762,395) (361,744)
----------- -----------
FINANCING ACTIVITIES
Proceeds from credit facilities 14,994,880 4,700,000
Repayment of credit facilities (21,473,311) (4,300,000)
Proceeds from term loan facility 6,839,411 -
Principal payments on long-term debt (664,917) (13,823)
Exercise (repurchase) of common stock options 200,124 (1,707)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (103,813) 384,470
----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (855,760) 161,542
Cash and cash equivalents at
beginning of year 1,075,713 506,982
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 219,953 $ 668,524
=========== ===========
See accompanying notes to financial statements.
</TABLE>
5
<PAGE> 6
NOTES TO SUMMARIZED FINANCIAL INFORMATION
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, 1995 filed with the Securities and 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,
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 -- EARNINGS PER SHARE
Net income (loss) per common share is computed by dividing net
income (loss), less/plus preferred dividends, by the weighted average
number of common shares and common share equivalents (if dilutive)
outstanding during the period. Preferred dividends used in this
calculation for the three-month and six-month periods ended September
30, 1995 and 1994 were $105,438 and $210,876, respectively. Undeclared
and unaccrued cumulative preferred dividends at September 30, 1995 and
1994 were $1,676,460 and $1,254,708, respectively. Common share
equivalents consist of those common shares that would be issued upon the
exercise of outstanding stock options. The weighted average number of
shares used in the computations was 11,740,305 and 11,056,672 for the
quarters ended September 30, 1995 and 1994, respectively, and 11,682,632
and 11,056,717 for the six-month periods ended September 30, 1995 and
1994, respectively. Primary and fully-diluted income (loss) per share
are the same for each of the periods presented.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES
AND RESULTS OF OPERATIONS
(a) Liquidity and Capital Resources
-------------------------------
1. Working Capital:
---------------
During the quarter ended September 30, 1995, working capital
increased $2,312,876 or 27%, to $10,821,201, while cash decreased
$147,145. Net cash used in operating activities for the six months
included an increase in receivables of $1,147,030, principally from
increased sales volume from ETHEX Corporation, an increase in
inventories of $2,305,355 as a result of the increase in the number of
products sold by ETHEX and in anticipation of continued growth, and an
increase in accounts payable and accrued liabilities of $568,275. These
increases in receivables and inventories were more than offset by
increased accounts payable and other liabilities and by the level of net
profit and non-cash charges totaling $2,823,488. Working capital for
the six months ended September 30, 1995, increased $1,084,566, or 11%.
Capital expenditures of $413,002 were provided by funds from available
current assets. Financing activities reflect a slight increase in
borrowing after the application of funds received from the exercise of
stock options. The ratio of current assets to current liabilities was
2.4 to 1 as of September 30, 1995, compared to 2.3 to 1 as of March 31,
1995.
2. Profitability:
-------------
The net profit for the second quarter of fiscal 1996 was
$929,451, compared to a loss of $1,484,451 in the comparable three-month
prior year period, an improvement of $2,413,902 for the three months.
Year-to-date, the net profit for the first six months of fiscal 1996 was
$1,700,571, compared to a loss of $4,443,205 for the same period of the
prior year, an improvement of $6,143,776. This improvement was due
primarily to increased revenues on higher margin products
7
<PAGE> 8
related to sales of new and existing products by KV's ETHEX subsidiary
and a reduction in the high level of costs associated with regulatory
matters incurred in the prior year.
3. Leverage:
--------
The ratio of total liabilities to equity improved to 1.63 to 1
from 1.91 to 1 at year-end, primarily due to the net income experienced
for the first six months which was partially offset by additional
indebtedness to support the current level of growth.
(b) Results of Operations
---------------------
1. Revenues:
--------
Consolidated revenues for the second quarter of fiscal 1996
totaled $11,207,601, compared to $8,335,237 for the second quarter of
fiscal 1995, an increase of $2,872,364, or 34% greater than the same
period last year. Year-to-date consolidated revenues were $23,427,704,
an increase of $7,216,191, or 45%, compared to the same period last
year. The increase in volume for both the quarter and year-to-date is
primarily attributable to the continued growth being experienced by
ETHEX from new and existing products. ETHEX revenues accounted for 72%
of consolidated revenues during the second quarter as ETHEX revenues
increased by $2,958,652, or 58% over the same period last year as a
result of new products introduced in fiscal 1995 and the first and
second quarter of fiscal 1996. Particle Dynamics and Contract Services
revenues had modest decreases.
2. Costs and Expenses:
------------------
Manufacturing costs were 50% and 67% of net sales for the
quarters ended September 30, 1995 and 1994, respectively. Year-to-date
manufacturing costs as a percent of net sales were 52% and 72% for the
six months ended September 30, 1995 and 1994, respectively.
Manufacturing costs decreased as a percent of sales for the quarter and
year-to-date due to the continued growth in sales of higher margin new
and existing ETHEX products. ETHEX revenues accounted for 72% of
consolidated net sales, compared to 61% in the comparable prior year
period.
8
<PAGE> 9
Research and Development costs increased $8,190, or 1%, for the
quarter ended September 30, 1995, compared to the same quarter of the
prior year. Year-to-date, these costs decreased $245,847, or 10%,
compared to the same period of the prior year. These decreases were
primarily due to a reduction in validation costs.
Selling and administrative expenses increased $317,515, or 12%,
for the quarter ended September 30, 1995, compared to the same period of
the prior year. Such costs were 27% and 32% of total revenues for the
respective second quarters of fiscal 1996 and 1995. Year-to-date
selling and administrative expenses increased $418,508, or 7%, over the
same period last year and were 26% and 35% of total revenues for the six
months ended September 30, 1995 and 1994, respectively. Increased
expenditures are related to higher ETHEX selling and promotion expenses
associated with the significant growth being experienced in new and
existing ETHEX products.
Interest expense increased $105,171 for the second quarter and
$165,722 for the six-month period ended September 30, 1995, compared to
the same period of the prior fiscal year. The increases resulted from
higher levels of borrowing to support present growth.
3. Income Taxes:
------------
For the six-month period ended September 30, 1995, the
Company has a current provision for income taxes of $60,000 based on the
alternative minimum tax, but otherwise made no provision for income
taxes due to a net operating loss carryforward position. For the
comparable period ended September 30, 1994, the Company had no provision
for income taxes because of the Company's net operating loss
carryforward position.
4. Inflation and Changing Trends:
-----------------------------
Although the Company generally has been able to pass along to its
customers a portion of cost increases in labor, manufacturing and raw
materials under its agreements, in certain instances no increases were
effected due to market conditions. However, it is not meaningful to
compare changing prices over the past three years because the products,
product formulas, product mix and sources of raw materials have varied
substantially.
9
<PAGE> 10
The Company is continuing to transition its revenue base from one
based on lower margin, highly competitive, short-term contract
manufacturing to one based on higher margin, technology distinguished
generic products, which it is focusing on marketing through ETHEX
Corporation, as well as advanced technology drug delivery products to be
marketed or co-marketed under long-term marketing agreements and
ventures. These advanced technology products (Improved Drug Entities(TM))
are the subject of a number of long-term business arrangements and have
differentiated and improved benefits derived from KV's drug delivery
system technologies.
The Company has implemented and is continuing to implement
strategies to introduce additional products through its ETHEX subsidiary
and to de-emphasize contract manufacturing services. This move to
directly market its own technology distinguished generics has allowed
the Company to become less dependent upon its pharmaceutical marketing
clients for growth and to shift its revenue growth internally,
principally through the growth in the number and level of sales of ETHEX
Corporation products and the Company's licensing activities. During
fiscal 1995, ETHEX introduced ten new products, and it plans to launch
a similar number of new products in fiscal 1996. Management believes
funds generated from operating activities and increased funds available
from the Company's credit facility and related agreements will be
adequate to meet the Company's requirements.
10
<PAGE> 11
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
On August 11, 1995, at the annual meeting of shareholders of
the Company, the shareholders elected Garnet E. Peck, Ph.D. as
a Class C Director for a three-year term. The number of votes
cast in favor of Garnet E. Peck, Ph.D. (taking into account the
fact that each share of Class A common stock has one-twentieth
of a vote per share and each share of Class B common stock has
one vote per share) was 4,582,613. The number of votes as to
which authority was withheld was 7,409.
The other directors of the Company whose terms of office as
directors continued after the meeting are: Marc S. Hermelin,
Victor M. Hermelin and Alan G. Johnson.
Item 6: Exhibits and Reports on Form 8-K.
- ------ --------------------------------
a) Exhibits - See Exhibit Index on page 13
b) The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1995.
11
<PAGE> 12
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 10, 1995 /s/ Marc S. Hermelin
--------------------------- --------------------------------
Marc S. Hermelin
Vice Chairman of the Board
Date: November 10, 1995 /s/ Gerald R. Mitchell
--------------------------- --------------------------------
Gerald R. Mitchell
Vice President - Finance
Chief Financial Officer
12
<PAGE> 13
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit Number Description Page
-------------- ----------- ----
<C> <S> <C>
11 Computation of Earnings (Loss) 14-15
Per Share Calculation. Filed
Herewith.
</TABLE>
13
<PAGE> 14
EXHIBIT 11
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
Earnings (Loss) Per Share Calculation
Primary Earnings Per Share
<CAPTION>
For the Three Months Ended For the Six Months Ended
09/30/95 09/30/94 09/30/95 09/30/94
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ 929,451 $(1,484,451) $ 1,700,571 $(4,443,205)
Less/plus dividends on preferred stock (105,438) (105,438) (210,876) (210,876)
------------ ----------- ------------ -----------
Income (Loss) Attributed to
Common Stock $ 824,013 $(1,589,889) $ 1,489,695 $(4,654,081)
============ =========== ============ ===========
Average Number of Common Shares
and Common Share Equivalents
Outstanding:
Average common shares
outstanding 11,457,512 11,056,672 11,445,814 11,056,717
Common share equivalents
(after application of
treasury stock method):
Shares issuable upon conversion
of stock options 282,793 N/A 236,818 N/A
------------ ----------- ------------ -----------
Average Common Shares and
Common Share Equivalents
Outstanding 11,740,305 11,056,672 11,682,632 11,056,717
============ =========== ============ ===========
Primary Income (Loss) per Share <F1>: $ 0.07 $(0.14) $ 0.13 $(0.42)
====== ====== ====== ======
<FN>
<F1> The two-class method for Class A and Class B common stock is not
presented because the earnings (loss) 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.
</TABLE>
14
<PAGE> 15
EXHIBIT 11
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
Earnings (Loss) Per Share Calculation
Fully-Diluted Earnings Per Share
<CAPTION>
For the Three Months Ended For the Six Months Ended
09/30/95 09/30/94 09/30/95 09/30/94
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ 929,451 $(1,484,451) $ 1,700,571 $(4,443,205)
Less/plus dividends on preferred stock (105,438) (105,438) (210,876) (210,876)
Plus dividends not payable due to
preferred stock conversion 105,438 105,438 210,876 210,876
----------- ----------- ----------- -----------
Income (Loss) Attributed
to Common Stock $ 929,451 $(1,484,451) $ 1,700,571 $(4,443,205)
=========== =========== =========== ===========
Average Number of Shares
Outstanding on a Fully-
Diluted Basis:
Average common shares
outstanding 11,457,512 11,056,672 11,445,814 11,056,717
Common share equivalents
(after application of treasury
stock method):
Shares issuable upon conversion
of stock options 301,476 N/A 296,908 N/A
Common equivalent shares for
preferred stock 301,250 301,250 301,250 301,250
----------- ----------- ----------- -----------
Average Number of Shares
Outstanding on a
Fully-Diluted Basis 12,060,238 11,357,922 12,043,972 11,357,967
=========== =========== =========== ===========
Fully-Diluted Income (Loss)
per Share <F1> <F2>: $ 0.08 $(0.13) $ 0.14 $(0.39)
====== ====== ====== ======
<FN>
<F1> The two-class method for Class A and Class B common stock is not
presented because the earnings (loss) 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.
<F2> This calculation is submitted although it is contrary to Paragraph
40 of APB Opinion No. 15 as it produces an anti-dilutive result.
Also, the preferred stock would not qualify as a common share
equivalent because the cash yield at issuance was not less than
66 2/3% of the then current average Aa corporate bond yield.
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-Q for the quarterly period ended September 30, 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 219,953
<SECURITIES> 0
<RECEIVABLES> 9,040,615
<ALLOWANCES> 0<F1>
<INVENTORY> 8,957,778
<CURRENT-ASSETS> 18,424,461
<PP&E> 20,408,371
<DEPRECIATION> 12,514,333
<TOTAL-ASSETS> 31,263,885
<CURRENT-LIABILITIES> 7,603,260
<BONDS> 0
<COMMON> 115,326
0
2,410
<OTHER-SE> 11,812,094
<TOTAL-LIABILITY-AND-EQUITY> 31,263,885
<SALES> 23,427,704
<TOTAL-REVENUES> 23,427,704
<CGS> 12,228,762
<TOTAL-COSTS> 21,667,133
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 727,931
<INCOME-PRETAX> 1,760,571
<INCOME-TAX> 60,000
<INCOME-CONTINUING> 1,700,571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,700,571
<EPS-PRIMARY> .13
<EPS-DILUTED> .14
<FN>
<F1>Allowances are not reported as a separate item on interim statements.
</TABLE>
