<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 June 30, 1996
--------------------------
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 7,211,632
Class B Common Stock, par value $.01 per share 4,664,175
</TABLE>
Page 1 of 11 Pages
<PAGE> 2
PART I
FINANCIAL INFORMATION
2
<PAGE> 3
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 1996 and 1995
(Unaudited)
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Net Revenues $13,067,817 $12,220,103
Costs and Expenses:
Manufacturing costs 7,138,276 6,657,625
Research and development 1,163,274 1,045,504
Selling and administrative 3,287,422 3,156,103
Interest expense 114,763 316,543
Amortization of intangible assets 48,683 243,208
----------- -----------
Total Costs and Expenses 11,752,418 11,418,983
----------- -----------
Income before income taxes 1,315,399 801,120
Provision for income taxes 30,000 30,000
----------- -----------
Net Income $ 1,285,399 $ 771,120
=========== ===========
Net Income per Common Share
(after preferred dividends
payable of $105,438 in 1996
and 1995): $0.10 $0.06
==== ====
See Accompanying Notes to Summarized Consolidated Financial Statements
</TABLE>
3
<PAGE> 4
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and March 31, 1996
(Unaudited)
<CAPTION>
06/30/96 03/31/96
----------- -----------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and equivalents $ 1,616,318 $ 2,038,069
Receivables 9,744,704 8,502,714
Inventories 8,297,828 8,450,162
Prepaid and other 136,913 229,358
----------- -----------
Total Current Assets 19,795,763 19,220,303
Net Property and Equipment 7,551,533 7,621,217
Goodwill and other 2,725,340 2,328,190
----------- -----------
TOTAL ASSETS $30,072,636 $29,169,710
=========== ===========
LIABILITIES
- -----------
Current Liabilities:
Current maturities of long-term debt $ 626,139 $ 712,328
Accounts payable 1,533,181 2,068,265
Accrued liabilities 2,607,004 2,386,761
----------- -----------
Total Current Liabilities 4,766,324 5,167,354
Long-term debt 2,503,050 2,541,216
Other 949,252 911,230
----------- -----------
Total Liabilities 8,218,626 8,619,800
----------- -----------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock 2,410 2,410
Class A common stock 71,793 71,207
Class B common stock 46,941 47,474
Additional paid-in capital 30,254,574 30,235,926
Retained deficit (8,466,755) (9,752,154)
Less cost of Class A and Class B common
stock in treasury (54,953) (54,953)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 21,854,010 20,549,910
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $30,072,636 $29,169,710
=========== ===========
See Accompanying Notes to Summarized Consolidated Financial Statements
</TABLE>
4
<PAGE> 5
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 1996 and 1995
(Unaudited)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,285,399 $771,120
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 393,056 586,080
Changes in operating assets and liabilities:
Increase in receivables (1,241,990) (530,934)
Net decrease (increase) in inventories and other
current assets 244,779 (224,751)
Decrease (increase) in accounts payable and
accrued liabilities (314,841) 258,252
Other 38,022 35,534
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 404,425 895,301
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment, net (274,690) (163,025)
Other, net (445,832) (296,857)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (720,522) (459,882)
----------- -----------
FINANCING ACTIVITIES
Proceeds from credit facilities - 4,502,910
Repayment of credit facilities - (12,293,776)
Proceeds from term loan facility - 6,839,411
Principal payments on long-term debt (124,355) (192,579)
Exercise of common stock options 18,701 -
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (105,654) (1,144,034)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (421,751) (708,615)
Cash and cash equivalents at beginning of year 2,038,069 1,075,713
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 1,616,318 $ 367,098
=========== ===========
See Accompanying Notes to Summarized Consolidated Financial Statements
</TABLE>
5
<PAGE> 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,
1996 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 -- EARNINGS PER SHARE
Net income per common share is computed by dividing net income, less
preferred dividends, by the weighted average number of common shares and
common share equivalents (if dilutive) outstanding during the period. No
preferred dividends were paid for the three months ended June 30, 1996 and
1995. Undeclared and unaccrued cumulative preferred dividends at June 30,
1996 and 1995 were $1,992,769 and $1,571,019, 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 12,285,712 and 11,624,958 for the quarters ended
June 30, 1996 and 1995, respectively. Primary and fully-diluted income per
share was the same for each of the periods presented.
6
<PAGE> 7
Item 2. Management's Discussion and Analysis of Results of Operations,
--------------------------------------------------------------
and Liquidity and Capital Resources
-----------------------------------
(a) Results of Operations
---------------------
Revenues. Consolidated revenues for the first quarter of fiscal
1997 totaled $13.1 million compared to $12.2 million for the first quarter of
fiscal 1996, an increase of $.9 million, or 7%. ETHEX revenues increased by
$1.0 million, or 11% over the same period last year as a result of
increased sales of existing products and new products introduced in
fiscal 1996 and the first quarter of fiscal 1997.
Costs and Expenses. Manufacturing costs remained relatively flat
as a percentage of net sales increasing to 55% in the quarter ended June 30,
1996 from 54% in the same period last year.
Research and development costs increased $.1 million, or 11%,
compared to the same quarter of the prior year, due primarily to an increase
in personnel costs to support continuing research into advanced drug delivery
technologies.
Selling and administrative expenses increased $.1 million, or 4%
over the same period last year due to higher marketing, selling and
administrative support costs associated with the new product introductions
and expansion of ETHEX.
Interest expense decreased $.2 million compared to the same
period of the prior year. The decrease resulted from a lower level of
borrowings during the first quarter of fiscal 1997.
Amortization of intangible assets decreased $.2 million compared
to the same period of the prior year. The decrease resulted from the $2.5
million reimbursement received for Deferred Improved Drug Entities(TM) in the
fourth quarter of fiscal 1996.
For the three months ended June 30, 1996 and 1995 the Company had
a current provision for income taxes of $30,000 based on the alternative
minimum tax, but otherwise made no provision for income taxes as a result of
available net operating loss carryforwards.
Net Income (Loss). As a result of the factors described above,
net income improved $.5 million, or 67% to $1.3 million for the first quarter
of fiscal 1997.
(b) Liquidity and Capital Resources
-------------------------------
The following table sets forth selected balance sheet ratios at
March 31, 1996, June 30, 1996 and June 30, 1995.
<TABLE>
<CAPTION>
6/30/96 3/31/96 6/30/95
---------------------------------------------
<S> <C> <C> <C>
Working Capital Ratio 4.2 to 1 3.7 to 1 2.2 to 1
Debt to Debt Plus Equity .13 to 1 .14 to 1 .52 to 1
Total Liabilities to Equity .38 to 1 .42 to 1 1.7 to 1
</TABLE>
Working capital for the quarter ended June 30, 1996 increased
$1.0 million, or 7% to $15.0 million from March 31, 1996, while cash and
equivalents decreased $.4 million. Net cash provided from operations of $.4
million included an increase in receivables of $1.2 million principally from
increased sales volume from ETHEX Corporation, which was offset by non-cash
items totaling $.4 million and net decreases in other operating assets and
liabilities. Borrowings reflected a decrease of $.1 million, resulting from
the application of existing cash and funds provided by profitable operations.
The ratio of current assets to current liabilities was 4.2 to 1 as
7
<PAGE> 8
of June 30, 1996, compared to 3.7 to 1 as of March 31, 1996.
The debt to debt plus equity and total liabilities to equity
ratios for the first quarter of fiscal 1997 decreased because of the impact
of the net profit for the quarter.
Investing activities for the first quarter of fiscal 1997
reflected capital expenditures of $.3 million and net expenditures for other
assets of $.4 million, which were provided for through operations.
The Company's cash and cash equivalents on hand at June 30, 1996
were $1.6 million. In addition, the Company currently has in place a credit
facility with Foothill Capital Corporation under which it has the ability to
borrow up to $17.5 million. This credit facility consists of a revolving
loan, a term loan, a capital equipment loan facility and letters of credit to
support the Company's outstanding industrial revenue bond and other
requirements.
Although the Company generally has been able to pass along to its
customers at least a portion of cost increases in labor, manufacturing and
raw material costs under its agreements, in certain instances no increases
have been effected due to market conditions. It is not meaningful to compare
changing prices over the past several years because the products, product
formulas, product mix and sources of raw materials have varied substantially.
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 and co-marketed
under long term marketing agreements and ventures. These advanced technology
products 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. For the most part, these products can be produced with
existing manufacturing processes. The Company expects to continue a
relatively high level of expenditures and investment for research, clinical
and regulatory efforts relating to the development and commercialization of
proprietary new products and advanced technology products and their approval
for marketing.
The Company has and is continuing to implement strategies to
introduce additional products through its ETHEX subsidiary and de-emphasize
contract services. This move to directly market its own technology
distinguished generics has allowed the Company to rely less upon the
dependence of its pharmaceutical marketing clients for growth and to shift
its revenue growth internally, principally through ETHEX and the Company's
licensing activities. The Company believes funds generated from operating
activities and existing cash will be adequate to fund the Company's
requirements for short term needs due to continued sales growth being
experienced.
8
<PAGE> 9
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K.
---------------------------------
a) Exhibits - See Exhibit Index on page 11.
b) The Company filed a report on Form 8-K dated May 21, 1996 and
amendments thereto during the quarter ended June 30, 1996
regarding a change in independent certified accountants.
9
<PAGE> 10
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: July 31, 1996 /s/ Marc S. Hermelin
---------------------------- ------------------------------
Marc S. Hermelin
Vice Chairman of the Board
(Principal Executive Officer)
Date: July 31, 1996 /s/ Gerald R. Mitchell
---------------------------- ------------------------------
Gerald R. Mitchell
Vice President - Finance
(Principal Financial and
Accounting Officer)
10
<PAGE> 11
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit Number Description
- -------------- -----------
<C> <S>
11 Computation of Earnings
Per Share Calculation. Filed
Herewith.
27 Financial Data Schedule. Filed
Herewith.
</TABLE>
11
<PAGE> 1
EXHIBIT 11
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
Earnings Per Share Calculation
Primary Earnings Per Share
<CAPTION>
For the Three Months Ended
06/30/96 06/30/95
---------- -----------
<S> <C> <C>
Net income $1,285,399 $ 771,120
Less dividends on preferred stock (105,438) (105,438)
--------- ----------
Income Attributed to Common Stock $1,179,961 $ 665,682
--------- ----------
Average Number of Common Shares and
Common Share Equivalents Outstanding:
Average common shares outstanding 11,823,627 11,434,115
Common share equivalents (after application
of treasury stock method) 462,085 190,843
--------- ----------
Average Common Shares and Common Share
Equivalents Outstanding 12,285,712 11,624,958
========== ==========
Primary Income per Share<F1> $0.10 $0.06
==== ====
<FN>
<F1> 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.
</TABLE>
<PAGE> 2
EXHIBIT 11
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
Earnings Per Share Calculation
Fully-Diluted Earnings Per Share
<CAPTION>
For the Three Months Ended
06/30/96 06/30/95
----------- -----------
<S> <C> <C>
Net income $ 1,285,399 $ 771,120
Less dividends on preferred stock (105,438) (105,438)
Plus dividends not payable due to preferred
stock conversion 105,438 105,438
---------- ----------
Income Attributed to Common Stock $ 1,285,399 $ 771,120
========== ==========
Average Number of Shares Outstanding on a
Fully-Diluted Basis:
Average common shares outstanding 11,823,627 11,434,115
Common share equivalents (after application
of treasury stock method):
Shares issuable upon conversion of stock
options 472,136 292,340
Common equivalent shares for preferred stock 301,250 301,250
--------- ----------
Average Number of Shares Outstanding on a
Fully-Diluted Basis 12,597,013 12,027,705
========== ==========
Fully-Diluted Income per Share<F1><F2>: $0.10 $ 0.06
==== =====
<FN>
<F1> 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.
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's
financial statements for and as of the period ending June 30, 1996 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,616,318
<SECURITIES> 0
<RECEIVABLES> 9,744,704
<ALLOWANCES> 0
<INVENTORY> 8,297,828
<CURRENT-ASSETS> 19,795,763
<PP&E> 7,551,533
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,072,636
<CURRENT-LIABILITIES> 4,766,324
<BONDS> 0
<COMMON> 118,734
0
2,410
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 30,072,636
<SALES> 0
<TOTAL-REVENUES> 13,067,817
<CGS> 0
<TOTAL-COSTS> 7,138,276
<OTHER-EXPENSES> 4,499,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,763
<INCOME-PRETAX> 1,315,399
<INCOME-TAX> 30,000
<INCOME-CONTINUING> 1,285,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,285,399
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
