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, 1997
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
Commission file number 1-9601
K-V PHARMACEUTICAL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 43-0618919
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2503 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63144
(Address or principal executive offices)
(Zip Code)
(314) 645-6600
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Title of Class of Number of Shares
Common Stock Outstanding as of this Report Date
------------ ----------------------------------
Class A Common Stock, par value $.01 per share 7,750,439
Class B Common Stock, par value $.01 per share 4,300,575
<PAGE>
PART I
FINANCIAL INFORMATION
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 1997 and 1996
(Unaudited)
1997 1996
------ -----
Net Revenues $18,201,740 $13,067,817
Costs and Expenses:
Manufacturing costs and expenses 10,218,168 7,138,276
Research and development 1,507,721 1,163,274
Selling and administrative 3,589,518 3,287,422
Interest expense 74,952 114,763
Amortization of intangible assets 50,014 48,683
----------- -----------
Total Costs and Expenses 15,440,373 11,752,418
---------- ----------
Income before income taxes 2,761,367 1,315,399
Provision for income taxes 920,500 30,000
----------- -----------
Net Income $ 1,840,867 $ 1,285,399
=========== ===========
Net Income per Common Share (after
preferred dividends of $105,438 in
1997 and 1996):
$0.14 $0.10
===== =====
See Accompanying Notes to Financial Statements
<PAGE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and March 31, 1997
(Unaudited)
06/30/97 03/31/97
-------- --------
ASSETS
Current Assets:
Cash and equivalents $ 6,208,777 $ 7,627,523
Receivables 12,184,402 8,579,598
Inventories 13,571,801 12,785,588
Prepaid and other 910,763 1,230,193
----------- -----------
Total Current Assets 32,875,743 30,222,902
Net Property and Equipment 12,976,875 8,117,809
Goodwill and other 3,372,177 3,021,009
----------- -------------
TOTAL ASSETS $49,224,795 $41,361,720
=========== ===========
LIABILITIES
Current Liabilities:
Current maturities of long-term debt $ 584,649 $ 351,316
Accounts payable 2,616,916 2,045,048
Accrued liabilities 4,824,380 2,809,571
----------- -----------
Total Current Liabilities 8,025,945 5,205,935
Long-term debt 5,402,447 2,158,025
Other 950,025 913,319
----------- ----------
Total Liabilities 14,378,417 8,277,279
----------- ----------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Preferred stock 2,410 2,410
Class A common stock 77,742 77,175
Class B common stock 43,243 43,766
Additional paid-in capital 33,871,149 33,844,685
Retained earnings (deficit) 906,787 (828,642)
Less cost of Class A and Class B
common stock in treasury (54,953) (54,953)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY 34,846,378 33,084,441
----------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $49,224,795 $41,361,720
=========== ===========
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,840,867 $1,285,399
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 427,480 393,056
Changes in operating assets and liabilities:
(Increase) in receivables (3,604,805) (900,621)
Net (increase) decrease in inventories and
other current assets (466,783) 244,779
Increase (decrease) in accounts payable and
accrued liabilities 2,586,677 (656,210)
Increase in other 36,706 38,022
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 820,142 404,425
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment, net (5,236,531) (274,690)
Other, net (401,183) (445,832)
------------ ------------
NET CASH USED IN INVESTING
ACTIVITIES (5,637,714) (720,522)
------------ -----------
FINANCING ACTIVITIES
Proceeds from credit facilities - -
Repayment of credit facilities - -
Proceeds from term loan facility 3,500,000 -
Principal payments on long-term debt (22,244) (124,355)
Dividends Paid on Preferred Stock (105,438) -
Exercise of common stock options 26,508 18,701
----------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3,398,826 (105,654)
----------- -------------
(DECREASE) IN CASH AND CASH
EQUIVALENTS (1,418,746) (421,751)
Cash and cash equivalents
at beginning of year 7,627,523 2,038,069
----------- ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 6,208,777 $ 1,616,318
=========== ===========
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
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, 1997 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. Preferred
dividends of $105,438 were paid for the three months ended June 30, 1997, and
used in the calculation but not paid for the three months ended June 30, 1996.
Undeclared and unaccrued cumulative preferred dividends at June 30, 1997 and
1996 were $2,203,643 and $1,992,769, 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 were 12,395,415 and 12,285,712 for the quarters ended June 30, 1997
and 1996, respectively. Primary and fully-diluted income per share was the same
for each of the periods presented.
<PAGE>
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 1998
totaled $18.2 million compared to $13.1 million for the first quarter of fiscal
1997, an increase of $5.1 million, or 39%. ETHEX Corporation revenues increased
by $4.4 million, or 46% for the first quarter over the same period last year.
The ETHEX increase resulted from higher sales of existing products and the
introduction of three new products during the quarter. Particle Dynamics, Inc.
revenues increased by $.6 million or 31% over the same period last year as a
result of increased sales in existing products.
Costs and Expenses. Manufacturing costs increased as a percentage of
net sales to 56% in the quarter ended June 30, 1997 from 55% in the same period
last year. This increase resulted primarily from expenses related to third party
costs for products, which were partially offset by other reduced production
costs.
Research and development costs increased $.3 million, or 30%, compared
to the same quarter of the prior year, due primarily to increases in personnel
and services used to support continuing research in the Company's advanced drug
delivery technologies.
Selling and administrative expenses increased $.3 million, or 9% over
the same period last year due principally to the hiring of additional employees
to support the Company's growth.
For the three months ended June 30, 1997 and 1996 the Company had a
current provision for income taxes of $920,500 and $30,000 respectively. The
fiscal 1998 provision is based on the estimated federal and state statutory
rates, while the fiscal 1997 provision was based on the alternative minimum tax,
since no provision for income taxes was otherwise made as a result of available
net operating loss carryforwards. No loss carryforwards are available for fiscal
1998.
Net Income. As a result of the factors described above, net income
improved $.6 million, or 43% to $1.8 million for the first quarter of fiscal
1998.
<PAGE>
(b) Liquidity and Capital Resources
The following table sets forth selected balance sheet ratios at June
30, 1997, March 31, 1997 and June 30, 1996.
<TABLE>
<CAPTION>
($ in 000's)
-----------------------------------------------------------
6/30/97 3/31/97 6/30/96
------------------- ------------------- -------------------
<S> <C> <C> <C>
Working Capital Ratio 4.1 to 1 5.8 to 1 5.7 to 1
Quick Ratio 2.3 to 1 3.1 to 1 3.1 to 1
Debt to Debt Plus Equity .15 to 1 .07 to 1 .13 to 1
Total Liabilities to Equity .41 to 1 .25 to 1 .30 to 1
Cash and Equivalents $ 6,209 $ 7,628 $ 1,616
Working Capital $24,850 $25,017 $15,029
Long Term Liabilities $ 6,352 $ 3,071 $ 3,452
Stockholders' Equity $34,846 $33,084 $21,854
</TABLE>
Working capital for the quarter ended June 30, 1997 decreased $.2
million to $24.9 million from March 31, 1997, while cash and equivalents
decreased $1.4 million. The ratio of current assets to current liabilities was
4.1 to 1 as of June 30, 1997, compared to 5.8 to 1 as of March 31, 1997. Net
cash provided from operations of $.8 million included an increase in accounts
receivables of $3.6 million and a net increase in inventories and other current
assets of $.5 million principally provided from increased sales volume from
ETHEX Corporation and Particle Dynamics, which was offset by non-cash items
totaling $.4 million and a net increase in accounts payable and accrued
liabilities of $2.6 million. The increase in accrued liabilities is due
primarily to expenses incurred by ETHEX for rights to certain products.
Borrowings increased $3.4 million resulting from the purchase of the
administrative offices and ETHEX distribution facility the Company had
previously leased. From a cash flow and earnings standpoint, the purchase of the
facility is expected to approximate break even with the leased costs, although
the Company will now own the facility.
<PAGE>
The debt to debt-plus-equity and total liabilities to equity ratios for
the first quarter of fiscal 1998 increased as a result of the debt created to
finance the facility purchase.
Investing activities for the first quarter of fiscal 1998 reflected
capital expenditures of $5.2 million, including $4.3 million for acquisition of
the previously leased facility, and net expenditures for other assets of $.4
million, which were provided for through operations, long-term debt and cash.
The Company's cash and cash equivalents on hand at June 30, 1997 were
$6.2 million. In addition, the Company currently has in place a credit facility
with LaSalle National Bank under which it has the ability to borrow up to $22.6
million. This credit facility consists of a three year, unsecured revolving line
of credit and letters of credit to support the Company's 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.
At this time, the Company has completed the transition of its revenue
structure from one based on lower margin, highly competitive, short-term
contract manufacturing to focusing on higher margin, drug delivery product
marketing through ETHEX Corporation and Particle Dynamics, Inc., its
wholly-owned subsidiaries, as well as advanced technology drug delivery products
to be marketed and co-marketed under long-term licensing agreements. The Company
expects to increase 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 believes funds generated from operating activities and
existing cash, together with the funds available under its credit facility and
the funds provided from licensing agreements, will be adequate to fund the
Company's requirements for short term needs due to the continued sales growth
being experienced.
<PAGE>
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K.
a) Exhibits - See Exhibit Index on page 13.
b) The Company filed a report on Form 8-K dated April 3, 1997
regarding the sale of 200,000 shares of previously
unissued shares of the Company's Class A Common Stock, par
value $0.01 per share, to Roche International, Ltd. for
cash consideration in the amount of $3,500,000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KV PHARMACEUTICAL COMPANY
Date: August 11, 1997 /s/ Marc S. Hermelin
-------------------------------
Marc S. Hermelin
Vice Chairman of the Board
Date: August 11, 1997 /s/ Gerald R. Mitchell
-------------------------------
Gerald R. Mitchell
Vice President - Finance
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
11 Computation of Earnings
Per Share Calculation. Filed
Herewith.
EXHIBIT 11
<TABLE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
Earnings Per Share Calculation
Primary Earnings Per Share
<CAPTION>
For the Three Months Ended
06/30/97 06/30/96
-------- --------
<S> <C> <C>
Net income $ 1,840,867 $ 1,285,399
Less dividends on preferred stock (105,438) (105,438)
----------- -------------
Income Attributed to Common Stock $ 1,735,429 $ 1,179,961
============ ===========
Average Number of Common Shares and Common Share
Equivalents Outstanding:
Average common shares outstanding 12,043,584 11,823,627
Common share equivalents (after application of
treasury stock method) 351,831 462,085
------------ ------------
Average Common Shares and Common Share Equivalents
Outstanding 12,395,415 12,285,712
=========== ==========
Primary Income per Share (1) $0.14 $0.10
===== =====
<FN>
(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.
</FN>
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 11
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
Earnings Per Share Calculation
Fully-Diluted Earnings Per Share
<CAPTION>
For the Three Months Ended
06/30/97 06/30/96
-------- --------
<S> <C> <C>
Net income $ 1,840,867 $ 1,285,399
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 $ 1,840,867 $ 1,285,399
=========== ===========
Average Number of Shares Outstanding on a Fully- Diluted
Basis:
Average common shares outstanding 12,043,584 11,823,627
Common share equivalents (after application of treasury stock method):
Shares issuable upon conversion of stock options 373,457 472,136
Common equivalent shares for preferred stock 602,500 602,500
---------- -----------
Average Number of Shares Outstanding on a Fully-Diluted Basis
13,019,541 12,898,263
========== ==========
Fully-Diluted Income per Share (1) (2) $0.14 $ 0.10
===== ======
<FN>
(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) 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.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-1-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 6,208,777
<SECURITIES> 0
<RECEIVABLES> 12,184,402
<ALLOWANCES> 0
<INVENTORY> 13,571,801
<CURRENT-ASSETS> 32,875,743
<PP&E> 12,976,875
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,224,795
<CURRENT-LIABILITIES> 8,025,945
<BONDS> 0
0
2,410
<COMMON> 120,985
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 49,224,795
<SALES> 18,201,740
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 10,218,168
<OTHER-EXPENSES> 5,097,239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124,966
<INCOME-PRETAX> 2,761,367
<INCOME-TAX> 920,500
<INCOME-CONTINUING> 1,840,867
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,840,867
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
