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, 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
Number of Shares
Title of Class of Outstanding as of
Common Stock this Report Date
Class A Common Stock, par value $.01 per share 7,757,349
Class B Common Stock, par value $.01 per share 4,306,125
<PAGE>
PART I
FINANCIAL INFORMATION
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
09/30/97 09/30/96 09/30/97 09/30/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $21,887,067 $13,094,448 $40,091,929 $26,162,265
----------- ----------- ----------- -----------
Costs and Expenses:
Manufacturing costs and expenses 12,427,769 6,641,286 22,649,059 13,779,562
Research and development 1,461,396 1,193,710 2,969,117 2,356,984
Selling and administrative 4,243,114 3,546,399 7,832,632 6,833,821
Interest expense 131,724 36,522 206,676 151,285
Amortization of intangible assets 67,344 48,684 117,358 97,367
---------- ---------- ---------- ----------
Total Costs and Expenses 18,331,347 11,466,601 33,774,842 23,219,019
---------- ---------- ---------- ----------
Income before income taxes 3,555,720 1,627,847 6,317,087 2,943,246
Provision for income taxes 1,373,588 30,000 2,294,088 60,000
---------- ---------- ---------- ----------
Net Income $ 2,182,132 $ 1,597,847 $ 4,022,999 $ 2,883,246
=========== =========== =========== ===========
Net Income per Common
Share (after deducting
preferred dividends of
$105,438 for the three
months ended September
30, 1997 and 1996 and
$210,876 for the six
months ended September
30, 1997 and 1996): $0.17 $0.12 $0.31 $0.22
===== ===== ===== =====
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
09/30/97 03/31/97
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 3,712,583 $ 7,627,523
Receivables 15,574,172 8,579,598
Inventories 16,527,739 12,785,588
Prepaid and other 955,120 1,230,193
-------------- ------------
Total Current Assets 36,769,614 30,222,902
Net Property and Equipment 13,798,927 8,117,809
Goodwill and other 3,364,131 3,021,009
------------- -------------
TOTAL ASSETS $53,932,672 $41,361,720
=========== ===========
LIABILITIES
Current Liabilities:
Current maturities of long-term debt $ 573,416 $ 351,316
Accounts payable 3,555,447 2,045,048
Accrued liabilities 6,493,805 2,809,571
------------- ------------
Total Current Liabilities 10,622,668 5,205,935
Long-term debt 5,343,889 2,158,025
Other 991,727 913,319
-------------- ------------
Total Liabilities 16,958,284 8,277,279
------------ -----------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Preferred stock 2,410 2,410
Class A common stock 77,811 77,175
Class B common stock 43,299 43,766
Additional paid-in capital 33,922,340 33,844,685
Retained earnings (deficit) 2,983,481 (828,642)
Less cost of Class A and Class B common stock in
treasury (54,953) (54,953)
------------- -------------
Total Shareholders' Equity 36,974,388 33,084,441
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$53,932,672 $41,361,720
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 4,022,999 $ 2,883,246
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 912,210 792,467
Changes in operating assets and liabilities:
(Increase) in receivables (6,994,574) (227,656)
Net (increase) in inventories and other
current assets (3,467,078) (1,710,648)
Increase (decrease) in accounts payable and
accrued liabilities 5,194,632 (43,842)
Increase in other 78,408 1,045
-------------- --------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (253,403) 1,694,612
------------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment, net (6,475,969) (582,143)
Other, net (460,480) (562,807)
------------- --------------
NET CASH USED IN INVESTING
ACTIVITIES (6,936,449) (1,144,950)
------------ --------------
FINANCING ACTIVITIES
Proceeds from term loan 3,500,000 -
Principal payments on long-term debt (92,036) (244,697)
Dividends paid on preferred stock (210,876) -
Exercise of common stock options 77,824 33,615
-------------- --------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3,274,912 (211,082)
------------ -------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(3,914,940) 338,580
Cash and cash equivalents
at beginning of year 7,627,523 2,038,069
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 3,712,583 $ 2,376,649
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
<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 and $210,876 were paid for the three-month and six-month
periods ended September 30, 1997, and used in the calculation but not paid for
the three-month and six-month periods ended September 30, 1996. Undeclared and
unaccrued cumulative preferred dividends at September 30, 1997 and 1996 were
$2,203,650 and $2,098,212, 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
12,214,620 and 12,034,886 for the quarters ended September 30, 1997 and 1996,
respectively, and 12,202,141 and 12,060,398 for the six-month periods ended
September 30, 1997 and 1996, respectively.
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 second quarter of fiscal 1998
totaled $21.9 million, compared to $13.1 million for the second quarter of
fiscal 1997, an increase of $8.8 million, or 67%. Year-to-date consolidated
revenues were $40.1 million, an increase of $13.9 million, or 53%, compared to
the same period last year. The increase in sales volume for both the quarter and
year-to-date is primarily attributable to continued growth being experienced
from sales of new and existing products. ETHEX sales increased by $8.7 million,
or 95%, in the second quarter and were up $13.1 million, or 70%, year-to-date
over the same periods of the prior year. Particle Dynamics and Contract Services
revenues increased $.1 million, or 2%, and $.8 million, or 11%, respectively,
for the three-month and six-month periods ended September 30, 1997. These
increases were attributable to increased sales volume of existing products.
<PAGE>
Costs and Expenses. Manufacturing costs increased as a percentage of
net sales to 57% in the quarter ended September 30, 1997 from 51% in the same
period last year. Year-to-date manufacturing costs as a percent of net sales
increased to 56% from 53% for the six months ended September 30, 1997 and 1996,
respectively. These increases were primarily attributable to changes in the mix
of products sold.
Research and development costs increased $.3 million or 22% for the
quarter ended September 30, 1997, compared to the same quarter of the prior
year. Year-to-date, these costs increased $.6 million, or 26%, compared to the
same period of the prior year. These increases were primarily due to increased
personnel and supply costs to support higher levels of research activity and
clinical studies in connection with new product and drug delivery development.
Selling and administrative expenses increased $.7 million, or 20% for
the quarter ended September 30, 1997, compared to the same period of the prior
fiscal year but decreased to 19% from 27% as a percent of total revenues.
Year-to-date selling and administrative expenses increased $1 million, or 15%,
over the same period last year but decreased to 20% from 26% as a percent of
total revenues. Increased expenditures were primarily related to higher
marketing, selling and administrative costs associated with new product
introductions and expansion of existing business.
Interest expense increased $.1 million for the second quarter and $.1
million for the six-month period ended September 30, 1997, compared to the same
periods of the prior fiscal year. The increase for the first two quarters of
fiscal 1998 resulted from the long-term borrowing to purchase a facility that
had previously been leased.
Pretax income for the quarter ended September 30, 1997 was $3.6 million
compared to $1.6 million in the prior year quarter, an increase of 125%.
Year-to-date pretax income was $6.3 million compared to $2.9 million for the
prior period, an increase of 115%. These improvements were the result of
continued sales growth.
For the six months ended September 30, 1997 and 1996, the Company had a
current provision for income taxes of $2,294,088 and $60,000, respectively. The
fiscal 1998 provision was 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 37%, for the second quarter of fiscal 1998 and
year-to-date improved $1.1 million, or 40%, compared to the same periods of the
prior year.
(b) Liquidity and Capital Resources
The following table sets forth selected balance sheet ratios at
September 30, 1997, March 31, 1997 and September 30, 1996.
<TABLE>
<CAPTION>
($ in 000's)
-------------
9/30/97 3/31/97 9/30/96
-----------------------------------------------------------
<S> <C> <C> <C>
Working Capital Ratio 3.5 to 1 5.8 to 1 5.5 to 1
Quick Ratio 1.8 to 1 3.1 to 1 2.7 to 1
Debt to Debt-Plus-Equity .14 to 1 .07 to 1 .11 to 1
Total Liabilities to Equity .46 to 1 .25 to 1 .30 to 1
Cash and Equivalents $ 3,713 $ 7,628 $ 2,377
Working Capital 26,147 25,017 16,574
Long-Term Liabilities 6,336 3,071 3,009
Stockholders' Equity 36,974 33,084 23,467
</TABLE>
<PAGE>
During the quarter ended September 30, 1997, working capital increased
$1.3 million, or 5% to $26.1 million while cash and cash equivalents decreased
$2.5 million. Working capital for the six months ended September 30, 1997
increased $1.1 million, or 5%. Net cash used in operations of $.3 million
consisted of an increase in accounts receivable of $7 million, principally from
increased sales volume, and an increase in inventories of $3.5 million, to
support the additional sales volume and seasonal business requirements,
partially offset by an increase in accounts payable and accrued liabilities of
$5.2 million. Borrowings reflected an increase of $3.5 million as a result of
purchasing a facility that had previously been leased.
Investing activities for fiscal 1998 for property and equipment were
$6.5 million and net expenditures for other assets of $.5 million, with funds
being provided from cash and long-term borrowing. The debt to debt-plus-equity
and total liabilities to equity ratios for the first six months increased
primarily as a result of the debt created to finance the purchase of a leased
facility and increased accrued liabilities incurred to finance increased sales
and related operations.
The Company's cash and cash equivalents on hand at September 30, 1997
were $3.7 million. In addition, the Company currently has in place a $20 million
credit facility with LaSalle National Bank. 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, 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 expects to continue to increase expenditures and investment
for research, clinical and regulatory efforts relating to the development and
commercialization of proprietary new products and advanced drug delivery
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 current requirements arising from 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.
<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: November 5, 1997 /s/ Marc S. Hermelin
Marc S. Hermelin
Vice Chairman of the Board
Date: November 5, 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
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
Earning Per Share Calculation
Primary Earnings Per Share
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
09/30/97 09/30/96 09/30/97 09/30/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 2,182,132 $ 1,597,847 $ 4,022,999 $ 2,883,246
Less dividends on preferred stock (105,438) (105,438) (210,876) (210,876)
------------- ------------ ------------- -------------
Income Attributed to
Common Stock $ 2,076,694 $ 1,492,409 $ 3,812,123 $ 2,672,370
=========== =========== =========== ===========
Average Number of Common Shares
and Common Share Equivalents
Outstanding:
Average common shares
outstanding 12,056,391 11,825,999 12,049,988 11,824,814
Common share equivalents
(after application of
treasury stock method) 158,229 208,887 152,153 235,584
------------ ------------- ------------- ------------
Average Common Shares and
Common Share Equivalents
Outstanding 12,214,620 12,034,886 12,202,141 12,060,398
========== ========== ========== ==========
Primary Income per Share (1) : $0.17 $0.12 $0.31 $0.22
===== ===== ===== =====
<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>
EXHIBIT 11
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
Earning Per Share Calculation
Fully-Diluted Earnings Per Share
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
09/30/97 09/30/96 09/30/97 09/30/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 2,182,132 $ 1,597,847 $ 4,022,999 $ 2,883,246
Less 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 Attributed
to Common Stock $ 2,182,132 $ 1,597,847 $ 4,022,999 $ 2,883,246
=========== =========== =========== ===========
Average Number of Common Shares
Outstanding on a Fully-
Diluted Basis:
Average common shares
outstanding 12,056,391 11,825,999 12,049,988 11,824,814
Common share equivalents
(after application of
treasury stock method):
Shares issuable upon conversion
of stock options 233,495 223,296 196,232 246,208
Common equivalent shares for
preferred stock 602,500 602,500 602,500 602,500
------------ ------------ ------------- ------------
Average Number of Shares
Outstanding on a
Fully-Diluted Basis 12,892,386 12,651,795 12,848,720 12,673,522
========== ========== ========== ==========
Fully-Diluted Income
per Share (1) (2) $0.17 $0.13 $0.31 $0.23
==== ===== ===== =====
<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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 3,712,583
<SECURITIES> 0
<RECEIVABLES> 15,574,172
<ALLOWANCES> 0
<INVENTORY> 16,527,739
<CURRENT-ASSETS> 36,769,614
<PP&E> 13,798,927
<DEPRECIATION> 0
<TOTAL-ASSETS> 53,932,672
<CURRENT-LIABILITIES> 10,622,668
<BONDS> 0
0
2,410
<COMMON> 121,110
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 53,932,672
<SALES> 40,091,929
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 22,649,059
<OTHER-EXPENSES> 10,919,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206,676
<INCOME-PRETAX> 6,317,087
<INCOME-TAX> 2,294,088
<INCOME-CONTINUING> 4,022,999
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,022,999
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
