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, 1998
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 11,791,516
Class B Common Stock, par value $.01 per share 6,394,861
<PAGE>
PART I
FINANCIAL INFORMATION
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended June 30, 1998 and 1997
(Unaudited)
1998 1997
---- ----
Net Revenues $25,669,670 $18,109,926
Costs and Expenses:
Manufacturing costs and expenses 15,154,887 10,218,168
Research and development 1,643,452 1,507,721
Selling and administrative 4,856,509 3,589,518
Amortization of intangible assets 42,305 50,014
------------ ------------
Total costs and expenses 21,697,153 15,365,421
---------- ----------
Operating income 3,972,517 2,744,505
----------- -----------
Other income (expense):
Interest expense (113,482) (74,952)
Interest and other income 290,882 91,814
------------ ------------
Total other income 177,400 16,862
------------ ------------
Income before income taxes 4,149,917 2,761,367
Provision for income taxes 1,579,500 920,500
------------ ------------
Net Income $ 2,570,417 $ 1,840,867
=========== ===========
Net Income per Common Share-Basic
(after deducting preferred dividends
of $105,438 in 1998 and 1997): $0.14 $0.10
===== =====
Net Income per Common Share-Diluted $0.13 $0.09
===== =====
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and March 31, 1998
(Unaudited)
06/30/98 3/31/98
-------- -------
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 22,118,049 $ 18,157,595
Receivables, less allowance for doubtful
accounts of $333,450 and $332,244 11,985,778 15,304,340
Inventories 15,956,030 15,606,037
Deferred income taxes 2,948,907 2,949,434
Prepaid and other current assets 474,599 541,989
-------------- ------------
Total Current Assets 53,483,363 52,559,395
Net property and equipment 12,589,287 12,436,533
Goodwill and other assets 3,385,662 3,364,899
------------- ------------
TOTAL ASSETS $69,458,312 $68,360,827
=========== ===========
LIABILITIES
- -----------
Current Liabilities:
Accounts payable $ 5,696,925 $ 4,280,492
Accrued liabilities 9,179,015 12,317,432
Current maturities of long-term debt 558,333 558,333
------------ ------------
Total Current Liabilities 15,434,273 17,156,257
Long-term debt 4,843,889 4,902,222
Deferred income taxes 535,000 535,000
Other long-term liabilities 1,732,770 1,603,131
----------- -----------
Total Liabilities 22,545,932 24,196,610
---------- -----------
Commitments and Contingencies - -
SHAREHOLDERS' EQUITY
- --------------------
Preferred Stock 2,410 2,410
Class A Common Stock 118,271 117,601
Class B Common Stock 64,305 64,429
Additional paid-in capital 34,324,696 34,042,044
Retained earnings 12,457,651 9,992,686
Less: cost of Class A and Class B
Common Stock in treasury (54,953) (54,953)
------------- ------------
TOTAL SHAREHOLDERS' EQUITY 46,912,380 44,164,217
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 69,458,312 $ 68,360,827
============ ============
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 1998 and 1997
(Unaudited)
1998 1997
----- ----
OPERATING ACTIVITIES
Net Income $ 2,570,417 $ 1,840,867
Adjustments to reconcile net
income to net cash provided by operating
activities:
Depreciation and amortization 433,563 427,480
Changes in operating assets and liabilities:
(Increase) decrease in receivables 3,318,563 (3,604,805)
Net (increase) in inventories and
other current assets (282,603) (466,783)
Increase (decrease) in accounts payable
and accrued liabilities (1,721,457) 2,586,677
Increase in other 129,639 36,706
----------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 4,448,122 820,142
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment, net (544,012) (1,736,531)
Other, net (63,068) (401,183)
------------ ------------
NET CASH USED IN INVESTING
ACTIVITIES (607,080) (2,137,714)
------------ ------------
FINANCING ACTIVITIES
Principal payments on long-term debt (58,333) (22,244)
Dividends paid on Preferred Stock (105,438) (105,438)
Exercise of Common Stock options 283,183 26,508
----------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 119,412 (101,174)
----------- ------------
INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS 3,960,454 (1,418,746)
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF YEAR 18,157,595 7,627,523
----------- ------------
END OF PERIOD $22,118,049 $ 6,208,777
=========== ===========
Non-cash investing and financing activities:
Portion of building acquired
through proceeds from a term loan $3,500,000
==========
See Accompanying Notes to Consolidated 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, 1998 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. Earnings per share
amounts for all periods have been presented and, where necessary, restated to
conform to the requirements of Statement of Financial Accounting Standards No.
128.
<PAGE>
NOTE B - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
For the Three Months Ended
Numerator: 06/30/98 06/30/97
-------- -------
Net income $ 2,570,417 $ 1,840,867
Preferred Stock dividends (105,438) (105,438)
------------- --------------
Numerator for basic earnings per
share--income available to common
shareholders 2,464,979 1,735,429
Effect of dilutive securities:
Preferred Stock dividends 105,438 -
------------ ---------------
Numerator for diluted earnings per
share-income available to
common shareholders after
assumed conversions $ 2,570,417 $ 1,735,429
Denominator:
Denominator for basic earnings per
share--weighted-average shares 18,145,108 18,065,376
Effect of dilutive securities:
Employee stock options 940,053 529,534
Convertible Preferred Stock 903,750 -
------------ --------------
Dilutive potential Common Shares 1,843,803 529,534
Denominator for diluted earnings
per share--adjusted weighted-average
shares and assumed conversions 19,988,911 18,594,910
========== ==========
Basic Earnings per Share (1): $ 0.14 $ 0.10
====== ======
Diluted Earnings per Share (1) (2): $ 0.13 $ 0.09
====== ======
(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) The options to purchase Class A Common Stock sold in connection with an
agreement entered into in January 1996 are not included in the computation
of diluted EPS because the options' minimum exercise price was greater than
the average market price of the Class A Common shares.
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.
<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 1999
increased $7.6 million or 42% to $25.7 million from $18.1 million in the first
quarter of last year. This sales growth was primarily due to an increase in the
volume of new and existing products sold. Net revenues from Ethex increased by
$6.7 million, or 48%, to $20.7 million from $14.0 million in the first quarter
of last year, primarily due to sales of products introduced after the first
quarter of fiscal 1998. Net revenues from Particle Dynamics increased by $1.0
million, or 40%, to $3.6 million in the first quarter from $2.6 million in the
first quarter of fiscal 1998, due to sales of new products and the addition of
new customers for existing products, while contract services revenues declined
slightly.
Costs and Expenses. Manufacturing costs as a percentage of revenues
increased to 59% during the first quarter of fiscal 1999 from 57% in the same
period last year, due primarily to a change in the mix of products sold and the
effect of additional competitors in certain generic pricing areas.
Selling and administrative expenses increased $1.3 million, or 36%, to
$4.9 million during the first quarter of fiscal 1999 from $3.6 million in the
first quarter of fiscal 1998. However, as a percentage of revenue, selling and
administrative expenses decreased to 19% from 20% in the prior year. The
increase in selling and administrative expenses was primarily related to selling
and promotional activities associated with the Company's continued growth.
Income taxes were provided at an effective rate of 38.1% in the first
quarter of fiscal 1999 compared to 33.3% in the first quarter of last year. The
increase was attributable to the availability and utilization of certain tax
credits during the first quarter of fiscal 1998 which were not available during
the first quarter of fiscal 1999.
Net Income. As a result of the factors described above, net income
improved $0.7 million, or 40%, to $2.6 million for the first quarter of fiscal
1999 compared to the prior year quarter.
(c) Liquidity and Capital Resources
The following table sets forth selected balance sheet ratios at June
30, 1998, March 31, 1998 and June 30,
1997.
($ in 000's)
6/30/98 3/31/98 6/30/97
-------- ----------- -----------
Working Capital Ratio 3.5 to 1 3.1 to 1 4.1 to 1
Quick Ratio 2.2 to 1 2.0 to 1 2.3 to 1
Debt to Debt Plus Equity .10 to 1 .11 to 1 .15 to 1
Total Liabilities to Equity .48 to 1 .55 to 1 .41 to 1
Cash and Equivalents $ 22,118 $ 18,158 $ 6,209
Working Capital $ 38,049 $ 35,403 $ 24,850
Long Term Liabilities $ 7,112 $ 7,040 $ 6,352
Stockholders' Equity $ 46,912 $ 44,164 $ 34,846
Working capital for the quarter ended June 30, 1998 increased $2.6
million, or 7.5%, to $38.0 million from $35.4 million at March 31, 1998, due
primarily to the addition of the Company's net income, and a decrease of $3.3
million in accounts receivable and $3.1 million in accrued liabilities, offset
by an increase in accounts payable of $1.4 million. Net cash increased at the
end of the first quarter of fiscal 1999 for the same reasons. The decrease in
receivables reflects lower sales volume and increased collections in the current
quarter relative to the volume and timing of sales in the prior quarter. Accrued
liabilities decreased due to lower accrued income taxes and a reduction in the
revenue sharing liability. The accounts payable increase reflects increased
purchases of raw material and packaging inventories to support planned
production increases for new and existing products. These changes in receivables
and current liabilities combined with net income and non-cash charges
aggregating $3.0 million, resulted in cash provided by operating activities of
$4.4 million in the first quarter of fiscal 1999, an improvement of $3.6 million
over the first quarter of last year.
At the end of the first quarter of fiscal 1999, the Company's "quick
assets" (cash, cash equivalents and accounts receivable) increased $0.6 million,
or 2%, and current liabilities decreased $1.7 million, or 10%, resulting in a
"quick ratio" of 2.2 to 1 compared to 2 to 1 at March 31, 1998. The increase in
"quick assets" reflected a $4.0 million (22%) increase in cash and cash
equivalents over the balance at March 31, 1998.
The debt to debt plus equity and total liabilities to equity ratios at
June 30, 1998 improved as a result of the Company's net income.
Investing activities for the first quarter of fiscal 1999 reflected
capital expenditures of $0.5 million and net expenditures for other assets of
$0.1 million, which were provided for through operations.
The Company has been able to pass along to its customers at least a
portion of cost increases in labor, manufacturing and raw materials related to
its operations, except where competitive conditions existing in the market place
have prevented it from passing along such cost increases to its customers. It is
not meaningful to compare changing prices over the past three years because the
products produced, product mix sold and sources of raw materials have varied
substantially.
The Company anticipates increasing expenditures 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 will
be adequate to fund the Company's short term needs.
<PAGE>
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K.
None.
<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 5, 1998 /s/ Marc S. Hermelin
---------------- -----------------------------------
Marc S. Hermelin
Vice Chairman of the Board and
Chief Executive Officer
Date: August 5, 1998 /s/ Gerald R. Mitchell
---------------- -----------------------------------
Gerald R. Mitchell
Vice President - Finance
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheets at June 30, 1998 (unaudited) and the
Condensed Statements of Income for the Three Months Ended June 30, 1998
(unaudited) and 1997 (restated) and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 22,118,049 6,208,777
<SECURITIES> 0 0
<RECEIVABLES> 12,319,228 12,483,612
<ALLOWANCES> 333,450 299,210
<INVENTORY> 15,956,030 13,571,801
<CURRENT-ASSETS> 53,483,363 32,875,743
<PP&E> 28,614,399 27,824,536
<DEPRECIATION> 16,025,112 14,847,661
<TOTAL-ASSETS> 69,458,312 49,224,795
<CURRENT-LIABILITIES> 15,434,273 8,025,945
<BONDS> 4,843,889 5,402,447
0 0
2,410 2,410
<COMMON> 182,576 120,985
<OTHER-SE> 46,727,394 34,722,983
<TOTAL-LIABILITY-AND-EQUITY> 69,458,312 49,224,795
<SALES> 25,669,670 18,109,926
<TOTAL-REVENUES> 25,669,670 18,109,926
<CGS> 15,154,887 10,218,168
<TOTAL-COSTS> 6,481,811 15,276,838
<OTHER-EXPENSES> 42,305 50,014
<LOSS-PROVISION> 18,150 38,569
<INTEREST-EXPENSE> 113,482 91,814
<INCOME-PRETAX> 4,149,917 2,761,367
<INCOME-TAX> 1,579,500 920,500
<INCOME-CONTINUING> 2,570,417 1,840,867
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,570,417 1,840,867
<EPS-PRIMARY> .14 .10
<EPS-DILUTED> .13 .09
</TABLE>
