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Previous: KULICKE & SOFFA INDUSTRIES INC, SC TO-T/A, 2000-11-14 |
Next: KV PHARMACEUTICAL CO /DE/, 10-Q, EX-27, 2000-11-14 |
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-QQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934(X) QUARTERLY REPORT FOR THE QUARTERLY PERIODENDED SEPTEMBER 30, 2000 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
|
| DELAWARE | 43-0618919 | ||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
2503 SOUTH
HANLEY ROAD, ST. LOUIS, MISSOURI 63144
|
| Title of Class of Common Stock | |
Number of Shares Outstanding as of this Report Date |
|---|---|---|
| Class A Common Stock, par value $.01 per share |
18,586,027 | |
| Class B Common Stock, par value $.01 per share |
10,152,542 |
PART 1
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
|
For the Three For the Six
Months Ended Months Ended
------------------- -----------------------
9/30/00 9/30/99 9/30/00 9/30/99
------- -------- ------- -------
Net revenues $45,300 $36,011 $84,109 $68,805
------- ------- ------- -------
Costs and Expenses:
Manufacturing costs and expenses 17,902 15,693 34,098 32,225
Research and development 1,738 2,076 4,287 3,904
Selling and administrative 16,322 10,401 28,484 18,447
Amortization of intangible assets 583 569 1,181 1,069
------- ------- ------- -------
Total costs and expenses 36,545 28,739 68,050 55,645
------- ------- ------- -------
Operating income 8,755 7,272 16,059 13,160
------- ------- ------- -------
Other income (expense):
Interest expense (325) (503) (689) (1,084)
Interest and other income 43 79 67 225
------- ------- ------- -------
Total other income (expense) (282) (424) (622) (859)
------- ------- ------- -------
Income before income taxes 8,473 6,848 15,437 12,301
Provision for income taxes 3,050 2,601 5,662 4,674
------- ------- ------- -------
Net income $ 5,423 $ 4,247 $ 9,775 $ 7,627
======= ======= ======= =======
Net income per common share-basic $ 0.18 $ 0.15 $ 0.33 $ 0.27
======= ======= ======= =======
Net income per common share-diluted $ 0.17 $ 0.14 $0.31 $ 0.25
======= ======= ===== =======
See Accompanying Notes to Consolidated Financial Statements
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
|
For the Three For the Six
Months Ended Months Ended
----------------- -------------------
9/30/00 9/30/99 9/30/00 9/30/99
------- -------- ------- -------
Net income $5,423 $4,247 $9,775 $7,627
------ ------ ------ ------
Other comprehensive income,
net of tax:
Unrealized losses on securities:
Unrealized holding losses
arising during period - (9) - (33)
Reclassification adjustment
for losses included
in net income - 32 - 41
------ ------ ------ --------
Other comprehensive income - 23 - 8
------ ------ ------ --------
Comprehensive Income $5,423 $4,270 $9,775 $7,635
====== ====== ====== ======
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES
|
Unaudited
9/30/00 3/31/00
-------- -------
ASSETS
------
Current Assets:
Cash and equivalents $3,804 $ 3,443
Trade receivables, less allowance for
doubtful accounts of
$437 and $635 at September 30, 2000 and
March 31, 2000, respectively 32,002 23,681
Inventories 31,905 30,114
Deferred income taxes 2,869 3,138
Prepaid and other current assets 1,094 637
--------- -------------
Total Current Assets 71,674 61,013
Property and equipment, less accumulated
depreciation of $20,498 and
$19,422 at September 30, 2000
and March 31, 2000, respectively 35,126 32,173
Intangibles and other assets, less
accumulated amortization of $5,145 and
$4,087 at September 30, 2000 and
March 31, 2000, respectively 46,492 47,132
Deferred income taxes 115 67
------------- -------------
TOTAL ASSETS $153,407 $140,385
======== ========
LIABILITIES
-----------
Current Liabilities:
Accounts payable $ 9,830 $10,843
Accrued liabilities 11,727 10,945
Current maturities of long-term debt 712 1,659
---------- ----------
Total Current Liabilities 22,269 23,447
Long-term debt, including credit facility 16,618 16,779
Other long-term liabilities 2,488 2,360
----------- ----------
TOTAL LIABILITIES 41,375 42,586
--------- --------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
--------------------
7% Cumulative Convertible Preferred Stock,
$.01 par value; $25.00 stated and liquidation
value; 840,000 shares authorized; issued
and outstanding-240,000 shares at September 30,
2000 and March 31, 2000, respectively
(convertible into Class A shares at a ratio of
5.625 to one) 2 2
Class A and Class B Common Stock, $.01 par value;
150,000,000 and 75,000,000 shares
authorized, respectively; Class A-issued
18,639,455 and 18,392,999 as of September 30,
2000 and March 31, 2000, respectively 186 123
Class B-issued 10,205,970 and 9,910,668
as of September 30, 2000 and March 31, 2000,
respectively (convertible into Class A shares
on a one-for-one basis) 102 66
Additional paid-in capital 45,529 40,864
Retained earnings 66,268 56,799
Less: Treasury Stock, 53,428 shares each of
Class A and Class B Common Stock, at cost (55) (55)
-------- ------------
TOTAL SHAREHOLDERS' EQUITY 112,032 97,799
-------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $153,407 $140,385
======== ========
See Accompanying Notes to Consolidated Financial Statements
KV PHARMACEUTICAL COMPANY AND SUBSIDIARIES |
Unaudited
------------------------
9/30/00 9/30/99
-------- ---------
OPERATING ACTIVITIES
Net income $ 9,775 $ 7,627
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,831 2,019
Changes in deferred taxes 221 (11)
Changes in deferred compensation 128 128
Changes in operating assets and liabilities:
(Increase) in receivables (8,321) (5,100)
Decrease in arbitration award receivable - 13,253
(Increase) in inventories (1,791) (4,432)
(Increase) in prepaids and other assets (998) (471)
(Decrease) in accounts payable
and accrued liabilities (231) (2,806)
--------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,614 10,207
-------- ---------
INVESTING ACTIVITIES
Purchase of property and equipment, net (4,603) (5,973)
Sale of marketable securities - 5,532
Product acquisition - (3,033)
--------- ------
NET CASH (USED IN) INVESTING ACTIVITIES (4,603) (3,474)
--------- ---------
FINANCING ACTIVITIES
Principal payments on long-term debt (5,108) (9,193)
Proceeds from credit facility 4,000 -
Dividends paid on Preferred Stock (210) (210)
Exercise of Common Stock options 4,668 1,655
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3,350 (7,748)
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 361 (1,015)
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF YEAR 3,443 2,617
------ -----
END OF PERIOD $3,804 $1,602
====== ======
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Product acquisition partially financed
through issuance of:
Short-term debt $ 932
Common Stock $4,500
See Accompanying Notes to Consolidated Financial Statements
NOTES TO SUMMARIZED CONSOLIDATED FINANCIAL STATEMENTSNOTE A - BASIS OF PRESENTATIONIn the opinion of management, the unaudited, interim, consolidated financial statements presented here contain all adjustments (consisting of only normal recurring accruals) to present fairly the financial position of the Company as of September 30, 2000, together with the results of operations and cash flows for the three and six months ended September 30, 2000 and 1999. The consolidated results of operations for the three or six months ended September 30, 2000 are not necessarily indicative of the results to be expected for the full fiscal year. These interim statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company's Fiscal 2000 Annual Report and Report on Form 10-K. NOTE B - INVENTORIESInventories consist of ($ in 000's): |
Unaudited
September 30, 2000 March 31, 2000
------------------ --------------
Finished products $15,287 $15,990
Work-in-process 2,356 2,544
Raw materials and supplies 15,291 12,642
Reserves for obsolescence (1,029) (1,062)
-------- --------
$31,905 $30,114
======= =======
The following table sets forth the computation of basic and diluted earnings per share:
For the Three Months Ended For the Six Months Ended
Unaudited Unaudited
Numerator: 9/30/00 9/30/99 9/30/00 9/30/99
------- ------- ------- -------
Net income $ 5,423 $ 4,247 $ 9,775 $ 7,627
Preferred Stock dividends (105) (105) (210) (210)
-------- -------- -------- --------
Numerator for basic earnings per
Share-income available to Common
Shareholders 5,318 4,142 9,565 7,417
Effect of dilutive securities:
Preferred Stock dividends 105 105 210 210
-------- -------- -------- --------
Numerator for diluted earnings per
Share-income available to
Common Shareholders after
assumed conversions $5,423 $4,247 $9,775 $7,627
====== ====== ====== ======
Denominator:
Denominator for basic earnings per
Share-weighted-average shares 28,821 28,040 28,678 27,800
------- ------- ------- -------
Effect of dilutive securities:
Stock options 1,859 935 1,776 893
Convertible Preferred Stock 1,350 1,350 1,350 1,350
-------- ------ -------- ---------
Dilutive potential Common Shares 3,209 2,285 3,126 2,243
-------- ------ -------- --------
Denominator for diluted earnings
per share-adjusted weighted-average
shares and assumed conversions 32,030 30,325 31,804 30,043
====== ====== ====== ======
BASIC EARNINGS PER SHARE (1)(3): $0.18 $0.15 $0.33 $0.27
===== ===== ===== =====
DILUTED EARNINGS PER SHARE (1)(2)(3): $0.17 $0.14 $0.31 $0.25
===== ===== ===== =====
| (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) | Employee stock options to purchase
6,250 shares at September 30, 2000 and
268,875 shares at September 30, 1999 of Class A and Class B Common Stock are not
included in the computation of diluted earnings per share because their exercise
price was greater than the average market price during the quarter and as such
are considered anti-dilutive. |
|
| (3) | See note E. |
NOTE D - SEGMENT FINANCIAL INFORMATIONThe reportable segments of the Company are branded products, speciality generics, specialty materials and manufacturing and contract services. Segment profits are measured based on income before taxes and are determined based on each segment’s direct revenue and expenses. All other consists of research and development, corporate general and administrative expenses, amortization, interest expense and other income which are not allocated to segments. |
Mfg. &
Branded Specialty Specialty Contract All
Products Generics Materials Services Other
-------- -------- --------- -------- -----
Three Months
Ended
September 30
Total Revenue 2000 $4,635 $35,176 $4,721 $760 $ 8
1999 4,563 26,284 4,154 920 90
Segment Profits 2000 (2,955) 18,416 1,277 (191) (8,074)
1999 327 12,138 921 513 (7,051)
Identifiable 2000 7,030 37,888 9,103 35,190 65,354
Assets 1999 5,880 27,996 7,207 25,393 65,314
Property and 2000 67 197 29 1,829 874
Equipment 1999 - 202 39 2,114 1,429
Additions
Depreciation 2000 35 23 38 778 627
and 1999 15 33 34 357 626
Amortization
Six Months
Ended
September 30
Total Revenues 2000 $ 8,527 $65,375 $8,544 $1,642 $ 21
1999 7,211 51,673 8,248 1,493 180
Segment Profits 2000 (5,327) 34,145 2,178 - (15,559)
1999 426 22,782 1,764 345 (13,016)
Property and 2000 162 197 56 2,799 1,389
Equipment 1999 - 202 39 3,969 1,763
Additions
Depreciation 2000 61 53 76 1,370 1,271
and 1999 26 63 68 723 1,139
Amortization
Eliminations Consolidated
------------ ------------
Three Months
Ended
September 30
Total revenue 2000 - $ 45,300
1999 - 36,011
Segment Profits 2000 - 8,473
1999 - 6,848
Identifiable 2000 (1,158) 153,407
Assets 1999 (1,158) 130,632
Property and 2000 - 2,996
Equipment 1999 - 3,784
Additions
Depreciation 2000 - 1,501
and 1999 - 1,065
Amortization
Six Months
Ended
September 30
Total Revenues 2000 - $ 84,109
1999 - 68,805
Segment Profits 2000 - 15,437
1999 - 12,301
Property and 2000 - 4,603
Equipment 1999 - 5,973
Additions
Depreciation 2000 - 2,831
and 1999 - 2,019
Amortization
NOTE E – STOCK SPLITOn August 18, 2000, the Company's Board of Directors approved a three-for-two stock split to be effected in the form of a stock dividend of its Common Stock. The stock dividend was paid on September 7, 2000 to shareholders of record as of the close of business on August 28, 2000. All share and per share amounts have been retroactively restated to reflect the stock split. "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995 (the "1995 Act"): This report may contain various forward-looking statements, which may be based on, or include assumptions, concerning KV's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risks and uncertainties. In connection with the "Safe Harbor" provisions of the 1995 Act, KV provides the following cautionary statement identifying important economic, political and technology factors which, among others, could cause the actual results or events to differ materially from those set forth or implied by the forward-looking statements related assumptions. Such factors include (but are not limited to) the following: (1) changes in current and future business environment, including interest rates and capital and consumer spending; (2) the difficulty of predicting FDA approvals; (3) acceptance and demand for new pharmaceutical products; (4) the impact of competitive products and pricing; (5) new product development and launch; (6) reliance on key strategic alliances; (7) the availability of raw materials; (8) the regulatory environment; (9) fluctuations in operating results and; (10) the risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS (a) Results of OperationsRevenues. Net revenues for the second quarter of fiscal 2001 ended September 30, 2000 increased $9.3 million, or 25.8%, to $45.3 million from $36 million for the same period last year. For the first six months of fiscal 2001, net revenues were $84.1 million, an increase of $15.3 million, or 22.2%, over the same period last year. The increase in revenues for the quarter was due primarily to higher sales of specialty generic products, which were up $8.9 million, or 34%, over last year. For the six-month period, the increase was due primarily to higher sales of specialty generics, up $13.7 million, or 26%, and increased sales of branded products, up $1.3 million, or 18%, over last year. The increase in specialty generic sales for the quarter was due to new products ($4.9 million) primarily in the cardiovascular and women's healthcare line, a 20% increase in volume in the existing products ($4.6 million) primarily in the cardiovascular and women's health categories and increased prices ($1 million). These factors also contributed to the increase in sales for the six-month period. For the six months, new products contributed $7.4 million of incremental sales, volume increases across the existing product line accounted for $5.9 million of the increase and higher prices added $2.5 million to sales compared to the same period last year. The Company introduced eight new generic products in the first six months of this fiscal year. The increases in volume in the existing products in both periods were attributable to higher generic substitution rates, increased sales associated with trade shows and price increase buy-ins. These increases were partially offset by price erosion and lower volume on certain distributed products in the pain management category which were down $1.5 million for the quarter and $1.8 million for the six months. Branded product sales were up slightly for the quarter (1.6%) as higher sales of the PreCare(R)line were offset by lower sales of the Micro-K(R)potassium supplement. Women's healthcare sales were up $1.6 million on increased market share. The decrease in Micro-K(R)sales reflects the timing of speculative purchases by major wholesale customers prior to a March, 2000 price increase. The increase in sales for the six-month period was due to the introduction of Gynazole-1(TM), a vaginal antifungal product, which was introduced during the first quarter of this fiscal year and contributed $1.6 million of incremental sales to the period. Costs And Expenses. Manufacturing costs decreased as a percent of revenues for the quarter and the six months due to higher margin, new specialty generic product introductions and the effects of favorable pricing and product mix in both the generic and branded product lines. For the quarter, manufacturing costs declined to 39.5% from 43.6% for the prior year's quarter and declined for the six months to 40.5% from 46.8% of revenues last year. Research and development expenses decreased $.3 million, or 16.3%, for the quarter and increased $.4 million, or 9.8% for the six months compared to the same periods of the prior year. The decrease in expenses for the quarter is due primarily to reduced expenditures for clinical testing. The increase in expenses for the six months is due primarily to expenses associated with product development programs. Selling and administrative expenses increased $5.9 million, or 56.9%, for the quarter and $10 million, or 54.4%, for the six months. The increases in both periods are due to higher corporate administrative expenses, incremental marketing expenses in support of new specialty generic products and significant increases in expanding the marketing and sales personnel to provide for the introduction of current products as well as in preparation for future branded products. Corporate administrative expenses were higher due to increases in payroll related expenses associated with the Company's continued growth and leasing of a new distribution center. These expenses were up $1.5 million for the quarter and $2.2 million for the six months. Marketing expenses associated with the specialty generic products were up $.9 million for the quarter and $.5 million for the six months. The incremental selling and marketing expenses associated with the expansion of the branded products marketing division were $3.4 million for the quarter and $7.3 million for the six months. Interest expense decreased $.2 million, or 35.4% for the quarter and is down $.4 million, or 36.4%, for the six months on lower long-term debt. Net Income. As a result of the factors described above, net income increased $1.2 million, or 27.7%, for the quarter and $2.1 million, or 28.2%, for the six months ended September 30, 2000 compared to the same periods of the prior year. (b) Liquidity and Capital ResourcesCash provided by operations was $1.6 million for the first six months of fiscal 2001, a decrease of $8.6 million from the first six months of last year primarily due to the collection of a non-recurring arbitration award of $8 million (net of taxes) during the first quarter of the prior fiscal year. Excluding the effect of the non-recurring award, cash flow from operations decreased $.6 million for the first six months compared to last year. This decrease was due primarily to a $3.8 million increase in the net use of working capital over the same period last year partially offset by a $2.1 million increase in net income. The increase in the use of working capital resulted from an increase in accounts receivable ($3.2 million) and accounts payable and accrued liabilities ($2.6 million), partially offset by a reduction in working capital required to finance inventories ($2.6 million). The increase in accounts receivable is due primarily to the timing of larger wholesaler orders at the end of the current quarter. Accounts payable decreased due primarily to the timing of payments for raw materials and packaging used in the Company's manufacturing operations. Inventories did not increase as fast in the first six months of this fiscal year compared to last year as higher sales of specialty generic products during the quarter reduced finished goods inventory. Finished goods and work in process declined $.9 million over the six-month period compared to a $2.3 million increase in these inventories in the same period last year. Investing activities for the six months were confined to capital expenditures of $4.6 million. The expenditures were primarily for machinery and equipment for the expansion of the Company's manufacturing and distribution facilities. Financing activities during the six-month period included a $1.1 million reduction in long-term debt and $4.7 million received from the exercise of Common Stock options. The Company plans to continue to use available cash to reduce its long-term debt. The Company continues to examine opportunities to expand its business through product and company acquisitions. The Company's capital resources, financial condition and results of operations could be materially impacted if the Company were to complete one or more of such acquisitions. The Company believes that existing cash and securities balances, together with cash generated from operating activities and funds available under its credit facility, will be adequate to fund operating activities for the presently foreseeable future, including the payment of short-term and long-term obligations, capital improvements, product development activities and the expansion of marketing capabilities for the brand pharmaceutical business. Inflation. Although at reduced levels in recent years, inflation continues to apply upward pressure on the cost of goods and services used by the Company. However, the Company believes that the net effect of inflation on its operations was minimal during the first six months of fiscal 2001 and fiscal 2000. In addition, changes in the mix of products sold and the effect of competition have made a comparison of changes in selling prices less meaningful relative to changes in the overall rate of inflation during the first six months of fiscal 2001 and fiscal 2000. Item 3: Variable Rate Risk. |
| Advances to the Company under the Company’s credit facility bear interest at a rate which varies with increases or decreases in the publicly-announced prime rate (and/or the LIBOR rate with respect to LIBOR-related loans if any). A material increase in such rates could significantly increase borrowing expense. |
| At the annual meeting of shareholders of the Company held August 31, 2000, the shareholders re-elected Victor M. Hermelin and Alan G. Johnson to serve a three-year term as a Class B Director. The vote tabulation for each re-elected Director was as follows: |
| Votes in Favor | 5,138,211 | ||
| Votes Withheld | 180 | ||
| Abstentions | 90,972 |
|
Class A Director Marc S. Hermelin (term expiring in 2002) and Class C Directors Garnet E. Peck, PhD. and Norman D. Schellinger (terms expiring in 2001) continue in office as Directors of the Company. Item 6: Exhibits and Reports on Form 8-K. |
| (a) Exhibit 27. Financial Data Schedule. |
|
| (b) Reports on Form 8-K. None. |
SIGNATURESPursuant 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. |
| Date: November 13, 2000 | /s/ Marc S. Hermelin Marc S. Hermelin Vice Chairman of the Board and Chief Executive Officer |
|
| Date: November 13, 2000 | /s/ Gerald R. Mitchell Gerald R. Mitchell Vice President & Treasurer Chief Financial Officer |
|
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