Fiscal 2007 Marked Record Profitability and 12th Consecutive Year of Record
Revenues
KV Also Reports Preliminary Fiscal 2008 Third Quarter Revenues of $164
Million, Up 39% from Prior Year
ST. LOUIS, Feb. 15 /PRNewswire-FirstCall/ -- KV Pharmaceutical Company
(NYSE: KVa/KVb), a fully integrated specialty pharmaceutical company that
develops, manufactures, acquires and markets technology-differentiated
branded and generic/non-branded prescription pharmaceutical products,
reported today its consolidated results of operations for the 2007 fiscal
year ended March 31, 2007. The results have been delayed primarily due to
the previously reported investigation by a Special Committee of independent
members of the Board of Directors into the Company's former stock option
grant practices.
KV is nearing completion of work to restate financial results for the
periods affected. In addition to the fiscal 2007 results, KV has also
included the following items with today's release:
-- restated consolidated results for fiscal years 2005 and 2006;
-- balance sheets as of March 31, 2007 and March 31, 2006 (as restated);
-- a reconciliation of the income statements as restated for fiscal years
2005 and 2006 and the income statements as originally reported; and
-- a reconciliation of the year-end 2006 balance sheet as restated
compared to the year-end 2006 balance sheet as originally reported.
The Company also announced that NYSE Regulation, Inc. today granted the
Company's request for a trading extension through March 31, 2008, subject
to ongoing reassessment. The extension was required under the Exchange's
rules due to the Company's delayed filing of its fiscal 2007 Annual Report
on Form 10-K with the Securities and Exchange Commission. The Company
expects to have resolved all outstanding issues needed to make this filing
and to complete its fiscal 2007 filings and restatements of previously
reported results for the fiscal years 1996-2006 by March 31, 2008.
KV also reported preliminary, unaudited revenue results for its fiscal
2008 third quarter ended December 31, 2007. Net revenues in this period are
estimated to be $163.6 million, up 38.7% from fiscal 2007 third quarter net
revenues. The Company's Ther-Rx Corporation branded pharmaceutical business
contributed approximately $56.3 million, up 16.6% from the prior fiscal
year period and comprising 34.4% of KV's total revenue for the period.
ETHEX Corporation, KV's generic/non-branded business, contributed
approximately $102.1 million of revenue, up 57.7% from the prior-year
quarter, primarily due to sales of the 100 mg and 200 mg strengths of
metroprolol succinate extended release tablets launched in the second
quarter of fiscal 2008. ETHEX Corporation comprises 62.4% of KV's total
revenue for the third quarter period. Complete preliminary results for the
fiscal third quarter have not yet been reported due to the Company's focus
on completing the financial statements for fiscal 2007 as well as the
restated results for fiscal 1996 through 2006. KV expects to report its
full preliminary third quarter and nine-month fiscal 2008 results in
approximately 4 weeks.
Fiscal 2007 Year-End Results
All the financial information presented with this release is unaudited,
however, the Company believes that, when filed, its audited financial
statements will be consistent with the information presented herein. KV's
fiscal 2007 net revenues, for the period ending March 31st, 2007, of $443.6
million represented its 12th consecutive year of record net revenues, led
by higher sales from both the Ther-Rx Corporation branded subsidiary, as
well as the Company's generic/non-branded subsidiary, ETHEX Corporation.
Net earnings were $58.1 million, or $1.05 per diluted Class A Common share
compared to $11.4 million, or $0.23 per diluted Class A Common share for
fiscal 2006. Net earnings in fiscal 2006 (for the fiscal year ended March
31st, 2006) were reduced by a $30.4 million charge for in-process research
and development associated with the acquisition of a development-stage
product. Gross profit for fiscal 2007 totaled $296.4 million, or 66.8% of
revenue, compared with $243.7 million, or 66.3% of revenue for the prior
fiscal year.
During fiscal 2007, KV continued its previously announced investment in
research and development to support the growth of its internal product
pipeline. Research and development expenses increased to $31.5 million for
fiscal 2007, compared to $28.9 million for fiscal 2006, an 8.9% increase.
The Company expects the amount of its research and development expenses
will increase between 40% and 50% during fiscal 2008 to support the
development of important new products.
Selling, general and administrative expenses for fiscal 2007 increased
21.5% to $174.3 million, compared to $143.4 million for fiscal 2006. This
increase was due primarily to additional personnel recruited for various
levels within the organization throughout the year, promotional expenses to
support the Company's existing brands, and to support the introduction of
new products at both Ther-Rx and ETHEX during fiscal 2007.
The Company expects selling, general and administrative costs for
fiscal 2008 to increase up to 25% over selling, general and administrative
expenses for fiscal 2007. This income will allow for the continued
expansion of existing products, the support of new product introductions,
in particular, a branded product, Evamist(TM), as well as anticipated
increased head count, legal, facilities and marketing expenses.
The Company reported a decrease in capital expenditures for fiscal 2007
to $25.1 million, compared to $58.3 million for fiscal 2006 and expects
that trend from fiscal 2007 will continue during fiscal 2008.
Discussion of Fiscal 2007 Performance - Marketing Subsidiaries
Ther-Rx Corporation - Continued Performance Execution, Generating 42.5%
of Consolidated Corporate Revenues with Gross Margins of 89.0%
Ther-Rx Corporation's net revenues increased $43.2 million, or 29.7% to
$188.7 million during fiscal 2007 from the prior year. Ther-Rx net revenues
contributed 42.5% of consolidated corporate net revenues and generated
gross margins of 89.0% in fiscal 2007.
For fiscal 2007, net sales of the Company's anti-infective product
lines increased 20.0%, or $9.3 million, to $56.5 million reflecting the
continuing success of Clindesse(R). Clindesse(R), now holds 27.9% of the
intra-vaginal bacterial vaginosis market and the product contributed $31.8
million in net revenues during fiscal 2007. For the fifth consecutive year,
the PreCare(R) family of products continued to be the number one branded
line of prescription prenatal nutritional supplements in the United States.
The PreCare(R) product lines, as of December 2007, command a 42.5% share of
the branded prescription prenatal market according to IMS and reported net
revenues for fiscal 2007 of $72.5 million, a 44.1% increase over the $50.4
million in net revenues reported for fiscal 2006. Included in the
PreCare(R) product lines are the leading prescription prenatals containing
essential fatty acids (EFA's), PrimaCare(R) and PrimaCare(R) ONE.
PrimaCare(R) and PrimaCare(R) ONE now hold a 49.5% share of the
prescription prenatal marketplace for products containing EFA's according
to IMS NPA(R), the fifth consecutive year these products have held a
leadership position in this particular market segment.
Net revenues of Ther-Rx's hematinic product lines grew 31.0% over
fiscal 2006, an increase of $11.4 million, to $48.2 million, compared to
$36.8 million for fiscal 2006, due to both volume growth and price
increases in existing products. Repliva 21/7(TM) continues to show sales
growth and represents both the fastest growing and the number one branded
prescription oral iron supplement prescribed in the United States.
Status of Anticipated Branded Product Introductions
Evamist(TM)
At the close of fiscal 2007, the Company announced that it had entered
into an agreement with California-based VIVUS, Inc. for the purchase of
U.S. marketing rights to Evamist(TM), a novel new estrogen transdermal
spray that has been developed to deliver estradiol in a convenient
easy-to-use dosage form for the treatment of vasomotor symptoms associated
with menopause. Under the terms of the all-cash transaction, KV paid $10
million at closing (and recognized a corresponding in-process R&D charge)
and made an additional payment of approximately $140 million at the time of
final approval from the FDA, which occurred in July 2007. There are also
two, one-time, success milestone payment obligations tied to the net sales
of the product. The Company agreed to pay a one-time payment of $10 million
to VIVUS, Inc. at the time the product achieves $100 million in net sales
within a marketing year and a one-time payment up to $20 million at the
time the product achieves $200 million in net sales within a marketing
year.
Evamist(TM) targets an annual $1.3 billion estrogen replacement market
(Source: IMS NSP Audit, January 2006 - December 2006) where physicians and
patients are seeking an effective and safe, low-dose estrogen product. KV
believes Evamist(TM), the first transdermal spray to receive FDA approval,
will offer therapeutic effectiveness with estradiol dosing that is among
the lowest available for this indication in a manner that is also
cosmetically appealing for women.
Evamist(TM) will be marketed by Ther-Rx's current sales force of
approximately 300 specialty sales representatives to their already targeted
physician specialty base of OB/GYN's. As previously stated, we expect the
launch of Evamist(TM) to occur prior to the end of the Company's fiscal
2008 ending March 31, 2008. The Company believes that Evamist(TM) could
potentially attain peak annual sales of approximately $125 million for this
product with gross margins consistent with those currently being achieved
by Ther-Rx Corporation. The Company expects Evamist(TM) will significantly
add to the women's health offerings of KV's branded subsidiary, Ther-Rx
Corporation.
Acquisition of Gestiva(TM)
On January 22, 2008, the Company announced that it had entered into a
definitive purchase agreement that gives KV full U.S. and worldwide rights
to Gestiva(TM) (17-alpha hydroxyprogesterone caproate) upon approval of the
pending Gestiva(TM) New Drug Application ("NDA"). The NDA for Gestiva(TM)
is currently before the FDA, pending approval for use in the prevention of
preterm birth in certain categories of pregnant women. The proposed
indication is for women with a history of at least one spontaneous preterm
delivery (i.e., less than 37 weeks), who are pregnant with a single fetus.
The FDA issued an "approvable" letter for Gestiva(TM) in October 2006 and a
final approval is anticipated in late 2008. The FDA has granted Orphan Drug
Designation for Gestiva(TM). KV acquired Gestiva(TM) from
Massachusetts-based Hologic, Inc. for $82 million in cash, $7.5 million of
which was paid at closing. The balance is payable upon final FDA approval
and the production of launch quantities. KV expects Gestiva(TM) to be
accretive to KV's earnings in the first 12 months following its launch.
The Company believes that Gestiva(TM) will be an important extension to
Ther-Rx's growing women's health franchise and believes that this
acquisition will further support additional growth and profitability for
the Company's branded business.
ETHEX Corporation - New Product Approvals Supporting Growth,
Contributing 53.1% of Consolidated Corporate Revenues with Gross Margins of
58.7%
KV's specialty generic/non-branded subsidiary ETHEX Corporation,
reported fiscal 2007 net revenues of $235.6 million, an increase of $31.8
million, or 15.6% compared to fiscal 2006 net revenues of $203.8 million.
Results for fiscal 2007 were attributable to continued growth in ETHEX's
existing product lines, with particular contribution from the
cardiovascular, pain management and cough/cold lines, as well as from net
revenue contribution from the ANDA approval received for Diltiazem HCl
extended release capsules (generic alternative to Tiazac(R), Forest
Laboratories) which was launched late in the second quarter. Even though it
was not the first generic to market, ETHEX has already captured 17.9%
market share by the end of fiscal 2007 with above- average gross margins
and has continued market share gains throughout the first half of fiscal
2008. The increase in net revenues at ETHEX Corporation was reported
despite the adverse effect of routine volume and price deterioration on
certain products.
ETHEX's operating performance remained strong as measured by gross
profit margins. Fiscal 2007 gross margin was 58.7%, up from 54.9% in fiscal
2006. The Company believes its gross margins remain significantly higher
than average gross margins in the generic drug industry segment and that
trend has continued with the subsequent approval and launch after fiscal
2007 year-end of metoprolol succinate extended release tablets (generic
alternative to Toprol-XL(R), AstraZeneca), 100 mg and 200 mg strengths for
which the Company was granted a first-to-file approval and a six-months
exclusivity period in the marketplace.
The approval of metoprolol succinate extended release tablets was
received during the first quarter of fiscal 2008. The 100 mg and 200 mg
strengths of metropolol succinate extended release tablets were launched
during the second quarter of the Company's current fiscal year,
contributing $50.4 million in net revenues to ETHEX Corporation during the
second quarter launch period. The Company has applications pending approval
at the FDA for the two additional strengths of metoprolol succinate 25 mg
and 50 mg. The approval of these two additional strengths, which could come
as early as the Company's fiscal 2008 year-end, would position KV to
eventually offer all four dosage strengths of metoprolol succinate extended
release tablets.
During fiscal 2007, ETHEX Corporation received three approvals from the
FDA, including: Diltiazem HCL extended release capsules, Nystatin Topical
Powder and a new formulation of Prednisolone Sodium Phosphate. The Company
remains optimistic about the potential FDA approvals of important new
Abbreviated New Drug Applications (ANDA's) from its robust internal
pipeline as it moves through fiscal 2008, which are expected to benefit the
overall performance of its generic/non-branded marketing business.
In addition to the large portfolio of products in its own internal
development pipeline, the Company also continues to see progress on its
products under its co-development agreements. The Company believes that co-
development agreements will continue to add incremental revenues to ETHEX's
revenue base from its existing products, resulting from new planned
introductions during the remainder of fiscal 2008 and beyond.
Fiscal 2007 Business Highlights:
-- Concluded an agreement with Beijing Med-Pharm Corporation
for exclusive marketing and distribution rights to KV's proprietary
prescription, one-dose vaginal cream for bacterial vaginosis (BV),
Clindesse(R) (clindamycin phosphate vaginal cream 2%) in the People's
Republic of China;
-- Concluded an agreement with California-based VIVUS, Inc. for the
purchase of U.S. marketing rights to Evamist(TM), a novel estrogen
transdermal spray that has been developed to deliver estradiol in a
convenient easy-to-use dosage form for the treatment of vasomotor
symptoms associated with menopause;
-- Minneapolis Federal District Court jury found in favor of ETHEX/KV on
all Lanham Act claims made against KV and its ETHEX generic/non-branded
drug subsidiary by the branded pharmaceutical maker Solvay
Pharmaceuticals, Inc. pertaining to certain pancreatic enzyme products;
and
-- Received in July 2007 FDA approval for the marketing of Evamist(TM) by
VIVUS, Inc. for which KV acquired exclusive U.S. marketing rights from
VIVUS. Evamist(TM) is expected to be launched prior to fiscal 2008
year-end.
Financial Condition:
The financial condition of the Company remains strong. The Company held
cash and marketable securities of $240.4 million at fiscal 2007 year-end.
The Company is actively evaluating and pursuing acquisition and other
commercial opportunities that are consistent with its strategic goals.
Subsequent to fiscal year-end the Company has made sizable additional
investments in new products, including by acquisition and internal
development.
Highlights are as follows:
-- Debt-to-equity ratio of 0.66-to-1 as of March 31, 2007
-- Working capital of $372.3 million as of March 31, 2007
-- 20.7% increase in net revenues
-- 21.6% increase in gross profit
-- 408.8% increase in net income
-- 356.5% increase in diluted earnings per Class A Common share
Fiscal 2008 Potential Growth Factors:
KV anticipates its 13th consecutive year of record revenues in fiscal
2008. Factors expected to contribute to continued performance include:
-- Continued revenue growth and market share gain for KV's Clindesse(R)
branded prescription, one-dose intra-vaginal treatment for BV;
-- Continued revenue growth and market share gain for KV's prescription
prenatal product lines, in particular, PrimaCare(R) ONE;
-- Significant revenue contribution from the marketing of the 100 mg and
200 mg strengths of metoprolol succinate during the 180-day exclusivity
period granted by the FDA;
-- Continued revenue growth from new product introductions into the ETHEX
product line, including Diltiazem HCl extended release capsules and
metoprolol succinate extended release tablets; and
-- Revenue contribution from Evamist(TM), the first transdermal spray for
the treatment of vasomotor symptoms associated with menopause.
About KV Pharmaceutical Company
KV Pharmaceutical Company is a fully integrated specialty
pharmaceutical company that develops, manufactures, markets and acquires
technology- distinguished branded and generic/non-branded prescription
pharmaceutical products. The Company markets its technology-distinguished
products through ETHEX Corporation, a national leader in pharmaceuticals
that compete with branded products, and Ther-Rx Corporation, its branded
prescription pharmaceutical subsidiary.
For further information about KV Pharmaceutical Company, please visit
the Company's corporate website at http://www.kvpharmaceutical.com.
Safe Harbor
The information in this release may contain various forward-looking
statements within the meaning of the United States Private Securities
Litigation Reform Act of 1995 ("PSLRA") and which may be based on or
include assumptions concerning KV's operations, future results and
prospects. Such statements may be identified by the use of words like
"plans", "expect", "aim", "believe", "projects", "anticipates", "commit",
"intend", "estimate", "will", "should", "could" and other expressions that
indicate future events and trends.
All statements that address expectations or projections about the
future, including without limitation, statements about the Company's
strategy for growth, product development, product launches, regulatory
approvals, market position, market share increases, acquisitions, revenues,
expenditures and other financial results, are forward-looking statements.
All forward-looking statements are based on current expectations and
are subject to risk and uncertainties. In connection with the "safe harbor"
provisions, KV provides the following cautionary statements identifying
important economic, political and technology factors, which among others,
could cause actual results or events to differ materially from those set
forth or implied by the forward-looking statements and related assumptions.
Such factors include (but are not limited to) the following: (1)
changes in the current and future business environment, including interest
rates and capital and consumer spending; (2) the difficulty of predicting
FDA approvals, including timing, and that any period of exclusivity may not
be realized; (3) acceptance and demand for new pharmaceutical products; (4)
the impact of competitive products and pricing, including as a result of
so-called authorized-generic drugs; (5) new product development and launch,
including the possibility that any product launch may be delayed or that
product acceptance may be less than anticipated; (6) reliance on key
strategic alliances; (7) the availability of raw materials and/or products
manufactured for the Company under contract manufacturing arrangements with
third parties; (8) the regulatory environment, including regulatory agency
and judicial actions and changes in applicable law or regulations; (9)
fluctuations in revenues; (10) the difficulty of predicting international
regulatory approval, including timing; (11) the difficulty of predicting
the pattern of inventory movements by the Company's customers; (12) the
impact of competitive response to the Company's sales, marketing and
strategic efforts; (13) risks that the Company may not ultimately prevail
in litigation; (14) finalization of the restatement of the Company's
financial statements for fiscal periods from 1996 through 2006 and for the
quarter ended June 30, 2006, as well as completion of the Company's
financial statements for the second, third and fourth quarters of fiscal
2007 and for the full fiscal year ended March 31, 2007, and for the first,
second and third quarters of fiscal 2008; (15) actions by the Securities
and Exchange Commission and the Internal Revenue Service with respect to
the Company's stock option grants and accounting practices; and (16) the
risks detailed from time-to-time in the Company's filings with the
Securities and Exchange Commission; and (17) actions by the NYSE
Regulation, Inc. with respect to the continued listing of the Company's
stock on the New York Stock Exchange.
This discussion is by no means exhaustive, but is designed to highlight
important factors that may impact the Company's outlook. We are under no
obligation to update any of the forward-looking statements after the date of
this release.
K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31,
2007 2006
ASSETS (as restated)
Current Assets:
Cash and cash equivalents $82,574 $100,706
Marketable securities 157,812 106,763
Receivables, less allowance for doubtful accounts
of $716 and $397 in 2007 and 2006, respectively 78,634 53,571
Inventories, net 91,515 71,166
Prepaid and other assets 6,571 7,012
Deferred tax asset 14,364 10,072
Total Current Assets 431,470 349,290
Property and equipment, less accumulated
depreciation 186,900 178,042
Intangible assets and goodwill, net 69,010 72,955
Other assets 20,403 19,026
Total Assets $707,783 $619,313
LIABILITIES
Current Liabilities:
Accounts payable $18,506 $17,975
Accrued liabilities 38,776 24,676
Current maturities of long-term debt 1,897 1,681
Total Current Liabilities 59,179 44,332
Long-term debt 239,451 241,319
Other long-term liabilities 6,319 5,442
Deferred tax liability 38,007 25,221
Total Liabilities 342,956 316,314
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 - 40,000 shares at both March 31,
2007 and 2006 (convertible into Class A shares
at a ratio of 8.4375-to-one) - -
Class A and Class B Common Stock, $.01 par value;
150,000,000 and 75,000,000 shares authorized,
respectively;
Class A - issued 40,316,426 and 39,660,637 at
March 31, 2007 and 2006, respectively 403 397
Class B - issued 12,393,982 and 12,679,986 at
March 31, 2007 and 2006, respectively
(convertible into Class A shares on a
one-for-one basis) 124 127
Additional paid-in capital 150,818 145,180
Retained earnings 269,430 211,410
Accumulated other comprehensive income (loss) 33 (211)
Less: Treasury stock, 3,237,023 shares of
Class A and 92,902 shares of Class B Common
Stock at March 31, 2007, and 3,123,975 shares
of Class A and 92,902 shares of Class B Common
Stock at March 31, 2006, at cost (55,981) (53,904)
Total Shareholders' Equity 364,827 302,999
Total Liabilities and Shareholders' Equity $707,783 $619,313
K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years ended March 31,
2007 2006 2005
(as restated) (as restated)
Net revenues $443,627 $367,640 $304,656
Cost of sales 147,263 123,935 107,948
Gross profit 296,364 243,705 196,708
Operating expenses:
Research and development 31,462 28,886 23,538
Purchased in-process research and
development and transaction costs - 30,441 -
Selling and administrative 174,344 143,437 118,263
Amortization of intangibles 4,810 4,784 4,653
Litigation (2,408) - (1,430)
Total operating expenses 208,208 207,548 145,024
Operating income 88,156 36,157 51,684
Other expense (income):
Interest expense 8,985 6,045 5,432
Interest and other income (9,901) (5,737) (3,048)
Total other expense (income), net (916) 308 2,384
Income before income taxes and
cumulative effect of change in
accounting principle 89,072 35,849 49,300
Provision for income taxes 32,958 24,433 18,083
Income before cumulative effect of
change in accounting principle 56,114 11,416 31,217
Cumulative effect of change in
accounting principle (net of $670
in taxes)(a) 1,976 - -
Net income $58,090 $11,416 $31,217
(a) Change in accounting principle reflects the effect of estimated
forfeitures related to outstanding awards that are not expected to
vest as of the adoption of FAS 123R.
K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME - (Continued)
(In thousands, except per share data)
Years ended March 31,
2007 2006 2005
(as restated) (as restated)
Earnings per share before cumulative
effect of change in accounting principle:
Basic - Class A common $1.19 $0.24 $0.68
Basic - Class B common 0.99 0.20 0.56
Diluted - Class A common 1.02 0.23 0.60
Diluted - Class B common 0.88 0.20 0.52
Per share effect of cumulative effect
of change in accounting principle(a):
Basic - Class A common $0.04 $- $-
Basic - Class B common 0.04 - -
Diluted - Class A common 0.03 - -
Diluted - Class B common 0.03 - -
Earnings per share:
Basic - Class A common $1.23 $0.24 $0.68
Basic - Class B common 1.03 0.20 0.56
Diluted - Class A common 1.05 0.23 0.60
Diluted - Class B common 0.91 0.20 0.52
Shares used in per share
calculation:
Basic - Class A common 36,813 35,842 33,734
Basic - Class B common 12,390 12,918 14,833
Diluted - Class A common 58,953 49,997 58,633
Diluted - Class B common 12,489 13,113 15,072
(a) Change in accounting principle reflects the effect of estimated
forfeitures related to outstanding awards that are not expected to
vest as of the adoption of FAS 123R.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands, except per share data)
(1) The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with U.S. generally accepted
accounting principles (GAAP), with the exception that they do not
include all of the information and footnotes required by GAAP for
complete financial statements. All financial data presented herein is
preliminary and subject to audit.
As the Company previously reported, a Special Committee of independent
members of the Company's Board of Directors investigated the Company's
stock option policies and procedures. The Special Committee found that
our previous accounting for stock-based compensation was not in
accordance with GAAP and that corrections to our previously issued
consolidated financial statements were required. Management agreed
with the Committee's findings and, as a result, our consolidated
retained earnings as of March 31, 2006 incorporates an additional
$16.3 million of stock-based compensation expense, including related
payroll taxes, interest and penalties, net of $2.6 million in income
tax benefits.
In addition, and as a separate matter, consolidated retained earnings
as of March 31, 2006, incorporates an additional $5.4 million of
income tax expense to record additional liabilities associated with
tax positions claimed on tax returns filed for fiscal years 2004, 2005
and 2006 that should have been recorded in accordance with GAAP,
partially offset by certain expected tax refunds. This adjustment is
not related to the accounting for stock-based compensation expense
discussed above.
In addition, our consolidated retained earnings as of March 31, 2006,
incorporates a $0.4 million reduction of net income, not previously
reported, related primarily to misstatements of net revenues and cost
of sales resulting from improperly recognizing revenue prior to when
title and risk of ownership of the product transferred to the
customer.
(2) The following table reconciles the consolidated balance sheet
previously reported to the restated amounts as of March 31, 2006:
March 31, 2006
As Previously As
Reported Adjustments Restated
Current assets:
Cash and cash equivalents $100,706 $- $100,706
Marketable securities 106,763 - 106,763
Receivables, net 54,746 (1,175) (f) 53,571
Inventories, net 70,778 388 (f) 71,166
Prepaid and other assets 6,963 49 (a) 7,012
Deferred tax asset 8,034 2,038 (b)(c)(f)(g) 10,072
Total current assets 347,990 1,300 349,290
Property and equipment, net 178,042 - 178,042
Intangible assets and
goodwill, net 72,955 - 72,955
Other assets 19,026 - 19,026
Total assets $618,013 $1,300 $619,313
Current liabilities:
Accounts payable $17,975 $- $17,975
Accrued liabilities 17,100 7,576 (b)(c)(d)(e) 24,676
(f)(g)
Current maturities of
long-term debt 1,681 - 1,681
Total current liabilities 36,756 7,576 44,332
Long-term debt 241,319 - 241,319
Other long-term liabilities 5,442 - 5,442
Deferred tax liabilities 25,221 - 25,221
Total liabilities 308,738 7,576 316,314
Commitments and contingencies - - -
Shareholders' equity:
Preferred stock - - -
Class A common stock 400 (3) (d) 397
Class B common stock 127 - 127
Additional paid-in capital 129,367 15,813 (b)(d) 145,180
Retained earnings 233,496 (22,086) (a)(b)(c)(e) 211,410
(f)(g)
Accumulated other
comprehensive loss (211) - (211)
Less: Treasury stock (53,904) - (53,904)
Total shareholders' equity 309,275 (6,276) 302,999
Total liabilities and
shareholders' equity $618,013 $1,300 $619,313
(a) Adjustment for accrued interest associated with certain expected tax
refunds.
(b) Adjustment for stock-based compensation expense pursuant to APB 25
($15,632) and income tax impact associated with stock-based
compensation expense pursuant to APB 25 ($1,658), partially offset by
net effect of tax benefit realized in accrued taxes ($2,432) and
excess tax benefit reflected in paid-in capital ($2,094).
(c) Adjustment for payroll taxes, interest and penalties associated with
stock-based compensation expense ($3,278) and the related income tax
benefit ($909).
(d) Adjustment for exercise deposits received by the Company for stock
options in the two-year forfeiture period ($1,916).
(e) Adjustment for additional liabilities associated with tax positions
claimed, partially offset by certain expected tax refunds ($5,407).
(f) Adjustment to record revenue and cost of sales when product is
received by the customer instead of shipping date for certain
customers (decrease in receivables of $1,175; increase in inventories
of $388; decrease in deferred tax assets of $125; decrease in accrued
liabilities of $414; and, decrease in retained earnings of $498).
(g) Adjustment for reduction in estimated liability associated with
employee medical claims incurred but not reported (decrease in
deferred tax assets of $66; decrease in accrued liabilities of $179;
and, increase in retained earnings of $113).
(3) The following table reconciles the Company's previously reported
results to the restated consolidated statements of income for the
years ended March 31, 2006 and 2005:
Years ended March 31,
2006
As
Previously As
Reported Adjustments Restated
Net revenues $367,618 $22 (d) $367,640
Cost of sales 123,894 41 (d) 123,935
Gross profit 243,724 (19) 243,705
Operating expenses:
Research and development 28,886 - 28,886
Purchased in-process research and -
development and transaction costs 30,441 30,441
Selling and administrative 140,395 3,042 (a)(b)(e) 143,437
Amortization of intangibles 4,784 - 4,784
Litigation - - -
Total operating expenses 204,506 3,042 207,548
Operating income 39,218 (3,061) 36,157
Other expense (income):
Interest expense 6,045 - 6,045
Interest and other income (5,737) - (5,737)
Total other expense (income) 308 - 308
Income before income taxes 38,910 (3,061) 35,849
Provision for income taxes 23,123 1,310 (a)(b)(c) 24,433
(d)(e)
Net income $15,787 $(4,371) $11,416
Earnings per share:
Basic - Class A common $0.33 $(0.09) $0.24
Basic - Class B common 0.28 (0.08) 0.20
Diluted - Class A common 0.31 (0.08) 0.23
Diluted - Class B common (f) 0.20
Shares used in per share
calculation:
Basic - Class A common 36,277 (435) (g) 35,842
Basic - Class B common 13,065 (147) (g) 12,918
Diluted - Class A common 50,729 (732) (g) 49,997
Diluted - Class B common (f) 13,113
Years ended March 31,
2005
As
Previously As
Reported Adjustments Restated
Net revenues $303,493 $1,163 (d) $304,656
Cost of sales 107,682 266 (d) 107,948
Gross profit 195,811 897 196,708
Operating expenses:
Research and development 23,538 - 23,538
Purchased in-process research and -
development and transaction
costs - - -
Selling and administrative 116,638 1,625 (a)(b) 118,263
Amortization of intangibles 4,653 - 4,653
Litigation (1,430) - (1,430)
Total operating expenses 143,399 1,625 145,024
Operating income 52,412 (728) 51,684
Other expense (income):
Interest expense 5,432 - 5,432
Interest and other income (3,048) - (3,048)
Total other expense (income) 2,384 - 2,384
Income before income taxes 50,028 (728) 49,300
Provision for income taxes 16,759 1,324 (a)(b)(c) 18,083
(d)(e)
Net income $33,269 $(2,052) $31,217
Earnings per share:
Basic - Class A common $0.71 $(0.03) $0.68
Basic - Class B common 0.59 (0.03) 0.56
Diluted - Class A common 0.63 (0.03) 0.60
Diluted - Class B common (f) 0.52
Shares used in per share
calculation:
Basic - Class A common 34,228 (494) (g) 33,734
Basic - Class B common 15,005 (172) (g) 14,833
Diluted - Class A common 59,468 (835) (g) 58,633
Diluted - Class B common (f) 15,072
(a) Adjustment for stock-based compensation expense pursuant to APB 25
($927 in 2006 and $1,080 in 2005) and the related income tax impact
($286 in 2006 and $323 in 2005).
(b) Adjustment for payroll taxes, interest and penalties associated with
stock-based compensation expense ($2,294 in 2006 and $545 in 2005) and
the related income tax impact ($635 in 2006 and $151 in 2005).
(c) Adjustment for additional liabilities associated with tax positions
claimed, partially offset by certain expected tax refunds ($2,171 in
2006 and $1,498 in 2005).
(d) Adjustment for revenue recognition errors related to shipments made to
certain customers and the related income tax impact.
(e) Adjustment for reduction in estimated liability associated with
employee medical claims incurred but not reported ($179) and the
related income tax impact ($66).
(f) In fiscal 2007, the Company began reporting diluted earnings per share
for Class B common stock under the two-class method which does not
assume the conversion of Class B common stock into Class A common
stock. Previously, the Company did not present diluted earnings per
share for Class B common stock.
(g) Adjustment to reflect impact of unrecognized stock-based compensation
and excess tax benefits in applying the treasury stock method and
unvested stock options in the two-year forfeiture period.
SOURCE KV Pharmaceutical Company
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Related links:
http://www.kvpharmaceutical.com/
CONTACT:
Catherine M. Biffignani, Vice President,
Investor Relations, of KV Pharmaceutical Company, +1-314-645-6600
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