<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 0-21003
TWINLAB CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-3317986
(State of incorporation) (IRS Employer Identification No.)
2120 Smithtown Avenue, Ronkonkoma, New York 11779
(Address of principal executive office) (zip code)
(516) 467-3140
(Registrant's telephone number, including area code)
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 for 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___
At October 31, 1997, the registrant had 27,000,000 shares of common stock
outstanding.
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996 (1)
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,423 $ 3,794
Accounts receivable, net of allowance for bad
debts of $406 and $208 respectively 33,498 31,027
Inventories 37,070 29,443
Deferred tax assets 1,149 1,218
Prepaid expenses and other current assets 1,939 1,076
--------- ---------
Total Current Assets 79,079 66,558
Property, plant and equipment, net 13,982 14,157
Deferred tax assets 50,032 52,858
Other assets 7,224 7,964
--------- ---------
TOTAL $ 150,317 $ 141,537
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 14,085 $ 20,085
Current portion of capital lease obligations 155 146
Accounts payable 10,699 10,313
Accrued expenses and other current liabilities 8,531 8,882
--------- ---------
Total Current Liabilities 33,470 39,426
Long-term debt, less current portion 100,247 100,265
Capital lease obligations, less current portion 41 158
--------- ---------
Total Liabilities 133,758 139,849
--------- ---------
Commitments and contingencies
Shareholders' Equity
Preferred stock, $.01 par value; 2,000,000 shares
authorized; none issued
Common stock, $1.00 par value; 75,000,000 shares
authorized; 27,000,000 shares outstanding as of
September 30, 1997 and December 31, 1996 27,000 27,000
Additional paid-in capital 141,338 141,338
Accumulated deficit (151,779) (166,650)
--------- ---------
Total Shareholders' Equity 16,559 1,688
--------- ---------
TOTAL $ 150,317 $ 141,537
========= =========
</TABLE>
(1) The consolidated balance sheet as of December 31, 1996 has been taken
from the audited financial statements at that date.
1
<PAGE> 3
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
----- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES $ 49,189 $ 39,393 $ 144,925 $ 121,230
COST OF SALES 29,122 23,830 83,694 71,682
--------- --------- --------- ---------
GROSS PROFIT 20,067 15,563 61,231 49,548
OPERATING EXPENSES 9,736 7,828 27,824 22,644
--------- --------- --------- ---------
INCOME FROM OPERATIONS 10,331 7,735 33,407 26,904
--------- --------- --------- ---------
OTHER (EXPENSE) INCOME:
Interest income 38 137 123 452
Interest expense (3,129) (4,312) (9,311) (6,903)
Transaction expenses -- -- -- (400)
Non recurring non-competition agreement
expense -- -- -- (15,300)
Other 11 38 23 15
--------- --------- --------- ---------
(3,080) (4,137) (9,165) (22,136)
--------- --------- --------- ---------
INCOME BEFORE PROVISION FOR (BENEFIT
FROM) INCOME TAXES 7,251 3,598 24,242 4,768
PROVISION FOR (BENEFIT FROM) INCOME
TAXES 2,785 1,433 9,371 (2,854)
--------- --------- --------- ---------
NET INCOME $ 4,466 $ 2,165 $ 14,871 $ 7,622
========= ========= ========= =========
NET INCOME PER SHARE $ 0.17 $ 0.55
========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING 27,051 27,030
========= =========
PRO FORMA RELATING TO CHANGE IN
TAX STATUS*
Historical income before provision
for income taxes $ 3,598 $ 4,768
Pro forma provision for income taxes 1,439 8,027
--------- ---------
Pro forma net income (loss) relating to
change in tax status 2,159 (3,259)
Preferred stock dividends (2,139) (3,386)
--------- ---------
Net income (loss) applicable to common stock $ 20 $ (6,645)
========= =========
Net income (loss) per share $ -- $ (0.25)
========= =========
Weighted average shares outstanding 27,000 27,000
========= =========
</TABLE>
* The Company consisted of "S" Corporations through May 7, 1996 as a result of
which federal and state taxes were generally paid at the shareholder level
only. The pro forma information assumes the Company had elected "C"
Corporation status, and had not elected "S" Corporation status.
2
<PAGE> 4
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,871 $ 7,622
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,346 1,322
Gain on disposal of equipment (2) -
Bad debt expense 198 128
Deferred income taxes 2,895 (2,952)
Nonrecurring non-competition agreement expense - 15,300
Changes in operating assets and liabilities:
Accounts receivable (2,669) (827)
Inventories (7,627) (5,506)
Prepaid expenses and other current assets (863) (475)
Accounts payable 386 3,812
Accrued expenses and other current liabilities (351) 5,396
--------- -----------
Net cash provided by operating activities 8,184 23,520
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of marketable securities - 201
Proceeds from sale of property plant and equipment 2,494 10
Acquisition of property, plant and equipment (3,137) (1,253)
(Increase) decrease in other assets 214 (7,145)
--------- ------------
Net cash used in investing activities (429) (8,187)
--------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt - 153,000
Distributions to shareholders - (8,929)
Proceeds from issuance of preferred stock - 67,000
Payments of debt (6,018) (13,993)
Issuance of capital stock - 5,500
Principal payments of capital lease obligations (108) (102)
Repurchase of shareholders common stock and recapitalization - (217,387)
--------- ------------
Net cash used in financing activities (6,126) (14,911)
--------- -----------
Net increase in cash and cash equivalents 1,629 422
Cash and cash equivalents at beginning of period 3,794 7,945
--------- -----------
Cash and cash equivalents at end of period $ 5,423 $ 8,367
========= ===========
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 6,615 $ 1,999
========= ===========
Income taxes $ 7,653 $ 1,162
========= ===========
</TABLE>
3
<PAGE> 5
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
1. In the opinion of management, the accompanying unaudited consolidated
financial statements include all necessary adjustments (consisting of
normal recurring accruals) and present fairly the financial position of
Twinlab Corporation and subsidiaries as of September 30, 1997, the
results of its operations for the three months and nine months ended
September 30, 1997 and 1996, and its cash flows for the nine months ended
September 30, 1997 and 1996, in conformity with generally accepted
accounting principles for interim financial information applied on a
consistent basis. The results of operations for the three months and nine
months ended September 30, 1997 are not necessarily indicative of the
results to be expected for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in Twinlab Corporation's December
31, 1996 Annual Report to Stockholders on Form 10-K as filed with the
Securities and Exchange Commission.
2. PRO FORMA INFORMATION
The Company completed a recapitalization transaction in May of 1996
(including a change in the Company's tax status from "S" to "C"
corporation status) and subsequently completed an initial public offering
("IPO") of its common stock in November of 1996. The following unaudited
pro forma results of operations give effect to the Company's
recapitalization transaction and its change from "S" to "C" corporation
status and subsequent IPO as if each occurred as of January 1, 1996 and
exclude the effects of $15.3 million of nonrecurring non-competition
agreement expense and nonrecurring transaction expenses. The pro forma
operations data have been prepared for comparative purposes only and do
not purport to represent what the Company's actual results of operations
would have been had the recapitalization transaction and subsequent IPO
in fact occurred on January 1, 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $ 39,393 $ 121,230
Interest expense 3,871 9,411
Net income 2,684 10,763
Net income per share 0.10 0.40
</TABLE>
3. CONDENSED AND SUMMARIZED FINANCIAL INFORMATION
The Company's amended revolving credit facility and restrictive covenants
contained in the indenture governing the senior subordinated notes
restrict the payment of dividends and the making of loans, advances, or
other distributions to Twinlab Corporation ("TLC") except in certain
limited circumstances. The condensed financial information of TLC, on a
stand-alone basis, is as follows:
4
<PAGE> 6
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
CONDENSED BALANCE SHEETS (UNAUDITED)
<S> <C> <C>
ASSETS
Cash $ 167 $ 162
Investment in subsidiaries 16,392 1,526
-------------- -------------
$ 16,559 $ 1,688
============== =============
SHAREHOLDERS' EQUITY
Common stock ($1.00 par value; 75,000,000
shares authorized; 27,000,000 outstanding 27,000 27,000
Additional paid-in capital 141,338 141,338
Accumulated deficit (151,779) (166,650)
-------------- -------------
$ 16,559 $ 1,688
============== =============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
CONDENSED STATEMENTS OF INCOME 1997 1996 1997 1996
------------------------------ ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Equity interest in net income of subsidiaries $ 4,495 $ 2,165 $ 15,028 $ 7,622
Interest income 2 - 5 -
------- -------- ---------- ----------
Income (loss) before provision for income taxes 4,497 2,165 15,033 7,622
Provision for income taxes 31 - 162 -
------- -------- ---------- ----------
Net income (loss) $ 4,466 $ 2,165 $ 14,871 $ 7,622
======= ======== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
CONDENSED STATEMENTS OF CASH FLOWS 1997 1996
---------------------------------- ---- ----
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,871 $ 7,622
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Equity investments in subsidiaries (14,866) 144,544
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders - (8,929)
Proceeds from issuance of preferred stock - 67,000
Issuance of capital stock - 5,500
Repurchase of shareholders' common stock
and recapitalization - (215,737)
--------- -----------
Net cash used in financing activities - (152,166)
--------- -----------
Net increase in cash 5 -
Cash at beginning of period 162 -
--------- -----------
Cash at end of period $ 167 $ -
========= ===========
</TABLE>
Twin Laboratories Inc. ("Twin") and Advanced Research Press. ("ARP") are,
respectively, a direct and indirect wholly-owned subsidiary of TLC. TLC and
ARP have provided joint and several, full and unconditional senior
subordinated guarantees of the senior subordinated notes of Twin.
The assets, results of operations and shareholders' equity of Twin comprise
substantially all of the assets, results of operations and shareholders'
equity of TLC on a consolidated basis. TLC has no separate operations and
has no significant assets other than TLC's investment in Twin and, through
Twin, in ARP. Twin has no direct or indirect subsidiaries other than ARP;
and neither Twin nor ARP has any stockholder other than respectively, TLC
and Twin. Accordingly, the Company has determined that separate financial
statements of Twin and ARP would not be material to investors and,
therefore, are not included herein.
5
<PAGE> 7
Summarized financial information of Twin is as follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 AS OF DECEMBER 31, 1996
------------------------ -----------------------
(UNAUDITED)
<S> <C> <C>
Current assets $ 80,778 $ 68,100
Noncurrent assets 71,238 74,979
Current liabilities 33,470 39,426
Noncurrent liabilities 100,288 100,423
Shareholders' equity 18,258 3,230
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 49,189 $ 39,393 $ 144,925 $ 121,230
Gross profit 20,067 15,563 61,231 49,548
Net income 4,495 2,165 15,028 7,622
</TABLE>
Summarized financial information of ARP is as follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 AS OF DECEMBER 31,1996
------------------------ ----------------------
(UNAUDITED)
<S> <C> <C>
Current assets $ 1,453 $ 1,577
Noncurrent assets 195 182
Current liabilities 715 1,200
Noncurrent liabilities - -
Shareholder's equity 933 559
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 1,388 $ 1,408 $ 4,341 $ 4,446
Gross profit 325 125 1,029 592
Net income 133 41 374 317
</TABLE>
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Raw Materials $ 14,925 $ 10,802
Work in Process 10,104 8,712
Finished Goods 12,041 9,929
------------- ------------
Total $ 37,070 $ 29,443
============= ============
</TABLE>
5. SUBSEQUENT EVENT
On November 12, 1997, the Company acquired Changes International of Fort
Walton Beach, Inc. ("Changes") for a purchase price of $12,500,000,
consisting of $6,250,000 in cash and 312,250 shares Twinlab Corporation
common stock. The cash portion of the purchase price was financed
through borrowings under the Company's amended revolving credit
facility. Changes operates as a network marketer of nutritional
supplements through independent distributors located primarily
throughout the United States and Canada. The acquisition will be
recorded using the purchase method of accounting.
6
<PAGE> 8
ITEM 2.: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the response to Part I, Item 1 of this report.
The Company operates in one business segment, the manufacture and marketing
of brand name and private label nutritional supplements. Within this
segment, the Company operates in two primary business areas: the TWINLAB
Division and the herbal products category. Products sold under the TWINLAB
brand name include vitamins, minerals, amino acids, fish and marine oils,
sports nutrition products and special formulas. The herbal products category
includes a full line of herbal supplements and phytonutrients marketed by
the Nature's Herbs Division and a full line of herb teas marketed by the
Alvita Tea Division. In addition, the Company's publishing activities are
conducted through its subsidiary, Advanced Research Press, Inc.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
NET SALES: Net sales for the nine months ended September 30, 1997 were
$144.9 million, an increase of $23.7 million, or 19.6%, as compared to net
sales of $121.2 million for the nine months ended September 30, 1996. The
19.6% increase was attributable to increased demand for the Company's
products resulting in increased gross sales, partially offset by an increase
in discounts and allowances related to the Company's increased sales volume.
The increase in net sales was primarily due to the expansion of established
accounts, improved business development in other channels of distribution,
increased sales of existing products, new product introductions, and product
specific advertising. TWINLAB brand net sales contributed $112.1 million, an
increase of $15.4 million, or 16.0%, as compared to $96.7 million for the
nine months ended September 30, 1996. Herbal products contributed $29.0
million, an increase of $8.4 million, or 40.8%, as compared to $20.6 million
for the nine months ended September 30, 1996. Publishing activities
contributed $3.8 million as compared to $3.9 million for the nine months
ended September 30, 1996.
GROSS PROFIT: Gross profit for the nine months ended September 30, 1997 was
$61.2 million, which represented an increase of $11.7 million, or 23.6%, as
compared to $49.5 million for the nine months ended September 30, 1996.
Gross profit margin was 42.3% for the nine months ended September 30, 1997
as compared to 40.9% for the nine months ended September 30, 1996. The
overall increase in gross profit dollars was primarily attributable to the
Company's higher sales volume for the nine months ended September 30, 1997.
The increase in gross profit margin for the nine months ended September 30,
1997 as compared to the nine months ended September 30, 1996 was due
primarily to a more favorable product mix, to higher gross profit margins on
recently introduced new product formulations and product line extensions,
and to lower unit manufacturing overhead as a result of overhead costs
increasing at a rate lower than sales partially offset by an increase in
credits and discounts.
OPERATING EXPENSES: Operating expenses were $27.8 million for the nine
months ended September 30, 1997, representing an increase of $5.2 million,
or 22.9%, as compared to $22.6 million for the nine months ended September
30, 1996. As a percent of net sales, operating expenses increased from 18.7%
for the nine months ended September 30, 1996 to 19.2% for the nine months
ended September 30, 1997. The increase in operating expenses in dollars and
as a percent of net sales was primarily attributable to increased selling
and marketing expenses and higher general and administrative expense due to
increased level of promotional and sales activities and expenses related to
increasing the size of the administrative staff and approximately $0.4
million (0.3% of sales) of costs associated with the cancelled merger with
Rexall Sundown, Inc.
INCOME FROM OPERATIONS: Income from operations was $33.4 million for the
nine months ended September 30, 1997, representing an increase of $6.5
million, or 24.2%, as compared to $26.9 million for the nine months ended
September 30, 1996. Income from operations margin increased to 23.1% of net
sales for the nine months ended September 30, 1997, as compared to 22.2% of
net sales for the nine months ended September 30, 1996. The increase in
income from operations and income from operations margin was primarily due
to the
7
<PAGE> 9
Company's higher sales volume together with higher gross margins, offset in
part by higher operating expenses as a percent of net sales for the nine
months ended September 30, 1997.
OTHER EXPENSE: Other expense was $9.2 million for the nine months ended
September 30, 1997, as compared to $22.1 million for the nine months ended
September 30, 1996. The net decrease of $12.9 million is primarily
attributable to a $15.7 million decrease in nonrecurring non-competition
agreement expense and transaction expenses which were incurred in 1996
offset by an increase in interest expense of $2.4 million resulting from
increased borrowings.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
NET SALES: Net sales for the three months ended September 30, 1997 were
$49.2 million, an increase of $9.8 million, or 24.9%, as compared to net
sales of $39.4 million for the three months ended September 30, 1996. The
24.9% increase was attributable to demand for the Company's products,
resulting in increased gross sales, partially offset by an increase in
discounts and allowances related to the Company's increased sales volume.
The increase in net sales was primarily due to the expansion of established
accounts, improved business development in other channels of distribution,
increased sales of existing products, and product specific advertising. Net
sales of TWINLAB products contributed $35.2 million, an increase of $3.5
million or 10.4% as compared to $31.7 million for the three months ended
September 30, 1996. Herbal products contributed $12.8 million, an increase
of $6.3 million, or 97.2% as compared to $6.5 million for the three months
ended September 30, 1996. Publishing activities contributed $1.2 million for
the three months ended September 30, 1997 and 1996.
GROSS PROFIT: Gross profit for the three months ended September 30, 1997 was
$20.1 million, which represented an increase of $ 4.5 million, or 28.9%, as
compared to $15.6 million for the three months ended September 30, 1996.
Gross profit margin was 40.8% for the three months ended September 30, 1997
as compared to 39.5% for the three months ended September 30, 1996. The
overall increase in gross profit dollars and margin was primarily
attributable to the Company's higher sales volume and favorable product mix
for the three months ended September 30, 1997.
OPERATING EXPENSES: Operating expenses were $9.7 million for the three
months ended September 30, 1997 representing an increase of $1.9 million, or
24.4%, as compared to $7.8 million for the three months ended September 30,
1996. Operating expenses as a percent of net sales remained consistent for
the three months ended September 30, 1997 and 1996. The increase in
operating expenses in dollars was primarily attributable to increased
selling and marketing expenses and higher general and administrative expense
due to increased level of promotional and sales activities and expenses
related to increasing the size of the administrative staff and approximately
$0.4 million (0.9% of sales) of costs associated with the cancelled merger
with Rexall Sundown, Inc..
INCOME FROM OPERATIONS: Income from operations was $10.3 million for the
three months ended September 30,1997, representing an increase of $2.6
million, or 33.6%, as compared to $7.7 million for the three months ended
September 30, 1996. Income from operations margin increased to 21.0% of net
sales for the three months ended September 30, 1997 as compared to 19.6% of
net sales for the three months ended September 30, 1996. The increase in
income from operations and income from operations margin was primarily due
to the Company's higher sales volume together with higher gross margins,
offset in part by lower operating expenses as a percent of net sales for the
three months ended September 30, 1997.
OTHER EXPENSE: Other expense was $3.1 million for the three months ended
September 30, 1997, as compared to $4.1 million for the three months ended
September 30, 1996. The net decrease of $1.0 million is primarily
attributable to a decrease in interest expense resulting from decreased
borrowings.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1997, cash provided by operating
activities was $8.2 million, as compared to $23.5 million for the nine
months ended September 30, 1996. Cash used in financing activities was $6.1
million for the nine months ended September 30, 1997, and represented
repayment of certain outstanding indebtedness. Cash used in financing
activities for the nine months ended September 30, 1996
8
<PAGE> 10
was $14.9 million, reflecting the net cash effect of the recapitalization
transaction, the repayment of $6.0 million of outstanding indebtedness and
distributions of $8.9 million to the stockholders.
Capital expenditures were $3.1 million ($2.5 million of which was
subsequently sold and leased back) and $1.3 million for the nine months
ended September 30, 1997 and 1996, respectively. Historical capital
expenditures were primarily used to purchase production equipment, expand
capacity and improve manufacturing efficiency. Capital expenditures are
expected to be approximately $4.0 million during the calendar year 1997 (of
which $3.1 million are expected to be sold and leased back) and will be used
primarily to purchase manufacturing equipment. The Company estimates that
its historical level of maintenance capital property, plant and equipment
has been approximately $0.5 million per fiscal year.
TLC has no operations of its own and accordingly has no independent means of
generating revenue. As a holding company, TLC's internal sources of funds to
meet its cash needs, including payment of expenses, are dividends and other
permitted payments from its direct and indirect subsidiaries. The indenture,
dated as of May 7, 1996, among TLC, Twin Laboratories Inc., ARP and Fleet
National Bank (now State Street Bank and Trust Co.), as trustee, relating to
the senior subordinated notes and the amended revolving credit facility
impose upon the Company certain financial and operating covenants,
including, among others, requirements that the Company maintain certain
financial ratios and satisfy certain financial tests limitations on capital
expenditures and restrictions on the ability of the Company to incur debt,
pay dividends or take certain other corporate actions.
Management believes that the Company has adequate capital resources and
liquidity to meet its borrowing obligations, fund all required capital
expenditures and pursue its business strategy. The Company's capital
resources and liquidity are expected to be provided by the Company's cash
flow from operations, and borrowings under its amended revolving credit
facility. As October 31, 1997, approximately $36 million of borrowings
were available under the amended revolving credit facility for working
capital requirements and general corporate purposes.
One of the Company's business strategies is to pursue acquisition
opportunities, including product line acquisitions, that complement its
existing products, expand its distribution channels or are compatible with
its business philosophy and strategic goals. Future acquisitions could be
financed by internally generated funds, bank borrowings, public offerings or
private placements of equity or debt securities, or a combination of the
foregoing. Up to $35 million of borrowings under the amended revolving
credit facility is available to fund acquisitions subject to certain
conditions and reductions (approximately $17.3 million of which is available
as of November 12, 1997). There can be no assurance that the Company will be
able to make acquisitions on terms favorable to the Company and that funds
to finance an acquisition will be available or permitted under the Company's
financing instruments.
On November 12, 1997, the Company acquired Changes International of Fort
Walton Beach, Inc. ("Changes") for a purchase price of $12,500,000,
consisting of $6,250,000 in cash and 312,250 shares of Twinlab Corporation
common stock. The cash portion of the purchase price was financed through
borrowings under the Company's amended revolving credit facility. Changes
operates as a network marketer of nutritional supplements through
independent distributors located primarily throughout the United States and
Canada. The acquisition will be recorded using the purchase method of
accounting.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Information contained or incorporated by reference in this periodic report
on Form 10-Q and in other SEC filings by the Company contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should" or "anticipates" or the negative thereof of other variations
thereon or comparable terminology, or by discussions of strategy. No
assurance can be given that future results covered by the forward-looking
statements will be achieved, and other factors could also cause actual
results to vary materially from the future results covered in such
forward-looking statements.
9
<PAGE> 11
PART II
OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no submissions of matters to a vote of security holders.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule.
(b) Reports of Form 8-K:
No reports on Form 8-K were filed by the Company during the three months
ended September 30, 1997.
10
<PAGE> 12
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.
TWINLAB CORPORATION
By: /s/ Ross Blechman
Ross Blechman
Chairman, President and Chief Executive Officer
By: /s/ Brian Blechman
Brian Blechman
Executive Vice President - Treasurer
(Principal Accounting Officer)
By: /s/ John McCusker
John McCusker
Chief Financial Officer
(Principal Financial Officer)
DATED: November 13, 1997
11
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<ARTICLE> 5
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,423
<SECURITIES> 0
<RECEIVABLES> 33,904
<ALLOWANCES> 406
<INVENTORY> 37,070
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<PP&E> 22,149
<DEPRECIATION> (8,167)
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0
0
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<OTHER-SE> (10,441)
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