<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 June 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 July 31, 1997, the registrant had 27,0000,000 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>
JUNE 30, 1997 DECEMBER 31, 1996(1)
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,351 $ 3,794
Accounts receivable, net of allowance for
bad debts of $408 and $208 respectively 30,244 31,027
Inventories 38,515 29,443
Deferred tax assets 877 1,218
Prepaid expenses and other current assets 1,526 1,076
--------- ---------
Total Current Assets 73,513 66,558
Property, plant and equipment, net 14,063 14,157
Deferred tax assets 50,974 52,858
Other assets 7,637 7,964
--------- ---------
TOTAL $ 146,187 $ 141,537
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 17,085 $ 20,085
Current portion of capital lease obligation 152 146
Accounts payable 11,411 10,313
Accrued expenses and other current liabilities 5,113 8,882
--------- ---------
Total Current Liabilities 33,761 39,426
Long-term debt, less current portion 100,253 100,265
Capital lease obligations, less current portion 80 158
--------- ---------
Total Liabilities 134,094 139,849
--------- ---------
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
June 30, 1997 and December 31, 1996 27,000 27,000
Additional paid-in capital 141,338 141,338
Accumulated deficit (156,245) (166,650)
--------- ---------
Total Shareholders' Equity 12,093 1,688
--------- ---------
TOTAL $ 146,187 $ 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES $ 44,567 $ 37,853 $ 95,736 $ 81,837
COST OF SALES 25,389 21,490 54,572 47,852
-------- -------- -------- --------
GROSS PROFIT 19,178 16,363 41,164 33,985
OPERATING EXPENSES 8,400 7,517 18,088 14,816
-------- -------- -------- --------
INCOME FROM OPERATIONS 10,778 8,846 23,076 19,169
-------- -------- -------- --------
OTHER (EXPENSE) INCOME:
Interest income 41 148 85 315
Interest expense (3,138) (2,367) (6,182) (2,591)
Transaction expenses -- -- -- (400)
Non recurring non-competition agreement
expense -- (15,300) -- (15,300)
Other 6 (22) 12 (23)
-------- -------- -------- --------
(3,091) (17,541) (6,085) (17,999)
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR (BENEFIT
FROM) INCOME TAXES 7,687 (8,695) 16,991 1,170
PROVISION FOR (BENEFIT FROM) INCOME
TAXES 2,949 (4,373) 6,586 (4,287)
-------- -------- -------- --------
NET INCOME (LOSS) $ 4,738 $ (4,322) $ 10,405 $ 5,457
======== ======== ======== ========
NET INCOME PER SHARE $ 0.18 $ 0.39
======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING 27,025 27,020
======== ========
PRO FORMA RELATING TO CHANGE IN
TAX STATUS*
Historical income (loss) before provision
for income taxes $ (8,695) $ 1,170
Pro forma provision for income taxes 2,682 6,588
-------- --------
Pro forma net loss relating to change in
tax status (11,377) (5,418)
Prefered stock dividends (1,247) (1,247)
-------- --------
Net loss applicable to common stock $(12,624) $ (6,665)
======== ========
Net loss per share $ (0.47) $ (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>
SIX MONTHS ENDED JUNE 30,
1997 1996
-------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,405 $ 5,457
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 873 742
Bad debt expense 200 51
Deferred income taxes 2,225 (4,392)
Nonrecurring non-competition agreement expense -- 15,300
Changes in operating assets and liabilities:
Accounts receivable 583 1,620
Inventories (9,072) (5,680)
Prepaid expenses and other current assets (450) (458)
Accounts payable 1,098 1,824
Accrued expenses and other current liabilities (3,769) 2,316
-------- ---------
Net cash provided by operating activities 2,093 16,780
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property plant and equipment 2,491 10
Acquisition of property, plant and equipment (2,920) (483)
Increase in other assets (23) (6,045)
-------- ---------
Net cash used in investing activities (452) (6,518)
-------- ---------
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 (3,012) (10,990)
Issuance of capital stock -- 5,500
Principal payments of capital lease obligations (72) (67)
Repurchase of shareholders common stock and recapitalization -- (215,737)
-------- ---------
Net cash used in financing activities (3,084) (10,223)
-------- ---------
Net (decrease) increase in cash and cash equivalents (1,443) 39
Cash and cash equivalents at beginning of period 3,794 7,945
-------- ---------
Cash and cash equivalents at end of period $ 2,351 $ 7,984
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 5,738 $ 435
======== =========
Income taxes $ 5,701 $ 123
======== =========
</TABLE>
3
<PAGE> 5
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATE)
- --------------------------------------------------------------------------------
1. In the opinion of management, the accompanying consolidated unaudited
financial statements include all necessary adjustments (consisting of
normal recurring accruals) and present fairly the financial position of
Twinlab Corporation and subsidiaries as of June 30, 1997, the results of
its operations for the three months and six months ended June 30, 1997 and
1996, and its cash flows for the six months ended June 30, 1997 and 1996,
in conformity with generally accepted accounting principles for the
interim financial information applied on a consistent basis. The results
of operations for the three months and six months ended June 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 SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $ 37,853 $ 81,837
Interest expense 2,613 5,540
Net income 3,673 8,079
Net income per share 0.14 0.30
</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>
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
CONDENSED BALANCE SHEETS (UNAUDITED)
<S> <C> <C>
ASSETS
Cash $ 165 $ 162
Investment in subsidiaries 11,928 1,526
---------- ---------
$ 12,093 $ 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 (156,245) (166,650)
---------- ---------
$ 12,093 $ 1,688
========== =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
------ ------- ------- ------
CONDENSED STATEMENTS OF INCOME (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Equity interest in net income of
subsidiaries $4,767 $(4,322) $10,533 $5,457
Interest income 2 -- 3 --
------ ------- ------- ------
Income (loss) before provision
for income taxes 4,769 (4,322) 10,536 5,457
Provision for income taxes 31 -- 131 --
------ ------- ------- ------
Net income (loss) $4,738 $(4,322) $10,405 $5,457
====== ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
-------- ---------
CONDENSED STATMENTS OF CASH FLOWS (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,405 $ 5,457
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Equity investments in subsidiaries (10,402) 146,709
-------- ---------
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 3 --
Cash at beginning of period 162 --
-------- ---------
Cash at end of period $ 165 $ -
======== =========
</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 JUNE 30, 1997 AS OF DECEMBER 31, 1996
------------------- -----------------------
(UNAUDITED)
<S> <C> <C>
Current assets $ 75,183 $68,100
Noncurrent assets 72,674 74,979
Current liabilities 33,761 39,426
Noncurrent liabilities 100,333 100,423
Shareholder's equity 13,763 3,230
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1996 1997
---- ---- ---- ---
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 44,567 $37,853 $95,736 $81,837
Gross profit 19,178 16,363 41,164 33,985
Net income (loss) 4,767 (4,322) 10,533 5,457
</TABLE>
Summarized financial information of ARP is as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31,1996
------------------- ----------------------
(UNAUDITED)
<S> <C> <C>
Current assets $1,400 $1,577
Noncurrent assets 192 182
Current liabilities 792 1,200
Noncurrent liabilities - -
Shareholder's equity 800 559
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $1,362 $1,619 $2,953 $3,038
Gross profit 298 334 704 467
Net income 95 253 241 276
</TABLE>
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31,1996
------------- ----------------
(UNAUDITED)
<S> <C> <C>
Raw Materials $ 14,857 $ 10,802
Work in Process 6,955 8,712
Finished Goods 16,703 9,929
--------- --------
Total $ 38,515 $ 29,443
========= ========
</TABLE>
5. SUBSEQUENT EVENT
On July 1, 1997, the Company and Rexall Sundown, Inc. confirmed that they
were engaged in substantive discussions relating to a potential merger,
which would contemplate that Rexall Sundown, Inc. would issue 0.74 shares
of its common stock for each outstanding share of the Company's common
stock. In connection with this transaction, the two parties have jointly
approached the Securities and Exchange Commission to confirm that the
potential merger of the two companies would be accounted for as a pooling
of interests. Any agreement would be subject to a number of conditions,
including satisfactory completion of due diligence by each party,
appropriate confirmation of the applicability of pooling of interests
6
<PAGE> 8
accounting, Board and shareholder approval by each party, receipt by each
party's Board of Directors of a satisfactory fairness opinion and
regulatory approval.
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 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
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
NET SALES: Net sales for the six months ended June 30, 1997 was $95.7
million, an increase of $13.9 million, or 17.0%, as compared to net sales
of $81.8 million for the six months ended June 30, 1996. The 17.0%
increase was attributable to increases in gross sales, partially offset by
an increase in discounts and allowances which was due to the Company's
increased sales volume. TWINLAB brand net sales contributed $76.9 million,
an increase of $11.9 million, or 18.3%, as compared to $65.0 million for
the six months ended June 30, 1996. 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.
Herbal products contributed $16.2 million, an increase of $2.1 million, or
15.0%, as compared to $14.1 million for the six months ended June 30,
1996. Publishing activities contributed $2.6 million as compared to $2.7
million for the six months ended June 30, 1996.
GROSS PROFIT: Gross profit for the six months ended June 30, 1997 was
$41.2 million, which represented an increase of $7.2 million, or 21.1%, as
compared to $34.0 million for the six months ended June 30, 1996. Gross
profit margin was 43.0% for the six months ended June 30, 1997 as compared
to 41.5% for the six months ended June 30, 1996. The overall increase in
gross profit dollars was attributable to the Company's higher sales volume
for the six months ended June 30, 1997. The increase in gross profit
margin for the six months ended June 30, 1997 as compared to the six
months ended June 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 continued absorption of
manufacturing overhead expenses over a larger sales base, partially offset
by an increase in credits and discounts.
OPERATING EXPENSES: Operating expenses were $18.1 million for the six
months ended June 30, 1997, representing an increase of $3.3 million, or
22.1%, as compared to $14.8 million for the six months ended June 30,
1996. As a percent of net sales, operating expenses increased from 18.1%
for the six months ended June 30, 1996 to 18.9% for the six months ended
June 30, 1997. The increase in operating expenses and operating expenses
as a percent of net sales was primarily attributable to increased selling
and marketing expenses and higher general and administrative expense
resulting from the Company's increased level of operations for the six
months ended June 30, 1997.
INCOME FROM OPERATIONS: Income from operations was $23.1 million for the
six months ended June 30, 1997, representing an increase of $3.9 million,
or 20.4%, as compared to $19.2 million for the six months ended June 30,
1996. Income from operations margin increased to 24.1% of net sales for
the six months ended June 30, 1997, as compared to 23.4% of net sales for
the six months ended June 30, 1996. The increase in income from operations
and income from operations margin was primarily due to the Company's
higher sales volume
7
<PAGE> 9
together with higher gross margins, offset in part by higher operating
expenses as a percent of net sales for the six months ended June 30, 1997.
OTHER EXPENSE: Other expense was $6.1 million for the six months ended
June 30, 1997, as compared to $18.0 million for the six months ended June
30, 1996. The net decrease of $11.9 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 $3.6 million resulting from increased borrowings.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30,
1996
NET SALES: Net sales for the three months ended June 30, 1997 was $44.6
million, an increase of $6.7 million, or 17.7%, as compared to net sales
of $37.9 million for the three months ended June 30, 1996. The 17.7%
increase was attributable to increases in gross sales, partially offset by
an increase in discounts and allowances which was due to the Company's
increased sales volume. Net sales of TWINLAB products contributed $35.3
million, an increase of $4.9 million or 16.1% as compared to $30.4 million
for the three months ended June 30, 1996. 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. Herbal products contributed
$8.1 million, an increase of $2.1 million, or 35.0% as compared to $6.0
million for the three months ended June 30, 1996. Publishing activities
contributed $1.2 million as compared to $1.5 million for the three months
ended June 30, 1996.
GROSS PROFIT: Gross profit for the three months ended June 30, 1997 was
$19.2 million, which represented an increase of $2.8 million, or 17.2%, as
compared to $16.4 million for the three months ended June 30, 1996. Gross
profit margin was 43.0% for the three months ended June 30, 1997 as
compared to 43.2% for the three months ended June 30, 1996. The overall
increase in gross profit dollars was attributable to the Company's higher
sales volume for the three months ended June 30, 1997. The decrease in
gross profit margin for the three months ended June 30, 1997 as compared
to the three months ended June 30, 1996 was due primarily to product mix
and an increase in credits and discounts.
OPERATING EXPENSES: Operating expenses were $8.4 million for the three
months ended June 30, 1997 representing an increase of $0.9 million, or
11.7%, as compared to $7.5 million for the three months ended June 30,
1996. As a percent of net sales, operating expenses decreased from 19.9%
for the three months ended June 30, 1996 to 18.8% for the three months
ended June 30, 1997. The increase in operating expenses was primarily
attributable to higher general and administrative expenses offset by
decreased selling and marketing expenses. The Company's increased level of
operations contributed to the increase in general and administrative
expense for the three months ended June 30, 1997. The decrease in
operating expenses as a percent of net sales was primarily due to
increased sales volume and absorption of expenses over a larger base.
INCOME FROM OPERATIONS: Income from operations was $10.8 million for the
three months ended June 30,1997, representing an increase of $2.0 million,
or 21.8%, as compared to $8.8 million for the three months ended June 30,
1996. Income from operations margin increased to 24.2% of net sales for
the three months ended June 30, 1997 as compared to 23.4% of net sales for
the three months ended June 30, 1996. The increase in income from
operations and income from operations margin was due to the Company's
higher sales volume together with lower operating expenses as a percent of
net sales for the three months ended June 30, 1997.
OTHER EXPENSE: Other expense was $3.1 million for the three months ended
June 30, 1997, as compared to $17.5 million for the three months ended
June 30, 1996. The net decrease of $14.4 million is primarily attributable
to a $15.3 million decrease in nonrecurring non-competition agreement
expense which was incurred in 1996, offset by an increase of $0.8 million
in interest expense from increased borrowings.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1997, cash provided by operating
activities was $2.1 million, as compared to $16.8 million for the six
months ended June 30, 1996. Cash used in financing activities was $3.1
million for the six months ended June 30, 1997, and represented the
repayment of outstanding indebtedness. Cash used
8
<PAGE> 10
in financing activities for the six months ended June 30, 1996 was $10.2
million, reflecting the net cash effect of the recapitalization
transaction and distributions of $8.9 million to the stockholders.
Capital expenditures were $2.9 million ($2.5 million of which was
subsequently sold and leased back) and $0.5 million for the six months
ended June 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 $4.8 million during the calendar year 1997,
and will be used to purchase manufacturing equipment. The Company
estimates that its historical level of maintenance capital expenditures
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 of July 31, 1997, approximately $30 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 $30 million of borrowings under the amended revolving
credit facility will be available to fund future acquisitions subject to
certain conditions and reductions ($15 million of which is available as
July 31, 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 July 1, 1997, the Company and Rexall Sundown, Inc. confirmed that they
were engaged in substantive discussions relating to a potential merger,
which would contemplate that Rexall Sundown, Inc. would issue 0.74 shares
of its common stock for each outstanding share of the Company's common
stock. In connection with this transaction, the two parties have jointly
approached the Securities and Exchange Commission to confirm that the
potential merger of the two companies would be accounted for as a pooling
of interests. Any agreement would be subject to a number of conditions,
including satisfactory completion of due diligence by each party,
appropriate confirmation of the applicability of pooling of interests
accounting, Board and shareholder approval by each party, receipt by each
party's Board of Directors of a satisfactory fairness opinion and
regulatory approval.
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
(a) The Annual Meeting of Stockholders of the Company was held on June 17,
1997, at which meeting the stockholders voted to elect directors of the
Company and ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending December 31,
1997.
The results of the matters voted on at the Annual Meeting are shown below.
(b) The nominees for election as directors of the Company are listed below,
together with the number of votes cast for, against, and withheld with
respect to each such nominee, as well as the number of broker non-votes
with respect to each such nominee:
<TABLE>
<CAPTION>
NOMINEE FOR AGAINST WITHHELD BROKER
NON-VOTES
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brian Blechman 23,976,349 0 62,685 0
Dean Blechman 23,975,999 0 63,035 0
Neil Blechman 23,976,999 0 62,035 0
Ross Blechman 23,977,799 0 61,235 0
Steve Blechman 23,976,399 0 62,635 0
John G. Danhakl 23,978,049 0 60,985 0
Jennifer Holden Dunbar 23,978,099 0 60,935 0
Jonathan D. Sokoloff 23,978,049 0 60,985 0
</TABLE>
(c) Other matters voted upon at the meeting and the results of those votes are
as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
-----------------------------------------------------
<S> <C> <C> <C> <C>
Ratification of Deloitte &
Touche LLP as the Company's
independent auditors 24,028,633 4,748 5,653 0
</TABLE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule.
(b) Reports of Form 8-K:
A report on Form 8-K was filed on April 16, 1997, reporting the scheduled
date of the Company's Annual Meeting of Stockholders and the record date
with respect thereto.
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,
Chief Accounting Officer
DATED: August 14, 1997
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,351
<SECURITIES> 0
<RECEIVABLES> 30,652
<ALLOWANCES> 408
<INVENTORY> 38,515
<CURRENT-ASSETS> 73,513
<PP&E> 21,936
<DEPRECIATION> (7,873)
<TOTAL-ASSETS> 146,187
<CURRENT-LIABILITIES> 33,761
<BONDS> 0
0
0
<COMMON> 27,000
<OTHER-SE> (14,907)
<TOTAL-LIABILITY-AND-EQUITY> 146,187
<SALES> 95,736
<TOTAL-REVENUES> 95,736
<CGS> 54,572
<TOTAL-COSTS> 54,572
<OTHER-EXPENSES> 18,088
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,182
<INCOME-PRETAX> 16,991
<INCOME-TAX> 6,586
<INCOME-CONTINUING> 10,405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,405
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0
</TABLE>
