<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, 2000
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.)
150 Motor Parkway, Suite 210, Hauppauge, New York 11788
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(631) 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, 2000, the registrant had 28,645,687 shares of common stock
outstanding.
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,875 $ 3,994
Accounts receivable, net of allowance for bad debts of $914 at
June 30, 2000 and $918 at December 31, 1999 39,849 52,454
Inventories 78,940 71,826
Deferred tax assets 3,638 4,497
Prepaid taxes 7,455 8,183
Prepaid expenses and other current assets 4,037 2,941
------------ ------------
Total current assets 138,794 143,895
Property, plant and equipment, net 48,160 46,168
Deferred tax assets 38,053 40,269
Other assets 54,742 55,925
------------ ------------
TOTAL $ 279,749 $ 286,257
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,466 $ 597
Accounts payable 13,564 33,152
Accrued expenses and other current liabilities 7,829 25,780
------------ ------------
Total current liabilities 22,859 59,529
Long-term debt, less current portion 90,212 63,203
------------ ------------
Total liabilities 113,071 122,732
------------ ------------
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;
32,746,587 issued and 28,645,687 outstanding as of June 30, 2000 and
32,706,233 issued and 28,605,333 outstanding as of December
31, 1999 32,747 32,706
Additional paid-in capital 289,645 289,336
Accumulated deficit (118,920) (121,723)
------------ ------------
203,472 200,319
Treasury stock at cost; 4,100,900 shares (36,794) (36,794)
------------ ------------
Total shareholders' equity 166,678 163,525
------------ ------------
TOTAL $ 279,749 $ 286,257
============ ============
</TABLE>
2
<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,
--------------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 60,101 $ 74,229 $ 138,564 $ 145,692
COST OF SALES 30,769 37,111 69,154 73,604
---------- ---------- ---------- ----------
GROSS PROFIT 29,332 37,118 69,410 72,088
OPERATING EXPENSES 28,275 32,789 63,258 63,645
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 1,057 4,329 6,152 8,443
---------- ---------- ---------- ----------
OTHER (EXPENSE) INCOME:
Interest income 84 109 172 217
Interest expense (2,101) (1,540) (3,917) (2,976)
Other 1,550 6 2,173 12
---------- ---------- ---------- ----------
(467) (1,425) (1,572) (2,747)
---------- ----------- ---------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 590 2,904 4,580 5,696
PROVISION FOR INCOME TAXES 229 1,100 1,777 2,210
---------- ---------- ---------- ----------
NET INCOME $ 361 $ 1,804 $ 2,803 $ 3,486
========== ========== ========== ==========
BASIC INCOME PER SHARE $ 0.01 $ 0.06 $ 0.10 $ 0.11
========== ========== ========== ==========
DILUTED INCOME PER SHARE $ 0.01 $ 0.06 $ 0.10 $ 0.11
========== ========== ========== ==========
Weighted Average Common Shares Used In
Computing Basic Income Per Share 28,645 31,914 28,632 32,303
========== ========== ========== ==========
Weighted Average Common Shares Used
In Computing Diluted Income Per Share 28,661 31,944 28,645 32,319
========== ========== ========== ==========
</TABLE>
3
<PAGE> 4
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
2000 1999
--------- ----------
<S> <C> <C>
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,803 $ 3,486
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,289 3,279
Bad debt expense 282 35
Deferred income taxes 3,075 2,056
Other 211 --
Changes in operating assets and liabilities:
Accounts receivable 12,323 13,461
Inventories (7,114) (393)
Prepaid taxes 728 --
Prepaid expenses and other current assets (954) (518)
Accounts payable (18,498) (14,353)
Accrued expenses and other current liabilities (17,951) (3,361)
--------- ----------
Net cash (used in) provided by operating activities (20,806) 3,692
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (3,206) (10,087)
Increase in other assets (666) (1,253)
--------- ----------
Net cash used in investing activities (3,872) (11,340)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility 26,000 10,000
Proceeds from issuance of debt -- 8,000
Payments of debt (441) (157)
Purchase of treasury stock -- (7,763)
--------- ----------
Net cash provided by financing activities 25,559 10,080
--------- ---------
Net increase in cash and cash equivalents 881 2,432
Cash and cash equivalents at beginning of period 3,994 12,489
--------- ---------
Cash and cash equivalents at end of period $ 4,875 $ 14,921
========= =========
Supplemental disclosures of cash flow information: Cash paid during the
periods for:
Interest, net of amounts capitalized $ 3,491 $ 2,674
========= =========
Income taxes, net of refunds $ (1,923) $ 2,079
========= =========
Conversion of accounts payable to capital lease obligation $ 1,090 $ --
========= =========
Acquisition of equipment under capital lease obligation $ 1,229 $ --
========= =========
</TABLE>
4
<PAGE> 5
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
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 ("Twinlab") and subsidiaries (the "Company") as of
June 30, 2000, and the results of its operations and its cash flows for
the three months and six months ended June 30, 2000 and 1999 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, 2000 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's Annual Report to
Stockholders on Form 10-K for the fiscal year ended December 31, 1999,
as filed with the Securities and Exchange Commission ("SEC").
2. CONDENSED AND SUMMARIZED FINANCIAL INFORMATION
The Company's amended revolving credit facility and restrictive
covenants contained in the indenture governing the 10-1/4% senior
subordinated notes (the "Notes") restrict the payment of dividends and
the making of loans, advances or other distributions to Twinlab by any
of its subsidiaries, except in certain limited circumstances. The
condensed financial information of Twinlab, on a stand-alone basis, is
as follows:
5
<PAGE> 6
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
CONDENSED BALANCE SHEETS
ASSETS
Cash $ -- $ 338
Prepaid expenses and other current assets -- 2
Investment in subsidiaries 166,678 163,185
--------- ---------
Total $ 166,678 $ 163,525
========= =========
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; 32,746,587
issued and 28,645,687 outstanding as of June 30, 2000 and 32,706,233
issued and 28,605,333 outstanding
as of December 31, 1999 32,747 32,706
Additional paid-in capital 289,645 289,336
Accumulated deficit (118,920) (121,723)
--------- ---------
203,472 200,319
Treasury stock at cost; 4,100,900 shares (36,794) (36,794)
--------- ---------
Total $ 166,678 $ 163,525
========= =========
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
CONDENSED STATEMENTS OF INCOME
Equity interest in net income of subsidiaries $ 393 $ 1,833 $ 2,866 $ 3,540
Operating expenses (52) (96) (104) (96)
Interest income -- 4 1 8
--------- --------- --------- -----------
Income before provision for income taxes 341 1,741 2,763 3,452
Provision for (benefit from) income taxes (20) (63) (40) (34)
--------- --------- --------- -----------
Net income $ 361 $ 1,804 $ 2,803 $ 3,486
========= ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
------- -------
<S> <C> <C>
CONDENSED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................... $ 2,803 $ 3,486
Changes in operating assets and liabilities:
Prepaid expenses and other current assets ... 2 --
------- -------
Net cash provided by operating activities ...... 2,805 3,486
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Equity investments in subsidiaries ............. (3,143) 4,285
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock ..................... -- (7,763)
------- -------
Net (decrease) increase in cash and cash equivalents (338) 8
Cash and cash equivalents at beginning of period ... 338 323
------- -------
Cash and cash equivalents at end of period ......... $ -- $ 331
======= =======
</TABLE>
Twin Laboratories Inc. ("Twin") is a direct wholly owned subsidiary of
Twinlab. Advanced Research Press, Inc. ("ARP"), Changes International,
Inc. ("Changes International"), Bronson Laboratories, Inc., Health
Factors International, Inc. ("Health Factors"), Twinlab FSC Inc., Changes
International (U.K.) Ltd. ("Changes U.K.") and PR*Nutrition, Inc.
("PR*Nutrition"), are indirect wholly-owned subsidiaries of Twinlab.
Twinlab, ARP, Changes International, Bronson Laboratories, Inc., Health
Factors, Twinlab FSC Inc., Changes U.K., and PR*Nutrition have provided
joint and several full and unconditional senior subordinated guarantees
of the Notes.
The assets, results of operations and shareholders' equity of Twin
comprise substantially all of the assets, results of operations and
shareholders' equity of Twinlab on a consolidated basis. Twinlab has no
separate operations and has no significant assets other than Twinlab's
investment in its subsidiaries. Twin has no other stockholder other than
Twinlab. Accordingly, the Company has determined that separate financial
statements of its subsidiaries would not be material to investors and,
therefore, are not included herein.
7
<PAGE> 8
Summarized unaudited financial information as of June 30, 2000 and
December 31, 1999 and for the three months and six months ended June 30,
2000 and 1999 is as follows:
<TABLE>
<CAPTION>
BRONSON
CHANGES LABORATORIES, HEALTH PR*
TWIN ARP INTERNATIONAL INC. FACTORS NUTRITION(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF JUNE 30, 2000
Current assets ........ $172,354 $ 1,073 $ 10,963 $ 12,275 $ 7,563 $ 2,676
Noncurrent assets ..... 140,955 205 11,516 38,661 5,442 132
Current liabilities ... 22,859 601 3,936 4,626 1,182 231
Noncurrent liabilities 90,212 -- -- -- -- --
Shareholder's equity .. 200,238 677 18,543 46,310 11,823 2,577
AS OF DECEMBER 31, 1999
Current assets ........ $177,402 $ 1,079 $ 11,282 $ 9,953 $ 7,250 $ 2,762
Noncurrent assets ..... 142,363 195 11,985 39,713 5,452 160
Current liabilities ... 59,529 431 5,000 3,620 1,006 338
Noncurrent liabilities 63,203 -- -- -- -- --
Shareholder's equity .. 197,033 843 18,267 46,046 11,696 2,584
THREE MONTHS ENDED
JUNE 30, 2000
Net sales ............. $ 60,101 $ 1,098 $ 9,921 $ 3,211 $ 3,609 $ 972
Gross profit .......... 29,332 284 8,241 1,944 472 765
Net income (loss) ..... 393 (97) 3 16 104 4
THREE MONTHS ENDED
JUNE 30, 1999
Net sales ............. $ 74,229 $ 1,182 $ 12,933 $ 3,790 $ 3,865 $ 5,047
Gross profit .......... 37,118 203 10,926 2,210 662 3,274
Net income (loss) ..... 1,833 (92) 544 319 190 805
SIX MONTHS ENDED
JUNE 30, 2000
Net sales ............. $138,564 $ 2,057 $ 21,413 $ 6,916 $ 6,986 $ 2,000
Gross profit .......... 69,410 482 18,029 4,329 808 1,553
Net income (loss) ..... 2,866 (166) 276 264 128 (6)
SIX MONTHS ENDED
JUNE 30, 1999
Net sales ............. $145,692 $ 2,397 $ 25,199 $ 8,120 $ 7,459 $ 10,325
Gross profit .......... 72,088 544 21,343 4,485 1,097 6,740
Net income (loss) ..... 3,540 (71) 1,207 467 248 1,119
</TABLE>
(a) Effective July 1, 1999, the Ironman Triathlon bar product line was
transferred from PR*Nutrition to Twin.
8
<PAGE> 9
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31,1999
<S> <C> <C>
Raw Materials $ 33,437 $ 32,269
Work in Process 14,443 9,765
Finished Goods 31,060 29,792
--------- ---------
Total $ 78,940 $ 71,826
========= =========
</TABLE>
4. LEGAL PROCEEDINGS
Included in other income for the three months and six months ended June
30, 2000 is $1,512 and $2,112, respectively, of proceeds from
litigation settlements.
5. NET INCOME PER SHARE
Basic net income per common share was calculated based upon the
weighted average number of common shares outstanding during the
respective periods. Diluted net income per common share was calculated
based upon the weighted average number of common shares outstanding and
includes potential common shares for dilutive options outstanding
during the respective periods.
The weighted average common shares outstanding for the computation of
basic net income per common share for the three months and six months
ended June 30, 2000 and 1999 were 28,645,000 and 31,914,000,
respectively, and 28,632,000 and 32,303,000, respectively.
Additionally, for the diluted calculation, 16,000 and 30,000 of
potential common shares were included for the three months ended June
30, 2000 and 1999, respectively, and 13,000 and 16,000 were included
for the six months ended June 30, 2000 and 1999, respectively.
6. RECENT ACCOUNTING PRONOUNCEMENTS
Recent pronouncements of the Financial Accounting Standards Board,
which are not required to be adopted at this date include SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
was subsequently amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the effective Date of
SFAS No. 133" and SFAS No. 138, "Accounting For Certain Derivative
Instruments and Certain Hedging Activities - An Amendment of FASB
Statement No. 133". SFAS No. 133, as amended by SFAS No. 137 and SFAS
No. 138, is not expected to have a material impact on the Company's
financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101
("SAB 101"), "Revenue Recognition In Financial Statements." SAB 101
summarizes certain of the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements.
The Company is required to adopt SAB 101 no later than the fourth
quarter of fiscal 2000. SAB 101 is not expected to have a material
impact on the Company's financial statements.
7. OPERATING SEGMENTS
The Company has four reportable segments: TWINLAB division; Herbal
Supplements and Teas division; Changes International division; and
Bronson division. The Company manufactures and markets nutritional
products, including a complete line of vitamins, herbs, nutraceuticals,
antioxidants, fish and marine oils, and sports nutrition supplements
through its Twinlab division; a full line of herbs, phytonutrients, and
teas through its Herbal Supplements and Teas division; a line of
specially formulated nutritional supplements through its
9
<PAGE> 10
Changes International division; and a line of vitamins, herbs,
nutritional supplements and health and beauty aids through its Bronson
division.
Segment information for the three months and six months ended June 30, 2000 and
1999 was as follows:
<TABLE>
<CAPTION>
HERBAL
SUPPLEMENTS CHANGES
TWINLAB AND TEAS INTERNATIONAL BRONSON INTERCOMPANY
DIVISION DIVISION DIVISION DIVISION OTHER (1) ELIMINATION TOTAL
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
JUNE 30, 2000
Net sales from external customers $ 36,734 $ 6,226 $ 9,921 $ 5,348 $ 1,872 $ -- $ 60,101
Intersegment net sales .......... -- -- -- -- 198 (198) --
Income (loss) from operations ... 310 788 (29) 194 (206) -- 1,057
Total assets .................... 195,400 68,866 22,479 60,849 4,087 (71,932) 279,749
THREE MONTHS ENDED
JUNE 30, 1999
Net sales from external customers $ 40,639 $ 8,017 $ 12,933 $ 6,537 $ 6,103 $ -- $ 74,229
Intersegment net sales .......... -- -- -- -- 126 (126) --
Income from operations .......... 232 1,350 855 823 1,069 -- 4,329
Total assets .................... 161,389 67,568 24,368 59,179 7,278 (33,910) 285,870
SIX MONTHS ENDED
JUNE 30, 2000
Net sales from external customers $ 87,103 $14,901 $ 21,413 $11,381 $ 3,766 $ -- $138,564
Intersegment net sales .......... -- -- -- -- 292 (292) --
Income from operations .......... 2,920 2,594 393 638 (393) -- 6,152
SIX MONTHS ENDED
JUNE 30, 1999
Net sales from external customers $ 77,426 $17,145 $ 25,199 $13,462 $ 12,460 $ -- $145,692
Intersegment net sales .......... 33 2,510 -- -- 262 (2,805) --
Income from operations .......... 127 3,636 1,911 1,156 1,613 -- 8,443
</TABLE>
[1] The "other" column includes corporate-related items and the results of
two divisions, PR*Nutrition and ARP, whose segment information is below
the reportable quantitative thresholds. The Company markets
nutritionally enhanced food bars and other nutritional products through
PR*Nutrition and publishes a sports fitness magazine and health and
fitness-related books, audios and newsletters through ARP.
8. SHARE REPURCHASE PROGRAM
On May 9, 2000, the Board of Directors approved a share repurchase
program authorizing the Company to purchase up to five million shares
of its common stock. Under the approved share buyback plan, the Company
may purchase common stock from time to time on the open market and in
individually negotiated transactions. The amount and timing of any
purchases will be dependent upon a number of factors, including the
price and availability of the Twinlab shares and general market
conditions.
This share repurchase program supercedes and terminates the unused
portion of the repurchase program announced on February 25, 1999,
pursuant to which the Company repurchased 4.1 million shares of its
common stock.
10
<PAGE> 11
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 through six
primary business divisions: the TWINLAB division, the Herbal Supplements and
Teas division, the Changes International division, the Bronson division, the
PR*Nutrition division, and the Publishing division. Products sold by the TWINLAB
division include vitamins, minerals, amino acids, herbs, sports nutrition
products and special formulas primarily under the TWINLAB brand name. In
addition, effective July 1, 1999, the TWINLAB division began marketing
nutritionally enhanced food bars under the Ironman Triathlon trademark. The
Herbal Supplements and Teas division produces and markets a full line of herbal
supplements and phytonutrients marketed under the Nature's Herbs brand and a
full line of herb teas marketed under the Alvita brand. The Company's network
marketing activities are conducted through Changes International. The Bronson
division markets vitamins, herbs, nutritional supplements and health and beauty
aids through its Bronson catalog, and also manufactures through Health Factors,
private label vitamins and supplements for a number of other companies on a
contract manufacturing basis. The PR*Nutrition division markets nutritionally
enhanced food bars under the PR*Bar trademark. The Company's publishing
activities are conducted through ARP.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------- ---------------------------------------
(DOLLARS IN MILLIONS)
2000 1999 2000 1999
---------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales:
TWINLAB Division $ 36.7 61.1% $ 40.6 54.8% $ 87.1 62.9% $ 77.4 53.1%
Herbal Supplements and 6.2 10.4 8.0 10.8 14.9 10.8 17.2 11.8
Teas Division
Changes Int'l Division 9.9 16.5 12.9 17.4 21.4 15.4 25.2 17.3
Bronson Division 5.4 8.9 6.5 8.8 11.4 8.2 13.5 9.2
PR*Nutrition Division 1.0 1.6 5.1 6.8 2.0 1.4 10.3 7.1
Publishing Division 0.9 1.5 1.1 1.4 1.8 1.3 2.1 1.5
------ ----- ------ ----- ------ ------ ------ -----
Total Net Sales 60.1 100.0 74.2 100.0 138.6 100.0 145.7 100.0
------ ----- ------ ----- ------ ------ ------ -----
Gross Profit 29.3 48.8 37.1 50.0 69.4 50.1 72.1 49.5
Operating Expenses 28.2 47.0 32.8 44.2 63.2 45.7 63.7 43.7
------ ----- ------ ----- ------ ------ ------ -----
Income from Operations $ 1.1 1.8% $ 4.3 5.8% $ 6.2 4.4% $ 8.4 5.8%
====== ===== ====== ===== ====== ====== ====== =====
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
NET SALES: Net sales for the three months ended June 30, 2000 were $60.1
million, a decrease of $14.1 million, or 19.0%, as compared to net sales of
$74.2 million for the three months ended June 30, 1999. Net sales at the TWINLAB
division contributed $36.7 million, a decrease of $3.9 million, or 9.6% as
compared to $40.6 million for the three months ended June 30, 1999. The decrease
in net sales was due to in part to a continued inventory reduction effort at a
major customer and the realignment of product mix in certain mass market
accounts. Sales of the Herbal Supplements and Teas division contributed $6.2
million, a decrease of $1.8 million or 22.3%, as compared to $8.0 million for
the three months ended June 30, 1999. The Herbal Supplements and Teas division
was impacted by the weakness of the herbal category in both the mass market and
health and natural food store channels. The Changes International division
contributed $9.9 million to net sales for the three months ended June 30, 2000
as compared to $12.9 million in the three months ended June 30, 1999. The
decrease in net sales was due to a downturn in
11
<PAGE> 12
domestic sales which was offset in part by significant growth in non-domestic
markets. The Bronson division contributed $5.4 million to net sales for the
three months ended June 30, 2000 as compared to $6.5 million for the three
months ended June 30, 1999. The PR*Nutrition division contributed $1.0 million
to net sales for the three months ended June 30, 2000, as compared to $5.1
million for the three months ended June 30, 1999. Effective July 1, 1999, the
Ironman Triathlon bar product line was transferred from the PR*Nutrition
division to the TWINLAB division and sales attributable to such product line are
reflected in the TWINLAB division subsequent to such date. Publishing activities
contributed $0.9 million as compared to $1.1 million for the three months ended
June 30, 1999.
GROSS PROFIT: Gross profit for the three months ended June 30, 2000 was $29.3
million, which represented a decrease of $7.8 million, or 21.0%, as compared to
$37.1 million for the three months ended June 30, 1999. Gross profit margin was
48.8% for the three months ended June 30, 2000 as compared to 50.0% for the
three months ended June 30, 1999. The overall decrease in gross profit dollars
and gross profit margin was attributable primarily to the Company's lower sales
volumes.
OPERATING EXPENSES: Operating expenses were $28.2 million for the three months
ended June 30, 2000, representing a decrease of $4.6 million, or 13.8%, as
compared to $32.8 million for the three months ended June 30, 1999. As a percent
of net sales, operating expenses increased from 44.2% for the three months ended
June 30, 1999 to 47.0% for the three months ended June 30, 2000. The decrease in
operating expenses was primarily attributable to a decrease in advertising
expenditures. The increase in operating expenses as a percentage of net sales
was attributable to the Company's lower sales volumes.
INCOME FROM OPERATIONS: Income from operations was $1.1 million for the three
months ended June 30, 2000, representing a decrease of $3.2 million, or 75.6%,
as compared to $4.3 million for the three months ended June 30, 1999. Income
from operations margin decreased from 5.8% of net sales for the three months
ended June 30, 1999, to 1.8% of net sales for the three months ended June 30,
2000. The decrease in income from operations and income from operations margin
was primarily due to the Company's lower sales volume and gross margins.
OTHER (EXPENSE) INCOME: Other (expense) income was a net expense $0.5 million
for the three months ended June 30, 2000, as compared to a net expense of $1.4
million for the three months ended June 30, 1999. The net decrease of $0.9
million was primarily due to an increase in other income of $1.5 million
relating to litigation settlements offset in part by increased interest expense
of $0.6 million, as a result of increased debt levels.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
NET SALES: Net sales for the six months ended June 30, 2000 were $138.6 million,
a decrease of $7.1 million, or 4.9%, as compared to net sales of $145.7 million
for the six months ended June 30, 1999. Net sales at the TWINLAB division
contributed $87.1 million, an increase of $9.7 million, or 12.5% as compared to
$77.4 million for the six months ended June 30, 1999. The increase in net sales
was due to increased demand for vitamins, minerals, and supplements, and special
formula products and the expansion of established accounts. Sales of the Herbal
Supplements and Teas division contributed $14.9 million, a decrease of $2.3
million or 13.1%, as compared to $17.2 million for the six months ended June 30,
1999. The Herbal Supplements and Teas division was impacted by the weakness of
the herbal category in both the mass market and health and natural food store
channels. The Changes International division contributed $21.4 million to net
sales for the six months ended June 30, 2000 as compared to $25.2 million in the
six months ended June 30, 1999. The decrease in net sales was due to a downturn
in domestic sales which was offset in part by significant growth in non-domestic
markets. The Bronson division contributed $11.4 million to net sales for the six
months ended June 30, 2000 as compared to $13.5 million for the six months ended
June 30, 1999. The PR*Nutrition division contributed $2.0 million to net sales
for the six months ended June 30, 2000, as compared to $10.3 million for the six
months ended June 30, 1999. Effective July 1, 1999, the Ironman Triathlon bar
product line was transferred from the PR*Nutrition division to the TWINLAB
division and sales attributable to such product line are reflected in the
TWINLAB division subsequent to such date. Publishing
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activities contributed $1.8 million as compared to $2.1 million for the six
months ended June 30, 1999.
GROSS PROFIT: Gross profit for the six months ended June 30, 2000 was $69.4
million, which represented a decrease of $2.7 million, or 3.7%, as compared to
$72.1 million for the six months ended June 30, 1999. Gross profit margin was
50.1% for the six months ended June 30, 2000 as compared to 49.5% for the six
months ended June 30, 1999. The overall decrease in gross profit dollars was
attributable primarily to the Company's lower sales volumes.
OPERATING EXPENSES: Operating expenses were $63.2 million for the six months
ended June 30, 2000, representing a decrease of $0.5 million, or 0.6%, as
compared to $63.7 million for the six months ended June 30, 1999. As a percent
of net sales, operating expenses increased from 43.7% for the six months ended
June 30, 1999 to 45.7% for the six months ended June 30, 2000. The increase in
operating expenses as a percentage of net sales was primarily attributable to
the Company's lower sales volume.
INCOME FROM OPERATIONS: Income from operations was $6.2 million for the six
months ended June 30, 2000, representing a decrease of $2.2 million, or 27.1%,
as compared to $8.4 million for the six months ended June 30, 1999. Income from
operations margin decreased from 5.8% of net sales for the six months ended June
30, 1999, to 4.4% of net sales for the six months ended June 30, 2000. The
decrease in income from operations and income from operations margin was
primarily due to the Company's lower sales volume.
OTHER (EXPENSE) INCOME: Other (expense) income was a net expense of $1.6 million
for the six months ended June 30, 2000, as compared to a net expense of $2.7
million for the six months ended June 30, 1999. The net decrease of $1.1 million
was primarily due to an increase in other income of $2.1 million relating to
litigation settlements offset in part by increased interest expense of $0.9
million, as a result of increased debt levels.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2000, cash used in operating activities was
$20.8 million as compared to cash provided by operating activities of $3.7
million for the six months ended June 30, 1999. The increase in cash used in
operating activities was primarily attributable to the purchase of an insurance
product that is expected to substantially cover the potential financial
consequences of the shareholder class action lawsuit and payment of accounts
payable.
Capital expenditures, inclusive of equipment acquired under capital lease
obligations, were $4.4 million and $10.1 million for the six months ended June
30, 2000 and 1999, respectively. Capital expenditures for the six months ended
June 30, 2000 were primarily for the purchase of computer hardware and software
and related implementation costs, as well as production equipment to expand
capacity or improve manufacturing efficiency. Capital expenditures are expected
to be approximately $8.0 million during fiscal 2000 of which approximately $5.0
million will be used to purchase computer hardware and software, including
related implementation costs and the remainder of which will be used primarily
to purchase manufacturing equipment. The Company estimates that its historical
level of maintenance capital expenditures has been approximately $1.0 million
per fiscal year.
Net cash provided by financing activities was $25.6 million for the six months
ended June 30, 2000 and primarily represented borrowings under the Company's
Revolving Credit Facility.
Twinlab has no operations of its own, and accordingly, has no independent means
of generating revenue. As a holding company, Twinlab'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
relating to the Notes and the 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
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<PAGE> 14
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 actively pursue its business strategy for the next 18 to 24
months. The Company's capital resources and liquidity are expected to be
provided by the Company's cash flow from operations, and borrowings under the
existing $50 million Revolving Credit Facility. As of July 30, 2000, $8 million
of borrowings were available under the Revolving Credit Facility for working
capital requirements and general corporate purposes.
One of the Company's business strategies is to pursue acquisition opportunities
that complement or extend its existing products or product lines, 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. 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 May 9, 2000, the Board of Directors approved a share repurchase program
authorizing the Company to purchase up to five million shares of its common
stock. Under the approved share buyback plan, the Company may purchase common
stock from time to time on the open market and in individually negotiated
transactions. The amount and timing of any purchases will be dependent upon a
number of factors, including the price and availability of the Twinlab shares
and general market conditions.
This share repurchase program supercedes and terminates the unused portion of
the repurchase program announced on February 25, 1999, pursuant to which the
Company repurchased 4.1 million shares of its common stock.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent pronouncements of the Financial Accounting Standards Board, which are not
required to be adopted at this date include SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which was subsequently amended
by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the effective Date of SFAS No. 133" and SFAS No. 138, "Accounting
For Certain Derivative Instruments and Certain Hedging Activities - An Amendment
of FASB Statement No. 133". SFAS No. 133, as amended by SFAS No. 137 and SFAS
No. 138, is not expected to have a material impact on the Company's financial
statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition In Financial Statements." SAB 101 summarizes certain of the
SEC's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company is required to adopt SAB 101 no
later than the fourth quarter of fiscal 2000. SAB 101 is not expected to have a
material impact on the Company's financial statements.
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, other variations thereon or comparable terminology, or by
discussions of strategy. These forward-looking statements involve certain
significant risks and uncertainties, and actual results may differ materially
from the forward-looking statements. For further details and discussion of these
risks and uncertainties see Twinlab Corporation's SEC filings including, but not
limited to, its annual report on Form
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<PAGE> 15
10-K. 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. The Company does not undertake to publicly update or
revise any of its forward-looking statements even if experience or future
changes show that the indicated results or events will not be realized.
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<PAGE> 16
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 May 9, 2000,
at which meeting the stockholders voted to elect ten directors of the
Company, approve the Twinlab Corporation Management Incentive Bonus Plan,
approve the Twinlab Corporation 2000 Stock Incentive Plan, and ratify the
appointment of Deloitte & Touche LLP as the Company's independent auditors
for the fiscal year ending December 31, 2000.
The results of the matters voted on 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 non-votes with
respect to each such nominee:
<TABLE>
<CAPTION>
NOMINEE FOR AGAINST WITHHELD NON-VOTING
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brian Blechman 21,042,615 0 667,089 6,935,983
Dean Blechman 21,042,615 0 667,089 6,935,983
Neil Blechman 21,042,615 0 667,089 6,935,983
Ross Blechman 21,042,615 0 667,089 6,935,983
Steve Blechman 21,042,615 0 667,089 6,935,983
Stephen Welling 20,454,935 0 1,254,769 6,935,983
John G. Danhakl 21,457,515 0 252,189 6,935,983
Jonathan D. Sokoloff 21,457,515 0 252,189 6,935,983
Robert S. Apatoff 21,452,915 0 256,789 6,935,983
William U. Westerfield 21,452,915 0 256,789 6,935,983
</TABLE>
(c) Other matters voted upon at the meeting and the results of those votes are
as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTING
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Approval of the Twinlab Corporation Management 20,457,481 1,168,968 48,460 6,970,778
Incentive Bonus Plan
Approval of the Twinlab Corporation 2000 Stock 10,561,247 5,010,216 53,725 13,020,499
Incentive Plan
Ratification of Deloitte & Touche LLP as the 21,600,168 85,935 26,756 6,932,828
Company's independent auditors
</TABLE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended June 30,
2000.
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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/ John H. Bolt
-----------------------------------------------
John H. Bolt
Chief Financial Officer
DATED: August 14, 2000
17
