SECURITY AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1999.
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______________ to
____________.
Commission file number 1-10340
-------
ALLOU HEALTH & BEAUTY CARE, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2953972
-------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
50 Emjay Boulevard, Brentwood, NY 11717
- --------------------------------- -----
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (516) 273-4000
--------------
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 twelve 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 _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class November 4, 1999
----- ----------------
Class A Common Stock, $.001 par value 5,443,576
=========
Class B Common Stock, $.001 par value 1,200,000
=========
<PAGE>
ALLOU HEALTH AND BEAUTY CARE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------------- ---------
(Unaudited)
<S> <C> <C>
Current Assets
Cash $ 263,902 $ 400,090
Accounts Receivable (less allowance for
doubtful accounts of $2,695,443 at September 30,
1999 and $1,615,965 at March 31, 1999) 61,673,636 50,162,450
Inventories 149,948,878 122,917,911
Prepaid Purchases 12,953,549 24,682,481
Note Receivable 8,500,000 - 0 -
Other Current Assets 7,242,496 12,876,642
----------- -----------
Total Current Assets $240,582,461 $211,039,574
Property and Equipment, Less Accumulated Depreciation 3,710,360 3,839,906
Other Assets 6,477,255 5,027,901
----------- -----------
TOTAL ASSETS $250,770,076 $219,907,381
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities
- -------------------
Amounts Due Bank $143,878,405 $123,371,228
Current Portion of Long-Term Debt 465,930 707,652
Accounts Payable and Accrued Expenses 21,241,690 33,936,223
Income Taxes Payable 4,674,391 - 0 -
Deferred Income Taxes 3,230,000 832,000
----------- -----------
Total Current Liabilities $173,490,416 $158,847,103
----------- -----------
Long Term Liabilities
Long-Term Debt, Less Current Portion 613,478 724,234
----------- -----------
Total Long Term Liabilities 613,478 724,234
----------- -----------
TOTAL LIABILITIES $174,103,894 $159,571,337
----------- -----------
Commitments and Contingencies
Stockholders' Equity
- --------------------
Preferred Stock, $.001 par value, 1,000,000
shares authorized, none issued
and outstanding.
Class A Common Stock, $.001 par value;
15,000,000 shares authorized;
5,443,576 and 5,339,122 shares issued and
outstanding at September 30, 1999 and March 31, 1999 $ 5,443 $ 5,339
Class B Common Stock, $.001 par value;
2,200,000 shares authorized;
1,200,000 shares issued and outstanding
at September 30, 1999 and March 31, 1999 1,200 1,200
Additional Paid-In Capital 30,090,905 29,956,769
Retained Earnings 46,568,634 30,372,736
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 76,666,182 60,336,044
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $250,770,076 $219,907,381
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ALLOU HEALTH and BEAUTY CARE, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For The Six Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Revenues $179,158,877 $157,306,524
Costs of Revenues 154,530,392 136,000,982
----------- ------------
Gross Profit 24,628,485 21,305,542
------------ ------------
Operating Expenses
- ------------------
Warehouse and Delivery 5,558,291 4,873,080
Selling, General and Administrative 9,102,617 6,948,880
------------- ------------
Total Expenses 14,660,908 11,821,960
------------ ------------
Income From Operations 9,967,577 9,483,582
------------- ------------
Other Charges (Credits)
- -----------------------
Interest Expense 4,817,113 5,012,737
Interest Income (331,973) - 0 -
------------- ------------
Total 4,485,140 5,012,737
------------- ------------
Income From Operations Before Income Taxes 5,482,437 4,470,845
Provision for Income Taxes 2,083,000 1,746,631
------------- ------------
Income From Continuing Operations 3,399,437 2,724,214
Loss From Discontinued Operations
Net of Income Taxes ( 516,764) (1,790,318)
Gain on Disposal of Discontinued Operations
Net of Income Taxes 13,313,225 - 0 -
------------ ------------
NET INCOME $ 16,195,898 $ 933,896
RETAINED EARNINGS - BEGINNING 30,372,736 29,024,881
------------ ------------
RETAINED EARNINGS - ENDING $ 46,568,634 $ 29,958,777
============ ============
EARNINGS (LOSS) PER COMMON SHARE
- --------------------------------
Basic:
Continuing Operations $ .51 $.47
Discontinued Operations 1.92 (.31)
---- ---
Net Income $2.43 $.16
==== ===
Diluted:
Continuing Operations $ .46 $.43
Discontinued Operations 1.74 (.28)
---- ---
Net Income $2.20 $.15
==== ===
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ALLOU HEALTH and BEAUTY CARE, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For The Three Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Revenues $101,011,666 $88,985,409
Costs of Revenues 87,224,312 77,867,406
------------ ----------
Gross Profit 13,787,354 11,118,003
------------ ----------
Operating Expenses
- ------------------
Warehouse and Delivery 2,959,369 2,640,019
Selling, General and Administrative 5,053,494 3,517,815
------------- -----------
Total Expenses 8,012,863 6,157,834
------------- -----------
Income From Operations 5,774,491 4,960,169
------------- -----------
Other Charges (Credits)
- -----------------------
Interest Expense 2,626,362 2,643,154
Other 9,521 5,311
Interest Income (189,078) - 0 -
------------ -----------
Total 2,446,805 2,648,465
------------ -----------
Income From Operations Before Income Taxes 3,327,686 2,311,704
Provision for Income Taxes 1,264,000 924,604
------------- -----------
Income From Continuing Operations 2,063,686 1,387,100
Loss From Discontinued Operations
Net of Income Taxes - 0 - (1,150,356)
------------- -----------
NET INCOME $ 2,063,686 $ 236,744
RETAINED EARNINGS - BEGINNING 44,504,948 29,722,033
------------ ----------
RETAINED EARNINGS - ENDING $ 46,568,634 $29,958,777
============ ==========
EARNINGS (LOSS) PER COMMON SHARE
- --------------------------------
Basic:
Continuing Operations $ .31 $.23
Discontinued Operations - 0 - (.19)
----- ---
Net Income $ .31 $.04
==== ===
Diluted:
Continuing Operations $ .29 $.23
Discontinued Operations - 0 - (.19)
----- ---
Net Income $ .29 $.04
==== ===
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Six Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $16,195,898 $ 933,896
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation and Amortization 391,248 385,716
Decrease (Increase) In Assets:
Accounts Receivable (11,511,186) (20,726,205)
Inventories (27,030,967) (19,965,282)
Prepaid Purchases and Other Assets 15,811,542 (305,400)
Note Receivable ( 8,500,000) - 0 -
Increase (Decrease) In Liabilities:
Accounts Payable and Accrued Expenses (12,694,533) 5,133,504
Income Taxes Payable 7,072,391 -0-
----------- ----------
Net Cash Used In Operating Activities (20,265,607) (34,543,771)
---------- ----------
Cash Flows Used in Investing Activities
- ---------------------------------------
Acquisition of Property and Equipment (836,270) (556,577)
Disposition of Property and Equipment 676,750 - 0 -
---------- ----------
Net Cash Used in Investing Activities (159,520) (556,577)
---------- ----------
Cash Flows From Financing Activities
- ------------------------------------
Net Increase in Amounts Due Bank 20,507,177 32,058,339
Borrowings 119,889 3,108,704
Repayment of Debt 472,367) (408,729)
Net Proceeds From Exercise of Options and Warrants 134,240 525,029
---------- ----------
Net Cash Provided By Financing Activities 20,288,939 35,283,343
---------- ----------
INCREASE (DECREASE) IN CASH (136,188) 182,995
CASH AT BEGINNING OF PERIOD 400,090 46,675
---------- ----------
CASH AT END OF PERIOD $ 263,902 $ 229,670
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $ 4,757,899 $ 4,840,400
Income Taxes $ 1,260,000 $ 1,747,304
</TABLE>
During the six months ended September 30, 1999 and 1998, the Company issued
notes for $119,889 and $3,108,704, respectively.
The accompanying notes are an integral part of these financial statements.
<PAGE>
ALLOU HEALTH & BEAUTY CARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying interim consolidated financial statements of Allou Health &
Beauty Care Inc. (the "Company") have been prepared in conformity with generally
accepted accounting principles consistent in all material respects with those
applied in the Annual Report on Form 10-K for the year ended March 31, 1999. The
interim financial information is unaudited, but reflects all normal adjustments
which are, in the opinion of management, necessary to provide a fair statement
of results for the interim periods presented. The interim financial statements
should be read in connection with the financial statements in the Company's
Annual Report on Form 10-K for the year March 31, 1999.
2. On April 23, 1999, the Company sold 69% of its interest in The Fragrance
Counter, Inc. for net proceeds of $11,296,584 in cash and $8,900,000 in notes,
bearing interest at 3/8% above the prime rate, $400,000 was due and paid in
July, 1999 and $8,500,000 is due in April, 2000 plus accrued interest. The
Company retains a 13% minority interest. As a result of the disposition, the
Company recognized a gain of $21,472,225 and has provided for $8,159,000 of
related taxes of which $3,230,000 has been deferred to fiscal 2001, when the
$8,500,000 note is due.
The consolidated statements of income for the six months and three months
period ended September 30, 1998 have been restated to segregate the net results
of continued and discontinued operations.
3. Earnings per share (EPS) for the current and prior period has been presented
in conformity with the provisions of SFAS 128. The following table is a
reconciliation of the weighted-average shares (denominator) used in the
computation of basic and diluted EPS for the statement of operation periods
presented herein.
SIX MONTHS ENDED
SEPTEMBER 30,
1999 1998
---- ----
Basic 6,641,731 5,834,482
Assumed exercise of stock options 692,181 476,692
--------- ---------
Diluted 7,333,912 6,311,174
========= =========
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---- ----
Basic 6,643,576 5,918,910
Assumed exercise of stock options 455,338 145,043
--------- ---------
Diluted 7,098,914 6,063,953
========= =========
Net income as presented in the consolidated statement of operations is
used as the numerator in the EPS calculation for both the basic and diluted
computations.
<PAGE>
ITEM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
A. RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues for the six months ended September 30, 1999 were
$179,158,877, representing a 13.2% increase over revenues of
$158,301,989 for the six months ended September 30, 1998.
This increase in revenues was attributable to an increase in sales
volume for the segments of the Company's business described below, an
expanded customer base and an increase in same store sales, which have
together caused an increase in the volume of products sold.
Contributions to this increase in revenues by product segment was as
follows:
Sales of health and beauty aids increased 8.3% when compared to sales
in the same period of the previous year. Sales of prestige designer
fragrances were relatively unchanged when compared to the same period
in the prior year. Sales of nationally advertised non-perishable
branded food products increased 44.6% when compared to sales in the
same period of the prior year due to this segment of our business
being categorized by our ability to purchase off-price non-perishable
branded foods from the manufacturers. During the quarter that ended
September 30, 1999, the Company was able to take advantage of an
increased level of promotional goods offered to the Company by
manufacturers which the Company then sold to its customers thus
resulting in increased sales. Sales of pharmaceutical products
increased 39.7% when compared to the same period of the prior year.
This was a result of new products introduced by the pharmaceutical
manufacturers and an expanded customer base which has resulted in an
increase in the volume of products sold.
Gross profit as a percentage of revenues was relatively unchanged for
the six months ended September 30, 1999 when compared to the same
period of the previous year.
Warehouse, delivery, selling, general and administrative expenses
increased as a percentage of sales to 8.2% for the six months ended
September 30, 1999, from 7.5% when compared to the same period of the
prior year. This increase in operating expenses is due to increased
expenses associated with the Company's wholly-owned subsidiaries,
Allou Personal Care Corp., a manufacturer of hair and skin products,
and increased expenses relating to the acquisition of Direct
Fragrances, Inc.
Inventories increased by approximately $27.0 million or 22% at
September 30, 1999 when compared to the fiscal year ended March 31,
1999. This increase in inventory was attributable to merchandise
purchased in anticipation of increased sales.
Interest expense for the six months ended September 30, 1999 decreased
10.5% when compared to the six months ended September 30, 1998. This
decrease was a result of borrowings at a lower rate.
Net income for the six months ended September 30, 1999 was
$16,195,898, which includes a one time gain of $12,796,461 (net of
taxes) was realized from the sale of a majority interest in the
Company's e-commerce subsidiary, The Fragrance Counter, Inc. Net
income from operations for the three months ended September 30, 1999,
was $3,399,437 representing a 264% increase over net income of
$933,896 for the comparable period in 1998. This increase in net
income is due primarily to the reasons discussed above.
<PAGE>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
Revenues for the three months ended September 30, 1999 were
$101,011,666, representing a 13.5% increase over revenues of
$88,985,409 for the three months ended September 30, 1998.
This increase in revenues was attributable to an increase in sales
volume for the segments of the Company's business described below, an
expanded customer base and an increase in same store sales, which has
together caused an increase in the volume of products sold.
Contributions to this increase in revenues by product segment was as
follows:
Sales of health and beauty aides increased 6.5% when compared to sales
in the same period of the previous year. Sales of prestige designer
fragrances was relatively unchanged when compared to sales in the same
period of the prior year. Sales of nationally advertised
non-perishable branded food products increased 19% when compared to
sales in the same period of the prior year due to this segment of our
business being categorized by our ability to purchase off-price
non-perishable branded foods from the manufacturers. During the
quarter that ended September 30, 1999, the Company was able to take
advantage of an increased level of promotional goods offered to the
Company by manufacturers which the Company then sold to its customers
thus resulting in increased sales. Sales of pharmaceutical products
increased 39.7% when compared to the same period of the prior year,
This was a result of new products introduced by pharmaceutical,
manufacturers and an expanded customer base which has resulted in an
increase in the volume of products sold.
Gross profit as a percentage of sales increased to 13.6% for the three
months ended September 30, 1999 from 12.5% when compared to the three
months ended September 30, 1998. This increase was principally
attributable to higher profit margins associated with the Company's
fragrance products.
Warehouse, delivery, selling, general and administrative expenses
increased as a percentage of sales to 7.9% for the three months ended
September 30, 1999 from 6.9% when compared to the same periods of the
prior year. This increase in operating expenses is due to increased
expenses associated with the Company's wholly owned subsidiaries Allou
Personal Care, Corp., a manufacturer of hair and skin care products
and increased expenses relating to the acquisition of Direct
Fragrances, Inc.
Interest expenses for the three months ended September 30, 1999
decreased to 2.4% from 3.0% when compared to the same period of the
prior year. This decrease was a result of borrowings at a lower rate.
Net income for the three months ended September 30, 1999 was
$2,063,686, representing a 771.7% increase over net income of $236,744
for the comparable period in 1998. The increase in net income was due
primarily to the reasons discussed above.
B. LIQUIDITY AND CAPITAL RESOURCES.
The Company meets its working capital requirements from internally
generated funds and from a financing agreement with a consortium of
banks led by the First National Bank of Boston for financing the
Company's accounts receivable and inventory. As of September 30, 1999,
the Company had $143,878,405 outstanding under its $145 million bank
line of credit. The loan was collateralized by the Company's inventory
and accounts receivable. Interest on the loan balance is payable
-2-
<PAGE>
monthly at 3/8% above the prime rate or 2.0% above the Eurodollar rate
at the option of the Company. The effective interest rate charged to
the Company at September 30, 1999 was 7.51%, which was based on a
combination of 2.0% above the Eurodollar rate and 3/8% above the prime
rate. The Company utilizes cash generated from operations to reduce
short-term borrowings, which in turn acts to increase loan
availability consistent with the Company's financing agreement. On
November 12, 1999, the Company's Revolving Credit Agreement was
amended to increase the maximum availability from $145,000,000 to
$163,500,000 and was amended to add Fleet Business Credit, American
National Bank & Trust Company of Chicago and Webster Bank as
additional lenders. Interest on the loan balance of this new facility
is payable monthly at 1/4% above the prime rate and 2.0% above the
Eurodollar rate at the Company's option.
-3-
<PAGE>
The Company's accounts receivable decreased to $61,673,636 at
September 30, 1999 from $64,844,116 at September 30, 1998,
representing a decrease of 4.9%. This decrease in accounts receivable
was due to customers which had previously paid the Company in an
average of 64 days at September 30, 1998 but have now paid the Company
in an average of 55 days at September 30, 1999.
The Company has minimal capital investment requirements and any
significant capital expenditures are financed through long term lease
agreements that would not adversely impact cash flow. The Company
believes, its internally generated funds and its current and future
bank line of credit will be sufficient to meet its anticipated cash
and capital needs through the fiscal year ending March 31, 2001.
INFLATION AND SEASONALITY
Inflation has not had any significant adverse effects on the Company's
business and the Company does not believe it will have any significant
effect on its future business. The Company's fragrance business is
seasonal, with greater sales during the Christmas season than in other
seasons. The Company's other product lines are not seasonal.
YEAR 2000
The Company does not expect that the cost to modify or replace
software that it uses, so that such software will properly recognize
dates beyond December 31, 1999 ("Year 2000 Compliance"), will be
material. The Company has initiated formal communications with its
significant vendors and customers to determine the extent that Year
2000 Compliance issues of such parties may affect the Company's
systems, without a material adverse effect on the Company's business,
financial condition or results of operations. To the extent that
responses to such communications with the Company's vendors are
unsatisfactory, the Company expects to take steps to ensure that its
vendors' products have demonstrated Year 2000 Compliance.
-4-
<PAGE>
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.
/s/ Herman Jacobs
----------------------------------------
Herman Jacobs
President and Chief Operating Officer
/s/ David Shamilzadeh
----------------------------------------
David Shamilzadeh
Chief Financial Officer
Dated: November __, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000846538
<NAME> Allou Health & Beauty Care, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1999
<PERIOD-END> SEP-30-1999
<CASH> 263,902
<SECURITIES> 0
<RECEIVABLES> 64,369,079
<ALLOWANCES> 2,695,443
<INVENTORY> 149,948,878
<CURRENT-ASSETS> 240,582,461
<PP&E> 8,245,025
<DEPRECIATION> 4,534,665
<TOTAL-ASSETS> 250,770,076
<CURRENT-LIABILITIES> 173,490,416
<BONDS> 0
<COMMON> 6,643
0
0
<OTHER-SE> 76,659,539
<TOTAL-LIABILITY-AND-EQUITY> 250,770,076
<SALES> 179,158,877
<TOTAL-REVENUES> 179,158,877
<CGS> 154,530,392
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,328,935
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,817,113
<INCOME-PRETAX> 5,482,437
<INCOME-TAX> 2,083,000
<INCOME-CONTINUING> 3,399,437
<DISCONTINUED> 12,796,461
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,195,878
<EPS-BASIC> 2.43
<EPS-DILUTED> 2.20
</TABLE>
