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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended October 31, 2000
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 13(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ________________________ TO _____________________
COMMISSION FILE NUMBER 0-23624
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IVC INDUSTRIES, INC.
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(exact name of Registrant as specified in its charter)
DELAWARE 22-1567481
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(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
500 HALLS MILL ROAD, FREEHOLD, NEW JERSEY 07728
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (732) 308-3000
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NOT APPLICABLE
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(former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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 |_|
Registrant had 2,091,092 shares of common stock outstanding as of November 30,
2000.
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<PAGE>
IVC INDUSTRIES, INC.
Table of Contents
Part I. Financial Information Page No.
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Item 1. Financial Statements
Consolidated Balance Sheets as at
October 31, 2000 and July 31, 2000 ........................... 3
Consolidated Statements of Income
For the Three Months Ended October 31, 2000 and 1999 ......... 4
Consolidated Statements of Cash Flows
For the Three Months Ended October 31, 2000 and 1999 ......... 5
Notes to Consolidated Financial Statements ................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 9
Item 3. Quantitative and Qualitative Disclosure about
Market Risk .................................................. 12
Part II. Other Information, Reports on Form 8-K and Exhibits .......... 13
Signature Page ........................................................ 15
<PAGE>
Item 1. Financial Statements.
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except as Noted or Per Share Information)
<TABLE>
<CAPTION>
October 31, July 31,
ASSETS 2000 2000
----------- --------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,430 $ 648
Accounts receivable, net 5,023 6,330
Inventories 23,953 27,133
Deferred taxes 1,751 1,751
Prepaid expenses 308 252
Refundable income taxes 1,123 1,123
Other current assets 242 120
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Total current assets 33,830 37,357
Property, plant and equipment, net 19,909 20,578
Due from related parties 501 493
Deferred taxes 1,768 1,163
Other assets 951 657
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Total assets $ 56,959 $ 60,248
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,255 $ 2,365
Current portion of capital lease payable 243 230
Current portion of deferred gain on building sale 114 112
Accounts payable 9,043 10,039
Accrued expenses 3,894 5,351
Income taxes payable 42 91
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Total current liabilities 15,591 18,188
Long-term debt - less current portion 23,150 22,653
Capital lease obligations 2,838 2,907
Deferred gain on building sale 863 893
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Total liabilities 42,442 44,641
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Shareholders' equity:
Preferred stock, $.01 par, 250,000 shares authorized, none issued -- --
Common stock, $.08 par value, 4,500,000 shares authorized;
issued and outstanding, 2,091,092 as of October 31, 2000 and
2,088,092 as of July 31, 2000, respectively 167 167
Additional paid-in capital 11,576 11,553
Foreign currency translation adjustment (301) (263)
Retained earnings 3,075 4,150
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Total shareholders' equity 14,517 15,607
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Total liabilities and shareholders' equity $ 56,959 $ 60,248
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</TABLE>
3
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IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except as Noted or Per Share Information)
(unaudited)
Three Months Ended
October 31,
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2000 1999
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Net sales $ 15,828 $ 21,412
Cost of sales 12,124 16,354
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Gross profit 3,704 5,058
Selling, general and administrative expenses 4,548 6,394
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Income (loss) from operations (844) (1,336)
Recovery, price fixing settlement -- 10,000
Other expenses, net 748 345
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Income (loss) before income taxes (1,592) 8,319
Income tax expense (benefit) (517) 3,343
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Net income (loss) $ (1,075) $ 4,976
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Net income (loss) per share - basic $ (.51) $ 2.38
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Net income (loss) per share - diluted $ (.51) $ 2.38
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Weighted average shares - basic 2,090,081 2,088,092
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Weighted average shares - diluted 2,090,081 2,089,851
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4
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands, Except as Noted or Per Share Information)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
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2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,075) $ 4,976
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Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 698 583
Deferred income tax provision (benefit) (605) 848
Stock and options issued to non-employee directors 23 49
(Gain) on sale of assets (20) --
Changes in assets - (increase) decrease:
Accounts receivable 1,307 236
Inventories 3,180 (5,349)
Prepaid expenses and other current assets (178) 2,206
Other assets (320) (242)
Changes in liabilities - increase (decrease):
Accounts payable and accrued expenses (2,453) (1,451)
Income taxes payable (49) --
Other
-- 2,700
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Total adjustments 1,583 (420)
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Net cash provided by operating activities 508 4,556
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (19) (476)
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Net cash used in investing activities (19) (476)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long term debt (18,538) (8,364)
Proceeds from long term debt 18,925 5,154
Principal payments of capital lease obligations (56) (70)
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Net cash provided by (used in) financing activities 331 (3,280)
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Foreign currency translation adjustment (38) 43
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NET INCREASE IN CASH 782 843
CASH AND CASH EQUIVALENTS - BEGINNING 648 287
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CASH AND CASH EQUIVALENTS - ENDING $ 1,430 $ 1,130
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 751 $ 354
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Taxes $ 151 $ --
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</TABLE>
5
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IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
(unaudited)
Note 1 - Basis of Presentation and Other Matters:
The accompanying interim period unaudited consolidated financial
statements do not include all disclosures provided in the annual consolidated
financial statements. These unaudited consolidated financial statements should
be read in conjunction with the consolidated financial statements and the
footnotes thereto contained in the IVC Industries, Inc. (the "Company") Annual
Report on Form 10-K for the year ended July 31, 2000, as filed with the
Securities and Exchange Commission.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results to be expected for
the full year.
Certain amounts have been reclassified to conform with the current period
presentation.
Note 2 - Inventories:
Inventories consist of the following:
October 31, July 31,
2000 2000
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(unaudited)
Finished goods $ 6,775 $ 7,579
Bulk and work in process 10,211 11,864
Raw materials and packaging components 6,967 7,690
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Total inventories $23,953 $27,133
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6
<PAGE>
Note 3 - Long-Term Debt:
On October 16, 2000 the Company entered into a new credit agreement with
Congress Financial Corporation, a subsidiary of First Union Corporation, to
replace a previously existing credit agreement. The agreement matures on October
16, 2003. The Company can borrow up to $25,000 under a revolving credit
commitment and $5,500 under a term loan commitment, subject to borrowing base
limitations, as defined. Borrowings under the revolving credit commitment bear
interest at either .75% above First Union's "prime rate" or at the Company's
option, a rate of 2.75% above the adjusted Eurodollar rate used by the bank. The
interest rate on the term loan is .25% higher than the revolving loan rates
outlined above. The notes are collateralized by substantially all of the
Company's assets.
The agreement requires the Company to maintain minimum tangible net worth
and contains various restrictions customary in such financial arrangements,
including limitations on the payment of cash dividends.
Note 4 - Net Income (loss) Per Share:
Basic earnings (loss) per share is computed by dividing income available
to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding during the period increased to include the number
of additional common shares that would have been outstanding if the dilutive
potential common shares had been issued.
7
<PAGE>
Note 5 - Comprehensive Income:
As of August 1, 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting and
displaying of comprehensive income. The following table presents the Company's
comprehensive income (loss) for the three months ended October 31, 2000 and
1999.
Three Months Ended
October 31,
2000 1999
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Net income (loss) $(1,075) $ 4,976
Other comprehensive income (loss) , net of tax:
Foreign currency translation adjustment (38) 43
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Comprehensive income (loss) $(1,113) $ 5,019
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Note 6 - Recovery, price fixing settlement:
During the year ended July 31, 2000 the Company entered into price-fixing
settlements with three suppliers. The settlement agreements included cash
payments to the Company of $16,305. Of this amount, $10,000 was included in the
statement of income during the quarter ended October 31, 1999 and $6,305 was
included in the statement of income during the quarter ended April 30, 2000.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Three Months Ended October 31, 2000 Compared to the Three Months Ended October
31, 1999.
Results of operations. (Dollars in Thousands, except As Noted or Per Share
Information)
Net loss for the quarter ended October 31, 2000 was $1,075, equivalent to a
basic and diluted loss of $.51 per share versus net income of $4,976, equivalent
to basic and diluted earnings of $2.38 per share, for the quarter ended October
31, 1999. The results for the prior year's quarter include an after-tax gain of
$6,000 or $2.87 per share from a price-fixing settlement with a supplier.
Excluding this one-time gain, the Company would have incurred a loss of $1,024,
or a $.49 loss per basic and diluted share.
Net sales for the quarter ended October 31, 2000 were $15,828 as compared to
$21,412 in the prior year, a decrease of $5,584 or 26.1%. This reduction was
primarily attributable to a decrease in private label and branded sales to
existing customers due to the softness in the overall market for vitamins, herbs
and supplements, and increased price and product competition.
Cost of sales for the quarter ended October 31, 2000 was $12,124, a decrease of
$4,230 or 25.9% from $16,354 for the quarter ended October 31, 1999. Cost of
sales increased .2% as a percentage of net sales over the prior year's period,
primarily attributable to higher overhead costs.
Selling, general and administrative expenses for the quarter ended October 31,
2000 were $4,548, a decrease of $1,186 or 28.9% as compared to the prior year's
quarter. The decrease is the result of lower salary costs due to cuts in staff,
and lower promotional, commission and distribution costs due to reduced sales
levels.
Other expenses-net for the quarter ended October 31, 2000 were $748,
representing interest expense of $690, write-off of deferred financing costs of
$65 due to the refinancing, and offset by other miscellaneous income. Other
expenses-net for the three months ended October 31, 1999 were $345. This
principally represents interest expense of $427, which was offset by other
miscellaneous income.
9
<PAGE>
Liquidity and Capital Resources
Net cash provided by operating activities for the quarter ended October 31, 2000
was primarily the result of decreased accounts receivable of $1,307, decreased
inventory of $3,180, and depreciation of $698. Offsetting the increases in cash
were a net loss of $1,075, an increase in deferred taxes of $605, a decrease in
accounts payable and accrued expenses of $2,453 and an increase in prepaid and
other assets of $498.
Cash used in investing activities for the quarter ended October 31, 2000 was $19
for the purchase of equipment.
Cash provided from financing activities for the quarter ended October 31, 2000
was $331 which was the result of higher borrowings.
On October 16, 2000 the Company entered into a new credit agreement with
Congress Financial Corporation, a subsidiary of First Union Corporation, to
replace a previously existing credit agreement. The agreement matures on October
16, 2003. The Company can borrow up to $25,000 under a revolving credit
commitment and $5,500 under a term loan commitment, subject to borrowing base
limitations, as defined. Borrowings under the revolving credit commitment bear
interest at either .75% above First Union's "prime rate" or at the Company's
option, a rate of 2.75% above the adjusted Eurodollar rate used by the bank. The
interest rate on the term loan is .25% higher than the revolving loan rates
outlined above. The notes are collateralized by substantially all of the
Company's assets.
The agreement requires the Company to maintain minimum tangible net worth and
contains various restrictions customary in such financial arrangements,
including limitations on the payment of cash dividends.
The Company believes that its existing cash balance, internally generated funds
from operations and available financing will provide the liquidity required to
satisfy the Company's working capital needs and anticipated capital expenditures
for the next twelve months.
10
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Forward Looking Statements
This report, including Management's Discussion and Analysis, contains
certain "forward-looking statements", within the meaning of Section 27A of the
Securities Act of 1933, which represent the Company's expectations or beliefs,
including, but not limited to, statements concerning industry performance, the
Company's operations, performance, financial condition, growth and acquisition
strategies, margins and growth in sales of the Company's products. For this
purpose, any statements contained in this Report that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may", "will", "expect",
"believe", "anticipate", "intend", "could", "estimate" or "continue" or the
negative or other variations thereof or comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, certain of which are beyond the Company's
control, and actual results may differ materially depending on a variety of
important factors, including beneficial or adverse trends in the domestic market
for vitamins and nutritional supplements, the gain or loss of significant
customers for the Company's products, the competitive environment in the vitamin
and nutritional supplement industry, and the enactment or promulgation of new
government legislation or regulation, as well as other risks and uncertainties
that may be detailed from time to time in the Company's reports filed with the
Securities and Exchange Commission.
11
<PAGE>
Item 3 Quantitative and Qualitative Disclosure about Market Risk
The Company's principal financial instrument is long-term notes payable
under a secured revolving credit agreement. The Company is affected by market
risk exposure primarily through the effect of changes in interest rates on
amounts payable by the Company under this credit agreement. Changes in these
factors cause fluctuations in the Company's net income and cash flows. The
Company does not utilize derivative financial instruments to hedge against
changes in interest rates or for any other purpose.
12
<PAGE>
Part II. Other Information
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Description of
Number Exhibit
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11 Computation of earnings per share
27 Financial Data Schedule
(b) No reports on Form 8-K were filed for the three months ended October
31, 2000.
13
<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.
Dated: By: /s/ E. Joseph Edell
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Chairman and
Chief Executive Officer
Dated: By: /s/ Thomas E. Bocchino
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Vice President and
Chief Financial Officer
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