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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 November 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-21884
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REXALL SUNDOWN, INC.
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(Exact Name of Registrant as Specified in its Charter)
FLORIDA 59-1688986
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
851 Broken Sound Parkway, NW, Boca Raton, Florida 33487
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (561) 241-9400
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Indicate by check mark whether Registrant has (1) filed all reports 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 Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. X Yes No
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As of January 10, 1997, the number of shares outstanding of the Registrant's
Common Stock was 33,207,611.
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REXALL SUNDOWN, INC.
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
November 30, 1996 and August 31, 1996 ......................................... 3
Consolidated Statements of Operations
Three Months Ended November 30, 1996 and 1995 .................................. 4
Consolidated Statements of Cash Flows
Three Months Ended November 30, 1996 and 1995 .................................. 5
Notes to Consolidated Financial Statements ..................................... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ............................... 8
PART II. OTHER INFORMATION .............................................................. 10
SIGNATURES .............................................................................. 11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REXALL SUNDOWN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
November 30, August 31,
1996 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 77,084 $ 13,450
Restricted cash 92 278
Marketable securities 2,000 7,988
Trade accounts receivable, net 15,998 11,410
Inventory 27,683 28,179
Prepaid expenses and other current assets 5,769 5,018
Net current assets of discontinued operations 3,927 3,855
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Total current assets 132,553 70,178
Property, plant and equipment, net 25,020 24,078
Other assets 9,013 8,839
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Total assets $ 166,586 $ 103,095
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,087 $ 5,599
Accrued expenses and other current liabilities 13,600 10,100
Current portion of long-term debt 352 346
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Total current liabilities 19,039 16,045
Long-term debt 27 105
Other liabilities 232 253
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Total liabilities 19,298 16,403
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Shareholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000
shares, no shares outstanding - -
Common stock, $.01 par value; authorized 100,000,000 shares,
shares issued: 32,764,521 and 30,660,128, respectively 328 307
Capital in excess of par value 106,991 53,563
Retained earnings 40,185 32,943
Cumulative translation adjustment (216) (121)
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Total shareholders' equity 147,288 86,692
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Total liabilities and shareholders' equity $ 166,586 $ 103,095
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See accompanying notes
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REXALL SUNDOWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
November 30,
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1996 1995
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Net sales $ 56,070 $ 40,679
Cost of sales 20,679 16,383
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Gross profit 35,391 24,296
Selling, general and administrative expenses 24,455 18,756
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Operating income 10,936 5,540
Other income (expense):
Interest income 569 94
Other income - 10
Interest expense (9) (5)
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Income before income tax provision 11,496 5,639
Income tax provision 4,254 2,083
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Net income $ 7,242 $ 3,556
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Income per common share $ 0.22 $ 0.12
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Weighted average common shares outstanding 32,422,107 30,025,115
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See accompanying notes
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REXALL SUNDOWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
November 30,
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1996 1995
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Cash flows provided by (used in) operating activities:
Net income $ 7,242 $ 3,556
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 754 610
Amortization 482 40
Gain on sale of property and equipment - (10)
Deferred income taxes 44 1,802
Foreign exchange translation adjustment (95) (16)
Changes in assets and liabilities:
Trade accounts receivable (4,588) (3,000)
Inventory 496 1,040
Prepaid expenses and other current assets (751) (2,282)
Other assets (656) 1,770
Accounts payable (512) (815)
Accrued expenses and other current liabilities 4,436 2,190
Other liabilities (21) 100
Discontinued operations - non cash charges
and changes in assets and liabilities (72) 1,679
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Net cash provided by operating activities 6,759 6,664
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Cash flows provided by (used in) investing activities:
Acquisition of property, plant and equipment (1,712) (736)
Proceeds from sale of marketable securities 5,988 -
Proceeds from sale of fixed assets 16 13
Other 186 -
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Net cash provided by (used in) investing activities 4,478 (723)
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Cash flows provided by (used in) financing activities:
Net proceeds from offering 51,870 -
Principal payments on long-term debt (72) (81)
Exercise of options to purchase common stock 599 2,612
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Net cash provided by financing activities 52,397 2,531
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Net increase in cash and cash equivalents 63,634 8,472
Cash and cash equivalents at beginning of period 13,450 1,154
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Cash and cash equivalents at end of period $ 77,084 $ 9,626
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See accompanying notes
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REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
1. BASIS OF PRESENTATION AND OTHER MATTERS
The accompanying unaudited consolidated financial statements, which
are for interim periods, 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 Rexall
Sundown, Inc. (the "Company") Annual Report on Form 10-K for the year
ended August 31, 1996, as filed with the Securities and Exchange
Commission. The August 31, 1996 balance sheet was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
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 of the
financial statements. The results of operations for the interim periods
are not necessarily indicative of the results to be expected for the full
year.
Certain prior period amounts have been reclassified to conform with
the fiscal 1997 presentation.
2. NET INCOME PER COMMON SHARE
Net income per common share is calculated by dividing net income by
weighted average shares outstanding, giving effect to common stock
equivalents (common stock options).
3. INVENTORY
The components of inventory as of November 30, 1996 and August 31, 1996
are as follows:
NOVEMBER 30, 1996 AUGUST 31, 1996
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(Audited)
Raw materials $13,782 $11,609
Work in process 794 1,732
Finished products 13,107 14,838
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$27,683 $28,179
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4. SALES TO A MAJOR CUSTOMER
The Company had sales to a national retailer which represented
approximately 13% and 3% of net sales for the three months ended November
30, 1996 and 1995, respectively. Trade accounts receivable from this
customer amounted to approximately $2,083 and $615 at November 30, 1996
and August 31, 1996, respectively.
5. CONTINGENCIES
The Company believes that it is not presently a party to any
litigation the outcome of which would have a material adverse effect on
the Company.
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REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands)
(Unaudited)
6. SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
The Company realized a tax benefit related to the exercise of stock
options of $981 and $980 for the three months ended November 30, 1996 and
1995, respectively.
7. COMMON STOCK TRANSACTIONS
On November 5, 1996, the Company consummated a public offering of
4,000,000 shares of common stock. Of those shares, 2,000,000 were sold by
the Company and 2,000,000 were sold by certain shareholders of the
Company. On December 3, 1996, the underwriters' over-allotment option to
purchase an additional 600,000 shares was exercised. Of those 600,000
shares, 400,000 were sold by the Company and 200,000 were sold by a
shareholder of the Company. The Company intends to use the net proceeds
of approximately $62.3 million (of which $51.9 million is reflected in
this quarter) primarily to acquire complementary products, product lines
or businesses, to provide working capital and for general corporate
purposes.
8. EVENTS SUBSEQUENT TO FISCAL YEAR END
In December 1996, the Company entered into a new line of credit with
a financial institution with a borrowing amount of $20 million, subject to
annual extensions. Borrowings under the line of credit bear interest at
LIBOR plus 1.5 percent. The line of credit is collateralized by accounts
receivable and inventory and is subject to compliance with certain
financial covenants and ratios.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Rexall Sundown, Inc. (the "Company") develops, manufactures, markets and
sells vitamins, nutritional supplements and consumer health products. The
Company distributes its products using three channels of distribution: sales to
retailers; direct sales through independent distributors; and mail order.
On November 5, 1996, the Company consummated a public offering (the
"Offering") of 4,000,000 shares of Common Stock. Of those shares, 2,000,000
were sold by the Company and 2,000,000 were sold by certain shareholders of the
Company. On December 3, 1996, the underwriters' over-allotment option to
purchase an additional 600,000 shares was exercised. Of those 600,000 shares,
400,000 were sold by the Company and 200,000 were sold by a shareholder of the
Company. The Company intends to use the net proceeds of approximately $62.3
million (of which $51.9 million is reflected in this quarter) primarily to
acquire complementary products, product lines or businesses, to provide working
capital and for general corporate purposes.
RESULTS OF CONTINUING OPERATIONS
Three Months Ended November 30, 1996 Compared to Three Months Ended November
30, 1995
Net sales for the three months ended November 30, 1996 were $56.1 million,
an increase of $15.4 million or 37.8% over the comparable period in fiscal
1996. Of the $15.4 million increase, sales to retailers accounted for $10.6
million, an increase of 55.3% over the comparable period in fiscal 1996. The
gain in sales to retailers was attributable to the benefit from re-orders from
new customers added in the second half of fiscal 1996 as well as an increase in
the Company's base business. Net sales of the Company's direct sales
subsidiary, Rexall Showcase International, Inc. ("Rexall Showcase"), increased
by $4.9 million, an increase of 27.8% over the comparable period in fiscal
1996. The increase in direct sales was partially due to the commencement of
Rexall Showcase's operations in Mexico in February 1996 and South Korea in
April 1996. Net sales of the Company's mail order division, SDV, decreased by
$100,000 or 2.5% over the comparable period in fiscal 1996. The increase in
net sales to retailers and for Rexall Showcase was primarily due to increased
unit sales.
Gross profit for the three months ended November 30, 1996 was $35.4
million, an increase of $11.1 million or 45.7% over the comparable period in
fiscal 1996. As a percentage of net sales, gross profit increased from 59.7%
for the three months ended November 30, 1995 to 63.1% for the three months
ended November 30, 1996. The increase in gross margin was due, in part, to
improved margins as a result of manufacturing efficiencies achieved from higher
volume at the Company's vitamin manufacturing facility as well as a favorable
product mix.
Selling, general and administrative expenses for the three months ended
November 30, 1996 were $24.5 million, an increase of $5.7 million or 30.4% over
the comparable period in fiscal 1996. As a percentage of net sales, such
expenses decreased from 46.1% for the three months ended November 30, 1995 to
43.6% for the comparable period in fiscal 1997, primarily as a result of
increased net sales and the relatively fixed nature of such expenses except for
the commission expense of Rexall Showcase, which is variable and comprises the
majority of Rexall Showcase's selling, general and administrative expenses.
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Interest income for the three months ended November 30, 1996 was $569,000,
as compared to $94,000 for the comparable period in fiscal 1996. Such increase
was primarily a result of investment of the Company's available cash balances,
which were higher in the first quarter of fiscal 1997 than the comparable
period in fiscal 1996 primarily due to the investment of the net proceeds of
$51.8 million received in November 1996 from the Offering.
Income before income tax provision was $11.5 million for the three months
ended November 30, 1996, an increase of $5.9 million or 103.9% over the
comparable period in fiscal 1996. As a percentage of net sales, income before
income tax provision increased from 13.9% for the three months ended November
30, 1995 to 20.5% for the comparable period in fiscal 1997. Net income was $7.2
million for the current fiscal quarter, an increase of $3.7 million or 103.7%
from the prior year's comparable quarter due to the reasons described above.
SEASONALITY
The Company believes that its business is not subject to significant
seasonality based on historical trends, with the exception of Rexall Showcase,
which typically experiences lower revenues in the second and fourth fiscal
quarters due to winter and summer holiday seasons, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $113.5 million as of November 30, 1996,
compared to $54.1 million as of August 31, 1996. This increase was principally
the result of increased cash and cash equivalents from the Offering.
Net cash provided by operating activities for the three months ended
November 30, 1996 was $6.8 million compared to $6.7 million for the comparable
period in fiscal 1996. Net cash provided by investing activities was $4.5
million for the three months ended November 30, 1996 compared to net cash used
in investing activities of $723,000 for the comparable period in fiscal 1996.
Net cash provided by investing activities increased primarily due to the sale
of marketable securities in the three months ended November 30, 1996. Net cash
provided by financing activities was $52.4 million for the three months ended
November 30, 1996 compared to $2.5 million for the comparable period in fiscal
1996 reflecting $51.9 million of net proceeds received from the Offering in the
fiscal 1997 quarter.
The Company believes that its existing cash balances, internally generated
funds from operations and its available bank line of credit will provide the
liquidity necessary to satisfy the Company's working capital needs, including
the purchase and maintenance of inventory and the financing of the Company's
accounts receivable, as well as to finance anticipated capital expenditures.
INFLATION
Inflation has not had a significant impact on the Company in the past
three years nor is it expected to have a significant impact in the foreseeable
future.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Business Loan Agreement dated December 13,
1996 between the Company and Barnett Bank, N.A.
11 Earnings Per Share Computation
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K:
None
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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.
REXALL SUNDOWN, INC.
Date: January 13, 1997 By: /s/ Carl DeSantis
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Carl DeSantis, Chairman of the Board and
Chief Executive Officer
Date: January 13, 1997 By: /s/ Geary Cotton
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Geary Cotton, Vice President-Finance,
Chief Financial Officer, Treasurer and
Chief Accounting Officer
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EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
EXHIBIT NUMBER DESCRIPTION PAGE
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10.1 Business Loan Agreement dated
December 13, 1996 between the
Company and Barnett Bank, N.A.
11 Earnings Per Share Computation
27 Financial Data Schedule
(for SEC use only).
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