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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, 1999
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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 ________
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
- ------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6111 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
---------------
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 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
--- ---
As of January 12, 2000, the number of shares outstanding of the Registrant's
Common Stock was 64,216,122.
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REXALL SUNDOWN, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
November 30, 1999 and August 31, 1999....................... 3
Consolidated Statements of Operations for the
Three Months Ended November 30, 1999 and 1998............... 4
Consolidated Statements of Cash Flows for the
Three Months Ended November 30, 1999 and 1998............... 5
Consolidated Statement of Shareholders' Equity and
Comprehensive Income for the Three Months Ended
November 30, 1999........................................... 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations............ 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk........................................... 15
Part II. Other Information........................................... 16
Signatures............................................................. 17
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REXALL SUNDOWN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
(Unaudited)
November 30, August 31,
1999 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 18,568 $ 2,124
Trade accounts receivable, net .............................. 64,563 71,332
Inventory ................................................... 113,668 114,861
Prepaid expenses and other current assets ................... 20,264 19,393
Net current assets of discontinued operations ............... 4,076 4,076
-------- --------
Total current assets ............................... 221,139 211,786
Property, plant and equipment, net .......................... 68,769 69,274
Other assets ................................................ 15,376 14,291
-------- --------
Total assets ....................................... $305,284 $295,351
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 29,079 $ 24,381
Accrued expenses and other current liabilities .............. 32,954 24,280
Short-term debt ............................................. -- 15,000
-------- --------
Total current liabilities .......................... 62,033 63,661
Other liabilities ........................................... 568 722
-------- --------
Total liabilities .................................. 62,601 64,383
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares,
no shares outstanding ................................... -- --
Common stock, $.01 par value; authorized 200,000,000 shares,
shares issued and outstanding: 64,421,915 and
64,450,445, respectively ................................ 644 644
Capital in excess of par value .............................. 138,195 137,702
Retained earnings ........................................... 103,701 92,537
Accumulated other comprehensive income ...................... 143 85
-------- --------
Total shareholders' equity ......................... 242,683 230,968
-------- --------
Total liabilities and shareholders' equity ......... $305,284 $295,351
======== ========
See accompanying notes
-3-
REXALL SUNDOWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(Unaudited)
Three Months Ended
November 30,
----------------------------
1999 1998
---- ----
Net sales ...................................... $ 142,098 $ 122,064
Cost of sales .................................. 62,465 53,168
------------ ------------
Gross profit .......................... 79,633 68,896
Selling, general and administrative expenses ... 61,383 51,450
------------ ------------
Operating income .......................... 18,250 17,446
Other income (expense):
Interest income ........................... 118 1,287
Other income (expense) .................... 445 (7)
Interest expense .......................... (75) (9)
------------ ------------
Income before income tax provision ............. 18,738 18,717
Income tax provision ........................... 7,045 6,963
------------ ------------
Net income ..................................... $ 11,693 $ 11,754
============ ============
Net income per common share:
Basic ..................................... $ 0.18 $ 0.16
============ ============
Diluted ................................... $ 0.18 $ 0.16
============ ============
Weighted average common shares outstanding:
Basic ..................................... 64,434,033 71,321,264
============ ============
Diluted ................................... 65,122,815 72,591,169
============ ============
See accompanying notes
-4-
REXALL SUNDOWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three Months Ended
November 30,
----------------------------
1999 1998
---- ----
Cash flows provided by (used in) operating activities:
Net income ................................................... $ 11,693 $ 11,754
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation ................................................. 2,813 1,936
Amortization ................................................. 1,166 563
Loss on sale of property and equipment ....................... -- 9
Deferred income taxes ........................................ (144) (44)
Stock options issued to Rexall Showcase distributors ......... 460 465
Changes in assets and liabilities:
Trade accounts receivable .................................. 6,769 9,775
Inventory .................................................. 1,460 (7,956)
Prepaid expenses and other current assets .................. (960) (863)
Other assets ............................................... (1,626) (1,240)
Accounts payable ........................................... 4,577 (4,677)
Accrued expenses and other current liabilities ............. 8,576 5,563
Other liabilities .......................................... 19 (3)
-------- --------
Net cash provided by operating activities ........... 34,803 15,282
-------- --------
Cash flows provided by (used in) investing activities:
Acquisition of property, plant and equipment ................. (2,200) (5,340)
Acquisition of computer software ............................. (514) (1,514)
Purchase of marketable securities ............................ -- (7,871)
Proceeds from sale of marketable securities .................. -- 28,560
Proceeds from sale of fixed assets ........................... -- 36
-------- --------
Net cash (used in) provided by investing
activities ........................................ (2,714) 13,871
-------- --------
Cash flows provided by (used in) financing activities:
Purchase of common stock ..................................... (666) (51,662)
Net payments on line of credit ............................... (15,000) --
Exercise of options to purchase common stock ................. 141 56
-------- --------
Net cash (used in) provided by financing
activities ........................................ (15,525) (51,606)
-------- --------
Effect of exchange rate changes on cash and cash equivalents.. (120) 46
-------- --------
Net increase (decrease) in cash and cash equivalents ......... 16,444 (22,407)
Cash and cash equivalents at beginning of period ............. 2,124 87,349
-------- --------
Cash and cash equivalents at end of period .......... $ 18,568 $ 64,942
======== ========
See accompanying notes
-5-
REXALL SUNDOWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(Amounts in thousands, except share data)
(Unaudited)
Accumulated
Capital in Other
Number Common Excess of Retained Comprehensive Comprehensive
of Shares Stock Par Value Earnings Income Income
--------- ----- --------- -------- ------ ------
Balance at August 31, 1999................ 64,450,445 $644 $137,702 $ 92,537 $ 85
Net income............................. -- -- -- 11,693 -- $ 11,693
Exercise of stock options.............. 35,470 -- 141 -- -- --
Tax benefit from exercise of options... -- -- 29 -- -- --
Stock options issued to Rexall
Showcase distributors................ -- -- 460 -- -- --
Repurchase and retirement of common
stock................................ (64,000) -- (137) (529) -- --
Cumulative translation
adjustment........................... -- -- -- -- 58 58
---------- ---- -------- --------- ----- ---------
Balance at November 30, 1999.............. 64,421,915 $644 $138,195 $ 103,701 $ 143 $ 11,751
========== ==== ======== ========= ===== =========
See accompanying notes
-6-
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
(Unaudited)
1. Basis of Presentation and Other Matters
The accompanying unaudited interim consolidated financial
statements of Rexall Sundown, Inc. (the "Company") do not include all
disclosures provided in the annual consolidated financial statements of
the Company. These unaudited consolidated financial statements should
be read in conjunction with the consolidated financial statements and
the footnotes thereto contained in the Company's Annual Report on Form
10-K for the year ended August 31, 1999, as filed with the Securities
and Exchange Commission.
In the opinion of the Company, the accompanying unaudited
interim 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 amounts in the unaudited
consolidated financial statements for prior periods have been
reclassified to conform to the current period's basis of presentation.
2. Net Income Per Common Share
Basic net income per common share is calculated by dividing
net income by the weighted average number of common shares outstanding.
Diluted net income per common share is calculated by dividing net
income by the weighted average number of common shares and potentially
dilutive common shares outstanding during the period. The Company's
potentially dilutive common shares consist of common stock options. For
the three months ended November 30, 1999, options to purchase
approximately 4,793,000 shares of the Company's common stock, $.01 par
value (the "Common Stock"), were excluded from the diluted earnings per
share calculation, as the exercise prices of these options were greater
than the average market price of the Common Stock.
3. Comprehensive Income
For the first quarter of fiscal 2000 and 1999, the only
component of other comprehensive income that affected the Company was
the foreign currency translation adjustment. Total comprehensive income
for the quarters ended November 30, 1999 and 1998 was $11,751 and
$11,968, respectively.
4. Inventory
The components of inventory at November 30, 1999 and August
31, 1999 were as follows:
November 30, 1999 August 31, 1999
----------------- ---------------
Raw materials, bulk tablets
and capsules......................... $ 57,937 $ 61,842
Work in process......................... 5,274 4,938
Finished products....................... 50,457 48,081
-------- --------
$113,668 $114,861
======== ========
-7-
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Amounts in thousands, except share and per share data)
(Unaudited)
5. Short-Term Debt
In April 1999, the Company entered into a $50,000 line of
credit with a financial institution. During the first quarter of fiscal
2000, the Company repaid all amounts borrowed under this line of
credit, and accordingly, there were no amounts outstanding under this
line of credit at November 30, 1999. In connection with the acquisition
of MET-Rx Nutrition, Inc. ("MET-Rx") discussed in note 9, such $50,000
line of credit was replaced by a new $150,000 senior credit facility.
6. Sales to a Major Customer and Major Products
The Company had sales to a national retailer that represented
approximately 35% and 29% of net sales for the three months ended
November 30, 1999 and 1998, respectively. Additionally, the Company had
sales to an affiliate of such national retailer that represented
approximately 4% of net sales for each of the three months ended
November 30, 1999 and 1998.
For the three months ended November 30, 1999 and 1998, net
sales of the Osteo Bi-Flex(Registered) line of nutritional supplements
containing the two dietary ingredients, glucosamine and chondroitin,
which help promote cartilage regeneration and healthy joints, were
approximately 13% and 18% of the Company's net sales, respectively,
which includes sales to the national retailer discussed above. During
the latter part of the fourth quarter of fiscal 1999, the Company
introduced Metab-O-Lite, a diet and energy supplement. For the three
months ended November 30, 1999, net sales of Metab-O-Lite were
approximately 14% of the Company's net sales, which includes sales to
the national retailer discussed above. Additionally, during fiscal
1999, the Company introduced Cellasene(Trademark), a dietary supplement
formulated for women to help eliminate cellulite. As the ultimate
success of this product is dependent upon consumer acceptance, there
can be no assurance of the level of future revenues and operating
income generated by this product if consumer acceptance does not meet
the Company's expectations.
7. Contingencies
The Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The
Company is not currently engaged in any such legal proceedings that are
expected, individually or in the aggregate, to have a material adverse
effect on the Company.
-8-
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Amounts in thousands, except share and per share data)
(Unaudited)
7. Contingencies, continued
In fiscal 1999, several class action complaints alleging
violations of the Federal securities laws were filed against the
Company and certain of its officers and directors. These suits purport
to be on behalf of all persons who were damaged by the purchase of the
Company's Common Stock between March 19, 1998 and November 5, 1998.
These suits have been consolidated into one action styled In re Rexall
Sundown, Inc. Securities Litigation, Case No. 98-8798-CIV-Dimitrouleas,
in the United States District Court for the Southern District of
Florida. The Company and the named officers and directors believe that
the allegations contained in this action are without merit. Although
the Company and the named officers and directors will vigorously defend
against this action, there can be no assurance that they will
ultimately prevail in their defense. The Company and the named officers
and directors have filed a Motion to Dismiss all claims which remains
pending. All discovery has been stayed pending resolution of the Motion
to Dismiss by the Court.
8. Segment Reporting
The Company develops, manufactures, markets and sells
vitamins, nutritional supplements and consumer health products. The
Company distributes its products through three channels of
distribution: sales to retailers, direct sales through independent
distributors, and mail order. Each distribution channel is managed
separately and requires a unique marketing strategy directed at the
end-user. As a result, the Company's reportable segments are aligned
with these channels of distribution. The sales to retailers segment
markets and sells vitamins and nutritional supplements, using a
multi-brand strategy to access different retail channels, including
mass merchandisers, drug stores, supermarkets, club stores, dollar
stores and health food stores. Rexall Showcase International, Inc.
("Rexall Showcase"), through its independent distributors, markets and
sells unique health and wellness products, which include weight
management products, homeopathic remedies, personal care products,
dietary and sports nutrition supplements and water filtration systems.
The Company's mail order division markets and sells vitamins and
nutritional supplements directly to consumers through catalogs and
direct mailings. Intersegment sales, which are eliminated in
consolidation, were not significant. The table below presents financial
information related to the Company's reportable segments for the
quarters ended November 30, 1999 and 1998.
For the Three Months Ended November 30,
----------------------------------------
1999 1998
--------- ----------
Net sales
Sales to retailers................................. $ 98,006 $ 76,378
Direct sales....................................... 40,848 41,855
Mail order......................................... 3,244 3,831
--------- ----------
Total......................................... $ 142,098 $ 122,064
========= ==========
Operating income
Sales to retailers................................. $ 18,914 $ 11,323
Direct sales....................................... (1,046) 5,860
Mail order......................................... 382 263
--------- ----------
Total......................................... $ 18,250 $ 17,446
========= ==========
-9-
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Amounts in thousands, except share and per share data)
(Unaudited)
8. Segment Reporting, continued
Total assets by reportable segment at November 30, 1999 and
August 31, 1999 are as follows:
November 30, August 31,
1999 1999
------------- -----------
Total assets
Sales to retailers..................... $ 261,867 $ 249,714
Direct sales........................... 38,896 41,710
Mail order............................. 4,521 3,927
--------- ---------
Total............................. $ 305,284 $ 295,351
========= =========
The reconciliation of operating profit to consolidated income
before income tax provision is as follows:
1999 1998
-------- -------
Operating income............................ $18,250 $17,446
Interest income (1)......................... 118 1,287
Interest expense (1)........................ (75) (9)
Other income (expense)...................... 445 (7)
------- -------
Income before income tax provision..... $18,738 $18,717
======= =======
(1) Corporate interest income and interest expense are not included at
the segment level as significant financing decisions are
centralized at the corporate level.
9. Subsequent Events
On January 7, 2000, the Company completed its previously announced
purchase of privately-held MET-Rx, a leader in the sports nutrition and bar
categories, for total consideration of approximately $108,000, exclusive of
transaction fees. The acquisition of MET-Rx will be accounted for as a purchase
and was financed, in part, by a new $150,000 unsecured senior credit facility.
The senior credit facility, which is guaranteed by the Company's domestic
subsidiaries and is subject to compliance with certain financial covenants and
ratios, is comprised of a $125,000 three-year revolving credit facility and a
$25,000 364 day facility. The credit facility currently bears interest at LIBOR
plus 1.125%.
-10-
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 Consolidated Financial Statements and the notes thereto contained in
this Quarterly Report.
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. The sales to retailers
segment markets and sells vitamins and nutritional supplements using a
multi-brand strategy to access different retail channels including mass
merchandisers, drug stores, supermarkets, club stores and health food stores.
Rexall Showcase, the Company's direct sales subsidiary, through its independent
distributors, markets and sells unique health and wellness products, which
include weight management products, homeopathic remedies, personal care
products, dietary and sports nutrition supplements and water filtration systems.
The Company's mail order division markets and sells vitamins and nutritional
supplements directly to consumers through catalogs and direct mailings.
The Company sells products to customers throughout the world. The sales
to retailers and mail order divisions of the Company operate predominantly
within the United States, while Rexall Showcase has operations in the United
States, Japan, Hong Kong, Taiwan, South Korea and Mexico. Rexall Showcase
intends to continue expanding operations to other selected countries in the
future. Net sales and operating income could be adversely affected by
fluctuations in foreign currencies and the weakening of foreign economies.
Revenue from the sale of the Company's products is recognized at the
time products are shipped. Net sales are net of all estimated discounts,
allowances, returns and credits. Initial costs associated with acquiring sales
agreements with certain retail customers are amortized over the expected term of
the relevant agreement and the amortization of such costs is recorded as a
reduction in net sales. Cost of goods sold includes the cost of raw materials
and all labor and overhead associated with the manufacturing and packaging of
the products. The majority of the Company's products are in tablet, softgel or
two-piece capsule forms.
Gross margins are impacted by changes in the relative sales mix among
the Company's channels of distribution. In particular, gross margins are
positively impacted if sales of the Company's direct sales subsidiary, Rexall
Showcase, increase as a percentage of net sales because such products command a
higher gross margin. In a related manner, selling, general and administrative
expenses as a percentage of net sales are typically higher if sales of Rexall
Showcase increase as a percentage of net sales because of the commissions paid
to Rexall Showcase's independent distributors. Conversely, if Rexall Showcase's
sales as a percentage of net sales decrease, gross margins will be negatively
impacted and selling, general and administrative expenses will decrease as a
percentage of net sales. Historically, operating margins from sales to retailers
and mail order have been higher than operating margins from the Rexall Showcase
division. For fiscal 2000, the Company expects that Rexall Showcase's net sales
as a percentage of total net sales will be less than that achieved in fiscal
1999.
-11-
MET-Rx Acquisition
On January 7, 2000, the Company completed its previously announced
purchase of privately-held MET-Rx Nutrition, Inc. ("MET-Rx"), a leader in the
sports nutrition and bar categories, for total consideration of approximately
$108 million, exclusive of transaction fees. The acquisition of MET-Rx will be
accounted for as a purchase and was financed, in part, by a new $150 million
unsecured senior credit facility. The senior credit facility, which is
guaranteed by the Company's domestic subsidiaries and is subject to compliance
with certain financial covenants and ratios, is comprised of a $125 million
three-year revolving credit facility and a $25 million 364 day facility. The
credit facility currently bears interest at LIBOR plus 1.125%.
Results of Continuing Operations
The following table sets forth, for the periods indicated, certain
financial data as a percentage of net sales:
Three Months Ended November 30,
1999 1998
---- ----
Net sales........................................ 100.0% 100.0%
Cost of sales.................................... 44.0 43.6
------ ------
Gross profit............................... 56.0 56.4
Selling, general and administrative expenses..... 43.2 42.1
------ ------
Operating income........................... 12.8 14.3
Other income, net................................ 0.4 1.0
------- -------
Income before income tax provision......... 13.2 15.3
Income tax provision....................... 5.0 5.7
------- -------
Net income................................. 8.2% 9.6%
======= =======
Three Months Ended November 30, 1999 Compared to
Three Months Ended November 30, 1998
------------------------------------------------
Net sales for the three months ended November 30, 1999 were $142.1
million, an increase of $20.0 million or 16.4% over the comparable period in
fiscal 1999. Net sales to retailers were $98.0 million, a $21.6 million increase
or 28.3% over the first quarter of fiscal 1999. The increase in sales to
retailers was primarily attributable to the approximately $20.1 million in net
sales of Metab-O-Lite, a diet and energy supplement which the Company introduced
late in the fourth quarter of fiscal 1999. Additionally, net sales increased as
a result of expanded distribution to the Company's existing retail customers.
Net sales of Rexall Showcase for the three months ended November 30, 1999
decreased $1.0 million or 2.4% as compared to the first quarter of fiscal 1999,
which resulted primarily from a decline in the U.S. business, partially offset
by an increase in international net sales principally due to operations in Japan
and Taiwan, which commenced in May 1999 and November 1998, respectively. The
Company believes that the decline in Rexall Showcase's U.S. business in the
first quarter of fiscal 2000 was primarily due to an overall softening in the
domestic direct selling industry, which has impacted the recruitment of new
distributors for Rexall Showcase. Net sales of the Company's mail order segment,
decreased by $0.6 million to $3.2 million or a 15.3% decline over the comparable
period in fiscal 1999.
-12-
Gross profit for the three months ended November 30, 1999 was $79.6
million, an increase of $10.7 million or 15.6% over the comparable period in
fiscal 1999. As a percentage of net sales, gross profit decreased from 56.4% for
the three months ended November 30, 1998 to 56.0% for the three months ended
November 30, 1999. The percentage decrease in gross profit was primarily due to
net sales to retailers constituting a higher percentage of the Company's total
net sales (69.0% of total Company net sales for the first quarter of fiscal 2000
compared to 62.6% for the first quarter of fiscal 1999). As noted above, Rexall
Showcase products have a higher gross margin than products sold to retailers
and, as such, the Company's gross margins decline as Rexall Showcase's net sales
decrease as a percentage of total net sales. This decrease, however, was
partially offset by lower product royalty expenses in the first quarter of
fiscal 2000 as compared to the first quarter of fiscal 1999.
SG&A expenses for the three months ended November 30, 1999 were $61.4
million, an increase of $9.9 million or 19.3% over the comparable period in
fiscal 1999. As a percentage of net sales, SG&A increased from 42.1% for the
three months ended November 30, 1998 to 43.2% for the three months ended
November 30, 1999. This increase was partially the result of increased
advertising expenses, as the Company continued its strategy to support its
nationally branded products. For the first quarter of fiscal 2000, the Company
spent approximately $6.3 million in consumer advertising as compared to $1.9
million for the first quarter of fiscal 1999. Also contributing to the increase
in SG&A expenses were $5.2 million of costs incurred by Rexall Showcase as a
result of the commencement of operations in Japan and Taiwan and the continued
development of its international infrastructure. However, as a percentage of
total Company net sales, these increases in SG&A were partially offset by
product mix, as Rexall Showcase sales comprised a smaller percentage of net
sales for the three months ended November 30, 1999 as compared to the 1998
period.
Other income, net (which is comprised of interest income, interest
expense and other income/expense), decreased from $1.3 million in the first
quarter of fiscal 1999 to $0.5 million in the first quarter of fiscal 2000. The
decrease was primarily due to a reduction in interest income, which is derived
from the investment of the Company's available cash balances, which were lower
in the first quarter of fiscal 2000 as compared to the first quarter of fiscal
1999 primarily due to the implementation of the Company's share repurchase
programs. Since September 29, 1998, the inception of the Company's share
repurchase programs, through November 30, 1999, the Company has repurchased and
retired 8,283,200 shares of the Company's Common Stock for a total cost of
$125.5 million. Partially offsetting the decrease in interest income, other
income increased approximately $0.4 million primarily as a result of foreign
currency transaction gains recorded during the first quarter of fiscal 2000.
Income before income tax provision was $18.7 million for the three
months ended November 30, 1999, which was unchanged from the $18.7 million
recorded in the same period in fiscal 1999. As a percentage of net sales, income
before income tax provision decreased from 15.3% for the three months ended
November 30, 1998 to 13.2% for the three months ended November 30, 1999. Net
income was $11.7 million for the first quarter of fiscal 2000, a decrease of
$0.1 million or less than 1% from the prior year's comparable quarter. As a
percentage of net sales, the decrease in income before income tax provision and
net income was primarily due to the reasons discussed 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.
-13-
Liquidity and Capital Resources
The Company had working capital of $159.1 million at November 30, 1999,
compared to $148.1 million at August 31, 1999. This increase was primarily due
to an increase in cash and cash equivalents and a reduction in short-term debt,
partially offset by a reduction in accounts receivable, and increases in
accounts payable and accrued expenses and other current liabilities.
Net cash provided by operating activities for the three months ended
November 30, 1999 was $34.8 million compared to $15.3 million for the comparable
period in fiscal 1999. The increase in cash provided by operating activities was
primarily due to an increase in income before depreciation and amortization
expenses, as well as an increase in cash provided by working capital. With
regard to investing activities, the Company used $2.7 million for property,
plant and equipment and computer software capital expenditures during the first
quarter of fiscal 2000, primarily relating to the retrofit of the Company's
manufacturing facility as well as additions to Rexall Showcase's global
information infrastructure. Net cash used in financing activities was $15.5
million for the three months ended November 30, 1999, primarily due to the $15.0
million repayment of borrowings on a line of credit.
The Company believes that its existing cash balances, internally
generated funds from operations and the Company's new credit facility will
provide the liquidity necessary to satisfy the Company's working capital needs,
including the purchase and maintenance of inventory, the financing of the
Company's accounts receivable and anticipated capital expenditures, as well as
any future repurchase of shares under the Company's share repurchase program or
acquisitions.
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.
Year 2000 Issues
Prior to January 1, 2000, the Company identified the scope of any Year
2000 problems with regard to internal computer based systems, prepared test
scripts in order to determine whether these systems were Year 2000 compliant and
implemented the test scripts by conducting appropriate testing in order to
confirm actual compliance. The Company also identified and completed testing the
applicable internal non-computer systems, which could have been affected by Year
2000. As a result of these tests and preparation, and the passage of time into
the year 2000 through the date of this report, the Company has not experienced
any business disruption or other problems in relation to the Year 2000 issue.
Although the Company believes that both its computer and non-computer-based
systems are Year 2000 compliant, the Company will continue to monitor its
internal computer and non-computer-based systems, as all potential Year 2000
problems may have yet to be experienced.
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Forward-Looking Statements
This report may contain certain "forward-looking statements" as such
term is defined in the Private Securities Litigation Reform Act of 1995 or by
the Securities and Exchange Commission in its rules, regulations and releases,
which represent the Company's expectations or beliefs, including, but not
limited to, statements concerning industry performance, the Company's
operations, economic 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 uncertainty related to acquisitions, government
regulation, managing and maintaining growth, the effect of adverse publicity,
litigation, reliance on independent distributors of Rexall Showcase, the
centralized location of the Company's manufacturing operations, availability of
raw materials, risks associated with international operations, competition,
product liability claims, volatility of stock price and those factors described
in the Company's filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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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.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
Form 8-K filed on December 16, 1999
Form 8-K filed on January 14, 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.
REXALL SUNDOWN, INC.
Date: January 14,1999 By: /s/ Damon DeSantis
-------------------------------------
Damon DeSantis, President and Chief
Executive Officer
Date: January 14, 1999 By: /s/ Geary Cotton
--------------------------------------
Geary Cotton, Chief Financial Officer,
Treasurer and Chief Accounting Officer
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