EX-99.2 4 d450398dex992.htm UNAUDITED FINANCIAL STATEMENTS OF AVID HEALTH, INC Unaudited Financial Statements of Avid Health, Inc

EXHIBIT 99.2

AVID HEALTH, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

     September 30,
2012
     December 31,
2011
 
ASSETS   

CURRENT ASSETS

     

Cash

   $ 1,621       $ 927   

Accounts receivable, net

     25,566         28,939   

Inventory

     32,125         22,667   

Prepaid expenses and deposits

     1,942         1,100   

Net deferred tax assets

     —           1,954   
  

 

 

    

 

 

 

Total current assets

     61,254         55,587   
  

 

 

    

 

 

 

PROPERTY, PLANT, AND EQUIPMENT

     

Machinery and equipment

     26,580         24,952   

Leasehold improvements

     12,281         11,849   

Furniture and office equipment

     1,426         1,240   

Construction work in process

     1,888         279   
  

 

 

    

 

 

 
     42,175         38,320   

Less accumulated depreciation and amortization

     12,413         9,536   
  

 

 

    

 

 

 

Net property, plant, and equipment

     29,762         28,784   
  

 

 

    

 

 

 

OTHER ASSETS

     1,519         1,974   
  

 

 

    

 

 

 

Total assets

   $ 92,535       $ 86,345   
  

 

 

    

 

 

 

 

 

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AVID HEALTH, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

     September 30,
2012
     December 31,
2011
 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)   

CURRENT LIABILITIES

     

Book overdraft

   $ —         $ 5,173   

Line of credit

     —           5,066   

Trade accounts payable

     10,224         11,384   

Accrued expenses

     5,374         5,466   

Income taxes payable

     91         1,367   

Current portion of long-term debt

     6,000         6,000   

Current portion of related party long-term debt

     5,400         5,400   
  

 

 

    

 

 

 

Total current liabilities

     27,089         39,856   
  

 

 

    

 

 

 

LONG-TERM LIABILITIES

     

Long-term debt, net of current portion

     26,500         31,000   

Long-term debt, related party, net of current portion

     21,600         21,600   

Deferred tax liability

     —           6,336   
  

 

 

    

 

 

 

Total long-term liabilities

     48,100         58,936   
  

 

 

    

 

 

 

COMMITMENTS AND CONTINGENCIES

     

STOCKHOLDERS’ EQUITY (DEFICIT)

     

Common stock, $0.01 par value, authorized 7,100,000 shares

     

Class B common stock - authorized 5,600,000 shares, 5,525,520 shares issued and outstanding

     55         55   

Class C common stock - authorized 1,500,000 shares, 920,920 shares issued and outstanding

     9         9   

Stockholders’ equity (deficit)

     17,282         (12,511
  

 

 

    

 

 

 

Total stockholders’ equity (deficit)

     17,346         (12,447
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity (deficit)

   $ 92,535       $ 86,345   
  

 

 

    

 

 

 

 

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AVID HEALTH, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands)

 

     Period Ended September 30,  
     2012     2011  

NET SALES

   $ 184,100      $ 136,123   

COST OF GOODS SOLD

     114,191        83,996   
  

 

 

   

 

 

 

GROSS PROFIT

     69,909        52,127   

EXPENSES

    

Selling, general and administrative

     25,046        21,068   

Research and development

     1,166        813   
  

 

 

   

 

 

 

TOTAL EXPENSES

     26,212        21,881   

OPERATING INCOME

     43,697        30,246   
  

 

 

   

 

 

 

OTHER INCOME (EXPENSE)

    

Interest expense

     (1,847     (1,485

Interest income

     2        4   

Other

     (8     —     
  

 

 

   

 

 

 
     (1,853     (1,481
  

 

 

   

 

 

 

NET INCOME BEFORE INCOME TAXES

     41,844        28,765   

INCOME TAXES (BENEFIT)

     (4,259     10,106   
  

 

 

   

 

 

 

NET INCOME

   $ 46,103      $ 18,659   
  

 

 

   

 

 

 

 

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AVID HEALTH, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share amounts)

 

                   Additional            Total  
     Common Stock      Paid-in      Accumulated     Stockholders’  
     Shares      Amount      Capital      Equity (Deficit)     Equity (Deficit)  

Balance at January 1, 2011

     5,525,520       $ 55       $ —         $ (5,978   $ (5,923

Issuance of common stock

     920,920         9         —           (9     —     

Dividends paid

     —           —           —           (36,107     (36,107

Net income

     —           —           —           29,583        29,583   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at December 31, 2011

     6,446,440         64         —           (12,511     (12,447

Dividends paid

     —           —           —           (16,310     (16,310

Net income

     —           —           —           46,103        46,103   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at September 30, 2012

     6,446,440       $ 64       $ —         $ 17,282      $ 17,346   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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AVID HEALTH, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

     Period Ended September 30,  
     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 46,103      $ 18,659   

Adjustments to reconcile net income to net cash from operating activities

    

Depreciation and amortization

     3,129        1,851   

Non-cash interest expense related to amortization of loan costs

     491        440   

Loss on disposal of equipment

     8        —     

Deferred income taxes

     (4,382     —     

Change in assets and liabilities

    

Accounts receivable

     3,373        1,454   

Inventory

     (9,458     (2,028

Prepaid expenses and deposits

     (842     (364

Book overdraft

     (5,173     (3,003

Trade accounts payable

     (1,160     56   

Accrued expenses

     (92     778   

Income taxes payable

     (1,276     2,299   
  

 

 

   

 

 

 

Net cash from operating activities

     30,721        20,142   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Purchase of property, plant, and equipment

     (4,115     (11,848
  

 

 

   

 

 

 

Net cash from investing activities

     (4,115     (11,848
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Net activity on line of credit

     (5,066     —     

Payment of loan fees and transaction costs

     (36     —     

Payments on long-term debt

     (4,500     (7,314

Dividends paid

     (16,310     —     
  

 

 

   

 

 

 

Net cash from financing activities

     (25,912     (7,314
  

 

 

   

 

 

 

CHANGE IN CASH

     694        980   

CASH, beginning of year

     927        1,271   
  

 

 

   

 

 

 

CASH, end of period

   $ 1,621      $ 2,251   
  

 

 

   

 

 

 

 

 

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Note 1 – Nature of Operations

Avid Health, Inc. is a holding company incorporated under the laws of the State of Washington. Avid Health, Inc. conducts business in the nutritional supplement industry through four wholly-owned subsidiaries, Northwest Natural Products, Inc., Nutrition Now, Inc., Supplement Sciences, Inc., and International Supplement Sciences, Inc. and is headquartered in Vancouver, Washington (collectively, the Company). Northwest Natural Products, Inc. is a sales and distribution company primarily selling to distributors and large retail customers. Nutrition Now, Inc. is a sales and distribution company primarily selling to small and medium sized retail customers. Supplement Sciences, Inc. is a manufacturing company responsible for manufacturing all of the products sold by Northwest Natural Products, Inc. and International Supplement Sciences, Inc. is located in Canada and has limited activity.

The Company’s product line includes vitamins, herbal supplements, and special formulas. The Company manufactures and sells its products through distributors, brokers, and direct sales primarily in the United States with sales also occurring in Canada, Mexico, Europe, and Asia.

On October 1, 2012, 100% of the equity of the Company was acquired by Church & Dwight Co., Inc. for approximately $650 million. The Company was subsequently merged into Church & Dwight Co., Inc. All outstanding indebtedness of the Company was extinguished concurrent with the acquisition.

Note 2 – Summary of Significant Accounting Policies

Basis of presentation – The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. They do not include all information and footnotes necessary for a fair presentation of the Company’s financial position and the results of operations and cash flows in conformity with U.S. GAAP for complete financial statements. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes as of December 31, 2011, and for the year then ended. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the results of operations for the period presented have been included in the interim period.

Principles of consolidation – The accompanying interim consolidated financial statements include the accounts of Avid Health, Inc. and its wholly-owned subsidiaries, Northwest Natural Products, Inc., Nutrition Now, Inc., Supplement Sciences, Inc., and International Supplement Sciences, Inc. All significant intercompany balances and transactions have been eliminated.

Revenue recognition – The Company recognizes revenue upon shipping terms to the customer and the point at which risk of loss is transferred. Net sales represent product sales less actual and estimated returns, spoilage allowances, allowances for products deemed to be unsaleable by the customers, and slotting fees, rebates, and other expenditures. Estimates and allowances are based upon known claims and an estimate of additional returns when the amount of future returns can be reasonably estimated.

Customer concentration – Three customers account for approximately 67% and 71% of sales for the periods ended September 30, 2012 and 2011, respectively.

Accounts receivable – Allowances for doubtful accounts, payment term discounts, promotional discounts, product returns and other charges totaled $5,593 and $5,538 at September 30, 2012 and December 31, 2011, respectively.

Concentration of credit risk – The Company’s financial instruments that are exposed to concentration of credit risk consist primarily of cash and trade receivables. The Company maintains its cash in bank deposit accounts which, at times, exceed federally insured limits. The Company has not experienced any losses in such accounts. Credit is extended to customers generally without collateral requirements. Three customers account for approximately 66% and 77% of trade receivables as of September 30, 2012 and December 31, 2011, respectively.

 

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Property, plant, and equipment – Depreciation and amortization expense totaled $3,129 and $1,851 for the nine month period ended September 30, 2012 and 2011, respectively.

Advertising – The Company expenses advertising costs as incurred. Advertising expense was $9,096 and $6,071 for the nine month period ended September 30, 2012 and 2011, respectively.

Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the accounts receivable allowances, valuation of inventory, valuation of property, plant, and equipment, the fair value of stock-based compensation and valuation of deferred tax assets.

Income taxes – Effective January 1, 2012, the Company elected S Corporation status for federal income tax reporting purposes. Accordingly, for the period ended September 30, 2012, all federal income tax attributes are passed through to the Company’s shareholders.

Under provisions for converting from a C Corporation to a Subchapter S Corporation under the Internal Revenue Code, the Company is liable for tax imposed on built-in-gains on the assets and liabilities of the corporation on the day of election. Built-in gains are due to the difference between the fair market value and tax basis of assets and liabilities. Any assets disposed of subsequent to the ten-year recognition period following the day of election would not be subject to the built-in gains tax. The Company has not recorded any liability associated with this built-in gains tax exposure, as it does not believe that it will generate any recognized built-in gains from transactions within the ten-year recognition period.

Note 3 – Inventory

Inventory consists of the following:

 

     September 30,      December 31,  
     2012      2011  

Raw materials

   $ 22,899       $ 14,361   

Work in process

     838         1,903   

Finished goods

     8,388         6,403   
  

 

 

    

 

 

 

Total inventory

   $ 32,125       $ 22,667   
  

 

 

    

 

 

 

Note 4 – Income Taxes

The components of the provision (benefit) for income taxes are as follows for the period ended September 30, 2012:

 

Current

   $ 123   

Deferred

     (4,382
  

 

 

 
   $ (4,259
  

 

 

 

Effective January 1, 2012, the Company elected S corporation status. The Company’s provision (benefit) for income taxes differs from the statutory federal rate applied to income before income taxes primarily due to the Company converting from a C Corporation to a Subchapter S Corporation under the Internal Revenue Code.

Cash paid for income taxes was $1,475 and $7,750 in 2012 and 2011, respectively.

 

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Note 5 – Line of Credit

At September 30, 2012, the Company maintains a $25,000 revolving line of credit with financial institutions, maturing December 2016. Interest is payable monthly on the outstanding principal balance at the LIBOR or Federal Funds rate plus a margin dependent on the Company’s prior-quarter leverage ratio (2.25% at September 30, 2012). Additionally, a tiered fee is payable on unused commitments also based on the Company’s prior-quarter leverage ratio. This fee was 0.25% at September 30, 2012. The line is subject to certain restrictive covenants and secured by substantially all Company assets. There was no outstanding balance at September 30, 2012.

Note 6 – Long Term Debt

 

     September 30,      December 31,  
     2012      2011  

Term note

   $ 32,500       $ 37,000   

Subordinated term note

     27,000         27,000   
  

 

 

    

 

 

 
     59,500         64,000   

Less current portion

     11,400         11,400   
  

 

 

    

 

 

 
   $ 48,100       $ 52,600   
  

 

 

    

 

 

 

Term note – Payable to financial institutions with interest at the LIBOR floor rate plus a margin dependent on the Company’s prior-quarter leverage ratio (2.25% and 2.81% at September 30, 2012 and December 31, 2011, respectively). The loan is collateralized by substantially all Company assets and subject to certain restrictive covenants. The loan principal is payable in quarterly amounts of $1,500 beginning March 31, 2012. The Company has two interest rate cap agreements (initial notional amounts of $15,063 and $14,000) with a financial institution to cap rates at 5.00% and 6.00%, expiring December 2013 and September 2012. The cost of this agreement is included in other assets.

Subordinated term note – Payable to a stockholder resulting from a dividend payment with interest at 3.0%. This note is subject to certain restrictive covenants and additional provisions upon a significant change in ownership. Payments of $5,400, plus accrued interest, are due annually on December 31, 2012 through December 31, 2016.

Cash paid for interest was $710 and $1,044 in 2012 and 2011, respectively. Concurrent with the sale of the Company to Church & Dwight Co., Inc., on October 1, 2012, all outstanding indebtedness of the Company was extinguished.

Note 7 – Related Party Transactions

Debt – In December 2011, the Company entered into a $27,000 subordinated term note with a stockholder, maturing December 2016. Interest accrues on the outstanding principal balance at 3.00%. No cash was paid for interest in 2012. At September 30, 2012, the current portion totaled $5,400. Concurrent with the sale of the Company to Church & Dwight Co., Inc., on October 1, 2012, all outstanding indebtedness of the Company was extinguished.

Facility leases – The Company maintains 5-year and 10-year triple-net operating leases for approximately 418,000 square feet of office, warehouse, mezzanine, and yard space with options to renew from various real estate entities related by common ownership. The Company is not contractually exposed to losses of the related-party leasing entities if any such losses should occur.

Rent expense for these leases was $1,683 and $1,560 for the periods ended September 30, 2012 and 2011, respectively.

Note 8 – Concentrations, Commitments, and Contingencies

Product concentration – Two of the Company’s products accounted for approximately 39% and 45% of sales for each of the periods ended September 30, 2012 and 2011.

 

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Operating leases – The Company leases warehouse and office space in Vancouver, Washington and British Columbia, Canada under noncancellable operating leases. The original lease terms range from 3 to 5 years and expire in 2014 through 2015 with options to renew.

Rent expense for these operating leases was $323 and $310 for the periods ended September 30, 2012 and 2011, respectively.

Claims – In the ordinary course of business, the Company may be subject to potential claims related to labor, product, and other matters. Management believes there are no pending claims that may have a material adverse effect on the Company’s financial position or results of operations. Were such a claim to occur, the Company would record a contingent liability in the period in which the effect becomes reasonably estimable.

Commitments – In 2010, the Company purchased equipment from a company in Europe. To manage its foreign exchange risk, the Company entered into foreign currency forward contracts to hedge its anticipated foreign transactions. The Euro fixed price forward contracts began in January 2011 and expired in July 2011.

Note 9 – Stock Option Plan

As of September 30, 2012, the number of options exercisable is 273,750 with a weighted average exercise price of $0.37.

 

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