8-K/A 1 nbty-8ka.txt BODY OF FORM 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________ FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. JULY 25, 2003 ____________________ Date of Report (Date of Earliest Event Reported) Commission File Number 0-10666 NBTY, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 11-2228617 (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 90 Orville Drive Bohemia, New York 11716 (Address of Principal Executive Offices, Including Zip Code) (631) 567-9500 (Registrant's Telephone Number, Including Area Code) ____________________ NBTY, INC. and SUBSIDIARIES Table of Contents Page Number ----------- Item 7. Financial Statements and Exhibits 1 Unaudited Pro Forma Condensed Consolidated Balance Sheet Data as of March 31, 2003 4 Unaudited Pro Forma Condensed Consolidated Statements of Operations Data for the six months ended March 31, 2003 5 Unaudited Pro Forma Condensed Consolidated Statements of Operations Data for the year ended September 30, 2002 6 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7 SIGNATURES 15 EXHIBIT INDEX 99.1 Audited consolidated financial statements of Rexall Sundown, Inc. for the years ended December 31, 2002 and December 31, 2001 and the seven months ended December 31, 2000. 99.2 Unaudited consolidated financial statements of Rexall Sundown, Inc. for the six months ended June 30, 2003 and 2002. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS -------------------------------------------------------------------------- NBTY Inc., a Delaware corporation ("NBTY" or "the Company") original Form 8- K, dated August 5, 2003, was filed to announce the acquisition of Rexall Sundown, Inc. ("Rexall"). (a) Financial statements of business acquired The following consolidated financial statements of Rexall are included in the corresponding exhibits: Exhibit 99.1 Report of Independent Auditors Consolidated Balance Sheets as of December 31, 2002 and 2001 Consolidated Statements of Operations, Changes in Shareholder's Equity (Deficit) and Cash Flows for the years ended December 31, 2002 and 2001 and the seven months ended December 31, 2000 Notes to Consolidated Financial Statements Exhibit 99.2 Unaudited Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002 Unaudited Consolidated Statements of Operations, Changes in Shareholder's Equity and Cash Flows for the six months ended June 30, 2003 and 2002. Notes to Unaudited Consolidated Financial Statements (b) Pro forma financial information The following unaudited pro forma condensed consolidated financial information of NBTY and Rexall is submitted herewith: Unaudited Pro Forma Condensed Consolidated Balance Sheet Data as of March 31, 2003 Unaudited Pro Forma Condensed Consolidated Statements of Operations Data for the six months ended March 31, 2003 and the year ended September 30, 2002 Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 1 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES Effective July 25, 2003, NBTY, Inc. and Subsidiaries ("NBTY" or "the Company") acquired all of the issued and outstanding capital stock of Rexall Sundown, Inc. ("Rexall") from Numico USA, Inc., an indirect subsidiary of Royal Numico N.V., for $250 million plus transaction costs of approximately $18 million (subject to adjustment based upon finalization of working capital balances acquired at date of closing). The acquisition was financed by a new senior credit facility ("CGA") which provides for borrowings up to $275 million in term loans and $100 million in revolving credit. The following unaudited pro forma condensed consolidated financial statements give effect to NBTY's acquisition of Rexall. The pro forma adjustments are based on NBTY's preliminary estimates and appraisals of fair values of assets and liabilities acquired based on available information and certain assumptions as described in the notes to the unaudited pro forma condensed consolidated financial statements. NBTY's management believes that the pro forma assumptions are reasonable under the circumstances. The unaudited pro forma condensed consolidated balance sheet data as of March 31, 2003 has been prepared as if the acquisition of Rexall had been consummated as of that date. The unaudited pro forma condensed consolidated balance sheet data as of March 31, 2003 has been derived by combining the unaudited historical consolidated balance sheet of NBTY as of March 31, 2003 and the unaudited historical consolidated balance sheet of Rexall as of June 30, 2003. The unaudited pro forma condensed consolidated statements of operations data for the year ended September 30, 2002 and the six months ended March 31, 2003 give effect to the acquisition of Rexall as if it had occurred on October 1, 2001. The unaudited pro forma condensed consolidated statement of operations data for the year ended September 30, 2002 has been derived by combining the audited historical consolidated statement of operations of NBTY for the year ended September 30, 2002 with the audited historical consolidated statement of operations of Rexall (a subsidiary of the Dutch company, Royal Numico N.V.) for the year ended December 31, 2002. The unaudited pro forma condensed consolidated statement of operations data for the six months ended March 31, 2003 has been derived by combining the unaudited historical consolidated statement of operations of NBTY for the six months ended March 31, 2003 with the unaudited historical consolidated statement of operations of Rexall for the six months ended June 30, 2003. The acquisition of Rexall will be accounted for using the purchase method of accounting and, accordingly, the unaudited condensed consolidated pro forma financial information reflects the allocation of the purchase price to assets acquired and liabilities assumed and are based on a preliminary valuation of the assets and liabilities acquired at the date of acquisition. The unaudited pro forma condensed consolidated financial information is based on estimates and assumptions and includes intercompany charges paid to the parent company, Royal Numico N.V. These estimates and assumptions have been made solely for purposes of developing this pro forma information, which is presented for illustrative purposes only and is not necessarily indicative of the consolidated financial position or results of operations of future periods or the results that actually would have been realized had the entities been a single entity during these periods. The unaudited pro forma condensed consolidated financial information does not reflect future events that may occur after the acquisition has been completed. Although management believes that the preliminary fair values and allocation of the estimated purchase price are reasonable, final valuations and appraisals may differ significantly from the amounts reflected in the unaudited pro forma condensed consolidated financial information. The unaudited pro forma condensed consolidated financial statements do not reflect any incremental direct costs (other than estimated severance costs) or any adjustments for liabilities resulting from integration plans 2 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES that may be recorded in connection with the acquisition, or potential cost savings, which may result from the consolidation of certain operations of NBTY and Rexall. Assumptions underlying the pro forma adjustments are described in the accompanying notes and should be read in conjunction with the historical financial statement information of the Company's most recent filings on Form 10-K and Form 10-Q's and Rexall's historical financial statement information included in the exhibits contained in this Form 8-K/A. 3 NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DATA MARCH 31, 2003 (Dollars and shares in thousands)
NBTY Rexall ---------- --------- Pro Forma Assets (March 31, (June 30, Adjustments Pro Forma 2003) 2003) (Note 3) Consolidated ---------- --------- ----------- ------------- Current assets: Cash and cash equivalents $ 33,774 $ 6,261 $ (20,271) A1 $ 19,764 Investments in bonds, at fair value 8,012 8,012 Accounts receivable, net 46,649 43,989 90,638 Inventories, net 220,894 69,960 13,040 A2 303,894 Deferred income taxes 11,206 60,138 71,344 Due from affiliates 90,078 (90,078) A3 - Prepaid expenses and other current assets 35,285 12,164 (2,704) A4 44,745 -------- ----------- ----------- ---------- Total current assets 355,820 282,590 (100,013) 538,397 Property, plant and equipment, net 219,410 67,797 8,303 A5 295,510 Goodwill 163,911 22,822 27,749 A6 214,482 Intangible assets, net 46,000 41,551 47,549 A7 135,100 Other assets 6,634 6,200 4,691 A8 17,525 -------- ----------- ----------- ---------- Total assets $791,775 $ 420,960 $ (11,721) $1,201,014 ======== =========== =========== ========== Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term debt and capital lease obligations $ 20,665 $ 1,334,357 $(1,342,845) A9 $ 12,177 Accounts payable 72,856 13,753 86,609 Accrued expenses and other current liabilities 68,498 91,713 11,063 A10 171,274 Due to affiliates - 204,752 (204,752) A3 - -------- ----------- ----------- ---------- Total current liabilities 162,019 1,644,575 (1,536,534) 270,060 Long-term debt 154,700 - 262,823 A9 417,523 Deferred income taxes 16,612 28,460 45,072 Other liabilities 3,006 9,915 12,921 -------- ----------- ----------- ---------- Total liabilities 336,337 1,682,950 (1,273,711) 745,576 -------- ----------- ----------- ---------- Commitments and contingencies Stockholders' equity (deficit): Common stock, $.008 par; authorized 175,000 shares; issued and outstanding 66,263 shares at March 31, 2003 530 - - 530 Capital in excess of par 128,282 433,894 (433,894) A11 128,282 Retained earnings (Accumulated deficit) 324,102 (1,695,884) 1,695,884 A11 324,102 -------- ----------- ----------- ---------- 452,914 (1,261,990) 1,261,990 452,914 Accumulated other comprehensive income 2,524 - 2,524 -------- ----------- ----------- ---------- Total stockholders' equity (deficit) 455,438 (1,261,990) 1,261,990 455,438 -------- ----------- ----------- ---------- Total liabilities and stockholders' equity $791,775 $ 420,960 $ (11,721) $1,201,014 ======== =========== =========== ==========
See accompanying notes to unaudited pro forma condensed consolidated financial statements. 4 NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA SIX MONTHS ENDED MARCH 31, 2003 (Dollars and shares in thousands, except per share amounts)
NBTY Rexall ----------- ----------- (six months (six months ended ended Pro Forma March 31, June 30, Adjustments Pro Forma 2003) 2003) (Note 3) Consolidated ----------- ----------- ----------- ------------ Net sales $519,228 $ 203,583 $ 2,630 A12 $725,441 -------- --------- -------- -------- Costs and expenses: Cost of sales 231,359 149,745 (9,394) A13 371,710 Discontinued product charge 6,000 6,000 Catalog printing, postage and promotion 30,637 23,137 53,774 Selling, general and administrative 192,546 92,596 1,149 A14 286,291 -------- --------- -------- -------- 460,542 265,478 (8,245) 717,775 -------- --------- -------- -------- Income (loss) from operations 58,686 (61,895) 10,875 7,666 -------- --------- -------- -------- Other income (expense): Interest (7,820) (54,983) 50,223 A16 (12,580) Miscellaneous, net 3,513 (156) (165) A17 3,192 -------- --------- -------- -------- (4,307) (55,139) 50,058 (9,388) -------- --------- -------- -------- Income (loss) before income taxes 54,379 (117,034) 60,933 (1,722) Provision (benefit) for income taxes 18,145 (23,889) 5,141 A18 (603) -------- --------- -------- -------- Net income (loss) $ 36,234 $ (93,145) $ 55,792 $ (1,119) ======== ========= ======== ======== Net income (loss) per share: Basic $ 0.55 $ (0.02) Diluted $ 0.53 $ (0.02) Weighted average common shares outstanding: Basic 66,216 66,216 Diluted 68,205 66,216
See accompanying notes to unaudited pro forma condensed consolidated financial statements. 5 NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA YEAR ENDED SEPTEMBER 30, 2002 (Dollars and shares in thousands, except per share amounts)
NBTY Rexall ------------- ------------ (year ended (year ended Pro Forma September 30, December 31, Adjustments Pro Forma 2002) 2002) (Note 3) Consolidated ------------- ------------ ----------- ------------ Net sales $964,083 $ 455,128 $ (4,717) A12 $1,414,494 -------- --------- -------- ---------- Costs and expenses: Cost of sales 433,611 319,376 (20,005) A13 732,982 Catalog printing, postage and promotion 47,846 34,381 82,227 Selling, general and administrative 348,334 140,491 1,666 A14 490,491 Litigation recovery of raw material costs (21,354) (6,026) (27,380) Impairment of goodwill and other intangibles 59,040 (59,040) A15 - -------- --------- -------- ---------- 808,437 547,262 (77,379) 1,278,320 -------- --------- -------- ---------- Income (loss) from operations 155,646 (92,134) 72,662 136,174 -------- --------- -------- ---------- Other income (expense): Interest (18,499) (109,965) 102,918 A16 (25,546) Miscellaneous, net 1,560 992 (367) A17 2,185 -------- --------- -------- ---------- (16,939) (108,973) 102,551 (23,361) -------- --------- -------- ---------- Income (loss) before income taxes 138,707 (201,107) 175,213 112,813 Provision (benefit) for income taxes 42,916 (18,752) 15,321 A18 39,485 -------- --------- -------- ---------- Income (loss) before the cumulative effect of accounting change $ 95,791 $(182,355) $159,892 $ 73,328 ======== ========= ======== ========== Net income per share: Basic $ 1.45 $ 1.11 Diluted $ 1.41 $ 1.08 Weighted average common shares outstanding: Basic 65,952 65,952 Diluted 67,829 67,829
See accompanying notes to unaudited pro forma condensed consolidated financial statements. 6 NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands) 1. Basis of Unaudited Pro Forma Presentation On July 25, 2003, NBTY acquired for $250 million in cash (subject to adjustment based upon finalization of working capital balances acquired at date of closing) from Numico USA, Inc., an indirect subsidiary of Royal Numico N.V., all of the issued and outstanding capital stock of Rexall through the acquisition of certain partnership and limited liability company interests. The consideration payable by NBTY was determined by arms'-length negotiations between the parties. The acquisition was financed by a new senior credit facility which provides for borrowings up to $275 million in term loans and $100 million in revolving credit, provided to NBTY by a syndicated group of lenders led by JPMorgan Chase Bank and Fleet National Bank. The Company also incurred approximately $18 million of direct transaction costs for a total purchase price of approximately $268 million. The Company has retained essential Rexall employees consisting of product development, sales and service personnel. The transaction will complement NBTY's existing wholesale products and provide NBTY with an enhanced sales infrastructure and additional manufacturing capacity. Rexall's portfolio of nutritional supplement brands includes Rexall(R), Sundown(R), Osteo Bi-Flex(R), Carb Solutions(R), MET-Rx(R) and WORLDWIDE Sport Nutrition(R). The unaudited pro forma condensed consolidated financial information has been prepared to give effect to the acquisition, accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141 "Business Combinations" (SFAS No. 141). The purchase price allocation reflects management's best preliminary valuation and appraisals of the fair value of the assets acquired and liabilities assumed, which are subject to change. Upon completion of the evaluation of the fair value of the net assets acquired, actual results may differ materially from those presented herein. As a result of different fiscal year ends of NBTY and Rexall, financial information has been combined for different periods in the pro forma financial information. The unaudited pro forma condensed consolidated balance sheet data has been prepared to reflect the acquisition as if it had occurred on March 31, 2003. The unaudited pro forma condensed consolidated statements of operations data for the year ended September 30, 2002 and for the six months ended March 31, 2003 have been prepared to reflect the acquisition as if it had occurred on October 1, 2001. 2. Acquisition NBTY will account for the acquisition under the purchase method of accounting in accordance with SFAS No. 141. Under the purchase method of accounting, the total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. The preliminary fair values assigned to the tangible and intangible assets acquired and liabilities assumed are based on preliminary estimates and other information compiled by management, including a preliminary independent valuation, prepared by an independent valuation specialist which utilizes established valuation techniques appropriate for the industry. Upon completion of the valuation of the fair value of the net assets acquired, actual results may differ materially from those presented herein. The preliminary purchase price allocation is as follows: 7 NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands) Assets acquired: Accounts receivable, net $ 43,989 Inventories 83,000 Other current assets 9,460 Property, plant, and equipment 76,100 Deferred tax assets 60,138 Other assets 10,891 Goodwill 50,571 Intangibles 89,100 -------- Total assets acquired 423,249 ======== Liabilities assumed: Accrued liabilities 116,529 Deferred tax liabilities 28,460 Other liabilities 9,915 -------- Total liabilities assumed 154,904 ======== Net assets acquired $268,345 ========
3. Pro Forma Adjustments The unaudited pro forma adjustments reflect those matters that are a direct result of the transaction, which are factually supportable and, for the unaudited pro forma condensed consolidated statements of operations, are expected to have continuing impact. The unaudited pro forma adjustments are as follows: (A1) NBTY funded costs associated with the acquisition with the payment of cash and cash equivalents of $18,345. Such amount was offset by proceeds relating to refinancing the new CGA (as defined in (A9), below) of $4,335. Additionally, Rexall's cash of $6,261 was retained by the seller and has been eliminated. (A2) To reflect the preliminary fair value adjustment. (A3) Affiliate balances were not acquired and have been eliminated. (A4) The pro forma adjustment reflects the elimination of prepaid customer allowances of $3,999 to conform to NBTY's accounting policy of expensing such costs as incurred. The pro forma adjustment is net of the current portion of deferred financing costs directly associated with the debt assumed in connection with the acquisition $1,295. Total deferred financing costs were $7,500. See pro forma adjustment (A8) for non-current portion 8 NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands) (A5) The pro forma adjustment of $8,303 reflects the estimated fair value step up of property, plant and equipment. The estimated fair value of property, plant and equipment is as follows:
Fair Value Useful life (years) ---------- ------------------- Land $10,137 Building and improvements 32,605 5-39 years Machinery and equipment 22,232 3-10 years Leasehold improvements 1,765 5 years Furniture and fixtures 9,361 3-15 years ------- Total property, plant and equipment $76,100 =======
(A6) Goodwill represents the residual of purchase cost, including direct costs relating to the acquisition, over the preliminary fair values of net assets acquired. Preliminary goodwill in the Rexall acquisition approximated $50,571. The pro forma adjustment of $27,749 is net of Rexall's recorded goodwill of $22,822 which has been eliminated. (A7) The pro forma adjustment of $47,549 reflects the estimated fair value of identifiable intangible assets acquired of $89,100 offset by Rexall's recorded intangible (retailer relationships) of $41,551. The estimated fair value of identifiable intangible assets acquired is as follows:
Fair Value Useful life (years) ---------- ------------------- Brands $78,000 20 Private Label Relationships 11,500 20 Small Tablet Patent 5,000 19 Soft Gel Manufacturing Contract (5,400) 3 ------- Total intangible assets $89,100 =======
(A8) The pro forma adjustment of $4,691 reflects the non-current portion of deferred financing costs ($6,205) directly associated with the debt assumed in connection with the acquisition. Total deferred financing costs were $7,500. See pro forma adjustment (A4) for current portion. The pro forma adjustment is net of prepaid customer allowances of $1,514 included in other long term assets which has been eliminated to conform to NBTY's accounting policy of expensing such costs as incurred. (A9) In connection with the acquisition, the Company entered into a new Credit and Guarantee Agreement ("CGA") comprised of $375,000 Senior Secured Credit Facilities. The CGA consists of a $100,000 Revolving Credit Facility, a $50,000 Term Loan A and a $225,000 Term Loan B. The Company utilized term loans aggregating $275,000 to finance the purchase price. The current portion of this debt at March 31, 2003 totaled $12,177. The Company's existing balance of $20,665 was refinanced into the new CGA. Rexall's short- term debt of $1,334,357 was not assumed in the acquisition and has been eliminated. (A10) To record estimated severance costs in connection with the acquisition. 9 NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands) (A11) Rexall's stockholder's deficit balances have been eliminated. (A12) To eliminate amortization of customer allowances and to expense new contracts as incurred to conform to NBTY's accounting policy. The elimination of amortization of such costs were $3,887 and $7,222 for the six months ended March 31, 2003 and the year ended September 30, 2002, respectively. In addition, new contracts entered into and expensed as incurred were $1,257 and $11,939 for the six months ended March 31, 2003 and the year ended September 30, 2002, respectively. (A13) Cost of goods sold net pro forma adjustments:
Six months ended Year ended March 31, 2003 September 30, 2002 ---------------- ------------------ Trademark fees (a) $(9,029) $(19,278) Soft Gel Manufacturing Contract (b) (900) (1,800) Property, Plant and Equipment (c) 535 1,073 ------- -------- Total Net Adjustment $(9,394) $(20,005) ======= ========
a. Reflects the elimination of trademark fees expensed by Rexall associated with a license agreement entered into on December 31, 2001 with Numico under which Rexall sold and licensed back its trademarks. The agreement was for a 10 year term and granted Rexall the exclusive right to use the licensed marks for a fee of 12.3% of sales. Upon acquisition, this agreement was terminated and the trademarks and trade names were transferred to NBTY. b. Soft gel manufacturing contract entered into as a result of the acquisition and recorded at estimated fair value. See pro forma adjustment (A7). The contract ($5,400) has an estimated useful life of three years. c. Additional depreciation on the estimated fair value step up of property, plant and equipment. See pro forma adjustment (A5). Acquired property, plant and equipment ($76,100) has an estimated useful life ranging from three to thirty nine years.
Additional depreciation expense related to step up in fair value -------------------------------------- Six months ended Year ended March 31, 2003 September 30, 2002 ---------------- ------------------ Building and improvements $ 53 $ 107 Machinery and equipment 272 545 Leasehold improvements 19 38 Furniture and fixtures 191 383 ---- ------ Total $535 $1,073 ==== ======
10 NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands) (A14) Selling, general and administrative expense pro forma adjustment to reflect the amortization and depreciation on fair value adjustments on intangible assets and property, plant and equipment over their respective useful life as described in (A7) and (A5).
Six months ended Year ended March 31, 2003 September 30, 2002 ---------------- ------------------ Brands (a) $ 1,950 3,900 Private Label Relationships (b) 288 575 Small Tablet Patent (c) 131 263 Retailer Relationships (d) (1,579) (3,788) Property, Plant and Equipment (e) 359 716 ------- ------ Total Net Adjustment $ 1,149 $1,666 ======= ======
a. Brands acquired as a result of the acquisition and recorded at fair value. See pro forma adjustment (A7). The brands ($78,000) have an estimated useful life of twenty years. b. Private label relationships acquired as a result of the acquisition and recorded at fair value. See pro forma adjustment (A7). The private label relationships ($11,500) have an estimated useful life of twenty years. c. Small tablet patent acquired as a result of the acquisition and recorded at fair value. See pro forma adjustment (A7). The patent ($5,000) has an estimated useful life of nineteen years. d. Represents the elimination of amortization for retailer relationships originally recorded when Numico acquired Rexall. See pro forma adjustment (A7). These relationships had a net book value of $41,551 on June 30, 2003. e. Additional depreciation on the estimated fair value step up of property, plant and equipment. See pro forma adjustment (A5). Acquired property, plant and equipment ($76,100) has an estimated useful life ranging from three to thirty nine years.
Additional depreciation expense related to step up in fair value --------------------------------------- Six months ended Year ended March 31, 2003 September 30, 2002 ---------------- ------------------- Building and improvements $ 36 $ 71 Machinery and equipment 182 364 Leasehold improvements 13 25 Furniture and fixtures 128 256 ---- ---- Total $359 $716 ==== ====
11 NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands) (A15) Represents the elimination of impairment charges recorded by Rexall for the year ended December 31, 2002 for existing goodwill and intangible assets of $36,184 and $22,856, respectively. (A16) Other income (expense), net pro forma adjustments:
Six months ended Year ended March 31, 2003 September 30, 2002 ---------------- ------------------ Elimination of Rexall interest expense (a) $54,983 $109,965 NBTY interest expense (b) 414 3,449 Interest expense - New borrowings (c) (4,526) (9,201) Amortization of deferred financing costs (d) (648) (1,295) ------- -------- Total Net Adjustment $50,223 $102,918 ======= ========
a. Eliminate interest expense recorded by Rexall related to debt not assumed in the purchase transaction. b. Eliminate interest expense on NBTY's old debt that was replaced by the new debt in connection with the acquisition. c. Adjustment to increase interest expense to reflect interest on NBTY's new Credit and Guarantee Agreement ("CGA") entered into in connection with the acquisition assuming the new debt was entered into as of October 1, 2001. The new CGA is comprised of $375,000 Senior Secured Credit Facilities. The CGA consists of a $100,000 Revolving Credit Facility, a $50,000 Term Loan A and a $225,000 Term Loan B. The Company obtained a variable interest rate with the following terms: The revolving credit facility and term loans are scheduled to mature on the earlier of (i) fifth anniversary of the closing date for the Revolving Credit Facility and Term Loan A, and the sixth anniversary date for Term Loan B; or (ii) March 15, 2007 if the Company's 8-5/8% senior subordinated Notes due September 15, 2007 are still outstanding on such date. Interest rates charged on borrowings can vary depending on the interest rate option utilized. Options for the rate can either be the Alternate Base Rate or LIBOR plus applicable margin. The Company's average borrowing rate at March 31, 2003 was 3.6%. The effect of a 1/8 percentage point in the interest rate on pretax income is $323. d. Adjustment to increase interest expense to reflect amortization of deferred financing fees paid of $7,500 in connection with the new CGA. Deferred finance costs are amortized over the loan terms. (A17) Adjustment to interest income for $165 and $367 for the six months ended March 31, 2003 and the year ended September 30, 2002, respectively, to eliminate historical interest income that was earned on cash held by NBTY that was used to fund the acquisition. (A18) To record an income tax impact at NBTY's effective rate of 35.0%. 12 NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands) The following non-recurring expenses are included in Rexall's loss from operations for the periods indicated. These expenses have not been reflected in any pro forma adjustments.
Six months ended Year ended March 31, 2003 September 30, 2002 ---------------- ------------------ Product mark up (a) $ 6,675 $17,102 Metab-O-LITE (b) 20,000 - Ephedra (c) 9,000 - Low Carb Bar litigation settlement (d) 7,819 - Management Stock Purchase Plan ("MSPP") (e) 6,156 6,016 Management service fees (f) 1,377 2,754 Cellasene litigation settlement (g) - 12,000 ------- ------- Total $51,027 $37,872 ======= =======
Included in cost of sales: a. Included in Rexall's cost of sales is a mark up on purchases from affiliated companies. Included in selling, general and administrative expense: b. Rexall recorded a $27,000 charge, which was offset by $7,000 recoverable from Rexall's insurance carrier, related to alleged trademark infringement and false advertising claim arising out of the labeling of its Metab-O-LITE product. This charge was recorded based upon the terms of a litigation settlement agreement. c. One-time charge associated with Rexall's discontinued sales of its ephedra products. d. One-time charge in connection with a litigation settlement on Rexall's low carbohydrate bar product. e. Rexall recorded compensation expense in connection with the MSPP. This expense was $2,129 and $6,016 for the six months ended March 31, 2003 and year ended September 30, 2002, respectively. In March 2003, Numico amended the MSPP, to provide a special cash bonus of $4,027 to be paid to participants on the sooner of July 5, 2005 or change in control, whether or not the participant remain in the employ of Numico. The amount of the cash bonus was dependent upon the market value of the participant's Numico shares and is designed to reimburse the participant for individual tax exposures. f. Management service fees based upon the terms of the agreement between Rexall and Numico as defined. These fees were allocated by Numico based upon estimated costs plus a margin of 5%. g. Rexall recorded a $12,000 charge in relation to a legal settlement on its Cellasene product. The litigation settlement and potential exposure relating to Cellasene has been retained by Numico. 13 NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands) Forward Looking Statements This report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business. All of these forward-looking statements, which can be identified by the use of terminology such as "subject to," "believe," "expects," "may," "will," "should," "can," or "anticipates," or the negative thereof, or variations thereon, or comparable terminology, or by discussions of strategy which, although believed to be reasonable, are inherently uncertain. Factors which may materially affect such forward-looking statements include: (i) slow or negative growth in the nutritional supplement industry; (ii) interruption of business or negative impact on sales and earnings due to acts of war, terrorism, bio-terrorism, civil unrest or disruption of mail service; (iii) adverse publicity regarding the consumption of nutritional supplements; (iv) inability to retain customers of companies (or mailing lists) recently acquired; (v) increased competition; (vi) increased costs; (vii) loss or retirement of key members of management; (viii) increases in the cost of borrowings and unavailability of additional debt or equity capital; (ix) unavailability of, or inability to consummate, advantageous acquisitions in the future, including those that may be subject to bankruptcy approval or the inability of the Company to integrate acquisitions into the mainstream of its business; (x) changes in general worldwide economic and political conditions in the markets in which the Company may compete from time to time; (xi) the inability of the Company to gain and/or hold market share of its wholesale and retail customers; (xii) loss or reduction in ephedra sales; (xiii) unavailability of electricity in certain geographical areas; (xiv) exposure to and expense of defending and resolving, product liability claims and other litigation; (xv) the ability of the Company to successfully implement its business strategy; (xvi) the inability of the Company to manage its retail, wholesale, manufacturing and other operations efficiently; (xvii) consumer acceptance of the Company's products; (xviii) the inability of the Company to renew leases on its retail locations; (xix) inability of the Company's retail stores to attain or maintain profitability; (xx) the absence of clinical trials for many of the Company's products; (xxi) sales and earnings volatility and/or trends; (xxii) the effect on Company sales of the rapidly changing nature of the Internet and on-line commerce; (xxiii) fluctuations in foreign currencies, and more particularly the British Pound; (xxiv) import-export controls on sales to foreign countries; (xxv) the inability of the Company to secure favorable new sites for, and delays in opening, new retail locations; (xxvi) introduction of new federal, state, local or foreign legislation or regulation or adverse determinations by regulators, and more particularly the Food Supplements Directive and the Traditional Herbal Medicinal Products Directive in Europe; (xxvii) the mix of the Company's products and the profit margins thereon; (xxviii) the availability and pricing of raw materials; (xxix) risk factors discussed in the Company's filings with the U.S. Securities and Exchange Commission; and (xxx) other factors beyond the Company's control. Readers are cautioned not to place undue reliance on forward-looking statements. The Company cannot guarantee future results, trends, events, levels of activity, performance or achievements. The Company does not undertake and specifically declines any obligation to update, republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. 14 NBTY, INC. and SUBSIDIARIES & REXALL SUNDOWN, INC. and SUBSIDIARIES 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. NBTY, INC. (Registrant) Date: December 15, 2003 By: /s/ Scott Rudolph ----------------- ----------------- Scott Rudolph Chairman and Chief Executive Officer (Principal Executive Officer) Date: December 15, 2003 By: /s/ Harvey Kamil ----------------- ---------------- Harvey Kamil President and Chief Financial Officer (Principal Financial and Accounting Officer) 15