-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MrQ2gYs05gTsmOR4yNHi/5aBeon7MrwRITLOPkzzw9/ozTqA3c+MxUkh0Ojuxo2+ evb3nd1djAXX5fhAJkMSkw== 0000910647-98-000141.txt : 19980507 0000910647-98-000141.hdr.sgml : 19980507 ACCESSION NUMBER: 0000910647-98-000141 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980506 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NBTY INC CENTRAL INDEX KEY: 0000070793 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 112228617 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10666 FILM NUMBER: 98611113 BUSINESS ADDRESS: STREET 1: 90 ORVILLE DR CITY: BOHEMIA STATE: NY ZIP: 11716 BUSINESS PHONE: 5165679500 MAIL ADDRESS: STREET 1: 90 ORVILLE DRIVE CITY: BOHEMIA STATE: NY ZIP: 11716 FORMER COMPANY: FORMER CONFORMED NAME: NATURES BOUNTY INC DATE OF NAME CHANGE: 19920703 10-Q 1 BODY OF 10-Q FOR THE 2ND QUARTER UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the period ended March 31, 1998 Commission File Number: 0-10666 ------- NBTY, Inc. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 11-2228617 - ---------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 90 Orville Drive, Bohemia, NY 11716 - ---------------------------------------- ------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (516) 567-9500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registration was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Shares of Common Stock as of March 31, 1998: 55,970,310 ---------- NBTY, INC. and SUBSIDIARIES INDEX PART I Financial Information Condensed Consolidated Balance Sheets - March 31, 1998 and September 30, 1997 1 - 2 Condensed Consolidated Statements of Operations - Three Months Ended March 31, 1998 and 1997 3 Condensed Consolidated Statements of Operations - Six months Ended March 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows - Six months Ended March 31, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 - 10 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 15 PART II Other Information 16 Signature 17 NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (Dollars and shares in thousands)
September 30, March 31, 1997 1998 ------------- ----------- (Unaudited) Current assets: Cash and cash equivalents $ 18,419 $ 16,350 Short-term investments 8,362 -- Accounts receivable, less allowance for doubtful accounts of $985 in 1998 and $991 in 1997 15,701 15,623 Inventories 75,936 87,762 Deferred income taxes 6,032 6,032 Prepaid catalog costs and other current assets 18,885 11,913 ------------------------- Total current assets 143,335 137,680 Cash held in escrow 144,262 -- Property, plant and equipment 155,611 194,760 less accumulated depreciation and amortization 47,438 53,651 ------------------------- 108,173 141,109 Intangible assets, net 140,447 142,959 Other assets 6,521 7,515 ------------------------- --------- Total assets $ 542,738 $ 429,263 =========================
See notes to condensed consolidated financial statements. NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (Dollars and shares in thousands)
September 30, March 31, 1997 1998 ------------- ----------- (Unaudited) Current liabilities: Current portion of long-term debt and capital lease obligations $ 1,016 $ 1,060 Accounts payable 44,514 40,445 Accrued expenses 34,325 26,428 ------------------------- Total current liabilities 79,855 67,933 Long-term debt 163,447 208,218 Obligations under capital leases 2,700 2,446 Promissory note payable 169,909 -- Deferred income taxes 7,474 7,642 Other liabilities 2,293 2,293 ------------------------- Total liabilities 425,678 288,532 ------------------------- Commitments and contingencies Stockholders' equity: Common stock, $0.008 par; authorized 75,000 in 1998 and 25,000 shares in 1997; issued 60,482 in 1998 and 20,117 in 1997 and outstanding 55,970 shares in 1998 and 18,613 shares in 1997 161 484 Capital in excess of par 56,304 56,589 Retained earnings 61,238 77,464 ------------------------- 117,703 134,537 Less 4,512 treasury shares at cost, in 1998 and 1,504 in 1997, respectively (3,206) (3,206) Cumulative translation adjustment 2,563 9,400 ------------------------- Total stockholders' equity 117,060 140,731 ------------------------- Total liabilities and stockholders' equity $ 542,738 $ 429,263 =========================
See notes to condensed consolidated financial statements. NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars and shares in thousands, except per share amounts)
For the three months ended March 31, --------------------- 1997 1998 -------- --------- Net sales $ 75,019 $ 135,039 --------------------- Costs and expenses: Cost of sales 35,677 62,677 Catalog, printing, postage and promotion 5,891 6,202 Selling, general and administrative 20,437 43,456 --------------------- 62,005 112,335 --------------------- Income from operations 13,014 22,704 --------------------- Other income (expenses): Interest, net (407) (4,938) Miscellaneous, net 116 681 --------------------- (291) (4,257) --------------------- Income before income taxes 12,723 18,447 Income taxes 5,089 7,050 --------------------- Net income $ 7,634 $ 11,397 ===================== Basic earnings per share $ 0.14 $ 0.20 ===================== Diluted earnings per share $ 0.13 $ 0.19 ===================== Weighted average common shares Basic 55,836 55,932 ===================== Diluted 60,164 60,222 =====================
See notes to condensed consolidated financial statements. NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars and shares in thousands, except per share amounts)
For the six months ended March 31, ----------------------- 1997 1998 --------- --------- Net sales $ 122,347 $ 244,404 ----------------------- Costs and expenses: Cost of sales 58,247 116,227 Catalog, printing, postage and promotion 9,942 9,444 Selling, general and administrative 35,409 84,517 ----------------------- 103,598 210,188 ----------------------- Income from operations 18,749 34,216 ----------------------- Other income (expenses): Interest (869) (8,850) Miscellaneous, net 327 1,312 ----------------------- (542) (7,538) ----------------------- Income before income taxes 18,207 26,678 Income taxes 7,283 10,453 ----------------------- Net income $ 10,924 $ 16,225 ======================= Basic earnings per share $ 0.20 $ 0.29 ======================= Diluted earnings per share $ 0.18 $ 0.27 ======================= Weighted average common shares Basic 55,806 55,890 ======================= Diluted 60,147 60,195 =======================
See notes to condensed consolidated financial statements. NBTY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
For the six months ended March 31, ---------------------- 1997 1998 -------- --------- Net income $ 10,924 $ 16,225 Adjustments to reconcile net income to cash provided by operating activities: Loss on sale of property, plant and equipment 26 Depreciation and amortization 2,966 9,366 Provision(recovery)for allowance for doubtful accounts 206 (5) Increase in deferred taxes 7 Changes in assets and liabilities, net of acquistions: Decrease (increase)in accounts receivable (4,155) 685 Increase in inventories (8,331) (11,111) Decrease(increase) in prepaid catalog costs and other current assets (948) 9,104 Decrease in other assets 288 535 (Decrease)increase in accounts payable 8,680 (4,976) (Decrease) increase in accrued expenses 4,904 (12,791) ---------------------- Net cash provided by operating activities 14,560 7,039 ---------------------- Cash flow from investing activities: Purchase of property, plant and equipment (9,328) (38,133) Proceeds from sale of property, plant and equipment 20 Proceeds from sale of short-term investments 8,362 Purchase of short-term investments (4,651) Receipt of payments from direct-mail cosmetics business 322 ---------------------- Net cash used in investing activities (13,637) (29,771) ---------------------- Cash flows from financing activities: Borrowings under long term debt agreements 45,000 Cash held in escrow 144,730 Principal payments under long-term debt agreements and capital leases (456) (496) Purchase of treasury stock (15) Proceeds from stock options exercised 23 40 Repayment of promissory note (168,770) ---------------------- Net cash provided by (used in) financing activities (448) 20,504 ---------------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents 159 ---------------------- Net (decrease) increase in cash and cash equivalents 475 (2,069) Cash and cash equivalents at beginning of quarter 9,292 18,419 ---------------------- Cash and cash equivalents at end of quarter $ 9,767 $ 16,350 ====================== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest $ 869 $ 11,777 Cash paid during the period for taxes $ 4,677 $ 10,082 ======================
See notes to condensed consolidated financial statements. NBTY, INC. and SUBSIDIARIES NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 1. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly its financial position as of March 31, 1998 and results of operations for the three and six months ended March 31, 1998 and 1997 and statements of cash flows for the six months ended March 31, 1998 and 1997. The consolidated condensed balance sheet as of September 30, 1997 has been derived from the audited balance sheet as of that date. This report should be read in conjunction with the Company's annual report filed on Form 10-K for the fiscal year ended September 30, 1997. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign currency translation The financial statements of international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and an average exchange rate for each period for revenues, expenses, and gains and losses. Where the local currency is the functional currency, translation adjustments are recorded as a separate component of stockholder's equity. Common shares and earnings per share: On March 9, 1998, the Company's Board of Directors declared a three-for-one stock split in the form of a 200% stock dividend effective March 23, 1998. In addition, the Company's Certificate of Incorporation was amended to authorize the issuance of up to 75 million shares of common stock, par value $.008 per share. All per common share amounts have been retroactively restated to account for the above stock split. In addition, stock options and respective exercise prices have been amended to reflect these transactions (see Note 7). Accounting changes: Effective October 1, 1996, the Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the Company continues to measure compensation cost in accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." As the Company has not granted any options during the six months ended March 31, 1998, nor fiscal 1997 or 1996, there would not have been any impact on the Company's financial position or results of operations on a pro forma basis. Effective October 1, 1996, the Company adopted SFAS No. 121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement requires that certain assets be reviewed for impairment and, if impaired, be measured at fair value, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The adoption of SFAS No. 121 at October 1, 1996 and its application during fiscal 1997 and the six months ended March 31, 1998 had no material impact on the Company's financial position or results of operations. New accounting standards In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings Per Share." The statement simplifies the standards for computing earnings per share ("EPS") and makes them comparable to international EPS standards. The statement requires the presentation of both "basic" and "diluted" EPS on the face of the income statement with a supplementary reconciliation of the amounts used in the calculations (see note 7). In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distribution to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. In addition, in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which establishes standards for reporting information about operating segments. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. Both of these new standards are effective for fiscal years beginning after December 15, 1997 and require comparative information for earlier years to be restated. The implementation of these new standards will not affect the Company's results of operations and financial position, but may have an impact on future financial statement disclosures. Year 2000 Software Compatibility The Company is continually updating its information systems, and has evaluated significant computer software applications for compatibility with the year 2000. With the system changes implemented to date and other planned changes, the Company anticipates that its computer software applications will be compatible with the year 2000. Expenditures specifically related to software modifications for year 2000 compatibility are not expected to be material. 2. The results of operations for the three and six months ended March 31, 1998 and statements of cash flows for the six months ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. 3. Acquisition of Holland & Barrett Holdings Ltd.: On August 7, 1997, the Company acquired all of the issued and outstanding capital stock of Holland & Barrett Holdings Ltd.("H&B") from Lloyds Chemist's plc ("Lloyds") for an aggregate purchase price of approximately $169,000 plus acquisition costs of approximately $811. The acquisition has been accounted for under the purchase method and, accordingly, the results of operations are included in the financial statements from the date of acquisition. H&B markets a broad line of nutritional supplement products, including vitamins, minerals and other nutritional supplements and food products. At the date of acquisition, H&B operated approximately 410 retail stores in the United Kingdom. The Company issued to Lloyds two promissory notes (the "Promissory Notes") totaling approximately $170,000 as consideration for the purchase of capital stock of H&B. The Promissory Notes, which are collateralized by two letters of credit issued by a lending institution, were paid in full in October 1997. In connection with the Acquisition, the Company (i) entered into a $50,000 credit and guarantee agreement (the "Credit and Guarantee Agreement"), which provides borrowings for working capital and general corporate purposes, and (ii) issued $150,000 in Senior Subordinated Notes due 2007. Assets acquired and liabilities assumed included cash ($5,580), inventory ($18,045), other current assets ($11,078), property, plant and equipment ($31,554), and current and long-term liabilities ($27,154 and $4,058, respectively). The excess cost of investment over the net book value of H&B at the date of acquisition resulted in an increase in goodwill of $133,725 which will be amortized over 25 years. Additionally, finance related costs of approximately $5,600 will be amortized over 10 years. 4. Inventories have been estimated by using the gross profit method for the interim periods. The components of the inventories are as follows:
September 30, March 31, 1997 1998 ------------- ----------- (UNAUDITED) Raw materials and work-in-process $ 33,408 $ 32,367 Finished goods 42,528 55,395 ------------------------- $ 75,936 $ 87,762 =========================
5. Intangible assets, at cost, acquired at various dates are as follows:
September 30, March 31, 1997 1998 ------------- ----------- (UNAUDITED) Goodwill $ 136,972 $ 142,510 Customer lists 9,816 9,816 Trademark and licenses 1,201 1,201 Covenants not to compete 1,305 1,305 ------------------------- 149,294 154,832 Less, accumulated amortization 8,847 11,873 ------------------------- $ 140,447 $ 142,959 =========================
6. Accrued expenses:
September 30, March 31, 1997 1998 ------------- ----------- (UNAUDITED) Litigation settlement costs $ 5,600 Payroll and related payroll taxes 4,185 $ 3,149 Customer deposits 2,363 885 Accrued purchases 2,800 5,639 Income taxes payable 7,456 7,431 Other 11,921 9,323 ----------------------- $34,325 $26,428 =======================
7. Basic earnings per share are based on the weighted average number of common shares outstanding during the three and six month periods ended March 31, 1998 and 1997. Diluted earnings per share include the effect of outstanding stock options, if exercised. The following is a reconciliation between the basic and diluted earnings per share:
For the three months For the six months March 31, March 31, -------------------- ------------------ 1997 1998 1997 1998 ------- ------- ------- ------- Numerator: Numerator for basic earnings per share -- income available to common stockholders $ 7,634 $11,397 $10,924 $16,225 Numerator for dilutive earnings per share -- income available to common stockholders $ 7,634 $11,397 $10,924 $16,225 ========================================= Denominator: Denominator for basic earnings per share -- weighted-average shares 55,836 55,932 55,806 55,890 Effective of dilutive securities: Stock options 4,328 4,290 4,341 4,305 Denominator for diluted earnings per share -- weighted-average shares 60,164 60,222 60,147 60,195 ========================================= Basic earnings per share $ 0.14 $ 0.20 $ 0.20 $ 0.29 ========================================= Diluted earnings per share $ 0.13 $ 0.19 $ 0.18 $ 0.27 =========================================
8. Shareholder litigation: In October 1994, two lawsuits were commenced in the U.S. District Court, Eastern District of New York, against the Company and two of its officers. On October 17, 1997, a Memorandum of Understanding was entered into between the Company and the attorneys representing the Plaintiff class agreeing to an $8,000 ($4,400 cash, $3,600 stock) settlement of the lawsuit. Subsequently, the Company entered into a Capital Stipulation of Settlement calling for, among other things, a total cash payment of $8,000. Cash payments aggregating $8,000 were made in November and December 1997. The Company had been notified by its insurance carrier that it was willing to reimburse the Company to the extent of $2,400. The Company recorded a $5,600 provision for its portion of the settlement in fiscal 1997, which, along with related legal fees of approximately $768, has been reflected separately in the fiscal 1997 statements of income (refer to the Company's 10-K). In January 1998, an insurance carrier paid the Company $2,650. 9. Subsequent event: In April 1998, the Company acquired Nutrition Headquarters, Inc., Lee Nutrition, Inc., Nutro Laboratories, Inc. and Brunswick Laboratories, Inc. in an exchange of approximately 8.8 million shares of NBTY common stock, $0.008 par value, fair market value approximates $185 million. The merger constituted a tax-free reorganization in accordance with Section 368(a)(1)(A) of the Internal Revenue Service and has been accounted for as a pooling of interests under APB No. 16. The financial statements presented, herein, have not been restated to include the combined results of operations, financial position and cash flows. Nutrition Headquarters, Inc. and Lee Nutrition, Inc. are mail order vitamin and nutritional supplement companies and Nutro Laboratories, Inc. and Brunswick Laboratories, Inc. are vitamin nutritional supplement manufacturers. The following table, represents the combined results of operations for the six month periods ended March 31, 1998 and 1997 as if the companies had been pooled:
For the six months ended March 31, ------------------- Thousands of dollars 1997 1998 ------------------------------------------------------------------------------ Revenues: NBTY $122,347 $244,404 Nutrition Headquarters, Lee Nutrition, Brunsiwick Laboratories and Nutro Laboratories 36,758 42,416 ------------------- Combined $159,105 $286,820 =================== Net income NBTY $ 10,924 $ 16,225 Nutrition Headquarters, Lee Nutrition, Brunswick Laboratories and Nutro Laboratories 4,918 7,408 ------------------- Combined $ 15,842 $ 23,633 ===================
NBTY, INC. and SUBSIDIARIES MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS (In thousands, except per share amounts) Results of Operations: - ---------------------- The following table sets forth income statement data of the Company as a percentage of net sales for the periods indicated:
Three months Six months ended March 31, ended March 31, ---------------- ---------------- 1997 1998 1997 1998 ------ ------ ------ ------ Net sales . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% Cost and expenses: Cost of sales . . . . . . . . . . . . . . . 47.6 46.4 47.6 47.6 Catalog printing, postage and promotion. . . 7.9 4.6 8.1 3.9 Selling, general and administrative . . . . 27.2 32.2 28.9 34.6 ----------------------------------- 82.7 83.2 84.6 86.1 ----------------------------------- Income from operations . . . . . . . . . . . . 17.3 16.8 15.4 13.9 Other income (expenses), net . . . . . . . . (0.4) (3.2) (0.4) (3.1) ----------------------------------- Income before income taxes . . . . . . . . . . 16.9 13.6 15.0 10.8 Income taxes . . . . . . . . . . . . . . . . 6.7 5.2 6.1 4.3 ----------------------------------- Net income . . . . . . . . . . . . . . . . . . 10.2% 8.4% 8.9% 6.5% ===================================
Foreign operations: In connection with the Company's recent acquisition of H&B which operates primarily in the United Kingdom, the Company has significantly expanded its operations outside the United States. The following information has been summarized by geographic area as of March 31, 1998:
Identifiable Assets -------------------------- March 31, September 30, 1997 1998 --------- ------------- United States $328,548 $216,840 United Kingdom 214,190 212,423 ----------------------- $542,738 $429,263 =======================
For the three months ended March 31,
Sales Operating income -------------------------- -------------------- 1997 1998 1997 1998 --------- ------------- -------- -------- United States $ 74,385 $ 88,349 $ 13,522 $ 18,560 United Kingdom 634 46,690 (508) 4,144 -------------------------------------------------- $ 75,019 $135,039 $ 13,014 $ 22,704 ==================================================
For the six months ended March 31,
Sales Operating income -------------------------- -------------------- 1997 1998 1997 1998 -------- ------------- -------- -------- United States $121,116 $147,821 $ 19,459 $ 26,948 United Kingdom 1,231 96,583 (710) 7,268 -------------------------------------------------- $122,347 $244,404 $ 18,749 $ 34,216 ==================================================
Results of Operations - --------------------- For the three months ended March 31, 1998 compared to the three months ended March 31, 1997: Net sales. Net sales in the second quarter ended March 31, 1998 were $135,039 compared with $75,019 for the prior comparable period, an increase of $60,020 or 80.0%. Mail order sales were $48.4 million, compared to $37.9 for the prior comparable period (increase of $10.5 million or 27.6%), wholesale sales were $24.6 million compared to $27.7 million (decrease of $3.1 million or 11.2%) and retail revenues were $62.0 million compared to $9.4 million (increase of $52.6 million or 559.6%). Revenue increases were due primarily to the August 7, 1997 acquisition of Holland & Barrett. On a consolidated basis, excluding Holland & Barrett, net sales increased $14,465 or 19.3%. Excluding Holland & Barrett, retail sales increased $7.1 or 75.5% due to an increase in the number of retail stores over the comparable period and favorable comparable stores sales. Costs and expenses. Cost of sales as a percentage of sales were 46.4% for 1998 and 47.6% for 1997. The decrease was associated with changes in product mix and the acquisition of the Holland & Barrett. In the quarter ended March 31, 1998, NBTY introduced higher gross profit items to Holland & Barrett's customer base. Catalog printing, postage, and promotion expenses were $6,202 in 1998, a decrease of $311 (5.3% decrease), from $5,891 in 1997. As a percentage of sales, expenses were 4.6% for the current quarter and 7.9% for the prior comparable quarter. Selling, general and administrative expenses were $43,456 for the quarter, or 32.2% as a percentage of sales, compared with $20,437, or 27.2% as a percentage of sales, an increase of $23,019 (112.6% increase). Excluding Holland & Barrett, expenses increased $2,424 or 11.9%. The largest segments and increases are indirect salaries, building, freight and property taxes. These expenses increased due to the acquisition of Holland & Barrett retail operation and the domestic retail outlet expansion program. Interest expense. Interest expense was $4,938, an increase of $4,531. Interest associated with the Holland & Barrett acquisition was $3,586 representing interest of 8-5/8% on $150,000 subordinated debt and interest on the Credit and Guarantee Agreement. Income before income taxes was $18,447 for 1998 and $12,723 for 1997. After income taxes, the Company had a net profit of $11,397 (or basic earnings per share of $0.20, diluted earnings per share of $0.19) for the three month period ended March 31, 1998, and $7,634 (or basic earnings per share of $0.14, diluted earnings per share of $0.13) for the three months ended March 31, 1997. Results of Operations - --------------------- For the six months ended March 31, 1998 compared to the six months ended March 31, 1997: Net sales. Net sales in the six months ended March 31, 1998 were $244,404 compared with $122,347 for the prior comparable period, an increase of $122,057 or 99.8%. Mail order sales were $68.4 million, compared to $52.5 for the prior comparable period (increase of $15.9 million or 30.2%), wholesale sales were $49.9 million compared to $51.9 million (decrease of $2.0 million or 3.9%) and retail revenues were $126.1 million compared to $17.9 million (increase of $108.2 million or 603.5%). Revenue increases were due primarily to the August 7, 1997 acquisition of Holland & Barrett. On a consolidated basis, excluding Holland & Barrett, net sales increased $27.4 or 22.4%. Excluding Holland & Barrett, retail sales increased $13.4 or 74.8% due to an increase in the number of retail stores over the comparable period and favorable comparable stores sales. Costs and expenses. Cost of sales as a percentage of sales were 47.6% for the comparable six months in 1998 and 1997. Catalog printing, postage, and promotion expenses were $9,444 in 1998, a decrease of $498 (5.0% decrease), from $9,942 in 1997. As a percentage of sales, expenses were 3.9% for the current six months and 8.1% for the prior comparable period. Selling, general and administrative expenses were $84,517, or 34.6% as a percentage of sales, compared with $35,409, or 28.9% as a percentage of sales, an increase of $49,108 (138.7% increase). Excluding Holland & Barrett, expenses increased $7.6 million or 21.4%. The largest segments and increases are indirect salaries, building, freight and property taxes. These expenses increased due to the acquisition of Holland & Barrett retail operation and the domestic retail outlet expansion program. Interest expense. Interest expense was $8,850, an increase of $7,981. Interest associated with the Holland & Barrett acquisition was $7,093 representing interest of 8-5/8% on $150,000 subordinated debt and interest on the Credit and Guarantee Agreement. Income before income taxes was $26,678 for 1998 and $18,207 for 1997. After income taxes, the Company had a net profit of $16,225 (or basic earnings per share of $0.29, diluted earnings per share of $0.27) for the six month period ended March 31, 1998, and $10,924 (or basic earnings per share of $0.20, diluted earnings per share of $0.18) for the six months ended March 31, 1997. Liquidity and Capital Resources - ------------------------------- Working capital was $69.7 million at March 31, 1998, compared with $63.5 million at September 30, 1997, an increase of $6.2 million. In September 1997, the Company entered into a $50 million Credit and Guarantee Agreement (CGA) which expires September 30, 2003. The CGA was increased to $60 million on April 28, 1998. The CGA provides for borrowings for working capital and general corporate purposes. Virtually all the Company's assets are secured under the CGA and subject to normal banking terms and conditions and the maintenance of various financial ratios and covenants. The CGA provides that loans be made under a selection of rate formulas including Prime or Eurocurrency rates. At March 31, 1998, there were borrowings of $45,000 under this facility. Additionally, the Company issued $150 million 8-5/8% senior subordinated Notes ("Notes") due in 2007. The Notes are unsecured and subordinated in right of payment for all existing and future indebtedness of the Company. In connection with the acquisition of Holland & Barrett (H&B), the Company issued two promissory notes (the "Promissory Notes") totaling approximately $169,000 plus interest, as consideration for the purchase of capital stock of H&B. The Promissory Notes, which are collateralized by two letters of credit issued by a lending institution, were paid in full in October 1997. The Company paid $5,350 in connection with a litigation settlement, net of a reimbursement made by an insurance carrier. In December 1997, the Company purchased a building for a purchase price of approximately $3,900 with operating funds. The Company believes that existing cash balances, internally-generated funds from operations and amounts available under the CGA will provide sufficient liquidity to satisfy the Companies' working capital needs for the next 12 months and to finance anticipated capital expenditures incurred in the normal course of business. Net cash provided by operating activities was $7,039 in 1998 and $14,560 in 1997. Net cash used in investing activities was $29,771 and $13,637 in 1997 due to plant expansion. Net cash provided by financing activities was $18,994 in 1998 and $448 was used in financing activities in 1997. Management believes that inflation did not have a significant impact on operations. This filing contains certain forward-looking statements and information that are based on the beliefs of management, as well as assumptions made by and information currently available to the Company's management. When used in this document, the words "anticipate," "believe," "estimate," and "expect" and similar expressions, as they relate to the Company are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements. NBTY, INC. AND SUBSIDIARIES PART II OTHER INFORMATION (In thousands) Item 1. Legal Proceedings LITIGATION: Gehe ag (Holland & Barrett's former parent company), has filed an action against the Company for non-payment of a deferred tax in connection with the H&B acquisition. The Company and its corporate counsel believe there is no payment due Gehe. The Company paid $5,350 in connection with a litigation settlement, net of a reimbursement made by its insurance carrier. Reference is made to Item 3, Legal Proceedings in Form 10-K for the year ended September 30, 1997. Item 2. Changes in Securities Not applicable. Item 3. Defaults upon Senior Securities Not applicable. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders The stockholders approved to increase the number of authorized $0.008 par value common shares from 25,000 to 75,000. Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K There was no Form 8-K filed during the second quarter of the fiscal year ending September 30, 1998. NBTY, INC. and SUBSIDIARIES SIGNATURE --------- 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 there unto duly authorized. NBTY, INC. --------------------------------------- Date May 5, 1998 /s/ HARVEY KAMIL --------------------------------------- Harvey Kamil, Executive Vice President, Secretary (Principal Financial and Accounting Officer) EX-27 2 EXHIBIT 27.1--ARTICLE 5 FDS FOR 1998 10-Q
5 1,000 6-MOS SEP-30-1998 OCT-1-1997 MAR-31-1998 16,350 0 16,608 985 87,762 137,680 194,760 53,651 429,263 67,933 211,724 0 0 484 140,247 429,263 244,404 244,404 116,227 58,247 0 0 8,850 26,678 10,453 16,225 0 0 0 16,225 0.29 0.27
EX-27 3 EXHIBIT 27.2--ART. 5 FDS FOR 1ST AND 2ND QUARTER 10-Q'S
5 3-MOS 6-MOS SEP-30-1997 SEP-30-1997 OCT-1-1996 OCT-1-1996 DEC-31-1996 MAR-31-1997 16,397,044 9,766,465 0 0 14,399,160 16,252,064 932,759 1,000,148 42,022,144 46,401,336 81,086,753 96,881,700 92,259,932 98,081,957 28,718,291 29,850,233 149,333,838 169,610,207 27,360,697 39,948,107 16,003,709 18,876,330 0 0 0 0 160,638 160,,838 100,079,417 107,979,435 149,333,838 169,610,207 47,327,714 122,346,697 47,327,714 122,346,697 22,570,861 58,247,421 22,570,861 58,247,421 0 0 0 0 462,319 868,920 5,483,663 18,207,045 2,193,465 7,282,818 3,290,198 10,924,227 0 0 0 0 0 0 3,290,198 10,924,227 0.06 0.18 0.06 0.18
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