-----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, V9MuVTCf1JCFkwjkQJXFhg8dQtmLYBhp7gcVdcnhhsHQ9jec7v4/G/K22PSTjX7W c5YFc8BAuQVOVy/vLB8uUw== 0000910647-99-000211.txt : 19990813 0000910647-99-000211.hdr.sgml : 19990813 ACCESSION NUMBER: 0000910647-99-000211 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 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: 99686348 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 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 June 30, 1999 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 June 30, 1999: 67,022,894 ---------- NBTY, INC. and SUBSIDIARIES INDEX PART I Financial Information Condensed Consolidated Balance Sheets - June 30, 1999 (unaudited)and September 30, 1998 1 - 2 Condensed Consolidated Statements of Operations - (unaudited) - Three Months Ended June 30, 1999 and 1998 3 Condensed Consolidated Statements of Operations - (unaudited) Nine months Ended June 30, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows - (unaudited) Nine months Ended June 30, 1999 and 1998 5 - 6 Notes to Condensed Consolidated Financial Statements (unaudited) 7 - 11 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 20 PART II Other Information 21 Signature 22 NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (Dollars and shares in thousands)
June 30, September 30, 1999 1998 ----------- ------------- (Unaudited) Current assets: Cash and cash equivalents $ 23,568 $ 14,308 Accounts receivable, less allowance for doubtful accounts of $1,078 in 1999 and $1,045 in 1998 22,673 23,433 Inventories 132,341 119,607 Deferred income taxes 2,994 2,994 Prepaid property taxes, rent, and other current assets 19,382 13,614 ------------------------- Total current assets 200,958 173,956 Property, plant and equipment 256,228 234,081 less accumulated depreciation and amortization 80,715 67,746 ------------------------- 175,513 166,335 Intangible assets, net 137,537 152,426 Other assets 7,566 7,740 ------------------------- Total assets $521,574 $500,457 ========================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and capital lease obligations $ 1,305 $ 1,218 Accounts payable 52,479 50,389 Accrued expenses 48,194 33,243 ------------------------- Total current liabilities 101,978 84,850 Long-term debt 196,712 171,230 Obligations under capital leases 2,196 2,106 Deferred income taxes 8,001 8,203 Other liabilities 3,532 3,729 ------------------------- Total liabilities 312,419 270,118 ------------------------- Commitments and contingencies Stockholders' equity: Common stock, $0.008 par; authorized 175,000 shares in 1999 and 75,000 shares in 1998; issued 71,762 shares in 1999 and 72,714 shares in 1998 and outstanding 67,023 shares in 1999 and 68,203 shares in 1998 574 582 Capital in excess of par 119,160 115,661 Retained earnings 120,630 105,989 ------------------------- 240,364 222,232 Less 4,739 and 4,511 treasury shares, at cost in 1999 and 1998, respectively (28,328) (3,206) Stock subscriptions receivable (839) - Accumulated other comprehensive earnings (2,042) 11,313 ------------------------- Total stockholders' equity 209,155 230,339 ------------------------- Total liabilities and stockholders' equity $521,574 $500,457 =========================
See notes to condensed consolidated financial statements. NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars and shares in thousands, except per share amounts)
For the three months ended June 30, --------------------- 1999 1998 ---- ---- Net sales $155,062 $138,931 --------------------- Costs and expenses: Cost of sales 73,982 64,514 Catalog printing, postage and promotion 7,613 8,804 Selling, general and administrative 57,563 46,764 Litigation charges 4,600 Merger related costs 3,360 --------------------- 143,758 123,442 --------------------- Income from operations 11,304 15,489 --------------------- Other income (expense): Interest, net (4,456) (3,196) Miscellaneous, net 203 1,328 --------------------- (4,253) (1,868) --------------------- Income before income taxes 7,051 13,621 Income taxes 2,717 5,486 --------------------- Net income $ 4,334 $ 8,135 ===================== Net income per share: Basic $ 0.06 $ 0.13 ===================== Diluted $ 0.06 $ 0.12 ===================== Weighted average common shares outstanding: Basic 69,672 64,742 ===================== Diluted 70,534 69,008 =====================
See notes to condensed consolidated financial statements. NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars and shares in thousands, except per share amounts)
For the nine months ended June 30, --------------------- 1999 1998 ---- ---- Net sales $463,748 $425,751 --------------------- Costs and expenses: Cost of sales 221,490 204,928 Catalog printing, postage and promotion 26,266 22,739 Selling, general and administrative 173,458 137,216 Litigation charges 4,600 Merger related costs 3,360 --------------------- 425,814 368,243 --------------------- Income from operations 37,934 57,508 --------------------- Other income (expense): Interest (14,083) (12,417) Miscellaneous, net 720 2,728 --------------------- (13,363) (9,689) --------------------- Income before income taxes 24,571 47,819 Income taxes 9,931 16,051 --------------------- Net income $ 14,640 $ 31,768 ===================== Net income per share: Basic $ 0.21 $ 0.49 ===================== Diluted $ 0.20 $ 0.46 ===================== Weighted average common shares outstanding: Basic 70,766 64,689 ===================== Diluted 71,895 68,986 =====================
See notes to condensed consolidated financial statements. NBTY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
For the nine months ended June 30, ------------------- 1999 1998 ---- ---- Net income $14,640 $31,768 Adjustments to reconcile net income to cash provided by operating activities: Gain on sale of product line (1,576) Loss on sale of property, plant and equipment 479 402 Depreciation and amortization 20,591 15,448 Provision for allowance for doubtful accounts (33) 10 Changes in assets and liabilities, net of acquistions: Decrease (increase)in accounts receivable 2,800 (1,173) Increase in inventories (14,963) (24,593) Increase in prepaid catalog costs and other current assets (15,388) (6,005) (Increase) decrease in other assets (394) 1,703 Increase(decrease) in accounts payable 3,864 (1,358) Increase (decrease) in accrued expenses 31,353 (4,581) (Decrease) increase in other liabilities (195) 1,240 -------------------- Net cash provided by operating activities 42,754 11,285 -------------------- Cash flows from investing activities: Purchase of property, plant and equipment (27,867) (51,049) Proceeds from sale of property, plant, and equipment 2 1 Proceeds from sale of product line 4,500 Proceeds from sale of short term investments 8,362 Increase in intangible assets (503) -------------------- Net cash used in investing activities (28,368) (38,186) -------------------- Cash flows from financing activities: Dividends paid (8,050) Borrowings under long term debt agreements 26,200 55,000 Cash held in escrow 144,730 Payment of demand note payable (1,345) Principal payments under long-term debt agreements and capital leases (829) (6,570) Purchase of treasury stock (28,328) Proceeds from stock options exercised 40 Repayment of promissory note (168,770) Stock subscriptions receivable (839) -------------------- Net cash (used in) provided by financing activities (3,796) 15,035 -------------------- Effect of exchange rate changes on cash and cash equivalents (1,330) (2,626) -------------------- Net increase (decrease) in cash and cash equivalents 9,260 (14,492) Cash and cash equivalents at beginning of period 14,308 20,262 -------------------- Cash and cash equivalents at end of period $23,568 $5,770 ==================== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest $13,666 $14,823 Cash paid during the period for taxes $ 7,812 $12,859
See notes to condensed consolidated financial statements. NBTY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS For the nine months ended June 30, 1999 and 1998 (Unaudited) (In thousands, except per share amounts) Supplemental Non-cash Investing and Financing Information: During the nine months ended June 30, 1999, options were exercised with 3,560 shares of common stock issued to certain officers for interest- bearing stock subscriptions receivable aggregating $839 and cash of $67. As a result of the exercise of those options, the Company expects to receive a compensation deduction for tax purposes of approximately $14,847 and a tax benefit of approximately $5,790. NBTY, INC. and SUBSIDIARIES NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except per share amounts) 1. Principles of consolidation and basis of presentation The consolidated financial statements of NBTY, Inc. and Subsidiaries have been prepared to give retroactive effect to the merger between Nutrition Headquarters, Inc., Lee Nutrition, Inc. and Nutro Laboratories, Inc. (collectively, the "Nutrition Headquarters Group" and together with NBTY, the "Company") on April 20, 1998. Under the terms of the merger agreement, each share of Nutrition Headquarters Group common stock was exchanged for approximately 30 shares of NBTY's common stock with approximately 8,772 shares of NBTY's common stock exchanged for all the outstanding stock of Nutrition Headquarters Group. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. In the opinion of the Company, the unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly its financial position as of June 30, 1999 and its results of operations for the three and nine months ended June 30, 1999 and 1998 and statements of cash flows for the nine months ended June 30, 1999 and 1998. The condensed consolidated balance sheet as of September 30, 1998 has been derived from the audited balance sheet as of that date. The results of operations for the three and nine months ended June 30, 1999 and statements of cash flows for the nine months ended June 30, 1999 are not necessarily indicative of the results to be expected for the full year. 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, 1998. 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. Income taxes Prior to the merger, Nutrition Headquarters Group had been treated as an S corporation for Federal and state income tax purposes. Accordingly, taxable income was reported to the individual stockholders for inclusion in their respective income tax returns with no provision for these taxes, other than certain minimum taxes, included in the Company's consolidated financial statements. Common shares and earnings per share On April 12, 1999, the Company's Certificate of Incorporation was amended to authorize the issuance of up to 175,000 shares of common stock, par value $.008 per share. In March 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. All per common share amounts have been retroactively restated to account for the above stock split and the merger of NHG with NBTY. In addition, stock options and respective exercise prices have been amended to reflect these transactions. The Company retired 4,511 treasury shares during fiscal 1999 and accordingly, such retired shares are considered unissued. The company has repurchased 4,739 treasury shares for $28,328 at an average price of $5.98 per share. In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." The statement requires the presentation of both "basic" and "diluted" EPS on the face of the income statement. Basic EPS is based on the weighted average number of shares of common stock outstanding during each period while diluted EPS is based on the weighted average number of shares of common stock and common stock equivalents outstanding during each period. The Company adopted the provisions of SFAS 128 effective October 1, 1998. Reclassifications Certain reclassifications have been made to conform prior year amounts to the current year presentation. Accounting changes In February 1998, the American Institute of Certified Public Accountants' Accounting Standards Executive Committee ("AcSEC") issued Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP No. 98-1"). SOP No. 98-1 requires certain costs incurred in connection with developing or obtaining internal-use software to be capitalized and other costs to be expensed. The Company adopted SOP 98-1 during fiscal 1998, and its application had no material effect on the Company's financial position or results of operations. In April 1998, the American Institute of Certified Public Accountants' AcSEC issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP No. 98-5"). SOP No. 98-5 requires that all start-up (or pre-opening) activities and organization costs be expensed as incurred. The Company adopted SOP 98-5 on October 1, 1998, and its application had no material effect on the Company's financial position or results of operations. New accounting standards 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 by public business enterprises in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports to stockholders. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. This SFAS is effective for the Company on September 30, 1999. In June 1998, the FASB issued SFAS No. 133, "Statement of Financial Accounting Standards Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for fiscal years beginning after June 15, 1999 (October 1, 1999 for the Company). SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of Effective Date of Statement 133" which postponed the adoption date of SFAS No. 133. As such, the Company is not required to adopt this statement until fiscal year 2002. Management of the Company anticipates that, due to its limited use of derivative instruments, the adoption of SFAS 133 will not have a significant effect on the Company's results of operations or its financial position. 2. Acquisitions In May 1999, the Company acquired the assets and certain liabilities of a multi-level marketing company, Dynamic Essentials, Inc. (DEI) for approximately $1,200 in cash. DEI was formed in December 1998 and had aggregate sales of $2,081 during its first six months. In August 1998, the Company acquired certain assets of three privately held vitamin mail order companies: Home Health Products, Inc., Barth-Spencer Corporation and Darby Health Group, Inc. for $7,800 in cash. The aggregate sales of these companies were approximately $20,000 in 1997. The mail order databases of the acquired operations have been incorporated into NBTY's active direct response customer base to increase the number of active customers. 3. Comprehensive earnings On June 1, 1997, the FASB issued SFAS No. 130, "Reporting of Comprehensive Income," which establishes standards for the reporting and display of comprehensive income, its components (revenues, expenses, gains and losses) and accumulated balances in a full set of general purpose financial statements. Comprehensive income for the Company includes net income and the effects of translation which are charged or credited to the cumulative translation adjustments account within stockholders' equity. SFAS No. 130 was adopted on October 1, 1998. Comprehensive earnings for the three and nine months ended June 30, 1999 and 1998 are as follows:
For the three months For the nine months Ended June 30, Ended June 30, -------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net income $4,334 $8,135 $14,640 $31,768 Changes in cumulative translation adjustment (4,094) 751 (13,355) 6,086 ---------------------------------------------- Comprehensive earnings $ 240 $8,886 $ 1,285 $37,854 ==============================================
Accumulated other comprehensive earnings (deficit), which had been classified as a separate component of stockholders' equity, is comprised of cumulative translation adjustments of $(2,042) and $11,313 at June 30, 1999 and September 30, 1998, respectively. 4. Inventories Inventories have been estimated using the gross profit method for the interim periods. The components of the inventories are as follows:
June 30, September 30, 1999 1998 -------- ------------- Raw materials and Work-in-process $ 52,987 $ 50,913 Finished goods 79,354 68,694 ----------------------- $132,341 $119,607 =======================
5. Earnings per share (EPS) Basic EPS computations are based on the weighted average number of common shares outstanding during the three and nine month periods ended June 30, 1999 and 1998. Diluted EPS includes the dilutive effect of outstanding stock options, if exercised. The following is a reconciliation between the basic and diluted EPS, as required by SFAS No. 128:
For the three months For the nine months June 30, June 30, -------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Numerator: Numerator for basic EPS -- Income available To common stockholders $ 4,334 $ 8,135 $14,640 $31,768 ============================================= Numerator for diluted EPS -- Income available To common stockholders $ 4,334 $ 8,135 $14,640 $31,768 ============================================= Denominator: Denominator for basic EPS -- Weighted average shares 69,672 64,742 70,766 64,689 Effect of dilutive securities: Stock options 862 4,265 1,129 4,297 --------------------------------------------- Denominator for diluted EPS -- Weighted average shares 70,534 69,008 71,895 68,986 ============================================= Net EPS: Basic EPS $ 0.06 $ 0.13 $ 0.21 $ 0.49 ============================================= Diluted EPS $ 0.06 $ 0.12 $ 0.20 $ 0.46 =============================================
6. Stock options: During the nine months ended June 30, 1999, options were exercised with 3,560 shares of common stock issued to certain officers for interest-bearing stock subscriptions receivable aggregating $839 and cash of $67. As a result of the exercise of those options, the Company expects to receive a compensation deduction for tax purposes of approximately $14,847 and a tax benefit of approximately $5,790. 7. Foreign operations: The following information has been summarized by geographic area as of June 30, 1999 and 1998 and for the three and nine months then ended:
Identifiable Assets June 30, --------------------- 1999 1998 ---- ---- United States $296,083 $256,077 United Kingdom 225,491 219,322 --------------------- $521,574 $475,399 ===================== Three months ended Three months ended June 30, 1999 June 30, 1998 ---------------------- ---------------------- Operating Operating Sales Income Sales Income ----- --------- ----- --------- United States $100,830 $ 3,946 $ 92,615 $13,027 United Kingdom 54,232 7,358 46,316 2,462 ------------------------------------------------ $155,062 $11,304 $138,931 $15,489 ================================================ Nine months ended Nine months ended June 30, 1999 June 30, 1998 ----------------------- ----------------------- Operating Operating Sales Income Sales Income ----- --------- ----- --------- United States $293,928 $18,729 $282,853 $47,989 United Kingdom 169,820 19,205 142,899 9,519 ------------------------------------------------ $463,748 $37,934 $425,751 $57,508 ================================================
8. Commitment and contingencies: In August 1997, the Company acquired Holland & Barrett from the German-based GEHE AG. A dispute arose over certain provisions of the purchase agreement. On July 30, 1999, the court rendered a decision in favor of GEHE. Results for the third quarter and nine months of 1999 were affected by a litigation charge of $4,600 which includes the amount of the judgment plus interest and legal fees. 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 Nine months Ended Ended June 30, June 30, ------------------ ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net sales 100.0% 100.0% 100.0% 100.0% Costs and expenses: Cost of sales 47.7 46.4 47.8 48.1 Catalog printing, postage and promotion 4.9 6.3 5.7 5.3 Selling, general and administrative 37.1 33.7 37.4 32.2 Litigation charges 3.0 1.0 Merger related costs 2.5 .9 ------------------------------------------ 92.7 88.9 91.9 86.5 ------------------------------------------ Income from operations 7.3 11.1 8.1 13.5 Other income (expenses), net (2.7) (1.3) (2.9) (2.3) ------------------------------------------ Income before income taxes 4.6 9.8 5.2 11.2 Income taxes 1.8 3.9 2.1 3.7 ------------------------------------------ Net income 2.8% 5.9% 3.1% 7.5% ==========================================
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 - --------------------- For the three months ended June 30, 1999 compared to the three months ended June 30, 1998: Net sales. Net sales in the third quarter ended June 30, 1999 were $155,062 compared with $138,931 for the prior comparable period, an increase of $16,131 or 11.6%. Direct response sales were $40,460, compared to $44,135 for the prior comparable period (decrease of $3,675 or 8.3%), wholesale sales were $33,729 compared to $32,671 (increase of $1,058 or 3.2%), U.S. retail sales were $26,949 compared to $16,695 (increase of $10,254 or 61.4%) and U.K. retail sales were $53,485 compared to $45,430 (increase $8,055 or 17.7%). The new multi-level marketing division was $439 for the three months. The Company operated 292 stores in the U.S. and 415 stores in the U.K. as of June 30, 1999 compared to 142 stores in the U.S. and 418 in the U.K. as of June 30, 1998. Sales growth in the U.S. retail channel reflected the greater number of stores compared to last year. Costs and expenses. Cost of sales as a percentage of sales were 47.7% for 1999 and 46.4% for 1998. The increase was associated with changes in product mix. Catalog printing, postage, and promotion expenses were $7,613 in 1999, a decrease of $1,191 (13.5% decrease) from $8,804 in 1998. This decrease was due primarily to a reduction in print media advertising in direct response. As a percentage of sales, expenses were 4.9% for the current quarter and 6.3% for the prior comparable quarter. Selling, general and administrative expenses were $57,563 for the quarter, or 37.1% as a percentage of sales, compared with $46,764 or 33.7% as a percentage of sales, an increase of $10,799 (23.1% increase). The largest categories and increases are indirect salaries and rents which increased due primarily to the U.S. retail store expansion program. Litigation charges. In August 1997, the Company acquired Holland & Barrett from the German-based GEHE AG. A dispute arose over certain provisions of the purchase agreement. On July 30, 1999, the court rendered a decision in favor of GEHE. Results for the third quarter of 1999 were affected by a litigation charge of $4,600 which includes the amount of the judgment plus interest and legal fees. Interest expense. Interest expense was $4,456, an increase of $1,260 compared to $3,196 during the comparable quarter. The major components are interest on Senior Subordinated Notes associated with the Holland & Barrett acquisition and the Credit and Guarantee Agreement (CGA) used for the stock repurchase and for capital expenditures. Income taxes. Prior to the merger, NHG had been treated as an S corporation for Federal and state tax purposes. Accordingly, taxable income was reported to the individual stockholders for inclusion in their respective income tax returns with no provision for these taxes, other than certain minimum taxes, included in the Company's Consolidated Financial Statements. Income before income taxes was $7,051 for 1999 and $13,621 for 1998. After income taxes, the Company had a net profit of $4,334 (or basic earnings per share of $0.06, diluted earnings per share of $0.06) for the three month period ended June 30, 1999, and $8,135 (or basic earnings per share of $0.13, diluted earnings per share of $0.12) for the three months ended June 30, 1998. Results of Operations - ---------------------- For the nine months ended June 30, 1999 compared to the nine months ended June 30, 1998: Net sales. Net sales in the nine months ended June 30, 1999 were $463,748 compared with $425,751 for the prior comparable period, an increase of $37,997 or 8.9%. Direct response sales were $129,686, compared to $138,067 for the prior comparable period (decrease of $8,381 or 6.1%), wholesale sales were $94,497 compared to $99,433 (decrease of $4,936 or 5.0%), U.S. retail sales were $71,948 compared to $48,009 (increase of $23,939 or 49.9%) and U.K. retail sales were $167,178 compared to $140,242 (increase $26,936 or 19.2%). The new multi-level marketing division was $439 for the current year. The Company operated 292 stores in the U.S. and 415 stores in the U.K. as of June 30, 1999 compared to 142 stores in the U.S. and 418 in the U.K. as of June 30, 1998. The Company experienced more competitive pressures and accordingly, direct response and wholesale sales channels showed decreases in sales. Sales growth in the U.S. retail channel reflected the greater number of stores compared to last year. Costs and expenses. Cost of sales as a percentage of sales were 47.8% for 1999 and 48.1% for 1998. The decrease was associated with changes in product mix and lower raw material pricing from suppliers. In addition, in the nine months ended June 30, 1999 compared to the nine months ended June 30, 1998, a significant number of products supplied by outside vendors to Holland and Barrett were replaced by NBTY supplied products. Catalog printing, postage, and promotion expenses were $26,266 in 1999 an increase of $3,527 (15.5% increase), from $22,739 in 1998. As a percentage of sales, expenses were 5.7% for the nine months and 5.3% for the prior nine months. Such increase was principally due to H&B's television commercials in October 1998 and greater number of catalogs being mailed and advertising for store openings. Selling, general and administrative expenses were $173,458 for the nine months, or 37.4% as a percentage of sales, compared with $137,216 or 32.2% as a percentage of sales, an increase of $36,242 (26.4% increase). The largest segments and increases are indirect salaries, rents, freight, depreciation of property, plant and equipment and legal. These expenses increased due primarily to the U.S. retail expansion program. Litigation charges. In August 1997, the Company acquired Holland & Barrett from the German-based GEHE AG. A dispute arose over certain provisions of the purchase agreement. On July 30, 1999, the court rendered a decision in favor of GEHE. Results for the nine months of 1999 were affected by a litigation charge of $4,600 which includes the amount of the judgment plus interest and legal fees. Interest expense. Interest expense was $14,083, an increase of $1,666 compared to $12,417 during the comparable quarter. The major components are interest on Senior Subordinated Notes associated with the Holland & Barrett acquisition and the Credit and Guarantee Agreement (CGA) used for the stock repurchase and capital expenditures and the write-off of fees associated with the amended and restated CGA. NBTY, INC. and SUBSIDIARIES MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS (Unaudited) (In thousands, except per share amounts) Results of Operations - --------------------- For the nine months ended June 30, 1999 compared to the nine months ended June 30, 1998 (continued): Income taxes. Prior to the merger, NHG had been treated as an S corporation for Federal and state tax purposes. Accordingly, taxable income was reported to the individual stockholders for inclusion in their respective income tax returns with no provision for these taxes, other than certain minimum taxes, included in the Company's Consolidated Financial Statements. Income before income taxes was $24,571 for 1999 and $47,819 for 1998. After income taxes, the Company had a net profit of $14,640 (or basic earnings per share of $0.21, diluted earnings per share of $0.20) for the nine month period ended June 30, 1999, and $31,768 (or basic earnings per share of $0.49, diluted earnings per share of $0.46) for the nine months ended June 30, 1998. Liquidity and Capital Resources - ------------------------------- Working capital was $98,980 at June 30, 1999, compared with $89,106 at September 30, 1998, an increase of $9,874. In April 1999, the Company entered into an amended and restated Credit and Guarantee Agreement (CGA) which expires September 30, 2003 increasing the borrowing limit from $60,000 to $135,000. The CGA provides for borrowings for working capital, general corporate purposes and acquisition of the Company's securities. The CGA provides that loans be made under a selection of rate formulas, including prime or Euro currency rates. Virtually all of the company's assets are collateralized under the CGA and subject to normal banking terms and conditions and the maintenance of various financial ratios and covenants. At June 30, 1999, there were borrowings of $34,000 under this facility. The Company plans on utilizing the funds for working capital needs and to buy back its common stock under its existing stock purchase plan. For the three months ended June 30, 1999, the Company repurchased $28,328 (4,739 shares) of its common stock. In connection with the August 1997 acquisition of Holland & Barrett, the Company issued $150,000 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 November and December 1997, the Company paid an aggregate $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. In April 1998, the Company sold certain assets of its cosmetic pencil operation for approximately $6,000, of which $4,500 was paid in cash. On July 1, 1998, the Company sold 3,450 shares of common stock in a public offering. The Company realized approximately $55,000 which was used to repay borrowings under the Company's Credit and Guarantee Agreement and for working capital. The Company believes that existing cash balances, internally- generated funds from operations, amounts available under the CGA and other debt facilities 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 $42,754 in 1999 and $11,285 in 1998 primarily due to increases in depreciation and amortization and accrued expenses. Net cash used in investing activities was $28,368 in 1999 and $38,186 in 1998 due to retail stores and plant expansion programs. Net cash used in financing activities was $3,796 due to the repurchase of $28,328 of its common stock in 1999 and net cash provided by financing activities was $15,035 due to borrowings under the CGA in 1998. Management believes that inflation did not have a significant impact on its operations. Year 2000. The Year 2000 problem is a result of software computer programs being written using two digits rather than four to define the applicable year. The Company recognizes the risk that its software programs or computer hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the Year 2000. This could result in system failures or miscalculations causing disruptions to operations including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company recognizes the need to ensure that its operations will not be adversely impacted by Year 2000 software and hardware failure. The Company is developing a plan to ensure that its systems are compliant with the requirements to process transactions in the Year 2000. That plan consists of four phases: assessment, remediation, testing and implementation, and encompasses internal information technology (IT) systems and non-IT systems, as well as third party exposures. The following is a status report of the Company's effort to date: The Company's State of Readiness The Company has completed the assessment of its IT systems and non-IT systems. Third Parties And Their Exposure To The Year 2000 The Company has requested from a majority of its principal suppliers and vendors written statements regarding their knowledge of and plans for meeting Year 2000 requirements. To date, the Company is not aware of any principal supplier or vendor with a Year 2000 issue that could materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 ready. The inability of external agents to complete their Year 2000 resolution process in a timely fashion could materially impact the Company. The effect of non-compliance by external agents, if any, cannot be determined. Risks Management of the Company believes that it is working on an effective program to resolve the Year 2000 issue in a timely manner. The Company has not yet completed all necessary phases of the Year 2000 program. The Company has retained an outside firm to assist the Company's personnel. It is estimated that the costs of this project will approximate $200. In the event that the Company does not complete any additional phases, the Company could experience business interruptions. In addition, disruptions in the economy generally resulting from the Year 2000 issues could also materially adversely affect the Company. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans The Company currently has no contingency plans in place in the event it does not complete all phases of the Year 2000 program. The Company plans to evaluate the status of completion in September 1999 and determine whether such a plan is necessary. New pronouncements - ------------------ 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 by public business enterprises in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports to stockholders. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. This SFAS is effective for the Company on September 30, 1999. The adoption of SFAS No. 131 will not have a significant impact on the results of operations or its financial position, however it may require changes to certain disclosures. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (October 1, 1999 for the Company). SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management of the Company anticipates that, due to its limited use of derivative instruments, the adoption of SFAS No. 133 will not have a significant effect on the Company's results of operations or its financial position. 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 (Unaudited) Item 1. Legal Proceedings LITIGATION: In August 1997, the Company acquired Holland & Barrett from the German-based GEHE AG. A dispute arose over certain provisions of the purchase agreement. On July 30, 1999, the court rendered a decision in favor of GEHE. A litigation charge of $4,600, which includes the amount of the judgment plus interest and legal fees, will be paid in August 1999. In November and December 1997, the Company paid an aggregate $5,350 in connection with a litigation settlement, net of a reimbursement made by its insurance carrier. Reference is made to Note 15 in Form 10-K for the year ended September 30, 1998. 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 Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K There was no Form 8-K filed during the third quarter of the fiscal year ending September 30, 1999. 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 August 12, 1999 /s/ Harvey Kamil ------------------------------------ Harvey Kamil, Executive Vice President, Secretary (Principal Financial and Accounting Officer) EX-27 2 FDS FOR 3RD QUARTER
5 1,000 9-MOS SEP-30-1999 OCT-01-1999 JUN-30-1999 23,568 0 23,751 1,078 132,341 200,958 256,228 80,715 521,574 101,978 200,213 0 0 574 208,581 521,574 463,748 463,748 221,490 204,324 0 0 14,083 24,571 9,931 14,640 0 0 0 14,640 0.21 0.20
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