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, 2000
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 (631) 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, 2000: 67,200,117
NBTY, INC. and SUBSIDIARIES
INDEX
PART I Financial Information
Condensed Consolidated Balance Sheets -
March 31, 2000 (unaudited) and September 30, 1999 1 - 2
Condensed Consolidated Statements of Operations -
(unaudited) Three months Ended March 31, 2000 and 1999 3
Condensed Consolidated Statements of Operations -
(unaudited) Six months Ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of
Stockholders' Equity Year ended September 30, 1999 and
(unaudited) Six months Ended March 31, 2000 5
Condensed Consolidated Statements of Cash Flows -
(unaudited) Six months Ended March 31, 2000 and 1999 6 - 7
Notes to Condensed Consolidated
Financial Statements (unaudited) 8 - 12
Management's Discussion and Analysis
of Financial Condition and Results of Operations 13 - 18
PART II Other Information 19
Signature 20
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Dollars and shares in thousands)
March 31, September 30,
2000 1999
--------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 46,520 $ 18,269
Accounts receivable, less allowance for
doubtful accounts of $1,241 in 2000
and $1,248 in 1999 24,550 24,336
Inventories 123,691 135,466
Deferred income taxes 3,250 3,250
Prepaid property taxes, rent,
and other current assets 15,046 19,243
-----------------------
Total current assets 213,057 200,564
Property, plant and equipment 308,705 277,033
less accumulated depreciation and
amortization 100,278 87,471
-----------------------
208,427 189,562
Intangible assets, net 164,207 141,410
Other assets 5,899 7,848
-----------------------
Total assets $591,590 $539,384
=======================
</TABLE>
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars and shares in thousands)
March 31, September 30,
2000 1999
--------- -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt
and capital lease obligations $ 1,997 $ 1,799
Accounts payable 43,548 45,366
Accrued expenses 55,183 32,296
-----------------------
Total current liabilities 100,728 79,461
Long-term debt 215,942 217,136
Obligations under capital leases 3,097 2,372
Deferred income taxes 12,134 12,233
Other liabilities 2,861 4,233
-----------------------
Total liabilities 334,762 315,435
-----------------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.008 par; authorized 175,000
shares; issued and outstanding 67,200 shares
in 2000 and 66,096 shares in 1999 538 529
Capital in excess of par 118,717 106,332
Retained earnings 138,272 111,792
-----------------------
257,527 218,653
Stock subscriptions receivable (839) (839)
Accumulated other comprehensive earnings 140 6,135
-----------------------
Total stockholders' equity 256,828 223,949
-----------------------
Total liabilities and stockholders' equity $591,590 $539,384
=======================
</TABLE>
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars and shares in thousands, except per share amounts)
For the three months
ended March 31,
----------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $200,107 $167,673
----------------------
Costs and expenses:
Cost of sales 84,153 78,549
Catalog printing, postage and promotion 9,604 9,864
Selling, general and administrative 72,334 62,424
----------------------
166,091 150,837
----------------------
Income from operations 34,016 16,836
----------------------
Other income (expense):
Interest, net (4,739) (5,358)
Miscellaneous, net 828 7
----------------------
(3,911) (5,351)
----------------------
Income before income taxes 30,105 11,485
Income taxes 12,042 4,647
----------------------
Net income $ 18,063 $ 6,838
======================
Net income per share:
Basic $ 0.27 $ 0.10
======================
Diluted $ 0.26 $ 0.09
======================
Weighted average common shares outstanding:
Basic 67,200 71,597
======================
Diluted 69,630 72,513
======================
</TABLE>
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars and shares in thousands, except per share amounts)
For the six months
ended March 31,
----------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $371,279 $308,686
----------------------
Costs and expenses:
Cost of sales 165,096 147,508
Catalog printing, postage and promotion 17,889 18,652
Selling, general and administrative 136,258 115,895
----------------------
319,243 282,055
----------------------
Income from operations 52,036 26,631
----------------------
Other income (expense):
Interest (9,425) (9,626)
Miscellaneous, net 1,523 515
----------------------
(7,902) (9,111)
----------------------
Income before income taxes 44,134 17,520
Income taxes 17,654 7,214
----------------------
Net income $ 26,480 $ 10,306
======================
Net income per share:
Basic $ 0.40 $ 0.14
======================
Diluted $ 0.38 $ 0.14
======================
Weighted average common shares outstanding:
Basic 66,659 71,313
======================
Diluted 68,869 72,573
======================
</TABLE>
See notes to condensed consolidated financial statements.
NBTY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1999 AND
THE SIX MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars and shares in thousands)
Accumu-
lated
Other
Common stock Treasury stock Compre- Total
----------------- ----------------- Stock hensive Total Compre-
Number of Capital in Retained Number of subscriptions Income Stockholders' hensive
shares Amount excess of par earnings shares Amount receivable (Loss) Equity Income
--------- ------ ------------- -------- --------- ------ ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
September 30, 1998 72,714 $582 $115,661 $105,989 4,511 $ (3,206) $11,313 $230,339
Net income for year
ended September
30, 1999 27,279 27,279 $27,279
Purchase of treasury
stock, at cost 5,702 (34,438) (34,438)
Treasury stock
retired (10,213) (82) (16,086) (21,476) (10,213) 37,644 -
Exercise of stock
options 3,595 29 888 $(839) 78
Tax benefit from
exercise of stock
options 5,869 5,869
Acquisition of
Nutrition Warehouse 1,059 9 12,235
Foreign currency
translation
adjustment (5,178) (5,178) (5,178)
------------------------------------------------------------------------------------------------------------
Balances,
September 30, 1999 66,096 529 106,332 111,792 (839) 6,135 223,949 $22,101
=======
Net income for six
months ended March
31, 2000 26,480 26,480 $26,480
Exercise of stock
options 45 - 13 13
Tax benefit from
exercise of stock
options 137 137
Acquisition of
Nutrition Warehouse 12,244
Foreign currency
translation
adjustment (5,995) (5,995) (5,995)
------------------------------------------------------------------------------------------------------------
Balances,
March 31, 2000 67,200 $538 $118,717 $138,272 $(839) $ 140 $256,828 $20,485
===========================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
NBTY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands)
For the six months
ended March 31,
----------------------
2000 1999
---- ----
<S> <C> <C>
Net income $ 26,480 $ 10,306
Adjustments to reconcile net income to
cash provided by operating activities:
Loss on sale of property, plant and equipment 468 139
Depreciation and amortization 17,322 13,806
Provision for allowance for doubtful accounts 7 (11)
Changes in assets and liabilities:
Increase in accounts receivable (60) (1,667)
Decrease (increase) in inventories 13,369 (2,337)
Decrease (increase) in prepaid catalog
costs and other current assets 8,753 (7,993)
(Increase) decrease in other assets (1,225) 539
Decrease in accounts payable (4,838) (10,192)
Increase in accrued expenses 20,539 13,650
Decrease in other liabilities (1,372) (195)
----------------------
Net cash provided by operating activities 79,442 16,045
----------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (26,454) (21,642)
Proceeds from sale of property, plant, and
equipment 25
Purchase of business, net of cash acquired (19,578)
Increase in intangible assets (10)
----------------------
Net cash used in investing activities (46,017) (21,642)
----------------------
Cash flows from financing activities:
(Payments) borrowings under long term debt
agreements (3,412) 17,000
Principal payments under long-term
debt agreements and capital leases (1,338) (532)
Proceeds from stock options exercised 14
Stock subscriptions receivable (866)
----------------------
Net cash (used in)provided by
financing activities (4,736) 15,602
----------------------
Effect of exchange rate changes on cash
and cash equivalents (438) 1,171
----------------------
Net increase in cash and cash equivalents 28,251 11,176
Cash and cash equivalents at beginning of period 18,269 14,308
----------------------
Cash and cash equivalents at end of period $ 46,520 $ 25,484
======================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 9,572 $ 9,315
Cash paid during the period for taxes $ 827 $ 7,779
</TABLE>
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended March 31, 2000 and 1999
(Unaudited)
(In thousands, except per share amounts)
Supplemental Non-cash Investing and Financing Information:
In connection with the Company's January 1, 2000 acquisition of Nutrition
Warehouse, Inc. and its affiliated companies (NW), the Company issued
approximately 1,059 shares of its common stock with a total then market
value of $12,244.
During the six months ended March 31, 2000, options were exercised with 45
shares of common stock issued to an executive for cash of $14. As a result
of the exercise of those options, the Company expects to receive a
compensation deduction for tax purposes of approximately $352 and a tax
benefit of approximately $138.
During the six months ended March 31, 1999, options were exercised with
3,520 shares of common stock issued to certain officers and an executive for
interest-bearing stock subscriptions receivable aggregating $866 and cash of
$27. As a result of the exercise of those options, the Company received a
compensation deduction for tax purposes of approximately $14,604 and a tax
benefit of approximately $5,696.
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 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 March 31, 2000 and its results of operations for
the three and six months ended March 31, 2000 and 1999 and statements of
cash flows for the six months ended March 31, 2000 and 1999. The condensed
consolidated balance sheet as of September 30, 1999 has been derived from
the audited balance sheet as of that date. The results of operations for the
three and six months ended March 31, 2000 and statements of cash flows for the
six months ended March 31, 2000 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, 1999.
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.
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
New accounting standards
Effective October 1, 1998, Company adopted 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. SFAS No. 131 requires comparative
information for earlier years to be restated. The adoption of SFAS No. 131
did not affect the Company's results of operations or financial position,
but did affect the disclosure of segment information.
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, as amended, 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 the Effective Date of Statement 133," which postponed
the adoption of SFAS No. 133. As such, the Company is not required to adopt
the statement until fiscal 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, however, it is currently reviewing the
impact of adopting such pronouncement.
2. Acquisitions
On January 1, 2000, the Company acquired Nutrition Warehouse, Inc. and its
affiliated companies ("NW") for $20 million in cash and approximately 1,059
shares of NBTY stock with a total then market value of $12.2 million. NW
operates an e-commerce/direct response business as well as 14 retail stores
in various locations in New York. The e-commerce business will be combined
with the Company's Puritan.com operations. Annual revenues approximated $14
million for the e-commerce/direct response business and $14 million in
retail sales for the year ended December 31, 1999. The cash portion of the
acquisition was funded with $20 million in borrowings under the Company's
Credit and Guarantee Agreement (CGA).
In May 1999, the Company acquired the assets and certain liabilities of a
network marketing company, Dynamic Essentials, Inc. (DEI) for approximately
$1,000 in cash. DEI was formed in December 1998 and had aggregate sales of
$2,081 during its first six months.
3. Comprehensive earnings
Comprehensive income for the Company includes net income and the effects of
foreign currency translation, which are charged or credited to the
cumulative translation adjustment account within stockholders' equity.
Comprehensive earnings for the three and six months ended March 31, 2000 and
1999 are as follows:
<TABLE>
<CAPTION>
For the three months For the six months
ended March 31, ended March 31,
-------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $18,063 $6,838 $26,480 $10,306
Changes in cumulative
translation adjustment (2,659) (5,343) (5,995) (9,261)
------------------------------------------
Comprehensive earnings $15,404 $1,495 $20,485 $ 1,045
==========================================
</TABLE>
Accumulated other comprehensive earnings, which is classified as a separate
component of stockholders' equity, is comprised of cumulative translation
adjustments of $140 and $6,135 at March 31, 2000 and September 30, 1999,
respectively.
4. Inventories
Inventories have been estimated using the gross profit method for the
interim periods. The components of inventories are as follows:
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
--------- -------------
<S> <C> <C>
Raw materials and Work-in-process $ 42,610 $ 52,116
Finished goods 81,081 83,350
-----------------------
$123,691 $135,466
=======================
</TABLE>
5. Earnings per share (EPS)
Basic EPS computations are based on the weighted average number of common
shares outstanding during the three and six month periods ended March 31,
2000 and 1999. Diluted EPS include the dilutive effect of outstanding stock
options, as if exercised. The following is a reconciliation between the
basic and diluted EPS:
<TABLE>
<CAPTION>
For the three months For the six months
March 31, March 31,
-------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic EPS --
Income available
To common stockholders $18,063 $ 6,838 $26,480 $10,306
===========================================
Numerator for diluted EPS --
Income available
To common stockholders $18,063 $ 6,838 $26,480 $10,306
===========================================
Denominator:
Denominator for basic EPS --
Weighted average shares 67,200 71,597 66,659 71,313
Effect of dilutive securities:
Stock options 2,430 916 2,210 1,260
-------------------------------------------
Denominator for diluted EPS --
Weighted average shares 69,630 72,513 68,869 72,573
===========================================
Net EPS:
Basic EPS $ 0.27 $ 0.10 $ 0.40 $ 0.14
===========================================
Diluted EPS $ 0.26 $ 0.09 $ 0.38 $ 0.14
===========================================
</TABLE>
6. Stock options:
During the six months ended March 31, 2000, options were exercised with 45
shares of common stock issued to an executive for cash of $14. As a result
of the exercise of those options, the Company expects to receive a
compensation deduction for tax purposes of approximately $352 and a tax
benefit of approximately $138.
During the six months ended March 31, 1999, options were exercised with
3,520 shares of common stock issued to certain officers and an executive for
interest-bearing stock subscriptions receivable aggregating $866 and cash of
$27. As a result of the exercise of those options, the Company received a
compensation deduction for tax purposes of approximately $14,604 and a tax
benefit of approximately $5,696.
7. Segment Information:
The Company's segments are organized by sales market on a worldwide basis.
The Company's management reporting system evaluates performance based on a
number of factors; however, the primary measure of performance is the pretax
operating income of each segment. Accordingly, the Company reports four
worldwide segments: Puritan.com/Direct Response, Retail: United States and
United Kingdom, and Wholesale. All of the Company's products fall into one
of these four segments. The Puritan.com/Direct Response segment generates
revenue through the sale of its products primarily through mail order
catalog and the internet. Catalogs are strategically mailed to customers who
order by mail or phoning customer service representatives in New York,
Illinois and the United Kingdom. The Retail United States segment generates
revenue through the sale of proprietary brand and third-party products
through its 415 Company-operated stores. The Retail United Kingdom segment
generates revenue through the sales of proprietary brand and third-party
products in 422 Company-operated stores. The Wholesale segment (including
Network Marketing) is comprised of several divisions each targeting specific
market groups. These market groups include wholesalers, distributors,
chains, pharmacies, health food stores, bulk and international customers.
The following table represents key financial information of the Company's
business segments (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
-------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Puritan.com/Direct Response
Revenue $ 62,905 $ 59,006 $ 92,139 $ 89,226
Operating income 19,396 15,133 24,949 20,174
Depreciation and amortization 753 333 1,093 668
Retail:
United States
Revenue $ 38,496 $ 24,210 $ 72,826 $ 44,999
Operating loss (2,890) (4,778) (6,385) (6,178)
Depreciation and amortization 2,618 1,233 4,893 2,214
United Kingdom
Revenue $ 63,640 $ 53,753 $134,863 $113,693
Operating income 12,930 7,280 25,076 11,754
Depreciation and amortization 3,008 3,153 6,246 6,223
Wholesale
Revenue $ 35,066 $ 30,704 $ 71,450 $ 60,768
Operating income 7,008 1,764 13,125 5,411
Depreciation and amortization 189 108 377 180
Corporate
Depreciation and amortization $ 2,428 $ 2,563 $ 4,729 $ 4,530
Consolidated totals
Revenue $200,107 $167,673 $371,279 $308,686
Operating income 34,016 16,836 52,036 26,631
Depreciation and amortization 8,996 7,390 17,338 13,815
Interest expense, net 4,739 5,358 9,425 9,626
Income taxes 12,042 4,647 17,653 7,213
Net income 18,063 6,840 26,480 10,306
</TABLE>
The following table reflects identifiable assets by market segment at March
31, 2000 and 1999:
<TABLE>
<CAPTION>
March 31,
----------------------
2000 1999
---- ----
<S> <C> <C>
Puritan.com/Direct response $ 59,712 $ 32,059
Retail United States 74,404 56,678
Retail United Kingdom 222,808 211,054
Wholesale 14,837 16,721
Corporate manufacturing assets 219,829 195,564
----------------------
Consolidated totals $591,590 $512,076
======================
</TABLE>
8. Subsequent events:
The Company acquired the mailing list of Rexall Sundown's SDV vitamin
catalog and mail order list on April 17, 2000. The list contains
approximately 750 customer names, which will be merged into the existing
customer base of the Puritan.com/ direct-response/e-commerce business.
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:
<TABLE>
<CAPTION>
Three months Six months
Ended Ended
March 31, March 31,
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 42.1 46.8 44.5 47.8
Catalog printing, postage and promotion 4.8 5.9 4.8 6.0
Selling, general and administrative 36.1 37.2 36.7 37.5
-----------------------------------------
83.0 89.9 86.0 91.3
-----------------------------------------
Income from operations 17.0 10.1 14.0 8.7
Other income (expenses), net (2.0) (3.2) (2.1) (3.0)
-----------------------------------------
Income before income taxes 15.0 6.9 11.9 5.7
Income taxes 6.0 2.8 4.8 2.4
-----------------------------------------
Net income 9.0% 4.1% 7.1% 3.3%
=========================================
</TABLE>
For the three months ended March 31, 2000 compared to
the three months ended March 31, 1999:
Net sales. Net sales in the second quarter ended March 31, 2000 were $200,107
compared with $167,673 for the prior comparable period, an increase of $32,434
or 19.3%. Puritan.com/Direct Response sales were $62,905 compared to $59,006
(increase of $3,899 or 6.6%), wholesale sales were $35,066 compared to $30,704
(increase of $4,362 or 14.2%), U.S. retail sales were $38,496 compared to
$24,210 (increase of $14,286 or 59.0%) and U.K. retail sales were $63,640
compared to $53,753 (increase of $9,887 or 18.4%). Revenue increases in all of
the Company's segments are attributed to the continued consumer acceptance of
the broad base of the Company's products. The Company operated 415 stores in
the U.S. and 422 stores in the U.K. as of March 31, 2000 compared to 277 stores
in the U.S. and 415 in the U.K. as of March 31, 1999. Sales growth in the U.S.
retail channel reflected the greater number of stores compared to last year.
U.S. comparative store sales increased $3,621 or 15.6% for stores open more
than one year.
Costs and expenses. Cost of sales as a percentage of sales were 42.1% for 2000
and 46.8% for 1999. The decrease is attributed to efficiencies due to economies
of scale, increased automation and higher margins for new product
introductions.
Catalog printing, postage, and promotion expenses were $9,604 in 2000 compared
with $9,864 in 1999. This decrease was due primarily to a reduction in print
media advertising in direct response. As a percentage of sales, expenses were
4.8% for the current quarter and 5.9% for the prior comparable quarter.
Selling, general and administrative expenses were $72,335 for the quarter, or
36.1% as a percentage of sales, compared with $62,424 or 37.2% as a percentage
of sales. The largest categories and increases are indirect salaries and rent
expense which increased primarily due to the U.S. retail store expansion
program. The Company was operating more efficiently and thereby able to
increase sales without a proportional increase in these costs.
Interest expense. Interest expense was $4,739, a decrease of $619 compared to
$5,358 during the comparable quarter. The major components are interest on
Senior Subordinated Notes associated with the Holland & Barrett acquisition,
the Credit and Guarantee Agreement (CGA) used for stock repurchases and for
capital expenditures.
Income before income taxes was $30,105 for 2000 and $11,485 for 1999. After
income taxes, the Company had a net profit of $18,063 (or basic earnings per
share of $0.27, diluted earnings per share of $0.26) for the three month period
ended March 31, 2000, and $6,838 (or basic earnings per share of $0.10, diluted
earnings per share of $0.09) for the three months ended March 31, 1999.
For the six months ended March 31, 2000 compared
to the six months ended March 31, 1999:
Net sales. Net sales for the six months ended March 31, 2000 were $371,279
compared with $308,686 for the prior comparable period, an increase of $62,593
or 20.3%. Puritan.com/Direct Response sales were $92,139 compared to $89,226
for the prior comparable period (increase of $2,913 or 3.3%), wholesale sales
were $71,450 compared to $60,768 (increase of $10,682 or 17.6%), U.S. retail
sales were $72,826 compared to $44,999 (increase of $27,827 or 61.8%) and U.K.
retail sales were $134,863 compared to $113,693 (increase of $21,170 or 18.6%).
Revenue increases in all of the Company's segments are attributed to continued
consumer acceptance of the broad base of the Company's products. The Company
operated 415 stores in the U.S. and 422 stores in the U.K. as of March 31, 2000
compared to 277 stores in the U.S. and 415 in the U.K. as of March 31, 1999.
Sales growth in the U.S. retail channel reflected the greater number of stores
compared to last year. U.S. comparative store sales increased $6,223 or 15.9%
for stores open more than one year.
Costs and expenses. Cost of sales as a percentage of sales were 44.5% for 2000
and 47.8% for 1999. The decrease is attributed to efficiencies due to economies
of scale, increased automation and higher margins from new product
introductions.
Catalog printing, postage, and promotion expenses were $17,889 in 2000,
compared with $18,652. This decrease was due primarily to a reduction in print
media advertising in direct response. As a percentage of sales, expenses were
4.8% for the six months and 6.0% for the prior six months.
Selling, general and administrative expenses were $136,258 for the six months,
or 36.7% as a percentage of sales, compared with $115,895 or 37.5% as a
percentage of sales. The largest categories and increases are indirect salaries
and rent expense, which increased primarily due to the U.S. retail store
expansion program. The Company was operating more efficiently and thereby able
to increase sales without a proportional increase in these costs.
Interest expense. Interest expense was $9,425, an decrease of $201 compared to
$9,626 during the comparable six months. The major components are interest on
Senior Subordinated Notes associated with the Holland & Barrett acquisition,
the Credit and Guarantee Agreement (CGA) used for the stock repurchase and for
capital expenditures. Interest expense increased due to the additional
borrowings to fund the share repurchase program.
Income before income taxes was $44,133 for 2000 and $17,520 for 1999. After
income taxes, the Company had a net profit of $26,480 (or basic earnings per
share of $0.40, diluted earnings per share of $0.38) for the six month period
ended March 31, 2000, and $10,306 (or basic earnings per share of $0.14,
diluted earnings per share of $0.14) for the six months ended March 31, 1999.
Liquidity and Capital Resources
Working capital was $112.3 million at March 31, 2000, compared with $121.1
million at September 30, 1999, a decrease of $6.8 million.
On January 1, 2000, the Company acquired Nutrition Warehouse, Inc. and its
affiliated companies ("NW") for $20 million in cash and approximately 1,059
shares of NBTY stock with a then market value of $12.4 million. The cash
portion of the acquisition was funded by $20 million in borrowings under the
Credit and Guarantee Agreement (CGA).
In April 1999, the Company entered into an amended and restated CGA which
expires September 30, 2003 increasing the borrowing limit from $60 million
to $135 million. On February 3, 2000 this amount was adjusted to $129
million. 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 March 31, 2000, there were borrowings of $54,000 under this facility.
The Company plans on utilizing the funds for working capital needs. In
January 2000, the Company borrowed $20 million for the cash portion of the
January 3, 2000 acquisition of Nutrition Warehouse, Inc. and during
February 2000, the Company paid down $14 million under this facility.
In connection with the August 1997 acquisition of Holland & Barrett, the
Company issued $150 million of 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.
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 Company's 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 $79.4 million in 2000 and
$16.0 million in 1999 primarily due to increases in net income, depreciation
and amortization and accrued expenses as well as a decrease in inventory.
Net cash used in investing activities was $46.0 million in 2000 and $21.6
million in 1999 due to the acquisition of NW and retail stores and plant
expansion programs. Net cash used in financing activities was $4.7 million
in 2000 due to payment of loans and provided by financing activities was
$15.6 million in 1999 due to borrowings under the CGA.
Management believes that inflation did not have a significant impact on its
operations.
Year 2000
The Company did not experience any disruptions to its normal operations as
a result of the transition into calendar year 2000. Thorough testing of
mission critical business processes was performed on and subsequent to
January 1, 2000 in order to validate the data integrity of internal and
external system interfaces. In addition, the Company is not aware of any
disruption in service from its key suppliers and vendors.
The total estimated cost associated with achieving worldwide Year 2000
compliance, excluding internal costs, was approximately $1,000.
The Company will continue to monitor its business processes and third
parties for potential problems that could arise in the first few months of
calendar year 2000. Based on the Company's preparations prior January 1,
2000 and the absence of any problems to date, no significant disruptions
are anticipated.
New accounting standards
Effective October 1, 1998, Company adopted 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. SFAS No. 131 requires comparative
information for earlier years to be restated. The adoption of SFAS No. 131
did not affect the Company's results of operations or financial position,
but did affect the disclosure of segment information.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133, as amended, 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. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of Statement 133," which postponed the adoption of SFAS No. 133. As such,
the Company is not required to adopt the statement until fiscal 2002.
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, however, it is currently reviewing the impact of adopting such
pronouncement.
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)
(Votes in thousands)
Item 1. Legal Proceedings
Not applicable.
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 following propositions were approved on April 10, 2000, at NBTY, Inc.'s
Annual Meeting of Stockholders:
Proposition 1: Re-elected Directors to serve until the 2003 Annual Meeting.
<TABLE>
<CAPTION>
Votes for Votes against
--------- -------------
<S> <C> <C>
Aram Garabedian 53,762 1,628
Bernard Owen 53,762 1,628
Alfred Sacks 53,762 1,628
</TABLE>
Proposition 2: Approved the adoption of an Incentive Stock Option Plan.
<TABLE>
<CAPTION>
Votes Votes Votes
for against abstained Unvoted
----- ------- --------- -------
<C> <C> <C> <C>
24,129 11,598 151 19,512
</TABLE>
Proposition 3: Ratified the designation of PricewaterhouseCoopers LLP as
independent accountants to audit the consolidated financial statements of
the Company for the 2000 fiscal year.
<TABLE>
<CAPTION>
Votes Votes Votes
for against abstained
----- ------- ---------
<C> <C> <C>
55,240 103 47
</TABLE>
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, 2000.
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 12, 2000 /s/ Harvey Kamil
Harvey Kamil, Executive Vice
President, Secretary
(Principal Financial
and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 46,520
<SECURITIES> 0
<RECEIVABLES> 35,791
<ALLOWANCES> 1,241
<INVENTORY> 123,691
<CURRENT-ASSETS> 213,057
<PP&E> 308,705
<DEPRECIATION> 100,278
<TOTAL-ASSETS> 591,590
<CURRENT-LIABILITIES> 100,728
<BONDS> 221,036
0
0
<COMMON> 538
<OTHER-SE> 256,290
<TOTAL-LIABILITY-AND-EQUITY> 591,590
<SALES> 371,279
<TOTAL-REVENUES> 371,279
<CGS> 165,096
<TOTAL-COSTS> 154,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,425
<INCOME-PRETAX> 44,134
<INCOME-TAX> 17,654
<INCOME-CONTINUING> 26,480
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,480
<EPS-BASIC> 0.40
<EPS-DILUTED> 0.38
</TABLE>
