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, 2001
Commission File Number: 0-10666
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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 August 6, 2001: 65,290,799
NBTY, INC. and SUBSIDIARIES
INDEX
<s> <c>
PART I Financial Information
Condensed Consolidated Balance Sheets -
June 30, 2001 (unaudited) and
September 30, 2000 1 - 2
Condensed Consolidated Statements of Income -
(unaudited) Three months ended
June 30, 2001 and 2000 3
Condensed Consolidated Statements of Income -
(unaudited) Nine months ended
June 30, 2001 and 2000 4
Condensed Consolidated Statements of
Stockholders' Equity -
Year ended September 30, 2000
and (unaudited) Nine months ended
June 30, 2001 5
Condensed Consolidated Statements of Cash Flows -
(unaudited) Nine months ended
June 30, 2001 and 2000 6 - 7
Notes to Condensed Consolidated
Financial Statements (unaudited) 8 - 14
Management's Discussion and Analysis
of Financial Condition and
Results of Operations 15 - 22
Qualitative and Quantitative Disclosures
about Market Risk 22
PART II Other Information 23
Signature 24
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars and shares in thousands)
June 30, September 30,
2001 2000
-------- -------------
(Unaudited)
<s> <c> <c>
Current assets:
Cash and cash equivalents $ 44,461 $ 31,464
Accounts receivable, less
allowance for doubtful accounts
of $1,536 at June 30, 2001
and $1,227 at September 30, 2000. 39,558 24,913
Inventories 176,025 130,741
Deferred income taxes 3,549 3,549
Prepaid property taxes, rent,
and other current assets 25,129 20,269
------------------------
Total current assets 288,722 210,936
Property, plant and equipment 362,779 326,010
less accumulated depreciation
and amortization 133,013 111,846
------------------------
229,766 214,164
Intangible assets, net 173,918 172,124
Other assets 13,138 6,389
------------------------
Total assets $705,544 $603,613
========================
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
June 30, September 30,
2001 2000
--------- -------------
(Unaudited)
<s> <c> <c>
Current liabilities:
Current portion of long-term debt
and capital lease obligations $ 37,392 $ 12,829
Accounts payable 55,519 61,100
Accrued expenses and income taxes 58,532 36,893
-------------------------
Total current liabilities 151,443 110,822
Long-term debt 254,256 199,095
Obligations under capital leases 515 1,383
Deferred income taxes 16,918 17,050
Other liabilities 2,816 2,820
-------------------------
Total liabilities 425,948 331,170
-------------------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.008 Par; authorized 175,000
shares; issued 68,549 shares at June 30,
2001 and 68,524 shares at September 30, 2000
and outstanding 65,291 shares at June 30,
2001 and 68,289 shares at September 30, 2000. 548 548
Capital in excess of par 124,031 123,798
Retained earnings 195,253 163,300
-------------------------
319,832 287,646
Less: 3,258 and 235 treasury shares, at cost, at
June 30, 2001 and September 30, 2000, respectively (17,211) (1,512)
Stock subscriptions receivable (839) (839)
Accumulated other comprehensive loss (22,186) (12,852)
-------------------------
Total stockholders' equity 279,596 272,443
-------------------------
Total liabilities and stockholders'
equity $705,544 $603,613
=========================
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,
--------------------
2001 2000
---- ----
<s> <c> <c>
Net sales $203,926 $172,102
Cost and expenses:
Cost of sales 87,460 74,020
Catalog printing, postage and promotion 11,388 7,135
Selling, general and administrative 78,060 69,287
Recovery of raw material cost - (2,511)
--------------------
176,908 147,931
--------------------
Income from operations 27,018 24,171
--------------------
Other income (expense):
Interest, net (6,314) (5,011)
Miscellaneous, net 1,030 934
--------------------
(5,284) (4,077)
--------------------
Income before income taxes 21,734 20,094
Income taxes 8,368 8,037
--------------------
Net income $ 13,366 $ 12,057
====================
Net income per share:
Basic $ 0.20 $ 0.18
====================
Diluted $ 0.20 $ 0.17
====================
Weighted average common shares outstanding:
Basic 65,281 67,495
====================
Diluted 67,099 69,729
====================
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,
-------------------
2001 2000
---- ----
<s> <c> <c>
Net sales $595,530 $543,381
Cost and expenses:
Cost of sales 259,769 239,116
Catalog printing, postage and promotion 38,799 25,025
Selling, general and administrative 232,436 205,559
Recovery of raw material cost - (2,511)
--------------------
531,004 467,189
--------------------
Income from operations 64,526 76,192
--------------------
Other income (expense):
Interest, net (16,149) (14,360)
Miscellaneous, net 3,579 2,395
--------------------
(12,570) (11,965)
--------------------
Income before income taxes 51,956 64,227
Income taxes 20,003 25,691
--------------------
Net income $ 31,953 $ 38,536
====================
Net income per share:
Basic $ 0.49 $ 0.58
====================
Diluted $ 0.48 $ 0.56
====================
Weighted average common shares outstanding:
Basic 65,865 66,937
====================
Diluted 66,817 69,173
====================
See notes to condensed consolidated financial statements.
NBTY, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
for the year ended September 30, 2000 and
the nine months ended June 30, 2001
(Unaudited)
(Dollars and shares in thousands)
Accumu-
lated
Common stock Treasury stock Other
--------------- Capital ----------------- Stock Compre- Total Total
Number in Number sub- hensive Stock- Compre-
of excess Retained of scriptions Income holders' hensive
shares Amount of par earnings shares Amount receivable (Loss) Equity Income
------ ------ ------- -------- ------ ------ ---------- ------- -------- -------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Balances, September 30, 1999 66,096 $529 $106,332 $111,792 - - $(839) $ 6,135 $223,949 $22,101
-------
Net income for year ended
September 30, 2000 51,508 51,508 $51,508
Purchase of treasury shares,
at cost 288 (2,511) (2,511)
Acquisition of Nutrition
Warehouse 1,059 8 12,235 12,243
Treasury stock retired (53) (999) (53) 999 -
Exercise of stock options 1,422 11 4,397 4,408
Tax benefit from exercise of
stock options 1,833 1,833
Foreign currency translation
adjustment (18,987) (18,987) (18,987)
---------------------------------------------------------------------------------------------------
Balances, September 30, 2000 68,524 548 123,798 163,300 235 (1,512) (839) (12,852) 272,443 $32,521
-------
Net income for the nine
months ended June 30, 2001 31,953 31,953 $31,953
Purchase of treasury shares,
at cost 3,023 (15,699) (15,699)
Exercise of stock options 25 155 155
Tax benefit from exercise of
stock options 78 78
Foreign currency translation
adjustment (9,334) (9,334) (9,334)
---------------------------------------------------------------------------------------------------
Balances, June 30, 2001 68,549 $548 $124,031 $195,253 3,258 $(17,211) $(839) $(22,186) $279,596 $22,619
===================================================================================================
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,
----------------------
2001 2000
---- ----
<s> <c> <c>
Net income $ 31,953 $ 38,536
Adjustments to reconcile net income to
cash provided by operating activities:
Loss on sale of property, plant and equipment 512 726
Depreciation and amortization 32,576 26,890
Amortization of bond discount 93 93
Provision for allowance for doubtful accounts 325 107
Tax benefit from exercise of stock options 78 1,681
Changes in assets and liabilities:
Increase in accounts receivable (5,767) (4,057)
(Increase) decrease in inventories (27,739) 5,104
Increase in prepaid catalog
costs and other current assets (3,240) (6,069)
(Increase)decrease in other assets (67) 1,522
(Decrease)increase in accounts payable (5,847) 3,736
Increase in accrued expenses 19,841 25,250
Decrease in other liabilities (5) (1,381)
--------------------
Net cash provided by operating activities 42,713 92,138
--------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (26,961) (41,655)
Proceeds from sale of property, plant, and equipment 4,162 110
Purchase of business, net of cash acquired (68,177) (41,728)
Increase in intangible assets (40) (10)
--------------------
Net cash used in investing activities (91,016) (83,283)
--------------------
Cash flows from financing activities:
Borrowings (Payments) under long-term debt
agreements 91,064 (2,092)
Principal payments under long-term
debt agreements and capital leases (12,300) (1,918)
Proceeds from stock options exercised 155 1,666
Purchase of treasury stock (15,699)
Stock subscriptions receivable (1,760)
--------------------
Net cash provided by (used in)
financing activities 63,220 (4,104)
--------------------
Effect of exchange rate changes on cash
and cash equivalents (1,920) (1,257)
--------------------
Net increase in cash and cash equivalents 12,997 3,494
Cash and cash equivalents at beginning of period 31,464 18,269
--------------------
Cash and cash equivalents at end of period $ 44,461 $ 21,763
====================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 12,558 $ 11,801
Cash paid during the period for taxes $ 8,982 $ 5,752
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended June 30, 2001 and 2000
(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.
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 June 30, 2001 and its results of operations for the
three and nine months ended June 30, 2001 and 2000 and statements of cash
flows for the nine months ended June 30, 2001 and 2000. The condensed
consolidated balance sheet as of September 30, 2000 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, 2001 and statements of cash flows for
the nine months ended June 30, 2001 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, 2000.
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. The most significant estimates include the valuation
of inventories, the allowance for doubtful accounts receivable and the
recoverability of long-lived assets. 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
In July 2001, The Financial Accounting Standards Board (FASB) issued
Statements No. 141, "Business Combinations" and No. 142, "Goodwill and
Other Intangible Assets." Effective October 1, 2001, the Company will no
longer be required to amortize goodwill and certain other intangibles as a
charge to earnings. Management has estimated that adoption of these
standards will reduce amortization expense of goodwill and other certain
intangibles by approximately $5.5 million annually.
Effective October 1, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". As the Company has
determined, it does not have any derivatives or hedging activities, the
adoption of SFAS No. 133 did not affect the Company's financial position or
results of operations as of and for the nine months ended June 30, 2001.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
("SAB 101"). SAB 101 does not change existing revenue recognition rules,
but rather addresses and clarifies existing rules and
their application. SAB 101 is effective for the Company beginning July 1,
2001 or fourth quarter of fiscal 2001. Management believes the impact of
SAB 101 will not be material to the Company's results of operations and
financial position.
NBTY, INC. and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
2. Acquisitions
During May 2001, the Company completed the acquisition of NatureSmart, LLC
for approximately $29 million and purchased certain assets of Global Health
Sciences Inc. in an auction ordered by a bankruptcy court in California for
approximately $40 million. The transactions stipulated adjustments to the
purchase price for agreed upon working capital. The Company has determined
that there are working capital deficiencies, (approximately $1.5 million for
NatureSmart and $6.5 million for Global Health Sciences) and therefore the
amounts noted above as cash paid for the acquisitions are expected to be
reduced upon resolution of these matters. The transactions were funded by
borrowings under the Credit and Guarantee Agreement (CGA).
NatureSmart:
Assets acquired and liabilities assumed include accounts receivable ($643),
inventory ($10,882), other current assets ($618), property, plant and
equipment ($6,871), intangibles ($1,309), and current liabilities ($3,565).
The excess cost of investment over the net book value of NatureSmart at the
date of acquisition resulted in an increase in goodwill of $12,612 which
will be amortized over 20 years. NatureSmart develops, manufacturers and
markets nutritional supplements. NatureSmart's sales for the year ended
September 24, 2000 were approximately $59 million.
Global Health Sciences:
Assets acquired and liabilities assumed include cash ($1,427) accounts
receivable ($8,569), inventory ($7,894), other current assets ($1,663), and
property, plant and equipment ($14,000). The excess cost of investment over
the net book value of Global Health Sciences at the date of acquisition
amounted to $6,681, which is classified by the Company as other assets. The
Company, upon completion of any purchase price adjustments, will reevaluate
its classification of the $6,681 included in other assets. Global Health
Sciences manufactures and markets specialty nutritional supplements in
powder and tablet form. Global Health Sciences had sales of approximately
$171 million for the twelve month period ended April 2001.
These two acquisitions contributed $11 million of sales and a marginal
operating loss for the current quarter.
During the quarter ended June 30, 2000, the Company acquired certain assets
and liabilities of Longevity Formulas, Inc. (also known as "Healthwatchers
System") and Martin Health Systems, Inc. for $5,150. In addition, the
Company acquired the mailing list of Rexall Sundown's SDV vitamin catalog
and mail order business for $16,500. The list contains approximately 750,000
customer names, which has been merged into the existing customer base of the
Puritan's Pride/Direct Response business.
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
operated an e-commerce/direct response business as well as fourteen retail
stores in various locations in New York. The e-commerce business has been
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).
NBTY, INC. and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts
3. Comprehensive income
Total 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.
Total comprehensive income for the three and nine months ended June 30, 2001
and 2000 are as follows:
For the three months For the nine months
ended June 30, ended June 30,
-------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
Net income $13,366 $12,057 $31,953 $ 38,536
Changes in cumulative
translation adjustments (1,646) (9,484) (9,334) (15,479)
---------------------------------------------
Comprehensive income $11,720 $ 2,573 $22,619 $ 23,057
=============================================
Accumulated other comprehensive loss, which is classified as a separate
component of stockholders' equity, is comprised of cumulative translation
adjustments of $(22,186) and $(12,852) at June 30, 2001 and September 30,
2000, respectively.
NBTY, INC. and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
4. Inventories
Inventories have been estimated using the gross profit method for the
interim periods. The components of inventories are as follows:
June 30, September 30,
2001 2000
-------- -------------
<s> <c> <c>
Raw materials and
Work-in-process $ 67,714 $ 45,083
Finished goods 108,311 85,658
-----------------------
$176,025 $130,741
=======================
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,
2001 and 2000. Diluted EPS includes the dilutive effect of outstanding
stock options, as if exercised. The following is a reconciliation between
basic and diluted EPS:
For the three months For the nine months
ended June 30, ended June 30,
-------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
Numerator:
Numerator for basic EPS -
income available
to common stockholders $13,366 $12,057 $31,953 $38,536
==============================================
Numerator for diluted EPS -
income available
to common stockholders $13,366 $12,057 $31,953 $38,536
==============================================
Denominator:
Denominator for basic EPS -
weighted - average shares 65,281 67,495 65,865 66,937
Effect of dilutive securities:
Stock options 1,818 2,234 952 2,236
----------------------------------------------
Denominator for diluted EPS -
weighted - average shares 67,099 69,729 66,817 69,173
==============================================
Net EPS:
Basic EPS $ 0.20 $ 0.18 $ 0.49 $ 0.58
==============================================
Diluted EPS $ 0.20 $ 0.17 $ 0.48 $ 0.56
==============================================
NBTY, INC. and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
6. New Credit Facility
On April 27, 2001 the Company entered into an amended and restated Credit
and Guarantee Agreement (CGA) which provides for aggregate borrowings up to
$188,400. The CGA is comprised of two revolving credit agreements of
$100,000 (increased by $50,000 in April 2001) and $50,000 and a term loan of
$38,400. As of August 31, 2001, the outstanding balance of the $100,000
facility will convert to a term loan, payable in 16 equal consecutive
installments commencing on September 30, 2001 and ending on June 30, 2005.
The $50,000 revolving credit facility expires on September 30, 2003. The
$38,400 term loan is payable in 16 equal consecutive installments commencing
on June 30, 2001 with the balance payable on March 31, 2005. At June 30,
2001 there were borrowings of $134,200 under this facility at an annual
borrowing rate of 7.125%. The current portion of the CGA is $34,425. The
Company is required to pay a commitment fee, which varies between .25% and
.50% per annum, depending on the Company's ratio of Debt to EBITDA, on any
unused portion of the revolving credit facility. 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. In addition, the Company is subject to the maintenance of
various financial ratios and covenants.
7. Stock Options
During the nine months ended June 30, 2001, options were exercised with 25
shares of common stock issued to a director for cash of $155. As a result
of the exercise of those options, the Company expects to receive a
compensation deduction for tax purposes of approximately $203 and a tax
benefit of approximately $78.
During the nine months ended June 30, 2000, options were exercised with
1,361 shares of common stock issued to executives for cash of $1,666,
interest bearing stock subscriptions receivable of $1,760 and $964 of NBTY
shares. As a result of the exercise of those options, the Company received
a compensation deduction for tax purposes of approximately $4,310 and a tax
benefit of approximately $1,681.
8. Change in accounting estimate
Effective April 1, 2001, the Company changed its accounting estimate for the
useful live of certain long-lived assets, primarily leasehold improvements
and furniture and fixtures based upon the term of the leases. Management
believes that the useful life of these assets approximates the term of the
respective leases. The effect of this change in estimate has been accounted
for on a prospective basis and resulted in a decrease in depreciation and
amortization expense of approximately $600 for the quarter ended June 30,
2001.
NBTY, INC. and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
9. 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's Pride/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's Pride/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 or the United Kingdom. The Retail United States segment
generates revenue through the sale of proprietary brand and third-party
products through its 523 Company-operated stores. The Retail United Kingdom
segment generates revenue through the sale of proprietary brand and third-
party products in 458 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, mass marketers, retail chains, pharmacies, health food stores,
bulk and international customers.
The following table represents key financial information of the Company's
business segments:
NBTY, INC. and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
Three months ended Nine months ended
June 30, June 30,
------------------ -----------------
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
Puritan's Pride/Direct Response
Revenue $ 42,475 $ 42,899 $127,878 $135,039
Operating income 13,915 12,948 39,423 37,902
Depreciation and amortization 1,189 1,037 3,401 2,130
Retail:
United States
Revenue $ 45,268 $ 35,450 $128,680 $108,276
Operating loss (4,976) (5,543) (22,801) (11,929)
Depreciation and amortization 3,004 2,917 10,260 7,786
United Kingdom
Revenue $ 63,427 $ 57,194 $198,798 $192,057
Operating income 13,948 7,990 40,926 33,067
Depreciation and amortization 3,090 2,952 9,278 9,198
Wholesale
Revenue $ 52,756 $ 36,559 $140,174 $108,009
Operating income 4,664 6,275 7,012 14,670
Depreciation and amortization 408 311 925 689
Corporate
Operating (loss) income $ (533) $ 2,501 $ (34) $ 2,482
Depreciation and amortization 3,099 2,335 8,712 7,087
Recovery of raw material costs (2,511) - (2,511)
Consolidated totals
Revenue $203,926 $172,102 $595,530 $543,381
Operating income 27,018 24,171 64,526 76,192
Depreciation and amortization 10,790 9,552 32,576 26,890
Interest expense, net 6,314 5,011 16,149 14,360
Miscellaneous income, net 1,030 934 3,579 2,395
Income taxes 8,368 8,037 20,003 25,691
Net income 13,366 12,057 31,953 38,536
The following table reflects identifiable assets by market segment at June
30, 2001 and 2000:
June 30,
2001 2000
---- ----
<s> <c> <c>
Puritan's Pride/Direct response $ 77,076 $ 89,976
Retail United States 83,493 69,709
Retail United Kingdom 222,647 201,754
Wholesale 59,781 24,685
Corporate manufacturing assets 262,547 212,734
----------------------
Consolidated totals $705,544 $598,858
======================
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,
------------------- ----------------
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Cost of sales 42.9% 43.0% 43.6% 44.0%
Catalog printing, postage and promotion 5.6% 4.2% 6.5% 4.6%
Selling, general and administrative 38.3% 40.3% 39.0% 37.8%
Recovery of raw material cost -1.5% -0.5%
--------------------------------------
86.8% 86.0% 89.1% 85.9%
--------------------------------------
Income from operations 13.2% 14.0% 10.9% 14.1%
--------------------------------------
Other income (expense):
Interest, net -3.1% -2.8% -2.7% -2.6%
Miscellaneous, net 0.5% 0.5% 0.6% 0.4%
--------------------------------------
-2.6% -2.3% -2.1% -2.2%
--------------------------------------
Income before income taxes 10.6% 11.7% 8.8% 11.9%
Income taxes 4.1% 4.7% 3.4% 4.7%
--------------------------------------
Net income 6.5% 7.0% 5.4% 7.2%
======================================
NBTY, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
CONDITION and RESULTS of OPERATIONS
(In thousands, except per share amounts and number of stores)
For the three months ended June 30, 2001 compared to the three months ended
June 30, 2000:
Net sales. Net sales in the third quarter ended June 30, 2001 were $203,926
compared with $172,102 for the prior comparable period, an increase of
$31,824 or 18.5%. Puritan's Pride/Direct Response sales were $42,475
compared to $42,899, a decrease of $424 or 1.0%, wholesale sales were
$52,756 compared to $36,559, an increase of $16,197 or 44.3% , U.S. retail
sales were $45,268 compared to $35,450, an increase of $9,818 or 27.7% and
U.K. retail sales were $63,427 compared to $57,194, an increase of $6,233 or
10.9%. Revenue increases in three of the Company's four segments are
attributed to the continued consumer acceptance of the broad base of the
Company's products. The decrease in Direct Response reflects the general
industry weakness in nutritional supplements. The Company operated 523
stores in the U.S. and 458 stores in the U.K. as of June 30, 2001 compared
to 459 stores in the U.S. and 424 in the U.K. as of June 30, 2000. Sales
growth in the U.S. retail channel reflected the greater number of stores
compared to last year and increase in same store sales for stores open more
than one year of 10.5%
Costs and expenses. Cost of sales were $87,460 for 2001, or 42.9% as a
percentage of sales, compared to $74,020, or 43.0% for 2000. The increase of
$13,440 was due primarily to the increase in the wholesale segment's cost of
sales, which increased $12,374, or from 55.6% to 62.0% as a percentage of
sales, primarily due to Global Health Sciences' costs of sales of $6,598 on
sales of $6,465. The increase was mitigated by a decrease in the Direct
Response segment's cost of sales, which decreased from 35.9% to 30.4% as a
percentage of sales, primarily due to higher gross margins on new product
introductions and improvements in manufacturing efficiencies. The increase
was also mitigated by the U.S. retail segment's cost of sales decreasing as
a percentage of sales from 43% to 39.9%, primarily due to sales price
increases on all product lines during the prior quarter.
Catalog printing, postage, and promotion expenses were $11,388 in 2001
compared with $7,135 in 2000, and increase of $4,253. Of this increase
$1,392 was attributed to an increase in catalog printing and mailing costs
and the balance for radio and television for certain of the Company's
products. As a percentage of sales, catalog printing, postage and promotion
expenses were 5.6% for the current quarter and 4.2% for the prior comparable
quarter.
Selling, general and administrative expenses were $78,060 for the quarter,
or 38.3% as a percentage of sales, compared with $69,287 or 40.3% as a
percentage of sales in 2000. The largest categories with increases were
salaries, fringe benefits (health insurance), and rent expense which
increased primarily due to the U.S. retail store expansion program.
Recovery of raw materials costs. During the quarter ended June 30, 2000, the
Company received $2,511 in partial settlement of ongoing price fixing
litigation brought by the Company against certain raw material vitamin
suppliers.
Interest expense. Interest expense was $6,314 for 2001, an increase of
$1,303 compared to $5,011 in 2000. Interest expense increased due to the
additional borrowings to fund the two acquisitions completed in the current
quarter. The major components are interest on Senior Subordinated Notes
associated with the Holland & Barrett acquisition, the Credit and Guarantee
Agreement (CGA) used for acquisitions and for capital expenditures.
NBTY, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
CONDITION and RESULTS of OPERATIONS
(In thousands, except per share amounts and number of stores)
For the three months ended June 30, 2001 compared to the three months ended
June 30, 2000:
Other income (expense) - Miscellaneous, net for the three months ended June
30, 2001 increased $96 primarily due to a $135 increase in investment
income, a $151 increase in exchange rate gains on intercompany balances
offset by a $169 decrease in rental income, net.
Income before income taxes was $21,734 for 2001 and $20,094 for 2000. After
income taxes, the Company had a net profit of $13,366 (or basic and diluted
earnings per share of $0.20) for the three months ended June 30, 2001, and
$12,057 (or basic earnings per share of $0.18, diluted earnings per share of
$0.17) for the three months ended June 30, 2000.
NBTY, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
CONDITION and RESULTS of OPERATIONS
(In thousands, except per share amounts and number of stores)
For the nine months ended June 30, 2001 compared to the nine months ended
June 30, 2000:
Net sales. Net sales for the nine months ended June 30, 2001 were $595,530
compared with $543,381 for the prior comparable period, an increase of
$52,149 or 9.6%. Puritan's Pride/Direct Response sales were $127,878
compared to $135,039, a decrease of $7,161 or 5.3%, wholesale sales were
$140,174 compared to $108,009, an increase of $32,165 or 29.8%, U.S. retail
sales were $128,680 compared to $108,276, an increase of $20,404 or 18.8%
and U.K. retail sales were $198,798 compared to $192,057, an increase of
$6,741 or 3.5%. Revenue increases in three of the Company's four segments
are attributed to continued consumer acceptance of the broad base of the
Company's products. The decrease in Direct Response reflects the general
industry weakness in nutritional supplements. The Company operated 523
stores in the U.S. and 458 stores in the U.K. as of June 30, 2001 compared
to 459 stores in the U.S. and 424 in the U.K. as of June 30, 2000. Sales
growth in the U.S. retail channel reflected the greater number of stores
compared to last year. U.S. same store sales decreased $2,192 or 2.3% for
stores open more than one year.
Costs and expenses. Cost of sales were $259,769 for 2001, or 43.6% as a
percentage of sales, compared to $239,116, or 44.0% as a percentage of
sales. The Direct Response segment's cost of sales decreased from 36.6% to
33.4% as a percentage of sales, primarily due to higher gross margins on new
product introductions and improvements in manufacturing efficiencies. Cost
of sales for the U.K. retail segment decreased from 42.1% to 38.8% as a
percentage of sales, primarily due to increased efficiencies gained by the
new distribution plant located in Burton on Trent in the U.K. The decreases
in cost of sales, as a percentage of sales, were partially offset by the
increase in the wholesale segment's cost of sales, which increased from
57.9% to 61.1% as a percentage of sales.
Catalog printing, postage, and promotion expenses were $38,799 in 2001,
compared with $25,025 in 2000. This increase was due primarily to an
increase in print and television media advertising in wholesale, the Flex-A-
Min advertising campaign and costs related to the Vitamin World Savings
Passport Program. As a percentage of sales, catalog printing, postage and
promotion expenses were 6.5% for the nine months and 4.6% for the prior
comparable nine months.
Selling, general and administrative expenses were $232,436 for 2001, or
39.0% as a percentage of sales, compared with $205,559 or 37.8% as a
percentage of sales for 2000. The largest categories with increases were
salaries, fringe benefits (health insurance), and rent expense, which
increased primarily due to the U.S. retail store expansion program.
Recovery of raw materials costs. During the nine months ended June 30,
2000, the Company received $2,511 in partial settlement of ongoing price
fixing litigation brought by the Company against certain raw material
vitamin suppliers.
Interest expense. Interest expense was $16,149 for 2001, an increase of
$1,789 compared to $14,360 for 2000. 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,
acquisitions and for capital expenditures. The increase in interest expense
was due primarily to the additional borrowings to fund the stock repurchase
program and the acquisitions.
NBTY, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
CONDITION and RESULTS of OPERATIONS
(In thousands, except per share amounts and number of stores)
For the nine months ended June 30, 2001 compared to the nine months ended
June 30, 2000:
Other income (expense) - Miscellaneous, net for the nine months ended June
30, 2001 increased $1,184, primarily due to a $342 increase in investment
income, a $908 increase in exchange rate gains on intercompany balances
offset by a $372 decrease in rental income, net.
Income before income taxes was $51,956 for 2001 and $64,227 for 2000. After
income taxes, the Company had a net profit of $31,953 (or basic earnings per
share of $0.49, diluted earnings per share of $0.48) for the nine months
ended June 30, 2001, and $38,536 (or basic earnings per share of $0.58,
diluted earnings per share of $0.56) for the nine months ended June 30,
2000.
NBTY, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
CONDITION and RESULTS of OPERATIONS
(Unaudited)
(In thousands, except per share amounts and number of stores)
Liquidity and Capital Resources
- ---------------------------------------
Working capital was $137.3 million at June 30, 2001, compared with $100.1
million at September 30, 2000, an increase of $37.2 million. The increase
was due primarily to increases in cash, accounts receivable, and
inventories, partially offset by an increase in current portion of long-term
debt, accrued expenses and income taxes.
On April 27, 2001 the Company entered into an amended and restated Credit
and Guarantee Agreement (CGA) which provides for aggregate borrowings up to
$188,400. The CGA is comprised of two revolving credit agreements of
$100,000 (increased by $50,000 in April 2001) and $50,000 and a term loan of
$38,400. As of August 31, 2001, the outstanding balance of the $100,000
facility will convert to a term loan, payable in 16 equal consecutive
installments commencing on September 30, 2001 and ending on June 30, 2005.
The $50,000 revolving credit facility expires on September 30, 2003. The
$38,400 term loan is payable in 16 equal consecutive installments commencing
on June 30, 2001 with the balance payable on March 31, 2005. At June 30,
2001 there were borrowings of $134,200 under this facility at an annual
borrowing rate of 7.125%. The current portion of the CGA is $34,425. The
Company is required to pay a commitment fee, which varies between .25% and
.50% per annum, depending on the Company's ratio of Debt to EBITDA, on any
unused portion of the revolving credit facility. 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. In addition, the Company is subject to the maintenance of
various financial ratios and covenants.
During May 2001, the Company completed the acquisition of NatureSmart, LLC
at a cost of approximately $29 million and purchased certain assets of
Global Health Sciences Inc. in an auction ordered by a bankruptcy court in
California at a cost of approximately $40 million. Both transactions were
funded by borrowings under the CGA.
During the quarter ended June 30, 2000, the Company acquired certain assets
and liabilities of Longevity Formulas, Inc. (also known as "Healthwatchers
System") and Martin Health Systems, Inc. for $5,150. In addition, the
Company acquired the mailing list of Rexall Sundown's SDV vitamin catalog
and mail order business for $16,500.
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 $12.2 million. The cash
portion of the acquisition was funded by $20 million in borrowings under the
CGA.
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 and potential acquisitions.
NBTY, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
CONDITION and RESULTS of OPERATIONS
(Unaudited)
(In thousands, except per share amounts and number of stores)
Liquidity and Capital Resources
- ---------------------------------------
Net cash provided by operating activities was $42.7 million for the nine
months ended June 30, 2001 and $92.1 million for the nine months ended June
30, 2000. The decrease was primarily due to a decrease in net income as well
as increases in inventory and accounts receivable. Net cash used in
investing activities was $91 million in 2001 and $83.3 million in 2000;
primarily due to new retail store openings, plant expansion programs and
acquisitions. The 2000 total for net cash used in investing activities
included the acquisitions of Nutrition Warehouse, the mailing list of Rexall
Sundown's SDV vitamin catalog and mail order business, and certain assets of
Healthwatchers System. Net cash provided by financing activities was $63.2
million in 2001. Net cash used in financing activities was $4.1 million in
2000. The change was primarily due to the new borrowings used to fund
acquisitions and the stock repurchase program.
Management believes that inflation did not have a significant impact on its
operations.
NBTY, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
CONDITION and RESULTS of OPERATIONS
(Unaudited)
(In thousands, except per share amounts and number of stores)
New accounting standards
- ------------------------------
In July 2001, The Financial Accounting Standards Board (FASB) issued
Statements No. 141, "Business Combinations" and No. 142, "Goodwill and Other
Intangible Assets." Effective October 1, 2001, the Company will no longer be
required to amortize goodwill and other certain intangibles as a charge to
earnings. Management has estimated that adoption of these standards will
reduce amortization expense of goodwill and certain other intangibles by
approximately $5.5 million annually.
Effective October 1, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". As the Company has
determined, it does not have any derivatives or hedging activities, the
adoption of SFAS No. 133 did not affect the Company's financial position or
results of operations as of and for the nine months ended June 30, 2001.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
("SAB 101"). SAB 101 does not change existing revenue recognition rules,
but rather addresses and clarifies existing rules and their application.
SAB 101 is effective for the Company beginning July 1, 2001 or fourth
quarter of fiscal 2001. Management believes the impact of SAB 101 will not
be material to the Company's results of operations and 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.
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
The Company is subject to currency and interest rate risks that arise from
normal business operations. The Company regularly assesses these risks and
has not entered into any hedging transactions.
To manage the potential loss arising from changing interest rates and its
impact on long-term debt, the Company's policy is to manage interest rate
risks by maintaining a combination of fixed and variable rate financial
instruments.
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.
Item 4. Submission of Matters to a Vote of Security Holders
The following propositions were approved on May 14, 2001 at NBTY, Inc's
Annual Meeting of Stockholders.
Proposition 1: Re-elected Directors to serve until the 2004 Annual Meeting.
Votes Votes Total
for against Votes
<s> <c> <c> <c>
Arthur Rudolph 56,271 371 56,642
Michael C. Slade 56,271 371 56,642
Michael L. Ashner 56,271 371 56,642
Glenn Cohen 56,271 371 56,642
Proposition 2: Ratified the designation of PricewaterhouseCoopers LLP as
independent accountants to audit the consolidated financial statements of
the Company for the 2001 fiscal year.
Votes Votes Total
for against Votes
<s> <c> <c> <c>
56,348 294 56,642
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
There was no Form 8-K filed during the quarter covered by this
report.
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 14, 2001
/s/ Harvey Kamil
------------------------------------
Harvey Kamil, Executive Vice
President, Secretary (Principal
Financial and Accounting Officer)