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, 1996
Commission File Number: 0-10666
NBTY, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 11-2228617
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 Orville Drive, Bohemia, NY 11716
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (516) 567-9500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registration was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Shares of Common Stock as of March 31, 1996: 18,595,119
NBTY, INC. and SUBSIDIARIES
INDEX
PART I Financial Information
Condensed Consolidated Balance Sheets - March 31, 1996
and September 30, 1995 1 - 2
Condensed Consolidated Statements of Income - Three
Months Ended March 31, 1996 and 1995 3
Condensed Consolidated Statements of Income - Six
Months Ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows - Six
Months Ended March 31, 1996 and 1995 5 - 6
Notes to Condensed Consolidated Financial Statements 7 - 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 12
PART II Other Information 13
Signature 14
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, September 30,
1996 1995
------------ -------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 7,235,219 $ 10,378,476
Accounts receivable, less allowance for doubtful
accounts of $659,522 at March 31, 1996 and
$576,579 at September 30, 1995 12,618,627 12,354,545
Inventories 38,204,450 36,972,592
Deferred income taxes 1,846,875 1,846,875
Prepaid catalog costs and other current assets 8,700,405 6,170,243
-----------------------------
Total current assets 68,605,576 67,722,731
Property, plant and equipment 81,717,462 70,737,588
less accumulated depreciation and amortization 24,723,290 22,413,012
-----------------------------
56,994,172 48,324,576
Intangible assets, net 4,298,430 5,813,031
Deferred income taxes 574,611 574,611
Other assets 985,398 1,668,309
-----------------------------
Total assets $131,458,187 $124,103,258
=============================
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, September 30,
1996 1995
------------ -------------
(Unaudited)
Current liabilities:
Current portion of long-term debt $ 632,088 $ 358,675
Accounts payable 16,305,876 16,411,562
Accrued expenses 10,358,759 10,287,989
----------------------------
Total current liabilities 27,296,723 27,058,226
Long-term debt, less current portion 12,692,417 10,924,454
Deferred income taxes 2,736,148 2,736,148
Other liabilities 768,985 768,985
----------------------------
Total liabilities 43,494,273 41,487,813
Commitments and contingencies
Stockholders' equity:
Common stock, $.008 par; authorized 25,000,000
shares; issued 20,067,676 shares in 1996 and
19,207,676 in 1995 and outstanding 18,595,119
shares in 1996 and 17,766,119 in 1995 160,542 153,662
Capital in excess of par 55,923,640 54,151,206
Retained earnings 34,981,759 30,656,586
----------------------------
91,065,941 84,961,454
Less 1,472,557 treasury shares at cost, at
March 31, 1996 and 1,441,557 treasury shares
at September 30, 1995 2,518,127 2,346,009
Stock subscriptions receivable 583,900 0
----------------------------
Total stockholders' equity 87,963,914 82,615,445
----------------------------
Total liabilities and stockholders' equity $131,458,187 $124,103,258
============================
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the three months
ended March 31,
1996 1995
----------- -----------
Net sales $55,604,762 $50,945,058
Costs and expenses:
Cost of sales 27,844,549 25,725,426
Catalog printing, postage and promotion 4,985,003 5,546,766
Selling, general and administrative 15,101,162 15,375,723
--------------------------
47,930,714 46,647,915
--------------------------
Income from operations 7,674,048 4,297,143
--------------------------
Other income (charges):
Interest expense (333,619) (278,967)
Miscellaneous, net 161,726 318,191
--------------------------
(171,893) 39,224
--------------------------
Income before income taxes 7,502,155 4,336,367
Income taxes 2,925,841 1,784,547
--------------------------
Net income $ 4,576,314 $ 2,551,820
==========================
Earnings per common share and common share
equivalents $0.23 $0.13
===== =====
Weighted average common shares and common
share equivalents 19,922,954 20,046,893
==========================
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the six months
ended March 31,
1996 1995
----------- -----------
Net sales $94,193,889 $88,422,799
Costs and expenses:
Cost of sales 48,654,777 44,822,933
Catalog printing, postage and promotion 9,549,182 9,621,907
Selling, general and administrative 28,617,069 27,991,396
--------------------------
86,821,028 82,436,236
--------------------------
Income from operations 7,372,861 5,986,563
--------------------------
Other income (charges):
Interest expense (638,517) (518,130)
Miscellaneous, net 356,185 515,587
--------------------------
(282,332) (2,543)
--------------------------
Income before income taxes 7,090,529 5,984,020
Income taxes 2,765,356 2,493,659
--------------------------
Net income $ 4,325,173 $ 3,490,361
==========================
Earnings per common share and common share
equivalents $0.22 $0.17
===== =====
Weighted average common shares and common
share equivalents 19,891,479 20,064,143
========== ==========
See notes to condensed consolidated financial statements.
NBTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months
ended March 31,
1996 1995
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Net income $ 4,325,173 $ 3,490,361
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 2,641,609 2,368,664
Provision (recovery) for allowance for doubtful accounts 82,943 (69,460)
Increase in deferred taxes 100,000
Changes in assets and liabilities, net of acquistions:
Increase in accounts receivable (347,025) (704,813)
(Increase) decrease in inventories (1,231,858) 5,014,332
Decrease in income tax receivable 574,950
Increase in prepaid catalog costs and other current assets (2,530,162) (1,246,096)
Decrease in other assets 1,858,906 424,915
Increase (decrease) in accounts payable (105,686) 858,717
Increase in accrued expenses 70,770 281,498
--------------------------
Net cash provided by operating activities 4,764,670 11,093,068
--------------------------
Cash flow from investing activities:
(Increase) decrease in intangible assets 1,202,691 (970,561)
Purchase of property, plant and equipment (10,979,874) (6,754,006)
--------------------------
Net cash used in investing activities (9,777,183) (7,724,567)
--------------------------
Cash flows from financing activities:
Net payments under line of credit agreement (5,000,000)
Borrowings under long term debt agreement 2,268,770 2,400,000
Principal payments under long-term debt agreements (227,395) (669,609)
Purchase of treasury stock (172,118) (848,287)
Proceeds from stock options exercised 24,000
--------------------------
Net cash provided by (used in) financing activities 1,869,257 (4,093,896)
--------------------------
Net decrease in cash and cash equivalents (3,233,257) (725,395)
Cash and cash equivalents at beginning of year 10,378,476 5,900,594
--------------------------
Cash and cash equivalents at end of quarter $ 7,235,219 $ 5,175,199
==========================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 633,642 $ 528,790
Cash paid during the period for taxes $ 68,131 $ 467,000
==========================
See notes to consolidated condensed financial statements.
NBTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1996 and 1995
Supplemental Schedule of Financing Activities:
During the first six months of fiscal 1996, options were exercised with
860,000 shares of common stock issued to certain officers for interest
bearing notes in the amount of $583,900. As a result of the exercise
of these options, the Company is entitled to a compensation deduction
for tax purposes of approximately $3,065,000 and it is estimated that
such compensation deduction will ultimately result in a tax benefit of
approximately $1,200,000 which has been recorded as an increase in
capital in excess of par. In addition, the Company has adjusted its
current liability to recognize the effect of this tax benefit.
In December 1994, options were exercised with 430,000 shares of common
stock issued to certain officers and directors for $24,000 and an
interest bearing note in the amount of $191,000. The promissory note,
including interest, was paid by the surrender of 23,153 NBTY common
shares to the Company at the prevailing market price. As a result of
the exercise of these options, the Company was entitled to a
compensation deduction for tax purposes of approximately $1,827,500
and that such compensation deduction resulted in a tax benefit of
approximately $731,000 which was recorded as an increase in capital in
excess of par. In addition, the Company adjusted its current liability
to recognize the effect of this tax benefit.
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary
to present fairly its financial position as of March 31, 1996 and
results of operations for the three and six months ended March 31,
1996 and 1995 and statements of cash flows for the six months ended
March 31, 1996 and 1995. The consolidated condensed balance sheet
as of September 30, 1995 has been derived from the audited balance
sheet as of that date. This report should be read in conjunction
with the Company's annual report filed on Form 10-K for the fiscal
year ended September 30, 1995.
2. The results of operations and cash flows for the six months ended
March 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
3. On October 9, 1995, the Company sold certain assets of its direct-
mail cosmetics business for approximately $2,495,000. The Company
received $350,000 in cash and noninterest bearing notes aggregating
approximately $2,145,000 for inventory, a customer list and other
intangible assets. The notes will be paid over a three-year period
based on a predetermined formula with guaranteed minimum payments.
A final payment for the remaining outstanding balance will be made
on September 30, 1998. Revenues applicable to this business were
approximately $3,153,285 and $5,509,058 for the three and six
months ended March 31, 1995.
4. Inventories have been estimated by using the gross profit method for
the interim periods. The components of the inventories are as
follows:
March 31, September 30,
1996 1995
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(UNAUDITED)
Raw materials and work-in-process $16,218,663 $17,746,844
Finished goods 21,985,787 19,225,748
--------------------------
$38,204,450 $36,972,592
--------------------------
5. Intangible assets, at cost, acquired at various dates are as follows:
March 31, September 30,
1996 1995
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(UNAUDITED)
Goodwill $ 469,400 $ 469,400
Customer lists 8,783,475 10,540,017
Trademark and licenses 1,187,883 1,134,514
Covenants not to compete 1,304,538 1,304,538
---------------------------
11,745,296 13,448,469
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Less, accumulated amortization 7,446,866 7,635,438
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$ 4,298,430 $ 5,813,031
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6. Accrued expenses:
March 31, September 30,
1996 1995
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(UNAUDITED)
Payroll and related payroll taxes $ 2,282,729 $ 2,166,355
Customer deposits 801,755 2,034,175
Accrued purchases 243,772 1,734,844
Income taxes payable 2,531,082 39,815
Other 4,499,421 4,312,800
--------------------------
$10,358,759 $10,287,989
--------------------------
7. The Company purchased 31,000 shares for $172,118 for the six months
ended March 31, 1996 and 100,000 shares for the six months ended
March 31, 1995 in open market transactions using working capital.
An additional 23,153 shares were surrendered to the Company in
payment of stock subscriptions receivable in 1995. The average
cost of shares was $6.89.
8. Earnings per share are based on the weighted average number of common
shares and common equivalent shares outstanding during the three
and six month periods ended March 31, 1996 and 1995. The
calculation of earnings per share include common stock equivalent
shares for stock options of 1,387,121 and 2,117,407 for the three
month periods ended March 31, 1996 and 1995, respectively. The
calculation of earnings per share include common stock equivalent
shares for stock options of 1,539,328 and 2,257,366 for the six
month periods ended March 31, 1996 and 1995, respectively.
9. During the first 6 months of fiscal 1996, options were exercised with
860,000 shares of common stock issued to certain officers for
interest bearing notes in the amount of $583,900. As a result of
the exercise of these options, the Company is entitled to a
compensation deduction for tax purposes of approximately $3,065,000
and it is estimated that such compensation deduction will
ultimately result in a tax benefit of approximately $1,200,000
which has been recorded as an increase in capital in excess of par.
In addition, the Company has adjusted its current liability to
recognize the effect of this tax benefit.
In December 1994, options were exercised with 430,000 shares of
common stock issued to certain officers and directors for $24,000
and an interest bearing note in the amount of $191,000. The
promissory note, including interest, was paid by the surrender of
23,153 NBTY common shares to the Company at the prevailing market
price. As a result of the exercise of these options, the Company
was entitled to a compensation deduction for tax purposes of
approximately $1,827,500 and that such compensation deduction
resulted in a tax benefit of approximately $731,000 which was
recorded as an increase in capital in excess of par. In addition,
the Company adjusted its current liability to recognize the effect
of this tax benefit.
The following is a summary of changes in outstanding options for the
Company's Stock Option Plans for the six month period ended
March 31, 1996:
Exercise Price
--------------
Shares under option, September 30, 1995
(fully exercisable) 2,395,000 $.63 - $.92
Options exercised (860,000) $.63 - $.92
----------
Shares exercisable, March 31, 1996
(fully exercisable) 1,535,000 $.63 - $.92
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10. Subsequent events:
On April 3, 1996, the Company renewed a revolving credit agreement
with two banks that provides for unsecured borrowings up to
$15,000,000 which expires March 31, 1999. There were no borrowings
under this agreement.
In April 1996, the Company obtained a $6,000,000 first mortgage with
a fixed interest rate of 7.375%, collateralized by the underlying
real estate. The mortgage has monthly principal and interest
payments of $55,196 for fifteen years through 2011.
NBTY, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
CONDITION and RESULTS of OPERATIONS
Results of Operations:
The following table sets forth income statement data of the Company as a
percentage of net sales for the periods indicated:
Three months Six months
ended ended
March 31, March 31,
--------------- ---------------
1996 1995 1996 1995
------ ------ ------ ------
Net sales . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
--------------------------------
Cost and expenses:
Cost of sales . . . . . . . . . . . . . 50.1 50.5 51.7 50.7
Catalog printing, postage and promotion 9.0 10.9 10.1 10.9
Selling, general and administrative . . 27.2 30.2 30.4 31.7
--------------------------------
86.3 91.6 92.2 93.3
--------------------------------
Income from operations . . . . . . . . . . 13.7 8.4 7.8 6.7
Other income (expenses), net . . . . . . . (0.3) 0.1 (0.3) 0.0
--------------------------------
Income before income taxes . . . . . . . 13.4 8.5 7.5 6.7
Income taxes . . . . . . . . . . . . . . 5.2 3.5 2.9 2.8
--------------------------------
Net income . . . . . . . . . . . . . . . . 8.2% 5.0% 4.6% 3.9%
--------------------------------
Results of Operations
- ---------------------
For the three months ended March 31, 1996 compared to three months ended
March 31, 1995:
Net sales. Net sales in the second quarter ended March 31, 1996 were
$55,604,762 compared with $50,945,058 for the prior like period, an
increase of $4,659,704 or 9.1%. Wholesale-retail sales increased
$3.0 million or 12.5%; mail order vitamin sales were $29,015,149
compared to $24,151,851 for the prior like period, an increase of
$4,863,298 or 20.1%. Sales during the second quarter of 1995 of
$3,153,285 was attributed to Beautiful Visions which was sold
October 9, 1995 (see Note 3, sale of direct-mail cosmetics
division).
Costs and expenses. Cost of sales as a percentage of sales was 50.1%
for 1996 and 50.5% for 1995. The decrease was associated with
product mix and manufacturing efficiencies.
For the three months ended March 31, 1996 compared to three months ended
March 31, 1995 (continued):
Catalog printing, postage, and promotion expenses were $4,985,003 in
1996, a decrease of $561,763 (10.1% decrease), from $5,546,766 in
1995. As a percentage of sales, expenses were 9.0% for the current
quarter and 10.9% for the prior like quarter. These costs decreased
approximately $943,000 mainly caused by the discontinuance of the
Beautiful Visions catalog.
Selling, general and administrative expenses were $15,101,162 for the
quarter, 27.2% as a percentage of sales, compared with $15,375,723,
or 30.2% of sales.
Other income includes rental income of $135,663.
Income before income taxes was $7,502,155 for 1996 and $4,336,367 for
1995. After income taxes, the Company had a net profit of
$4,576,314 (earnings per share of $0.23) for the quarter ended
March 31, 1996, and net income of $2,551,820 (or earnings of $0.13
per share) for the three months ended March 31, 1995.
For the six months ended March 31, 1996 compared to six months ended
March 31, 1995:
Net sales. Net sales in the six months ended March 31, 1996 were
$94,193,889 compared with $88,422,799 for the prior like period,
an increase of $5,771,090 or 6.5%. Wholesaleretail sales increased
$4.6 million or 8.8%; mail order vitamin sales were $41,503,903
compared to $34,997,394 for the prior like period, an increase of
$6,506,509 or 18.6%. In 1995, sales of $5,509,058 was attributed
to Beautiful Visions which was sold October 9, 1995 (see Note 3,
sale of direct-mail cosmetics division).
Costs and expenses. Cost of sales as a percentage of sales was 51.7%
for 1996 and 50.7% for 1995. This net increase was attributed to
costs associated with lower margins and pricing pressures offset
by manufacturing efficiencies.
Catalog printing, postage, and promotion expenses remained constant at
$9.6 million for 1996 and 1995. As a percentage of sales, expenses
were 10.1% for the current six month period and 10.9% for the
prior year. Long term contract promotions and coop advertising in
the wholesale division were approximately the same as last year.
For the six months ended March 31, 1996 compared to six months ended
March 31, 1995:
Selling, general and administrative expenses were $28,617,069 for the
six months, 30.4% as a percentage of sales compared with
$27,991,396 or 31.7% of sales - an increase of $625,673. Increases
were primarily in professional fees for legal defenses.
Other income includes rental income of $271,325.
Income before income taxes was $7,090,529 for 1996 and $5,984,020 for
1995. After income taxes, the Company had a net profit of
$4,325,173 (earnings per share of $0.22) for the six months ended
March 31, 1996, and net income of $3,490,361 (or earnings of $0.17
per share) for the prior like six months.
Liquidity and Capital Resources
- -------------------------------
The Company believes it has adequate working capital to meet its
obligations in the normal course of business. The Company renewed
a three year $15 million Revolving Credit Agreement which expires
March 31, 1999. At March 31, 1996, there were no borrowings under
this Revolver. In April 1996, the Company obtained a $6,000,000
first mortgage with a fixed interest rate of 7.375%, collateralized
by the underlying building. The mortgage has monthly principal and
interest payments of $55,196 for fifteen years through 2011.
Net cash provided by operating activities was $4,764,670 and
$11,093,068 in 1996 and 1995, respectively. Net cash used in
investing activities was $9,777,183 and $7,724,567 in 1996 and
1995, respectively. Net cash provided by financing activities was
$1,869,257 in 1996 and net cash used in financing activities was
$4,093,896 in 1995.
On October 9, 1995, the Company sold certain assets of its direct-mail
cosmetics business for approximately $2,495,000. The Company
received $350,000 in cash and noninterest bearing notes aggregating
approximately $2,145,000 for inventory, a customer list and other
intangible assets. The notes will be paid over a three-year period
based on a predetermined formula with guaranteed minimum payments.
A final payment for the remaining outstanding balance will be made
on September 30, 1998. Revenues applicable to this business were
approximately $3,153,285 and $5,509,058 for the three and six
months ended March 31, 1995.
Management believes that inflation did not have a significant impact
on operations.
NBTY, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 1. Legal Proceedings
LITIGATION:
There have been no material developments with respect to
litigation that occurred during this reporting period.
Reference is made to Item 3, Legal Proceedings in Form 10-K
for the year ended September 30, 1995.
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 second quarter of
the fiscal year ending September 30, 1996.
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.
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Date May 3, 1996
/s/ Harvey Kamil
----------------------------------------
Harvey Kamil, Executive Vice President,
Secretary (Principal Financial and
Accounting Officer)