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 December 31, 1996
Commission File Number: 0-10666
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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
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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 [ ] NO [ ]
Shares of Common Stock as of December 31, 1996: 18,592,119
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NBTY, INC. and SUBSIDIARIES
INDEX
PART I Financial Information
Condensed Consolidated Balance Sheets - December 31, 1996 and
September 30, 1996 1 - 2
Condensed Consolidated Statements of Operations - Three Months
Ended December 31, 1996 and 1995 3
Condensed Consolidated Statements of Cash Flows - Three Months
Ended December 31, 1996 and 1995 4 - 5
Notes to Condensed Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 9
PART II Other Information 10
Signature 11
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, September 30,
1996 1996
------------ -------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 2,594,358 $ 9,292,374
Short-term investments 13,802,686 11,024,624
Accounts receivable, less allowance for doubtful
accounts of $932,759 at December 31, 1996 and
$793,669 at September 30, 1996 13,466,401 11,625,112
Inventories 42,022,144 38,070,071
Deferred income taxes 3,155,163 3,155,163
Prepaid catalog costs and other current assets 6,046,001 5,682,874
----------------------------
Total current assets 81,086,753 78,850,218
Property, plant and equipment 92,259,932 89,082,883
less accumulated depreciation and amortization 28,718,291 27,351,258
----------------------------
63,541,641 61,731,625
Intangible assets, net 3,867,952 3,974,573
Other assets 837,492 993,785
----------------------------
Total assets $149,333,838 $145,550,201
============================
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, September 30,
1996 1996
------------ -------------
(Unaudited)
Current liabilities:
Current portion of long-term debt and capital
lease obligations $ 954,575 $ 934,887
Accounts payable 13,678,466 10,943,228
Accrued expenses 12,727,656 14,704,507
----------------------------
Total current liabilities 27,360,697 26,582,622
Long-term debt 15,049,134 15,178,412
Obligations under captial leases 3,063,769 3,219,127
Deferred income taxes 2,827,198 2,827,198
Other liabilities 792,985 792,985
----------------------------
Total liabilities 49,093,783 48,600,344
Commitments and contingencies
Stockholders' equity:
Common stock, $.008 par; authorized 25,000,000
shares; issued 20,079,676 shares at December 31,
1996 and September 30, 1996 and outstanding
18,592,119 shares at December 31, 1996 and at
September 30, 1996 160,638 160,638
Capital in excess of par 56,012,910 56,012,910
Retained earnings 47,298,663 44,008,465
----------------------------
103,472,211 100,182,013
Less 1,487,557 treasury shares at cost, at
December 31, 1996 and at September 30, 1996,
respectively 2,648,256 2,648,256
Stock subscriptions receivable 583,900 583,900
----------------------------
Total stockholders' equity 100,240,055 96,949,857
----------------------------
Total liabilities and stockholders' equity $149,333,838 $145,550,201
============================
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months
ended December 31,
-------------------------
1996 1995
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Net sales $47,327,714 $38,589,126
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Costs and expenses:
Cost of sales 22,570,861 20,810,228
Catalog printing, postage and promotion 4,050,158 4,564,180
Selling, general and administrative 14,971,935 13,515,907
-------------------------
41,592,954 38,890,315
-------------------------
Income (loss) from operations 5,734,760 (301,189)
-------------------------
Other income (charges):
Interest expense (462,319) (304,898)
Miscellaneous, net 211,222 194,460
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(251,097) (110,438)
-------------------------
Income (loss) before income taxes (benefit) 5,483,663 (411,627)
Income taxes (benefit) 2,193,465 (160,485)
-------------------------
Net income (loss) $ 3,290,198 ($251,142)
=========================
Earnings (loss) per common share and common
share equivalents $ 0.16 ($0.01)
=========================
Weighted average common shares and common
share equivalents 20,042,782 19,851,070
=========================
See notes to condensed consolidated financial statements.
NBTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months
ended December 31,
---------------------------
1996 1995
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Net income (loss) $ 3,290,198 ($ 251,142)
Adjustments to reconcile net income to cash used in operating activities:
Gain on sale of property, plant and equipment (150)
Depreciation and amortization 1,499,155 1,296,618
Provision for allowance for doubtful accounts 139,090 16,976
Changes in assets and liabilities, net of acquistions:
(Increase) decrease in accounts receivable (2,237,437) 1,477,035
Increase in inventories (3,952,073) (4,747,784)
Increase in prepaid catalog costs and other current assets (363,127) (1,976,897)
Decrease other assets 147,762 1,515,380
Increase in accounts payable 2,735,238 664,045
Decrease in accrued expenses (1,976,851) (2,738,978)
---------------------------
Net cash used in operating activities (718,195) (4,744,747)
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Cash flow from investing activities:
Increase in intangible assets (43,328)
Purchase of property, plant and equipment (3,194,019) (6,908,752)
Proceeds from sale of property, plant and equipment 150
Purchase of short-term investments (2,778,061)
Proceeds from sale of direct-mail cosmetics business 350,000
Receipt of payments from direct-mail cosmetics business 257,058
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Net cash used in investing activities (5,714,874) (6,602,080)
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Cash flows from financing activities:
Borrowings under long term debt agreements 1,657,612
Principal payments under long-term debt agreements and capital leases (264,949) (86,594)
Purchase of treasury stock (172,118)
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Net cash provided by (used in) financing activities (264,949) 1,398,900
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Net decrease in cash and cash equivalents (6,698,016) (9,947,927)
Cash and cash equivalents at beginning of year 9,292,374 10,378,476
---------------------------
Cash and cash equivalents at end of quarter $ 2,594,358 $ 430,549
===========================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 462,319 $ 295,023
Cash paid during the period for taxes $ 1,989,597 $ 53,444
===========================
See notes to consolidated condensed financial statements.
NBTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 1996 and 1995
Supplemental non-cash investing and financing information:
The Company entered into capital leases for machinery and equipment aggregating
$668,186 for the three months ended December 31, 1995.
In November 1995, options were exercised with shares of common stock issued to
certain officers for an interest bearing note in the amount of $437,500. As a
result of the exercise of those options, the Company received a compensation
deduction for tax purposes of approximately $2,362,500 and a tax benefit of
approximately $920,000.
On October 9, 1995, the Company sold certain assets of its directmail cosmetics
business for approximately $2,495,000. The Company received $350,000 in cash
and non-interest 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.
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 December 31, 1996 and results
of operations for the three months ended December 31, 1996 and 1995 and
statements of cash flows for the three months ended December 31, 1996 and
1995. The consolidated condensed balance sheet as of September 30, 1996
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, 1996.
2. The results of operations and cash flows for the three months ended
December 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
3. Sale of Direct-Mail Cosmetic Business:
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 non-interest 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.
4. Inventories have been estimated by using the gross profit method for the
interim periods. The components of the inventories are as follows:
December 31, September 30,
1996 1996
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(UNAUDITED)
Raw materials and work-in-process $ 21,908,719 $ 18,654,335
Finished goods 20,113,425 19,415,736
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$ 42,022,144 $ 38,070,071
============================
5. Intangible assets, at cost, acquired at various dates are as follows:
December 31, September 30,
1996 1996
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(UNAUDITED)
Goodwill $ 469,400 $ 469,400
Customer lists 8,783,475 8,783,475
Trademark and licenses 1,201,205 1,201,205
Covenants not to compete 1,304,538 1,304,538
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11,758,618 11,758,618
Less, accumulated amortization 7,890,666 7,784,045
----------------------------
$ 3,867,952 $ 3,974,573
============================
6. Accrued expenses:
December 31, September 30,
1996 1996
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(UNAUDITED)
Payroll and related payroll taxes $ 2,420,571 $ 2,730,453
Customer deposits 1,374,590 1,862,837
Accrued purchases 548,187 1,765,420
Income taxes payable 3,113,735 2,670,270
Other 5,270,573 5,675,527
----------------------------
$ 12,727,656 $ 14,704,507
============================
7. Treasury stock. The Company purchased 31,000 shares for $302,247 for the
three months ended December 31, 1995 in open market transactions using
working capital. The average price per share was $5.55.
8. Earnings (loss) per share are based on the weighted average number of
common shares and common equivalent shares outstanding during the three
month periods ended December 31, 1996 and 1995. The calculation of primary
earnings per share include 1,450,663 common stock equivalent shares for
the three months ended December 31, 1996. Common stock equivalent shares
are omitted from the earnings per share calculation for the period ended
December 31, 1995 as its inclusion would have been anti-dilutive.
9. In November 1995, options were exercised with shares of common stock
issued to certain officers for an interest bearing note in the amount of
$437,500. As a result of the exercise of those options, the Company
received a compensation deduction for tax purposes of approximately
$2,362,500 and a tax benefit of approximately $920,000.
The following is a summary of changes in outstanding options for the
Company's Stock Option Plans for the three month period ended December 31,
1996:
Exercise Price
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Shares under option, September 30, 1996
(fully exercisable) 1,523,000 $.63 - $.92
Options exercised. -
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Shares exercisable, December 31, 1996
(fully exercisable) 1,523,000 $.63 - $.92
=========
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 ended
December 31,
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1996 1995
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Net sales . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Cost and expenses:
Cost of sales . . . . . . . . . . . . . . . . . 47.7 53.9
Catalog printing, postage and promotion . . . . 8.6 11.8
Selling, general and administrative . . . . . . 31.6 35.1
87.9 100.8
Income (loss) from operations . . . . . . . . . . 12.1 (0.8)
Other income (expenses), net . . . . . . . . . . (0.5) (0.3)
Income (loss) before income taxes (benefit) . . . 11.6 (1.1)
Income taxes (benefit) . . . . . . . . . . . . . 4.6 (0.4)
Net income (loss) . . . . . . . . . . . . . . . . 7.0% (0.7%)
Results of Operations
- ---------------------
For the three months ended December 31, 1996 compared to the three months ended
December 31, 1995:
Net sales. Net sales in the first quarter ended December 31, 1996 were
$47,327,714 compared with $38,589,126 for the prior comparable period, an
increase of $8,738,588 or 22.6%. Wholesale-retail sales increased $6.8
million or 26.1% due to an increase in the number of retail stores over the
comparable period; mail order sales were $14.6 million, compared to $12.5 for
the prior comparable period, an increase of $2.1 or 17.0% due to the
introduction of new products and a successful space-ad promotion. Sales for
the Company's new mail order operation in the United Kingdom were $0.6
million in 1996. This operation did not exist in 1995.
Costs and expenses. Cost of sales as a percentage of sales was 47.7% for 1996
and 53.9% for 1995. The decrease was associated with lower raw material
costs, manufacturing efficiencies and changes in product mix.
Catalog printing, postage, and promotion expenses were $4,050,158 in 1996, a
decrease of $514,022 (11.6% decrease), from $4,564,180 in 1995. As a
percentage of sales, expenses were 8.6% for the current quarter and 11.8% for
the prior comparable quarter. The decrease was attributable to a less active
advertising schedule.
Selling, general and administrative expenses were $14,971,935 for the quarter,
or 31.6% as a percentage of sales, compared with $13,515,907, or 35.1% as a
percentage of sales, an increase of $1,456,028. The largest segments are
indirect salaries, fringe benefits, freight and building. Increases were
primarily in indirect salaries, building and outside services. These expenses
increased due to the retail store expansion and the opening of the
international mail order operations.
Other income includes rental income of $146,663.
Income before income taxes was $5,483,663 for 1996 and a loss before income tax
benefit of $411,627 for 1995. After income taxes, the Company had a net
profit of $3,290,198 (or earnings per share of $0.16) for the quarter ended
December 31, 1996, and a net loss of $251,142 (or loss per share of $0.01)
for the three months ended December 31, 1995.
Liquidity and Capital Resources
- -------------------------------
The Company believes it has adequate working capital to meet its obligations in
the normal course of business. 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. At December 31,
1996, 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. The Company renewed a $10,000,000 capital lease facility.
Capital improvements
The Company expects to build a new manufacturing facility. The estimated cost of
land, building and equipment is approximately $25 million dollars and will be
financed by internally generated funds and mortgage financing. The Company
has committed to a $4 million automated picking and packing system for its
mail-order distribution which will be funded by lease financing.
Net cash used in operating activities was $718,195 and $4,744,747 in 1996 and
1995, respectively. Net cash used in investing activities was $5,714,874 and
$6,602,080 in 1996 and 1995, respectively. Net cash used in financing
activities was $264,949 in 1996 and provided by financing activities was
$1,398,900 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 non-interest 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.
Management believes that inflation did not have a significant impact on
operations.
This filing contains certain forward-looking statements and information to the
Company 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 forwardlooking 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
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 10K for the year ended September
30, 1996.
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 first quarter of the fiscal year
ending September 30, 1997.
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 February 5, 1997
/s/ HARVEY KAMIL
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Harvey Kamil, Executive Vice President,
Secretary (Principal Financial and
Accounting Officer)