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, 1999
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 [x] NO [ ]
Shares of Common Stock as of March 31, 1999: 71,722,394
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NBTY, INC. and SUBSIDIARIES
INDEX
PART I Financial Information
Condensed Consolidated Balance Sheets -
March 31, 1999 (unaudited)and
September 30, 1998 1 - 2
Condensed Consolidated Statements of Operations -
(unaudited) - Three Months Ended
March 31, 1999 and 1998 3
Condensed Consolidated Statements of Operations -
(unaudited) Six months Ended
March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -
(unaudited) Six Months Ended
March 31, 1999 and 1998 5 - 6
Notes to Condensed Consolidated
Financial Statements (unaudited) 7 - 11
Management's Discussion and Analysis
of Financial Condition and Results of Operations 12 - 20
PART II Other Information 21
Signature 22
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars and shares in thousands)
March 31, September 30,
1999 1998
--------- -------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 25,484 $ 14,308
Accounts receivable, less allowance
for doubtful accounts of $1,056 in
1999 and $1,045 in 1998 25,579 23,433
Inventories 120,477 119,607
Deferred income taxes 2,994 2,994
Prepaid property taxes, rent,
and other current assets 12,276 13,614
------------------------
Total current assets 186,810 173,956
Property, plant and equipment 252,261 234,081
less accumulated depreciation
and amortization 76,427 67,746
------------------------
175,834 166,335
Intangible assets, net 141,582 152,426
Other assets 7,850 7,740
------------------------
Total assets $512,076 $500,457
========================
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
March 31, September 30,
1999 1998
--------- -------------
(Unaudited)
Current liabilities:
Current portion of long-term debt
and capital lease obligations $ 1,264 $ 1,218
Accounts payable 39,247 50,389
Accrued expenses 32,847 33,243
------------------------
Total current liabilities 73,358 84,850
Long-term debt 187,682 171,230
Obligations under capital leases 2,332 2,106
Deferred income taxes 8,062 8,203
Other liabilities 3,533 3,729
------------------------
Total liabilities 274,967 270,118
------------------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.008 par; authorized 75,000
shares; issued 72,022 shares in 1999
and 72,714 shares in 1998 and
outstanding 71,722 shares in 1999
and 68,203 shares in 1998 574 582
Capital in excess of par 119,053 115,661
Retained earnings 116,296 105,989
------------------------
235,923 222,232
Less 4,511 treasury shares at cost - (3,206)
Stock subscriptions receivable (866) -
Accumulated other comprehensive earning 2,052 11,313
------------------------
Total stockholders' equity 237,109 230,339
------------------------
Total liabilities and stockholders' $512,076 $500,457
========================
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)
For the three months
ended March 31,
--------------------
1999 1998
---- ----
Net sales $167,673 $157,287
Costs and expenses:
Cost of sales 78,549 75,198
Catalog printing, postage and promotion 9,864 8,824
Selling, general and administrative 62,424 46,178
----------------------
150,837 130,200
----------------------
Income from operations 16,836 27,087
----------------------
Other income (expense):
Interest, net (5,358) (5,114)
Miscellaneous, net 7 736
----------------------
(5,351) (4,378)
----------------------
Income before income taxes 11,485 22,709
Income taxes 4,647 7,092
----------------------
Net income $ 6,838 $ 15,617
======================
Net income per share:
Basic $ 0.10 $ 0.24
======================
Diluted $ 0.09 $ 0.23
======================
Weighted average common shares outstanding:
Basic 71,597 64,608
======================
Diluted 72,513 68,897
======================
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 six months
ended March 31,
-------------------
1999 1998
--------------------
Net sales $308,686 $286,820
--------------------
Costs and expenses:
Cost of sales 147,508 140,414
Catalog printing, postage and promotion 18,652 13,935
Selling, general and administrative 115,895 90,452
--------------------
282,055 244,801
--------------------
Income from operations 26,631 42,019
--------------------
Other income (expense):
Interest (9,626) (9,221)
Miscellaneous, net 515 1,400
(9,111) (7,821)
--------------------
Income before income taxes 17,520 34,198
Income taxes 7,214 10,565
--------------------
Net income $ 10,306 $ 23,633
====================
Net income per share:
Basic $ 0.14 $ 0.37
====================
Diluted $ 0.14 $ 0.34
====================
Weighted average common shares outstanding:
Basic 71,313 64,662
====================
Diluted 72,573 68,967
====================
See notes to condensed consolidated financial statements.
NBTY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
For the six months
ended March 31,
------------------
1999 1998
---- ----
Net income $ 10,306 $ 23,633
Adjustments to reconcile net income to
cash provided by operating activities:
Loss on sale of property, plant and equipment 139
Depreciation and amortization 13,806 10,032
Provision for allowance for doubtful accounts (11) (5)
Deferred income taxes 7
Changes in assets and liabilities,
net of acquistions:
Increase in accounts receivable (1,667) (199)
Increase in inventories (2,337) (11,698)
(Increase) decrease in prepaid catalog
costs and other current assets (7,993) 8,683
Decrease in other assets 539 535
Decrease in accounts payable (10,192) (3,201)
Increase (decrease) in accrued expenses 13,650 (12,428)
Decrease in other liabilities (195)
----------------------
Net cash provided by operating activities 16,045 15,359
----------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (21,642) (38,942)
Proceeds from sale of short term investments 8,362
Receipt of payments from direct-mail
----------------------
Net cash used in investing activities (21,642) (30,580)
----------------------
Cash flows from financing activities:
Dividends paid (5,950)
Borrowings under long term debt agreements 17,000 45,000
Cash held in escrow 144,730
Principal payments under long-term
debt agreements and capital leases (532) (1,153)
Proceeds from stock options exercised 40
Repayment of promissory note (168,770)
Stock subscriptions receivable (866)
----------------------
Net cash provided by financing activities 15,602 13,897
----------------------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 1,171 159
----------------------
Net increase (decrease) in cash and cash
equivalents 11,176 (1,165)
Cash and cash equivalents at beginning of period 14,308 20,262
----------------------
Cash and cash equivalents at end of period $ 25,484 $ 19,097
======================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 9,315 $ 12,129
Cash paid during the period for taxes $ 7,779 $ 10,243
See notes to condensed consolidated financial statements.
NBTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended March 31, 1999 and 1998
(Unaudited)
(In thousands, except per share amounts)
Supplemental Non-cash Investing and Financing Information:
During the six months ended March 31, 1999, options were exercised with
3,520 shares of common stock issued to certain officers for interest-
bearing stock subscriptions receivable aggregating $866 and cash of $27.
As a result of the exercise of those options, the Company expects to
receive a compensation deduction for tax purposes of approximately $14,604
and a tax benefit of approximately $5,696.
NBTY, INC. and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
1. Principles of consolidation and basis of presentation
The consolidated financial statements of NBTY, Inc. and Subsidiaries
have been prepared to give retroactive effect to the merger between
Nutrition Headquarters, Inc., Lee Nutrition, Inc. and Nutro
Laboratories, Inc. (collectively, the "Nutrition Headquarters Group"
and together with NBTY, the "Company") on April 20, 1998. Under the
terms of the merger agreement, each share of Nutrition Headquarters
Group common stock was exchanged for approximately 30 shares of
NBTY's common stock with approximately 8,772 shares of NBTY's common
stock exchanged for all the outstanding stock of Nutrition
Headquarters Group.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany accounts
and transactions have been eliminated.
In the opinion of the Company, the unaudited condensed consolidated
financial statements contain all adjustments necessary to present
fairly its financial position as of March 31, 1999 and its results of
operations for the three and six months ended March 31, 1999 and 1998
and statements of cash flows for the six months ended March 31, 1999
and 1998. The condensed consolidated balance sheet as of September
30, 1998 has been derived from the audited balance sheet as of that
date. The results of operations for the three and six months ended
March 31, 1999 and statements of cash flows for the six months ended
March 31, 1999 are not necessarily indicative of the results to be
expected for the full year. This report should be read in conjunction
with the Company's annual report filed on Form 10-K for the fiscal
year ended September 30, 1998.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Income taxes
Prior to the merger, Nutrition Headquarters Group had been treated as
an S corporation for Federal and state income tax purposes.
Accordingly, taxable income was reported to the individual
stockholders for inclusion in their respective income tax returns
with no provision for these taxes, other than certain minimum taxes,
included in the Company's consolidated financial statements.
Common shares and earnings per share
On April 12, 1999, the Company's Certificate of Incorporation was
amended to authorize the issuance of up to 175 million shares of
common stock, par value $.008 per share. In March 1998, the Company's
Board of Directors declared a three-for-one stock split in the form
of a 200% stock dividend effective March 23, 1998.
All per common share amounts have been retroactively restated to
account for the above stock split and the merger of NHG with NBTY. In
addition, stock options and respective exercise prices have been
amended to reflect these transactions.
The Company retired 4,511 treasury shares during fiscal 1999 and
accordingly, such retired shares are considered unissued.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." The statement requires the presentation of both
"basic" and "diluted" EPS on the face of the income statement. Basic
EPS is based on the weighted average number of shares of common stock
outstanding during each period while diluted EPS is based on the
weighted average number of shares of common stock and common stock
equivalents outstanding during each period. The Company adopted the
provisions of SFAS 128 effective October 1, 1998.
Reclassifications
Certain reclassifications have been made to conform prior year
amounts to the current year presentation.
Accounting changes
In February 1998, the American Institute of Certified Public
Accountants' Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP No.
98-1"). SOP No. 98-1 requires certain costs incurred in connection
with developing or obtaining internal-use software to be capitalized
and other costs to be expensed. The Company adopted SOP 98-1 during
fiscal 1998, and its application had no material effect on the
Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public
Accountants' AcSEC issued Statement of Position No. 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP No. 98-5"). SOP No. 98-5
requires that all start-up (or pre-opening) activities and
organization costs be expensed as incurred. The Company adopted SOP
98-5 on October 1, 1998, and its application had no material effect
on the Company's financial position or results of operations.
New accounting standards
In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which establishes
standards for reporting information about operating segments by
public business enterprises in annual financial statements and
requires those enterprises to report selected information about
operating segments in interim financial reports to stockholders. It
also establishes standards for disclosures regarding products and
services, geographic areas and major customers. This SFAS is
effective for the Company on September 30, 1999.
In June 1998, the FASB issued SFAS No. 133, "Statement of Financial
Accounting Standards Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"). SFAS 133 is effective fiscal years
beginning after June 15, 1999 (October 1, 1999 for the Company). SFAS
133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge
transaction. Management of the Company anticipates that, due to its
limited use of derivative instruments, the adoption of SFAS 133 will
not have a significant effect on the Company's results of operations
or its financial position.
2. Acquisitions
In August 1998, the Company acquired certain assets of three
privately held vitamin mail order companies: Home Health Products,
Inc., Barth-Spencer Corporation and Darby Health Group, Inc. for $7.8
million in cash. The aggregate sales of these companies were
approximately $20 million in 1997. The mail order databases of the
acquired operations will be incorporated into NBTY's active direct
response customer base to increase the number of active customers.
3. Comprehensive earnings
On June 1, 1997, the FASB issued SFAS No. 130, "Reporting of
Comprehensive Income," which establishes standards for the reporting
and display of comprehensive income, its components (revenue,
expenses, gains and losses) and accumulated balances in a full set of
general purpose financial statements. Comprehensive income for the
Company includes net income and the effects of translation which are
charged or credited to the cumulative translation adjustments account
within stockholders' equity. SFAS No. 130 was adopted on October 1,
1998.
Comprehensive earnings for the three and six months ended March 31,
1999 and 1998 are as follows:
For the three months For the six months
ended March 31, ended March 31,
-------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
Net income $ 6,838 $15,617 $10,306 $23,633
Changes in cumulative
Translation adjustment (5,343) 3,588 (9,261) 6,837
----------------------------------------------
Comprehensive earnings $ 1,495 $19,205 $ 1,045 $30,470
==============================================
Accumulated other comprehensive earnings, which had been classified
as a separate component of stockholders' equity, is comprised of
cumulative translation adjustments of $2,052 and $11,313 at March 31,
1999 and September 30, 1998, respectively.
4. Inventories
Inventories have been estimated using the gross profit method for the
interim periods. The components of the inventories are as follows:
March 31, September 30,
1999 1998
--------- -------------
Raw materials and Work-in-process $ 53,381 $ 50,913
Finished goods 67,096 68,694
----------------------
$120,477 $119,607
======================
5. Earnings per share (EPS)
Basic EPS computations are based on the weighted average number of
common shares outstanding during the three and six month periods
ended March 31, 1999 and 1998. Diluted EPS include the dilutive
effect of outstanding stock options, if exercised. The following is
a reconciliation between the basic and diluted EPS, as required by
SFAS No. 128:
For the three months For the six months
March 31, March 31,
-------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
Numerator:
Numerator for basic EPS --
Income available
To common stockholders $ 6,838 $15,617 $10,306 $23,633
==============================================
Numerator for diluted EPS --
Income available
To common stockholders $ 6,838 $15,617 $10,306 $23,633
==============================================
Denominator:
Denominator for basic EPS --
Weighted average shares 71,597 64,608 71,313 64,662
Effect of dilutive securities:
Stock options 916 4,289 1,260 4,305
----------------------------------------------
Denominator for diluted EPS --
Weighted average shares 72,513 68,897 72,573 68,967
==============================================
Net EPS:
Basic EPS $ 0.10 $ 0.24 $ 0.14 $ 0.37
==============================================
Diluted EPS $ 0.09 $ 0.23 $ 0.14 $ 0.34
==============================================
6. Stock options:
During the six months ended March 31, 1999, options were exercised
with 3,520 shares of common stock issued to certain officers for
interest-bearing stock subscriptions receivable aggregating $866 and
cash of $27. As a result of the exercise of those options, the
Company expects to receive a compensation deduction for tax purposes
of approximately $14,604 and a tax benefit of approximately $5,696.
7. Foreign operations:
The following information has been summarized by geographic area as
of March 31, 1999 and 1998 and for the three and six months then
ended:
Identifiable Assets
March 31,
------------------
1999 1998
---- ----
United States $301,022 $248,521
United Kingdom 211,054 212,423
----------------------
$512,076 $460,944
======================
Three months ended Three months ended
March 31, 1999 March 31, 1998
Operating Operating
------------------ ------------------
Sales Income Sales Income
----- ------ ----- ------
United States $112,549 $ 9,302 $110,597 $22,943
United Kingdom 55,124 7,534 46,690 4,144
------------------------------------------------
$167,673 $16,836 $157,287 $27,087
================================================
Six months ended Six months ended
March 31, 1999 March 31, 1998
Operating Operating
------------------ ------------------
Sales Income Sales Income
----- ------ ----- ------
United States $193,098 $14,783 $190,237 $34,751
United Kingdom 115,588 11,848 96,583 7,268
------------------------------------------------
$308,686 $26,631 $286,820 $42,019
================================================
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 Six months
Ended Ended
March 31, March 31,
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:
Cost of sales 46.8 47.8 47.8 49.0
Catalog printing, postage and promotion 5.9 5.6 6.0 4.9
Selling, general and administrative 37.2 29.4 37.5 31.5
--------------------------------------------
89.9 82.8 91.3 85.4
--------------------------------------------
Income from operations 10.1 17.2 8.7 14.6
Other income (expenses), net (3.2) (2.8) (3.0) (2.7)
--------------------------------------------
Income before income taxes 6.9 14.4 5.7 11.9
Income taxes 2.8 4.5 2.4 3.7
--------------------------------------------
Net income 4.1 % 9.9 % 3.3% 8.2 %
============================================
For the three months ended March 31, 1999 compared to
the three months ended March 31, 1998:
Net sales. Net sales in the second quarter ended March 31, 1999 were
$167,673 compared with $157,287 for the prior comparable period, an
increase of $10,386 or 6.6%. Direct response sales were $59,006, compared
to $61,874 for the prior comparable period (decrease of $2,868 or 4.6%),
wholesale sales were $30,704 compared to $33,383 (decrease of $2,679 or
8.0%), U.S. retail sales were $24,210 compared to $16,476 (increase of
$7,734 or 46.9%) and U.K. retail sales were $53,753 compared to $45,554
(increase $8,199 or 18.1%). The Company operated 277 stores in the U.S. and
415 stores in the U.K. as of March 31, 1999 compared to 142 stores in the
U.S. and 418 in the U.K. as of March 31, 1998. The Company experienced more
competitive pressures and accordingly, direct response and wholesale sales
channels showed decrease in sales. Sales growth in the U.S. retail channel
reflected the greater number of stores compared to last year.
Costs and expenses. Cost of sales as a percentage of sales were 46.8% for
1999 and 47.8% for 1998. The decrease was associated with changes in
product mix and lower raw material pricing from suppliers and replacing a
number of outside vendors at Holland and Barrett with NBTY supplied
products.
Catalog printing, postage, and promotion expenses were $9,864 in 1999, an
increase of $1.0 million (11.8% increase), from $8,824 in 1998. As a
percentage of sales, expenses were 5.9% for the current quarter and 5.6%
for the prior comparable quarter.
Selling, general and administrative expenses were $62,424 for the quarter,
or 37.2% as a percentage of sales, compared with $46,178 or 29.4% as a
percentage of sales, an increase of $16.2 million (35.2% increase). The
largest categories and increases are indirect salaries, rents, freight,
property taxes and legal fees. These expenses increased due primarily to
the U.S. retail store expansion program.
Interest expense. Interest expense was $5,358, an increase of $244 compared
to $5,114 during the comparable quarter. The major components are interest
associated with the Holland & Barrett acquisition, the Credit and Guarantee
Agreement (CGA) and the write-off of fees associated with the amended and
restated CGA.
Income taxes. Prior to the merger, NHG had been treated as an S corporation
for Federal and state tax purposes. Accordingly, taxable income was
reported to the individual stockholders for inclusion in their respective
income tax returns with no provision for these taxes, other than certain
minimum taxes, included in the Company's Consolidated Financial Statements.
Income before income taxes was $11,485 for 1999 and $22,709 for 1998.
After income taxes, the Company had a net profit of $6,838 (or basic
earnings per share of $0.10, diluted earnings per share of $0.09) for the
three month period ended March 31, 1999, and $15,617 (or basic earnings per
share of $0.24, diluted earnings per share of $0.23) for the three months
ended March 31, 1998.
NBTY, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
CONDITION and RESULTS of OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Results of Operations
For the six months ended March 31, 1999 compared to
the six months ended March 31, 1998:
Net sales. Net sales in the six months ended March 31, 1999 were $308,686
compared with $286,820 for the prior comparable period, an increase of
$21,866 or 7.6%. Direct response sales were $89,226, compared to $93,933
for the prior comparable period (decrease of $4,706 or 5.0%), wholesale
sales were $60,768 compared to $66,762 (decrease of $5,994 or 9.0%), U.S.
retail sales were $44,999 compared to $31,314 (increase of $13,685 or
43.7%) and U.K. retail sales were $113,693 compared to $94,811 (increase
$18,882 or 19.9%). The Company operated 277 stores in the U.S. and 415
stores in the U.K. as of March 31, 1999 compared to 142 stores in the U.S.
and 418 in the U.K. as of March 31, 1998. The Company experienced more
competitive pressures and accordingly, direct response and wholesale sales
channels showed decrease in sales. Sales growth in the U.S. retail channel
reflected the greater number of stores compared to last year.
Costs and expenses. Cost of sales as a percentage of sales were 47.8% for
1999 and 49.0% for 1998. The decrease was associated with changes in
product mix and lower raw material pricing from suppliers. In addition, in
the six months ended March 31, 1999 compared to the six months ended March
31, 1998, a significant number of products supplied by outside vendors to
Holland and Barrett were replaced by NBTY supplied products.
Catalog printing, postage, and promotion expenses were $18,652 in 1999 an
increase of $4.7 million (33.8% increase), from $13,935 in 1998 As a
percentage of sales, expenses were 6.0% for the six months and 4.9% for the
prior six months. Such increase was principally due to H&B's television
commercials in October 1998 and greater number of catalogs being mailed and
advertising for store openings.
Selling, general and administrative expenses were $115,895 for the six
months, or 37.5% as a percentage of sales, compared with $90,452 or 31.5%
as a percentage of sales, an increase of $30.2 million (28.1% increase).
The largest segments and increases are indirect salaries, rents, freight,
depreciation of property, plant and equipment and legal. These expenses
increased due primarily to the U.S. retail expansion program.
Interest expense. Interest expense was $9,626, an increase of $405 compared
to $9,221 during the comparable quarter. The major components are interest
associated with the Holland & Barrett acquisition, the Credit and Guarantee
Agreement (CGA) and the write-off of fees associated with the amended and
restated CGA.
Income taxes. Prior to the merger, NHG had been treated as an S corporation
for Federal and state tax purposes. Accordingly, taxable income was
reported to the individual stockholders for inclusion in their respective
income tax returns with no provision for these taxes, other than certain
minimum taxes, included in the Company's Consolidated Financial Statements.
Income before income taxes was $17,520 for 1999 and $34,198 for 1998.
After income taxes, the Company had a net profit of $10,306 (or basic
earnings per share of $0.14, diluted earnings per share of $0.14) for the
six month period ended March 31, 1999, and $23,633 (or basic earnings per
share of $0.37, diluted earnings per share of $0.34) for the six months
ended March 31, 1998.
Liquidity and Capital Resources
Working capital was $113.4 million at March 31, 1999, compared with $89.1
million at September 30, 1998, an increase of $24.3 million.
In April 1999, the Company entered into an amended and restated Credit and
Guarantee Agreement (CGA) which expires September 30, 2003 increasing the
borrowing limit from $60 million to $135 million. The CGA provides for
borrowings for working capital, general corporate purposes and acquisition
of the Company's securities. The CGA provides that loans be made under a
selection of rate formulas, including prime or Euro currency rates.
Virtually all of the company's assets are collateralized under the CGA and
subject to normal banking terms and conditions and the maintenance of
various financial ratios and covenants. At March 31, 1999, there were
borrowings of $25,000 under this facility. The Company plans on utilizing
the funds for working capital needs and to buy back its common stock under
its existing stock purchase plan.
In connection with the August 1997 acquisition of Holland & Barrett, the
Company issued $150 million 8-5/8% senior subordinated Notes ("Notes") due
in 2007. The Notes are unsecured and subordinated in right of payment for
all existing and future indebtedness of the Company.
In November and December 1997, the Company paid an aggregate $5,350 in
connection with a litigation settlement, net of a reimbursement made by an
insurance carrier.
In December 1997, the Company purchased a building for a purchase price of
approximately $3,900 with operating funds.
In April 1998, the Company sold certain assets of its cosmetic pencil
operation for approximately $6 million, of which $4.5 million was paid in
cash.
On July 1, 1998, the Company sold 3,450 shares of common stock in a public
offering. The Company realized approximately $55 million which was used to
repay borrowings under the Company's Credit and Guarantee Agreement and for
working capital.
The Company believes that existing cash balances, internally-generated
funds from operations, amounts available under the CGA and other debt
facilities will provide sufficient liquidity to satisfy the Companies'
working capital needs for the next 12 months and to finance anticipated
capital expenditures incurred in the normal course of business.
Net cash provided by operating activities was $16.0 million in 1999 and
$15.4 million in 1998 primarily due to increases in depreciation and
amortization and accrued expenses. Net cash used in investing activities
was $21.6 million in 1999 and $30.6 million in 1998 due to retail stores
and plant expansion programs. Net cash provided by financing activities was
$15.6 million in 1999 due to borrowings under the CGA and was $13.9
million in 1998.
Management believes that inflation did not have a significant impact on its
operations.
Year 2000.
The Year 2000 problem is a result of software computer programs being
written using two digits rather than four to define the applicable year.
The Company recognizes the risk that its software programs or computer
hardware that have date-sensitive software or embedded chips may recognize
a date using "00" as the year 1900 rather than the Year 2000. This could
result in system failures or miscalculations causing disruptions to
operations including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities. The Company recognizes the need to ensure that its operations
will not be adversely impacted by Year 2000 software and hardware failure.
The Company is developing a plan to ensure that its systems are compliant
with the requirements to process transactions in the Year 2000. That plan
consists of four phases: assessment, remediation, testing and
implementation, and encompasses internal information technology (IT)
systems and non-IT systems, as well as third party exposures.
The following is a status report of the Company's effort to date:
The Company's State of Readiness
The Company has completed the assessment of its IT systems and non-IT
systems.
Third Parties And Their Exposure To The Year 2000
The Company has requested from a majority of its principal suppliers
and vendors written statements regarding their knowledge of and plans
for meeting Year 2000 requirements. To date, the Company is not
aware of any principal supplier or vendor with a Year 2000 issue that
could materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means
of ensuring that external agents will be Year 2000 ready. The
inability of external agents to complete their Year 2000 resolution
process in a timely fashion could materially impact the Company. The
effect of non-compliance by external agents cannot be determined.
Risks
Management of the Company believes that it is working on an effective
program to resolve the Year 2000 issue in a timely manner. The
Company has not yet completed all necessary phases of the Year 2000
program. The Company has retained an outside firm to assist the
Company's personnel. It is estimated that the costs of this project
will approximate $200. In the event that the Company does not
complete any additional phases, the Company could experience business
interruptions. In addition, disruptions in the economy generally
resulting from the Year 2000 issues could also materially adversely
affect the Company. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
Contingency Plans
The Company currently has no contingency plans in place in the event
it does not complete all phases of the Year 2000 program. The
Company plans to evaluate the status of completion in September 1999
and determine whether such a plan is necessary.
New pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which establishes standards for
reporting information about operating segments by public business
enterprises in annual financial statements and requires those enterprises
to report selected information about operating segments in interim
financial reports to stockholders. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. This SFAS is effective for the Company on September 30, 1999.
Management anticipates that the adoption of SFAS No. 131 will not have a
significant effect on results of operations or its financial position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (October
1, 1999 for the Company). SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes
in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative
is designated as part of a hedge transaction and, if it is, the type of
hedge transaction. Management of the Company anticipates that, due to its
limited use of derivative instruments, the adoption of SFAS No. 133 will
not have a significant effect on the Company's results of operations or its
financial position.
This filing contains certain forward-looking statements and information
that are based on the beliefs of management, as well as assumptions made by
and information currently available to the Company's management. When used
in this document, the words "anticipate," "believe," "estimate," and
"expect" and similar expressions, as they relate to the Company are
intended to identify forward-looking statements. Such statements reflect
the current views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected. The
Company does not intend to update these forward-looking statements.
NBTY, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
(Unaudited)
Item 1. Legal Proceedings
LITIGATION:
GEHE AG (Holland & Barrett's former parent company), has filed an action in
the U.K., in February 1998, against the Company in a dispute over the
interpretation of the acquisition agreement.
In November and December 1997, the Company paid an aggregate $5,350 in
connection with a litigation settlement, net of a reimbursement made by its
insurance carrier. Reference is made to Note 15 in Form 10-K for the year
ended September 30, 1998.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities Not applicable.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The following propositions were approved on April 12, 1999, at NBTY, Inc.'s
Annual Meeting of Stockholders:
Proposition 1: Re-elected Directors to serve until the 2002 Annual
Meeting.
Votes for Votes against
--------- -------------
Scott Rudolph 61,051,000 1,876,000
Murray Daly 61,047,000 1,879,000
Bud Solk 61,049,000 1,877,000
Nathan Rosenblatt 61,019,000 1,908,000
Proposition 2: Approved an increase in the number of authorized shares
from 75,000,000 shares of common stock, $.008 par value, to
175,000,000 shares of common stock, $.008 par value.
Votes for Votes against Votes abstained
--------- ------------- ---------------
57,137,000 5,513,000 277,000
Proposition 3: Ratified the designation of PricewaterhouseCoopers LLP as
independent accountants to audit the consolidated financial
statements of the Company for the 1999 fiscal year.
Votes for Votes against Votes abstained
--------- ------------- ---------------
62,472,000 201,000 253,000
Item 5. Other Information
In April 1999, the Company entered into an amended and restated Credit and
Guarantee Agreement (CGA) which expires September 30, 2003 increasing the
borrowing limit from $60 million to $135 million. The CGA provides for
borrowings for working capital, general corporate purposes and acquisition
of the company's securities. The CGA provides that loans be made under a
selection of rate formulas, including prime or Euro currency rates.
Virtually all of the company's assets are collateralized under the CGA and
subject to normal banking terms and conditions and the maintenance of
various financial ratios and covenants.
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, 1999.
NBTY, INC. and SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
NBTY, INC.
Date May 6, 1999 /s/ Harvey Kamil
Harvey Kamil, Executive Vice
President, Secretary
(Principal Financial
and Accounting Officer)