-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CDn291wXbQg55cckkEoft2sQfLO0NpZ6LRHAUoorfUQ8h5o0em+EMLsmmYsJWDVb /p8Gnzy88/Cd9QCibqM7uQ== 0000910647-95-000077.txt : 19951219 0000910647-95-000077.hdr.sgml : 19951219 ACCESSION NUMBER: 0000910647-95-000077 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951218 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATURES BOUNTY INC CENTRAL INDEX KEY: 0000070793 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 112228617 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10666 FILM NUMBER: 95602321 BUSINESS ADDRESS: STREET 1: 90 ORVILLE DR CITY: BOHEMIA STATE: NY ZIP: 11716 BUSINESS PHONE: 5165679500 MAIL ADDRESS: STREET 1: 90 ORVILLE DRIVE CITY: BOHEMIA STATE: NY ZIP: 11716 10-K 1 BODY OF THE FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended September 30, 1995. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to__________________. Commission file number 0-10666 NBTY, INC. (Formerly NATURE'S BOUNTY, INC.) (Exact name of registrant as specified in charter) DELAWARE 11-2228617 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 90 Orville Drive 11716 Bohemia, New York (Zip Code) (Address of principal executive office) (516) 567-9500 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.008 per share 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 Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ Indicate by check mark is disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment for this Form 10-K [X]. The aggregate market value of the voting stock held by nonaffiliates of the registrant, based upon the closing price of shares of Common Stock on the National Association of Securities Dealers Automated Quotation ("NASDAQ") National Market System at November 29, 1995 was approximately $82,683,644. The number of shares of Common Stock of the registrant outstanding at November 29, 1995 was approximately 19,477,676. Documents Incorporated by Reference: None PART I Item 1. BUSINESS Products NBTY, Inc. (formerly known as Nature's Bounty, Inc.) (the "Company"), collectively with its subsidiaries is a manufacturer and marketer of nutritional supplements in the United States. It sells more than 350 products consisting of vitamins and other nutritional supplements such as minerals, amino acids and herbs. Vitamins, minerals and amino acids are sold as a single vitamin and in multi-vitamin combinations and in varying potency levels in powder, tablet, soft gel, chewable, and hard shell capsule form. The Company's branded products are sold by independent and chain pharmacies, wholesalers, supermarkets and health food stores and by direct mail. Marketing and Distribution The Company markets its products through different channels of distribution: wholesale-retail and direct mail. Wholesale-Retail. The Company markets its products under various brand names to various stores including drug store chains and supermarkets, independent pharmacies, health food stores, health food store wholesalers and other retailers such as mass merchandisers and Company-owned stores. The Nature's Bounty brand is sold to drug store chains and drug wholesalers. The Company sells a full line of products to supermarket chains and wholesalers under the brand name Natural Wealth at prices designed for the "price conscious" consumer. In addition to a complete line of vitamins and other nutritional supplements, the Company sells a comprehensive line of over-the-counter products such as cold remedies and analgesic formulas to independent pharmacies under the Hudson brand name. The Company sells directly to health food stores under the brand name Good'N Natural and sells products, including a specialty line of vitamins, to health food wholesalers under the brand name American Health. The Company operates 39 retail locations in fifteen states under the name Vitamin World. Such locations carry a full line of products under the Vitamin World brand name and products manufactured by others. Through direct interaction between the Company's personnel and the public, the Company is able to identify buying trends, customer preferences or dislikes, acceptances of new products and price trends in various regions of the country. This information is useful in initiating sales programs for all divisions of the Company. Direct Mail. The Company offers its full line of vitamins and other nutritional supplement products as well as selected personal care items under its Puritan's Pride brand name at prices which are normally at a discount from those of similar products sold in retail stores. The Company also sold personal care and other selected products under the Beautiful Visions name until the sale of this operation in October, 1995. Sales and Advertising The Company has approximately 70 sales employees located throughout the country who are paid on a salary plus commission basis. In addition, the Company sells through commissioned sales representative organizations which sell the Company's products on an exclusive basis. In 1994 and 1995, the Company spent approximately $14.8 million and $19.3 million, respectively, on print and media advertising, including cooperative advertising with its customers. The Company creates its own advertising materials through a staff of approximately 22 employees. The Company expects advertising costs to increase as net sales increase. Manufacturing, Distribution and Quality Control All manufacturing is conducted in accordance with good manufacturing practice standards of the United States Food and Drug Administration and other applicable regulatory standards. The Company believes that the capacity of its manufacturing and distribution facilities is adequate to meet the requirements of its current business and, at the completion of its expansion program, will be adequate to meet the requirements of anticipated increases in net sales. The Company manufactures approximately 60% of its vitamins and other nutritional supplements and expects to increase such percentage upon completion of its manufacturing improvement program. The Company's manufacturing process places special emphasis on quality control. All raw materials used in production are initially held in quarantine during which time the Company's laboratory employees assay the production against the manufacturer's certificate of analysis. Once cleared, a lot number is assigned, samples are retained and the material is processed by formulating, mixing and granulating, compression and sometimes coating operations. After the tablet is manufactured, laboratory employees test its weight, purity, potency, dissolution and stability. When a product such as vitamin tablets is ready for bottling, the Company's automated equipment counts the tablets, inserts them into bottles, adds a tamper-resistant cap with an inner safety seal and affixes a label. The Company uses computer-generated documentation for picking and packing for order fulfillment. The principal raw materials used in the manufacturing process are natural and synthetic vitamins, purchased from bulk manufacturers in the United States, Japan and Europe. Although raw materials are available from numerous sources, one supplier currently provides approximately 13% of the Company's purchases, and no other single supplier accounts for more than 10% of the Company's raw material purchases. Research and Development In 1993, 1994 and 1995, the Company did not expend any significant amounts for research and development of new products. Government Regulation The processing, formulation, packaging, labeling and advertising of the Company's products are subject to regulation by one or more federal agencies, including the United States Food and Drug Administration (the "FDA"), the Federal Trade Commission (the "FTC"), the Consumer Product Safety Commission, the United States Department of Agriculture and the Environmental Protection Agency. These activities are also regulated by various agencies of the states and localities in which the Company's products are sold. In addition, the United States Postal Service regulates advertising claims with respect to the Company's products sold by mail order. In October 1994, the Dietary Supplement Health and Education Law was signed into law. This new law, which amends the Federal Food, Drug and Cosmetic Act, defines dietary supplements as a separate and distinct entity, and not as food additives. Vitamins, minerals, amino acids, herbs and other nutritional substances are included in the definition. It expressly provides for the use of third party scientific literature which shall not be regulated as labeling by the FDA, provided it is not false or misleading. The new law also delayed the FDA's requirements for extensive product label changes which were to be applied to products manufactured after July 1, 1995. It provides a set of different label requirements for ingredient content information, and directs the FDA to publish new label regulations for supplements with a mandatory effective date of December 31, 1996. It makes no modifications on the requirements and proscriptions regarding health claims for dietary supplements. The new law also introduced the concept of good manufacturing practices to the manufacture of dietary supplements. At this time, it would be premature to predict its overall impact on the dietary supplement industry. Competition The market for vitamins and other nutritional supplements is highly competitive in all of the Company's channels of distribution. The Company's Nature's Bounty and Natural Wealth brands compete for sales to drug store chains and supermarkets with heavily advertised national brands manufactured by large pharmaceutical companies, as well as Your Life and Nature Made brands, sold by privately-held vitamin companies, Leiner Health Products, Inc. and Pharmavite Corp, respectively. The Vitamin World stores compete with specialty vitamin stores, such as GNC Stores, health food stores and other retail stores. With respect to direct mail sales, the Company's Puritan's Pride brand is the largest seller of vitamins and other nutritional supplements and competes with a large number of smaller, usually less geographically diverse, direct mail companies, some of which manufacture their own products and some of which sell products manufactured by others. It is not possible to estimate accurately the number of competitors since the nutritional supplement industry is fragmented and for the most part privately held. The Company is not capable of assessing market penetration of such competitors since they do not publish sales and marketing figures. No one company dominates the industry. However, it is the Company's belief that there may be between one and two dozen companies competing for the drug store and supermarket business. In its Vitamin World operations, the Company competes regionally with specialty vitamin stores, such as GNC Stores and local drug stores, health food stores, supermarkets, department stores and mass merchandisers. The Company believes that it competes favorably with other direct mail sellers of similar products on a basis of price and customer service, including speed of delivery and new product offerings. The Company believes that it competes favorably with the large pharmaceutical companies and other companies which sell to wholesalers, on the basis of price, breadth of product line, reputation and customer service, including innovative packaging and displays and other services. The Company believes that it derives a competitive advantage from its ability to manufacture and package its own vitamin and nutritional supplement products, which affords it the flexibility to respond to the shifting demands of each channel of distribution and, consequently, the ability to achieve the manufacturing and operating efficiencies resulting from larger production runs of products which can be packaged for sale in one or more such channels. Trademarks The Company owns trademarks registered with the United States Patent and Trademark Office and in some other major jurisdictions of the world for its Nature's Bounty, Good'N Natural, Hudson, American Health, Puritan's Pride, and Stur-Dee trademarks and has rights to use other names essential to its business. Federally registered trademarks have a perpetual life, as long as they are renewed on a timely basis and used properly as trademarks, subject to the rights of third parties to seek cancellation of the trademarks. The Company regards its trademarks and other propriety rights as valuable assets and believes they have significant value in the marketing of its products. The Company vigorously protects its trademarks against infringement. Employees The Company employs approximately 1,180 persons, of whom 40 are in executive and administrative capacities, approximately 80 are in sales, approximately 230 are in the Company's Vitamin World stores and the remainder are in manufacturing, shipping and packaging. None of the Company's employees is represented by a labor union. The Company believes its relationship with its employees is excellent. Item 2. PROPERTIES The Company owns a total of approximately 625,000 square feet of plant facilities located at 60, 90, 105 and 115 Orville Drive in Bohemia, New York and 4320 Veterans Memorial Highway, Holbrook, New York, of which 100,000 square feet is devoted to manufacturing, 72,000 square feet is utilized for offices and the balance is or is to be used for shipping and warehouse. The Company has contracted to purchase a 62 acre plot in close proximity to its other facilities in Islip, New York in order to construct additional manufacturing capacity. The Company's property at 90 Orville Drive is subject to a mortgage which collateralizes an $8.0 million taxable Industrial Development Revenue Bond due September 1, 2000 with monthly principal and interest payments of $74,821 through 2000 and a final payment of $6,891,258 on September 1, 2000. The Company's property at 115 Orville Drive is subject to a $2.4 million mortgage. The Company operates 39 retail stores and kiosks in fifteen states under the name Vitamin World. The stores have an average selling area of 1,000 square feet and each kiosk has a selling area of approximately 190 square feet. Generally, the Company leases the stores and kiosks for three to five years for annual rents ranging from $12,000 to $65,000 and percentage rents in the event sales exceed a specified amount. Item 3. LEGAL PROCEEDINGS L-tryptophan Litigation. The Company had been named in approximately 265 lawsuits of which approximately 255 have been settled or discontinued through September 30, 1995 at no cost to the Company. There are approximately 10 cases still pending. There were in excess of 2,000 lawsuits filed nationwide against other companies in the industry, including distributors, wholesalers and retailers claiming compensatory and punitive damages alleging personal injury and wrongful death resulting from the ingestion of L-tryptophan. The Company and certain other companies in the industry, including distributors, wholesalers and retailers (the "Indemnified Group") have entered into an agreement with the Company's supplier of bulk L- tryptophan, Showa Denko American, Inc. (the "Supplier") under which the Supplier, a U.S. subsidiary of a major Japanese corporation, Showa Denko K.K., has assumed the defense of all claims against the Indemnified Group arising out of the ingestion of L-Tryptophan products and has agreed to pay the legal fees and expenses in that defense. The Supplier and Showa Denko K.K. have agreed to indemnify the Indemnified Group against any judgments and to fund settlements arising out of those actions and claims if it is determined that a cause of the injuries sustained by the plaintiffs, was a constituent in the bulk material sold by the Indemnified Group except to the extent that the Indemnified Group is found to have any part of the responsibility for those injuries. The Supplier has posted a revolving, irrevocable letter of credit of $20 million to be used for the benefit of the Indemnified Group in the event that the Supplier is unable or unwilling to satisfy any claims or judgments. While not all of these suits quantify the amount demanded, it can reasonably be assumed that the amount required to either settle these cases or to pay judgments rendered therein will be paid by the Supplier. To date, no cases in which the Company is a party have been reached for trial. While the outcome of any litigation is uncertain, based upon the Supplier's performance to date in settling cases, it is the opinion of management of the Company and legal counsel that it is remote that the Company will incur a material loss as a result of the L-tryptophan litigation and claims. Shareholder Litigation. In October 1994, two lawsuits were commenced in the U.S. District Court, Eastern District of New York, against the Company and two of its officers. The Complaints allege that false and misleading statements and representations were made concerning the Company's sales and earnings estimates for the fourth fiscal quarter and for the year ended September 30, 1994. The allegations were that the Defendants failed to disclose that: (a) sales were materially declining; (b) manufacturing costs were increasing instead of decreasing; (c) profit margins were materially declining; and (d) that because of the foregoing, the Company would incur a loss in its fourth fiscal quarter. The Plaintiffs seek Class Action certification and an unspecified amount of monetary damages. The Company and its officers deny the allegations of the Complaints and intend to vigorously contest the litigation. In 1994, prior to commencement of these lawsuits, the Company purchased a directors and officers Indemnity Policy. Special counsel has been retained to represent the Company and its officers. Since the outcome of any litigation is uncertain, the Company is unable to predict (i) whether it will ultimately prevail; (ii) whether it will be fully or partially indemnified, if at all; (iii) the amount of loss, if any, that may be attributable to the above; and (iv) the amount of expense which may be incurred in the defense of these actions. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 7, 1995, at the annual meeting of the shareholders, the following directors were elected: Arthur Rudolph and Glenn Cohen. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS DIVIDEND POLICY Since 1973, the Company has not paid any cash dividends on its Common Stock. On April 24, 1992, the Company effected a two-for-one stock split in the form of a 100% stock dividend to stockholders of record on May 8, 1992. On September 25, 1992, the Company effected a three-for-one stock split in the form of a 200% stock dividend to stockholders of record on November 2, 1992. In addition, on August 3, 1993, the Company effected a two-for-one stock split in the form of a 100% stock dividend to shareholders of record on August 13, 1993. Future determination as to the payment of cash or stock dividends will depend upon the Company's results of operations, financial condition and capital requirements and such other factors as the Company's Board of Directors may consider. PRICE RANGE OF COMMON STOCK The Common Stock is traded in the over-the-counter market and is included for quotation on the National Association of Securities Dealers National Market System under the trading symbol "NBTY". The following table sets forth, for the periods indicated, the high and low closing sale prices for the Common Stock, as reported on NASDAQ/NMS: Fiscal year ended September 30, 1994
High Low ---- --- First Quarter 21-1/2 16-1/8 Second Quarter 24-1/4 16 Third Quarter 22-1/4 7-1/4 Fourth Quarter 11-3/8 7-1/4 Fiscal year ended September 30, 1995 First Quarter 10-1/2 4-3/4 Second Quarter 8-3/8 5-1/16 Third Quarter 6-7/8 5-7/16 Fourth Quarter 7-1/4 5-1/2
On November 16, 1995, the closing sale price of the Common Stock was $5.00. There were approximately 788 record holders of Common Stock as of November 3, 1995. The Company believes that there were in excess of 10,000 beneficial holders of Common Stock as of such date. Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Selected Income Statement Data: Net Sales $73,592 $100,907 $138,430 $156,057 $178,760 Costs & Expenses: Cost of Sales $35,938 $ 50,555 $ 67,951 $ 79,891 $ 93,875 Catalog, printing, postage & promotion $ 5,505 $ 7,455 $ 11,507 $ 14,786 $ 19,262 Selling, general & administrative $28,891 $ 35,516 $ 42,776 $ 49,208 $ 56,728 ------- -------- -------- -------- -------- Income from operations $ 3,258 $ 7,381 $ 16,196 $ 12,172 $ 8,895 Interest expense $ 1,383 $ 1,321 $ 1,227 $ 914 $ 1,084 Other, net $ (168) $ (181) $ 743 $ 1,285 $ 571 ------- -------- -------- -------- -------- Income before Income taxes $ 1,707 $ 5,879 $ 15,712 $ 12,543 $ 8,382 Income taxes $ 689 $ 2,071 $ 5,939 $ 4,767 $ 3,246 ------- -------- -------- -------- -------- Net income $ 1,018 $ 3,808 $ 9,773 $ 7,776 $ 5,136 ======= ======== ======== ======== ======== Per Share Data: Earnings per common share: Primary $ 0.09 $ 0.28 $ 0.53 $ 0.38 $ 0.26 Fully-diluted $ 0.09 $ 0.25 $ 0.53 $ 0.38 $ 0.26 Weighted average number of shares outstanding: Primary 10,979 13,718 18,435 20,257 19,974 Fully-diluted 10,979 15,250 18,523 20,257 19,974 Selected Balance Sheet Data: Working capital $ 8,651 $ 13,082 $ 41,980 $ 39,462 $ 40,665 Total assets $43,507 $ 58,300 $101,757 $115,112 $124,103 Long-term debt, less current portion $14,202 $ 20,987 $ 8,265 $ 7,566 $ 10,924 Total stockholders' equity $12,794 $ 16,490 $ 70,002 $ 78,017 $ 82,615
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Results of Operations The following table sets forth income statement data of the Company as a percentage of net sales for the periods indicated:
Year Ended September 30 -------------------------------- 1993 1994 1995 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Costs and expenses: Cost of sales 49.1 51.2 52.5 Catalog printing & promotion 8.3 9.5 10.8 Selling, general & administrative 30.9 31.5 31.7 ----- ----- ----- 88.3 92.2 95.0 ----- ----- ----- Income from operations 11.7 7.8 5.0 Interest expense and other (.3) .2 (.3) ----- ----- ----- Income before income taxes 11.4 8.0 4.7 Income taxes 4.3 3.1 1.8 ----- ----- ----- Net income 7.1% 5.0% 2.9% ===== ===== =====
1995 Compared to 1994 Net Sales. Net sales for 1995 were $178.8 million, an increase of $22.7 million or 14.5% over 1994. Of the $22.7 million increase, $12.5 million was attributable to wholesale-retail sales and $10.3 million was attributable to mail order sales. In October, 1995, Beautiful Visions, a cosmetic catalog operation, was sold. Sales for such operation in 1995 were $8.3 million, a decrease of $5 million from the prior year. Cost and Expenses. Cost of sales for 1995 was $93.9 million, an increase of $14.0 million or 17.5% over 1994. Gross profit decreased to 47.5% in 1995 from 48.8% in 1994. Such decrease as a percentage of net sales was due to various factors which included pricing pressures and write-downs for labels and unsold Beautiful Visions inventory. Catalog, Printing, Postage and Promotion. Catalog, printing, postage and promotion for 1995 was $19.2 million, an increase of $4.5 million or 30.3% over 1994. Such cost, as a percentage of net sales was 10.8% in 1995 compared with 9.5% in 1994. This increase was mainly due to expanded trade advertising and costs associated with promotional programs to independent stores and chain stores. Selling, General and Administrative Expenses. Selling, general and administrative expenses for 1995 was $56.7 million, an increase of $7.5 million or 15.3% over 1994; as a percentage of net sales, these costs remained relatively constant at 31.7% in 1995 and 31.5% in 1994. The increase was primarily a result of increases in salaries, wages, fringe benefits and professional services. Interest expense. Interest expense in 1995 was $1.0 million, an increase of $.1 million. Income taxes. The Company's effective tax rate was 38.7% in 1995 and 38.0% in 1994. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", in 1993. The impact from the implementation of SFAS No. 109 was not material to the Company's financial statements. Seasonality. The Company believes that its business is not seasonal except that historically it has the lowest net sales in its first fiscal quarter, slightly higher net sales in its second fiscal quarter and may have higher net sales in a quarter depending upon when it has engaged in significant promotional activities. Liquidity and Capital Resources. Working capital was $40.7 million at September 30, 1995, compared with $39.5 million at September 30, 1994, an increase of $1.2 million. The Company finances its working capital with internally-generated funds. The Company maintains an unsecured $15 million Revolving Credit Agreement (RCA) expiring on March 31, 1996 and a $10 million Master Equipment Lease Agreement (MELA) expiring December 31, 1995. As of September 30, 1995, $15 million remained available under the RCA and $8.6 million under the MELA. On November 7, 1994, the Company purchased a building which it previously occupied under a long term lease. The purchase price of approximately $3.1 million was funded with $.7 million in cash and $2.4 million in a 15 year mortgage note payable. In September 1990, the Company financed its plant expansion program with the proceeds of an $8 million taxable Industrial Development Revenue Bond due September 1, 2000 with monthly principal and interest payments of $74,821 through 2000 and a final payment of $6,891,258 on September 1, 2000. A portion of this loan, which is collateralized by a mortgage in favor of an insurance company, was also utilized to repay debt which was outstanding in 1989. The mix of revenues among wholesale-retail and direct mail sales remained relatively constant for 1995, 1994 and 1993. The Company believes that existing cash balances, internally- generated funds from operations and amounts available under the RCA and MELA will provide sufficient liquidity to satisfy the Company's working capital needs for the next 24 months and to finance anticipated capital expenditures incurred in the ordinary course of business. Stock-based Plans In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", which establishes financial accounting and reporting standards for stock based plans. The Statement, which becomes effective in fiscal 1997, requires the Company to choose between accounting for issuances of stock and other equity instruments to employees based on their fair value or disclosing the pro forma effects such accounting would have had on the Company's net income and earnings per share. The Company has begun to gather the documentation necessary to address the impact of this Statement, although it has not yet decided which method it will utilize relating to its stock based employee plans. 1994 Compared to 1993 Net Sales. Net sales for 1994 were $156.1 million, an increase of $17.6 million or 12.7% over 1993. Of the $17.6 million increase, $11.7 million was attributable to wholesale sales, $4.4 million was attributable to mail order sales and $1.5 million to Company-operated retail stores and kiosks. The increase in mail order sales was comprised of an increase of $6 million for nutritional supplements and a decrease of $1.7 million in the Company's Beautiful Vision health and beauty aid catalogue operation. Substantially all of the increases in net sales were due to increased unit sales. Cost and Expenses. Cost of sales for 1994 was $79.9 million, an increase of $11.9 million of 17.6% over 1993. Gross profit decreased to 48.8% in 1994 from 50.9% in 1993. Such decrease as a percentage of net sales was due primarily to non-recurring startup costs of the cosmetic pencil operation and softness in demand for the Company's products in the last quarter of the year. Catalog, printing, postage and promotion for 1994 was $14.8 million, an increase of $3.3 million or 28.5% over 1993. Such cost, as a percentage of net sales, was 9.5% in 1994 compared with 8.3% in 1993. This increase was mainly due to aggressive promotional programs to independent stores and chain stores. Selling, general and administrative expenses for 1994 was $49.2 million, an increase of $6.4 million or 15.0% over 1993; as a percentage of net sales, these costs increased 0.6% in 1994 compared to 1993. The increase was primarily a result of increases in salaries, wages, fringe benefits and freight costs. In addition, certain fixed costs increased in anticipation of higher sales volume which did not materialize. Interest Expense. Interest expense in 1994 was $.9 million, a decrease of $.3 million, as debt was decreased. Income taxes. The Company's effective tax rate was 38% in 1994 and 37.8% in 1993. The Company adopted Statement of Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes", in 1993. The impact from the implementation of SFAS No. 109 was not material to the Company's financial statements. Seasonality. The Company believes that its business is not seasonal except that historically it has the lowest net sales in its first fiscal quarter, slightly higher net sales in its second fiscal quarter and may have higher net sales in a quarter depending upon when it has engaged in significant promotional activities. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See attached financial statements. Part IV, Item 14. Exhibits. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names and other relevant information regarding officers, directors, and significant employees of the Company as of September 30, 1995. Their stated positions are as follows:
Year Commencement first of term of elected office as Name Age Position Director Officer - ---- --- -------- -------- ------------ Scott Rudolph 38 Chairman of the Board and President 1986 1986 Harvey Kamil 51 Executive Vice President, Secretary ---- 1982 Barry Drucker 47 Senior Vice President-Sales ---- 1985 Patricia E. Ciccarone 39 Vice President- Vitamin World ---- 1992 James P. Flaherty 37 Vice President- Advertising ---- 1988 Abraham K. Kleinman 70 Vice President- Manufacturing ---- 1982 Jean Palladino 60 Vice President- Hudson ---- 1988 Abraham Rubenstein 65 Vice President- Mail Order ---- 1985 William J. Shanahan 37 Vice President- Data Processing ---- 1988 Robert Silverman 33 Vice President- Good'N Natural ---- 1991 James A. Taylor 55 Vice President- Production ---- 1982 Arthur Rudolph 67 Director 1971 1971 Aram Garabedian 60 Director 1971 ---- Bernard G. Owen 67 Director 1971 ---- Alfred Sacks 67 Director 1971 ---- Murray Daly 68 Director 1971 ---- Glenn Cohen 36 Director 1988 ---- Bud Solk 61 Director 1994 ---- Nathan Rosenblatt 38 Director 1994 ----
The Directors of the Company are elected to serve a three year term or until their respective successors are elected and qualified. Officers of the Company hold office until the meeting of the Board of Directors immediately following the next annual shareholders meeting or until removal by the Board, whether with or without cause. Scott Rudolph is the Chairman of the Board of Directors, President, Chief Executive and is a shareholder of the Company. He is a trustee of Dowling College, Long Island, New York. He joined the Company in 1986. Harvey Kamil is Executive Vice President. He joined the Company in July 1982. Barry Drucker is Senior Vice President of Sales. He joined the Company in 1976. Patricia E. Ciccarone is Vice President of Vitamin World. She joined the Company in 1988. James P. Flaherty is Vice President of Advertising. He joined the Company in 1979. Abraham H. Kleinman is Vice President of Manufacturing. He joined the Company in December, 1973. Jean Palladino is Vice President of The Hudson Corporation. She joined the Company in 1986. Abraham Rubenstein is Vice President of Mail Order. He joined the Company in January, 1985. William J. Shanahan is Vice President of Data Processing. He joined the Company in 1980. Robert Silverman is Vice President of Good'N Natural. He joined the Company in 1985. James E. Taylor is Vice President of Production. He joined the Company in December 1981. Arthur Rudolph founded Arco Pharmaceuticals, Inc., the Company's predecessor, in 1960 and had served as the Company's Chief Executive Officer and Chairman of the Board of Directors since that date until his resignation in September 1993. However, he remains a member of the Board of Directors. Mr. Rudolph was responsible for the formation of the Company in 1971. He is the father of Scott Rudolph. Aram Garabedian is, and has been since 1988, a real estate developer in Rhode Island. He had been associated with Nature's Bounty, Inc. and Arco Pharmaceuticals, Inc. for 20 years in a sales capacity and as an officer and has served as a director since 1971. Bernard G. Owen has been President of Cafiero, Cuchel and Owen Insurance Agency for the past 25 years. Alfred Sacks has been President of Al Sacks, Inc., an insurance agency for the past 30 years. Murray Daly, formerly a Vice President of J. P. Egan Office Equipment Co., is currently a consultant to the office equipment industry. Glenn Cohen is the President of Glenn-Scott Landscaping, Inc. Bud Solk is President of Bud Solk Associates, Inc., a full service advertising and marketing agency located in Chicago, Illinois, founded by him in 1958. Nathan Rosenblatt is the President and Chief Executive Officer of Ashland Maintenance Corp., a commercial maintenance organization located in Long Island, New York. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners Securities ownership of persons owning of record, or beneficially, 5% or more of the outstanding Common Stock, as of September 30, 1995. The Company is not aware of any other beneficial holders of 5% or more of the Common Stock. All information with respect to beneficial ownership, set forth in the foregoing stock ownership table, is based on information furnished by the shareholder, director or officer, or contained in filings made with the Securities and Exchange Commission.
Amount & Nature Percent Name and Address of of Beneficial of Title of Class Beneficial Owner Ownership (1) Class (1) - -------------- ------------------- --------------- --------- Common Stock Scott Rudolph 3,087,686 16.0 (Par Value 90 Orville Drive Record and $.008) Bohemia, NY 11716 Beneficial Common Stock Mathers and Co., Inc 1,870,000 9.6 (Par Value 100 Corporate North Record and $.008) Bannockburn, IL 60015 Beneficial Common Stock Nature's Bounty, Inc. 1,021,806 5.8 (Par Value Profit Sharing Plan Record and $.008) Beneficial Includes shares issuable upon exercise of options held by executive officers and directors.
(b) Security Ownership of Management (directors and Officers)
Amount & Nature of Percent Name and Address of Beneficial of Title of Class Beneficial Owner Ownership (1) Class (1) - -------------- ------------------- ------------- --------- Common Stock Scott Rudolph 3,087,686 16.0 (Par Value 90 Orville Drive Record and $.008) Bohemia, NY 11716 Beneficial Common Stock Harvey Kamil 768,439 4.2 (Par Value 90 Orville Drive Record and $.008) Bohemia, NY 11716 Beneficial Common Stock Barry Drucker 43,600 Nil (Par Value 90 Orville Drive Record and $.008) Bohemia, NY 11716 Beneficial Common Stock Arthur Rudolph 0 ___ (Par value 90 Orville Drive Record and $.008) Bohemia, NY 11716 Beneficial Common Stock Aram Garabedian 24,000 Nil (Par Value 90 Orville Drive Record and $.008) Bohemia, NY 11716 Beneficial Common Stock Bernard G. Owen 41,000 Nil (Par Value 90 Orville Drive Record and $.008) Bohemia, NY 11716 Beneficial Common Stock Alfred Sacks 24,000 Nil (Par Value 90 Orville Drive Record and $.008) Bohemia, NY 11716 Beneficial Common Stock Murray Daly 27,000 Nil (Par Value 90 Orville Drive Record and $.008) Bohemia, NY 11716 Beneficial Common Stock Glenn Cohen 12,000 Nil (Par Value 90 Orville Drive Record and $.008) Bohemia, NY 11716 Beneficial Common Stock Bud Solk 0 ___ (Par Value 90 Orville Drive Record and $.008) Bohemia, NY 11716 Beneficial Common Stock Nathan Rosenblatt 0 ___ (Par Value 90 Orville Drive Record and $.008) Bohemia, NY 11716 Beneficial Common Stock All Directors, 4,027,725 20.2 (Par Value Officers and as a Record and $.008) group (11 persons) Beneficial Includes shares issuable upon exercise of options held by executive officers and directors.
Nature's Bounty, Inc. Profit Sharing Plan (formerly Employee Stock Ownership Plan and Trust) The basic terms of the Plan are as follows: Eligibility All employees of the Company, including officers, over the age of 21 and who have been employed by the Company for one year or more are eligible participants in the Plan. Contributions Contributions are made on a voluntary basis by the Company. There is no minimum contribution required in any one year. There will be no contributions required by an employee. All contributions will be made by the Company at the rate of up to 15% of the Company's annual payroll, at the discretion of the Company. Each eligible employee receives an account or share in the Trust and the cash and/or shares of stock contributed to the Plan each year are credited to his or her account. Vesting Once an employee is eligible, a portion of the stock in his or her account becomes "vested" each year. For all participating employees after January 1, 1989, the vesting is as follows:
Number of Years Percentage of Shares of Service earned each year --------------- -------------------- 0 - 2 0% 3 20% 4 20% 5 20% 6 20% 7 20%
Distribution If an employee retires, is disabled, dies or his or her employment is otherwise terminated, that employee or that employee's estate will receive the vested portion held in trust for that employee. At the end of the vesting period, the employees become full beneficial owners of the stock. There is no tax consequence attached to his or her Plan for an employee until that employee sells the shares, at which time any profit realized by the employee is taxed as a capital gain. Distribution is to be made only in the shares of Nature's Bounty, Inc. which shares were purchased for the Trust from the cash contributions of the Company. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report Page Number ------ 1. Financial Statements Report of Independent Accountants F-1 Consolidated Balance Sheets as of September 30, 1995 and 1994 F-2 Consolidated Statements of Income for the years ended September 30, 1995, 1994 and 1993 F-3 Consolidated Statements of Stockholders' Equity for the years ended September 30, 1995, 1994 and 1993 F-4 Consolidated Statements of Cash Flows for the years ended September 30, 1995, 1994 and 1993 F-5 to F-6 Notes to Consolidated Financial Statements F-7 to F-18 2. Financial Statement Schedule Schedule II S-1 Schedules not listed above are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto. 3. Exhibits 11. Statement Re Computation of Per Share Earnings (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: December 13, 1995 By: Scott Rudolph Scott Rudolph President, Chief Executive Officer Dated: December 13, 1995 By: Harvey Kamil Harvey Kamil Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: December 13, 1995 By: Scott Rudolph Scott Rudolph Chairman, President and Chief Executive Officer Dated: December 13, 1995 By: Arthur Rudolph Arthur Rudolph, Director Dated: December 13, 1995 By: Aram Garabedian Aram Garabedian, Director Dated: December 13, 1995 By: Bernard G. Owen Bernard G. Owen, Director Dated: December 13, 1995 By: Alfred Sacks Alfred Sacks, Director Dated: December 13, 1995 By: Murray Daly Murray Daly, Director Dated: December 13, 1995 By: Glenn Cohen Glenn Cohen, Director Dated: December 13, 1995 By: Bud Solk Bud Solk, Director Dated: December 13, 1995 By: Nathan Rosenblatt Nathan Rosenblatt, Director NBTY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993 | Coopers | Coopers & Lybrand L.L.P. | | | &Lybrand | a professional services firm REPORT of INDEPENDENT ACCOUNTANTS To the Board of Directors of NBTY, Inc.: We have audited the consolidated financial statements and the financial statement schedule of NBTY, Inc. and Subsidiaries (formerly Nature's Bounty, Inc. and Subsidiaries) listed in Item 14(a) of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NBTY, Inc. and Subsidiaries as of September 30, 1995 and 1994, and the consolidated results of its operations and cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. As discussed in Notes 1 and 8 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993. /s/ COOPERS & LYBRAND L.L.P. Melville, New York November 7, 1995. Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a limited liability association incorporated in Switzerland. NBTY, Inc. and Subsidiaries Consolidated Balance Sheets September 30, 1995 and 1994
ASSETS: 1995 1994 LIABILITIES AND STOCKHOLDERS' EQUITY: 1995 1994 Current assets: Current liabilities: Cash and cash equivalents $ 10,378,476 $ 5,900,594 Current portion of long-term debt and capital lease obligations $ 358,675 $ 5,698,312 Accounts receivable, less Accounts payable 16,411,562 13,251,382 allowance for doubtful Accrued expenses 10,287,989 8,209,471 accounts of $576,579 in 1995 Total current liabilities 27,058,226 27,159,165 and $594,522 in 1994 12,354,545 10,217,013 Inventories 36,972,592 41,426,175 Long-term debt and capital lease obligations, less current portion 10,924,454 7,566,144 ------------ ------------ Income tax receivable 1,300,198 Deferred income taxes 2,736,148 1,875,933 Other liabilities 768,985 493,986 ------------ ------------ Deferred income taxes 1,846,875 1,870,925 Total liabilities 41,487,813 37,095,228 ------------ ------------ Prepaid catalog costs and Commitments and contingencies (Notes 9 and 12) other current assets 6,170,243 5,905,990 ------------ ------------ Stockholders' equity: Total current assets 67,722,731 66,620,895 Common stock, $.008 par; authorized 25,000,000 shares; issued 19,207,676 shares in 1995 and 18,777,676 shares in 1994 and outstanding 17,766,119 shares in 1995 and 17,564,272 shares in 1994 153,662 150,222 Property, plant and equipment, net 48,324,576 39,799,443 Capital in excess of par 54,151,206 53,208,646 Retained earnings 30,656,586 25,520,728 ------------ ------------ Intangible assets, net 5,813,031 5,524,865 84,961,454 78,879,596 Less 1,441,557 and 1,213,404 treasury shares Deferred income taxes 574,611 374,772 at cost, in 1995 and 1994, respectively 2,346,009 862,722 ------------ ------------ Other assets 1,668,309 2,792,127 Total stockholders' equity 82,615,445 78,016,874 ------------ ------------ ------------ ------------ Total liabilities and stockholders' Total assets $124,103,258 $115,112,102 equity $124,103,258 $115,112,102 ============ ============ ============ ============
See notes to consolidated financial statements. NBTY, Inc. and Subsidiaries Consolidated Statements of Income Years ended September 30, 1995, 1994 and 1993
1995 1994 1993 Net sales $178,759,871 $156,057,056 $138,430,413 ------------ ------------ ------------ Costs and expenses: Cost of sales 93,875,162 79,891,302 67,951,046 Catalog printing, postage and promotion 19,261,733 14,786,217 11,507,026 Selling, general and administrative 56,728,368 49,207,943 42,775,644 ------------ ------------ ------------ 169,865,263 143,885,462 122,233,716 ------------ ------------ ------------ Income from operations 8,894,608 12,171,594 16,196,697 ------------ ------------ ------------ Other income (expenses): Interest (1,084,331) (913,583) (1,227,141) Miscellaneous, net 571,098 1,284,953 742,624 ------------ ------------ ------------ (513,233) 371,370 (484,517) ------------ ------------ ------------ Income before income taxes 8,381,375 12,542,964 15,712,180 Income taxes 3,245,517 4,766,526 5,939,680 ------------ ------------ ------------ Net income $ 5,135,858 $ 7,776,438 $ 9,772,500 ============ ============ ============ Net income per share $0.26 $0.38 $0.53 ============ ============ ============ Weighted average common shares outstanding 19,974,270 20,257,325 18,435,143 ============ ============ ============
See notes to consolidated financial statements. NBTY, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity Years ended September 30, 1995, 1994 and 1993
Common stock Treasury stock -------------------- ------------------------ Number of Capital in Retained Number shares Amount excess of par earnings of shares Amount Total ---------- ------ ------------- -------- --------- ------ ----- Balance, September 30, 1992 5,999,838 $ 47,999 $ 9,332,496 $ 7,971,790 606,702 $ (862,722) $16,489,563 Net income for year ended September 30, 1993 9,772,500 9,772,500 Exercise of stock options 782,500 6,260 1,493,740 1,500,000 Public offering of stock 1,725,000 13,800 29,020,761 29,034,561 Two-for-one stock split effected in the form of a 100% stock dividend 8,507,338 68,059 (68,059) 606,702 Exercise of stock options 1,703,000 13,624 1,196,251 1,209,875 Tax benefit from exercise of stock options 11,995,737 11,995,737 ---------- -------- ----------- ----------- --------- ----------- ----------- Balance, September 30, 1993 18,717,676 149,742 52,970,926 17,744,290 1,213,404 (862,722) 70,002,236 Net income for year ended September 30, 1994 7,776,438 7,776,438 Expenses associated with prior year public offering of stock (225,000) (225,000) Exercise of stock options 60,000 480 29,520 30,000 Tax benefit from exercise of stock options 433,200 433,200 ---------- -------- ----------- ----------- --------- ----------- ----------- Balance, September 30, 1994 18,777,676 150,222 53,208,646 25,520,728 1,213,404 (862,722) 78,016,874 Net income for year ended September 30, 1995 5,135,858 5,135,858 Exercise of stock options 430,000 3,440 211,560 215,000 Tax benefit from exercise of stock options 731,000 731,000 Purchase of treasury stock, at cost 228,153 (1,483,287) (1,483,287) ---------- -------- ----------- ----------- --------- ----------- ----------- Balance, September 30, 1995 19,207,676 $153,662 $54,151,206 $30,656,586 1,441,557 $(2,346,009) $82,615,445 ========== ======== =========== =========== ========= =========== ===========
See notes to consolidated financial statements. NBTY, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years ended September 30, 1995, 1994 and 1993
1995 1994 1993 Cash flows from operating activities: Net income $ 5,135,858 $ 7,776,438 $ 9,772,500 Adjustments to reconcile net income to cash provided by operating activities: Loss on disposal/sale of property, plant and equipment 374,126 519 26,309 Depreciation and amortization 4,840,570 4,243,985 3,969,985 (Recovery) provision for allowance for doubtful accounts (17,943) 89,968 (34,009) Increase (decrease) in deferred taxes 684,426 3,046,493 (70,655) Changes in assets and liabilities, net of acquisitions: Accounts receivable (2,119,589) (454,841) (3,490,817) Inventories 4,453,583 (10,770,809) (6,176,753) Income tax receivable 1,300,198 3,089,929 (2,219,261) Prepaid catalog costs and other current assets (264,253) (2,297,276) (1,248,581) Other assets 1,123,818 (2,465,151) (118,046) Accounts payable 3,160,180 (2,828,998) 3,164,931 Accrued expenses 2,809,518 3,226,894 4,958,296 Other liabilities 274,999 (353,225) 129,936 ----------- ----------- ----------- Net cash provided by operating activities 21,755,491 2,303,926 8,663,835 ----------- ----------- ----------- Cash flows from investment activities: Purchase of property, plant and equipment (11,547,570) (11,592,662) (13,853,522) Increase in intangible assets (1,063,953) (253,772) (341,278) Proceeds from sale of property, plant and equipment 11,000 2,600 Purchase of Prime Natural Health (5,034,786) ----------- ----------- ----------- Net cash used in investing activities (12,611,523) (11,835,434) (19,226,986) ----------- ----------- ----------- Cash flows from financing activities: Net (payments) borrowings under line of credit agreement (5,000,000) 5,000,000 (10,000,000) Borrowings under long-term debt agreements 2,400,000 Principal payments under long-term debt agreements (797,799) (221,307) (2,755,686) Purchase of treasury stock (1,292,287) Proceeds from stock options exercised 24,000 30,000 2,709,875 Proceeds from public offering, less expenses (225,000) 29,034,561 ----------- ----------- ----------- Net cash (used in) provided by financing activities (4,666,086) 4,583,693 18,988,750 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 4,477,882 (4,947,815) 8,425,599 Cash and cash equivalents at beginning of year 5,900,594 10,848,409 2,422,810 ----------- ----------- ----------- Cash and cash equivalents at end of year $10,378,476 $ 5,900,594 $10,848,409 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 1,085,647 $ 913,145 $ 1,303,855 =========== =========== =========== Cash paid during the period for income taxes $ 1,648,765 $ 2,349,198 $ 2,984,675 =========== =========== ===========
Non-cash investing and financing information: During fiscal 1995, the Company entered into two capital leases for machinery and equipment aggregating $1,416,472. During fiscal 1995, 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 is entitled to a compensation deduction of approximately $1,827,500 and it is estimated that such compensation deduction will ultimately result in a tax benefit of approximately $731,000 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. (See Note 10.) During fiscal 1994, options were exercised with 60,000 shares of common stock issued to certain directors for $30,000 in proceeds. As a result of the exercise of these options, the Company was entitled to a compensation deduction for tax purposes of approximately $1,140,000. Accordingly, the tax benefit of $433,200 was recorded as a reduction to its current tax liability and an increase to capital in excess of par. (See Note 10.) During fiscal 1993, options were exercised with 3,268,000 shares of common stock issued to certain key officers and a former executive officer for $2,709,875 in proceeds. The exercise of these options resulted in a tax benefit of $11,995,737 which was recorded as an increase to capital in excess of par. In addition, the Company adjusted its current liability ($5,988,205), deferred tax asset ($3,836,666) and income tax receivable ($2,170,866) accounts to recognize the effect of such benefit. (See Note 10.) During fiscal 1993, the Company's Board of Directors declared a stock split in the form of a 100% stock dividend. As a result, the common stock and capital in excess of par accounts as of September 30, 1993 were adjusted in the amount of $68,059 representing the par value of the common shares issued. See notes to consolidated financial statements. NBTY, Inc. and Subsidiaries Notes to Financial Statements 1. Business Operations and Summary of Significant Accounting Policies: Business operations: NBTY, Inc., formerly Nature's Bounty, Inc. (the "Company"), manufactures and distributes vitamins, food supplements and health and beauty aids. The Company has no single customer that represents more than 10% of annual net sales or accounts receivable as of September 30, 1995. The processing, formulation, packaging, labeling and advertising of the Company's products are subject to regulation by one or more federal agencies, including the Food and Drug Administration, the Federal Trade Commission, the Consumer Product Safety Commission, the United States Department of Agriculture and the United States Environmental Protection Agency. Principles of consolidation and basis of presentation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Revenue recognition: The Company recognizes revenue upon shipment or, with respect to its own retail store operations, upon the sale of products. Inventories: Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. The cost elements of inventory include materials, labor and overhead. Prepaid catalog costs: Mail order production and mailing costs are capitalized as prepaid catalog costs and charged to income over the catalog period, which typically approximates three months. Property, plant and equipment: Property, plant and equipment are carried at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets. Expenditures which significantly improve or extend the life of an asset are capitalized. Maintenance and repairs are charged to expense in the year incurred. Cost and related accumulated depreciation for property, plant and equipment are removed from the accounts upon sale or disposition and the resulting gain or loss is reflected in earnings. Intangible assets: Goodwill represents the excess of purchase price over the fair value of identifiable net assets of companies acquired. Goodwill and other intangibles are amortized on a straight-line basis over appropriate periods not exceeding 40 years. Income taxes: In 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse (see Note 8). Cash and cash equivalents: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Common shares and earnings per share: On August 3, 1993, the Company's Board of Directors declared a two- for-one stock split in the form of a 100% stock dividend effective August 13, 1993. All per common share amounts have been retroactively restated to account for the above stock split. In addition, stock options and the respective exercise prices have been amended to reflect these transactions (see Note 10). Earnings per share are based on the weighted average number of common shares outstanding during the period. Common stock equivalents are not included in income per share computations since their effect on the calculation is immaterial. Stock-based plans: In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which establishes financial accounting and reporting standards for stock based plans. The Statement, which becomes effective in fiscal 1997, requires the Company to choose between accounting for issuances of stock and other equity instruments to employees based on their fair value or disclosing the pro forma effects such accounting would have had on the Company's net income and earnings per share. The Company has begun to gather the documentation necessary to address the impact of this Statement, although it has not yet decided which method it will utilize relating to its stock based employee plans. 2. Acquisition: On June 1, 1993, the Company purchased certain assets from Prime Natural Health Laboratories, Inc., a distributor of vitamins and food supplements, for a cash purchase price of approximately $5,035,000. Assets acquired consisted of inventory ($2,000,000), customer mailing list ($1,303,500), accounts receivable ($891,500), covenant not to compete ($500,000), machinery and equipment ($325,000) and trademarks ($15,000). 3. Inventories:
September 30, --------------------------- 1995 1994 ----------- ----------- Raw materials $15,898,215 $18,626,131 Work-in-process 1,848,629 1,241,742 Finished goods 19,225,748 21,558,302 ----------- ----------- $36,972,592 $41,426,175 =========== ===========
4. Property, Plant and Equipment:
September 30, --------------------------- 1995 1994 ----------- ----------- Land $ 3,064,965 $ 1,964,965 Buildings and leasehold improvements 31,830,638 26,432,551 Machinery and equipment 22,279,226 18,603,399 Furniture and fixtures 6,065,382 5,366,478 Transportation equipment 200,982 200,982 Computer equipment 7,296,395 5,657,108 ----------- ----------- 70,737,588 58,225,483 Less accumulated depreciation and amortization 22,413,012 18,426,040 ----------- ----------- $48,324,576 $39,799,443 =========== ===========
Depreciation and amortization of property, plant and equipment for the years ended September 30, 1995, 1994 and 1993 was approximately $4,064,000, $3,190,000 and $2,421,000, respectively. The Company held machinery and equipment with a carrying value of $1,410,384 at September 30, 1995 under capital lease agreements. 5. Intangible Assets: Intangible assets, at cost, acquired at various dates are as follows:
September 30, ---------------------------- Amortization 1995 1994 period ----------- ----------- ------------ Goodwill $ 469,400 $ 469,400 20-40 Customer lists 10,540,017 9,640,017 6-15 Trademark and licenses 1,134,514 970,561 2-3 Covenants not to compete 1,304,538 1,304,538 5-7 ----------- ----------- 13,448,469 12,384,516 Less accumulated amortization 7,635,438 6,859,651 ----------- ----------- $ 5,813,031 $ 5,524,865 =========== ===========
Amortization included in the consolidated statements of income under the caption "selling, general and administrative expenses" in 1995, 1994 and 1993 was approximately $776,000, $1,054,000 and $1,549,000, respectively. Effective October 1, 1993, the Company changed its estimates of the lives of certain customer lists. Customer list amortization lives that previously averaged 6 years were increased to an average of 15 years. This change was made to better reflect the estimated periods during which an individual will remain a customer of the Company. The change had the effect of reducing amortization expense by approximately $500,000 and increasing the net income by $310,000 in 1994. 6. Accrued Expenses:
September 30, --------------------------- 1995 1994 ----------- ----------- Payroll and related payroll taxes $ 2,166,355 $ 1,647,347 Customer deposits 2,034,175 2,013,529 Accrued purchases 1,734,844 1,759,257 Income taxes payable 39,815 49,747 Other 4,312,800 2,739,591 ----------- ----------- $10,287,989 $ 8,209,471 =========== ===========
7. Long-Term Debt and Capital Lease Obligations:
September 30, -------------------------- 1995 1994 ----------- ----------- Revolving credit agreement (a) $ 5,000,000 Mortgages: First mortgage, payable in monthly principal and interest (10-3/8%) installments (b) $ 7,566,144 7,672,821 First mortgage payable in monthly principal and interest (9.73%) installments of $25,396 (c) 2,338,432 First mortgage, payable in monthly principal and interest (9-1/2%) installments of $8,351, with a final payment of approximately $565,000 made in December 1994 570,995 Second mortgage, payable in monthly principal and interest (7-3/4%) installments of $6,997 to 1994 20,640 Capital lease obligations: Capital lease obligation, payable in monthly principal and interest (8.17%) installments of $11,189 (d) 694,859 Capital lease obligation payable in monthly principal and interest (8.17%) installments of $11,009 (d) 683,694 ----------- ----------- 11,283,129 13,264,456 Less current portion 358,675 5,698,312 ----------- ----------- $10,924,454 $ 7,566,144 =========== ===========
(a) The Company has a three-year $15,000,000 revolving credit facility (the "Agreement") with banks which expires on March 31, 1996. The Agreement requires monthly interest payments on a formula basis at varying rates ranging from below the prime lending rate to 1/2% over prime. A commitment fee of 3/8 of 1% per annum is charged on the unused balance of the remaining credit facility. The $5,000,000 outstanding under this credit facility at September 30, 1994 was repaid October 3, 1994. Under the most restrictive covenants of the Agreement, the Company is required to maintain tangible net worth of at least $71,300,000, a current ratio of at least 1.75 to 1.00 and has a limitation on the amount of capital expenditures. In November 1995, the Company received waivers relating to noncompliance of certain covenants which existed as of September 30, 1995. (b) In September 1990, the Company obtained an $8,000,000 first mortgage, collateralized by the underlying building, issued through the Town of Islip, New York Industrial Development Agency. The taxable bond, held by an insurance company, has monthly principal and interest payments of $74,821 for ten years through 2000, with a final payment of $6,891,258 in September 2000. (c) In November 1994, the Company purchased a building which it previously occupied under a long-term lease. The purchase price of approximately $3,090,000 was funded with $690,000 in cash and the balance through a 15-year mortgage note payable. This agreement contains restrictive covenants identical to the covenants noted in (a) above. (d) During 1995, the Company entered into two long-term leases expiring in fiscal 2002 for certain operating machinery and equipment. The leases provide the Company with bargain purchase options at the end of such terms. For financial reporting purposes, the lease has been classified as a capital lease. Required principal payments of debt and capital lease obligations are as follows:
Years ended September 30, 1996 $ 358,675 1997 393,307 1998 431,325 1999 473,064 2000 518,893 Thereafter 9,107,865 ----------- $11,283,129 ===========
8. Income taxes: During fiscal 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The cumulative effect of this change in accounting principle on prior years is insignificant to the Company's statement of income. Provision for income taxes consists of the following:
Year ended September 30, -------------------------------------- 1995 1994 1993 ---------- ---------- ---------- Federal Current $2,224,935 $ 856,774 $5,145,611 Deferred 636,516 3,156,289 15,459 State Current 336,156 515,893 778,610 Deferred 47,910 237,570 ---------- ---------- ---------- Total provision $3,245,517 $4,766,526 $5,939,680 ========== ========== ===========
The following is a reconciliation of the income tax expense computed using the statutory federal income tax rate to the actual income tax expense and its effective income tax rate.
Year ended September 30, ------------------------------------------------------------------------- 1995 1994 1993 ----------------------- ----------------------- ----------------------- Percent of Percent of Percent of pretax pretax pretax Amount income Amount income Amount income ---------- ---------- ---------- ---------- ---------- ---------- Income tax expense at statutory rate* $2,849,668 34.0% $4,390,037 35.0% $5,460,582 34.7% State income taxes, net of federal income tax benefit 253,483 3.0% 489,751 3.9% 507,651 3.2% Other, individually less than 5% 142,366 1.7% (113,262) (0.9%) (28,553) (0.1%) ---------- ----- ---------- ----- ---------- ----- Actual income tax provision $3,245,517 38.7% $4,766,526 38.0% $5,939,680 37.8% ========== ===== ========== ===== ========== ===== * For 1993, the Federal income tax rate represents a blended average of the rate in effect at the beginning of the Company's fiscal year (34%) and the rate at January 1, 1993 (35%).
The components of deferred tax assets and liabilities are as follows:
1995 1994 ----------- ----------- Deferred tax assets: Current: Inventory capitalization $ 178,034 $ 221,200 Accrued expenses and reserves not currently deductible 1,049,584 511,407 Tax credits 555,822 1,075,118 Miscellaneous 63,435 63,200 ----------- ----------- Current deferred tax assets 1,846,875 1,870,925 ----------- ----------- Noncurrent: Intangibles 231,701 179,642 Reserves not currently deductible 342,910 195,130 ----------- ----------- Total noncurrent 574,611 374,772 ----------- ----------- Deferred tax liabilities: Property, plant and equipment (2,736,148) (1,875,933) ----------- ----------- Net deferred tax (liability) asset $ (314,662) $ 369,764 =========== ===========
The Company has a net operating loss carryforward of approximately $6 million for state financial and income tax reporting purposes expiring in fiscal 2007. 9. Commitments: Leases: The Company conducts retail operations located in enclosed malls under operating leases which expire at various dates through 2002. Some of the leases provide for additional rentals based upon sales plus certain tax and maintenance costs. Future minimal rental payments under the retail location and automotive leases that have initial or noncancelable lease terms in excess of one year at September 30, 1995 are as follows:
Year ending September 30, 1996 $ 1,907,187 1997 1,295,628 1998 1,006,349 1999 663,537 2000 399,747 Thereafter 392,709 ----------- $ 5,665,157 ===========
Operating lease rental expense, including real estate tax and maintenance costs and leases on a month to month basis, was approximately $1,248,000, $1,200,000 and $1,106,000 for the years ended September 30, 1995, 1994 and 1993, respectively. Purchase Commitments: The Company was committed to make future purchases under various purchase order arrangements with fixed price provisions aggregating approximately $972,000 and $6,400,000 at September 30, 1995 and 1994, respectively. Employment contracts: The Company has employment agreements with two of its officers. The agreements, which expire in January 2004, provide for minimum salary levels, as adjusted for cost of living changes, as well as contain provisions regarding severance and changes in control of the Company. The commitment for salaries as of September 30, 1995 was approximately $727,000 per year. 10. Stock Option Plans: In December 1982, the Board of Directors of the Company adopted the Non-Qualified Stock Option Plan under which 525,000 shares of common stock were reserved for issuance. The Non-Qualified Plan was ratified by shareholders in February 1983. The Company granted options under the Non-Qualified Plan for 525,000 shares of common stock at prices ranging from $1.67 to $1.84 per share representing a price in excess of the market value at the time of grant. Such options were exercised in December 1992. The Board of Directors approved the issuance of 1,608,000 non- qualified stock options on December 11, 1989, exercisable at $0.50 per share, which options terminated on December 10, 1994. The Board also approved the issuance of 2,220,000 non-qualified options on September 23, 1990, exercisable at $0.63 per share, which options terminate on September 23, 2000. In addition, on March 11, 1992, the Board of Directors approved the issuance of an aggregate of 1,800,000 non- qualified stock options to directors and officers, exercisable at $0.92 per share, and expiring on March 10, 2002. The exercise price of each of the aforementioned issuances was in excess of the market price at the date such options were granted. During fiscal 1995, 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 is entitled to a compensation deduction of approximately $1,827,500 and it is estimated that such compensation deduction will ultimately result in a tax benefit of approximately $731,000 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. During fiscal 1994, options were exercised with 60,000 shares of common stock issued to certain directors for $30,000. As a result of the exercise of these options, the Company was entitled to a compensation deduction for tax purposes of approximately $1,140,000 which resulted in a tax benefit of approximately $433,200. Such benefit has been recorded as an increase to capital in excess of par. Furthermore, during fiscal 1993, options were exercised with 3,268,000 shares of common stock issued to certain key officers and a former executive officer for $2,709,875. The compensation deduction of approximately $33,000,000 resulted in a tax benefit to the Company of approximately $12,000,000. A summary of stock option activity is as follows:
Common Exercise price shares per share ---------- -------------- Shares under option, September 30, 1993 (fully exercisable) 2,885,000 $.50 - $.92 Exercised in 1994 60,000 $.50 --------- ----------- Shares under option, September 30, 1994 (fully exercisable) 2,825,000 $.50 - $.92 Exercised in 1995 430,000 $.50 --------- ----------- Shares under option, September 30, 1995 (fully exercisable) 2,395,000 $.63 - $.92 ========= ===========
11. Employee benefit plans: The Company maintains a defined contribution savings plan, which qualifies under Section 401(k) of the Internal Revenue Code, and an employee stock ownership plan. The accompanying financial statements reflect contributions to these plans in the approximate amount of $498,000, $103,000 and $255,000 for the years ended September 30, 1995, 1994 and 1993, respectively. 12. Litigation: L-tryptophan: In 1989, prior to a request from the Food and Drug Administration ("FDA") for a national, industry-wide recall, the Company halted sales and distribution and also ordered a recall of L-tryptophan products. Subsequently, the FDA indicated that there is a strong epidemiological link between the ingestion of L-tryptophan and a blood disorder known as eosinophilia-myalagia syndrome. The Company had been named in approximately 265 lawsuits of which approximately 255 have been settled or discontinued through September 30, 1995 at no cost to the Company. There were in excess of 2,000 lawsuits filed nationwide against other companies in the industry, including distributors, wholesalers and retailers claiming compensatory and punitive damages for alleged personal injury and alleged wrongful death. There are 10 cases still pending against the Company. The Company and certain other companies in the industry, including distributors, wholesalers and retailers (the "Indemnified Group"), have entered into an agreement with the Company's supplier of bulk L- tryptophan (the "Supplier"), under which the Supplier, a U.S. subsidiary of a major Japanese corporation, has assumed the defense of all claims against the Indemnified Group arising out of the ingestion of L-tryptophan products and has agreed to pay the legal fees and expenses in that defense. The Supplier and its Japanese parent company have agreed to indemnify the Indemnified Group against any judgments and to fund settlements arising out of those actions and claims if it is determined that a cause of the injuries sustained by the plaintiffs was a constituent in the bulk material sold by the Supplier to the Indemnified Group, except to the extent that the Indemnified Group is found to have any part of the responsibility for those injuries. The Supplier has posted a revolving, irrevocable letter of credit of $20 million to be used for the benefit of the Indemnified Group in the event that the Supplier is unable or unwilling to satisfy any claims or judgments. While not all of these suits quantify the amount demanded, it can reasonably be assumed that the amount required to either settle these cases or to pay judgments rendered therein will be paid by the Supplier. While the outcome of any litigation is uncertain, it is the opinion of management and legal counsel of the Company that it is remote that the Company will incur a material loss as a result of the L-tryptophan litigation and claims. Accordingly, no provision for liability, if any, that may result therefrom has been made in the Company's financial statements. Shareholder litigation: In October 1994, two lawsuits were commenced in the U.S. District Court, Eastern District of New York, against the Company and two of its officers. The complaints allege that false and misleading statements and representations were made concerning the Company's sales and earnings estimates for the fourth fiscal quarter and the year ended September 30, 1994. The allegations were that the defendants failed to disclose that: (a) sales were materially declining; (b) manufacturing costs were increasing instead of decreasing; (c) profit margins were materially declining and (d) that because of the foregoing, the Company would incur a loss in its fourth fiscal quarter. The plaintiffs seek Class Action certification and an unspecified amount of monetary damages. The Company and its officers deny the allegations of the complaints and intend to vigorously contest the litigation. In 1994, prior to commencement of these lawsuits, the Company purchased a directors and officers Indemnity Policy. Special counsel has been retained to represent the Company and its officers. Since the outcome of any litigation is uncertain, the Company is unable to predict (i) whether it will ultimately prevail; (ii) whether it will be fully or partially indemnified, if at all; (iii) the amount of loss, if any, that may be attributable to the above, and (iv) the amount of expense which may be incurred in the defense of these actions. Other litigation: The Company is also involved in miscellaneous claims and litigation which, taken individually or in the aggregate, would not have a material adverse effect on the Company's financial position or its business. 13. Quarterly results of operations (unaudited): The following is a summary of the unaudited quarterly results of operations for fiscal 1995 and 1994 (dollars in thousands, except per share data):
Quarter ended ----------------------------------------------------- December 31, March 31, June 30, September 30, ------------ --------- -------- ------------- 1995: Net sales $ 37,478 $ 50,945 $ 41,650 $ 48,687 Gross profit 18,380 25,220 20,564 20,720 Income before income taxes 1,648 4,336 2,004 394 (a) Net income 939 2,552 1,152 493 Earnings per share $0.05 $0.13 $0.06 $0.02 1994: Net sales $ 32,740 $ 47,001 $ 35,863 $ 40,453 Gross profit 16,659 23,890 18,389 17,228 Income before income taxes 2,755 6,629 3,136 23 (b) Net income 1,653 4,165 1,945 13 Earnings per share* $0.08 $0.21 $0.10 $0.00 * Aggregate quarterly earnings per share do not equal fiscal year earnings per share due to rounding.
(a) 1995 year-end adjustments resulting in a charge to operations included approximately $1,475,000 for various accruals and for the write-off of certain equipment associated with the Company's cosmetic pencil operation, and $900,000 pertaining to the identification of obsolete inventory. (b) 1994 year-end adjustments resulting in a charge to operations included approximately $1,300,000 in start-up costs for the cosmetic pencil operation and $250,000 for an FTC settlement which was paid in fiscal 1995. 14. Subsequent Event: 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. Revenues applicable to this marginally unprofitable business were approximately $8,284,000, $13,276,000 and $14,946,000 for fiscal 1995, 1994 and 1993, respectively. Schedule II NBTY, Inc. and Subsidiaries Valuation and Qualifying Accounts for the years ended September 30, 1995, 1994 and 1993
Column A Column B Column C Column D Column E - ---------------------------------- ------------ ------------------------------------ ---------------- ------------- Balance at beginning of Charged to Charged to Balance at Description period costs and expenses other accounts Deductions end of period - ----------- ------------ ------------------ -------------- ---------- ------------- 1995: Allowance for doubtful accounts $ 594,522 $ 233,691 $ (251,634) (a) $ 576,579 ========= ========= =========== ========== ========= 1994: Allowance for doubtful accounts $ 604,554 $ 89,968 $ 594,522 ========= ========= =========== ========== ========= 1993: Allowance for doubtful accounts $ 538,563 $ 21,454 $ (55,463) (a) $ 504,554 ========= ========= =========== ========== ========= (a) Uncollectible accounts written off.
EX-27 2 FINANCIAL DATA SCHEDULE
5 NBTY, INC. (FORMERLY NATURE'S BOUNTY, INC.) 12-MOS SEP-30-1995 OCT-1-1994 SEP-30-1995 10,378,476 0 12,931,124 576,579 36,972,592 67,722,731 70,737,588 22,413,012 124,103,258 27,058,226 11,283,129 153,662 0 0 82,461,783 124,103,258 178,759,871 178,759,871 93,875,162 93,875,162 0 0 1,084,331 8,381,375 3,245,517 5,135,858 0 0 0 5,135,858 0.26 0.26
-----END PRIVACY-ENHANCED MESSAGE-----