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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2005

OR

o
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 001-31788

NBTY, INC.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)		   11-2228617
(IRS Employer Identification No.)

90 Orville Drive
Bohemia, New York 11716
(Address of Principal Executive Offices, Including Zip Code)

(631) 567-9500
(Registrant's Telephone Number, Including Area Code)

        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 ý    NO o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ý    NO o

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Title of Class
   Shares Outstanding
Common Stock   as of May 6, 2005
Par value $.008 per share   67,185,460


NBTY, INC. and SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FISCAL QUARTER ENDED MARCH 31, 2005
INDEX

 
    
   Page
PART I.   Financial Information    
 
ITEM 1.
 
Financial Statements (Unaudited)
 
 

 
 
Condensed Consolidated Balance Sheets
 
3

 
 
Condensed Consolidated Statements of Income
 
4

 
 
Condensed Consolidated Statements of Stockholders' Equity and
Comprehensive Income
 
5

 
 
Condensed Consolidated Statements of Cash Flows
 
6

 
 
Notes to Condensed Consolidated Financial Statements
 
7
 
ITEM 2.
 
Management's Discussion and Analysis of Financial Condition and
Results of Operations
 
22
 
ITEM 3.
 
Qualitative and Quantitative Disclosures about Market Risk
 
44
 
ITEM 4.
 
Controls and Procedures
 
45

PART II.
 
Other Information
 
 
 
ITEM 1.
 
Legal Proceedings
 
46
 
ITEM 4.
 
Submission of Matters to a Vote of Security Holders
 
48
 
ITEM 6.
 
Exhibits and Reports on Form 8-K
 
48
 
Signatures
 
51
 
Exhibits
 
 

FORWARD LOOKING STATEMENTS:

        INFORMATION CONTAINED IN THIS FORM 10-Q CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS. ALL OF THESE FORWARD-LOOKING STATEMENTS, WHICH CAN BE IDENTIFIED BY THE USE OF TERMINOLOGY SUCH AS "SUBJECT TO," "BELIEVE," "EXPECTS," "PLAN," "PROJECT," "ESTIMATE," "INTEND," "MAY," "WILL," "SHOULD," "CAN," OR "ANTICIPATES," OR THE NEGATIVE THEREOF, OR VARIATIONS THEREON, OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. FACTORS WHICH MAY MATERIALLY AFFECT SUCH FORWARD-LOOKING STATEMENTS INCLUDE: (I) SLOW OR NEGATIVE GROWTH IN THE NUTRITIONAL SUPPLEMENT INDUSTRY; (II) INTERRUPTION OF BUSINESS OR NEGATIVE IMPACT ON SALES AND EARNINGS DUE TO ACTS OF WAR, TERRORISM, BIO-TERRORISM, CIVIL UNREST OR DISRUPTION OF MAIL SERVICE; (III) ADVERSE PUBLICITY REGARDING NUTRITIONAL SUPPLEMENTS; (IV) INABILITY TO RETAIN CUSTOMERS OF COMPANIES (OR MAILING LISTS) RECENTLY ACQUIRED; (V) INCREASED COMPETITION; (VI) INCREASED COSTS; (VII) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (VIII) INCREASES IN THE COST OF BORROWINGS AND/OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL; (IX) UNAVAILABILITY OF, OR INABILITY TO CONSUMMATE, ADVANTAGEOUS ACQUISITIONS IN THE FUTURE, INCLUDING THOSE THAT MAY BE SUBJECT TO BANKRUPTCY APPROVAL OR THE INABILITY OF THE COMPANY TO INTEGRATE ACQUISITIONS INTO THE MAINSTREAM OF ITS BUSINESS; (X) CHANGES IN GENERAL WORLDWIDE ECONOMIC AND POLITICAL CONDITIONS IN THE MARKETS IN WHICH THE COMPANY MAY COMPETE FROM TIME TO TIME; (XI) THE INABILITY OF THE COMPANY TO GAIN AND/OR HOLD MARKET SHARE OF ITS WHOLESALE AND/OR RETAIL CUSTOMERS ANYWHERE IN THE WORLD; (XII) UNAVAILABILITY OF ELECTRICITY IN CERTAIN GEOGRAPHICAL AREAS; (XIII) THE INABILITY OF THE COMPANY TO OBTAIN AND/OR RENEW INSURANCE AND/OR THE COSTS OF THE SAME; (XIV) EXPOSURE TO AND EXPENSE OF DEFENDING AND RESOLVING, PRODUCT LIABILITY CLAIMS AND OTHER LITIGATION; (XV) THE ABILITY OF THE COMPANY TO SUCCESSFULLY IMPLEMENT ITS BUSINESS STRATEGY; (XVI) THE INABILITY OF THE COMPANY TO MANAGE ITS RETAIL, WHOLESALE, MANUFACTURING AND OTHER OPERATIONS EFFICIENTLY; (XVII) CONSUMER ACCEPTANCE OF THE COMPANY'S PRODUCTS; (XVIII) THE INABILITY OF THE COMPANY TO RENEW LEASES FOR ITS RETAIL LOCATIONS; (XIX) INABILITY OF THE COMPANY'S RETAIL STORES TO ATTAIN OR MAINTAIN PROFITABILITY; (XX) THE ABSENCE OF CLINICAL TRIALS FOR MANY OF THE COMPANY'S PRODUCTS; (XXI) SALES AND EARNINGS VOLATILITY AND/OR TRENDS FOR THE COMPANY AND ITS MARKET SEGMENTS; (XXII) THE EFFICACY OF THE COMPANY'S INTERNET AND ON-LINE SALES AND MARKETING; (XXIII) FLUCTUATIONS IN FOREIGN CURRENCIES, INCLUDING THE BRITISH POUND AND THE EURO; (XXIV) IMPORT-EXPORT CONTROLS ON SALES TO FOREIGN COUNTRIES; (XXV) THE INABILITY OF THE COMPANY TO SECURE FAVORABLE NEW SITES FOR, AND DELAYS IN OPENING, NEW RETAIL LOCATIONS; (XXVI) INTRODUCTION OF AND COMPLIANCE WITH NEW FEDERAL, STATE, LOCAL OR FOREIGN LEGISLATION OR REGULATION OR ADVERSE DETERMINATIONS BY REGULATORS ANYWHERE IN THE WORLD (INCLUDING THE BANNING OF PRODUCTS) AND MORE PARTICULARLY PROPOSED GOOD MANUFACTURING PRACTICES IN THE UNITED STATES, THE FOOD SUPPLEMENTS DIRECTIVE AND TRADITIONAL HERBAL MEDICINAL PRODUCTS DIRECTIVE IN

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EUROPE AND SECTION 404 REQUIREMENTS OF THE SARBANES-OXLEY ACT OF 2002; (XXVII) THE MIX OF THE COMPANY'S PRODUCTS AND THE PROFIT MARGINS THEREON; (XXVIII) THE AVAILABILITY AND PRICING OF RAW MATERIALS; (XXIX) RISK FACTORS DISCUSSED IN THE COMPANY'S FILINGS WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION; (XXX) ADVERSE EFFECTS ON THE COMPANY AS A RESULT OF INCREASED GASOLINE PRICES AND POTENTIALLY REDUCED TRAFFIC FLOW TO THE COMPANY'S RETAIL LOCATIONS; (XXXI) ADVERSE TAX DETERMINATIONS; (XXXII) THE LOSS OF A SIGNIFICANT CUSTOMER OF THE COMPANY; AND (XXXIII) OTHER FACTORS BEYOND THE COMPANY'S CONTROL.

        THE COMPANY CANNOT BE CERTAIN THAT THE MEASURES TAKEN WILL BE SUFFICIENT TO MEET THE SECTION 404 REQUIREMENTS OF THE SARBANES-OXLEY ACT OF 2002.

        READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS. THE COMPANY CANNOT GUARANTEE FUTURE RESULTS, TRENDS, EVENTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. THE COMPANY DOES NOT UNDERTAKE AND SPECIFICALLY DECLINES ANY OBLIGATION TO UPDATE, REPUBLISH OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCES OF UNANTICIPATED EVENTS.

        CONSEQUENTLY, SUCH FORWARD-LOOKING STATEMENTS SHOULD BE REGARDED SOLELY AS THE COMPANY'S CURRENT PLANS, ESTIMATES AND BELIEFS.

        INDUSTRY DATA USED THROUGHOUT THIS REPORT WAS OBTAINED FROM INDUSTRY PUBLICATIONS AND INTERNAL COMPANY ESTIMATES. WHILE THE COMPANY BELIEVES SUCH INFORMATION TO BE RELIABLE, ITS ACCURACY HAS NOT BEEN INDEPENDENTLY VERIFIED AND CANNOT BE GUARANTEED.

2

ITEM 1:

NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

(Dollars and shares in thousands)

 
   March 31,
2005
   September 30,
2004
Assets            
Current assets:            
  Cash and cash equivalents   $ 38,268   $ 21,751
  Accounts receivable, less allowance for doubtful accounts of $9,090 and $9,389, respectively     67,176     86,113
  Inventories     461,633     374,559
  Deferred income taxes     32,062     32,062
  Prepaid expenses and other current assets     47,441     62,835
   
 
      Total current assets     646,580     577,320

Property, plant and equipment, net of accumulated depreciation of $265,344 and $241,822, respectively
 
 
281,562
 
 
280,075
Goodwill     228,576     221,429
Other intangible assets, net     131,944     136,541
Other assets     15,224     17,288
   
 
      Total assets   $ 1,303,886   $ 1,232,653
   
 
Liabilities and Stockholders' Equity            
Current liabilities:            
  Current portion of long-term debt   $ 2,021   $ 3,205
  Accounts payable     98,636     97,635
  Accrued expenses and other current liabilities     133,936     116,633
   
 
      Total current liabilities     234,593     217,473

Long-term debt
 
 
289,836
 
 
306,531
Deferred income taxes     73,635     64,675
Other liabilities     5,354     4,176
   
 
      Total liabilities     603,418     592,855
   
 

Commitments and contingencies
 
 
 
 
 
 

Stockholders' equity:
 
 
 
 
 
 
  Common stock, $.008 par; authorized 175,000 shares; issued and outstanding 67,185 shares at March 31, 2005, and 67,060 shares at September 30, 2004     537     536
  Capital in excess of par     138,597     135,787
  Retained earnings     531,898     481,302
  Accumulated other comprehensive income     29,436     22,173
   
 
      Total stockholders' equity     700,468     639,798
   
 
      Total liabilities and stockholders' equity   $ 1,303,886   $ 1,232,653
   
 

This should be read in conjunction with the Notes to Condensed Consolidated Financial Statements ("Notes") herein and the Consolidated Financial Statements in the Company's Form 10-K filed December 14, 2004 (the "2004 Form 10-K").

3


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,
   For the six months ended March 31,
  
 
   2005
   2004
   2005
   2004
  
Net sales   $ 442,714   $ 439,594   $ 862,983   $ 824,647  
   
 
 
 
 
Costs and expenses:                          
  Cost of sales     226,081     213,248     438,034     406,134  
  Catalog printing, postage and promotion     34,515     19,322     55,298     39,459  
  Selling, general and administrative     144,634     138,294     283,036     268,665  
   
 
 
 
 
      405,230     370,864     776,368     714,258  
   
 
 
 
 
Income from operations     37,484     68,730     86,615     110,389  
   
 
 
 
 
Other income (expense):                          
  Interest     (5,881 )   (6,759 )   (11,573 )   (13,564 )
  Miscellaneous, net     110     540     2,101     2,047  
   
 
 
 
 
      (5,771 )   (6,219 )   (9,472 )   (11,517 )
   
 
 
 
 
Income before provision for income taxes     31,713     62,511     77,143     98,872  
Provision for income taxes     10,846     21,254     26,383     33,970  
   
 
 
 
 
    Net income   $ 20,867   $ 41,257   $ 50,760   $ 64,902  
   
 
 
 
 
Net income per share:                          
  Basic   $ 0.31   $ 0.62   $ 0.76   $ 0.97  
  Diluted   $ 0.30   $ 0.60   $ 0.73   $ 0.94  

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
  Basic     67,290     66,730     67,130     66,686  
  Diluted     69,291     69,098     69,137     68,997  

This should be read in conjunction with the Notes herein and the Consolidated Financial Statements in the 2004 Form 10-K.

4


NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 2004 AND
SIX MONTHS ENDED MARCH 31, 2005
(Unaudited)
(Dollars and shares in thousands)

 
   Common Stock
    
    
   Treasury Stock
    
    
    
 
    
    
   Accumulated
Other
Comprehensive
Income
    
    
 
   Number of
Shares
   Amount
   Capital
in Excess
of Par
   Retained
Earnings
   Number of
Shares
   Amount
   Total
Stockholders'
Equity
   Total
Comprehensive
Income
Balance, September 30, 2003   66,620   $ 533   $ 130,208   $ 369,453   —   $ —   $ 14,605   $ 514,799      
Components of comprehensive income:                                                  
  Net income   —     —     —     111,849   —     —     —     111,849   $ 111,849
  Foreign currency translation adjustment and other, net of taxes   —     —     —     —   —     —     7,568     7,568     7,568
                                               
                                                $ 119,417
                                               
Shares issued and contributed to ESOP   100     1     2,472     —   —     —     —     2,473      
Exercise of stock options   340     2     1,879     —   —     —     —     1,881      
Tax benefit from exercise of stock options   —     —     1,228     —   —     —     —     1,228      
   
 
 
 
 
 
 
 
     
Balance, September 30, 2004   67,060     536     135,787     481,302   —     —     22,173     639,798      
Components of comprehensive income:                                                  
  Net income   —     —     —     50,760   —     —     —     50,760   $ 50,760
  Foreign currency translation adjustment and other, net of taxes   —     —     —     —   —     —     7,263     7,263     7,263
                                               
                                                $ 58,023
                                               

Purchase of treasury shares, at cost
 
—
 
 
—
 
 
—
 
 
—
 
8
 
 
(176
)
 
—
 
 
(176
)
 
 
Treasury stock retired   (8 )   —     (12 )   (164 ) (8 )   176     —     —      
Shares issued and contributed to ESOP   100     1     2,437     —   —     —     —     2,438      
Exercise of stock options   33     —     191     —   —     —     —     191      
Tax benefit from exercise of stock options   —     —     194     —   —     —     —     194      
   
 
 
 
 
 
 
 
     
Balance, March 31, 2005   67,185   $ 537   $ 138,597   $ 531,898   —   $ —   $ 29,436   $ 700,468      
   
 
 
 
 
 
 
 
     

This should be read in conjunction with the Notes herein and the Consolidated Financial Statements in the 2004 Form 10-K.

5


NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(Dollars and shares in thousands)

 
   For the six months
ended March 31,
  
 
   2005
   2004
  
Cash flows from operating activities:              
  Net income   $ 50,760   $ 64,902  
  Adjustments to reconcile net income to net cash provided by operating activities:              
      Loss on disposal/sale of property, plant and equipment     25     492  
      Depreciation and amortization     29,127     31,258  
      Foreign currency transaction gain     (451 )   (240 )
      Amortization of deferred financing costs     1,216     1,812  
      Amortization of bond discount     80     62  
      Compensation expense for ESOP     1,135     2,473  
      Impairment on asset held for sale     1,908     —  
      Gain on sale of business assets     (1,999 )   —  
      (Recovery of)/provision for doubtful accounts     (672 )   1,298  
      Inventory reserves     1,828     2,360  
      Deferred income taxes     3,957     5,095  
      Tax benefit from exercise of stock options     194     132  
      Changes in operating assets and liabilities, net of acquisitions:              
        Accounts receivable     19,900     (12,738 )
        Inventories     (85,296 )   7,545  
        Prepaid expenses and other current assets     16,400     16,444  
        Other assets     335     367  
        Accounts payable     (1,154 )   (3,597 )
        Accrued expenses and other liabilities     16,784     (3,809 )
   
 
 
          Net cash provided by operating activities     54,077     113,856  
   
 
 
Cash flows from investing activities:              
  Purchase of property, plant and equipment     (21,605 )   (21,916 )
  Proceeds from sale of property, plant and equipment     70     83  
  Proceeds from sale of trademark     30     —  
  Proceeds from sale of business assets     5,766     —  
  Cash paid for acquisitions, net of cash acquired     (5,327 )   —  
  Proceeds from sale of bond investment     —     4,158  
   
 
 
          Net cash used in investing activities     (21,066 )   (17,675 )
   
 
 
Cash flows from financing activities:              
  Principal payments under long-term debt agreements     (17,977 )   (98,027 )
  Payments for financing fees     —     (500 )
  Proceeds from stock options exercised     191     88  
  Purchase of treasury stock     (176 )   —  
   
 
 
          Net cash used in financing activities     (17,962 )   (98,439 )
   
 
 
Effect of exchange rate changes on cash and cash equivalents     1,468     7,618  
   
 
 
Net increase in cash and cash equivalents     16,517     5,360  

Cash and cash equivalents at beginning of period
 
 
21,751
 
 
49,349
 
   
 
 
Cash and cash equivalents at end of period   $ 38,268   $ 54,709  
   
 
 
Supplemental disclosure of cash flow information:              
  Cash paid during the period for interest   $ 10,134   $ 11,798  
  Cash paid during the period for income taxes   $ 17,398   $ 16,780  

Non-cash investing and financing information:
 
 
 
 
  During the six months ended March 31, 2005, the Company issued 100 shares of NBTY stock (having a total then market value of approximately $2,438) as a contribution to the NBTY ESOP plan.  
 
During the six months ended March 31, 2004, the Company issued 100 shares of NBTY stock (having a total then market value of approximately $2,473) as a contribution to the NBTY ESOP plan.
 

This should be read in conjunction with the Notes herein and the Consolidated Financial Statements in the 2004 Form 10-K.

6