- Quarterly Report (10-Q)
August 09 2010 - 9:57AM
Edgar (US Regulatory)
Use these links to rapidly review the document
TABLE OF CONTENTS
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
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ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the quarterly period ended June 30, 2010
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Or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the transition period
from to
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Commission File Number: 001-31788
NBTY, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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11-2228617
(I.R.S. Employer
Identification No.)
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2100 Smithtown Avenue,
Ronkonkoma, New York 11779
(Address of principal executive offices) (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 has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES
ý
NO
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
ý
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a
smaller reporting company)
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Smaller reporting company
o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). YES
o
NO
ý
The number of shares of Common Stock (par value $.008 per share) outstanding as of August 2, 2010 was 63,418,619.
Table of Contents
NBTY, INC.
INDEX
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NBTY, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except per share amounts)
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June 30,
2010
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September 30,
2009
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Assets
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Current assets:
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Cash and cash equivalents
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$
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293,632
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$
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106,001
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Accounts receivable, net
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146,233
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155,863
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Inventories
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642,305
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658,534
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Deferred income taxes
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27,912
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28,154
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Other current assets
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51,369
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49,999
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Total current assets
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1,161,451
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998,551
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Property, plant and equipment, net
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367,661
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373,817
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Goodwill
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332,805
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339,099
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Intangible assets, net
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198,569
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214,139
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Other assets
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19,304
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34,615
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Total assets
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$
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2,079,790
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$
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1,960,221
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Liabilities and Stockholders' Equity
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Current liabilities:
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Current portion of long-term debt
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$
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70,791
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$
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38,893
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Accounts payable
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105,737
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128,485
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Accrued expenses and other current liabilities
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154,120
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156,734
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Total current liabilities
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330,648
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324,112
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Long-term debt, net of current portion
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361,830
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437,629
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Deferred income taxes
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40,198
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36,422
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Other liabilities
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33,906
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34,233
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Total liabilities
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766,582
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832,396
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Commitments and contingencies
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Stockholders' equity:
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Common stock, $.008 par; authorized 175,000 shares; issued and outstanding 63,411 shares and 61,874 shares at June 30, 2010 and September 30,
2009, respectively
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507
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495
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Capital in excess of par
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167,602
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145,885
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Retained earnings
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1,173,222
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984,797
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Accumulated other comprehensive income
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(28,123
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)
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(3,352
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)
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Total stockholders' equity
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1,313,208
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1,127,825
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Total liabilities and stockholders' equity
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$
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2,079,790
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$
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1,960,221
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The
accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents
NBTY, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
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Three months
ended June 30,
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Nine months
ended June 30,
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2010
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2009
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2010
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2009
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Net sales
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$
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695,856
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$
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651,707
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$
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2,152,167
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$
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1,907,813
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Costs and expenses:
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Cost of sales
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363,355
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359,240
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1,155,470
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1,091,386
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Advertising, promotion and catalog
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37,003
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23,570
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116,682
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87,889
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Selling, general and administrative
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192,118
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182,618
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575,443
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553,177
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IT project termination costs
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10,127
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18,774
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592,476
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575,555
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1,847,595
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1,751,226
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Income from operations
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103,380
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76,152
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304,572
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156,587
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Other income (expense):
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Interest
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(7,312
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)
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(8,402
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)
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(22,984
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)
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(26,780
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)
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Miscellaneous, net
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68
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3,396
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2,613
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(1,959
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)
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(7,244
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)
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(5,006
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)
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(20,371
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)
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(28,739
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)
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Income before provision for income taxes
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96,136
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71,146
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284,201
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127,848
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Provision for income taxes
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29,953
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25,229
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95,776
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45,386
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Net income
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$
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66,183
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$
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45,917
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$
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188,425
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$
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82,462
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Net income per share:
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Basic
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$
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1.04
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$
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0.74
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$
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2.99
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$
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1.34
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Diluted
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$
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1.03
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$
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0.73
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$
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2.94
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$
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1.31
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Weighted average common shares outstanding:
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Basic
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63,378
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61,796
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63,014
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61,665
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Diluted
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64,139
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63,264
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64,087
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63,124
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The
accompanying notes are an integral part of these condensed consolidated financial statements.
4
Table of Contents
NBTY, Inc.
Condensed Consolidated Statements of Stockholders' Equity and Comprehensive Income
Nine Months Ended June 30, 2010 and 2009
(Unaudited)
(in thousands)
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Common Stock
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Accumulated
Other
Comprehensive
(Loss) Income
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Number of
Shares
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Amount
|
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Capital
in Excess
of Par
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Retained
Earnings
|
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Total
Stockholders'
Equity
|
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Balance, September 30, 2009
|
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61,874
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$
|
495
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$
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145,885
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$
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984,797
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$
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(3,352
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)
|
$
|
1,127,825
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Components of comprehensive income:
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Net income
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188,425
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188,425
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Foreign currency translation adjustment, net of taxes
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(26,866
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)
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(26,866
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)
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Change in fair value of interest rate swaps, net of taxes
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2,095
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2,095
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Comprehensive income:
|
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$
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163,654
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Exercise of stock options
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1,537
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12
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10,312
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10,324
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Excess tax benefit from exercise of stock options
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6,097
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6,097
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Stock-based compensation
|
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5,308
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5,308
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Balance, June 30, 2010
|
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63,411
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$
|
507
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$
|
167,602
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$
|
1,173,222
|
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$
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(28,123
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)
|
$
|
1,313,208
|
|
|
|
|
|
|
|
|
|
|
|
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Balance, September 30, 2008
|
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61,599
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$
|
493
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$
|
140,990
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$
|
839,068
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$
|
17,645
|
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$
|
998,196
|
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Components of comprehensive income:
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|
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|
|
|
|
|
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Net income
|
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|
|
|
|
|
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82,462
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|
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|
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82,462
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Foreign currency translation adjustment, net of taxes
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|
|
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|
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|
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(12,733
|
)
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(12,733
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)
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Change in fair value of interest rate swaps, net of taxes
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(4,797
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)
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(4,797
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)
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|
|
|
|
|
|
|
|
|
|
|
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|
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Comprehensive income:
|
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|
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$
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64,932
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|
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|
|
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|
|
|
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|
|
|
|
|
|
|
|
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Exercise of stock options
|
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|
273
|
|
|
2
|
|
|
1,435
|
|
|
|
|
|
|
|
|
1,437
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|
Excess tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
55
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|
Stock-based compensation
|
|
|
|
|
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|
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|
2,013
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|
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2,013
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
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|
61,872
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|
$
|
495
|
|
$
|
144,493
|
|
$
|
921,530
|
|
$
|
115
|
|
$
|
1,066,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
5
Table of Contents
NBTY, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
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|
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|
Nine months
ended June 30,
|
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|
|
2010
|
|
2009
|
|
Cash flows from operating activities:
|
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|
|
|
|
|
|
|
Net income
|
|
$
|
188,425
|
|
$
|
82,462
|
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
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|
|
|
|
|
|
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|
Impairments and disposals of assets
|
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|
10,033
|
|
|
4,520
|
|
|
|
Depreciation and amortization
|
|
|
50,071
|
|
|
51,604
|
|
|
|
IT project termination costs
|
|
|
|
|
|
16,521
|
|
|
|
Foreign currency transaction loss
|
|
|
1,312
|
|
|
5,113
|
|
|
|
Stock-based compensation
|
|
|
5,308
|
|
|
2,013
|
|
|
|
Amortization of deferred charges
|
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|
1,093
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|
|
951
|
|
|
|
Allowance for doubtful accounts
|
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|
1,977
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|
(366
|
)
|
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Inventory reserves
|
|
|
3,317
|
|
|
5,666
|
|
|
|
Deferred income taxes
|
|
|
2,048
|
|
|
888
|
|
|
|
Excess income tax benefit from exercise of stock options
|
|
|
(6,097
|
)
|
|
(55
|
)
|
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
8,770
|
|
|
(11,129
|
)
|
|
|
|
Inventories
|
|
|
6,445
|
|
|
(63,228
|
)
|
|
|
|
Other assets
|
|
|
12,036
|
|
|
9,162
|
|
|
|
|
Accounts payable
|
|
|
(21,358
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)
|
|
(7,061
|
)
|
|
|
|
Accrued expenses and other liabilities
|
|
|
7,335
|
|
|
(8,915
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
270,715
|
|
|
88,146
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(40,358
|
)
|
|
(38,584
|
)
|
|
Proceeds from sale of available-for-sale investments
|
|
|
2,000
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(11,875
|
)
|
|
(264
|
)
|
|
Escrow refund, net of purchase price adjustments
|
|
|
|
|
|
14,460
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(50,233
|
)
|
|
(24,388
|
)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Principal payments under long-term debt agreements and capital leases
|
|
|
(42,992
|
)
|
|
(25,176
|
)
|
|
Proceeds from borrowings under the Revolving Credit Facility
|
|
|
|
|
|
95,000
|
|
|
Principal payments under the Revolving Credit Facility
|
|
|
|
|
|
(155,000
|
)
|
|
Excess income tax benefit from exercise of stock options
|
|
|
6,097
|
|
|
55
|
|
|
Proceeds from stock options exercised
|
|
|
10,324
|
|
|
1,437
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(26,571
|
)
|
|
(83,684
|
)
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(6,280
|
)
|
|
(437
|
)
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
187,631
|
|
|
(20,363
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
106,001
|
|
|
90,180
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
293,632
|
|
$
|
69,817
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
6
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except per share amounts and number of stores)
1. Basis of Presentation
NBTY, Inc. (together with its subsidiaries, "we," "our," "us," "NBTY," or the "Company") is a leading global vertically integrated manufacturer, marketer, distributor and retailer
of a broad line of high-quality, value-priced nutritional supplements in the United States and throughout the world. We market over 25,000 products under numerous owned and private-label
brands, including Nature's Bounty®, Ester-C®, Solgar®, MET-Rx®, American Health®, Osteo
Bi-Flex®, Flex-A-Min®,
SISU®, Knox®, Sundown®, Rexall®, Pure Protein®, Body Fortress®, WORLDWIDE Sport Nutrition®, Natural
Wealth®, Puritan's Pride®, Holland & Barrett®, GNC (UK)®, Physiologics®, Le Naturiste®, De Tuinen®, Julian
Graves® and Vitamin World®.
We
have prepared these financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") applicable to interim financial information and on a basis that is
consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended September 30, 2009 ("2009 Form 10-K"). In our
opinion, these financial statements reflect all adjustments (including normal recurring items) necessary for a fair presentation of our results for the interim periods presented. These financial
statements do not include all information or disclosures necessary for a complete presentation of financial position, results of operations and cash flows in conformity with GAAP. Accordingly, these
financial statements should be read in conjunction with the financial statements and notes thereto contained in our 2009 Form 10-K. Results for interim periods are not necessarily
indicative of results that may be achieved for a full year.
Estimates
The preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions that affect the
reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting
period. These judgments can be subjective and complex, and consequently actual results could differ materially from those estimates and assumptions. We base our estimates on historical experience and
on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are
not readily apparent from other sources. Our most significant estimates include: sales returns and other allowances; inventory valuation and obsolescence; valuation and recoverability of
long-lived assets, including goodwill; income taxes; and accruals for the outcome of current litigation.
Accounts Receivable Reserves
Accounts receivable were net of the following reserves:
|
|
|
|
|
|
|
|
|
|
June 30,
2010
|
|
September 30,
2009
|
|
Allowance for sales returns
|
|
$
|
9,043
|
|
$
|
11,707
|
|
Promotional program incentive allowance
|
|
|
63,269
|
|
|
49,071
|
|
Allowance for doubtful accounts
|
|
|
5,709
|
|
|
3,723
|
|
|
|
|
|
|
|
|
|
$
|
78,021
|
|
$
|
64,501
|
|
|
|
|
|
|
|
7
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
1. Basis of Presentation (Continued)
Net Income Per Share
Basic net income per share is based on the weighted average number of common shares outstanding during the three and nine month periods
ended June 30, 2010 and 2009. For the three and nine months ended June 30, 2010, diluted net income per share includes the dilutive effect of outstanding stock options and restricted
stock units which resulted in a dilutive effect of 761 and 1,073 shares, respectively. For the three and nine months ended June 30, 2009, diluted net income
per share includes the dilutive effect of outstanding stock options which resulted in a dilutive effect of 1,468 and 1,459 shares, respectively. There were 291 and 198 outstanding stock options for
the three and nine months ended June 30, 2010, respectively, that were not included in the calculation of diluted net income per share since they would have been anti-dilutive.
There were 910 and 871 outstanding stock options for the three and nine months ended June 30, 2009, respectively, that were not included in the calculation of diluted net income per share since
they would have been anti-dilutive.
Recent Accounting Developments
In June 2009, the Financial Accounting Standards Board ("FASB") issued authoritative guidance requiring an enterprise to perform an
analysis to determine whether the enterprise's variable interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable
interest entity as one with the power to direct the activities of a variable interest entity that most significantly impacts the entity's economic performance and the obligation to absorb losses of
the entity that could potentially be significant to the variable interest. This guidance will become effective for us October 1, 2010. We anticipate that the adoption of this guidance will not
have any impact on our consolidated financial position or results of operations because we currently do not have any variable interest entities.
2. Subsequent Event
On July 15, 2010, we announced the execution of a definitive merger agreement under which an affiliate of The Carlyle Group ("Carlyle") will acquire all of the outstanding common
shares of NBTY for $55.00 per share in cash. We filed a preliminary proxy statement with the Securities and Exchange Commission on August 3, 2010, in connection with the proposed transaction.
The
board of directors of NBTY has unanimously approved the merger agreement and recommended that NBTY's stockholders adopt the agreement with Carlyle. A special meeting of NBTY's
stockholders will be held as soon as practicable after the preparation and filing of a proxy statement with the Securities and Exchange Commission and subsequent mailing to shareholders. The mailing
of the proxy statement is expected to take place following the expiration of the 35 calendar day period following the date of the merger agreement, during the course of which NBTY is permitted to
solicit alternative proposals from third parties. The transaction is expected to close by December 31, 2010.
Completion
of the transaction is subject to customary conditions to closing, including approval of NBTY's stockholders and regulatory approvals, but is not subject to any condition with
regard to the financing of the transaction. The transaction has fully committed financing, consisting of a combination of equity contributed by Carlyle and external debt financing.
8
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
3. Acquisitions
On May 14, 2010, our subsidiary, NBTY Global Hong Kong Limited, acquired Ultimate Biopharma (Zhongsham) Corporation
("Ultimate"), a Chinese-foreign joint venture limited company which manufactures softgel capsules for approximately $8,800 plus an adjustment for collected accounts receivable and other working
capital components for a total purchase price of
approximately $14,465. The preliminary allocation of net assets acquired consisted of accounts receivable, inventory, property, plant and equipment and goodwill. Since we acquired the equity of
Ultimate, the goodwill associated with this acquisition is not deductible for tax purposes. The allocation of net assets acquired is based on preliminary estimates which we expect will be finalized by
September 2010.
Proforma
financial information related to Ultimate is not provided as its impact was not material to our consolidated financial statements.
4. Inventories
The components of inventories were as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
2010
|
|
September 30,
2009
|
|
Raw materials
|
|
$
|
150,986
|
|
$
|
166,447
|
|
Work-in-process
|
|
|
21,112
|
|
|
26,447
|
|
Finished goods
|
|
|
497,621
|
|
|
489,737
|
|
Valuation and obsolescence reserves
|
|
|
(27,414
|
)
|
|
(24,097
|
)
|
|
|
|
|
|
|
|
|
$
|
642,305
|
|
$
|
658,534
|
|
|
|
|
|
|
|
5. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill by segment for the nine-month period ended June 30, 2010, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale/
US Nutrition
|
|
North
American
Retail
|
|
European
Retail
|
|
Direct
Response/
E-Commerce
|
|
Consolidated
|
|
Balance at October 1, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
180,276
|
|
$
|
7,686
|
|
$
|
142,718
|
|
$
|
16,105
|
|
$
|
346,785
|
|
Accumulated impairment losses
|
|
|
|
|
|
(7,686
|
)
|
|
|
|
|
|
|
|
(7,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,276
|
|
|
|
|
|
142,718
|
|
|
16,105
|
|
|
339,099
|
|
Foreign currency translation
|
|
|
114
|
|
|
|
|
|
(9,918
|
)
|
|
|
|
|
(9,804
|
)
|
Acquisitions
|
|
|
2,957
|
|
|
|
|
|
553
|
|
|
|
|
|
3,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
183,347
|
|
|
7,686
|
|
|
133,353
|
|
|
16,105
|
|
|
340,491
|
|
Accumulated impairment losses
|
|
|
|
|
|
(7,686
|
)
|
|
|
|
|
|
|
|
(7,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
183,347
|
|
$
|
|
|
$
|
133,353
|
|
$
|
16,105
|
|
$
|
332,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
5. Goodwill and Intangible Assets (Continued)
Intangible Assets
The carrying amounts of intangible assets as of June 30, 2010 and September 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
September 30, 2009
|
|
|
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Amortization
period
(years)
|
Definite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
$
|
97,798
|
|
$
|
29,808
|
|
$
|
98,093
|
|
$
|
26,201
|
|
20
|
Customer lists
|
|
|
64,918
|
|
|
46,475
|
|
|
64,948
|
|
|
43,667
|
|
2 - 15
|
Private label and customer relationships
|
|
|
118,516
|
|
|
18,710
|
|
|
122,822
|
|
|
14,374
|
|
10 - 20
|
Trademarks and licenses
|
|
|
16,276
|
|
|
7,370
|
|
|
17,844
|
|
|
7,417
|
|
2 - 20
|
Covenants not to compete
|
|
|
3,544
|
|
|
3,388
|
|
|
3,540
|
|
|
3,249
|
|
3 - 5
|
Land use right
|
|
|
1,468
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
302,520
|
|
|
105,751
|
|
|
307,247
|
|
|
94,908
|
|
|
Indefinite lived intangible asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark
|
|
|
1,800
|
|
|
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
304,320
|
|
$
|
105,751
|
|
$
|
309,047
|
|
$
|
94,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
June 2010, we recorded an impairment charge of $3,533 ($2,429, net of taxes) related to a private label customer contract, renewal of which is no longer probable.
The
increase in intangible assets for the land use right relates to our acquisition in China and is based on a preliminary allocation of the purchase price.
Aggregate
amortization expense of other intangible assets included in the consolidated statements of income under the caption "selling, general and administrative" expenses for the three
months ended June 30, 2010 and 2009 was $3,975 and $4,018, respectively. Amortization expense for the nine months ended June 30, 2010 and 2009 was $11,962 and $12,042, respectively.
Assuming
no changes in our definite lived intangible assets, estimated amortization expense for each of the five succeeding fiscal years is as follows:
|
|
|
|
|
|
For the fiscal year ending September 30,
|
|
|
|
|
|
2010
|
|
$
|
15,823
|
|
|
2011
|
|
$
|
15,781
|
|
|
2012
|
|
$
|
15,650
|
|
|
2013
|
|
$
|
15,552
|
|
|
2014
|
|
$
|
15,040
|
|
6. IT Project Termination Costs
During fiscal 2009, management terminated certain information technology projects relating to the Direct Response/E-Commerce, North American and European Retail segments that
were determined
10
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
6. IT Project Termination Costs (Continued)
to
be ineffective and uneconomical. Previously capitalized software configuration, coding and other related costs of $10,127 and $18,774 were written off for the three and nine months ended
June 30, 2009, respectively.
7. Accrued Expenses and Other Current Liabilities
The components of accrued expenses and other current liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
2010
|
|
September 30,
2009
|
|
Accrued compensation and related taxes
|
|
$
|
37,143
|
|
$
|
38,945
|
|
Accrued purchases
|
|
|
20,072
|
|
|
17,664
|
|
Income taxes payable
|
|
|
5,668
|
|
|
16,700
|
|
Other
|
|
|
91,237
|
|
|
83,425
|
|
|
|
|
|
|
|
|
|
$
|
154,120
|
|
$
|
156,734
|
|
|
|
|
|
|
|
8. Long-Term Debt
The components of long-term debt were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2010
|
|
September 30,
2009
|
|
Credit Agreement:
|
|
|
|
|
|
|
|
|
$300 million, five-year Term Loan
|
|
$
|
228,171
|
|
$
|
270,000
|
|
Senior Subordinated Notes
|
|
|
188,974
|
|
|
188,856
|
|
Multi-currency Term Loan
|
|
|
14,362
|
|
|
15,336
|
|
Mortgage and Capital Leases
|
|
|
1,114
|
|
|
2,330
|
|
|
|
|
|
|
|
|
|
|
432,621
|
|
|
476,522
|
|
|
|
Less: current portion
|
|
|
70,791
|
|
|
38,893
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
361,830
|
|
$
|
437,629
|
|
|
|
|
|
|
|
Principal
payments on the Term Loan during the first nine months of the year included $20,000 in voluntary prepayments.
9. Litigation Summary
On May 11, 2010, a putative class-action, captioned
John F. Hutchins v. NBTY, Inc., et al,
was filed in the United States
District Court, Eastern District of New York, against the Company and certain officers, claiming that the defendants made allegedly false material statements, or concealed allegedly adverse material
facts, for the purpose of causing members of the class to purchase NBTY stock at allegedly artificially inflated prices. To date, there has been no activity since the filing of the complaint. The
Company believes the claims to be without merit and intends to vigorously defend this action. At this time, however, no determination can be made as to the ultimate outcome of the litigation or the
amount of liability, if any, on the part of any of the defendants.
11
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
9. Litigation Summary (Continued)
On July 22, 2010, a putative class-action, captioned
Philip Gottlieb v. NBTY, Inc., et al,
was filed in the Supreme Court of
the State of New York, County of Nassau, against the Company, the members of its board of directors, The Carlyle Group and certain Carlyle-related entities (The Carlyle Group and the Carlyle-related
entities, collectively "Carlyle"), challenging the Board of Directors' decision to sell the Company to Carlyle for the price of $55.00 per share. The complaint alleges that this price per share does
not represent fair value for the Company and seeks to enjoin the anticipated sale and to invalidate certain related transactions. The Company believes the claims to be without merit and
intends to vigorously defend this action. The Company cannot presently predict the ultimate outcome of the litigation or the amount of liability, if any, on the part of any of the defendants.
Prohormone Products
In March 2004, a putative class-action lawsuit, captioned
Jerry Beidler v. MET-Rx U.S.A,
Inc,
was filed in New Jersey Superior Court, Mercer County, against MET-Rx U.S.A, Inc. ("Met-Rx"), a subsidiary of the Company, claiming that the
advertising and marketing of certain prohormone supplements were false and misleading and that plaintiff and the putative class of New Jersey purchasers of these products were entitled to damages and
injunctive relief. Because these allegations were virtually identical to allegations made in a putative nationwide class-action previously filed against Met-Rx in California (in an action
styled
Eric Ayala v. MET-Rx U.S.A, Inc. et. al
.), we moved in 2004 to dismiss or stay the New Jersey action pending the outcome of
the California action. The motion was granted, and the New Jersey action is stayed at this time. The California action against Met-Rx was dismissed in 2009.
Nutrition Bars
Our subsidiary, Rexall Sundown, Inc. ("Rexall"), and certain of its subsidiaries, are defendants in a class-action lawsuit,
captioned
Jamie Pesek, et al. v. Rexall Sundown, Inc., et al.
, brought in California Superior Court, County of San Francisco in 2002 on behalf of
all California consumers who bought various nutrition bars. Plaintiffs allege misbranding of nutrition bars and violations of California unfair competition statutes, misleading advertising and other
similar causes of action. Plaintiffs seek restitution, legal fees and injunctive relief. We have defended this action vigorously. Since December 2007, with Rexall's and the other defendants' renewed
motion for judgment on the pleadings pending, the Court has stayed the case for all purposes, pending rulings on relevant cases before the California Supreme Court. Although the California Supreme
Court has resolved some of those cases, others remain pending as of this date. Accordingly, the case remains stayed. The Court held a case-management conference ("CMC") on August 5,
2009. At that time, the parties requested, and the Court agreed, to keep the stay in place for at least another nine months. The Court scheduled a subsequent CMC for February 25, 2010, but
canceled that conference upon being informed by the parties that the California Supreme Court had not yet acted. The Court set another CMC for May 21, 2010, and instructed the parties to report
back before that date as to the status of the cases before the California Supreme Court. By agreement of the parties, the May 21, 2010 CMC has been continued for nine months. The California
Supreme Court still has not resolved the outstanding issues pending before it. Based upon the information currently available, no determination can be made at this time as to the final outcome of this
case, nor can its materiality be accurately ascertained.
12
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
9. Litigation Summary (Continued)
Claims in the Ordinary Course
In addition to the foregoing, other regulatory inquiries, claims, suits and complaints (including product liability, intellectual
property and California Proposition 65 claims) arise in the ordinary course of our business. We believe that such other inquiries, claims, suits and complaints would not have a material adverse effect
on our consolidated financial condition or results of operations, if adversely determined against us.
10. Income Taxes
Our provision for income taxes is impacted by a number of factors, including federal taxes, our international tax structure, state tax rates in the jurisdictions where we conduct
business, and our ability to utilize state tax credits that expire between 2013 and 2016. Therefore, our overall effective income tax rate could vary as a result of these factors.
The
effective income tax rate for the three months ended June 30, 2010 and 2009 was 31.2% and 35.5%, respectively. The effective income tax rate for the nine months ended
June 30, 2010 and 2009 was 33.7% and 35.5%, respectively. The effective income tax rate was lower for the three and nine month periods ended June 30, 2010 as compared to the prior
comparable period primarily due to the impact of a UK restructuring completed during June 2010 which allows us to utilize certain tax benefits that were previously reserved and the partial release of
a valuation allowance on state tax credits in the current year.
We
accrue interest and penalties related to unrecognized tax benefits in income tax expense. This methodology is consistent with previous periods. At June 30, 2010, we had $1,372
and $439 accrued for the potential payment of interest and penalties, respectively. As of June 30, 2010, we were subject to U.S. Federal Income Tax examinations for the tax years
2007-2009, and to non-U.S. examinations for the tax years of 2004-2009. In addition, we are generally subject to state and local examinations for fiscal years
2006-2009.
At
June 30, 2010, we had a liability of $8,711 for unrecognized tax benefits, the recognition of which would have an effect of $5,931 on income tax expense and the effective
income tax rate. We do not believe that the amount will change significantly in the next 12 months. At this time, we are unable to make a reasonably reliable estimate of the timing of payments
in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes.
11. Stock-based Compensation
On December 23, 2009, the Company granted 287 stock options to directors and certain employees under the 2008 and 2000 Stock Option Plans. These stock options were granted with an
exercise price of $43.88, the closing price of the Company's common stock on the date of grant. The vesting period for these options is over four years, in three equal increments on each of the
second, third and fourth anniversary of the date of grant, except those granted to Harvey Kamil, President and Chief Financial Officer, the vesting of which will accelerate if he retires after the
second anniversary of the date of grant. All stock options granted expire ten years from the date of grant.
13
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
11. Stock-based Compensation (Continued)
The
weighted average fair value per share of the options granted was $22.13. The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option
pricing model. The following weighted average assumptions were used for the options granted in December 2009:
|
|
|
|
|
Risk-free rate(1)
|
|
|
2.9
|
%
|
Expected term(2)
|
|
|
6.4
|
|
Expected volatility(3)
|
|
|
48.0
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
-
(1)
-
The
risk-free rate is based upon the rate on a zero coupon U.S. Treasury bill, for the expected term of the option, in effect at the time of
grant.
-
(2)
-
The
expected term of the option is based on historical employee exercise behavior, the vesting terms of the respective option and a contractual life of ten
years.
-
(3)
-
Expected
volatility is primarily based on the daily historical volatility of our stock price, over a period similar to the expected term of the option.
On
December 23, 2009, the Company also granted 21 restricted stock units to directors and certain executives under the 2009 Equity Awards Plan. The closing price of the Company's
common stock on the date of grant was $43.88. These restricted stock units vest over four years, in three equal increments on each of the second, third and fourth anniversary of the date of grant,
except those granted to Harvey Kamil, President and Chief Financial Officer, the vesting of which will accelerate if he retires after the second anniversary of the date of grant.
12. Fair Value of Financial Instruments
GAAP establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are
three levels of inputs that may be used to measure fair value:
-
-
Level 1Quoted prices in active markets for identical assets or liabilities.
-
-
Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities.
-
-
Level 3Unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities.
14
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
12. Fair Value of Financial Instruments (Continued)
Interest Rate Swaps
To manage the potential risk arising from changing interest rates and their impact on long-term debt, our policy is to
maintain a combination of available fixed and variable rate financial instruments. In fiscal 2008, we entered into two interest rate swap contracts to hedge the variability of future interest relating
to a portion of the interest payments on our Term Loan. Each swap contract has a notional amount of $100 million. One swap contract has a fixed interest rate, before bank margin, of 3.88% for a
two-year term and the other swap contract has a fixed interest rate, before bank margin, of 4.195% for a three-year term. Under the terms of the swap contracts, variable
interest payments for a portion of our Term Loan are swapped for fixed interest payments.
We
have formally documented the relationship between the interest rate swap contracts and the Term Loan, as well as our risk management objective and strategy for undertaking the hedge
transactions. This process includes linking the derivative that was designated as a cash flow hedge to the specific liability on the balance sheet. We record the change in the fair value of the swap
contracts through Other Comprehensive Income ("OCI"), net of income tax. Since we expect these hedging relationships to be highly effective, both at inception of the hedges and on an ongoing basis,
they are expected to be highly effective in achieving offsetting changes in fair value attributable to the hedged risk during the period that the hedges are designated. We have determined that there
will be no ineffectiveness in the hedging relationships since the hedged forecasted interest payments are based on the same notional amount, have the same reset dates, and are based on the same
benchmark interest rate designated under the variable rate Term Loan. We assess, at the inception of the hedges and on an ongoing basis, whether the derivatives used in the hedging transaction are
highly effective in offsetting changes in the cash flows of the hedged item. The change in the fair value of the swap contracts for the nine months ended June 30, 2010 recorded through OCI, net
of income tax was $2,095. At June 30, 2010, the swap contracts liability was $6,769. Of this amount, $1,664 is included in other current liabilities and $5,105 is
included in other liabilities. At September 30, 2009, the swap contracts liability, included in other liabilities, was $10,181. The fair value of the swap contracts were valued using observable
current market information such as the prevailing LIBOR interest rate and LIBOR yield curve rates (Level 2).
7
1
/
8
% Senior Subordinated Notes
The face value of the 7
1
/
8
% Senior Subordinated Notes at June 30, 2010, was $190,000. The fair value of the
7
1
/
8
% Senior Subordinated Notes, based on then quoted market prices (Level 1), approximated its carrying value at June 30, 2010.
13. Business and Credit Concentration
Financial Instruments
Financial instruments that potentially subject us to credit risk consist primarily of cash and cash equivalents (the amounts of which,
at times, may exceed Federal Deposit Insurance Corporation limits on insurable amounts), investments and trade accounts receivable. We mitigate our risk by investing in or through major financial
institutions.
15
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
13. Business and Credit Concentration (Continued)
Customers
We perform on-going credit evaluations of our customers and adjust credit limits based upon payment history and the
customers' current creditworthiness, as determined by review of their current credit information. Customers' account activity is continuously monitored. As a result of this review process, we record
bad debt expense, which is based upon historical experience as well as specific customer collection issues that have been identified, to adjust the carrying amount of the related receivable to its
estimated realizable value. While such bad debt expenses historically have been within expectations and the allowances established, if the financial condition of one or more of our customers were to
deteriorate, additional bad debt provisions may be required.
The
following customers accounted for the following percentages of net sales for the three and nine months ended June 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale/US
Nutrition
Segment
Net Sales
Three months
ended June 30,
|
|
Total
Consolidated
Net Sales
Three months
ended June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Customer A
|
|
|
24
|
%
|
|
29
|
%
|
|
15
|
%
|
|
18
|
%
|
Customer C
|
|
|
10
|
%
|
|
7
|
%
|
|
6
|
%
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale/US
Nutrition
Segment
Net Sales
Nine months
ended June 30,
|
|
Total
Consolidated
Net Sales
Nine months
ended June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Customer A
|
|
|
27
|
%
|
|
30
|
%
|
|
17
|
%
|
|
18
|
%
|
The
loss of these customers, or any other major customer, would have a material adverse effect on our consolidated results of operations if we were unable to replace that customer.
The
following individual customers accounted for 10% or more of the Wholesale/US Nutrition segment's gross accounts receivable as of June 30, 2010 and September 30, 2009,
respectively:
|
|
|
|
|
|
|
|
|
|
June 30,
2010
|
|
September 30,
2009
|
|
Customer A
|
|
|
17
|
%
|
|
25
|
%
|
Customer B
|
|
|
8
|
%
|
|
9
|
%
|
Customer C
|
|
|
12
|
%
|
|
11
|
%
|
16
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
14. Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended June 30,
|
|
|
|
2010
|
|
2009
|
|
Non-cash investing and financing information:
|
|
|
|
|
|
|
|
Property, plant and equipment additions included in accounts payable
|
|
$
|
1,349
|
|
$
|
4,275
|
|
Acquisitions accounted for under the purchase method:
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
15,228
|
|
$
|
264
|
|
|
Liabilities assumed
|
|
|
(211
|
)
|
|
|
|
|
Less: Payable to seller
|
|
|
(2,456
|
)
|
|
|
|
|
Less: Cash acquired
|
|
|
(686
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash paid
|
|
$
|
11,875
|
|
$
|
264
|
|
|
|
|
|
|
|
15. Segment Information
We are organized by sales segments on a worldwide basis. We evaluate performance based on a number of factors; however, the primary measures of performance are the net sales, gross
profit and income or loss from operations (prior to corporate allocations) of each segment, as these are the key performance indicators that we review. Operating income or loss for each segment does
not include the impact of any intercompany transfer pricing mark-up, corporate general and administrative expenses, interest expense and other miscellaneous income/expense items. Corporate
general and administrative expenses include, but are not limited to: human resources, legal, finance, and various other corporate level activity related expenses. Such unallocated expenses remain
within the Corporate segment.
All
our products fall into one or more of these four segments:
-
-
Wholesale/US NutritionThis segment is comprised of several divisions, each targeting specific market groups,
which include wholesalers, distributors, food, drug and mass merchandisers, pharmacies, health food stores, bulk and international customers.
-
-
North American RetailThis segment generates revenue through its 451 owned and operated Vitamin World stores
selling proprietary brand and third-party products, and through its Canadian operation of 83 owned and operated Le Naturiste stores.
-
-
European RetailThis segment generates revenue through its 586 Holland & Barrett stores,
296 Julian Graves stores and 43 GNC stores in the UK, 88 DeTuinen stores in the Netherlands and 29 Nature's Way stores in Ireland. In addition, Holland & Barrett has 8 franchise
locations in South Africa, Singapore and Malta. This revenue consists of sales of proprietary brand and third-party products, as well as franchise fees.
-
-
Direct Response/E-CommerceThis segment generates revenue through the sale of proprietary brand
and third-party products primarily through mail order catalog and the internet. Catalogs are strategically mailed to customers who order by mail, internet, or by phone.
17
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
15. Segment Information (Continued)
The following table represents key financial information of our business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale /
US Nutrition
|
|
North
American
Retail
|
|
European
Retail
|
|
Direct
Response/
E-Commerce
|
|
Corporate/
Manufacturing
|
|
Consolidated
|
|
Three months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
434,592
|
|
$
|
52,543
|
|
$
|
152,051
|
|
$
|
56,670
|
|
$
|
|
|
$
|
695,856
|
|
|
Income (loss) from operations
|
|
|
82,537
|
|
|
3,955
|
|
|
20,401
|
|
|
15,440
|
|
|
(18,953
|
)
|
|
103,380
|
|
|
Depreciation and amortization
|
|
|
3,642
|
|
|
613
|
|
|
3,316
|
|
|
1,143
|
|
|
7,598
|
|
|
16,312
|
|
|
Capital expenditures
|
|
|
236
|
|
|
1,046
|
|
|
11,454
|
|
|
|
|
|
3,185
|
|
|
15,921
|
|
Three months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
396,162
|
|
$
|
51,223
|
|
$
|
151,293
|
|
$
|
53,029
|
|
$
|
|
|
$
|
651,707
|
|
|
Income (loss) from operations
|
|
|
61,905
|
|
|
(2,274
|
)
|
|
14,070
|
|
|
18,166
|
|
|
(15,715
|
)
|
|
76,152
|
|
|
Depreciation and amortization
|
|
|
3,681
|
|
|
758
|
|
|
3,634
|
|
|
1,245
|
|
|
7,486
|
|
|
16,804
|
|
|
Capital expenditures
|
|
|
94
|
|
|
268
|
|
|
819
|
|
|
|
|
|
4,819
|
|
|
6,000
|
|
Nine months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,332,280
|
|
$
|
158,770
|
|
$
|
487,059
|
|
$
|
174,058
|
|
$
|
|
|
$
|
2,152,167
|
|
|
Income (loss) from operations
|
|
|
224,229
|
|
|
6,479
|
|
|
80,924
|
|
|
49,841
|
|
|
(56,901
|
)
|
|
304,572
|
|
|
Depreciation and amortization
|
|
|
10,973
|
|
|
1,944
|
|
|
10,400
|
|
|
3,555
|
|
|
23,199
|
|
|
50,071
|
|
|
Capital expenditures
|
|
|
1,322
|
|
|
2,140
|
|
|
24,835
|
|
|
36
|
|
|
12,025
|
|
|
40,358
|
|
Nine months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,152,930
|
|
$
|
151,577
|
|
$
|
441,757
|
|
$
|
161,549
|
|
$
|
|
|
$
|
1,907,813
|
|
|
Income (loss) from operations
|
|
|
110,968
|
|
|
(4,160
|
)
|
|
60,559
|
|
|
38,119
|
|
|
(48,899
|
)
|
|
156,587
|
|
|
Depreciation and amortization
|
|
|
10,991
|
|
|
2,255
|
|
|
10,598
|
|
|
3,777
|
|
|
23,983
|
|
|
51,604
|
|
|
Capital expenditures
|
|
|
725
|
|
|
2,786
|
|
|
9,844
|
|
|
4,162
|
|
|
21,067
|
|
|
38,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended June 30,
|
|
Nine months
ended June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
United States
|
|
$
|
474,814
|
|
$
|
436,059
|
|
$
|
1,434,952
|
|
$
|
1,292,914
|
|
United Kingdom
|
|
|
146,952
|
|
|
147,510
|
|
|
465,474
|
|
|
422,495
|
|
Canada
|
|
|
20,796
|
|
|
20,624
|
|
|
75,280
|
|
|
62,548
|
|
Holland
|
|
|
14,817
|
|
|
13,537
|
|
|
49,678
|
|
|
40,923
|
|
Ireland
|
|
|
5,938
|
|
|
5,333
|
|
|
18,241
|
|
|
15,211
|
|
Other foreign countries
|
|
|
32,539
|
|
|
28,644
|
|
|
108,542
|
|
|
73,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
695,856
|
|
$
|
651,707
|
|
$
|
2,152,167
|
|
$
|
1,907,813
|
|
|
|
|
|
|
|
|
|
|
|
18
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
15. Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
June 30,
2010
|
|
September 30,
2009
|
|
Wholesale/US Nutrition
|
|
$
|
906,389
|
|
$
|
915,783
|
|
North American Retail
|
|
|
31,311
|
|
|
28,334
|
|
European Retail
|
|
|
410,352
|
|
|
403,657
|
|
Direct Response/E-Commerce
|
|
|
54,354
|
|
|
54,348
|
|
Corporate/Manufacturing
|
|
|
677,384
|
|
|
558,099
|
|
|
|
|
|
|
|
|
|
$
|
2,079,790
|
|
$
|
1,960,221
|
|
|
|
|
|
|
|
Approximately
29% of our net sales during the nine months ended June 30, 2010 and 2009 were denominated in currencies other than U.S. dollars, principally the British pound
sterling, the euro and the Canadian dollar. A significant weakening of such currencies versus the U.S. dollar could have a material adverse effect on our results of operations.
Foreign
subsidiaries accounted for the following percentages of total assets and total liabilities:
|
|
|
|
|
|
|
|
|
|
June 30,
2010
|
|
September 30,
2009
|
|
Total Assets
|
|
|
26
|
%
|
|
26
|
%
|
Total Liabilities
|
|
|
14
|
%
|
|
13
|
%
|
16. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes
The 7
1
/
8
% Senior Subordinated Notes due 2015 are guaranteed by our domestic wholly-owned subsidiaries. These guarantees are full, unconditional and joint and several. The
following condensed consolidating financial information presents:
-
1.
-
Condensed
consolidating financial statements as of June 30, 2010 and September 30, 2009 and for the three and nine months ended June 30,
2010 and 2009 of (a) NBTY, Inc., the parent and issuer, (b) the guarantor subsidiaries, (c) the non-guarantor subsidiaries and (d) the Company on a
consolidated basis; and
-
2.
-
Elimination
entries necessary to consolidate NBTY, Inc., the parent, with guarantor and non-guarantor subsidiaries.
The
condensed consolidating financial statements are presented using the equity method of accounting for investments in wholly-owned subsidiaries. Under this method, the investments in
subsidiaries are recorded at cost and adjusted for our share of the subsidiaries' cumulative results of operations, capital contributions, distributions and other equity changes. The principal
elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. This financial information should be read in conjunction with the financial statements and other
notes related thereto.
19
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
16. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)
Condensed Consolidating Balance Sheet
As of June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
202,446
|
|
$
|
|
|
$
|
91,186
|
|
$
|
|
|
$
|
293,632
|
|
|
Accounts receivable, net
|
|
|
|
|
|
124,553
|
|
|
21,680
|
|
|
|
|
|
146,233
|
|
|
Intercompany
|
|
|
|
|
|
364,453
|
|
|
741,242
|
|
|
(1,105,695
|
)
|
|
|
|
|
Inventories
|
|
|
|
|
|
520,779
|
|
|
121,526
|
|
|
|
|
|
642,305
|
|
|
Deferred income taxes
|
|
|
|
|
|
24,140
|
|
|
3,772
|
|
|
|
|
|
27,912
|
|
|
Other current assets
|
|
|
|
|
|
7,957
|
|
|
43,412
|
|
|
|
|
|
51,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
202,446
|
|
|
1,041,882
|
|
|
1,022,818
|
|
|
(1,105,695
|
)
|
|
1,161,451
|
|
Property, plant and equipment, net
|
|
|
35,068
|
|
|
231,246
|
|
|
101,347
|
|
|
|
|
|
367,661
|
|
Goodwill
|
|
|
|
|
|
197,701
|
|
|
135,104
|
|
|
|
|
|
332,805
|
|
Other intangible assets, net
|
|
|
|
|
|
174,735
|
|
|
23,834
|
|
|
|
|
|
198,569
|
|
Other assets
|
|
|
|
|
|
19,251
|
|
|
53
|
|
|
|
|
|
19,304
|
|
Intercompany loan receivable
|
|
|
320,348
|
|
|
40,735
|
|
|
|
|
|
(361,083
|
)
|
|
|
|
Investments in subsidiaries
|
|
|
2,309,863
|
|
|
|
|
|
|
|
|
(2,309,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,867,725
|
|
$
|
1,705,550
|
|
$
|
1,283,156
|
|
$
|
(3,776,641
|
)
|
$
|
2,079,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
55,899
|
|
$
|
|
|
$
|
14,892
|
|
$
|
|
|
$
|
70,791
|
|
|
Accounts payable
|
|
|
|
|
|
64,997
|
|
|
40,740
|
|
|
|
|
|
105,737
|
|
|
Intercompany
|
|
|
1,105,695
|
|
|
|
|
|
|
|
|
(1,105,695
|
)
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
|
|
|
|
118,515
|
|
|
35,605
|
|
|
|
|
|
154,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,161,594
|
|
|
183,512
|
|
|
91,237
|
|
|
(1,105,695
|
)
|
|
330,648
|
|
Intercompany loan payable
|
|
|
|
|
|
|
|
|
361,083
|
|
|
(361,083
|
)
|
|
|
|
Long-term debt, net of current portion
|
|
|
338,776
|
|
|
|
|
|
23,054
|
|
|
|
|
|
361,830
|
|
Deferred income taxes
|
|
|
37,561
|
|
|
|
|
|
2,637
|
|
|
|
|
|
40,198
|
|
Other liabilities
|
|
|
16,586
|
|
|
2,757
|
|
|
14,563
|
|
|
|
|
|
33,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,554,517
|
|
|
186,269
|
|
|
492,574
|
|
|
(1,466,778
|
)
|
|
766,582
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
507
|
|
|
Capital in excess of par
|
|
|
167,602
|
|
|
352,019
|
|
|
301,270
|
|
|
(653,289
|
)
|
|
167,602
|
|
|
Retained earnings
|
|
|
1,173,222
|
|
|
1,167,262
|
|
|
501,846
|
|
|
(1,669,108
|
)
|
|
1,173,222
|
|
|
Accumulated other comprehensive loss
|
|
|
(28,123
|
)
|
|
|
|
|
(12,534
|
)
|
|
12,534
|
|
|
(28,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
1,313,208
|
|
|
1,519,281
|
|
|
790,582
|
|
|
(2,309,863
|
)
|
|
1,313,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
2,867,725
|
|
$
|
1,705,550
|
|
$
|
1,283,156
|
|
$
|
(3,776,641
|
)
|
$
|
2,079,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
16. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)
Condensed Consolidating Balance Sheet
As of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
46,169
|
|
$
|
|
|
$
|
59,832
|
|
$
|
|
|
$
|
106,001
|
|
|
Accounts receivable, net
|
|
|
|
|
|
132,762
|
|
|
23,101
|
|
|
|
|
|
155,863
|
|
|
Intercompany
|
|
|
|
|
|
141,489
|
|
|
744,496
|
|
|
(885,985
|
)
|
|
|
|
|
Inventories
|
|
|
|
|
|
530,218
|
|
|
128,316
|
|
|
|
|
|
658,534
|
|
|
Deferred income taxes
|
|
|
|
|
|
24,124
|
|
|
4,030
|
|
|
|
|
|
28,154
|
|
|
Other current assets
|
|
|
|
|
|
20,910
|
|
|
29,089
|
|
|
|
|
|
49,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
46,169
|
|
|
849,503
|
|
|
988,864
|
|
|
(885,985
|
)
|
|
998,551
|
|
Property, plant and equipment, net
|
|
|
39,246
|
|
|
245,415
|
|
|
89,156
|
|
|
|
|
|
373,817
|
|
Goodwill
|
|
|
|
|
|
197,701
|
|
|
141,398
|
|
|
|
|
|
339,099
|
|
Other intangible assets, net
|
|
|
|
|
|
189,022
|
|
|
25,117
|
|
|
|
|
|
214,139
|
|
Other assets
|
|
|
|
|
|
21,403
|
|
|
13,212
|
|
|
|
|
|
34,615
|
|
Intercompany loan receivable
|
|
|
340,710
|
|
|
40,733
|
|
|
|
|
|
(381,443
|
)
|
|
|
|
Investments in subsidiaries
|
|
|
2,082,257
|
|
|
|
|
|
|
|
|
(2,082,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,508,382
|
|
$
|
1,543,777
|
|
$
|
1,257,747
|
|
$
|
(3,349,685
|
)
|
$
|
1,960,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
38,138
|
|
$
|
115
|
|
$
|
640
|
|
$
|
|
|
$
|
38,893
|
|
|
Accounts payable
|
|
|
|
|
|
90,835
|
|
|
37,650
|
|
|
|
|
|
128,485
|
|
|
Intercompany
|
|
|
885,985
|
|
|
|
|
|
|
|
|
(885,985
|
)
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
|
|
|
|
114,851
|
|
|
41,883
|
|
|
|
|
|
156,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
924,123
|
|
|
205,801
|
|
|
80,173
|
|
|
(885,985
|
)
|
|
324,112
|
|
Intercompany loan payable
|
|
|
|
|
|
|
|
|
381,443
|
|
|
(381,443
|
)
|
|
|
|
Long-term debt, net of current portion
|
|
|
398,411
|
|
|
|
|
|
39,218
|
|
|
|
|
|
437,629
|
|
Deferred income taxes
|
|
|
35,959
|
|
|
|
|
|
463
|
|
|
|
|
|
36,422
|
|
Other liabilities
|
|
|
22,064
|
|
|
2,602
|
|
|
9,567
|
|
|
|
|
|
34,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,380,557
|
|
|
208,403
|
|
|
510,864
|
|
|
(1,267,428
|
)
|
|
832,396
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
495
|
|
|
Capital in excess of par
|
|
|
145,885
|
|
|
352,019
|
|
|
301,269
|
|
|
(653,288
|
)
|
|
145,885
|
|
|
Retained earnings
|
|
|
984,797
|
|
|
983,355
|
|
|
450,168
|
|
|
(1,433,523
|
)
|
|
984,797
|
|
|
Accumulated other comprehensive loss
|
|
|
(3,352
|
)
|
|
|
|
|
(4,554
|
)
|
|
4,554
|
|
|
(3,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
1,127,825
|
|
|
1,335,374
|
|
|
746,883
|
|
|
(2,082,257
|
)
|
|
1,127,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
2,508,382
|
|
$
|
1,543,777
|
|
$
|
1,257,747
|
|
$
|
(3,349,685
|
)
|
$
|
1,960,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
16. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)
Condensed Consolidating Statements of Income
Three Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
|
|
$
|
518,175
|
|
$
|
194,966
|
|
$
|
(17,285
|
)
|
$
|
695,856
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
294,826
|
|
|
85,814
|
|
|
(17,285
|
)
|
|
363,355
|
|
|
Advertising, promotion and catalog
|
|
|
|
|
|
30,195
|
|
|
6,808
|
|
|
|
|
|
37,003
|
|
|
Selling, general and administrative
|
|
|
18,954
|
|
|
90,634
|
|
|
82,530
|
|
|
|
|
|
192,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,954
|
|
|
415,655
|
|
|
175,152
|
|
|
(17,285
|
)
|
|
592,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
(18,954
|
)
|
|
102,520
|
|
|
19,814
|
|
|
|
|
|
103,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of subsidiaries
|
|
|
78,872
|
|
|
|
|
|
|
|
|
(78,872
|
)
|
|
|
|
|
|
Intercompany interest
|
|
|
2,143
|
|
|
|
|
|
(2,143
|
)
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(7,096
|
)
|
|
|
|
|
(216
|
)
|
|
|
|
|
(7,312
|
)
|
|
|
Miscellaneous, net
|
|
|
77
|
|
|
(464
|
)
|
|
455
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,996
|
|
|
(464
|
)
|
|
(1,904
|
)
|
|
(78,872
|
)
|
|
(7,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
55,042
|
|
|
102,056
|
|
|
17,910
|
|
|
(78,872
|
)
|
|
96,136
|
|
(Benefit)/ provision for income taxes
|
|
|
(11,140
|
)
|
|
35,720
|
|
|
5,373
|
|
|
|
|
|
29,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
66,182
|
|
$
|
66,336
|
|
$
|
12,537
|
|
$
|
(78,872
|
)
|
$
|
66,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
16. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)
Condensed Consolidating Statements of Income
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
|
|
$
|
483,797
|
|
$
|
189,498
|
|
$
|
(21,588
|
)
|
$
|
651,707
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
292,517
|
|
|
88,311
|
|
|
(21,588
|
)
|
|
359,240
|
|
|
Advertising, promotion and catalog
|
|
|
|
|
|
17,804
|
|
|
5,766
|
|
|
|
|
|
23,570
|
|
|
Selling, general and administrative
|
|
|
15,382
|
|
|
86,880
|
|
|
80,356
|
|
|
|
|
|
182,618
|
|
|
IT project termination costs
|
|
|
|
|
|
4,299
|
|
|
5,828
|
|
|
|
|
|
10,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,382
|
|
|
401,500
|
|
|
180,261
|
|
|
(21,588
|
)
|
|
575,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
(15,382
|
)
|
|
82,297
|
|
|
9,237
|
|
|
|
|
|
76,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of subsidiaries
|
|
|
59,809
|
|
|
|
|
|
|
|
|
(59,809
|
)
|
|
|
|
|
|
Intercompany interest
|
|
|
2,993
|
|
|
|
|
|
(2,993
|
)
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(8,078
|
)
|
|
|
|
|
(324
|
)
|
|
|
|
|
(8,402
|
)
|
|
|
Miscellaneous, net
|
|
|
217
|
|
|
1,064
|
|
|
2,115
|
|
|
|
|
|
3,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,941
|
|
|
1,064
|
|
|
(1,202
|
)
|
|
(59,809
|
)
|
|
(5,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
39,559
|
|
|
83,361
|
|
|
8,035
|
|
|
(59,809
|
)
|
|
71,146
|
|
(Benefit)/ provision for income taxes
|
|
|
(6,358
|
)
|
|
29,176
|
|
|
2,411
|
|
|
|
|
|
25,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
45,917
|
|
$
|
54,185
|
|
$
|
5,624
|
|
$
|
(59,809
|
)
|
$
|
45,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
16. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)
Condensed Consolidating Statements of Income
Nine Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
|
|
$
|
1,577,866
|
|
$
|
625,939
|
|
$
|
(51,638
|
)
|
$
|
2,152,167
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
931,575
|
|
|
275,533
|
|
|
(51,638
|
)
|
|
1,155,470
|
|
|
Advertising, promotion and catalog
|
|
|
|
|
|
97,784
|
|
|
18,898
|
|
|
|
|
|
116,682
|
|
|
Selling, general and administrative
|
|
|
56,904
|
|
|
267,389
|
|
|
251,150
|
|
|
|
|
|
575,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,904
|
|
|
1,296,748
|
|
|
545,581
|
|
|
(51,638
|
)
|
|
1,847,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
(56,904
|
)
|
|
281,118
|
|
|
80,358
|
|
|
|
|
|
304,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of subsidiaries
|
|
|
235,585
|
|
|
|
|
|
|
|
|
(235,585
|
)
|
|
|
|
|
|
Intercompany interest
|
|
|
6,502
|
|
|
|
|
|
(6,502
|
)
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(22,411
|
)
|
|
|
|
|
(573
|
)
|
|
|
|
|
(22,984
|
)
|
|
|
Miscellaneous, net
|
|
|
254
|
|
|
1,816
|
|
|
543
|
|
|
|
|
|
2,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219,930
|
|
|
1,816
|
|
|
(6,532
|
)
|
|
(235,585
|
)
|
|
(20,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
163,026
|
|
|
282,934
|
|
|
73,826
|
|
|
(235,585
|
)
|
|
284,201
|
|
(Benefit)/ provision for income taxes
|
|
|
(25,399
|
)
|
|
99,027
|
|
|
22,148
|
|
|
|
|
|
95,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
188,425
|
|
$
|
183,907
|
|
$
|
51,678
|
|
$
|
(235,585
|
)
|
$
|
188,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
16. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)
Condensed Consolidating Statements of Income
Nine Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
|
|
$
|
1,414,913
|
|
$
|
553,222
|
|
$
|
(60,322
|
)
|
$
|
1,907,813
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
906,352
|
|
|
245,356
|
|
|
(60,322
|
)
|
|
1,091,386
|
|
|
Advertising, promotion and catalog
|
|
|
|
|
|
72,444
|
|
|
15,445
|
|
|
|
|
|
87,889
|
|
|
Selling, general and administrative
|
|
|
47,790
|
|
|
271,455
|
|
|
233,932
|
|
|
|
|
|
553,177
|
|
|
IT project termination costs
|
|
|
|
|
|
12,946
|
|
|
5,828
|
|
|
|
|
|
18,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,790
|
|
|
1,263,197
|
|
|
500,561
|
|
|
(60,322
|
)
|
|
1,751,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
(47,790
|
)
|
|
151,716
|
|
|
52,661
|
|
|
|
|
|
156,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of subsidiaries
|
|
|
122,441
|
|
|
|
|
|
|
|
|
(122,441
|
)
|
|
|
|
|
|
Intercompany interest
|
|
|
15,603
|
|
|
|
|
|
(15,603
|
)
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(25,279
|
)
|
|
(2
|
)
|
|
(1,499
|
)
|
|
|
|
|
(26,780
|
)
|
|
|
Miscellaneous, net
|
|
|
(255
|
)
|
|
(2,553
|
)
|
|
849
|
|
|
|
|
|
(1,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,510
|
|
|
(2,555
|
)
|
|
(16,253
|
)
|
|
(122,441
|
)
|
|
(28,739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
64,720
|
|
|
149,161
|
|
|
36,408
|
|
|
(122,441
|
)
|
|
127,848
|
|
(Benefit)/ provision for income taxes
|
|
|
(17,742
|
)
|
|
52,206
|
|
|
10,922
|
|
|
|
|
|
45,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
82,462
|
|
$
|
96,955
|
|
$
|
25,486
|
|
$
|
(122,441
|
)
|
$
|
82,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
16. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
188,425
|
|
$
|
183,907
|
|
$
|
51,678
|
|
$
|
(235,585
|
)
|
$
|
188,425
|
|
|
Adjustments to reconcile net income to net cash & cash equivalents provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
|
|
(235,585
|
)
|
|
|
|
|
|
|
|
235,585
|
|
|
|
|
|
|
Impairments and disposals of assets
|
|
|
|
|
|
9,418
|
|
|
615
|
|
|
|
|
|
10,033
|
|
|
|
Depreciation and amortization
|
|
|
3,692
|
|
|
33,575
|
|
|
12,804
|
|
|
|
|
|
50,071
|
|
|
|
Foreign currency transaction loss
|
|
|
2,158
|
|
|
|
|
|
(846
|
)
|
|
|
|
|
1,312
|
|
|
|
Stock-based compensation
|
|
|
4,365
|
|
|
469
|
|
|
474
|
|
|
|
|
|
5,308
|
|
|
|
Amortization of deferred charges
|
|
|
1,093
|
|
|
|
|
|
|
|
|
|
|
|
1,093
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
1,977
|
|
|
|
|
|
|
|
|
1,977
|
|
|
|
Inventory reserves
|
|
|
|
|
|
3,317
|
|
|
|
|
|
|
|
|
3,317
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
2,082
|
|
|
(34
|
)
|
|
|
|
|
2,048
|
|
|
|
Excess income tax benefit from exercise of stock options
|
|
|
(6,097
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,097
|
)
|
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
769
|
|
|
8,001
|
|
|
|
|
|
8,770
|
|
|
|
|
Inventories
|
|
|
|
|
|
5,005
|
|
|
1,440
|
|
|
|
|
|
6,445
|
|
|
|
|
Other assets
|
|
|
|
|
|
13,212
|
|
|
(1,176
|
)
|
|
|
|
|
12,036
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
(26,928
|
)
|
|
5,570
|
|
|
|
|
|
(21,358
|
)
|
|
|
|
Accrued expenses and other liabilities
|
|
|
|
|
|
5,458
|
|
|
1,877
|
|
|
|
|
|
7,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(41,949
|
)
|
|
232,261
|
|
|
80,403
|
|
|
|
|
|
270,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany accounts
|
|
|
222,903
|
|
|
(219,102
|
)
|
|
(3,801
|
)
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(819
|
)
|
|
(13,013
|
)
|
|
(26,526
|
)
|
|
|
|
|
(40,358
|
)
|
|
Proceeds from sale of available-for-sale investments
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
(11,875
|
)
|
|
|
|
|
(11,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
224,084
|
|
|
(232,115
|
)
|
|
(42,202
|
)
|
|
|
|
|
(50,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments under long-term debt agreements and capital leases
|
|
|
(42,279
|
)
|
|
(146
|
)
|
|
(567
|
)
|
|
|
|
|
(42,992
|
)
|
|
Excess income tax benefit from exercise of stock options
|
|
|
6,097
|
|
|
|
|
|
|
|
|
|
|
|
6,097
|
|
|
Proceeds from stock options exercised
|
|
|
10,324
|
|
|
|
|
|
|
|
|
|
|
|
10,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(25,858
|
)
|
|
(146
|
)
|
|
(567
|
)
|
|
|
|
|
(26,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
(6,280
|
)
|
|
|
|
|
(6,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
156,277
|
|
|
|
|
|
31,354
|
|
|
|
|
|
187,631
|
|
Cash and cash equivalents at beginning of period
|
|
|
46,169
|
|
|
|
|
|
59,832
|
|
|
|
|
|
106,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
202,446
|
|
$
|
|
|
$
|
91,186
|
|
$
|
|
|
$
|
293,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Table of Contents
NBTY, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(in thousands, except per share amounts and number of stores)
16. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
82,462
|
|
$
|
96,955
|
|
$
|
25,486
|
|
$
|
(122,441
|
)
|
$
|
82,462
|
|
|
Adjustments to reconcile net income to net cash & cash equivalents provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
|
|
(122,441
|
)
|
|
|
|
|
|
|
|
122,441
|
|
|
|
|
|
|
Impairments and disposals of assets
|
|
|
45
|
|
|
3,773
|
|
|
702
|
|
|
|
|
|
4,520
|
|
|
|
Depreciation and amortization
|
|
|
3,693
|
|
|
35,215
|
|
|
12,696
|
|
|
|
|
|
51,604
|
|
|
|
IT project termination costs
|
|
|
|
|
|
10,693
|
|
|
5,828
|
|
|
|
|
|
16,521
|
|
|
|
Foreign currency transaction loss
|
|
|
4,194
|
|
|
789
|
|
|
130
|
|
|
|
|
|
5,113
|
|
|
|
Stock-based compensation
|
|
|
1,837
|
|
|
29
|
|
|
147
|
|
|
|
|
|
2,013
|
|
|
|
Amortization of deferred charges
|
|
|
951
|
|
|
|
|
|
|
|
|
|
|
|
951
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
(770
|
)
|
|
404
|
|
|
|
|
|
(366
|
)
|
|
|
Inventory reserves
|
|
|
|
|
|
5,666
|
|
|
|
|
|
|
|
|
5,666
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
876
|
|
|
12
|
|
|
|
|
|
888
|
|
|
|
Excess income tax benefit from exercise of stock options
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
(10,980
|
)
|
|
(149
|
)
|
|
|
|
|
(11,129
|
)
|
|
|
|
Inventories
|
|
|
|
|
|
(41,524
|
)
|
|
(21,704
|
)
|
|
|
|
|
(63,228
|
)
|
|
|
|
Other assets
|
|
|
|
|
|
10,401
|
|
|
(1,239
|
)
|
|
|
|
|
9,162
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
(10,535
|
)
|
|
3,474
|
|
|
|
|
|
(7,061
|
)
|
|
|
|
Accrued expenses and other liabilities
|
|
|
|
|
|
3,623
|
|
|
(12,538
|
)
|
|
|
|
|
(8,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(29,314
|
)
|
|
104,211
|
|
|
13,249
|
|
|
|
|
|
88,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany accounts
|
|
|
62,939
|
|
|
(77,860
|
)
|
|
14,921
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(4,124
|
)
|
|
(24,730
|
)
|
|
(9,730
|
)
|
|
|
|
|
(38,584
|
)
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
(264
|
)
|
|
|
|
|
(264
|
)
|
|
Escrow refund, net of purchase price adjustments
|
|
|
11,904
|
|
|
|
|
|
2,556
|
|
|
|
|
|
14,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
70,719
|
|
|
(102,590
|
)
|
|
7,483
|
|
|
|
|
|
(24,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments under long-term debt agreements and capital leases
|
|
|
(23,119
|
)
|
|
(1,621
|
)
|
|
(436
|
)
|
|
|
|
|
(25,176
|
)
|
|
Proceeds from borrowings under the Revolving Credit Facility
|
|
|
95,000
|
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
|
Principal payments under the Revolving Credit Facility
|
|
|
(155,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(155,000
|
)
|
|
Excess income tax benefit from exercise of stock options
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
Proceeds from stock options exercised
|
|
|
1,437
|
|
|
|
|
|
|
|
|
|
|
|
1,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(81,627
|
)
|
|
(1,621
|
)
|
|
(436
|
)
|
|
|
|
|
(83,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
(437
|
)
|
|
|
|
|
(437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(40,222
|
)
|
|
|
|
|
19,859
|
|
|
|
|
|
(20,363
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
49,662
|
|
|
|
|
|
40,518
|
|
|
|
|
|
90,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
9,440
|
|
$
|
|
|
$
|
60,377
|
|
$
|
|
|
$
|
69,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Table of Contents
NBTY, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(in thousands, except per share amounts and number of stores)
Forward-Looking Statements
This quarterly report contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. When used in this report, the words "subject to," "believe," "expect," "plan," "project," "estimate," "intend," "may," "should," "can," and "anticipate," and the
negatives thereof, or variations thereof, or similar expressions, are intended to identify forward-looking statements, which are inherently uncertain. Similarly, discussions of strategy, although
believed to be reasonable, are also forward-looking statements and are inherently uncertain.
All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results.
Factors that may materially affect forward-looking statements include:
-
-
slow or negative growth in the nutritional supplement
industry;
-
-
changes in worldwide general economic and political conditions, and in economic and political
conditions in the markets in which we compete from time to time;
-
-
application of anti-trust or similar merger control laws in any jurisdiction, which
may limit our expansion plans;
-
-
our inability to retain customers of companies (or mailing lists) recently
acquired;
-
-
increased competition;
-
-
increased costs;
-
-
loss or retirement of key members of our
management;
-
-
increases in the cost of borrowings or unavailability of additional debt or equity capital, or
both;
-
-
unavailability of, or inability to consummate, advantageous acquisitions in the future, including
those that may be subject to bankruptcy court approval, or our inability to integrate acquisitions into the mainstream of our business;
-
-
interruption of business or negative impact on sales and earnings due to acts of God, acts of war,
terrorism, bio-terrorism, civil unrest or disruption of mail service;
-
-
our inability to gain or hold market share of our wholesale or retail customers anywhere in the
world;
-
-
our inability to obtain or renew insurance or to manage insurance
costs;
-
-
our exposure to, and the expense of defending and resolving, product liability claims,
intellectual property claims and other litigation;
-
-
our inability to implement our business strategy
successfully;
-
-
our inability to manage our retail, wholesale, manufacturing or other operations
efficiently;
-
-
consumer acceptance of our products due to adverse publicity regarding nutritional
supplements;
-
-
our inability to renew leases for our retail
locations;
-
-
the inability of our retail stores to attain or maintain
profitability;
-
-
the absence of clinical trials for many of our products;
28
Table of Contents
-
-
sales and earnings volatility or trends for us and our market
segments;
-
-
the efficacy of our internet and on-line sales and marketing
strategies;
-
-
fluctuations in foreign currencies, including the British pound sterling, the euro, the Canadian
dollar and the Chinese yuan;
-
-
controls on sales to, or purchases from, foreign countries or certain
persons;
-
-
our inability to secure favorable new sites for, and delays in opening, new retail and
manufacturing locations;
-
-
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, Good Manufacturing Practices in the United States and the Food
Supplements Directive and Traditional Herbal Medicinal Products Directive in Europe;
-
-
the mix of our products and the profit margins
thereon;
-
-
the availability and pricing of raw materials;
-
-
adverse effects on us of increased energy prices and potentially reduced traffic flow to our
retail locations;
-
-
adverse tax determinations;
-
-
our inability to comply with, or adverse consequences stemming from, new government regulation or
enforcement policies;
-
-
the loss of a significant customer;
-
-
risk factors discussed elsewhere in this report;
and
-
-
other factors beyond our control.
Consequently, readers should regard these forward-looking statements solely as our current plans, estimates and beliefs. We caution readers not to place undue
reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements. Except as required by law, we do not undertake and specifically
decline 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.
We obtained industry data used throughout this report from industry publications and internal company estimates. While we believe this information to be reliable,
we have not independently verified, and cannot guarantee, its accuracy.
The following discussion should also be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere
herein and with our 2009 Form 10-K.
Overview
NBTY, Inc. (together with its subsidiaries, the "Company," "NBTY," "we," or "us") is a leading global vertically integrated
manufacturer, marketer and retailer of a broad line of high-quality, value-priced nutritional supplements in the United States and throughout the world. We market approximately 25,000
products under numerous owned and private-label brands, including Nature's Bounty®, Ester-C®, Solgar®, MET-Rx®, American
Health®, Osteo Bi-Flex®, Flex-A-Min®, SISU®, Knox®, Sundown®, Rexall®, Pure
Protein®, Body Fortress®, WORLDWIDE Sport Nutrition®, Natural Wealth®, Puritan's Pride®, Holland & Barrett®, GNC
(UK)®, Physiologics®, Le Naturiste®, De Tuinen®,
29
Table of Contents
Julian
Graves® and Vitamin World®. Our vertical integration includes purchasing raw materials and formulating and manufacturing products, which we then market through the
following four channels of distribution:
-
-
Wholesale/US Nutrition operationsdistributes products under various US Nutrition brand names and third party
private labels, each targeting specific market groups that include mass market retailers, supermarkets, club stores, drugstore chains, pharmacies, health and natural food stores, healthcare
practitioners, wholesalers, distributors and international customers;
-
-
North American Retail operationsincludes 451 Vitamin World stores in the United States and 83 Le Naturiste
stores operating in Canada, each selling branded and third-party products;
-
-
European Retail operationsincludes 586 Holland & Barrett stores in Europe and 8 franchise
Holland & Barrett stores in South Africa, Singapore and Malta (which we include in this segment); 296 Julian Graves stores and 43 GNC (UK) stores in the United Kingdom ("UK"); 88 De
Tuinen stores (including 16 franchise locations) in the Netherlands; and 29 Nature's Way stores in Ireland, each selling branded and third-party products; and
-
-
Direct Response/E-Commerce operationsincludes the sale of branded and third-party products
primarily through mail order catalogs and the internet.
Subsequent Event
On July 15, 2010, we announced the execution of a definitive merger agreement under which an affiliate of The Carlyle Group
("Carlyle") will acquire all of the outstanding common shares of NBTY for $55.00 per share in cash. We filed a preliminary proxy statement with the Securities and Exchange Commission on
August 3, 2010, in connection with the proposed transaction.
The
board of directors of NBTY has unanimously approved the merger agreement and recommended that NBTY's stockholders adopt the agreement with Carlyle. A special meeting of NBTY's
stockholders will be held as soon as practicable after the preparation and filing of a proxy statement with the Securities and Exchange Commission and subsequent mailing to shareholders. The mailing
of the proxy statement is expected to take place following the expiration of the 35 calendar day period following the date of the merger agreement, during the course of which NBTY is permitted to
solicit alternative proposals from third parties. The transaction is expected to close by December 31, 2010.
Completion
of the transaction is subject to customary conditions to closing, including approval of NBTY's stockholders and regulatory approvals, but is not subject to any condition with
regard to the financing of the transaction. The transaction has fully committed financing, consisting of a combination of equity contributed by Carlyle and external debt financing.
Results of Operations
The timing of acquisitions and the changing mix of our businesses may affect the comparability of results from one period to another.
30
Table of Contents
Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009:
Net sales by segment for the three months ended June 30, 2010 as compared with the prior comparable period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales by Segment
Three months ended June 30,
|
|
|
|
2010
|
|
2009
|
|
Comparison
2010 vs. 2009
|
|
Segment
|
|
Net Sales
|
|
% of total
|
|
Net Sales
|
|
% of total
|
|
$ change
|
|
% change
|
|
Wholesale/US Nutrition
|
|
$
|
434,592
|
|
|
62.4
|
%
|
$
|
396,162
|
|
|
60.8
|
%
|
$
|
38,430
|
|
|
9.7
|
%
|
North American Retail
|
|
|
52,543
|
|
|
7.6
|
%
|
|
51,223
|
|
|
7.9
|
%
|
|
1,320
|
|
|
2.6
|
%
|
European Retail
|
|
|
152,051
|
|
|
21.9
|
%
|
|
151,293
|
|
|
23.2
|
%
|
|
758
|
|
|
0.5
|
%
|
Direct Response/E-Commerce
|
|
|
56,670
|
|
|
8.1
|
%
|
|
53,029
|
|
|
8.1
|
%
|
|
3,641
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
695,856
|
|
|
100.0
|
%
|
$
|
651,707
|
|
|
100.0
|
%
|
$
|
44,149
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales for the Wholesale/US Nutrition segment increased $38,430 or 9.7% to $434,592 for the three months ended June 30, 2010.
This increase was attributable to the following:
-
-
Net sales from our major brands increased $13,381. Some of the major brands in this segment include Nature's
Bounty®, Solgar®, Osteo Bi-Flex®, Sundown® and Ester-C®.
-
-
Net sales from our sports nutrition brands (such as WORLDWIDE Sport Nutrition®, Pure Protein® and
Met-Rx®) increased $12,801.
-
-
Higher net sales of domestic private label products, which increased $6,184. This increase is attributable to higher sales
volume.
-
-
Wholesale net sales to international customers increased $5,050.
We
continue to adjust shelf space allocation among our wholesale brands to provide the best overall product mix and to respond to changing market conditions. These efforts have helped to
strengthen US Nutrition's position in the mass marketplace. Wholesale/US Nutrition continues to leverage valuable consumer sales information obtained from our Vitamin World retail stores and Puritan's
Pride Direct Response/E-Commerce operations in order to provide its mass-market customers with data and analyses to drive mass market sales.
We
use targeted promotions to grow overall net sales. Promotional programs and rebates as a percentage of sales were 11.7% for the three months ended June 30, 2010 as compared to
9.8% for the prior comparable period. We expect promotional programs and rebates as a percentage of sales to fluctuate on a quarterly basis.
Product
returns were $5,700 or 1.1% of sales for the three months ended June 30, 2010 as compared to $7,982 or 1.8% of sales for the prior comparable period. We expect returns
relating to normal operations to trend between 1% to 2% of Wholesale/US Nutrition sales in future quarters.
One
customer represented 24% and 29% of the Wholesale/US Nutrition segment's net sales for the three months ended June 30, 2010 and 2009, respectively. It also represented 15% and
18% of consolidated net sales for the three months ended June 30, 2010 and 2009, respectively. The loss of this customer, or any other major customer, would have a material adverse effect on
our results of operations if we were unable to replace that customer.
Net sales for this segment increased $1,320 or 2.6% to $52,543 for the three months ended June 30, 2010. Sales for stores open
more than one year (same store sales) increased 1.6%, representing $811 of the overall increase.
31
Table of Contents
The
following is a summary of North American Retail store activity for the three months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
June 30,
|
|
North American Retail stores:
|
|
2010
|
|
2009
|
|
Vitamin World
|
|
|
|
|
|
|
|
|
Open at beginning of the period
|
|
|
446
|
|
|
444
|
|
|
Opened during the period
|
|
|
5
|
|
|
1
|
|
|
Closed during the period
|
|
|
|
|
|
(3
|
)
|
|
Open at end of the period
|
|
|
451
|
|
|
442
|
|
Le Naturiste
|
|
|
|
|
|
|
|
|
Open at beginning of the period
|
|
|
85
|
|
|
87
|
|
|
Opened during the period
|
|
|
|
|
|
|
|
|
Closed during the period
|
|
|
(2
|
)
|
|
(1
|
)
|
|
Open at end of the period
|
|
|
83
|
|
|
86
|
|
Total North American Retail
|
|
|
|
|
|
|
|
|
Open at beginning of the period
|
|
|
531
|
|
|
531
|
|
|
Opened during the period
|
|
|
5
|
|
|
1
|
|
|
Closed during the period
|
|
|
(2
|
)
|
|
(4
|
)
|
|
Open at end of the period
|
|
|
534
|
|
|
528
|
|
We
anticipate opening up to 10 additional Vitamin World stores during the remainder of this fiscal year. We also continually evaluate when and whether to close
underperforming retail stores in this segment.
Net sales for this segment increased $758 or 0.5% to $152,051 for the three months ended June 30, 2010. In local currency, same
store sales increased 1.2% and total net sales increased 4.8% from the prior like period.
The
following is a summary of European Retail store activity for the three months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
Three months
ended
June 30,
|
|
European Retail stores:
|
|
2010
|
|
2009
|
|
Company-owned stores
|
|
|
|
|
|
|
|
Open at beginning of the period
|
|
|
1,020
|
|
|
984
|
|
Opened during the period
|
|
|
10
|
|
|
9
|
|
Acquired during the period
|
|
|
|
|
|
|
|
Closed during the period
|
|
|
(4
|
)
|
|
(1
|
)
|
Open at end of the period
|
|
|
1,026
|
|
|
992
|
|
Franchised stores
|
|
|
|
|
|
|
|
Open at beginning of the period
|
|
|
32
|
|
|
27
|
|
Opened during the period
|
|
|
|
|
|
2
|
|
Closed/sold during the period
|
|
|
(8
|
)
|
|
|
|
Open at end of the period
|
|
|
24
|
|
|
29
|
|
Total company-owned and franchised stores
|
|
|
|
|
|
|
|
Open at beginning of the period
|
|
|
1,052
|
|
|
1,011
|
|
Opened during the period
|
|
|
10
|
|
|
11
|
|
Acquired during the period
|
|
|
|
|
|
|
|
Closed/sold during the period
|
|
|
(12
|
)
|
|
(1
|
)
|
Open at end of the period
|
|
|
1,050
|
|
|
1,021
|
|
We
anticipate opening approximately 22 additional stores during the remainder of this fiscal year. We also continually evaluate when and whether to close underperforming
retail stores.
32
Table of Contents
Direct Response/E-Commerce net sales increased $3,641 or 6.9% for the three months ended June 30, 2010 as compared
to the prior comparable period. The total number of orders increased approximately 8.1% and the average order size decreased approximately 2.2% for the three months ended June 30, 2010 as
compared to 2009. We are a leader in the U.S. direct response nutritional supplement industry and continue to increase the number of products available through our catalogs and websites.
This
segment continues to vary its promotional strategy throughout the fiscal year. Historical results reflect this pattern and therefore this segment should be viewed on an annual, and
not quarterly, basis.
Gross Profit by segment for the three months ended June 30, 2010 as compared with the prior comparable period was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit by Segment
Three months ended June 30,
|
|
|
|
2010
|
|
2009
|
|
Comparison
2010 vs. 2009
|
|
|
|
|
|
% of sales
|
|
|
|
% of sales
|
|
Segment
|
|
Gross Profit
|
|
Gross Profit
|
|
$ change
|
|
% change
|
|
Wholesale/US Nutrition
|
|
$
|
167,998
|
|
|
38.7
|
%
|
$
|
131,587
|
|
|
33.2
|
%
|
$
|
36,411
|
|
|
27.7
|
%
|
North American Retail
|
|
|
35,216
|
|
|
67.0
|
%
|
|
34,493
|
|
|
67.3
|
%
|
|
723
|
|
|
2.1
|
%
|
European Retail
|
|
|
93,796
|
|
|
61.7
|
%
|
|
92,698
|
|
|
61.3
|
%
|
|
1,098
|
|
|
1.2
|
%
|
Direct Response/E-Commerce
|
|
|
35,491
|
|
|
62.6
|
%
|
|
33,689
|
|
|
63.5
|
%
|
|
1,802
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
$
|
332,501
|
|
|
47.8
|
%
|
$
|
292,467
|
|
|
44.9
|
%
|
$
|
40,034
|
|
|
13.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Wholesale/US Nutrition segment's gross profit percentage increased to 38.7% for the three months ended June 30, 2010 as compared to 33.2% for the prior
comparable period. The improved gross profit percentage reflects an increase in branded sales as a percentage of the total, which traditionally have higher margins than private label sales as well as
efficiencies generated in manufacturing and supply chain management brought about by economies of scale.
Due
to competitive pressure in the private label business, we anticipate gross profit margins for our private label business will decrease for the remainder of fiscal 2010. This should
adversely affect gross profits for our Wholesale/US Nutrition segment during this period. To address this issue, we have begun the process of initiating additional improvements in supply chain
management. We are also increasing our focus on our branded product sales, which traditionally have higher gross profit margins.
The
increase in gross profit dollars across the other three segments is mainly attributable to sales increases, as the gross profit percentages remained relatively consistent with the
prior comparable period.
Advertising, Promotion and Catalog Expenses
Total advertising, promotion and catalog expenses by segment for the three months ended June 30, 2010 as compared with the prior
comparable period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Change
|
|
Percentage
Change
|
|
|
|
Three months ended
June 30,
|
|
|
|
2010 vs. 2009
|
|
2010 vs. 2009
|
|
|
|
2010
|
|
2009
|
|
Wholesale / US Nutrition
|
|
$
|
26,916
|
|
$
|
15,054
|
|
$
|
11,862
|
|
|
79
|
%
|
North American Retail
|
|
|
985
|
|
|
869
|
|
|
116
|
|
|
13
|
%
|
European Retail
|
|
|
3,814
|
|
|
3,644
|
|
|
170
|
|
|
5
|
%
|
Direct Response / E-Commerce
|
|
|
5,252
|
|
|
3,919
|
|
|
1,333
|
|
|
34
|
%
|
Corporate
|
|
|
36
|
|
|
84
|
|
|
(48
|
)
|
|
(57
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,003
|
|
$
|
23,570
|
|
$
|
13,433
|
|
|
57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of net sales
|
|
|
5.3
|
%
|
|
3.6
|
%
|
|
|
|
|
|
|
33
Table of Contents
The increase in the Wholesale/US Nutrition segment's advertising, promotion and catalog expense is primarily the result of an increase in co-op
advertising of $7,966 and television advertising campaigns for some of our major brands. The increase in the Direct Response/E-Commerce advertising relates to an increase in internet
advertising of $1,161.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") by segment for the three months ended June 30, 2010 as compared with the
prior comparable period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Change
|
|
Percentage
Change
|
|
|
|
Three months ended
June 30,
|
|
|
|
2010 vs. 2009
|
|
2010 vs. 2009
|
|
|
|
2010
|
|
2009
|
|
Wholesale / US Nutrition
|
|
$
|
58,544
|
|
$
|
54,629
|
|
$
|
3,915
|
|
|
7
|
%
|
North American Retail
|
|
|
30,275
|
|
|
30,069
|
|
|
206
|
|
|
1
|
%
|
European Retail
|
|
|
69,582
|
|
|
69,156
|
|
|
426
|
|
|
1
|
%
|
Direct Response / E-Commerce
|
|
|
14,799
|
|
|
13,133
|
|
|
1,666
|
|
|
13
|
%
|
Corporate
|
|
|
18,918
|
|
|
15,631
|
|
|
3,287
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
192,118
|
|
$
|
182,618
|
|
$
|
9,500
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of net sales
|
|
|
27.6
|
%
|
|
28.0
|
%
|
|
|
|
|
|
|
The
increase in the Wholesale/US Nutrition segment's SG&A for the three months ended June 30, 2010 as compared to the prior comparable period is due to a charge of $3,533 for the
write-down of an intangible asset associated with a private label customer contract, renewal of which is no longer probable.
The
increase in the Direct Response/E-Commerce SG&A is mainly due to additional freight costs, including fuel surcharges.
The
Corporate segment SG&A increased $3,287 primarily due to additional payroll and payroll related costs and charitable donations.
During fiscal 2009, management terminated certain information technology projects relating to the Direct
Response/E-Commerce, North American and European Retail segments that were determined to be ineffective and uneconomical. Previously capitalized software configuration, coding and other
related costs of $10,127 were written off for the three months ended June 30, 2009.
Interest expense decreased $1,090 due to lower principal balances outstanding on our Term Loan. The Term Loan balance was reduced by
$49,329 to $228,171 at June 30, 2010 as compared to $277,500 at June 30, 2009.
34
Table of Contents
The components of miscellaneous, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Change
|
|
|
|
Three months
ended
June 30,
|
|
|
|
2010 vs. 2009
|
|
|
|
2010
|
|
2009
|
|
Foreign exchange (losses) gains
|
|
$
|
(589
|
)
|
$
|
2,672
|
|
$
|
(3,261
|
)
|
Rental income
|
|
|
141
|
|
|
308
|
|
|
(167
|
)
|
Investment income
|
|
|
243
|
|
|
118
|
|
|
125
|
|
Other
|
|
|
273
|
|
|
298
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68
|
|
$
|
3,396
|
|
$
|
(3,328
|
)
|
|
|
|
|
|
|
|
|
Miscellaneous,
net decreased primarily due to changes in foreign currency exchange rates, primarily with respect to the British pound sterling and Canadian dollar, which
resulted in foreign exchange losses for the three months ended June 30, 2010 as compared to gains in the prior comparable quarter.
Our provision for income taxes is impacted by a number of factors, including federal taxes, our international tax structure, state tax
rates in the jurisdictions where we conduct business, and our ability to utilize state tax credits that expire between 2013 and 2016. Therefore, our overall effective income tax rate could vary as a
result of these factors. The effective income tax rate for the three months ended June 30, 2010 and June 30, 2009 was 31.2% and 35.5%, respectively. The effective income tax rate was
lower for the three months ended June 30, 2010 as compared to the prior comparable period primarily due to the impact of a UK restructuring completed during June 2010 which allows us to utilize
certain tax benefits that were previously reserved and the partial release of a valuation allowance on state tax credits in the current year. We expect our overall effective income tax rate will be
approximately 34.2% for the full year ending September 30, 2010.
Nine Months Ended June 30, 2010 Compared to the Nine Months Ended June 30, 2009:
Net sales by segment for the nine months ended June 30, 2010 as compared with the prior comparable period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales by Segment
Nine months ended June 30,
|
|
|
|
2010
|
|
2009
|
|
Comparison
2010 vs. 2009
|
|
Segment
|
|
Net Sales
|
|
% of total
|
|
Net Sales
|
|
% of total
|
|
$ change
|
|
% change
|
|
Wholesale/US Nutrition
|
|
$
|
1,332,280
|
|
|
61.9
|
%
|
$
|
1,152,930
|
|
|
60.4
|
%
|
$
|
179,350
|
|
|
15.6
|
%
|
North American Retail
|
|
|
158,770
|
|
|
7.4
|
%
|
|
151,577
|
|
|
7.9
|
%
|
|
7,193
|
|
|
4.7
|
%
|
European Retail
|
|
|
487,059
|
|
|
22.6
|
%
|
|
441,757
|
|
|
23.2
|
%
|
|
45,302
|
|
|
10.3
|
%
|
Direct Response/E-Commerce
|
|
|
174,058
|
|
|
8.1
|
%
|
|
161,549
|
|
|
8.5
|
%
|
|
12,509
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,152,167
|
|
|
100.0
|
%
|
$
|
1,907,813
|
|
|
100.0
|
%
|
$
|
244,354
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Table of Contents
Net sales for the Wholesale/US Nutrition segment increased $179,350 or 15.6% to $1,332,280 for the nine months ended June 30,
2010. This increase was attributable to the following:
-
-
Net sales from our major brands increased $68,897. Some of the major brands in this segment include Nature's
Bounty®, Solgar®, Osteo Bi-Flex®, Sundown® and Ester-C®.
-
-
Net sales from our sports nutrition brands (such as WORLDWIDE Sport Nutrition®, Pure Protein® and
Met-Rx®) increased $29,303.
-
-
Higher net sales of domestic private label products, which increased $59,436. This increase is attributable to higher
sales volume as well as a re-allocation of shelf space at a major customer.
-
-
Wholesale net sales to international customers increased $32,222.
-
-
Net sales from all other brands decreased $10,509 due primarily to a re-allocation of shelf space at a major
customer.
We
continue to adjust shelf space allocation among our numerous wholesale brands to provide the best overall product mix and to respond to changing market conditions. These efforts have
helped to strengthen US Nutrition's position in the mass marketplace. Wholesale/US Nutrition continues to leverage valuable consumer sales information obtained from our Vitamin World retail stores and
Puritan's Pride Direct Response/E-Commerce operations in order to provide its mass-market customers with data and analyses to drive mass market sales.
We
use targeted promotions to grow overall net sales. Promotional programs and rebates as a percentage of sales were 11.6% for the nine months ended June 30, 2010 as compared to
9.6% for the prior comparable period. We expect promotional programs and rebates as a percentage of sales to fluctuate on a quarterly basis.
Product
returns were $16,387 or 1.1% of sales for the nine months ended June 30, 2010 as compared to $26,306 or 2.0% of sales for the prior comparable period. The product returns
for the nine months ended June 30, 2010 are mainly attributable to returns in the ordinary course of business. Product returns for the prior comparable period were higher than normal due to the
reallocation of shelf space by customers of our US Nutrition brands and approximately $2,000 for bars primarily related to the recall of our Met-Rx® bars containing peanut
butter. We expect returns relating to normal operations to trend between 1% to 2% of Wholesale/US Nutrition sales in future quarters.
One
customer represented 27% and 30% of the Wholesale/US Nutrition segment's net sales for the nine months ended June 30, 2010 and 2009, respectively. It also represented 17% and
18% of consolidated net sales for the nine months ended June 30, 2010 and 2009, respectively. The loss of this customer, or any other major customer, would have a material adverse effect on our
results of operations if we were unable to replace that customer.
Net sales for this segment increased $7,193 or 4.7% to $158,770 for the nine months ended June 30, 2010. Sales for stores open
more than one year (same store sales) increased 3.7%, representing $5,487 of the overall increase.
36
Table of Contents
The following is a summary of North American Retail store activity for the nine months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended
June 30,
|
|
North American Retail stores:
|
|
2010
|
|
2009
|
|
Vitamin World
|
|
|
|
|
|
|
|
|
Open at beginning of the period
|
|
|
442
|
|
|
441
|
|
|
Opened during the period
|
|
|
12
|
|
|
8
|
|
|
Closed during the period
|
|
|
(3
|
)
|
|
(7
|
)
|
|
Open at end of the period
|
|
|
451
|
|
|
442
|
|
Le Naturiste
|
|
|
|
|
|
|
|
|
Open at beginning of the period
|
|
|
86
|
|
|
81
|
|
|
Opened during the period
|
|
|
|
|
|
6
|
|
|
Closed during the period
|
|
|
(3
|
)
|
|
(1
|
)
|
|
Open at end of the period
|
|
|
83
|
|
|
86
|
|
Total North American Retail
|
|
|
|
|
|
|
|
|
Open at beginning of the period
|
|
|
528
|
|
|
522
|
|
|
Opened during the period
|
|
|
12
|
|
|
14
|
|
|
Closed during the period
|
|
|
(6
|
)
|
|
(8
|
)
|
|
Open at end of the period
|
|
|
534
|
|
|
528
|
|
We anticipate opening up to 10 additional Vitamin World stores during the remainder of this fiscal year. We also continually evaluate when and
whether to close underperforming retail stores in this segment.
Net sales for this segment increased $45,302 or 10.3% to $487,059 for the nine months ended June 30, 2010. Same store sales
increased 7.2%, representing $29,979 of the overall increase. In local currency, same store sales increased 4.4% from the prior comparable period.
The
following is a summary of European Retail store activity for the nine months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
Nine months
ended
June 30,
|
|
European Retail stores:
|
|
2010
|
|
2009
|
|
Company-owned stores
|
|
|
|
|
|
|
|
Open at beginning of the period
|
|
|
1,004
|
|
|
975
|
|
Opened during the period
|
|
|
29
|
|
|
17
|
|
Acquired during the period
|
|
|
3
|
|
|
2
|
|
Closed during the period
|
|
|
(10
|
)
|
|
(2
|
)
|
Open at end of the period
|
|
|
1,026
|
|
|
992
|
|
Franchised stores
|
|
|
|
|
|
|
|
Open at beginning of the period
|
|
|
28
|
|
|
22
|
|
Opened during the period
|
|
|
7
|
|
|
9
|
|
Closed/sold during the period
|
|
|
(11
|
)
|
|
(2
|
)
|
Open at end of the period
|
|
|
24
|
|
|
29
|
|
Total company-owned and franchised stores
|
|
|
|
|
|
|
|
Open at beginning of the period
|
|
|
1,032
|
|
|
997
|
|
Opened during the period
|
|
|
36
|
|
|
26
|
|
Acquired during the period
|
|
|
3
|
|
|
2
|
|
Closed/sold during the period
|
|
|
(21
|
)
|
|
(4
|
)
|
Open at end of the period
|
|
|
1,050
|
|
|
1,021
|
|
We anticipate opening approximately 22 additional stores during the remainder of this fiscal year. We also continually evaluate when and whether
to close underperforming retail stores.
37
Table of Contents
Direct Response/E-Commerce net sales increased $12,509 or 7.7% for the nine months ended June 30, 2010 as compared
to the prior comparable period. The total number of orders increased approximately 10.8% and the average order size decreased 0.5% as compared to the prior comparable period. We are a leader in the
U.S. direct response nutritional supplement industry and continue to increase the number of products available through our catalogs and websites.
This
segment continues to vary its promotional strategy throughout the fiscal year. Historical results reflect this pattern and therefore this segment should be viewed on an annual, and
not quarterly, basis.
Gross Profit by segment for the nine months ended June 30, 2010 as compared with the prior comparable period was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit by Segment
Nine months ended June 30,
|
|
|
|
2010
|
|
2009
|
|
Comparison
2010 vs. 2009
|
|
|
|
|
|
% of sales
|
|
|
|
% of sales
|
|
Segment
|
|
Gross Profit
|
|
Gross Profit
|
|
$ change
|
|
% change
|
|
Wholesale/US Nutrition
|
|
$
|
479,131
|
|
|
36.0
|
%
|
$
|
339,060
|
|
|
29.4
|
%
|
$
|
140,071
|
|
|
41.3
|
%
|
North American Retail
|
|
|
106,377
|
|
|
67.0
|
%
|
|
101,267
|
|
|
66.8
|
%
|
|
5,110
|
|
|
5.0
|
%
|
European Retail
|
|
|
302,427
|
|
|
62.1
|
%
|
|
275,667
|
|
|
62.4
|
%
|
|
26,760
|
|
|
9.7
|
%
|
Direct Response/E-Commerce
|
|
|
108,762
|
|
|
62.5
|
%
|
|
100,433
|
|
|
62.2
|
%
|
|
8,329
|
|
|
8.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
$
|
996,697
|
|
|
46.3
|
%
|
$
|
816,427
|
|
|
42.8
|
%
|
$
|
180,270
|
|
|
22.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Wholesale/US Nutrition segment's gross profit percentage increased to 36.0% for the nine months ended June 30, 2010 as compared to 29.4% for the prior comparable period. The
prior comparable period was affected by higher raw material and other manufacturing costs that were not offset by higher prices charged to customers and lower margins on domestic private label
products. During the nine months ended June 30, 2010, the improved gross profit percentage reflects a more stable raw materials environment as well as efficiencies generated in manufacturing
and supply chain management brought about by economies of scale.
Due
to competitive pressure in the private label business, we anticipate gross profit margins for our private label business will decrease for the remainder of fiscal 2010. This should
adversely affect gross profits for our Wholesale/US Nutrition segment during this period. To address this issue, we have begun the process of initiating additional improvements in supply chain
management. We are also increasing our focus on our branded product sales, which traditionally have higher gross profit margins.
The
increase in gross profit dollars for the other three segments relates primarily to higher sales volume for the nine months ended June 30, 2010 as compared to the prior
comparable period.
38
Table of Contents
Advertising, Promotion and Catalog Expenses
Total advertising, promotion and catalog expenses by segment for the nine months ended June 30, 2010 as compared with the prior
comparable period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Change
|
|
Percentage
Change
|
|
|
|
Nine months ended
June 30,
|
|
|
|
2010 vs. 2009
|
|
2010 vs. 2009
|
|
|
|
2010
|
|
2009
|
|
Wholesale / US Nutrition
|
|
$
|
85,471
|
|
$
|
58,176
|
|
$
|
27,295
|
|
|
47
|
%
|
North American Retail
|
|
|
6,971
|
|
|
6,925
|
|
|
46
|
|
|
1
|
%
|
European Retail
|
|
|
10,090
|
|
|
9,128
|
|
|
962
|
|
|
11
|
%
|
Direct Response / E-Commerce
|
|
|
13,911
|
|
|
13,343
|
|
|
568
|
|
|
4
|
%
|
Corporate
|
|
|
239
|
|
|
317
|
|
|
(78
|
)
|
|
(25
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
116,682
|
|
$
|
87,889
|
|
$
|
28,793
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of net sales
|
|
|
5.4
|
%
|
|
4.6
|
%
|
|
|
|
|
|
|
The
increase in the Wholesale/US Nutrition segment's advertising, promotion and catalog expense is the result of an increase in co-op advertising of $16,342 and television
advertising campaigns of $5,082 for some of our major brands. The increase in the European Retail advertising also relates to television advertising.
Selling, General and Administrative Expenses
SG&A by segment for the nine months ended June 30, 2010 as compared with the prior comparable period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Change
|
|
Percentage
Change
|
|
|
|
Nine months ended
June 30,
|
|
|
|
2010 vs. 2009
|
|
2010 vs. 2009
|
|
|
|
2010
|
|
2009
|
|
Wholesale / US Nutrition
|
|
$
|
169,431
|
|
$
|
169,917
|
|
$
|
(486
|
)
|
|
|
%
|
North American Retail
|
|
|
92,928
|
|
|
92,673
|
|
|
255
|
|
|
|
%
|
European Retail
|
|
|
211,413
|
|
|
200,152
|
|
|
11,261
|
|
|
6
|
%
|
Direct Response / E-Commerce
|
|
|
45,010
|
|
|
41,853
|
|
|
3,157
|
|
|
8
|
%
|
Corporate
|
|
|
56,661
|
|
|
48,582
|
|
|
8,079
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
575,443
|
|
$
|
553,177
|
|
$
|
22,266
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of net sales
|
|
|
26.7
|
%
|
|
29.0
|
%
|
|
|
|
|
|
|
The
Wholesale/US Nutrition's SG&A decreased $486 for the nine months ended June 30, 2010 as compared to the prior comparable period. This decrease is attributable to payroll
costs, which decreased $2,251 primarily related to severance costs incurred in the prior comparable period that did not recur, and a decrease in insurance costs of $3,099 due to lower negotiated
rates. These decreases were partially offset by a charge of $3,533 for the write-down of an intangible asset associated with a private label customer contract, renewal of which is no
longer probable.
The
increase in the European Retail SG&A is partially attributable to the effect of foreign currency exchange rates, which increased 2.7% over the prior comparable period. In local
currency, SG&A increased 3.0% principally due to payroll related charges.
The
Direct Response/E-Commerce SG&A increased $3,157 primarily due to additional freight costs. The Corporate segment's SG&A increased $8,079 primarily due to an increase in
payroll and payroll related costs of $4,452.
During fiscal 2009, management terminated certain information technology projects relating to the Direct
Response/E-Commerce, North American and European Retail segments that were determined
39
Table of Contents
to
be ineffective and uneconomical. Previously capitalized software configuration, coding and other related costs of $18,774 were written off for the nine months ended June 30, 2009.
Interest expense decreased $3,796 due to lower principal balances outstanding on our Term Loan. The Term Loan balance was reduced by
$49,329 to $228,171 at June 30, 2010 as compared to $277,500 at June 30, 2009.
The components of miscellaneous, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Change
|
|
|
|
Nine months ended
June 30,
|
|
|
|
2010 vs. 2009
|
|
|
|
2010
|
|
2009
|
|
Foreign exchange gains (losses)
|
|
$
|
346
|
|
$
|
(5,068
|
)
|
$
|
5,414
|
|
Rental income
|
|
|
417
|
|
|
1,445
|
|
|
(1,028
|
)
|
Investment income
|
|
|
499
|
|
|
977
|
|
|
(478
|
)
|
Other
|
|
|
1,351
|
|
|
687
|
|
|
664
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,613
|
|
$
|
(1,959
|
)
|
$
|
4,572
|
|
|
|
|
|
|
|
|
|
Miscellaneous,
net decreased primarily due to changes in foreign currency exchange rates, primarily with respect to the British pound sterling and Canadian dollar, which resulted in
foreign exchange gains for the nine months ended June 30, 2010 as compared to losses in the prior comparable period.
Our provision for income taxes is impacted by a number of factors, including federal taxes, our international tax structure, state tax
rates in the jurisdictions where we conduct business, and our ability to utilize state tax credits that expire between 2013 and 2016. Therefore, our overall effective income tax rate could vary as a
result of these factors. The effective income tax rate for the nine months ended June 30, 2010 and June 30, 2009 was 33.7% and 35.5%, respectively. The effective income tax rate was
lower for the nine months ended June 30, 2010 as compared to the prior comparable period primarily due to the impact of a UK restructuring completed during the current year which allows us to
utilize certain tax benefits that were previously reserved and the partial release of a valuation allowance on state tax credits in the current year. We expect our overall effective income tax rate
will be approximately 34.2% for the full year ending September 30, 2010.
Seasonality
Although we believe that our business is not seasonal in nature, historically, we have experienced, and expect to continue to
experience, a substantial variation in our net sales and operating results from quarter to quarter. The factors that influence this variability of quarterly results include general economic and
industry conditions affecting consumer spending, changing consumer demands and current news on nutritional supplements, the timing of our introduction of new products, promotional program incentives
offered to customers, the timing of catalog promotions, the level of consumer acceptance of new products and actions of competitors. Accordingly, a comparison of our results of operations from
consecutive periods is not necessarily meaningful, and our results of operations for any period are not necessarily indicative of future performance. Additionally, we may experience higher net sales
in a quarter depending upon when we have engaged in significant advertising or other promotional activities.
40
Table of Contents
Liquidity and Capital Resources
Our primary source of liquidity and capital resources is cash generated from operations. In addition, our revolving credit facility
provides for revolving credit loans in the aggregate principal amount of up to $325,000 to be used for working capital and other general corporate purposes, and acquisitions. At June 30, 2010,
the entire facility remained undrawn and available under the revolving credit facility. We have used cash generated from operations to finance working capital, facility expansions, acquisitions,
capital expenditures and debt service requirements. We anticipate these uses will continue to be our principal uses of cash in the future.
The
following table sets forth, for the periods indicated, cash balances and working capital:
|
|
|
|
|
|
|
|
|
|
As of
June 30,
2010
|
|
As of
September 30,
2009
|
|
Cash and cash equivalents at end of the period
|
|
$
|
293,632
|
|
$
|
106,001
|
|
Working capital
|
|
$
|
830,803
|
|
$
|
674,439
|
|
The
following table sets forth, for the period indicated, net cash flows provided by (used in) operating, investing and financing activities and other operating measures:
|
|
|
|
|
|
|
|
|
|
Nine months
ended June 30,
|
|
|
|
2010
|
|
2009
|
|
Cash flow provided by operating activities
|
|
$
|
270,715
|
|
$
|
88,146
|
|
Cash flow used in investing activities
|
|
$
|
(50,233
|
)
|
$
|
(24,388
|
)
|
Cash flow used in financing activities
|
|
$
|
(26,571
|
)
|
$
|
(83,684
|
)
|
Total inventory turnover
|
|
|
2.38
|
|
|
2.38
|
|
Finished goods inventory turnover (excluding bulk)
|
|
|
5.03
|
|
|
5.06
|
|
Days sales outstanding in accounts receivable
|
|
|
31
|
|
|
33
|
|
We
monitor current and anticipated future levels of cash and cash equivalents in relation to anticipated operating, financing and investing requirements. Cash and cash equivalents held
by our foreign subsidiaries are subject to U.S. income taxes upon repatriation to the United States. We generally repatriate all earnings from our foreign subsidiaries where permitted under local law.
However, during fiscal 2009, we permanently reinvested a portion of our foreign earnings outside of the United States. We also plan to permanently reinvest a portion of our foreign earnings outside of
the United States during fiscal 2010.
The
increase in working capital of $156,364 as compared to September 30, 2009 was primarily due to increased cash balances and lower accounts payable balances, partially offset by
higher short-term debt.
Cash
provided by operating activities during the nine-month period ended June 30, 2010 was mainly attributable to net income and changes in operating assets and
liabilities.
During
the nine-month period ended June 30, 2010, cash flows used in investing activities consisted primarily of purchases of property, plant and equipment and cash
paid for acquisitions, offset by proceeds received from the sale of municipal bond investments.
For
the nine-month period ended June 30, 2010, cash flows used in financing activities related to the principal payments under long-term debt agreements
and capital lease obligations, offset by proceeds from the exercise of stock options, including the excess income tax benefit.
41
Table of Contents
We believe our cash generated from operations, as well as our undrawn borrowings under our $325,000 revolving credit facility, will be sufficient to fund our
operations and meet our cash requirements to satisfy our working capital needs, capital expenditure needs, outstanding commitments, and other liquidity requirements associated with our existing
operations over the next 18 to 24 months. Our ability to fund these requirements and comply with financial covenants under our debt agreements will depend on our future operations, performance
and cash flow and is subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control. In addition, as part of our strategy, we may pursue
acquisitions that are complementary to our business, which may require additional capital. Therefore, funds from existing sources may be insufficient for material acquisitions.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements. For additional information relating to certain contractual cash obligations see
below.
Contractual Cash Obligations and Other Commercial Commitments
We conduct retail operations under operating leases, which generally have lease terms between 5-15 years, with the
longest lease term expiring in 2039. Some of the leases contain escalation clauses, as well as renewal options, and provide for contingent rent based upon sales plus certain tax and maintenance costs.
At June 30, 2010, we had $596,297 in future minimum rental payments (excluding real estate tax and maintenance costs) for retail locations and other leases that have initial or noncancelable
lease terms in excess of one year.
During
the nine months ended June 30, 2010, no one supplier individually represented greater than 10% of our raw material purchases. We do not believe that the loss of any single
supplier would have a material adverse effect on our consolidated financial condition or results of operations. We were committed to make future purchases for inventory related items, such as raw
materials and finished goods, under various purchase arrangements, some of which extend beyond one year, with fixed price provisions aggregating $180,323 at June 30, 2010. Generally, most of
our purchase commitments are cancelable at our discretion until the order has been shipped, but require repayment of all expenses incurred through the date of cancellation.
We
had $19,406 in open capital commitments at June 30, 2010, primarily related to new stores, building improvements and manufacturing equipment.
At
June 30, 2010, we had a liability of $8,711 for unrecognized tax benefits, the recognition of which would have an effect of $5,931 on income tax expense and the effective
income tax rate. We do not believe that the amount will change significantly in the next 12 months. At this time, we are unable to make a reasonably reliable estimate of the timing of payments
in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes.
We
have employment agreements with two of our executive officers. The agreements, entered into on March 1, 2008, each have a term of three years and are automatically renewed each
year thereafter unless either party notifies the other to the contrary. These agreements provide for minimum salary levels and contain provisions regarding severance and change in control of the
Company. The remaining commitment for salaries to these two officers as of June 30, 2010 was approximately $1,050. In addition, five members of Holland & Barrett's senior executive staff
have service contracts terminable by us upon twelve months notice. The annual aggregate commitment for such senior executive staff as of June 30, 2010 was approximately $1,336.
We
maintain a consulting agreement with Rudolph Management Associates, Inc. for the services of Arthur Rudolph, one of our directors and the father of Scott Rudolph, our Chief
Executive Officer. The agreement requires Mr. Rudolph to provide consulting services to us through December 31, 2010, in
exchange for a consulting fee of $450 per year, payable monthly. In addition, Mr. Rudolph receives certain fringe benefits accorded to our executives.
42
Table of Contents
We
have grown our business through acquisitions, and under proper conditions, may continue to seek to acquire entities in similar or complementary businesses. Such acquisitions are
likely to require the incurrence or assumption of indebtedness or obligations, the issuance of equity securities or some combination thereof. In addition, from time to time we may determine to sell or
otherwise dispose of certain of our existing assets or businesses; we cannot predict if any such transactions will be consummated, nor the terms or forms of consideration that might be required in any
such transactions.
Financial Covenants and Credit Rating
We were in compliance with all covenants under our credit arrangements at June 30, 2010. Our credit arrangements impose certain
restrictions regarding capital expenditures and limit our ability to: incur additional indebtedness, dispose of assets, make repayments of indebtedness or amendments of debt instruments, pay
distributions, create liens on assets and enter into sale and leaseback transactions, investments, loans or advances and acquisitions. Such restrictions could limit our ability to respond to market
conditions, to provide for unanticipated capital investments or to take advantage of business or acquisition opportunities.
At
June 30, 2010, credit ratings were as follows:
|
|
|
|
|
|
|
Credit Rating Agency
|
|
Secured Debt
|
|
7
1
/
8
% Notes
|
|
Overall
|
Standard and Poors
|
|
BBB-
|
|
BB
|
|
BB/Positive
|
Moody's
|
|
Ba1/LGD2
|
|
B1/LGD6
|
|
Ba2/Positive
|
On
July 15, 2010, in connection with the announced merger transaction with Carlyle, Standard & Poor's Ratings Services placed its 'BB' corporate credit rating and other
ratings on NBTY Inc. on CreditWatch with negative implications and Moody's placed its ratings on NBTY, Inc. on review for potential downgrade.
Recent Accounting Developments
In June 2009, the Financial Accounting Standards Board ("FASB") issued authoritative guidance requiring an enterprise to perform an
analysis to determine whether the enterprise's variable interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable
interest entity as one with the power to direct the activities of a variable interest entity that most significantly impacts the entity's economic performance and the obligation to absorb losses of
the entity that could potentially be significant to the variable interest. This guidance will become effective for us October 1, 2010. We anticipate that the adoption of this guidance will not
have any impact on our consolidated financial position or results of operations because we currently do not have any variable interest entities.
Critical Accounting Policies and Estimates
We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements included in our 2009
Form 10-K. We discuss our critical accounting estimates in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our 2009
Form 10-K. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2009. The following disclosure
regarding our promotional program incentive allowances is provided for additional clarification.
We
estimate our allowance for promotional program incentives based on specific outstanding marketing programs and historical experience. The allowance for sales incentives offered to
customers is based on various contractual terms or other arrangements agreed to in advance with certain customers. Generally, customers earn such incentives based on sales. We accrue these incentives
as a reduction to sales either at the time of sale or over the period of time in which they are earned, depending on the nature of the program. Historically, we have not experienced material
adjustments to the estimate of our promotional program incentive allowance and we do not expect that there will be a material change in the future estimates and assumptions we use.
43
Table of Contents
NBTY, Inc.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
(in thousands)
Quantitative and Qualitative Disclosures About Market Risk
We are subject to currency fluctuations, primarily with respect to the British pound sterling, the euro, the Canadian dollar and the
Chinese yuan, and interest rate risks that arise from normal business operations. We regularly assess these risks.
We
have subsidiaries whose operations are denominated in foreign currencies (primarily the British pound sterling, the euro, the Canadian dollar and the Chinese yuan). We consolidate the
earnings of our international subsidiaries by translating them into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar weakens against foreign
currencies, the remeasurement of these foreign currency denominated transactions results in increased reported net sales, operating expenses and net income. Similarly, our reported net sales,
operating expenses and net income will decrease when the U.S. dollar strengthens against foreign currencies.
The
U.S. dollar volume of net sales denominated in foreign currencies was approximately $625,940, or 29.1% of total net sales, for the nine months ended June 30, 2010. A majority
of our foreign currency exposure is denominated in the British pound sterling and Canadian dollar. For the nine months ended June 30, 2010, as compared to the prior comparable period, the
change in currency rates between the British pound sterling and Canadian dollar as compared to the U.S. dollar was 3% and 16%, respectively, resulting in an increase of $24,170 and $1,822 in net sales
and operating income, respectively. The related impact on net income was an increase of approximately $0.02 per diluted share for the nine months ended June 30, 2010.
To
manage the potential risk arising from changing interest rates and their impact on long-term debt, our policy is to maintain a combination of available fixed and variable
rate financial instruments. We are exposed to changes in interest rates on our floating rate revolving credit facility, our multicurrency term facility, and our Term Loan. With respect to the interest
on the Term Loan, in August 2009, we entered into two interest rate swap contracts, each with a notional amount of $100 million. Under the terms of the swap contracts, variable interest
payments are swapped for fixed interest payments. The interest rate exposure on the multicurrency term facility is mitigated by the interest earned on the cash collateral securing the loan. With
respect to interest on our revolving credit facility, there were no borrowings outstanding during the nine months ended June 30, 2010. Therefore, a hypothetical 10% change in interest rates
would not have a material effect on our consolidated pretax income or cash flow.
The
fair value of the 7
1
/
8
% Senior Subordinated Notes at June 30, 2010, based on then quoted market prices, approximated its carrying value. At June 30,
2010, based solely on a hypothetical 10% change in interest rates related to our fixed rate Notes, we estimate that the hypothetical fair value of our fixed rate debt would have changed approximately
$5,000. We believe that the carrying value of all our other financial instruments approximates fair value due to their short maturities and variable interest rates.
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NBTY, Inc.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act,
are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC. We designed our disclosure controls and procedures to ensure that information required to be disclosed in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure. Our chief
executive officer and chief financial officer, with assistance from other members of our management, have reviewed the effectiveness of our disclosure controls and procedures as of June 30,
2010, and, based on their evaluation, have concluded that our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act) during the three months ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
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NBTY, Inc.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On
May 11, 2010, a putative class-action, captioned
John F. Hutchins v. NBTY, Inc., et al,
was filed in the United States
District Court, Eastern District of New York, against the Company and certain officers, claiming that the defendants made allegedly false material statements, or concealed allegedly adverse material
facts, for the purpose of causing members of the class to purchase NBTY stock at allegedly artificially inflated prices. To date, there has been no activity since the filing of the complaint. The
Company believes the claims to be without merit and intends to vigorously defend this action. At this time, however, no determination can be made as to the ultimate outcome of the litigation or the
amount of liability, if any, on the part of any of the defendants.
On
July 22, 2010, a putative class-action, captioned
Philip Gottlieb v. NBTY, Inc., et al,
was filed in the Supreme Court of
the State of New York, County of Nassau, against the Company, the members of its board of directors, The Carlyle Group and certain Carlyle-related entities (The Carlyle Group and the
Carlyle-related entities, collectively "Carlyle"), challenging the Board of Directors' decision to sell the Company to Carlyle for the price of $55.00 per share. The complaint alleges that this price
per share does not represent fair value for the Company and seeks to enjoin the anticipated sale and to invalidate certain related transactions. The Company believes the claims to be without merit and
intends to vigorously defend this action. The Company cannot presently predict the ultimate outcome of the litigation or the amount of liability, if any, on the part of any of the defendants.
Prohormone Products
In March 2004, a putative class-action lawsuit, captioned
Jerry Beidler v. MET-Rx U.S.A,
Inc,
was filed in New Jersey Superior Court, Mercer County, against MET-Rx U.S.A, Inc. ("Met-Rx"), a subsidiary of the Company, claiming that the
advertising and marketing of certain prohormone supplements were false and misleading and that plaintiff and the putative class of New Jersey purchasers of these products were entitled to damages and
injunctive relief. Because these allegations were virtually identical to allegations made in a putative nationwide class-action previously filed against Met-Rx in California (in an action
styled
Eric Ayala v. MET-Rx U.S.A, Inc. et. al
.), we moved in 2004 to dismiss or stay the New Jersey action pending the outcome of
the California action. The motion was granted, and the New Jersey action is stayed at this time. The California action against Met-Rx was dismissed in 2009.
Nutrition Bars
Our subsidiary, Rexall Sundown, Inc. ("Rexall"), and certain of its subsidiaries, are defendants in a class-action lawsuit,
captioned
Jamie Pesek, et al. v. Rexall Sundown, Inc., et al.
, brought in California Superior Court, County of San Francisco in 2002 on behalf of
all California consumers who bought various nutrition bars. Plaintiffs allege misbranding of nutrition bars and violations of California unfair competition statutes, misleading advertising and other
similar causes of action. Plaintiffs seek restitution, legal fees and injunctive relief. We have defended this action vigorously. Since December 2007, with Rexall's and the other defendants' renewed
motion for judgment on the pleadings pending, the Court has stayed the case for all purposes, pending rulings on relevant cases before the California Supreme Court. Although the California Supreme
Court has resolved some of those cases, others remain pending as of this date. Accordingly, the case remains stayed. The Court held a case-management conference ("CMC") on August 5,
2009. At that time, the parties requested, and the Court agreed, to keep the stay in place for at least another nine months. The Court scheduled a subsequent CMC for February 25, 2010, but
canceled that conference upon being informed by the parties that the California Supreme Court had not yet acted. The Court set another CMC for May 21, 2010, and instructed the parties to report
back before that date as to the status of the cases before the
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California
Supreme Court. By agreement of the parties, the May 21, 2010 CMC has been continued for nine months. The California Supreme Court still has not resolved the outstanding issues
pending before it. Based upon the information currently available, no determination can be made at this time as to the final outcome of this case, nor can its materiality be accurately ascertained.
Claims in the Ordinary Course
In addition to the foregoing, other regulatory inquiries, claims, suits and complaints (including product liability, intellectual
property and California Proposition 65 claims) arise in the ordinary course of our business. We believe that such other inquiries, claims, suits and complaints would not have a material adverse effect
on our consolidated financial condition or results of operations, if adversely determined against us.
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NBTY, Inc.
Item 1A. Risk Factors
Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors set forth below, as well
as disclosed under Part IItem 1A, "Risk Factors" in our 2009 Form 10-K, which could materially adversely affect our business, financial condition,
operating results and cash flows. These risks and uncertainties are not the only ones we face. Risks and uncertainties not currently known to us or that we currently deem immaterial also may
materially adversely affect our business, financial condition operating results or cash flows.
The
following risk factors should be read in conjunction with "Risk Factors" included in Item 1A. in the Annual Report on Form 10-K for the Company's fiscal
year ended September 30, 2009.
There are risks and uncertainties associated with the proposed merger with an affiliate of Carlyle.
On July 15, 2010, we entered into a merger agreement, which we refer to as the merger agreement, providing for the acquisition
of the Company by Alphabet Holding Company, Inc., or Parent, an entity formed by an affiliate of TC Group, L.L.C. (d/b/a The Carlyle Group), which we refer to as Carlyle. Pursuant to the merger
agreement, Alphabet Merger Sub, Inc., a wholly-owned subsidiary of Parent, which we refer to as Merger Sub, will be merged with and into the Company, with the Company being the surviving
corporation, which we refer to as the merger. There are a number of risks and uncertainties relating to the merger. For example, the merger may not be consummated or may not be consummated as
currently anticipated, as a result of several factors, including, but not limited to, the failure to satisfy the closing conditions set forth in the merger agreement, Parent's failure to obtain the
necessary equity and debt financing contemplated by the commitment letters received in connection with the merger or the failure of that financing to be sufficient to complete the merger and the
transactions contemplated thereby. In addition, there can be no assurance that approval of our stockholders and requisite regulatory approvals will be obtained, that the other conditions to closing of
the merger will be satisfied or waived or that other events will not intervene to delay or result in the termination of the merger. If the proposed merger is not completed, the share price of our
common stock may change to the extent that the current market price of our common stock reflects an assumption that the merger will be consummated. Failure of the merger to close, or a delay in its
closing, may have a negative impact on our ability to pursue alternative strategic transactions or our ability to implement alternative business plans. Additionally, under certain circumstances, if
the merger agreement is terminated, we will be required to pay a termination fee. Pending the closing of the merger, the merger agreement also restricts us from engaging in certain actions without
Parent's approval, which could prevent us from pursuing opportunities that may arise prior to the closing of the merger. In addition, any delay in completing, or the failure to complete, the merger
could have a negative impact on our business, stock price and our relationships with our customers, associates or suppliers.
Our business could be adversely impacted as a result of uncertainty related to the proposed merger with an affiliate of Carlyle.
The proposed merger could cause disruptions in our business relationships and business generally, which could have an adverse effect on
our financial condition, results of operations and cash flows. For example:
-
-
our associates may experience uncertainty about their future roles at the Company, which might adversely affect our
ability to retain and hire key managers and other associates;
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-
-
customers and suppliers may experience uncertainty about the Company's future and seek alternative business relationships
with third parties or seek to alter their business relationships with the Company; and
-
-
the attention of our management may be directed to transaction-related considerations and may be diverted from the
day-to-day operations of our business and pursuit of our strategic initiatives.
In
addition, we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed
merger, and many of these fees and costs are payable by us regardless of whether or not the merger is consummated. In addition, if the merger agreement is terminated under certain circumstances, we
are required to pay a termination fee.
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NBTY, Inc.
Item 6. Exhibits
|
|
|
|
Exhibit
No.
|
|
Description
|
|
3.1
|
|
Restated Certificate of Incorporation of NBTY, Inc. (incorporated by reference to exhibit 3.1 to the Form 10-K of NBTY, Inc. for the fiscal year ended September 30, 2005, filed on December 22,
2005).
|
|
3.2
|
|
Amended and Restated By-Laws of NBTY, Inc. (incorporated by reference to exhibit 3.2 to the Form 8-K of NBTY, Inc. filed on March 4, 2010).
|
|
4.1
|
|
Indenture, dated as of September 23, 2005, among NBTY, Inc., the Guarantors (as defined therein), and The Bank of New York, as Trustee (incorporated by reference to exhibit 4.2 to NBTY, Inc.'s
Form 8-K filed on September 27, 2005).
|
|
4.2
|
|
Registration Rights Agreement, dated as of September 23, 2005, among NBTY, Inc., the Guarantors (as defined therein) and J.P. Morgan Securities, Inc., Adams Harkness, Inc., BNP Paribas Securities
Corp., HSBC Securities (USA), Inc., and RBC Capital Markets Corporation (incorporated by reference to exhibit 4.3 to NBTY, Inc.'s Form 8-K filed on September 27, 2005).
|
|
31.1
|
|
Rule 13a-14(a) Certification of Principal Executive Officer.*
|
|
31.2
|
|
Rule 13a-14(a) Certification of Principal Financial Officer.*
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
101
|
|
The following materials from NBTY, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2010, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated
Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statement of Stockholders' Equity and Comprehensive Income (Loss), (iv) Condensed Consolidated Statement of Cash Flows and (v) Notes to
Condensed Consolidated Financial Statements, tagged as blocks of text.**
|
-
*
-
Filed
herewith
-
**
-
Furnished,
not filed
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
NBTY, INC.
(Registrant)
|
Date: August 9, 2010
|
|
By:
|
|
/s/ SCOTT RUDOLPH
Scott Rudolph
Chairman and Chief Executive Officer
(Principal Executive Officer)
|
Date: August 9, 2010
|
|
By:
|
|
/s/ HARVEY KAMIL
Harvey Kamil
President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
51
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