NTY Nbty Inc.

NBTY Reports Third Quarter Results BOHEMIA, N.Y., July 29 /PRNewswire-FirstCall/ -- NBTY, Inc. (NYSE:NTY) (http://www.nbty.com/), a leading global manufacturer and marketer of nutritional supplements, today announced results for the fiscal third quarter ended June 30, 2005. For the fiscal third quarter ended June 30, 2005, sales increased to $439 million compared to sales of $400 million for the fiscal third quarter ended June 30, 2004. Net income for the fiscal third quarter ended June 30, 2005 was $16 million, or $0.23 per diluted share, compared to $26 million, or $0.37 per diluted share for the fiscal third quarter ended June 30, 2004. Results for the fiscal third quarter of 2005 were affected by asset impairment charges of $11 million, or $0.14 per diluted share, related to Vitamin World, consisting of a write off of $8 million of goodwill and a write off of $3 million for leasehold improvements. These asset impairment charges are required by accounting principles, and are the result of the continued adverse business climate in the specialty retail channel in the United States. For the first nine months of fiscal 2005, sales were $1.3 billion, compared to $1.2 billion for the first nine months of fiscal 2004. Net income for the first nine months of fiscal 2005 was $67 million, or $0.97 per diluted share, compared to $91 million, or $1.31 per diluted share, for the first nine months of fiscal 2004. Results for the first nine months of fiscal 2005 were also affected by the aforementioned $11 million Vitamin World impairment charges. During the fiscal third quarter of 2005, NBTY agreed to acquire substantially all the assets of Solgar(R) from Wyeth for $115 million. Solgar is a prominent supplement company with annual sales of approximately $105 million for 2004. Solgar's products are sold in more than 40 countries and at nearly 5,000 retail locations across the United States. The acquisition is expected to close on August 1, 2005 and will be financed by a $120 million five-year term loan. In addition, during the fiscal third quarter of 2005, NBTY expanded its presence in Canada with its $8 million acquisition of SISU Inc. SISU is a Canadian-based manufacturer and distributor of a premier line of nutritional supplements with annual sales of approximately $14 million in 2004. At June 30, 2005, NBTY's total assets were $1.3 billion and working capital was $434 million. Inventory at June 30, 2005 was $479 million, representing an increase of $17 million for the fiscal third quarter of 2005 and an increase of $104 million from September 30, 2004. Although the Company is attempting to lower inventories, this increase is primarily the result of the Company's prior purchase commitments for raw materials in short supply for the joint care product lines. The inventory remains current. During the fiscal third quarter, the Company expended $28 million for property, plant and equipment, including $19 million for a new 420,000 square foot warehouse facility in Hazelton, Pennsylvania. On July 1, 2005, after the close of the quarter, the Company acquired a 400,000 square foot building in Augusta, Georgia for $11 million. NBTY currently has nearly 4 million square feet of total space for operations, manufacturing and distribution. OPERATIONS FOR THE FISCAL THIRD QUARTER ENDED JUNE 30, 2005 For the fiscal third quarter of 2005, sales for the Wholesale/US Nutrition division, which markets Nature's Bounty and Sundown brands, increased 10% to $188 million from $172 million for the fiscal third quarter of 2004. The increase in sales reflects the division's enhanced position in the market place. Product returns for the fiscal third quarter and first nine months of 2005 were $11 million and $33 million, respectively, largely resulting from continued reallocation of shelf space and the decline in the low carb bar market. US Nutrition continues to drive its mass market sales utilizing valuable consumer preference sales data generated by the Company's Vitamin World retail stores and Puritan's Pride Direct Response/E-Commerce operations. The North American Retail/Vitamin World division increased sales by 10% to $59 million for the fiscal third quarter of 2005 from $53 million for the prior like period. North American Retail operations reported a pre-tax loss of $15 million during this quarter compared to a pre-tax loss of $1 million for the fiscal third quarter of 2004. Results were affected by the aforementioned $11 million asset impairment charges. Same store sales increased 1% during the fiscal third quarter of 2005. During the fiscal third quarter of 2005, Vitamin World opened 6 new stores and closed 11 underperforming stores. At the end of the quarter, the North American Retail division operated a total of 655 stores; 552 in the US and 103 in Canada. NBTY's European Retail division sales increased by 17% to $143 million from $122 million for the fiscal third quarter a year ago. The European Retail same store sales for the fiscal third quarter 2005 increased 14% (11% in local currency). The European Retail division continues to leverage its premier status, high street locations and brand awareness to achieve these results. The European Retail division's increased sales include sales generated by Holland & Barrett and GNC stores in the UK, DeTuinen stores in the Netherlands, and Nature's Way stores in Ireland. During the fiscal third quarter of 2005, the European Retail division opened 5 new stores, closed 1 store and at the end of the quarter operated a total of 609 stores. Revenues from Direct Response/Puritan's Pride operations for the fiscal third quarter of 2005 decreased 7% to $49 million from $53 million for the comparable prior period. The total number of orders received in the third quarter remained unchanged from the prior like quarter at approximately 664,000. However, as a result of the Company's decision to lower prices and put pressure on its competitors, the average order fell from $75 to $69 from the comparable prior like period. Online sales increased 22% from $12 million in the third quarter of 2004 to $15 million in the current quarter. Online sales now constitute 30% of total Direct Response/E-Commerce sales compared with 23% of such sales for the prior like period. NBTY remains the leader in the direct response and e-commerce sectors and continues to increase the number of products available via its catalog and web sites. NBTY Chairman and CEO, Scott Rudolph, said: "Our strong financial and industry position allowed us to further capitalize on market opportunities including the strategic acquisitions of Solgar and SISU. We remain committed to increasing market share and enhancing our position in this highly competitive marketplace. We are confident in the long-term outlook for the Company and our ability to continue to generate long term growth in both revenue and market share." ABOUT NBTY NBTY is a leading vertically integrated manufacturer and distributor of a broad line of high-quality, value-priced nutritional supplements in the United States and throughout the world. The Company markets approximately 2,000 products under several brands, including Nature's Bounty(R), Vitamin World(R), Puritan's Pride(R), Holland & Barrett(R), Rexall(R), Sundown(R), MET-Rx(R), WORLDWIDE Sport Nutrition(R), American Health(R), GNC (UK)(R), DeTuinen(R) , LeNaturiste(TM) and SISU(R). This release refers to non-GAAP financial measures, such as EBITDA. "EBITDA" is defined as earnings before interest, taxes, depreciation and amortization. This non-GAAP financial measure is not prepared in accordance with generally accepted accounting principles and may be different from non- GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation of the non-GAAP measure to the comparable GAAP measure is included in the attached financial tables. Management believes the presentation of EBITDA is relevant and useful because EBITDA is a measurement industry analysts utilize when evaluating NBTY's operating performance. Management also believes EBITDA enhances an investor's understanding of NBTY's results of operations because it measures NBTY's operating performance exclusive of interest and non-cash charges for depreciation and amortization. Management also provides this non-GAAP measurement as a way to help investors better understand its core operating performance, enhance comparisons of NBTY's core operating performance from period to period and to allow better comparisons of NBTY's operating performance to that of its competitors. This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business. All of these forward-looking statements, which can be identified by the use of terminology such as "subject to," "believe," "expects," "plan," "project," "estimate," "intend," "may," "will," "should," "can," or "anticipates," or the negative thereof, or variations thereon, or comparable terminology, or by discussions of strategy which, although believed to be reasonable, are inherently uncertain. Factors which may materially affect such forward-looking statements include: (i) slow or negative growth in the nutritional supplement industry; (ii) interruption of business or negative impact on sales and earnings due to acts of war, terrorism, bio-terrorism, civil unrest or disruption of mail service; (iii) adverse publicity regarding nutritional supplements; (iv) inability to retain customers of companies (or mailing lists) recently acquired; (v) increased competition; (vi) increased costs; (vii) loss or retirement of key members of management; (viii) increases in the cost of borrowings and/or unavailability of additional debt or equity capital; (ix) unavailability of, or inability to consummate, advantageous acquisitions in the future, including those that may be subject to bankruptcy approval or the inability of NBTY to integrate acquisitions into the mainstream of its business; (x) changes in general worldwide economic and political conditions in the markets in which NBTY may compete from time to time; (xi) the inability of NBTY to gain and/or hold market share of its wholesale and/or retail customers anywhere in the world; (xii) unavailability of electricity in certain geographical areas; (xiii) the inability of NBTY to obtain and/or renew insurance and/or the costs of the same; (xiv) exposure to and expense of defending and resolving, product liability claims and other litigation; (xv) the ability of NBTY to successfully implement its business strategy; (xvi) the inability of NBTY to manage its retail, wholesale, manufacturing and other operations efficiently; (xvii) consumer acceptance of NBTY's products; (xviii) the inability of NBTY to renew leases for its retail locations; (xix) inability of NBTY's retail stores to attain or maintain profitability; (xx) the absence of clinical trials for many of NBTY's products; (xxi) sales and earnings volatility and/or trends for the Company and its market segments; (xxii) the efficacy of NBTY's Internet and on-line sales and marketing; (xxiii) fluctuations in foreign currencies, including the British Pound and the euro; (xxiv) import-export controls on sales to foreign countries; (xxv) the inability of NBTY to secure favorable new sites for, and delays in opening, new retail locations; (xxvi) introduction of and compliance with new federal, state, local or foreign legislation or regulation or adverse determinations by regulators anywhere in the world (including the banning of products) and more particularly proposed Good Manufacturing Practices in the United States, the Food Supplements Directive and Traditional Herbal Medicinal Products Directive in Europe and Section 404 requirements of the Sarbanes- Oxley Act of 2002; (xxvii) the mix of NBTY's products and the profit margins thereon; (xxviii) the availability and pricing of raw materials; (xxix) risk factors discussed in NBTY's filings with the U.S. Securities and Exchange Commission; (xxx) adverse effects on NBTY as a result of increased gasoline prices and potentially reduced traffic flow to NBTY's retail locations; (xxxi) adverse tax determinations; (xxxii) the loss of a significant customer of the Company; and (xxxiii) other factors beyond the Company's control. NBTY cannot be certain that the measures taken will be sufficient to meet the section 404 requirements of the Sarbanes-Oxley Act of 2002. Readers are cautioned not to place undue reliance on forward-looking statements. NBTY cannot guarantee future results, trends, events, levels of activity, performance or achievements. NBTY does not undertake and specifically declines any obligation to update, republish or revise forward- looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. Consequently, such forward-looking statements should be regarded solely as NBTY's current plans, estimates and beliefs. NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars and shares in thousands, except per share amounts) For the three months ended June 30, 2005 2004 Net sales $438,986 $399,913 Costs and expenses: Cost of sales 220,960 197,228 Catalog printing, postage and promotion 27,398 21,651 Selling, general and administrative 150,159 139,905 Asset impairments 10,989 - 409,506 358,784 Income from operations 29,480 41,129 Other income (expense): Interest (5,663) (5,569) Miscellaneous, net 3,626 1,096 (2,037) (4,473) Income before provision for income taxes 27,443 36,656 Provision for income taxes 11,477 10,754 Net income $15,966 $25,902 Net income per share: Basic $0.24 $0.39 Diluted $0.23 $0.37 Weighted average common shares outstanding: Basic 67,186 66,803 Diluted 69,137 69,207 NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars and shares in thousands, except per share amounts) For the nine months ended June 30, 2005 2004 Net sales $1,301,969 $1,224,559 Costs and expenses: Cost of sales 658,994 603,362 Catalog printing, postage and promotion 82,697 61,109 Selling, general and administrative 433,194 408,569 Asset impairments 10,989 - 1,185,874 1,073,040 Income from operations 116,095 151,519 Other income (expense): Interest (17,237) (19,132) Miscellaneous, net 5,728 3,142 (11,509) (15,990) Income before provision for income taxes 104,586 135,529 Provision for income taxes 37,860 44,725 Net income $66,726 $90,804 Net income per share: Basic $0.99 $1.36 Diluted $0.97 $1.31 Weighted average common shares outstanding: Basic 67,151 66,724 Diluted 69,140 69,107 SALES (Thousands) (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, Percentage Percentage 2005 2004 Change 2005 2004 Change Wholesale / US Nutrition $188,228 $171,598 10% $550,402 $540,217 2% North American Retail / Vitamin World 58,513 53,452 10% 167,872 162,963 3% European Retail / Holland & Barrett / GNC (UK) 143,192 122,320 17% 432,062 362,787 19% Direct Response / Puritan's Pride 49,053 52,543 -7% 151,633 158,592 -4% Total $438,986 $399,913 10% $1,301,969 $1,224,559 6% GROSS PROFIT PERCENTAGES (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 2005 2004 Change 2005 2004 Change Wholesale / US Nutrition 37% 36% 1% 35% 38% -3% North American Retail / Vitamin World 55% 58% -3% 54% 60% -6% European Retail / Holland & Barrett / GNC (UK) 63% 63% 0% 63% 62% 1% Direct Response / Puritan's Pride 55% 61% -6% 58% 61% -3% Total 50% 51% -1% 49% 51% -2% Reconciliation of GAAP Measures to Non-GAAP Measures (Thousands) (Unaudited) THREE MONTHS ENDED JUNE 30, 2005 Depreciation Pretax Income and (Loss) amortization Interest EBITDA Wholesale / US Nutrition $21,211 $2,487 $ - $23,698 North American Retail / Vitamin World (14,651) 1,638 - (13,013) ** European Retail / Holland & Barrett / GNC (UK) 38,632 4,188 - 42,820 Direct Response / Puritan's Pride 12,377 1,244 - 13,621 Segment Results 57,569 9,557 - 67,126 Corporate (30,126) 5,592 5,663 (18,871) Total $27,443 $15,149 $5,663 $48,255 ** ** The Asset impairment charges of $10,989 are included as a deduction to EBITDA THREE MONTHS ENDED JUNE 30, 2004 Depreciation Pretax Income and (Loss) amortization Interest EBITDA Wholesale / US Nutrition $26,920 $2,493 $ - $29,413 North American Retail / Vitamin World (1,147) 2,323 - 1,176 European Retail / Holland & Barrett / GNC (UK) 28,247 3,983 - 32,230 Direct Response / Puritan's Pride 16,294 1,294 - 17,588 Segment Results 70,314 10,093 - 80,407 Corporate (33,658) 5,497 5,569 (22,592) Total $36,656 $15,590 $5,569 $57,815 Reconciliation of GAAP Measures to Non-GAAP Measures (Thousands) (Unaudited) NINE MONTHS ENDED JUNE 30, 2005 Depreciation Pretax Income and (Loss) amortization Interest EBITDA Wholesale / US Nutrition $57,310 $7,441 $ - $64,751 North American Retail / Vitamin World (22,334) 5,249 - (17,085)** European Retail / Holland & Barrett / GNC (UK) 118,980 10,616 - 129,596 Direct Response / Puritan's Pride 41,522 3,826 - 45,348 Segment Results 195,478 27,132 - 222,610 Corporate (90,892) 17,144 17,237 (56,511) Total $104,586 $44,276 $17,237 $166,099 ** ** The Asset impairment charges of $10,989 are included as a deduction to EBITDA NINE MONTHS ENDED JUNE 30, 2004 Depreciation Pretax Income and (Loss) amortization Interest EBITDA Wholesale / US Nutrition $97,927 $7,935 $ - $105,862 North American Retail / Vitamin World 243 8,509 - 8,752 European Retail / Holland & Barrett / GNC (UK) 84,229 9,881 - 94,110 Direct Response / Puritan's Pride 48,980 4,102 - 53,082 Segment Results 231,379 30,427 - 261,806 Corporate (95,850) 16,421 19,132 (60,297) Total $135,529 $46,848 $19,132 $201,509 NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS (Dollars and shares in thousands) June 30, September 30, 2005 2004 Current assets: Cash and cash equivalents $30,155 $21,751 Accounts receivable, less allowance for doubtful accounts of $8,780 and $9,389, respectively 67,543 86,113 Inventories 478,542 374,559 Deferred income taxes 32,062 32,062 Prepaid expenses and other current assets 42,567 62,835 Total current assets 650,869 577,320 Property, plant and equipment, net of accumulated depreciation of $272,697 and $241,822, respectively 291,378 280,075 Goodwill 207,499 221,429 Other intangible assets, net 129,872 136,541 Other assets 13,190 17,288 Total assets $1,292,808 $1,232,653 NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (Dollars and shares in thousands) June 30, September 30, 2005 2004 Current liabilities: Current portion of long-term debt $1,861 $3,205 Accounts payable 92,807 97,635 Accrued expenses and other current liabilities 122,292 116,633 Total current liabilities 216,960 217,473 Long-term debt 295,607 306,531 Deferred income taxes 68,222 64,675 Other liabilities 6,194 4,176 Total liabilities 586,983 592,855 Commitments and contingencies Stockholders' equity: Common stock, $0.008 par; authorized 175,000 shares; issued and outstanding 67,188 shares at June 30, 2005 and 67,060 shares at September 30, 2004 537 536 Capital in excess of par 138,620 135,787 Retained earnings 547,864 481,302 Accumulated other comprehensive income 18,804 22,173 Total stockholders' equity 705,825 639,798 Total liabilities and stockholders' equity $1,292,808 $1,232,653 NBTY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the nine months ended (Dollars in thousands) June 30, 2005 2004 Cash flows from operating activities: Net income $66,726 $90,804 Adjustments to reconcile net income to net cash provided by operating activities: Loss on disposal/sale of property, plant and equipment 317 496 Depreciation and amortization 44,276 46,848 Foreign currency transaction gain (2,732) (679) Amortization of deferred financing costs 1,614 2,337 Amortization of bond discount 118 93 Compensation expense for ESOP 2,118 4,176 Impairment on asset held for sale 1,908 - Gain on sale of business assets (1,999) - Asset impairments 10,989 - (Recovery of) / provision for doubtful accounts (1,012) 961 Inventory reserves 3,754 8,731 Deferred income taxes 5,679 6,709 Tax benefit from exercise of stock options 201 537 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 20,849 (7,152) Inventories (106,105) (44,267) Prepaid expenses and other current assets 10,150 7,135 Other assets 1,708 1,377 Accounts payable (5,318) 6,372 Accrued expenses and other liabilities 11,747 12,929 Net cash provided by operating activities 64,988 137,407 Cash flows from investing activities: Purchase of property, plant and equipment (49,786) (32,087) Proceeds from sale of property, plant, and equipment 71 1,092 Proceeds from sale of property, plant, and equipment held for sale 9,950 - Proceeds from sale of trademark 30 - Proceeds from sale of business assets 5,766 - Cash paid for acquisitions, net of cash acquired (13,434) - Purchase price adjustment 4,558 - Proceeds from sale of bond investment - 4,158 Net cash used in investing activities (42,845) (26,837) Cash flows from financing activities: Principal payments under long-term debt agreements (18,810) (116,563) Proceeds from borrowings under long-term debt agreements 6,000 - Payments for financing fees - (500) Proceeds from stock options exercised 207 807 Purchase of treasury stock (176) - Net cash used in financing activities (12,779) (116,256) Effect of exchange rate changes on cash and cash equivalents (960) 6,522 Net increase in cash and cash equivalents 8,404 836 Cash and cash equivalents at beginning of period 21,751 49,349 Cash and cash equivalents at end of period $30,155 $50,185 DATASOURCE: NBTY, Inc. CONTACT: Harvey Kamil of NBTY, Inc., President and Chief Financial Officer, +1-631-200-2020; or Carl Hymans of G.S. Schwartz & Co., +1-212-725-4500 of Web site: http://www.nbty.com/

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