NTY Nbty Inc.

BOHEMIA, N.Y., July 27 /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, 2006. For the fiscal third quarter ended June 30, 2006, net sales increased $36 million, or 8%, to $475 million, including $24 million generated by Solgar, compared to net sales of $439 million for the fiscal third quarter ended June 30, 2005. Net income for the fiscal third quarter ended June 30, 2006 was $30 million, or $0.43 per diluted share, compared to $16 million, or $0.23 per diluted share, for the fiscal third quarter ended June 30, 2005. As previously reported, the results for the fiscal third quarter ended June 30, 2005 included asset impairment charges of $11 million, or $0.14 per diluted share. Without these impairment charges, net income per diluted share for the fiscal third quarter of 2005 would have been $0.37. For the nine months ended June 30, 2006, net sales increased $110 million, or 8%, to $1.4 billion, compared to net sales of $1.3 billion for the prior like period. Net income for the nine months ended June 30, 2006 was $74 million, or $1.07 per diluted share, compared to $67 million, or $0.97 per diluted share for the nine months ended June 30, 2005. Net income results for the nine months ended June 30, 2006 included non-cash charges of $14 million incurred in the first two fiscal quarters, consisting of a trademark impairment charge, charges for closing certain Solgar international operations and certain North American Retail impairment charges. Without these non-cash charges, earnings for the nine months ended June 30, 2006 would have been $1.22 per diluted share. Without the aforementioned fiscal third quarter 2005 impairment charge, net income per diluted share for the nine months ended June 30, 2005 would have been $1.11. At June 30, 2006, NBTY had working capital of $387 million and total assets of $1.3 billion, including $375 million in inventory. Inventory decreased $21 million for the fiscal third quarter of 2006 and decreased $117 million for the nine months ended June 30, 2006. These decreases reflect the Company's successful initiatives to lower inventory while continuing to assure uninterrupted product supply to its customers. NBTY's strong financial position allowed the Company to accelerate repayment of $206 million of long-term debt in the first nine months of fiscal 2006 and an additional accelerated debt repayment of $10 million in July 2006. The Company continues to reduce leverage, with remaining long-term debt of $227 million at June 30, 2006. The Company expects to continue its practice of accelerated repayment of debt. OPERATIONS FOR THE FISCAL THIRD QUARTER ENDED JUNE 30, 2006 Sales for the Wholesale/US Nutrition division, which markets Nature's Bounty, Sundown, Solgar and SISU brands, increased approximately $39 million, or 21%, to $227 million from $188 million for the prior like quarter. Solgar accounted for $24 million of this increase in sales. Product returns for the fiscal third quarter were $5 million as compared with $10 million for the fiscal third quarter 2005. Product returns for the nine months ended June 30, 2006 were an aggregate of $20 million. The Company expects normalized return rates in future quarters to be similar to the returns in this fiscal quarter. Gross margins for the wholesale operation decreased 6% compared with the fiscal third quarter of 2005 as a result of promotional incentives offered to customers, competitive pricing in the joint care category and higher prices paid for certain raw materials. The Company previously purchased raw materials that were in short supply at the time of purchase. Market prices for these raw materials have decreased during fiscal 2006 as supply shortage dissipated. The Company anticipates that gross margins will increase in fiscal 2007 as these higher priced raw materials are depleted. US Nutrition continues to utilize valuable consumer preference sales data generated by the Company's Vitamin World retail stores and Puritan's Pride Direct Response/E-Commerce operations to empower its wholesale customers with this latest information. The Vitamin World stores are effectively used as a laboratory for new ideas and have become a significant tool for determining and monitoring consumer preferences. This information, as well as scanned sales data from the Vitamin World stores, is shared with NBTY's wholesale customers. The North American Retail operations reported a pre-tax profit of $2 million. This division's sales decreased $0.5 million, or 1%, primarily due to closing of under-performing stores. During the fiscal third quarter of 2006, Vitamin World closed 26 under-performing stores and opened three new stores. Vitamin World has closed a total of 66 under-performing stores and opened eight new stores in the nine month period ended June 30, 2006. The Company anticipates closing an additional 10 stores by fiscal year end. Same store sales for Vitamin World increased 6% from the prior like quarter. At the end of the fiscal third quarter, the North American Retail division operated a total of 582 stores, with 484 in the US and 98 in Canada. European Retail sales for the fiscal third quarter ended June 30, 2006 decreased $3 million or 2% to $140 million from $143 million for the fiscal third quarter ended June 30, 2005. In local currency, same store sales essentially remained unchanged from the prior like period. The European Retail business continues to leverage its premier status, high street locations and brand awareness. The European Retail business is comprised of 496 Holland & Barrett and 33 GNC stores in the UK, 19 Nature's Way stores in Ireland, and 68 DeTuinen stores in the Netherlands. GNC and DeTuinen stores were profitable in this fiscal third quarter. During the fiscal third quarter ended June 30, 2006, the European Retail division opened 4 stores and operated a total of 616 stores. Revenues from Direct Response/Puritan's Pride operations for the fiscal third quarter of 2006 increased $0.4 million or 1% from the comparable prior period. The average order size increased to $77 from $69. Online sales constituted 33% of total Direct Response/E-Commerce sales. NBTY remains the leader in the direct response and e-commerce sectors. NBTY Chairman and CEO, Scott Rudolph, said: "The industry continues to struggle in an environment that has favorable research results with negative media headlines. We will maintain an aggressive posture to increase our market share. We remain confident in the long-term outlook for the Company." ABOUT NBTY NBTY is a leading vertically integrated manufacturer, marketer and distributor of a broad line of high-quality, value-priced nutritional supplements in the United States and throughout the world. Under a number of NBTY and third party brands, the Company offers over 22,000 products, including products marketed by the Company's 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), SISU(R) and Solgar(R) brands. This release refers to non-GAAP financial measures, such as Adjusted EBITDA. "ADJUSTED EBITDA" is defined as net income, excluding the aggregate amount of all non-cash losses reducing net income, plus 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 Adjusted EBITDA is relevant and useful because Adjusted EBITDA is a measurement industry analysts utilize when evaluating NBTY's operating performance. Management also believes Adjusted 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. These forward-looking statements 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. Although all of these forward looking statements are believed to be reasonable, they 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 God, 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 and intellectual property 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) the 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 strategies; (xxiii) fluctuations in foreign currencies, including the British Pound, the Euro and the Canadian dollar; (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. 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, 2006 2005 Net sales $475,297 $438,986 Costs and expenses: Cost of sales 256,594 220,960 Advertising, promotion and catalog 28,112 27,398 Selling, general and administrative 143,955 153,462 Goodwill impairment - 7,686 428,661 409,506 Income from operations 46,636 29,480 Other income (expense): Interest (5,458) (5,663) Miscellaneous, net (218) 3,626 (5,676) (2,037) Income before provision for income taxes 40,960 27,443 Provision for income taxes 11,059 11,477 Net income $ 29,901 $ 15,966 Net income per share: Basic $ 0.44 $ 0.24 Diluted $ 0.43 $ 0.23 Weighted average common shares outstanding: Basic 67,204 67,186 Diluted 69,152 69,137 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, 2006 2005 Net sales $1,412,310 $1,301,969 Costs and expenses: Cost of sales 753,674 658,994 Advertising, promotion and catalog 80,338 82,697 Selling, general and administrative 446,832 436,497 Trademark / goodwill impairments 10,450 7,686 1,291,294 1,185,874 Income from operations 121,016 116,095 Other income (expense): Interest (21,408) (17,237) Miscellaneous, net 1,928 5,728 (19,480) (11,509) Income before provision for income taxes 101,536 104,586 Provision for income taxes 27,414 37,860 Net income $ 74,122 $ 66,726 Net income per share: Basic $ 1.10 $ 0.99 Diluted $ 1.07 $ 0.97 Weighted average common shares outstanding: Basic 67,197 67,151 Diluted 69,081 69,140 SALES (Thousands) (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, Percentage Percentage 2006 2005 Change 2006 2005 Change Wholesale / US Nutrition $227,361 $188,228 21% $ 667,662 $ 550,402 21% North American Retail / Vitamin World 57,987 58,513 -1% 178,110 167,872 6% European Retail / Holland & Barrett / GNC (UK) 140,453 143,192 -2% 423,045 432,062 -2% Direct Response / Puritan's Pride 49,496 49,053 1% 143,493 151,633 -5% Total $475,297 $438,986 8% $1,412,310 $1,301,969 8% GROSS PROFIT PERCENTAGES (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, - % Decrease - % Decrease % Increase % Increase 2006 2005 2006 2005 Wholesale / US Nutrition 31% 37% -6% 31% 35% -4% North American Retail / Vitamin World 59% 55% 4% 58% 54% 4% European Retail / Holland & Barrett / GNC (UK) 62% 63% -1% 62% 63% -1% Direct Response / Puritan's Pride 57% 55% 2% 60% 58% 2% Total 46% 50% -4% 47% 49% -2% Reconciliation of GAAP Measures to Non-GAAP Measures (Thousands) (Unaudited) THREE MONTHS ENDED JUNE 30, 2006 Pretax Depreciation Income and Non-cash Adjusted (Loss) amortization Interest charges EBITDA Wholesale / US Nutrition $23,176 $2,479 $ - $(387) $25,268 North American Retail / Vitamin World 2,114 1,098 - 135 3,347 European Retail / Holland & Barrett / GNC (UK) 32,769 3,037 - - 35,806 Direct Response / Puritan's Pride 12,112 1,254 - - 13,366 Segment Results 70,171 7,868 - (252) 77,787 Corporate / Manufacturing (29,211) 6,072 5,458 - (17,681) Total $40,960 $13,940 $5,458 $(252) $60,106 THREE MONTHS ENDED JUNE 30, 2005 Pretax Depreciation Income and Non-cash Adjusted (Loss) amortization Interest charges EBITDA Wholesale / US Nutrition $21,211 $2,487 $ - $ - $23,698 North American Retail / Vitamin World (14,651) 1,638 - 10,989 (2,024) 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 - 10,989 78,115 Corporate / Manufacturing (30,126) 5,592 5,663 - (18,871) Total $27,443 $15,149 $5,663 $10,989 $59,244 Reconciliation of GAAP Measures to Non-GAAP Measures (Thousands) (Unaudited) NINE MONTHS ENDED JUNE 30, 2006 Pretax Depreciation Income and Non-cash Adjusted (Loss) amortization Interest charges EBITDA Wholesale / US Nutrition $ 48,161 $7,609 $ - $11,498 $ 67,268 North American Retail / Vitamin World 132 3,696 - 2,405 6,233 European Retail / Holland & Barrett / GNC (UK) 109,173 8,331 - - 117,504 Direct Response / Puritan's Pride 38,546 3,790 - - 42,336 Segment Results 196,012 23,426 - 13,903 233,341 Corporate / Manufacturing (94,476) 18,558 21,408 - (54,510) Total $101,536 $41,984 $21,408 $13,903 $178,831 NINE MONTHS ENDED JUNE 30, 2005 Pretax Depreciation Income and Non-cash Adjusted (Loss) amortization Interest charges EBITDA Wholesale / US Nutrition $ 57,310 $ 7,441 $ - $ - $ 64,751 North American Retail / Vitamin World (22,334) 5,249 - 10,989 (6,096) 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 - 10,989 233,599 Corporate / Manufacturing (90,892) 17,144 17,237 - (56,511) Total $104,586 $44,276 $17,237 $10,989 $177,088 NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS (Dollars and shares in thousands) June 30, September 30, 2006 2005 Current assets: Cash and cash equivalents $ 69,699 $ 67,282 Investments - 39,900 Accounts receivable, less allowance for doubtful accounts of $9,708 and $9,155, respectively 81,407 73,226 Inventories 374,799 491,335 Deferred income taxes 23,651 23,645 Prepaid expenses and other current assets 38,074 54,469 Total current assets 587,630 749,857 Property, plant and equipment, net of accumulated depreciation of $290,877 and $279,883, respectively 315,008 320,528 Goodwill 232,455 228,747 Other intangible assets, net 148,907 166,325 Other assets 13,381 16,845 Total assets $1,297,381 $1,482,302 NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (Dollars and shares in thousands) June 30, September 30, 2006 2005 Current liabilities: Current portion of long-term debt $ 6,055 $ 80,922 Accounts payable 77,832 72,720 Accrued expenses and other current liabilities 116,914 120,487 Total current liabilities 200,801 274,129 Long-term debt 221,312 428,204 Deferred income taxes 67,542 57,092 Other liabilities 7,521 6,822 Total liabilities 497,176 766,247 Commitments and contingencies Stockholders' equity: Common stock, $0.008 par; authorized 175,000 shares; issued and outstanding 67,204 shares at June 30, 2006 and 67,191 shares at September 30, 2005 537 537 Capital in excess of par 138,737 138,657 Retained earnings 633,397 559,275 Accumulated other comprehensive income 27,534 17,586 Total stockholders' equity 800,205 716,055 Total liabilities and stockholders' equity $1,297,381 $1,482,302 NBTY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands) For the nine months ended June 30, 2006 2005 Cash flows from operating activities: Net income $74,122 $66,726 Adjustments to reconcile net income to cash and cash equivalents provided by operating activities: Provision relating to impairments and disposals of property, plant and equipment 3,683 3,620 Depreciation and amortization 41,984 44,276 Foreign currency transaction loss / (gain) 2,013 (2,732) Amortization and write-off of deferred financing costs 3,570 1,614 Amortization and write-off of bond discount 349 118 Gain on extinguishment of debt (425) - Gain on settlement of interest rate swap (353) - Compensation expense for ESOP - 2,118 Impairment on asset held for sale - 1,908 Gain on sale of business assets - (1,999) Trademark / goodwill impairments 10,450 7,686 Provision for (recovery of) allowance for doubtful accounts 949 (1,012) Inventory reserves 248 3,754 Tax benefit from exercise of stock options (15) 201 Deferred income taxes 4,112 5,679 Changes in operating assets and liabilities: Accounts receivable (8,762) 20,849 Inventories 119,429 (106,105) Prepaid expenses and other current assets 17,267 10,150 Other assets 344 1,708 Accounts payable 2,619 (5,318) Accrued expenses and other liabilities (3,125) 11,747 Net cash provided by operating activities 268,459 64,988 Cash flows from investing activities: Purchase of property, plant and equipment (26,797) (49,786) Proceeds from sale of property, plant, and equipment 102 71 Proceeds from sale of property, plant, and equipment held for sale 9,950 Proceeds from sale of business assets - 5,766 Proceeds from sale of available-for-sale marketable securities 39,900 - Cash paid for acquisitions, net of cash acquired - (13,434) Purchase price settlements, net 1,845 4,558 Purchase / sale of intangible assets (433) 30 Net cash provided by (used in) investing activities 14,617 (42,845) NBTY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd) (UNAUDITED) Cash flows from financing activities: Principal payments under long-term debt agreements (276,494) (18,810) Principal payments under the Revolving Credit Facility (11,000) (20,000) Proceeds from borrowings under the Revolving Credit Facility 5,000 26,000 Proceeds from settlement of interest rate swap 353 - Tax benefit from exercise of stock options 15 - Proceeds from stock options exercised 65 207 Purchase of treasury stock - (176) Net cash used in financing activities (282,061) (12,779) Effect of exchange rate changes on cash and cash equivalents 1,402 (960) Net increase in cash and cash equivalents 2,417 8,404 Cash and cash equivalents at beginning of period 67,282 21,751 Cash and cash equivalents at end of period $69,699 $30,155 Contact: Harvey Kamil Carl Hymans NBTY, Inc. G.S. Schwartz & Co. President and Chief Financial Officer 212-725-4500 631-200-2020 DATASOURCE: NBTY, Inc. CONTACT: Harvey Kamil, President and Chief Financial Officer, NBTY, Inc., +1-631-200-2020; Carl Hymans, G.S. Schwartz & Co., +1-212-725-4500, Web site: http://www.nbty.com/

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