NBTY, Inc.

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NBTY, Inc.

89 Orville Drive
Bohemia, New York 11716
U.S.A.
Telephone: (516) 567-9500
Toll Free: (877) 426-8689
Fax: (516) 563-1180

Public Company
Incorporated: 1971 as Nature’s Bounty, Inc.
Employees: 3,000
Sales: $572.1 million (fiscal 1998)
Stock Exchanges: NASDAQ
Ticker Symbol: NBTY
NAIC: 325411 Medicine and Botanical Manufacturing; 42221 Drugs, Drug Proprietaries and Druggists’ Sundries Wholesalers; 446191 Food (Health) Supplement Stores; 45411 Electronic Shopping and Mail-Order Houses

NBTY, Inc. is a manufacturer and marketer of nutritional supplements. It sells more than 900 products, consisting of vitamins and other nutritional supplements such as minerals, amino acids, and herbs. The company’s branded products are sold by mail order under the Puritan’s Pride and Nutritional Headquarters brand names. NBTY owns a retail chain, Vitamin World, in the United States, and another, Holland & Barrett, in the United Kingdom. It also sells products through independent and chain pharmacies, supermarkets, health food stores, and wholesalers under the Nature’s Bounty, Natural Wealth, American Health, and Good’N Natural brand names.

Nature’s Bounty Through 1990

NBTY began its existence in 1971 as Nature’s Bounty, Inc., a subsidiary of Arco Pharmaceuticals, Inc., a company founded by Arthur Rudolph in 1960. Rudolph served as chairman and chief executive officer of Arco from its inception. In 1974 Arco and Nature’s Bounty established a joint venture in manufacturing, Starlen Labs, Ltd., to produce pills, tablets, and other powdered and liquid vitamins and food supplements sold by the company. In 1977 the company purchased its previously leased building in Bohemia, New York. Arco Pharmaceuticals had net sales of $10.85 million in 1978 and $16.1 million in 1979 and net income was $273,000 and $720,000, respectively.

Nature’s Bounty, which made its initial public offering of stock in 1972, acquired Arco Pharmaceuticals at the beginning of 1980, and Starlen became a division of the company, manufacturing, in 1984, 90 percent of the products sold by the company. Nature’s Bounty was, in that year, marketing products under the Nature’s Bounty label through sales representatives and also to independent and chain drug stores and chain department stores. The company also marketed products under a private label specified by the customer and products under the Puritan’s Pride name by mail order, soliciting in general circulation newspapers and magazines and mailing a quarterly catalog. In addition, it was marketing its Nature’s Bounty products in 74 Vitamin World kiosks located in enclosed malls and shopping centers in 14 states. This retail chain also served as a marketing aid, enabling the company to keep aware of what customers wanted.

Nature’s Bounty also began a joint marketing program with Spiegel, Inc. in 1982, preparing a special mail order catalog of its products under the brand name Arco with Spiegel’s endorsement. Similar programs were initiated with Lane Bryant, Inc., Montgomery Ward Enterprises, Inc., and Sears, Roebuck & Co., under the brand names Natural Wealth and Puritan’s Pride. The catalogs were mailed directly by Nature’s Bounty to customers of each participating retailer and received orders directly from such customers.

The products sold by Nature’s Bounty were a full range of vitamin products, including vitamins A through E in varying potencies and combinations. In addition, it was offering minerals such as bone meal, calcium lactate, magnesium, and zinc. Its food supplements consisted of such items as antacid-digestant, bee pollen, brewers yeast, KLB6 and ultra-KLB6, and protein powder. In addition, it carried a personal care line that included a cocoa-butter cleansing bar, E-cream, E-oil, E-soap herb-oil shampoo, and lip salve. In all, more than 300 hundred products were being offered to customers. The company had record net sales of $36.3 million in 1984 but lost $550,000 after having earned net income of more than $1 million in each of the two previous years.

In 1986 Nature’s Bounty purchased U.S. Nutrition Co., Inc., a company founded by Arthur Rudolph’s son Scott in 1977, for about $4.2 million in stock. This company was selling vitamins, food supplements, skin care items, and pet products under its own name to about 110,000 mail order customers. Scott Rudolph then succeeded his father as president of Nature’s Bounty. Also in 1986, Nature’s Bounty purchased Hudson Pharmaceutical Corp., a privately held marketer of vitamins and over-the-counter drugs. That year the company added Hudson and Vitamin World to its roster of brand names.

Nature’s Bounty dropped its arrangement with Montgomery Ward in 1986 and with Sears, Roebuck in 1988, the year Spiegel merged with Nature’s Bounty’s own mail order program. The company began selling its products in supermarkets in 1988. The following year it purchased General Nutrition Corp.’s mail order unit for $7 million in cash and notes, thereby roughly doubling its mail order business. Nature’s Bounty added Good’N Natural to its brand list in 1989 and began selling its products to health food stores in 1990. By this time the Vitamin World retail chain had shrunk to only 38 kiosks in eight states. The company’s Bohemia facilities had expanded nearly eightfold, however, since 1977, to 260,000 square feet. Net sales reached $70.8 million in fiscal 1990 (ended September 30, 1990), and net income was $723,000.

Like many other marketers of vitamins and nutritional supplements, Nature’s Bounty was periodically locked in conflict with the U.S. Food and Drug Administration. In 1987 the FDA advised the company that its nasally administered vitamin B12 gel, called Ener-B, was a drug and thus illegal to market without the agency’s approval. In 1989 the company, as a distributor, was involved in a recall of L-Tryptophan, a Japanese-made amino acid used to treat insomnia that was linked to a rare blood disorder and resulted in a number of deaths.

Company Growth in the 1990s

The acquisition of Sturdee Co., Sturdee Health Products, Inc., and Biorganic Brands, Inc. in 1991 for about $4.2 million allowed Nature’s Bounty to add Sturdee Health Products and Biorganic Brands to its mail order product lines. A $5 million remodeling program enabled the company’s Bohemia facilities to reach 355,000 square feet in 1992 and to boost output to five million vitamin tablets an hour and 3.2 billion tablets a year. That year Nature’s Bounty acquired Beautiful Visions Inc. for $4.8 million. The company now claimed to be the largest publicly owned vitamin supplier in the United States.

Nature’s Bounty’s focus remained on marketing as well as manufacturing; for example, the company was offering a range of support services to the retailers who stocked its products. A company executive told a Drug Topics reporter, “There’s fierce competition for shelf space. We make sure our space is really producing per linear foot. We will recommend that drugstores add or even take products off the shelf. For example, fish liver oils don’t sell as well now, so we might suggest they add garlic oil, which is selling well.” He called the Vitamin World stores “a gold mine of information. We stock lots of brands, not just our own, to get an idea of what’s selling and what’s not selling. We ask lots of questions and we try out new packaging and tablets with different coatings, shapes, and sizes.”

The Nature’s Bounty line, still the company’s leading brand in 1992, was being distributed to drug wholesalers and drugstore chains across the United States. The Hudson brand, found in independent drugstores and including more than 50 over-the-counter drug products, was the largest direct-service full-line vitamin brand in the United States. The Natural Wealth product line was being sold in supermarkets, and the American Health and Good’N Natural brands were being marketed to health food stores. Private-label agreements had been established with many retail chains, including Genovese, Osco, and Rock Bottom. By 1993 the company also was offering personal care products, including shampoos, soaps, cosmetics, skin creams, fresheners, and lotions, under the Beautiful Visions name at discount prices.

In 1993 Nature’s Bounty acquired Prime Natural Health Laboratories, a private distributor of vitamins and health and beauty aids to chain drug stores, for $5 million. It also added a plant in Holbrook, New York, for cosmetics production, and a leased facility in Carson, California. Also that year, Arthur Rudolph, who had yielded his position as chief executive officer in fiscal 1992, resigned as chairman of the company and sold his holdings, which consisted of about one-third of the common stock. Nature’s Bounty was reaching a potential three million mail order customers in 1993 through eight-times-a-year issues of two catalogs, Puritan’s Pride and Beautiful Visions (which was sold in 1995). The Vitamin World chain resumed growth after falling to a low of 31 outlets in 1994. Company net income reached a peak of $9.8 million in fiscal 1993 on net sales of $138.4 million.

The U.S. Postal Service filed false advertising charges against Nature’s Bounty in 1990, charging that its Puritan’s Pride catalog contained illegal health-related claims for 19 products and adding that it did “not mean to imply that all of Nature’s Bounty’s other advertisements are true.” The following year the company agreed to either discontinue or modify its statements for these products. In 1994 General Nutrition agreed to pay $2.4 million to settle a deceptive-advertising claim by the Federal Trade Commission that involved products manufactured by, among others, Nature’s Bounty. According to a security analyst, the company lost sales and profits after a 1994 New England Journal of Medicine article challenged the benefits of taking Vitamin A and beta-carotene supplements.

Company Perspectives:

Nurtured by the strength and endurance of its earliest roots, NBTY continues to branch out to meet the evolving needs of our ever-expanding marketplace. Thirty years later, we remain firmly committed to our original mission…. To deliver the highest quality nutritional supplements with the best value to our customers.

Nature’s Bounty was Long Island’s largest publicly owned vitamin and health food company by 1995, when it changed its name to NBTY, Inc., after the letters of its stock symbol, to separate the corporate name from the Nature’s Bounty product line. By this time the company’s Bohemia complex occupied 35 acres near the entrance to Mac Arthur Airport. In late 1995 NBTY secured a package of tax exemptions and abatements to stay in Bohemia rather than move to Georgia and also began making plans to build a new manufacturing plant on 62 acres in Bayport. After completion, this facility became one of the nation’s largest manufacturing facilities for the soft gelatin capsules used as a delivery system for liquid vitamins and other supplements.

Following disappointing profit performances in fiscal 1994 and 1995—in part due to the poor performance of the company’s cosmetics products—NBTY had record net income of $13.4 million on sales of $194.4 million in fiscal 1996, which was attributed in part to refocusing on mail order sales. By purchasing the Holland & Barrett vitamin and health food chain in 1997, NBTY became the largest retailer of vitamins and health foods in the United Kingdom. NBTY paid $168.8 million in cash to secure this 410-store chain, which had been in business since 1920 and had sales of £90.6 million (about $145 million) and operating profits of £7.8 million (about $12.5 million) in 1996.

By this time NBTY had raised the number of its Vitamin World outlets to 110, with plans to add 80 more in 1998 and reach 500 stores in the next three years. In 1999 NBTY joined Phar-More Inc., a deep-discount drug chain, in selling vitamins and other nutritional supplements over the Internet on a page linked to Phar-More’s web site. NBTY’s net sales reached $572.1 million in fiscal 1998. Net income of $38.8 million was a record for the third consecutive year, despite sharply higher interest expenses of $16.5 million because of the company’s increasing debt incurred for the Holland & Barrett and other acquisitions. In 1997 NBTY paid $8 million in cash and stock to settle a three-year-old class action suit in which shareholders alleged that the company artificially inflated sales, improperly capitalized costs, and overstated inventory and accounts receivable.

NBTY in 1998

NBTY’s Vitamin World retail chain had reached 230 outlets in 40 states and the territory of Guam by the end of fiscal 1998. Holland & Barrett, which derived 40 percent of its sales from food products rather than vitamins, minerals, and other nutritional supplements, had 415 locations. The Nature’s Bounty brand was being sold to drugstore chains and drug wholesalers.

A full line of products to supermarket chains and wholesalers was available under the Natural Wealth brand. Sales to health food stores were under the Good’N Natural brand and to health food wholesalers under the American Health brand. Direct-mail sales, including personal care items, were under the Puritan’s Pride and Nutrition Headquarters brands. NBTY had expanded sales of various products to many countries throughout Europe, Asia, and Latin America.

In addition to its facilities in Bohemia, Holbrook, and Bay-port, NBTY had leased warehouse space in Reno, Nevada, and Southampton, England. Holland & Barrett was leasing headquarters and warehouse and distribution space in Hinckley, United Kingdom. NBTY had long-term debt of $173.3 million at the end of fiscal 1998. Scott Rudolph owned 16.7 percent of the common stock and Arthur Rudolph owned three percent in December 1998.

Principal Subsidiaries

American Health, Inc.; Arco Pharmaceuticals, Inc.; Beautiful Visions, New York Corp.; Fountain Publishing, Inc.; Good’N Natural Nutrition Corp.; Herbal Harvest, Inc.; Holland & Barrett Holdings Ltd. (United Kingdom); The Hudson Corp.; Natural Wealth Nutrition Corp.; Nature’s Bounty, Inc.; Nature’s Bounty Manufacturing Corp.; Omni Vitamin & Nutrition Corp.; Prime Natural Health Laboratories, Inc.; Puritan’s Pride, Inc.; Specialized Manufacturing and Marketing Corp.; United Vitamin Manufacturing Corp.; Vitamin World, Inc.; Vitamin World Ltd.

Principal Operating Units

Capsuleworks; Good’N Natural; Vitamin World.

Principal Competitors

Nature’s Sunshine Products Inc.; Rexall Sundown Inc.; TwinLaboratories Inc.

Key Dates:

1971:: Founded as Nature’s Bounty, Inc.
1980:: Acquired its parent, Arco Pharmaceuticals, Inc.
1992:: Claims to be the largest publicly owned vitamin supplier in the nation.
1995:: Changes its name to NBTY, Inc.
1997:: Purchases the British vitamin and health food retail chain Holland & Barrett.