NBTY 10Q 2008 Q1 Quarterly report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 2007
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to

Commission File Number: 001-31788

NBTY, Inc.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		11-2228617 (I.R.S. Employer Identification No.)
2100 Smithtown Avenue, Ronkonkoma, New York (Address of principal executive offices)		11779 (Zip Code)
(631) 567-9500 (Registrant's telephone number, including area code)
Former address: 90 Orville Dr., Bohemia, NY (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESo NOý

The number of shares of Common Stock (par value $.008 per share) outstanding as of January 31, 2008 was 66,830,770.

NBTY, INC. AND SUBSIDIARIES
INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Stockholders' Equity and Comprehensive Income	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 4.	Controls and Procedures	37
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 6.	Exhibits	41
Signatures		43
Exhibits

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NBTY, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(Dollars and shares in thousands, except per share amounts)

			December 31, 2007		September 30, 2007
Assets
Current assets:
	Cash and cash equivalents		$	98,941	$	92,902
	Investments			137,301		121,382
	Accounts receivable, net			111,226		98,454
	Inventories			390,321		384,990
	Deferred income taxes			21,856		21,441
	Prepaid expenses and other current assets			52,825		54,460

		Total current assets		812,470		773,629
Property, plant and equipment, net				323,193		323,154
Goodwill				248,614		251,753
Other intangible assets, net				159,045		157,548
Other assets				29,386		28,851

		Total assets	$	1,572,708	$	1,534,935

Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term debt		$	1,008	$	989
	Accounts payable			72,931		71,852
	Accrued expenses and other current liabilities			135,658		125,533

		Total current liabilities		209,597		198,374
Long-term debt, net of current portion				209,400		210,106
Deferred income taxes				58,272		61,788
Other liabilities				11,586		8,697

		Total liabilities		488,855		478,965

Commitments and contingencies
Stockholders' equity:
	Common stock, $.008 par; authorized 175,000 shares; issued and outstanding 66,822 shares at December 31, 2007 and 67,118 shares at September 30, 2007			535		537
	Capital in excess of par			142,864		143,244
	Retained earnings			897,516		864,852
	Accumulated other comprehensive income			42,938		47,337

		Total stockholders' equity		1,083,853		1,055,970

		Total liabilities and stockholders' equity	$	1,572,708	$	1,534,935

The accompanying notes are an integral part of these condensed consolidated financial statements

NBTY, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

(Dollars and shares in thousands, except per share amounts)

			For the three months ended December 31,
			2007			2006
Net sales			$	510,858		$	506,237

Costs and expenses:
	Cost of sales			240,331			247,047
	Advertising, promotion and catalog			34,169			26,763
	Selling, general and administrative			168,123			151,939

				442,623			425,749

Income from operations				68,235			80,488

Other income (expense):
	Interest			(3,862	)		(5,063	)
	Miscellaneous, net			4,887			1,339

				1,025			(3,724	)

Income before provision for income taxes				69,260			76,764
Provision for income taxes				23,438			25,908

		Net income	$	45,822		$	50,856

Net income per share:
	Basic		$	0.68		$	0.76
	Diluted		$	0.67		$	0.73
Weighted average common shares outstanding:
	Basic			66,903			67,213
	Diluted			68,786			69,331

The accompanying notes are an integral part of these condensed consolidated financial statements

NBTY, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity and Comprehensive Income

For the Three Months Ended December 31, 2007 and 2006

(Unaudited)

(Dollars and shares in thousands)

		Common Stock
		Number of Shares		Amount			Capital in Excess of Par			Retained Earnings			Accumulated Other Comprehensive Income			Total Stockholders' Equity
Balance, September 30, 2006		67,212		$	538		$	138,777		$	671,060		$	29,057		$	839,432
Components of comprehensive income:
	Net income										50,856						50,856
	Foreign currency translation adjustment and other, net of taxes													7,978			7,978

Comprehensive income:																$	58,834

Exercise of stock options		2			—			12									12
Tax benefit from exercise of stock options								20									20

Balance, December 31, 2006		67,214		$	538		$	138,809		$	721,916		$	37,035		$	898,298

Balance, September 30, 2007		67,118		$	537		$	143,244		$	864,852		$	47,337		$	1,055,970
Components of comprehensive income:
	Net income										45,822						45,822
	Foreign currency translation adjustment and other, net of taxes													(4,399	)		(4,399	)

Comprehensive income:																$	41,423

Adoption of FIN 48											(3,025	)					(3,025	)
Purchase and retirement of treasury shares		(296	)		(2	)		(468	)		(10,133	)					(10,603	)
Tax benefit from exercise of stock options								88									88

Balance, December 31, 2007		66,822		$	535		$	142,864		$	897,516		$	42,938		$	1,083,853

The accompanying notes are an integral part of these condensed consolidated financial statements.

NBTY, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

						For the three months ended December 31,
						2007			2006
Cash flows from operating activities:
	Net income					$	45,822		$	50,856
	Adjustments to reconcile net income to net cash and cash
		equivalents provided by operating activities:
			Provision relating to impairments and disposals of property, plant and equipment				462			392
			Depreciation and amortization				13,932			14,231
			Foreign currency transaction (gain) loss				(1,299	)		318
			Amortization and write-off of deferred financing costs				152			1,303
			Amortization of bond discount				34			31
			Allowance for doubtful accounts				(229	)		(135	)
			Inventory reserves				1,061			2,292
			Deferred income taxes				449			3,886
			Excess income tax benefit from exercise of stock options				(88	)		(20	)
			Changes in operating assets and liabilities, net of acquisitions:
				Accounts receivable			(11,789	)		(2,516	)
				Inventories			(7,784	)		(5,087	)
				Prepaid expenses and other current assets			1,275			4,443
				Other assets			(490	)		(163	)
				Accounts payable			687			2,834
				Accrued expenses and other liabilities			7,842			10,241

					Net cash provided by operating activities		50,037			82,906

Cash flows from investing activities:
	Purchase of property, plant and equipment						(9,814	)		(6,212	)
	Purchase of available-for-sale investments						(55,148	)		(214,718	)
	Proceeds from sale of available-for-sale investments						39,272			154,844
	Cash paid for acquisitions, net of cash acquired						(5,072	)		(38,219	)
	Cash collateral securing loan						—			(18,360	)

					Net cash used in investing activities		(30,762	)		(122,665	)

Cash flows from financing activities:
	Principal payments under long-term debt agreements and capital leases						(239	)		(196	)
	Payments of financing fees						—			(1,649	)
	Excess income tax benefit from exercise of stock options						88			20
	Proceeds from stock options exercised						—			12
	Purchase of treasury stock (subsequently retired)						(10,603	)		—

					Net cash used in financing activities		(10,754	)		(1,813	)

Effect of exchange rate changes on cash and cash equivalents							(2,482	)		1,763

Net increase (decrease) in cash and cash equivalents							6,039			(39,809	)
Cash and cash equivalents at beginning of period							92,902			89,805

Cash and cash equivalents at end of period						$	98,941		$	49,996

The accompanying notes are an integral part of these condensed consolidated financial statements.

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in thousands)

1. Basis of Presentation

NBTY, Inc. and its subsidiaries are referred to herein collectively as "we", "our", "us", "NBTY", or the "Company". We have prepared these unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles 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, 2007 ("2007 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 unaudited condensed consolidated financial statements do not include all information or notes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in our 2007 Form 10-K. Results for interim periods are not necessarily indicative of results which may be achieved for a full year.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 from those estimates and assumptions. Our most significant estimates include: sales returns and other allowances; inventory valuation and obsolescence; allowance for doubtful accounts; valuation and recoverability of long-lived assets; income taxes; and accruals for the outcome of current litigation.

Concentration of Credit Risk and Significant Customers

Financial instruments which potentially subject us to credit risk consist primarily of cash and cash equivalents (the amounts of which may, at times, 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. At December 31, 2007, our investments consisted of auction rate securities and variable rate demand notes, which were classified as available-for-sale investments and reported at fair value (which approximates cost). At December 31, 2007, included in our auction rate securities were fully insured, Aaa-rated New York State Agency securities of approximately $136,150. The underlying auction rate securities, without insurance, are rated between A and Aaa. Although we have not experienced a failed auction associated with any of our auction rate securities, in the case of a failed auction, the auction rate security becomes an illiquid long-term bond (until the failed auction is resolved by the issuer) and the subsequent reset rates on such security are set above the market specified rates in the prospectus/offering circular. Any impairment in the value of our investments due to failed auctions, or securities which have defaulted, could adversely impact our earnings and impact our future earnings.

We perform on-going credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined by a review of their credit information. Collections and payments from customers are continuously monitored.

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

1. Basis of Presentation (Continued)

We maintain an allowance for doubtful accounts, which is based upon historical experience as well as specific customer collection issues that have been identified. While such bad debt expenses have historically been within expectations and allowances established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. If the financial condition of one or more of our customers were to deteriorate, we may require additional allowances.

The following individual customers accounted for the following percentages of net sales for the three months ended December 31, 2007 and 2006, respectively:

	Wholesale/US Nutrition Net Sales For the three months ended December 31,				Consolidated Net Sales For the three months ended December 31,
	2007		2006		2007		2006
Customer A	21	%	16	%	10	%	8	%
Customer B	9	%	11	%	5	%	5	%

The loss of any one of these customers would have a material adverse effect on the Wholesale/US Nutrition segment if we were unable to replace such customer(s). In addition, a third customer, representing less than 10% of the Wholesale/US Nutrition segment's net sales is primarily a supplier to Customer A. Therefore, the loss of Customer A would likely result in the loss of most of the net sales of this third customer.

The following individual customers accounted for 10% or more of the Wholesale/US Nutrition segment's gross accounts receivable as of December 31, 2007 and September 30, 2007, respectively:

		December 31, 2007		September 30, 2007
Customer A		15	%	14	%
Customer B		11	%	7	%

Accounts Receivable Reserves and Allowances

Accounts receivable are net of the following reserves and allowances at December 31, 2007 and September 30, 2007:

	December 31, 2007		September 30, 2007
Allowance for sales returns		9,204	$	8,499
Promotional programs incentive allowance		27,706		27,429
Allowance for doubtful accounts		7,411		7,617

	$	44,321	$	43,545

Assets Held for Sale

In fiscal 2007, we decided to sell the land and building located in Augusta, Georgia, since we no longer intend to develop a manufacturing facility at this site. We anticipate that this sale will be

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

1. Basis of Presentation (Continued)

completed during 2008. Accordingly, the carrying value of the land and building of $11,388 (which approximates its fair value less costs to sell) is classified as held for sale within prepaid expenses and other current assets in the accompanying balance sheet at December 31, 2007. During the three months ended December 31, 2007, the carrying value of the building increased due to capitalized improvements of $1,088.

Supplemental Disclosure of Cash Flow Information

		For the three months ended December 31,
		2007		2006
Non-cash investing and financing information:
Property, plant and equipment additions included in accounts payable		$	4,436	$	1,311
Acquisitions accounted for under the purchase method:
	Fair value of assets acquired	$	5,072	$	47,579
	Liabilities assumed		—		(9,313	)
	Less: Cash acquired		—		(47	)

	Net cash paid	$	5,072	$	38,219

Recent Accounting Developments

In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141 (revised 2007), ("SFAS No. 141R"), "Business Combinations", which replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, however, includes changes in the way assets and liabilities are recognized in purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for us beginning October 1, 2009 and will apply prospectively to business combinations completed on or after that date. The impact of the adoption of SFAS No. 141R will be dependent on the extent and nature of any future acquisitions.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits companies to choose to measure certain financial instruments and other eligible items at fair value when the items are not otherwise currently required to be measured at fair value. Under SFAS 159, the decision to measure items at fair value is made at specified election dates on an irrevocable instrument-by-instrument basis. Companies electing the fair value option would be required to recognize changes in fair value in earnings and to expense upfront cost and fees associated with the item for which the fair value option is elected. Companies electing the fair value option are required to distinguish, on the face of the statement of financial position, the fair value of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. SFAS 159 will be effective as of the beginning of the first fiscal year that begins after November 15, 2007. We will adopt SFAS 159

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

1. Basis of Presentation (Continued)

on October 1, 2008. The impact of the adoption of SFAS 159 will be dependent on the extent to which we choose to elect to measure eligible items at fair value.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and enhances disclosures about fair value measurements. SFAS 157 applies when other accounting pronouncements require fair value measurements; it does not require new fair value measurements. SFAS 157 is effective for us beginning October 1, 2008. In December 2007, the FASB released a proposed FASB Staff Position (FSP FAS 157-b—Effective Date of FASB Statement No. 157) which, if adopted as proposed, would delay the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We are currently evaluating the impact of adopting this standard on our consolidated financial statements and related disclosures.

2. Investments

Our investments at December 31, 2007 consisted primarily of variable rate demand notes and auction rate securities, which were classified as available-for-sale marketable securities and reported at fair value (which approximates cost) in the accompanying consolidated balance sheets. Auction rate securities are long-term variable rate bonds tied to short-term interest rates that are reset through a "dutch auction" process which occurs every 7 to 35 days. These investments were recorded at fair value; any unrealized gains/losses were included in other comprehensive income, unless a loss was determined to be other than temporary. We classified such securities as current assets in the accompanying balance sheet because we have the ability and intent to sell these securities as necessary to meet our then current liquidity requirements. At December 31, 2007, there were no unrealized holding gains or losses.

Investment income included in "Miscellaneous, net" in the statements of income was $2,674 and $880 for the three months ended December 31, 2007 and 2006, respectively.

3. Inventories

The components of inventories were as follows:

		December 31, 2007			September 30, 2007
Raw materials		$	93,030		$	92,924
Work-in-process			10,636			8,277
Finished goods			301,147			297,925
Valuation and obsolescence reserves			(14,492	)		(14,136	)

	Total	$	390,321		$	384,990

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

4. Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess purchase price over the fair value of identifiable net assets of companies acquired. Goodwill and indefinite lived assets acquired in a business combination are not amortized, but instead tested for impairment at least annually. We test goodwill and indefinite lived intangibles for impairment annually as of September 30, the last day of our fourth fiscal quarter, unless an event occurs that would indicate the value may be impaired at an interim date.

The changes in the carrying amount of goodwill by segment for the three month period ended December 31, 2007, were as follows:

	Wholesale / US Nutrition		European Retail			Direct Response / E-Commerce		Consolidated
Balance at September 30, 2007	$	75,638	$	160,918		$	15,197	$	251,753
Foreign currency translation		28		(3,167	)		—		(3,139	)

Balance at December 31, 2007	$	75,666	$	157,751		$	15,197	$	248,614

Other Intangible Assets

Other intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives (not exceeding 20 years). The carrying amounts of intangible assets as of December 31, 2007 and September 30, 2007 were as follows:

		December 31, 2007				September 30, 2007
		Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization		Amortization period (years)
Definite lived intangible assets
Brands		$	99,525	$	17,592	$	99,608	$	16,438	20
Customer lists			66,244		37,107		62,090		36,119	2 - 15
Private label and customer relationships			40,548		6,108		40,669		5,538	10 - 20
Trademarks and licenses			17,743		6,656		17,640		6,375	2 - 20
Covenants not to compete			3,558		2,910		3,056		2,845	3 - 5

			227,618		70,373		223,063		67,315
Indefinite lived intangible asset
Trademark			1,800		—		1,800		—

	Total intangible assets	$	229,418	$	70,373	$	224,863	$	67,315

In connection with an acquisition completed in October 2007, customer lists, covenants not to compete and trademarks increased $4,168, $500 and $140, respectively. These amounts are preliminary and may be adjusted once a final allocation of the purchase price is completed.

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

4. Goodwill and Intangible Assets (Continued)

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 December 31, 2007 and 2006 was approximately $3,381 and $3,308, 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,
2008	$	13,435
2009	$	12,192
2010	$	12,016
2011	$	11,973
2012	$	11,842

5. Impairments

In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), carrying values are reviewed for impairment whenever events or changes in circumstances indicate that the assets' carrying values may not be recoverable. In order to determine if a write down is necessary, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount. If required, an impairment charge is recorded based on an estimate of future discounted cash flows. We consider a history of cash flow losses on a store by store basis to be a primary indicator of potential impairment.

During the three months ended December 31, 2007 and 2006, we evaluated, for an impairment review, certain retail stores that had reached a certain level of maturity and were sustaining operating losses. During the three months ended December 31, 2007 and 2006, we recognized impairment charges of $350 and $353, respectively. These impairment charges related primarily to leasehold improvements and furniture and fixtures for North American Retail operations and were included in "selling, general and administrative" expense in the statements of income.

6. Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities were as follows:

	December 31, 2007		September 30, 2007
Accrued compensation and related taxes	$	26,885	$	25,742
Accrued purchases		13,215		12,541
Litigation		9,490		9,316
Income taxes payable		27,632		12,329
Other		58,436		65,605

	$	135,658	$	125,533

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

7. Long-Term Debt

In December 2007, we amended the terms of our multicurrency term facility to extend the maturity to December 2010.

8. Litigation Summary

Prohormone products

California Action

On July 25, 2002, a putative consumer class-action lawsuit was filed in California state court against MET-Rx USA, Inc. ("MET-Rx"), an indirect subsidiary of Rexall Sundown, Inc. ("Rexall"), claiming that the advertising and marketing of certain prohormone supplements were false and misleading, or alternatively, that the prohormone products contained ingredients that were controlled substances under California law. Plaintiffs seek equitable and monetary relief. On June 18, 2004, this case was coordinated with several other class-action cases brought against other companies relating to the sale of products containing androstenediol, one of the prohormones contained in MET-Rx products. The coordinated proceedings have been assigned to a coordination judge for further pretrial proceedings. Plaintiff has moved for class certification and that motion is currently pending.

MET-Rx recently filed a motion to dismiss the lawsuit based upon plaintiffs' failure to prosecute the case diligently. No trial date has been set. We have defended vigorously against the claims asserted and based upon the information available at this time, no determination can be made as to its final outcome, nor can its materiality be accurately ascertained.

New Jersey Action

In March 2004, a putative class-action lawsuit was filed in New Jersey against MET-Rx, 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 are virtually identical to allegations made in a putative nationwide class-action previously filed in California, we moved 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.

Nutrition Bars

Rexall and certain of its subsidiaries are defendants in a class-action lawsuit brought 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. In December 2006, while Rexall's and the other defendants' renewed motion for judgment on the pleadings was pending, the Court again stayed the case for all purposes, pending rulings on relevant cases before the California Supreme Court. Because it is unclear when the Supreme Court will issue rulings in these cases, Rexall cannot estimate how long the case will be stayed. Based upon the information available at this time, no determination can be made at this time as to the final outcome of this case, nor can its materiality be accurately ascertained.

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

8. Litigation Summary (Continued)

In addition to the foregoing, other regulatory inquiries, claims, suits and complaints (including product liability and intellectual property 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.

9. Income Taxes

The effective income tax rate for the three months ended December 31, 2007 and December 31, 2006 was 33.8%. The effective income tax rates are generally lower than the U.S. federal statutory rate, primarily due to the structure of our foreign subsidiaries which could also continue to impact future fiscal quarters. Effective October 1, 2007, we adopted FIN 48, "Accounting for Uncertainty in Income Taxes." In accordance with FIN 48, we recognized a cumulative-effect adjustment of $3,025, increasing our liability for unrecognized tax benefits, interest and penalties and reducing the October 1, 2007 balance of retained earnings.

At October 1, 2007, we had $10,446 in unrecognized tax benefits, the recognition of which would have an effect of $6,288 on income tax expense and the effective tax rate. We do not believe that the amount will significantly change in the next 12 months.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. This methodology is consistent with previous periods. At October 1, 2007, we had accrued $1,313 and $1,019 for the potential payment of interest and penalties, respectively. As of October 1, 2007, we are subject to U.S. Federal Income Tax examinations for the tax years 2004 through 2007, and to non-US examinations for the tax years of 2002 - 2007, In addition, we are generally subject to state and local examinations for fiscal years 2004 - 2007, except in California where we are undergoing examinations for fiscal years 1999 - 2001.

There were no significant changes to any of these amounts during the three months ended December 31, 2007.

10. Stockholder's Equity and Net Income Per Share

During October 2007, the Company repurchased 296 thousand shares of NBTY common stock at an average price of $35.87, totaling approximately $10,603, including commissions. All shares were repurchased in open-market transactions as part of our publicly announced share repurchase program. As of December 31, 2007, there were approximately 10,270,000 shares available to be repurchased under this program.

Basic net income per share is based on the weighted average number of common shares outstanding during the three month period ended December 31, 2007 and 2006. Diluted net income per share includes the dilutive effect of outstanding stock options, which resulted in a dilutive effect of approximately 1,883,000 and 2,118,000 shares for the three months ended December 31, 2007 and 2006, respectively.

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

11. Segment Information

We are organized by sales segments on a worldwide basis and 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 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, IT, and various other corporate level activity related expenses. Such unallocated expenses remain within corporate. Corporate also includes our manufacturing assets and, accordingly, certain items associated with these activities remain unallocated in the corporate segment. The European Retail operations are evaluated excluding the impact of any intercompany transfer pricing.

All of our products fall into one or more of these four segments:

•: Wholesale/US Nutrition—This segment is comprised of several divisions, each targeting specific market groups which include wholesalers, distributors, supermarket and drug store chains, pharmacies, health food stores, bulk and international customers.
•: North American Retail—This segment generates revenue through its 454 owned and operated Vitamin World stores selling proprietary brand and third-party products and through its Canadian operation of 80 owned and operated Le Naturiste stores.
•: European Retail—This segment generates revenue through its 514 Holland & Barrett stores, 31 GNC stores in the UK, 70 DeTuinen stores in the Netherlands and 19 Nature's Way stores in Ireland. Such revenue consists of sales of proprietary brand and third-party products as well as franchise fees.
•: Direct Response/E-Commerce—This 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.

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

11. 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
*For the three months ended December 31, 2007:*
	Net sales	$	258,935	$	56,182		$	158,597	$	37,144	$	—		$	510,858
	Income (loss) from operations		53,981		(864	)		35,067		7,123		(27,072	)		68,235
	Depreciation and amortization		2,694		850			3,063		1,366		5,959			13,932
	Capital expenditures		1,828		210			4,509		3		3,264			9,814
*For the three months ended December 31, 2006:*
	Net sales	$	246,728	$	54,973		$	152,966	$	51,570	$	—		$	506,237
	Income (loss) from operations		49,589		1,087			38,824		15,593		(24,605	)		80,488
	Depreciation and amortization		2,789		1,137			2,828		1,265		6,212			14,231
	Capital expenditures		329		178			2,474		660		2,571			6,212

Net sales by location of customer were as follows:

			For the three months ended December 31,
			2007		2006
Net sales by location of customer
	United States		$	303,266	$	305,239
	United Kingdom			148,666		145,783
	Holland			16,111		13,955
	Ireland			5,604		4,925
	Canada			9,800		8,359
	Mexico			6,235		9,579
	Other foreign countries			21,176		18,397

		Consolidated net sales	$	510,858	$	506,237

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

11. Segment Information (Continued)

Total assets by segment were as follows:

		December 31, 2007		September 30, 2007
Wholesale/US Nutrition		$	515,244	$	511,541
North American Retail			38,476		39,998
European Retail			440,774		434,915
Direct Response/E-Commerce			56,416		55,582
Corporate/Manufacturing			521,798		492,899

	Consolidated assets	$	1,572,708	$	1,534,935

Approximately 36% and 35% of our net sales during the three months ended December 31, 2007 and 2006, respectively, were denominated in currencies other than U.S. dollars, principally British Pounds, Euros and Canadian dollars. 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:

		December 31, 2007		September 30, 2007
Total Assets		33	%	32	%
Total Liabilities		23	%	21	%

12. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes

The 7¹/8% Senior Subordinated Notes due 2015 are guaranteed by all of our domestic subsidiaries, which are wholly-owned by the Company. These guarantees are full, unconditional and joint and several. The following condensed consolidating financial information presents:

1.: Condensed consolidating financial statements as of December 31, 2007 and September 30, 2007 and for the three months ended December 31, 2007 and 2006 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 consolidated financial statements and other notes related thereto.

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

12. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)

Condensed Consolidating Balance Sheet
As of December 31, 2007

			Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
	Cash and cash equivalents		$	6,481	$	—	$	92,460		$	—		$	98,941
	Investments			137,301		—		—			—			137,301
	Accounts receivable, net			—		94,746		24,543			(8,063	)		111,226
	Intercompany			—		374,505		564,400			(938,905	)		—
	Inventories			—		271,537		126,964			(8,180	)		390,321
	Deferred income taxes			—		21,092		764			—			21,856
	Prepaid expenses and other current assets			—		28,620		24,205			—			52,825

		Total current assets		143,782		790,500		833,336			(955,148	)		812,470
Property, plant and equipment, net				35,688		187,213		100,292			—			323,193
Goodwill				—		81,452		167,162			—			248,614
Other intangible assets, net				—		110,704		48,341			—			159,045
Other assets				—		10,226		19,160			—			29,386
Intercompany loan receivable				399,280		—		—			(399,280	)		—
Investments in subsidiaries				1,694,163		—		—			(1,694,163	)		—

		Total assets	$	2,272,913	$	1,180,095	$	1,168,291		$	(3,048,591	)	$	1,572,708

Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term debt		$	838	$	34	$	136		$	—		$	1,008
	Accounts payable			—		36,668		36,263			—			72,931
	Intercompany			938,905		—		—			(938,905	)		—
	Accrued expenses and other current liabilities			—		85,669		58,052			(8,063	)		135,658

		Total current liabilities		939,743		122,371		94,451			(946,968	)		209,597
Intercompany loan payable				—		—		399,280			(399,280	)		—
Long-term debt, net of current portion				190,213		2		19,185			—			209,400
Deferred income taxes				56,375		—		1,897			—			58,272
Other liabilities				2,729		3,599		5,258			—			11,586

		Total liabilities		1,189,060		125,972		520,071			(1,346,248	)		488,855

Commitments and contingencies														��
Stockholders' Equity:
	Common stock			535		—		—			—			535
	Capital in excess of par			142,864		352,020		301,271			(653,291	)		142,864
	Retained earnings			897,516		702,103		363,842			(1,065,945	)		897,516
	Accumulated other comprehensive income			42,938		—		(16,893	)		16,893			42,938

		Total stockholders' equity		1,083,853		1,054,123		648,220			(1,702,343	)		1,083,853

		Total liabilities and stockholders' equity	$	2,272,913	$	1,180,095	$	1,168,291		$	(3,048,591	)	$	1,572,708

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

12. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)

Condensed Consolidating Balance Sheet
As of September 30, 2007

			Parent Company		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
	Cash and cash equivalents		$	22,239	$	—		$	70,663		$	—		$	92,902
	Investments			118,292		—			3,090			—			121,382
	Accounts receivable, net			—		79,998			18,456			—			98,454
	Intercompany			—		279,035			631,299			(910,334	)		—
	Inventories			—		293,768			99,374			(8,152	)		384,990
	Deferred income taxes			—		20,659			782			—			21,441
	Prepaid expenses and other current assets			—		32,833			21,627			—			54,460

		Total current assets		140,531		706,293			845,291			(918,486	)		773,629
Property, plant and equipment, net				34,618		203,955			84,581			—			323,154
Goodwill				—		95,506			156,247			—			251,753
Other intangible assets, net				—		126,450			31,098			—			157,548
Other assets				—		9,205			19,646			—			28,851
Intercompany loan receivable				409,340		—			—			(409,340	)		—
Investments in subsidiaries				1,633,956		—			—			(1,633,956	)		—

		Total assets	$	2,218,445	$	1,141,409		$	1,136,863		$	(2,961,782	)	$	1,534,935

Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term debt		$	815	$	174		$	—		$	—		$	989
	Accounts payable			—		39,371			32,481			—			71,852
	Intercompany			910,335		—			—			(910,335	)		—
	Accrued expenses and other current liabilities			—		88,284			37,249			—			125,533

		Total current liabilities		911,150		127,829			69,730			(910,335	)		198,374
Intercompany loan payable				—		—			409,340			(409,340	)		—
Long-term debt, net of current portion				190,395		114			19,597			—			210,106
Deferred income taxes				59,794		(3,521	)		5,515			—			61,788
Other liabilities				1,136		2,830			4,731			—			8,697

		Total liabilities		1,162,475		127,252			508,913			(1,319,675	)		478,965

Commitments and contingencies
Stockholders' Equity:
	Common stock			537		—			—			—			537
	Capital in excess of par			143,244		352,019			301,271			(653,290	)		143,244
	Retained earnings			864,852		662,138			345,365			(1,007,503	)		864,852
	Accumulated other comprehensive income			47,337		—			(18,686	)		18,686			47,337

		Total stockholders' equity		1,055,970		1,014,157			627,950			(1,642,107	)		1,055,970

		Total liabilities and stockholders' equity	$	2,218,445	$	1,141,409		$	1,136,863		$	(2,961,782	)	$	1,534,935

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

12. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)

Condensed Consolidating Statement of Income
Three Months Ended December 31, 2007

			Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales			$	—		$	333,069		$	198,042		$	(20,253	)	$	510,858


Costs and expenses:
	Cost of sales			—			179,426			81,158			(20,253	)		240,331
	Advertising, promotion and catalog			—			27,477			6,692			—			34,169
	Selling, general and administrative			24,474			66,673			76,976			—			168,123

				24,474			273,576			164,826			(20,253	)		442,623


Income from operations				(24,474	)		59,493			33,216			—			68,235


Other income (expense):
		Equity in income of subsidiaries		58,442			—			—			(58,442	)		—
		Intercompany interest		8,255			—			(8,255	)		—			—
		Interest		(3,544	)		(1	)		(317	)		—			(3,862	)
		Miscellaneous, net		1,143			1,993			1,751			—			4,887

				64,296			1,992			(6,821	)		(58,442	)		1,025


Income before provision for income taxes				39,822			61,485			26,395			(58,442	)		69,260

(Benefit)/ provision for income taxes				(6,000	)		21,520			7,918			—			23,438


Net income			$	45,822		$	39,965		$	18,477		$	(58,442	)	$	45,822

Condensed Consolidating Statement of Income
Three Months Ended December 31, 2006

			Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales			$	—		$	349,550		$	175,442		$	(18,755	)	$	506,237


Costs and expenses:
	Cost of sales			—			192,562			73,240			(18,755	)		247,047
	Advertising, promotion and catalog			—			22,796			3,967			—			26,763
	Selling, general and administrative			24,605			64,265			63,069			—			151,939

				24,605			279,623			140,276			(18,755	)		425,749


Income from operations				(24,605	)		69,927			35,166			—			80,488


Other income (expense):
		Equity in income of subsidiaries		65,686			—			—			(65,686	)		—
		Intercompany interest		6,699			—			(6,699	)		—			—
		Interest		(4,760	)		(14	)		(289	)		—			(5,063	)
		Miscellaneous, net		612			(192	)		919			—			1,339

				68,237			(206	)		(6,069	)		(65,686	)		(3,724	)


Income before provision for income taxes				43,632			69,721			29,097			(65,686	)		76,764

(Benefit)/ provision for income taxes				(7,224	)		24,403			8,729			—			25,908


Net income			$	50,856		$	45,318		$	20,368		$	(65,686	)	$	50,856

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

12. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)

Condensed Consolidating Statement of Cash Flows
For the Three Months Ended December 31, 2007

					Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
	Net income				$	45,822		$	39,965		$	18,477		$	(58,442	)	$	45,822
	Adjustments to reconcile net income to net cash & cash equivalents provided by operating activities:
		Equity in earnings of subsidiaries				(58,442	)		—			—			58,442			—
		Impairments and disposals of property, plant and equipment				77			383			2			—			462
		Depreciation and amortization				1,546			9,019			3,367			—			13,932
		Foreign currency transaction (gain) / loss				(673	)		(911	)		285			—			(1,299	)
		Amortization and write-off of deferred financing costs				152			—			—			—			152
		Amortization and write-off of bond discount				34			—			—			—			34
		Allowance for doubtful accounts				—			(229	)		—			—			(229	)
		Inventory reserves				—			798			263			—			1,061
		Deferred income taxes				—			449			—			—			449
		Excess income tax benefit from exercise of stock options				(88	)		—			—			—			(88	)
		Changes in operating assets and liabilities, net of acquisitions:										—
			Accounts receivable			—			(11,787	)		(2	)		—			(11,789	)
			Inventories			—			(2,252	)		(5,532	)		—			(7,784	)
			Prepaid expenses and other current assets			—			4,226			(2,951	)		—			1,275
			Other assets			—			(490	)		—			—			(490	)
			Accounts payable			—			(1,724	)		2,411			—			687
			Accrued expenses and other liabilities			—			6,897			945			—			7,842

				Net cash (used in) provided by operating activities		(11,572	)		44,344			17,265			—			50,037

Cash flows from investing activities:
	Intercompany accounts					32,798			(41,152	)		8,354			—			—
	Purchase of property, plant and equipment					(2,183	)		(3,353	)		(4,278	)		—			(9,814	)
	Purchase of available-for-sale investments					(55,148	)		—			—			—			(55,148	)
	Proceeds from sale of available-for-sale investments					36,140			—			3,132			—			39,272
	Cash paid for acquisitions, net of cash acquired					(5,072	)		—			—			—			(5,072	)

				Net cash provided by (used in) investing activities		6,535			(44,505	)		7,208			—			(30,762	)

Cash flows from financing activities:
	Principal payments under long-term debt agreements and capital leases					(206	)		(33	)		—			—			(239	)
	Excess income tax benefit from exercise of stock options					88			—			—			—			88
	Purchase of treasury stock (subsequently retired)					(10,603	)		—			—			—			(10,603	)

				Net cash used in financing activities		(10,721	)		(33	)		—			—			(10,754	)

Effect of exchange rate changes on cash and cash equivalents						—			194			(2,676	)		—			(2,482	)

Net (decrease) increase in cash and cash equivalents						(15,758	)		—			21,797			—			6,039
Cash and cash equivalents at beginning of period						22,239			—			70,663			—			92,902

Cash and cash equivalents at end of period					$	6,481		$	—		$	92,460		$	—		$	98,941

NBTY, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(Dollars in thousands)

12. Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes (Continued)

Condensed Consolidating Statement of Cash Flows
For the Three Months Ended December 31, 2006

					Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
	Net income				$	50,856		$	45,318		$	20,368		$	(65,686	)	$	50,856
	Adjustments to reconcile net income to net cash & cash equivalents provided by operating activities:
		Equity in earnings of subsidiaries				(65,686	)		—			—			65,686			—
		Impairments and disposals of property, plant and equipment				10			361			21			—			392
		Depreciation and amortization				1,880			8,986			3,365						14,231
		Foreign currency transaction loss/(gain)				825			(413	)		(94	)					318
		Amortization and write-off of deferred financing costs				1,303												1,303
		Amortization of bond discount				31												31
		Allowance for doubtful accounts							(160	)		25			—			(135	)
		Inventory reserves				—			1,657			635			—			2,292
		Deferred income taxes							3,886			—			—			3,886
		Excess income tax benefit from exercise of stock options				(20	)		—			—			—			(20	)
		Changes in operating assets and liabilities, net of acquisition:
			Accounts receivable			—			(4,600	)		2,084			—			(2,516	)
			Inventories			—			(765	)		(4,322	)		—			(5,087	)
			Prepaid expenses and other current assets			—			6,118			(1,675	)		—			4,443
			Other assets			—			(163	)		—			—			(163	)
			Accounts payable			—			(4,189	)		7,023			—			2,834
			Accrued expenses and other liabilities			—			6,919			3,322			—			10,241

				Net cash (used in) provided by operating activities		(10,801	)		62,955			30,752			—			82,906

Cash flows from investing activities:
	Intercompany accounts					57,124			(71,578	)		14,454			—			—
	Purchase of property, plant and equipment					(876	)		(3,476	)		(1,860	)		—			(6,212	)
	Purchase of available-for-sale investments					(214,718	)		—			—			—			(214,718	)
	Proceeds from sale of available-for-sale investments					154,844			—			—			—			154,844
	Cash paid for acquisition, net of cash acquired					(38,219	)		—			—			—			(38,219	)
	Cash collateral securing loan					—			—			(18,360	)		—			(18,360	)

				Net cash used in investing activities		(41,845	)		(75,054	)		(5,766	)		—			(122,665	)

Cash flows from financing activities:
	Principal payments under long-term debt agreements and capital leases					(151	)		(45	)		—			—			(196	)
	Payments for financing fees					(1,649	)		—			—			—			(1,649	)
	Excess income tax benefit from exercise of stock options					20			—			—			—			20
	Proceeds from stock options exercised					12			—			—			—			12

				Net cash used in financing activities		(1,768	)		(45	)		—			—			(1,813	)

Effect of exchange rate changes on cash and cash equivalents						613			(431	)		1,581			—			1,763

Net (decrease) increase in cash and cash equivalents						(53,801	)		(12,575	)		26,567			—			(39,809	)
Cash and cash equivalents at beginning of period						59,966			9,385			20,454			—			89,805

Cash and cash equivalents at end of period					$	6,165		$	(3,190	)	$	47,021		$	—		$	49,996

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

(Dollars and shares in thousands, except per share amounts)

Forward-Looking Statements

This 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," or "anticipate," or the negative thereof, or variations thereon, 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 which may materially affect such forward-looking statements include:

•: slow or negative growth in the nutritional supplement industry;
•: 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 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;
•: changes in general worldwide economic and political conditions in the markets in which we may compete from time to time;
•: 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 the costs of same;
•: exposure to and expense of defending and resolving product liability claims, intellectual property claims and other litigation;
•: our ability to implement our business strategy successfully;
•: our inability to manage our retail, wholesale, manufacturing and other operations efficiently;
•: consumer acceptance of our products due to adverse publicity regarding nutritional supplements;
•: our inability to renew leases for our retail locations;
•: inability of our retail stores to attain or maintain profitability;
•: the absence of clinical trials for many of our products;
•: sales and earnings volatility or trends for us and our market segments;

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

•: the efficacy of our internet and on-line sales and marketing strategies;
•: fluctuations in foreign currencies, including the British pound, the euro and the Canadian dollar;
•: import-export controls on sales to foreign countries;
•: 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, the Food Supplements Directive and Traditional Herbal Medicinal Products Directive in Europe and Section 404 requirements of the Sarbanes-Oxley Act of 2002;
•: the mix of our products and the profit margins thereon;
•: the availability and pricing of raw materials;
•: risk factors discussed elsewhere in this report and in our Form 10-K for the fiscal year ended September 30, 2007;
•: adverse effects on us of increased energy prices and potentially reduced traffic flow to our retail locations;
•: adverse tax determinations;
•: the loss of a significant customer;
•: potential investment losses as a result of liquidity conditions; and
•: other factors beyond our control.

Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. Readers are cautioned not to place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements. 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.

Industry data used throughout this report was obtained from industry publications and internal Company estimates. While we believe such information to be reliable, its accuracy has not been independently verified and cannot be guaranteed.

The following discussion should also be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere herein and our 2007 Form 10-K.

Overview

We are 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 22,000 products under several brands, including Nature's Bounty®, Vitamin World®, Puritan's Pride®, Holland & Barrett®, Rexall®, Osteo-Bi-Flex®, Flex-a-min®, Knox®, Sundown®, MET-Rx®, WORLDWIDE Sport Nutrition®, American Health®, DeTuinen®, Le Naturiste™, SISU®, Solgar® and Ester-C®.

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

We market our products through four distribution channels:

•: Wholesale/US Nutrition—This segment is comprised of several divisions, each targeting specific market groups which include wholesalers, distributors, supermarket and drug store chains, pharmacies, health food stores, bulk and international customers.
•: North American Retail—This segment generates revenue through its 454 owned and operated Vitamin World stores selling proprietary brand and third-party products and through its Canadian operation of 80 owned and operated Le Naturiste stores.
•: European Retail—This segment generates revenue through its 514 Holland & Barrett stores, 31 GNC stores in the UK, 70 DeTuinen stores in the Netherlands and 19 Nature's Way stores in Ireland. Such revenue consists of sales of proprietary brand and third-party products as well as franchise fees.
•: Direct Response/E-Commerce—This 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 phoning customer service representatives in New York, Illinois or the United Kingdom.

Critical Accounting Policies

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007. A discussion of our critical accounting policies and estimates are included in Management's Discussion and Analysis of Results of Operations and Financial Condition in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007. Management has discussed the development and selection of these policies with the Audit Committee of the Company's Board of Directors, and the Audit Committee of the Board of Directors has reviewed the Company's disclosures of these policies. There have been no material changes to the critical accounting policies or estimates reported in the Management's Discussion and Analysis section of the audited financial statements for the fiscal year ended September 30, 2007 as filed with the Securities and Exchange Commission.

Results of Operations

Operating results in all periods presented include the results of acquisitions. The timing of acquisitions and the changing mix of our businesses may affect the comparability of results from one period to another.

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

Three Months Ended December 31, 2007 Compared to the Three Months Ended December 31, 2006:

Net Sales

Net sales by segment for the three months ended December 31, 2007 as compared with the prior comparable period were as follows:

Net Sales by Segment
Three months ended December 31

		2007				2006				Comparison 2007 vs. 2006
Segment				% of total				% of total		Comparison 2007 vs. 2006
Segment		Net Sales		% of total		Net Sales		% of total		$ change			% change
Wholesale/US Nutrition		$	258,935	50.7	%	$	246,728	48.7	%	$	12,207		4.9	%
North American Retail			56,182	11.0	%		54,973	10.9	%		1,209		2.2	%
European Retail			158,597	31.0	%		152,966	30.2	%		5,631		3.7	%
Direct Response/E-Commerce			37,144	7.3	%		51,570	10.2	%		(14,426	)	(28.0	)%

	Net sales	$	510,858	100.0	%	$	506,237	100.0	%	$	4,621		0.9	%

Wholesale/US Nutrition

Net sales for the Wholesale/US Nutrition segment increased $12,207 or 4.9% to $258,935 for the three months ended December 31, 2007. This increase was due to increased distribution to existing customers, new product introductions and promotions. Some of the major brands in this segment include Nature's Bounty, Solgar, Osteo Bi-Flex, Rexall, Ester C and Sundown. Collectively, sales of these brands increased $10,005. In addition, our wholesale net sales to international customers increased $3,693. We continue to use targeted promotions to grow overall net sales. Promotional programs and rebates increased as a percentage of sales to 10.0% for the three months ended December 31, 2007 from 7.0% for the prior comparable period. We continue to adjust shelf space allocation between the US Nutrition 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 market. 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.

Product returns were $6,638 or 2.2% of sales for the three months ended December 31, 2007 as compared to $5,323 or 2.0% of sales for the prior comparable period. The product returns for the three months ended December 31, 2007 and 2006 are mainly attributable to returns in the ordinary course of business. We expect sales returns relating to normal business operations to trend at approximately 2% of Wholesale net sales.

Two customers of the Wholesale/US Nutrition division represented, individually, 21% and 9% of the Wholesale/US Nutrition segment's net sales for the three months ended December 31, 2007 and 16% and 11% for the three months ended December 31, 2006. The loss of any one of our major customers would have a material adverse effect on the Wholesale/US Nutrition segment if the Company is unable to replace such customer(s).

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

North American Retail

Net sales for this segment increased $1,209 or 2.2% to $56,182 for the three months ended December 31, 2007, despite operating 32 fewer stores at the end of December 2007 as compared to 2006. This increase was due to an improvement in sales for stores open more than one year (same store sales) of 6%. In addition, same store sales benefited from the strengthening of the Canadian dollar. Excluding the effect of the Canadian dollar currency fluctuation, same store sales increased 4%. Additionally, the number of customers in the Savings Passport Program, a customer loyalty program, increased approximately 1.4 million to 8.7 million customers at December 31, 2007, as compared to 7.3 million customers at the end of the prior comparable period. The Savings Passport Card is used to increase customer traffic and provide incentives for customers to purchase at Vitamin World. It is also an additional tool we utilize to track customer preferences and purchasing trends. During the three months ended December 31, 2007, we opened two stores and closed five under-performing Vitamin World stores. We anticipate opening 10 stores and that approximately 18 under-performing stores will be closed during the remainder of the fiscal year.

The following is a summary of North American Retail store activity for the three months ended December 31, 2007 and 2006:

		Three months ended December 31,
North American Retail stores:		Three months ended December 31,
North American Retail stores:		2007		2006
*Vitamin World*
	Open at beginning of the period	457		476
	Opened during the period	2		1
	Closed during the period	(5	)	(4	)
	Open at end of the period	454		473
*Le Naturiste*
	Company-owned stores
	Open at beginning of the period	80		95
	Opened during the period	—		—
	Closed during the period	—		(3	)
	Open at end of the period	80		92
	Franchised stores
	Open at beginning of the period	—		1
	Opened during the period	—		—
	Closed during the period	—		—
	Open at end of the period	—		1

European Retail

The increase in net sales for this segment is the result of favorable foreign currency translation. Due in part to the difficult retail environment in the U.K., local currency same store sales for stores open more than one year declined 4% from the prior like period. Same store sales in U.S. dollars increased 2% or $3,442 as compared to the prior comparable period. The European Retail division

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

continues to leverage its premier status, high street locations and brand awareness to maintain its leadership position.

The following is a summary of European Retail store activity for the three months ended December 31, 2007 and 2006:

	Three months ended December 31,
European Retail stores:	Three months ended December 31,
European Retail stores:	2007	2006
Company-owned stores
Open at beginning of the period	604	595
Opened during the period	8	2
Closed during the period	—	—
Open at end of the period	612	597
Franchised stores
Open at beginning of the period	22	22
Opened during the period	—	—
Closed during the period	—	—
Open at end of the period	22	22

Direct Response/E-Commerce

Direct Response/E-Commerce net sales decreased $14,426 or 28.0% to $37,144 for the three months ended December 31, 2007. In addition, the average order size decreased approximately 32% for the three months ended December 31, 2007, as compared to the three months ended December 31, 2006. These results reflect a highly promotional campaign that was conducted in the three months ended December 31, 2006 but not repeated in the current quarter ended December 31, 2007. On-line net sales comprised 39.8% of this segment's net sales for the three months ended December 31, 2007 as compared to 36.0% for the three months ended December 31, 2006. We remain the leader in the direct response and e-commerce sectors and continue to increase the number of products available via our catalog and websites. Puritan's Pride continues to vary its promotional strategy throughout the fiscal year and as such, its historical results reflect this pattern and should be viewed on an annual, and not quarterly, basis.

Gross Profit

Gross Profit by segment for the three months ended December 31, 2007 as compared with the prior comparable period was as follows:

Gross Profit by Segment
Three months ended December 31,

		2007				2006				Comparison 2007 vs. 2006
Segment				% of sales				% of sales		Comparison 2007 vs. 2006
Segment		Gross Profit		% of sales		Gross Profit		% of sales		$ change			% change
Wholesale/US Nutrition		$	113,595	43.9	%	$	97,920	39.7	%	$	15,675		16.0	%
North American Retail			33,342	59.3	%		32,799	59.7	%		543		1.7	%
European Retail			100,048	63.1	%		96,730	63.2	%		3,318		3.4	%
Direct Response/E-Commerce			23,542	63.4	%		31,741	61.6	%		(8,199	)	(25.8	)%

	Gross Profit	$	270,527	53.0	%	$	259,190	51.2	%	$	11,337		4.4	%

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

The Wholesale/US Nutrition segment's gross profit as a percentage of net sales increased to 43.9% for the three months ended December 31, 2007 from the prior comparable period of 39.7% as a result of greater efficiencies generated in manufacturing and supply chain management brought about by economies of scale and changes in product mix. Some of the largest contributors to gross profit in this segment include the following brands; Nature's Bounty, Solgar, Osteo Bi-Flex, Rexall, Ester C and Sundown. In addition, gross profit percentage increases were realized across a majority of wholesale categories.

The increase in the European Retail segment's gross profit is the result of favorable foreign currency translation. In local currency the segment's gross profit decreased 3% from the prior comparable period consistent with the decline in local currency net sales. The gross profit percentage remained consistent with the prior comparable period.

The decrease in gross profit dollars in the Direct Response/E-Commerce segment is due to lower sales volumes relating to a highly promotional campaign that was conducted in the three months ended December 31, 2006 but not repeated in the current quarter ended December 2007. In addition, the reduced promotional activity during the current quarter contributed to an increase in the gross profit percentage to 63.4% from 61.6% in the prior comparable quarter.

Advertising, Promotion and Catalog Expenses

Total advertising, promotion and catalog expenses by segment for the three months ended December 31, 2007 as compared with the prior comparable period were as follows:

								Dollar Change			Percentage Change
		Three months ended December 31,						Dollar Change			Percentage Change
		Three months ended December 31,						2007 vs. 2006			2007 vs. 2006
		2007			2006			2007 vs. 2006			2007 vs. 2006
Wholesale/US Nutrition		$	23,452		$	17,072		$	6,380		37	%
North American Retail			2,097			1,668			429		26	%
European Retail			3,465			2,914			551		19	%
Direct Response/E-Commerce			5,043			4,828			215		4	%
Corporate			112			281			(169	)	(60	)%

	Total	$	34,169		$	26,763		$	7,406		28	%

	Percentage of net sales		6.7	%		5.3	%

The increase in the Wholesale/US Nutrition segment's advertising, promotions and catalogs is due to the timing of advertising campaigns for some of our leading brands. During the current quarter, we conducted a television campaign for our Ester-C brand, which was the primary cause of the increase in the Wholesale/US Nutrition segment's advertising expense. We create our own advertising materials through our in-house staff of advertising associates. In the U.K. and Ireland, both Holland & Barrett and Nature's Way advertise on television and in national newspapers. GNC (UK) and De Tuinen also advertise in newspapers. SISU advertises in trade journals and magazines.

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

Selling, General and Administrative Expenses

Selling, general and administrative expenses by segment for the three months ended December 31, 2007 as compared with the prior comparable period were as follows:

								Dollar Change		Percentage Change
		Three months ended December 31,						Dollar Change		Percentage Change
		Three months ended December 31,						2007 vs. 2006		2007 vs. 2006
		2007			2006			2007 vs. 2006		2007 vs. 2006
Wholesale/US Nutrition		$	36,162		$	31,259		$	4,903	16	%
North American Retail			32,109			30,043			2,066	7	%
European Retail			61,516			54,992			6,524	12	%
Direct Response/E-Commerce			11,377			11,320			57	1	%
Corporate			26,959			24,325			2,634	11	%

	Total	$	168,123		$	151,939		$	16,184	11	%

	Percentage of net sales		32.9	%		30.0	%

Increases in payroll and payroll related expenses across all segments of $5,479 (excluding the effect of foreign currency translation) contributed to the overall increase in selling, general and administrative expenses. In addition, of the $16,184 total increase, $3,659 was the result of foreign currency translation. The Wholesale/US Nutrition's selling, general and administrative expense also increased due to higher occupancy costs and commissions to brokers. The North American Retail's selling, general and administrative expense also includes increases in store supplies and occupancy costs. The European Retail's selling, general and administrative expense increased due to foreign exchange translation as well as increased payroll and occupancy expenses.

Interest Expense

Interest expense decreased primarily due to a write off of deferred financing fees of $1,126 in the three months ended December 31, 2006 for costs related to the termination of a prior credit agreement.

Miscellaneous, net

The components of miscellaneous, net were as follows:

							Dollar Change
		Three months ended December 31,					Dollar Change
		Three months ended December 31,					2007 vs. 2006
		2007		2006			2007 vs. 2006
Foreign exchange gains / (losses)		$	1,490	$	(318	)	$	1,808
Rental income			295		184			111
Investment income			2,674		880			1,794
Other			428		593			(165	)

	Total	$	4,887	$	1,339		$	3,548

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

Miscellaneous, net increased primarily due to unrealized foreign exchange gains on intercompany balances for the three months ended December 31, 2007 as compared to unrealized foreign exchange losses in the prior comparable period associated with the weakening of the U.S. dollar against the British Pound as well as investment income earned on higher cash equivalents and short term investments balances.

Provision for 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 December 31, 2007 and December 31, 2006 was 33.8%. The effective income tax rates are generally lower than the U.S. federal statutory rate, primarily due to the structure of our foreign subsidiaries which could also continue to impact future fiscal quarters.

We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Effective October 1, 2007, we adopted FIN 48, "Accounting for Uncertainty in Income Taxes." In accordance with FIN 48, we recognized a cumulative-effect adjustment of $3,025, increasing our liability for unrecognized tax benefits, interest and penalties and reducing the October 1, 2007 balance of retained earnings.

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. We believe that 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 promotional activities.

Liquidity and Capital Resources

Our primary source of liquidity and capital resources is cash generated from operations. We also maintain a $325,000 revolving credit facility, which has not yet been drawn upon. The facility provides for revolving credit loans in the aggregate principal amount of up to $325,000 to be used for (a) the repayment of all obligations outstanding under our prior credit agreement (which consisted solely of commitment fees since we had previously repaid all amounts borrowed under the prior credit agreement), (b) working capital and other general corporate purposes, and (c) acquisitions. In connection with the revolving credit facility, our prior credit agreement was terminated. We have used cash 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.

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

The following table sets forth, for the periods indicated, cash balances, short-term investments and working capital:

	As of December 31, 2007		As of September 30, 2007
Cash and cash equivalents at end of the period	$	98,941	$	92,902
Cash and cash equivalents held by foreign subsidiaries	$	93,060	$	70,663
Investments (short-term)	$	137,301	$	121,382
Working capital	$	602,873	$	575,255

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:

	For the three months ended December 31,
	2007			2006
Cash flow provided by operating activities	$	50,037		$	82,906
Cash flow used in investing activities	$	(30,762	)	$	(122,665	)
Cash flow used in financing activities	$	(10,754	)	$	(1,813	)
Inventory turnover		2.5			2.7
Days sales (Wholesale) outstanding in accounts receivable		40			37

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 U.S. We generally repatriate all earnings from our foreign subsidiaries where permitted under local law. However, during fiscal 2007 we reinvested a portion of our foreign earnings in a lower tax jurisdiction.

The increase in working capital of $27,618 as compared to September 30, 2007 was primarily due to cash flows from operations for the three months ended December 31, 2007. The annualized inventory turnover rate was approximately 2.5 times during the current period ended December 31, 2007 compared to 2.7 during the prior like period. The increase in inventory reflects our ongoing efforts to maintain a sufficient supply of product to respond to our increased sales levels.

Cash provided by operating activities during the three month period ended December 31, 2007 was mainly attributable to net income and non-cash charges, slightly offset by changes in operating assets and liabilities.

During the three month period ended December 31, 2007, cash flows used in investing activities consisted primarily of net purchases of auction rate securities, purchases of property, plant and equipment and cash paid in connection with an acquisition.

For the three month period ended December 31, 2007 cash flows used in financing activities related to the purchase of treasury shares (subsequently retired), principal payments under long-term debt agreements and principal payments under capital lease obligations, offset by excess tax benefit from the exercise of stock options.

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

We believe our available cash and short term investment balances, cash generated from operations, as well as our borrowings available 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. Our short term investment balances consist of auction rate securities and variable rate demand notes. The underlying auction rate securities are rated between A and Aaa. With respect to the auction rate securities, although we have not experienced a failed auction associated with any of our auction rate securities, in the case of a failed auction, the auction rate security becomes an illiquid long-term bond (until the failed auction is resolved by the issuer) and the subsequent reset rates on such security are set above the market specified rates in the prospectus/offering circular. Any impairment in the value of our investments due to failed auctions, or securities which have defaulted, could adversely impact our earnings and impact our future earnings. In addition, as part of our strategy, we may pursue acquisitions and investments that are complementary to our business. Any material future acquisitions or investments will likely require additional capital and therefore, we cannot predict or assure that additional funds from existing sources will be sufficient for such future events.

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 expire at various dates through 2031. 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 December 31, 2007, we had $517,489 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.

We were committed to make future purchases for inventory related items, such as raw materials and finished goods, under various purchase arrangements with fixed price provisions aggregating $119,085 at December 31, 2007. Such purchase commitments are generally cancelable at our discretion until the order has been shipped, but require repayment of all expenses incurred through the date of cancellation. During the three months ended December 31, 2007 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 had $6,029 in open capital commitments at December 31, 2007, primarily related to manufacturing equipment as well as to computer hardware and software. At December 31, 2007, we had an additional $4,436 included in accounts payable for capital additions, primarily computer software.

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

At December 31, 2007, we had $10,446 in unrecognized tax benefits, the recognition of which would have an effect of $6,288 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.

Although employment agreements with two of our executive offices expired by their terms on September 30, 2007, both executives remain actively employed by the Company and new agreements are being negotiated. 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 H&B executive staff as of December 31, 2007 was approximately $1,737.

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, 2008, in exchange for a consulting fee of $450 per year, payable monthly. In addition, Mr. Rudolph receives certain fringe benefits accorded to our other executives.

We have grown our business through acquisitions, and expect to continue seeking to acquire entities in similar or complementary businesses. Such acquisitions are likely to require the incurrence and/or assumption of indebtedness and/or obligations, the issuance of equity securities or some combination thereof. In addition, we may from time to time 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 which might be required in any such transactions.

Inflation

Inflation affects the cost of raw materials, goods and services used by us. In recent years, inflation has been modest. However, high oil costs can affect the cost of all raw materials and components. The competitive environment somewhat limits our ability to recover higher costs resulting from inflation by raising prices. However, to the extent possible, it is anticipated that a portion of these cost increases will be reflected in the prices of our products. Although we cannot precisely determine the effects of inflation on our business, it is management's belief that the effects on revenues and operating results have not been significant. We seek to mitigate the adverse effects of inflation primarily through improved productivity and strategic buying initiatives. We do not believe that inflation has had a material impact on our results of operations for the periods presented, except with respect to payroll-related costs, insurance premiums, and other costs arising from or related to government imposed regulations.

Financial Covenants and Credit Rating

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

NBTY, Inc. and Subsidiaries

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

(Dollars and shares in thousands, except per share amounts)

advantage of business or acquisition opportunities. We are in compliance with all covenants under our credit arrangements at December 31, 2007.

At December 31, 2007, credit ratings were as follows:

Credit Rating Agency		7¹/8 Notes		Overall
Standard and Poors		B+		BB
Moody's		Ba3		Ba2

Recent Accounting Developments

NBTY, Inc. and Subsidiaries

Item 3. Quantitative and Qualitative Disclosures About Market Risk

(Dollars and shares in thousands)

Quantitative and Qualitative Disclosures About Market Risk

We are subject to currency fluctuations, primarily with respect to the British pound, the euro and the Canadian dollar, and interest rate risks that arise from normal business operations. We regularly assess these risks. As of December 31, 2007, we had not entered into any hedging transactions.

We have subsidiaries whose operations are denominated in foreign currencies (primarily the British pound, the euro and the Canadian dollar). We consolidate the earnings of our international subsidiaries by translating them into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52 "Foreign Currency Translation" (SFAS 52). The statements of income of our international operations are translated 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 currencies denominated transactions results in increased net sales, operating expenses and net income. Similarly, our 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 $184,743, or 36.2% of total net sales, for the three months ended December 31, 2007. A majority of our foreign currency exposure is denominated in the British pound. During the three months ended December 31, 2007, the U.S. dollar weakened approximately 6.6% against the British pound, as compared to the prior comparable period, resulting in an increase in net sales of approximately $10,616 and an increase in operating income of approximately $1,997 for the three months ended December 31, 2007. The related impact on net income was approximately $0.04 per diluted share for the three months ended December 31, 2007.

We are exposed to changes in interest rates on our floating rate revolving credit facility and on our interest income earned on short-term investments. However, at December 31, 2007 we had no borrowings outstanding on our floating rate revolving credit facility. Our interest income would be lower if interest rates declined.

We believe that a significant fluctuation in interest rates in the near future will not have a material impact on our consolidated financial statements, since we had no variable rate debt outstanding at December 31, 2007. 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.

The 7¹/8% Senior Subordinated Notes had a fair value at December 31, 2007, based on then quoted market prices, of $184,775. At December 31, 2007, 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 $6,000. We believe that the carrying value of all of our other financial instruments approximates fair value due to their short maturities and variable interest rates.

NBTY, Inc. and Subsidiaries

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) under the Exchange Act) are designed to provide reasonable assurance 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 Securities and Exchange Commission. Our disclosure controls and procedures are also designed 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 officer, to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, have concluded, based on their respective evaluations as of the end of the period covered by this Report, that our disclosure controls and procedures are effective as of December 31, 2007.

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) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

NBTY, Inc. and Subsidiaries

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Prohormone products

California Action

New Jersey Action

Nutrition Bars

NBTY Inc. and Subsidiaries

Item 1A. Risk Factors

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed under part 1—"Item 1A. Risk Factors" in our annual report on Form 10-K for the year ended September 30, 2007, which could materially adversely affect our business, financial condition, operating results and cash flows. The risks and uncertainties described in our Form 10-K for the year ended September 30, 2007 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. Since September 30, 2007, there have been no significant changes relating to risk factors.

NBTY, Inc. and Subsidiaries

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides information with respect to our purchase of NBTY Common Stock during the first quarter of fiscal 2008 (shares in thousands):

		Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Approximate Number of Shares that May Yet Be Purchased Under the Program
10/1/2007 - 10/31/2007		296	$	35.87	296	10,270

	Total	296			296

(1): All shares were repurchased in open-market transactions as part of our publicly announced 20 million share repurchase program, announced on March 11, 1999. At December 31, 2007, there were 10,270 shares available to be repurchased under this program.

NBTY, Inc. and Subsidiaries

Item 6. Exhibits

Exhibit No.		Description
3.1		Restated Certificate of Incorporation of NBTY, Inc.(2)
3.2		Amended and Restated By-Laws of NBTY, Inc.(1)
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(3)
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 Harness, Inc., BNP Paribas Securities Corp., HSBC Securities (USA), Inc., and RBC Capital Markets Corporation(3)
10.1		Executive Consulting Agreement, effective January 1, 2002, by and between NBTY, Inc. and Rudolph Management Associates, Inc.(4)
10.2		First Amendment to Executive Consulting Agreement, effective January 1, 2003, by and between NBTY, Inc. and Rudolph Management Associates, Inc.(5)
10.3		Second Amendment to Executive Consulting Agreement, effective January 1, 2004, by and between NBTY, Inc. and Rudolph Management Associates, Inc.(6)
10.4		Third Amendment to Executive Consulting Agreement, effective January 1, 2005, by and between NBTY, Inc. and Rudolph Management Associates, Inc.(10)
10.5		Fourth Amendment to Executive Consulting Agreement, effective January 1, 2006, by and between NBTY, Inc., and Rudolph Management Associates, Inc.(11)
10.6		Fifth Amendment to Executive Consulting Agreement, effective January 1, 2007, by and between NBTY, Inc., and Rudolph Management Associates, Inc.(1)
10.7		Sixth Amendment to Executive Consulting Agreement, effective January 1, 2008, by and between NBTY, Inc., and Rudolph Management Associates, Inc.(12)
10.8		NBTY, Inc. Retirement Savings and Employees' Stock Ownership Plan(2)
10.9		NBTY, Inc. Year 2000 Incentive Stock Option Plan(7)
10.10		NBTY, Inc. Year 2002 Stock Option Plan(8)
10.11		Revolving Credit Agreement, dated as of November 3, 2006, among NBTY, Inc., as Borrower, The Several Lenders from Time to Time Parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, Bank of America, N.A., BNP Paribas, Citibank, N.A., and HSBC Bank USA, National Association, as Co-Syndication Agents(9)
10.12		Guarantee and Collateral Agreement, by NBTY, Inc., the Guarantors party thereto in favor of JPMorgan Chase Bank, N.A., as Administrative Agent, dated as of November 3, 2006(9)
10.13		Facility Agreement, dated September 20, 2006 for Good 'N Natural Limited with JPMorgan Chase Bank, N.A., London Branch(1)
10.14		Novation and Amendment Agreement, dated December 18, 2007 for Good 'N Natural Limited with JPMorgan Chase Bank, N.A., London Branch and J.P. Morgan Europe Limited*
31.1		Rule 13a-14(a) Certification of Chief Executive Officer*

31.2		Rule 13a-14(a) Certification of Chief 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*

*: Filed herewith
(1): Incorporated by reference to NBTY, Inc.'s Form 10-K for the fiscal year ended September 30, 2006 filed on December 11, 2006 (File #001-31788).
(2): Incorporated by reference to NBTY, Inc.'s Form 10-K for the fiscal year ended September 30, 2005 filed on December 22, 2005 (File #001-31788).
(3): Incorporated by reference to NBTY, Inc.'s Form 8-K filed on September 27, 2005 (File #001-31788).
(4): Incorporated by reference to NBTY, Inc.'s Form 10-K for the fiscal year ended September 30, 2002 filed on December 20, 2002 (File #0-10666).
(5): Incorporated by reference to NBTY, Inc.'s Form 10-K for the fiscal year ended September 30, 2003 filed on December 16, 2003 (File #001-31788).
(6): Incorporated by reference to NBTY, Inc.'s Form 10-K for the fiscal year ended September 30, 2004 filed on December 14, 2004 (File #001-31788).
(7): Incorporated by reference to NBTY, Inc.'s Form S-8, filed on September 20, 2000 (File #001-31788).
(8): Incorporated by reference to NBTY, Inc.'s Proxy Statement, dated March 25, 2002 (File #001-31788).
(9): Incorporated by reference to NBTY, Inc.'s Form 8-K, filed on November 8, 2006 (File #001-31788).
(10): Incorporated by reference to NBTY, Inc.'s Form 10-Q, filed on May 9, 2005 (File #001-31788).
(11): Incorporated by reference to NBTY, Inc.'s Form 10-Q, filed on February 2, 2006 (File #001-31788).
(12): Incorporated by reference to NBTY, Inc.'s Form 8-K, filed on November 30, 2007 (File #001-31788).

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: February 6, 2008	By:	/s/ SCOTT RUDOLPH Scott Rudolph Chairman and Chief Executive Officer (Principal Executive Officer)
Date: February 6, 2008	By:	/s/ HARVEY KAMIL Harvey Kamil President and Chief Financial Officer (Principal Financial and Accounting Officer)

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