NBTY 10Q 2008 Q3 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 June 30, 2008
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 11779 (Address of principal executive offices) (Zip Code)
(631) 567-9500 (Registrant's telephone number, including area code)

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

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


Large accelerated filer ý		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

The number of shares of Common Stock (par value $.008 per share) outstanding as of August 1, 2008 was 61,034,155.

NBTY, INC.
TABLE OF CONTENTS

		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	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48
Item 4.	Controls and Procedures	49
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 6.	Exhibits	53
Signatures		55
Exhibits

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NBTY, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except per share amounts)

			June 30, 2008		September 30, 2007

Assets
Current assets:
	Cash and cash equivalents		$	121,976	$	92,902
	Investments			19,997		121,382
	Accounts receivable, net			103,603		98,454
	Inventories			404,760		384,990
	Deferred income taxes			21,856		21,441
	Prepaid expenses and other current assets			55,116		54,460

		Total current assets		727,308		773,629
Property, plant and equipment, net				322,694		323,154
Goodwill				250,057		251,753
Intangible assets, net				151,803		157,548
Other assets				33,683		28,851

		Total assets	$	1,485,545	$	1,534,935

Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term debt		$	965	$	989
	Accounts payable			76,736		71,852
	Accrued expenses and other current liabilities			121,040		125,533

		Total current liabilities		198,741		198,374
Long-term debt, net of current portion				208,999		210,106
Deferred income taxes				59,443		61,788
Other liabilities				12,044		8,697

		Total liabilities		479,227		478,965

Commitments and contingencies
Stockholders' equity:
	Common stock, $.008 par; authorized 175,000 shares; issued and outstanding 61,034 shares at June 30, 2008 and 67,118 shares at September 30, 2007			488		537
	Capital in excess of par			140,783		143,244
	Retained earnings			821,491		864,852
	Accumulated other comprehensive income			43,556		47,337

		Total stockholders' equity		1,006,318		1,055,970

		Total liabilities and stockholders' equity	$	1,485,545	$	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)
(in thousands, except per share amounts)

			Three months ended June 30,						Nine months ended June 30,

			2008			2007			2008			2007
Net sales			$	534,519		$	503,368		$	1,577,895		$	1,518,065

Costs and expenses:
	Cost of sales			262,455			240,597			764,069			727,174
	Advertising, promotion and catalog			35,732			28,268			108,908			89,472
	Selling, general and administrative			166,058			157,484			500,590			461,387

				464,245			426,349			1,373,567			1,278,033

Income from operations				70,274			77,019			204,328			240,032

Other income (expense):
	Interest			(3,721	)		(3,819	)		(11,239	)		(13,036	)
	Miscellaneous, net			2,417			3,822			11,089			7,468

				(1,304	)		3			(150	)		(5,568	)

Income before provision for income taxes				68,970			77,022			204,178			234,464
Provision for income taxes				23,444			25,796			68,604			75,029

		Net income	$	45,526		$	51,226		$	135,574		$	159,435

Net income per share:
	Basic		$	0.74		$	0.76		$	2.11		$	2.37
	Diluted		$	0.72		$	0.74		$	2.06		$	2.29
Weighted average common shares outstanding:
	Basic			61,280			67,353			64,105			67,279
	Diluted			62,830			69,600			65,826			69,554

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

NBTY, Inc.
Condensed Consolidated Statements of Stockholders' Equity and Comprehensive Income
Nine Months Ended June 30, 2008 and 2007
(Unaudited)
(in thousands)

		Common Stock

		Common Stock												Accumulated Other Comprehensive Income
		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											159,435						159,435
	Foreign currency translation adjustment and other, net of taxes														13,723			13,723

Comprehensive income:																	$	173,158

Exercise of stock options			157			1			891									892
Excess tax benefit from exercise of stock options									2,356									2,356

Balance, June 30, 2007			67,369		$	539		$	142,024		$	830,495		$	42,780		$	1,015,838

Balance, September 30, 2007			67,118		$	537		$	143,244		$	864,852		$	47,337		$	1,055,970
Components of comprehensive income:
	Net income											135,574						135,574
	Foreign currency translation adjustment and other, net of taxes														(3,781	)		(3,781	)

Comprehensive income:																	$	131,793

Adoption of FIN 48												(3,025	)					(3,025	)
Purchase and retirement of treasury shares			(6,716	)		(54	)		(12,468	)		(175,910	)					(188,432	)
Exercise of stock options			632			5			3,847									3,852
Excess tax benefit from exercise of stock options									4,984									4,984
Stock-based compensation									1,176									1,176

Balance, June 30, 2008			61,034		$	488		$	140,783		$	821,491		$	43,556		$	1,006,318

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

NBTY, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

					Nine months ended June 30,

					2008			2007
Cash flows from operating activities:
	Net income				$	135,574		$	159,435
	Adjustments to reconcile net income to cash provided by operating activities:
		Impairments and disposals of property, plant and equipment				441			1,716
		Depreciation and amortization				41,038			42,037
		Foreign currency transaction gain				(1,594	)		(2,012	)
		Stock-based compensation				1,176			—
		Amortization and write-off of deferred charges				562			1,698
		Allowance for doubtful accounts				(543	)		(500	)
		Inventory reserves				5,676			5,866
		Deferred income taxes				1,372			11,087
		Excess income tax benefit from exercise of stock options				(4,984	)		(2,356	)
		Changes in operating assets and liabilities, net of acquisitions:
			Accounts receivable			(3,376	)		(4,455	)
			Inventories			(26,438	)		(24,694	)
			Prepaid expenses and other current assets			13,189			16,725
			Other assets			(1,445	)		(433	)
			Accounts payable			675			13,675
			Accrued expenses and other liabilities			472			(11,374	)

				Net cash provided by operating activities		161,795			206,415

Cash flows from investing activities:
	Purchase of property, plant and equipment					(32,740	)		(41,927	)
	Proceeds from sale of property, plant and equipment					709			97
	Purchase of available-for-sale investments					(364,917	)		(374,869	)
	Proceeds from sale of available-for-sale investments					463,087			239,603
	Cash paid for acquisitions, net of cash acquired					(5,072	)		(37,005	)
	Acquisition deposit					(11,500	)		—
	Cash collateral securing loan					—			(18,698	)

				Net cash provided by (used in) investing activities		49,567			(232,799	)

Cash flows from financing activities:
	Principal payments under long-term debt agreements
		and capital leases				(720	)		(652	)
	Payments of financing fees					—			(1,649	)
	Excess income tax benefit from exercise of stock options					4,984			2,356
	Proceeds from stock options exercised					3,852			892
	Purchase of treasury stock (subsequently retired)					(188,432	)		—

				Net cash (used in) provided by financing activities		(180,316	)		947

Effect of exchange rate changes on cash and cash equivalents						(1,972	)		4,384

Net increase (decrease) in cash and cash equivalents						29,074			(21,053	)
Cash and cash equivalents at beginning of period						92,902			89,805

Cash and cash equivalents at end of period					$	121,976		$	68,752

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

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

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.

Reclassifications

Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current year presentation.

Accounts Receivable Reserves and Allowances

Accounts receivable are net of the following reserves and allowances:

	June 30, 2008		September 30, 2007

Allowance for sales returns	$	9,356	$	8,499
Promotional program incentive allowance		31,027		27,429
Allowance for doubtful accounts		6,885		7,617

	$	47,268	$	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 completed during 2008. Accordingly, the book value of the land and building of $11,465 is classified as

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

1. Basis of Presentation (Continued)

held for sale within prepaid expenses and other current assets in the accompanying balance sheet at June 30, 2008. During the nine months ended June 30, 2008, the book value of the building increased due to capitalized improvements of $1,165. The book value of the land and building approximates its fair value less costs to sell.

Recent Accounting Developments

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("SFAS 161"). SFAS 161 requires enhanced disclosures regarding an entity's derivative and hedging activities. These enhanced disclosures include information regarding how and why an entity uses derivative instruments; how derivative instruments and related hedge items are accounted for under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", and its related interpretations; and how derivative instruments and related hedge items affect an entity's financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of SFAS 161 will not have a material impact on our financial position, results of operations or liquidity since we currently do not enter into derivatives or other hedging instruments.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), ("SFAS 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 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 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 for our fiscal year beginning on October 1, 2008. We anticipate that the adoption of SFAS 159 will not have a significant impact on our consolidated financial position or results of operations.

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

1. Basis of Presentation (Continued)

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 February 2008, the FASB issued FASB Staff Position 157-2, which provides for a one-year deferral of the provisions of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a non-recurring basis. We anticipate that the adoption of SFAS 157 will not have a significant impact on our consolidated financial position or results of operations.

2. Investments

At June 30, 2008, our ARS consisted of fully insured New York State municipal securities of $2,075 and Alabama Municipal Agency securities of $1,125. The underlying ARS, without insurance, were originally rated between A and Aaa. ARS 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. The ARS that we hold have maturities ranging from 18 to 33 years. The auctions have historically provided a liquid market for these securities. However, as a result of liquidity issues in the financial credit and capital markets, we have experienced multiple failed auctions, beginning with the second half of February 2008.

Based on our assessment of the credit quality of the underlying securities, including consideration given to the lack of liquidity for the securities, a downgrade of the credit ratings of the Alabama municipal agency securities and the overall unstable current market conditions, we believe that these ARS have experienced insignificant impairments. If uncertainties in the financial credit and capital markets continue, these markets deteriorate further or there are additional ratings downgrades on any ARS that we hold, we may be required to recognize impairment charges in the future which could adversely impact our future earnings.

As of June 30, 2008, the $3,200 of ARS are classified as non-current assets due to the fact that there is uncertainty in the current market and, although there has been an occasional successful auction, current conditions in the general financial markets have created uncertainty as to when successful auctions will occur on a more regular basis. In addition, while these ARS are classified as available for sale, we believe we have the ability to hold these securities to maturity or until the credit market recovers.

Investment income included in "miscellaneous, net" in the statements of income was $1,433 and $2,077 for the three months ended June 30, 2008 and 2007, respectively and $6,839 and $3,995 for the nine months ended June 30, 2008 and 2007, respectively.

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

3. Inventories

The components of inventories were as follows:

	June 30, 2008			September 30, 2007

Raw materials	$	111,380		$	92,924
Work-in-process		14,748			8,277
Finished goods		295,809			297,925
Valuation and obsolescence reserves		(17,177	)		(14,136	)

	$	404,760		$	384,990

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 nine month period ended June 30, 2008, 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		(46	)		(2,558	)				(2,604	)
Acquisition								908		908

Balance at June 30, 2008	$	75,592		$	158,360		$	16,105	$	250,057

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

4. Goodwill and Intangible Assets (Continued)

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 June 30, 2008 and September 30, 2007 were as follows:

		June 30, 2008				September 30, 2007

		Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization		Amortization period (years)
Definite lived intangible assets:
Brands		$	99,286	$	20,248	$	99,608	$	16,438	20
Customer lists			65,066		38,978		62,090		36,119	2–15
Private label and customer relationships			40,364		7,297		40,669		5,538	10–20
Trademarks and licenses			18,357		7,073		17,640		6,375	2–20
Covenants not to compete			3,552		3,026		3,056		2,845	3–5

			226,625		76,622		223,063		67,315
Indefinite lived intangible asset:
Trademark			1,800		—		1,800		—

	Total intangible assets	$	228,425	$	76,622	$	224,863	$	67,315

In connection with the acquisition of Doctor's Trust, completed in October 2007, customer lists, covenants not to compete and trademarks increased by $3,100, $500 and $300, respectively. Other changes in intangible assets relate to foreign currency translation.

Proforma financial information related to the Doctor's Trust acquisition in October 2007 is not provided as the impact was not material to our consolidated financial statements.

Aggregate amortization expense of definite lived intangible assets included in the consolidated statements of income under the caption "selling, general and administrative" expenses for the three months ended June 30, 2008 and 2007 was approximately $3,094 and $3,008, respectively. Amortization expense for the nine months ended June 30, 2008 and 2007 was approximately $9,329 and $8,990, 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	$	13,438
2009	$	12,197
2010	$	11,939
2011	$	11,898
2012	$	11,767

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

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. With respect to our retail operations, we consider a history of cash flow losses on a store by store basis to be a primary indicator of potential impairment.

No impairment charge was recorded for the three months ended June 30, 2008. During the three months ended June 30, 2007, we recognized an impairment charge of $550. During the nine months ended June 30, 2008 and 2007, we recognized an impairment charge of $350 and $1,134, 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:

	June 30, 2008		September 30, 2007

Accrued compensation and related taxes	$	28,596	$	25,742
Accrued purchases		16,749		12,541
Income taxes payable		10,015		12,329
Litigation		8,479		9,316
Other		57,201		65,605

	$	121,040	$	125,533

7. Long-Term Debt

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

In connection with the acquisition that was completed in July 2008 we utilized the full amount of our existing $325,000 revolving credit facility. See note 16 for further details regarding the acquisition and amendment to the revolving credit facility.

8. Litigation Summary

Prohormone products

California Action

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

8. Litigation Summary (Continued)

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. Plaintiffs moved for class certification in 2007, and on February 22, 2008, the court denied plaintiffs' motion for certification. Plaintiffs' have appealed that ruling.

MET-Rx also filed a motion to dismiss the lawsuit based upon plaintiffs' failure to prosecute the case diligently. That motion was granted in May 2008.

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 2007, 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. The Supreme Court issued a ruling in those cases on February 11, 2008, but the parties to those cases have filed a petition for certiorari with the United States Supreme Court. Accordingly, our case remains stayed, and Rexall cannot estimate how long the case will be stayed. Based upon the information currently available, no determination can be made at this time as to the final outcome of this case, nor can its materiality be accurately ascertained.

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

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

9. Income Taxes (Continued)

The effective income tax rate for the three months ended June 30, 2008 and June 30, 2007 was 34.0% and 33.5%, respectively. The effective income tax rate for the nine months ended June 30, 2008 and June 30, 2007 was 33.6% and 32.0%, respectively. The effective income tax rate was higher for the nine months ended June 30, 2008 as compared to the prior comparable period primarily due to the reinvestment of foreign earnings at a lower tax rate in fiscal 2007. 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 results in future fiscal quarters.

Effective October 1, 2007, we adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109" ("FIN 48"). 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 accrue 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 unrecognized tax benefits or accrued penalties and interest during the nine months ended June 30, 2008.

10. Stockholders' Equity and Net Income Per Share

During the three months ended June 30, 2008, the Company repurchased and retired 603 thousand shares of NBTY common stock at an average price of $28.91, totaling $17,423. For the nine months ended June 30, 2008, the Company repurchased and retired 6,716 thousand shares of NBTY common stock at an average price of $28.06, totaling $188,432. All shares were repurchased in open-market transactions as part of our publicly announced share repurchase program. As of June 30, 2008, there were approximately 3,850 thousand 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 and nine month periods ended June 30, 2008 and 2007. Diluted net income per share includes the dilutive effect of outstanding stock options, which resulted in a dilutive effect of 1,550 and 2,247 shares for the three months ended June 30, 2008 and 2007, respectively, and 1,721 and 2,275 shares for the nine months ended June 30, 2008 and 2007, respectively.

11. Stock-based Compensation

In February 2008, the Company adopted the NBTY, Inc. Year 2008 Stock Option Plan (the "2008 Plan"), which was approved by the Company's shareholders. The 2008 Plan is substantially identical to the NBTY, Inc. Year 2002 Stock Option Plan (the "2002 Plan"). No additional stock option awards will

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

11. Stock-based Compensation (Continued)

be granted under the 2002 Plan. The 2008 Plan will not affect the terms or conditions of the 151 thousand stock option awards granted in February 2008 under the 2002 Plan. In accordance with the 2008 Plan, the Company's Board of Directors ("Board") may grant up to approximately 1,327 thousand shares of common stock in the form of stock options (which is equal to the number of shares of common stock that remained available for stock option awards under the 2002 Plan as of February 2008). The exercise price per share for options granted may not be less than the fair market value per share of common stock on the date of grant. Stock options vest as determined by the Board and expire no later than 10 years from the date of grant.

In February and May 2008, the Company granted a total of 447 thousand stock options to directors and employees under the 2008 Plan, 151 thousand stock options to employees under the 2002 Plan and 367 thousand stock options to employees under the NBTY, Inc. Year 2000 Stock Option Plan for an aggregate grant of 965 thousand stock options. These stock options were granted at a weighted average exercise price of $25.52. All stock options were granted at a price equal to the fair market value of the Company's common stock on the dates of grant. These options vest over four years, with no vesting in 2009, and¹/3 vesting on the anniversary of the date of grant in 2010, 2011 and 2012, and expire ten years from the date of grant.

The weighted-average grant-date fair value per share of the options granted in February and May 2008 was $12.74. The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option pricing model. The following weighted-average assumptions were used for the options granted in February and May 2008:


Risk-free rate(1)	3.2	%
Expected term(2)	6.4 years
Expected volatility(3)	47	%
Expected dividends	0.0	%

(1): The risk-free rate is based upon the rate on a zero coupon U.S. Treasury bill, for periods within the contractual life of the option, in effect at the time of grant.
(2): The expected term of the option is based on historical employee exercise behavior, the vesting terms of the respective option and a contractual life of ten years.
(3): Expected volatility is primarily based on the daily historical volatility of our stock price, over a period similar to the expected life of the option.

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

11. Stock-based Compensation (Continued)

A summary of stock options as of June 30, 2008, and changes during fiscal 2008, is as follows:

			Weighted- Average Exercise Price			Aggregate Intrinsic Value

Outstanding at October 1, 2007	3,475		$	5.80
Granted	965		$	25.52
Exercised	(632	)	$	6.09
Forfeited	(3	)
Expired

Outstanding at June 30, 2008	3,805		$	10.76	3.74	$	81,052

Exercisable at June 30, 2008	2,840		$	5.74	1.74	$	74,741

For the nine months ended June 30, 2008, we recognized $1,176 in non-cash compensation cost related to stock options. At June 30, 2008, there was approximately $10,330 of unrecognized non-cash compensation cost related to stock options. That cost is expected to be recognized over a remaining period of approximately 4 years. We recognize expense on stock options using a straight-line method, which recognizes the associated expense ratably over the vesting period.

Cash proceeds, tax benefits, and intrinsic value related to total stock options exercised during the nine months ended June 2008 and 2007 were as follows:

	Nine months ended June 30,

	2008		2007
Cash proceeds from stock options exercised	$	3,852	$	892
Tax benefit realized for stock options exercised	$	4,984	$	2,356
Intrinsic value of stock options exercised	$	13,234	$	7,099

12. Business and Credit Concentration

Financial instruments

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 June 30, 2008, we had $3,200 of municipal auction rate securities, which were classified in non-current assets as available-for-sale investments (see Note 2 for additional disclosures regarding risks relating to auction rate securities due to a lack of liquidity).

Customers

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. 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.

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

12. Business and Credit Concentration (Continued)

The following individual customer accounted for the following percentages of net sales for the three and nine months ended June 30, 2008 and 2007, respectively:

	Wholesale/US Nutrition Net Sales Three months ended June 30,						Consolidated Net Sales Three months ended June 30,

	2008			2007			2008			2007
Customer A		20	%		18	%		10	%		9	%

	Wholesale/US Nutrition Net Sales Nine months ended June 30,						Consolidated Net Sales Nine months ended June 30,

	2008			2007			2008			2007
Customer A		22	%		18	%		11	%		9	%

The loss of this customer, or any of our other major customers, would have a material adverse effect on the Wholesale/US Nutrition segment if we were unable to replace such customer(s).

The following individual customers accounted for 10% or more of the Wholesale/US Nutrition segment's gross accounts receivable as of June 30, 2008 and September 30, 2007, respectively:



Customer A	17	%	14	%
Customer B	11	%	7	%

13. Supplemental Disclosure of Cash Flow Information

		Nine months ended June 30,

		2008		2007
Cash interest paid (net of capitalized interest of $1,112 and $402, respectively)		$	14,559	$	14,519
Cash income taxes paid (net of refunds of $480 for fiscal 2007)		$	62,144	$	68,990
Capital lease obligations		$	—	$	333
Property, plant and equipment additions included in accounts payable		$	1,816	$	383
*Non-cash investing and financing information:*
Acquisitions accounted for under the purchase method:
	Fair value of assets acquired	$	5,072	$	44,922
	Liabilities assumed		—		(7,870	)
	Less: Cash acquired		—		(47	)

	Net cash paid	$	5,072	$	37,005

14. 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

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

14. Segment Information (Continued)

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 447 owned and operated Vitamin World stores in the U.S. 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 518 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.

The following table represents key financial information of our business segments:

		Wholesale/ US Nutrition		North American Retail			European Retail		Direct Response/ E-Commerce		Corporate/ Manufacturing			Consolidated

*Three months ended June 30, 2008:*
	Net sales	$	283,645	$	50,415		$	145,670	$	54,789	$	—		$	534,519
	Income (loss) from operations		58,213		3,445			28,249		7,849		(27,482	)		70,274
	Depreciation and amortization		2,587		750			3,049		1,248		5,749			13,383
	Capital expenditures		541		726			3,637		1,003		5,128			11,035
*Three months ended June 30, 2007:*
	Net sales	$	248,177	$	55,666		$	152,688	$	46,837	$	—		$	503,368
	Income (loss) from operations		54,581		(45	)		36,562		11,787		(25,866	)		77,019
	Depreciation and amortization		2,772		895			2,768		1,254		5,602			13,291
	Capital expenditures		499		202			17,021		85		8,365			26,172
*Nine months ended June 30, 2008:*
	Net sales	$	801,943	$	158,501		$	462,337	$	155,114	$	—		$	1,577,895
	Income (loss) from operations		153,701		3,103			97,582		30,722		(80,780	)		204,328
	Depreciation and amortization		7,858		2,404			9,081		3,988		17,707			41,038
	Capital expenditures		2,595		3,670			13,067		1,148		12,260			32,740
*Nine months ended June 30, 2007:*
	Net sales	$	739,874	$	166,403		$	465,208	$	146,580	$	—		$	1,518,065
	Income (loss) from operations		152,918		2,026			119,091		39,878		(73,881	)		240,032
	Depreciation and amortization		8,331		3,029			8,333		3,782		18,562			42,037
	Capital expenditures		1,098		520			21,389		1,010		17,910			41,927

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

14. Segment Information (Continued)

Net sales by location of customer were as follows:

		Three months ended June 30,				Nine months ended June 30,

		2008		2007		2008		2007
Net sales by location of customer
	United States	$	342,702	$	303,723	$	972,527	$	917,308
	United Kingdom		137,297		149,090		439,909		451,416
	Holland		14,796		12,585		45,663		38,594
	Ireland		5,806		5,298		17,593		15,774
	Canada		9,329		7,603		29,583		24,065
	Mexico		2,927		7,167		12,916		19,498
	Other foreign countries		21,662		17,902		59,704		51,410

		$	534,519	$	503,368	$	1,577,895	$	1,518,065

Total assets by segment were as follows:

	June 30, 2008		September 30, 2007

Wholesale/US Nutrition	$	516,984	$	498,349
North American Retail		32,187		39,998
European Retail		421,054		419,070
Direct Response/E-Commerce		66,287		55,582
Corporate/Manufacturing		449,033		521,936

	$	1,485,545	$	1,534,935

Approximately 35% of our net sales during the nine months ended June 30, 2008 and 2007 were denominated in currencies other than U.S. dollars, principally British pound sterling, euros, Chinese yuan and Canadian dollars.

Foreign subsidiaries accounted for the following percentages of total assets and total liabilities:



Total Assets	34	%	32	%
Total Liabilities	16	%	21	%

15. 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 June 30, 2008 and September 30, 2007 and for the three and nine months ended June 30, 2008 and 2007 of (a) NBTY, Inc., the

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

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

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.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

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

Condensed Consolidating Balance Sheets
As of June 30, 2008

			Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated

Assets
Current assets:
	Cash and cash equivalents		$	30,330	$	—	$	91,646		$	—		$	121,976
	Investments			19,997		—		—			—			19,997
	Accounts receivable, net			—		86,207		25,009			(7,613	)		103,603
	Intercompany			—		469,925		571,046			(1,040,971	)		—
	Inventories			—		288,293		124,427			(7,960	)		404,760
	Deferred income taxes			—		21,092		764			—			21,856
	Prepaid expenses and other current assets			—		34,666		20,450			—			55,116

		Total current assets		50,327		900,183		833,342			(1,056,544	)		727,308
Property, plant and equipment, net				36,677		186,135		99,882			—			322,694
Goodwill				—		82,362		167,695			—			250,057
Other intangible assets, net				—		105,085		46,718			—			151,803
Other assets				—		14,550		19,133			—			33,683
Intercompany loan receivable				398,620		—		—			(398,620	)		—
Investments in subsidiaries				1,812,729		—		—			(1,812,729	)		—

		Total assets	$	2,298,353	$	1,288,315	$	1,166,770		$	(3,267,893	)	$	1,485,545

Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term debt		$	810	$	17	$	138		$	—		$	965
	Accounts payable			—		42,647		34,089			—			76,736
	Intercompany			1,040,972		—		—			(1,040,972	)		—
	Accrued expenses and other current liabilities			—		105,317		23,336			(7,613	)		121,040

		Total current liabilities		1,041,782		147,981		57,563			(1,048,585	)		198,741
Intercompany loan payable				—		—		398,620			(398,620	)		—
Long-term debt, net of current portion				189,915		—		19,084			—			208,999
Deferred income taxes				57,699		—		1,744			—			59,443
Other liabilities				2,639		2,726		6,679			—			12,044

		Total liabilities		1,292,035		150,707		483,690			(1,447,205	)		479,227
Commitments and contingencies
Stockholders' equity:
	Common stock			488		—		—			—			488
	Capital in excess of par			140,783		352,019		301,271			(653,290	)		140,783
	Retained earnings			821,491		785,589		397,051			(1,182,640	)		821,491
	Accumulated other comprehensive income			43,556		—		(15,242	)		15,242			43,556

		Total stockholders' equity		1,006,318		1,137,608		683,080			(1,820,688	)		1,006,318

		Total liabilities and stockholders' equity	$	2,298,353	$	1,288,315	$	1,166,770		$	(3,267,893	)	$	1,485,545

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

15. 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.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

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

Condensed Consolidating Statements of Income
Three Months Ended June 30, 2008

		Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated

Net sales		$	—		$	365,798	$	188,018		$	(19,297	)	$	534,519
Costs and expenses:
	Cost of sales		—			203,119		78,633			(19,297	)		262,455
	Advertising, promotion and catalog		—			30,435		5,297			—			35,732
	Selling, general and administrative		26,324			64,706		75,028			—			166,058

			26,324			298,260		158,958			(19,297	)		464,245

Income from operations			(26,324	)		67,538		29,060			—			70,274

Other income (expense):
	Equity in income of subsidiaries		60,112			—		—			(60,112	)		—
	Intercompany interest		7,531			—		(7,531	)		—			—
	Interest		(3,421	)		—		(300	)		—			(3,721	)
	Miscellaneous, net		407			1,111		899			—			2,417

			64,629			1,111		(6,932	)		(60,112	)		(1,304	)

Income before provision for income taxes			38,305			68,649		22,128			(60,112	)		68,970
(Benefit)/provision for income taxes			(7,221	)		24,027		6,638			—			23,444

Net income		$	45,526		$	44,622	$	15,490		$	(60,112	)	$	45,526

Condensed Consolidating Statements of Income
Three Months Ended June 30, 2007

		Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Net sales		$	—		$	349,302		$	177,716		$	(23,650	)	$	503,368
Costs and expenses:
	Cost of sales		—			190,121			74,126			(23,650	)		240,597
	Advertising, promotion and catalog		—			23,514			4,754			—			28,268
	Selling, general and administrative		21,854			68,323			67,307			—			157,484

			21,854			281,958			146,187			(23,650	)		426,349

Income from operations			(21,854	)		67,344			31,529			—			77,019

Other income (expense):
	Equity in income of subsidiaries		62,046			—			—			(62,046	)		—
	Intercompany interest		7,402			—			(7,402	)		—			—
	Interest		(3,630	)		(4	)		(185	)		—			(3,819	)
	Miscellaneous, net		1,623			473			1,726			—			3,822

			67,441			469			(5,861	)		(62,046	)		3

Income before provision for income taxes			45,587			67,813			25,668			(62,046	)		77,022
(Benefit)/provision for income taxes			(5,639	)		23,735			7,700			—			25,796

Net income		$	51,226		$	44,078		$	17,968		$	(62,046	)	$	51,226

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

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

Condensed Consolidating Statements of Income
Nine Months Ended June 30, 2008

		Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Net sales		$	—		$	1,051,491		$	588,535		$	(62,131	)	$	1,577,895
Costs and expenses:
	Cost of sales		—			578,312			247,888			(62,131	)		764,069
	Advertising, promotion and catalog		—			89,964			18,944			—			108,908
	Selling, general and administrative		75,532			197,888			227,170			—			500,590

			75,532			866,164			494,002			(62,131	)		1,373,567

Income from operations			(75,532	)		185,327			94,533			—			204,328

Other income (expense):
	Equity in income of subsidiaries		175,137			—			—			(175,137	)		—
	Intercompany interest		23,685			—			(23,685	)		—			—
	Interest		(10,323	)		(2	)		(914	)		—			(11,239	)
	Miscellaneous, net		2,587			4,599			3,903			—			11,089

			191,086			4,597			(20,696	)		(175,137	)		(150	)

Income before provision for income taxes			115,554			189,924			73,837			(175,137	)		204,178
(Benefit)/provision for income taxes			(20,020	)		66,473			22,151			—			68,604

Net income		$	135,574		$	123,451		$	51,686		$	(175,137	)	$	135,574

Condensed Consolidating Statements of Income
Nine Months Ended June 30, 2007

		Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Net sales		$	—		$	1,047,147		$	538,549		$	(67,631	)	$	1,518,065
Costs and expenses:
	Cost of sales		—			571,147			223,658			(67,631	)		727,174
	Advertising, promotion and catalog		—			75,294			14,178			—			89,472
	Selling, general and administrative		61,472			205,461			194,454			—			461,387

			61,472			851,902			432,290			(67,631	)		1,278,033

Income from operations			(61,472	)		195,245			106,259			—			240,032

Other income (expense):
	Equity in income of subsidiaries		189,295			—			—			(189,295	)		—
	Intercompany interest		20,782			—			(20,782	)		—			—
	Interest		(12,189	)		(24	)		(823	)		—			(13,036	)
	Miscellaneous, net		2,841			1,912			2,715			—			7,468

			200,729			1,888			(18,890	)		(189,295	)		(5,568	)

Income before provision for income taxes			139,257			197,133			87,369			(189,295	)		234,464
(Benefit)/provision for income taxes			(20,178	)		68,997			26,210			—			75,029

Net income		$	159,435		$	128,136		$	61,159		$	(189,295	)	$	159,435

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

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

Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2008

					Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Cash flows from operating activities:
	Net income				$	135,574		$	123,451		$	51,686		$	(175,137	)	$	135,574
	Adjustments to reconcile net income to net cash & cash equivalents provided by operating activities:
		Equity in earnings of subsidiaries				(175,137	)		—			—			175,137			—
		Impairments and disposals of property, plant and equipment				282			382			(223	)		—			441
		Depreciation and amortization				3,426			27,623			9,989			—			41,038
		Foreign currency transaction (gain) loss				(1,248	)		(1,310	)		964			—			(1,594	)
		Stock-based compensation				930			156			90			—			1,176
		Amortization and write-off of deferred charges				562			—			—			—			562
		Allowance for doubtful accounts				—			(547	)		4			—			(543	)
		Inventory reserves				—			4,979			697			—			5,676
		Deferred income taxes				—			1,402			(30	)		—			1,372
		Excess income tax benefit from exercise of stock options				(4,984	)		—			—			—			(4,984	)
		Changes in operating assets and liabilities, net of acquisitions:
			Accounts receivable			—			(2,654	)		(722	)		—			(3,376	)
			Inventories			—			(22,394	)		(4,044	)		—			(26,438	)
			Prepaid expenses and other current assets			—			12,146			1,043			—			13,189
			Other assets			—			(1,445	)		—			—			(1,445	)
			Accounts payable			—			900			(225	)		—			675
			Accrued expenses and other liabilities			—			13,295			(12,823	)		—			472

				Net cash (used in) provided by operating activities		(40,595	)		155,984			46,406			—			161,795

Cash flows from investing activities:
	Intercompany accounts					154,834			(138,644	)		(16,190	)		—			—
	Purchase of property, plant and equipment					(4,457	)		(16,987	)		(11,296	)		—			(32,740	)
	Proceeds from sale of property, plant and equipment					—			2			707			—			709
	Purchase of available-for-sale investments					(364,917	)		—			—			—			(364,917	)
	Proceeds from sale of available-for-sale investments					460,013			—			3,074			—			463,087
	Cash paid for acquisitions, net of cash acquired					(5,072	)		—			—			—			(5,072	)
	Acquisition deposit					(11,500	)		—			—			—			(11,500	)

				Net cash provided by (used in) investing activities		228,901			(155,629	)		(23,705	)		—			49,567

Cash flows from financing activities:
	Principal payments under long-term debt agreements and capital leases					(619	)		(101	)		—			—			(720	)
	Excess income tax benefit from exercise of stock options					4,984			—			—			—			4,984
	Proceeds from stock options exercised					3,852			—			—			—			3,852
	Purchase of treasury stock (subsequently retired)					(188,432	)		—			—			—			(188,432	)

				Net cash used in financing activities		(180,215	)		(101	)		—			—			(180,316	)

Effect of exchange rate changes on cash and cash equivalents						—			(254	)		(1,718	)		—			(1,972	)

Net increase in cash and cash equivalents						8,091			—			20,983			—			29,074
Cash and cash equivalents at beginning of period						22,239			—			70,663			—			92,902

Cash and cash equivalents at end of period					$	30,330		$	—		$	91,646		$	—		$	121,976

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

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

Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2007

					Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Cash flows from operating activities:
	Net income				$	159,435		$	128,136		$	61,159		$	(189,295	)	$	159,435
	Adjustments to reconcile net income to net cash & cash equivalents provided by operating activities:
		Equity in earnings of subsidiaries				(189,295	)		—			—			189,295			—
		Impairments and disposals of property, plant and equipment				417			1,133			166			—			1,716
		Depreciation and amortization				5,187			26,505			10,345			—			42,037
		Foreign currency transaction (gain) loss				(808	)		(1,242	)		38			—			(2,012	)
		Amortization and write-off of deferred charges				1,698			—			—			—			1,698
		Allowance for doubtful accounts				—			(727	)		227			—			(500	)
		Inventory reserves				—			5,866			—			—			5,866
		Deferred income taxes				—			11,253			(166	)		—			11,087
		Excess income tax benefit from exercise of stock options				(2,356	)		—			—			—			(2,356	)
		Changes in operating assets and liabilities, net of acquisitions:
			Accounts receivable			—			(6,133	)		1,678			—			(4,455	)
			Inventories			—			(17,346	)		(7,348	)		—			(24,694	)
			Prepaid expenses and other current assets			—			16,448			277			—			16,725
			Other assets			—			(433	)		—			—			(433	)
			Accounts payable			—			15,007			(1,332	)		—			13,675
			Accrued expenses and other liabilities			—			3,552			(14,926	)		—			(11,374	)

				Net cash (used in) provided by operating activities		(25,722	)		182,019			50,118			—			206,415

Cash flows from investing activities:
	Intercompany accounts					146,560			(158,953	)		12,393			—			—
	Purchase of property, plant and equipment					(2,584	)		(39,343	)		—			—			(41,927	)
	Proceeds from sale of property, plant and equipment					85			12			—			—			97
	Purchase of available-for-sale investments					(374,869	)		—			—			—			(374,869	)
	Proceeds from sale of available-for-sale investments					239,603			—			—			—			239,603
	Cash paid for acquisitions, net of cash acquired					(37,005	)		—			—			—			(37,005	)
	Restricted cash					—			—			(18,698	)		—			(18,698	)

				Net cash used in investing activities		(28,210	)		(198,284	)		(6,305	)		—			(232,799	)

Cash flows from financing activities:
	Principal payments under long-term debt agreements and capital leases					(520	)		(132	)		—			—			(652	)
	Payments for financing fees					(1,649	)		—			—			—			(1,649	)
	Excess income tax benefit from exercise of stock options					2,356			—			—			—			2,356
	Proceeds from stock options exercised					892			—			—			—			892

				Net cash provided by (used in) financing activities		1,079			(132	)		—			—			947

Effect of exchange rate changes on cash and cash equivalents						808			1,781			1,795			—			4,384

Net (decrease) increase in cash and cash equivalents						(52,045	)		(14,616	)		45,608			—			(21,053	)
Cash and cash equivalents at beginning of period						59,966			9,385			20,454			—			89,805

Cash and cash equivalents at end of period					$	7,921		$	(5,231	)	$	66,062		$	—		$	68,752

NBTY, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except per share amounts)

16. Subsequent Events

On July 14, 2008, we completed the purchase of substantially all of the assets of Leiner Health Products Inc. for approximately $371,000. The terms of the Asset Purchase Agreement provide for various working capital adjustments. The purchase price was funded with approximately $46,000 of cash on hand and the use of our existing $325,000 revolving credit facility.

On July 25, 2008, we amended the terms of our existing revolving credit facility to add a new $300,000 five-year term loan with an interest rate of LIBOR plus applicable margin. The proceeds from the new term loan, plus available cash balances, were used to repay the borrowings outstanding under the existing revolving credit agreement. As of July 25, 2008, no amounts were outstanding under the $325,000 revolving credit facility. The terms and financial covenants of the term loan and amended revolving credit agreement are similar to the prior agreement.

The acquisition, which includes Leiner's U.S. store brand vitamins, minerals and supplements products and Vita Health Products, Inc., Leiner's Canadian subsidiary, enhances our leadership position in the wholesale market sector and strengthens our ability to provide continuous product supply to our customers. Manufacturing capabilities will be expanded with the addition of four facilities in California, one in North Carolina and one in Canada.

At June 30, 2008, $11,500 was included in prepaid expenses and other current assets relating to a deposit for the above acquisition.

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
(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;

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

•: 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;
•: the efficacy of our internet and on-line sales and marketing strategies;
•: fluctuations in foreign currencies, including the British pound sterling, the euro, the Canadian dollar and Chinese yuan;
•: 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.

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

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 thousand 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®.

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 447 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 518 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.

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

A discussion of our critical accounting policies and estimates is 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.

Three Months Ended June 30, 2008 Compared to the Three Months Ended June 30, 2007:

Net Sales

Net sales by segment for the three months ended June 30, 2008 as compared with the prior comparable period were as follows:

		Net Sales by Segment Three months ended June 30,

		2008					2007					Comparison 2008 vs. 2007
Segment		Net Sales		% of total			Net Sales		% of total			$ change			% change
Wholesale/US Nutrition		$	283,645		53.1	%	$	248,177		49.3	%	$	35,468			14.3	%
North American Retail			50,415		9.4	%		55,666		11.1	%		(5,251	)		(9.4	)%
European Retail			145,670		27.3	%		152,688		30.3	%		(7,018	)		(4.6	)%
Direct Response/E-Commerce			54,789		10.2	%		46,837		9.3	%		7,952			17.0	%

	Net sales	$	534,519		100.0	%	$	503,368		100.0	%	$	31,151			6.2	%

Wholesale/US Nutrition

Net sales for the Wholesale/US Nutrition segment increased $35,468 or 14.3% to $283,645 for the three months ended June 30, 2008. This increase was due to increased sales to existing customers, partially attributable to an increase in 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 branded products increased $12,103 over the prior comparable period. Sales of products from brands in the sports nutrition category increased $7,329 over the comparable period. We continue to adjust shelf space allocation among 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. In addition, our wholesale net sales to international customers increased $2,191 over the prior comparable period.

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

We continue to use targeted promotions to grow overall sales. Promotional programs and rebates remained consistent as a percentage of sales at 8.7% for the three months ended June 30, 2008 compared to 8.6% for the prior comparable period. We expect promotional programs and rebates as a percentage of sales to trend higher than historical percentages.

Product returns were 1.1% of sales for the three months ended June 30, 2008 as compared to 1.9% of sales for the prior comparable period. The product returns for the three months ended June 30, 2008 and 2007 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/US Nutrition sales.

One customer represented 20% and 18% of the Wholesale/US Nutrition segment's net sales for the three months ended June 30, 2008 and 2007, respectively. The same customer represented 10% and 9% of the consolidated net sales for the three months ended June 30, 2008 and 2007, respectively. The loss of this customer or any one of our other major customers would have a material adverse effect on the Wholesale/US Nutrition segment if we are unable to replace such customer(s).

North American Retail

Net sales for this segment decreased $5,251 or 9.4% to $50,415 for the three months ended June 30, 2008. Sales for stores open more than one year (same store sales) decreased 6%, representing $3,101 of the overall decline in net sales. In addition, the sales decrease is due to 18 fewer stores operating as of the end of the three months ended June 30, 2008 as compared to the prior comparable period. The decline in net sales is also partially attributable to a shift in our Vitamin World stores strategy from reliance on promotional discounting to drive sales to an everyday low price for its customers.

The Savings Passport Card, a customer loyalty program, is used to increase customer traffic and provide incentives for customers to purchase products at our Vitamin World stores. It is also an additional tool we utilize to track customer preferences and purchasing trends. The number of customers in the Savings Passport Program increased approximately 1.9 million to 9.8 million customers at June 30, 2008, as compared to 7.9 million customers at the end of the prior comparable period.

The following is a summary of North American Retail store activity for the three months ended June 30, 2008 and 2007:

		Three months ended June 30,

		2008			2007
North American Retail stores:
*Vitamin World*
	Open at beginning of the period		450			462
	Opened during the period		1			—
	Closed during the period		(4	)		(2	)
	Open at end of the period		447			460
*Le Naturiste*
	Open at beginning of the period		80			88
	Opened during the period		—			—
	Closed during the period		—			(3	)
	Open at end of the period		80			85

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

We anticipate opening an additional 2 Vitamin World stores and closing approximately 8 under-performing Vitamin World stores during the remainder of this fiscal year.

European Retail

Net sales for this segment decreased $7,018 or 4.6% to $145,670 for the three months ended June 30, 2008. The decrease in net sales is due in part to the difficult retail environment in the U.K. Same store sales declined 6% or $9,388 from the prior comparable period. The effect of currency exchange rates compared to the prior comparable period was insignificant. The decrease in same store sales was partially offset by an increase in sales from 15 additional stores open as of the end of the three months ended June 30, 2008 as compared to the prior period. The European Retail division continues to leverage its premier status, high street locations and brand awareness in a difficult retail environment.

The following is a summary of European Retail store activity for the three months ended June 30, 2008 and 2007:

	Three months ended June 30,

	2008		2007
European Retail stores:
Company-owned stores
Open at beginning of the period		614		598
Opened during the period		2		3
Closed during the period		—		—
Open at end of the period		616		601
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

We anticipate opening an additional 13 stores during the remainder of this fiscal year.

Direct Response/E-Commerce

Direct Response/E-Commerce net sales increased $7,952 or 17.0% to $54,789 for the three months ended June 30, 2008. These results reflect an increase in marketing and promotional activity as compared to the prior period. This division continues to vary its promotional strategy throughout the fiscal year, utilizing highly promotional catalogs which are not offered in every quarter. Historical results reflect this pattern and therefore this division should be viewed on an annual, and not quarterly, basis.

The average order size decreased approximately 3% for the three months ended June 30, 2008, as compared to the three months ended June 30, 2007. On-line net sales comprised 45.4% of this segment's net sales for the three months ended June 30, 2008 as compared to 38.6% for the three months ended June 30, 2007. We remain the vitamin and nutritional supplements leader in the direct response and e-commerce sectors and continue to increase the number of products available via our catalog and websites.

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

Gross Profit

Gross Profit by segment for the three months ended June 30, 2008 as compared with the prior comparable period was as follows:

		Gross Profit by Segment Three months ended June 30,

		2008					2007					Comparison 2008 vs. 2007
Segment		Gross Profit		% of sales			Gross Profit		% of sales			$ change			% change
Wholesale/US Nutrition		$	116,199		41.0	%	$	105,038		42.3	%	$	11,161			10.6	%
North American Retail			33,355		66.2	%		32,816		59.0	%		539			1.6	%
European Retail			90,792		62.3	%		97,306		63.7	%		(6,514	)		(6.7	)%
Direct Response/E-Commerce			31,718		57.9	%		27,611		59.0	%		4,107			14.9	%

	Gross Profit	$	272,064		50.9	%	$	262,771		52.2	%	$	9,293			3.5	%

The Wholesale/US Nutrition segment's gross profit percentage decreased to 41.0% for the three months ended June 30, 2008 from the prior comparable period of 42.3% as a result of higher prices for certain raw materials, changes in product mix and an increase in promotional programs and rebates as compared to the prior comparable period. 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.

The increase in the North American Retail segment's gross profit percentage to 66.2% for the three months ended June 30, 2008 from the comparable period of 59.0% reflects a shift in promotional strategy as well as a focus on rationalizing SKU's and enhanced visual merchandising. The European Retail segments' gross profit decrease is due to lower sales volumes. In addition, the timing of discounting of products and changes in the promotional programs in effect this period as compared to the prior period affected the gross profit percentages. The effect of currency exchange rates compared to the prior comparable period was insignificant. The Direct Response/E-Commerce segment's gross profit increased due to higher sales volumes. However, the decrease in the gross profit percentage in the Direct Response/E-Commerce segment to 57.9% from 59.0% in the prior comparable quarter reflects the increase in promotional activity discussed under net sales above.

Advertising, Promotion and Catalog Expenses

Total advertising, promotion and catalog expenses by segment for the three months ended June 30, 2008 as compared with the prior comparable period were as follows:

		Three months ended June 30,						Dollar Change			Percentage Change

		2008			2007			2008 vs. 2007			2008 vs. 2007
Wholesale/US Nutrition		$	22,523		$	18,515		$	4,008			22	%
North American Retail			1,127			2,457			(1,330	)		(54	)%
European Retail			2,891			3,284			(393	)		(12	)%
Direct Response/E-Commerce			9,112			3,858			5,254			136	%
Corporate			79			154			(75	)		(49	)%

	Total	$	35,732		$	28,268		$	7,464			26	%

	Percentage of net sales		6.7	%		5.6	%

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

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. The increase in the current quarter is primarily due to television campaigns for our Osteo Bi-Flex and Flex-a-min brands. We create our own advertising materials through our in-house staff of advertising associates. The decrease in the North American Retail segment's advertising reflects the aforementioned shift in strategy to fewer promotional programs offered in the current period as compared to the prior comparable period. 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. The increase in the Direct Response/E-Commerce advertising expense is due to increased internet marketing and advertising costs and additional catalogs mailed.

Selling, General and Administrative Expenses

Selling, general and administrative expenses by segment for the three months ended June 30, 2008 as compared with the prior comparable period were as follows:

		Three months ended June 30,						Dollar Change			Percentage Change

		2008			2007			2008 vs. 2007			2008 vs. 2007
Wholesale/US Nutrition		$	35,462		$	31,942		$	3,520			11	%
North American Retail			28,783			30,405			(1,622	)		(5	)%
European Retail			59,652			57,459			2,193			4	%
Direct Response/E-Commerce			14,757			11,966			2,791			23	%
Corporate			27,404			25,712			1,692			7	%

	Total	$	166,058		$	157,484		$	8,574			5	%

	Percentage of net sales		31.1	%		31.3	%

The Wholesale/US Nutrition's selling, general and administrative expense ("SG&A") increased $3,520 for the three months ended June 30, 2008 from the prior comparable period due to an increase in freight as a percentage of sales as a result of higher fuel surcharges and additional commissions to brokers. The North American Retail segment's decrease in SG&A of $1,622 reflects lower payroll and other store expenses as a result of the reduction of the number of stores in operation as compared to the prior comparable period. The European Retail's SG&A increased $2,193 due to an increase of $1,452 for occupancy expenses as well as other store expenses related primarily to new stores. The Direct Response/E-Commerce SG&A increased $2,791 due to an increase of $1,332 for payroll and payroll related expenses, including temporary labor as well as higher expenses across most other categories primarily due to increased sales volume. The Corporate segment's SG&A increased $1,692 due to information technology costs of $943 relating to new systems implementations as well as higher expenses across most other categories.

Interest Expense

Interest expense for the three months ended June 30, 2008 was consistent with the prior comparable period.

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

Miscellaneous, net

The components of miscellaneous, net were as follows:

	Three months ended June 30,					Dollar Change

	2008		2007			2008 vs. 2007
Foreign exchange gains	$	333	$	1,632		$	(1,299	)
Rental income		444		219			225
Investment income		1,433		2,077			(644	)
Other		207		(106	)		313

Total	$	2,417	$	3,822		$	(1,405	)

Miscellaneous, net decreased primarily due to lower unrealized foreign currency exchange gains on intercompany balances and lower investment income due to lower available balances to invest.

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 June 30, 2008 was 34.0%, compared to 33.5% in the prior comparable period. The effective income tax rate was higher for the three months ended June 30, 2008 as compared to the prior comparable period primarily due to the reinvestment of foreign earnings at a lower tax rate in fiscal 2007. 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.

Nine Months ended June 30, 2008 Compared to the Nine Months ended June 30, 2007:

Net Sales

Net sales by segment for the nine months ended June 30, 2008 as compared with the prior comparable period were as follows:

		Net Sales by Segment Nine months ended June 30,

		2008					2007					Comparison 2008 vs. 2007
Segment		Net Sales		% of total			Net Sales		% of total			$ change			% change
Wholesale/US Nutrition		$	801,943		50.8	%	$	739,874		48.7	%	$	62,069			8.4	%
North American Retail			158,501		10.1	%		166,403		11.0	%		(7,902	)		(4.7	)%
European Retail			462,337		29.3	%		465,208		30.6	%		(2,871	)		(0.6	)%
Direct Response/E-Commerce			155,114		9.8	%		146,580		9.7	%		8,534			5.8	%

	Net sales	$	1,577,895		100.0	%	$	1,518,065		100.0	%	$	59,830			3.9	%

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

Wholesale/US Nutrition

Net sales for the Wholesale/US Nutrition segment increased $62,069 or 8.4% to $801,943 for the nine months ended June 30, 2008. This increase was due to increased sales to existing customers, partially attributable to an increase in 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 $27,181 over the prior comparable period. Sales of products from brands in the sports nutrition category increased $22,312 over the comparable period. We continue to adjust shelf space allocation among 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. In addition, our wholesale net sales to international customers increased $12,460.

We continue to use targeted promotions to grow overall sales. Promotional programs and rebates increased as a percentage of sales to 9.7% for the nine months ended June 30, 2008 from 7.9% for the prior comparable period. We expect promotional programs and rebates to continue to trend higher than historical percentages.

Product returns remained consistent as a percentage of sales at 1.9% for the nine months ended June 30, 2008 as compared to 2.0% for the prior comparable period. The product returns for the nine months ended June 30, 2008 and 2007 are 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/US Nutrition sales.

One customer represented 22% and 18% of the Wholesale/US Nutrition segment's net sales for the nine months ended June 30, 2008 and 2007, respectively. The same customer represented 11% and 9% of the consolidated net sales for the nine months ended June 30, 2008 and 2007, respectively. The loss of this customer or any one of our other major customers would have a material adverse effect on the Wholesale/US Nutrition segment if we are unable to replace such customer(s).

North American Retail

Net sales for this segment decreased $7,902 or 4.7% to $158,501 for the nine months ended June 30, 2008 as compared to 2007. Same store sales decreased 1% representing $2,167 of the overall decline in net sales. In addition, the sales decrease is due to 18 fewer stores in operation at the end of the nine months ended June 30, 2008 as compared to the prior comparable period. The decline in net sales is also partially attributable to a shift in our Vitamin World stores strategy from reliance on promotional discounting to drive sales to an everyday low price for its customers.

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

The following is a summary of North American Retail store activity for the nine months ended June 30, 2008 and 2007:

		Nine months ended June 30,

		2008			2007
North American Retail stores:
*Vitamin World*
	Open at beginning of the period		457			476
	Opened during the period		6			1
	Closed during the period		(16	)		(17	)
	Open at end of the period		447			460
*Le Naturiste*
	Company-owned stores
	Open at beginning of the period		80			95
	Opened during the period		—			—
	Closed during the period		—			(10	)
	Open at end of the period		80			85
	Franchised stores
	Open at beginning of the period		—			1
	Opened during the period		—			—
	Closed during the period		—			(1	)
	Open at end of the period		—			—

European Retail

Net sales for this segment decreased $2,871 or 0.6% to $462,337 for the nine months ended June 30, 2008. The decrease in net sales is due in part to the difficult retail environment in the U.K. Same store sales declined 2% or $10,388 from the prior comparable period. Same store sales in local currency declined 5% from the prior comparable period. The decrease in same store sales was partially offset by an increase in sales from 15 additional stores open as of the end of the nine months ended June 30, 2008 as compared to the prior period. The European Retail division continues to leverage its premier status, high street locations and brand awareness in a difficult retail environment.

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

The following is a summary of European Retail store activity for the nine months ended June 30, 2008 and 2007:

	Nine months ended June 30,

	2008		2007
European Retail stores:
Company-owned stores
Open at beginning of the period		604		596
Opened during the period		12		7
Closed during the period		—		(2	)
Open at end of the period		616		601
Franchised stores
Open at beginning of the period		22		21
Opened during the period		—		1
Closed during the period		—		—
Open at end of the period		22		22

Direct Response/E-Commerce

Direct Response/E-Commerce net sales increased $8,534 or 5.8% to $155,114 for the nine months ended June 30, 2008. These results reflect an increase in marketing and promotional activity as compared to the prior period. On-line net sales comprised 44.1% of this segment's net sales for the nine months ended June 30, 2008 as compared to 37.1% for the nine months ended June 30, 2007. The average order size decreased 14% for the nine months ended June 30, 2008, as compared to the prior comparable period. We remain the vitamin and nutritional supplements leader in the direct response and e-commerce sectors and continue to increase the number of products available via our catalog and websites. This division continues to vary its promotional strategy throughout the fiscal year. Historical results reflect this pattern and therefore this division should be viewed on an annual, not quarterly, basis.

Gross Profit

Gross Profit by segment for the nine months ended June 30, 2008 as compared with the prior comparable period was as follows:

		Gross Profit by Segment Nine months ended June 30,

		2008					2007					Comparison 2008 vs. 2007
Segment		Gross Profit		% of sales			Gross Profit		% of sales			$ change			% change
Wholesale/US Nutrition		$	335,300		41.8	%	$	307,145		41.5	%	$	28,155			9.2	%
North American Retail			98,647		62.2	%		98,918		59.4	%		(271	)		(0.3	)%
European Retail			287,657		62.2	%		295,938		63.6	%		(8,281	)		(2.8	)%
Direct Response/E-Commerce			92,222		59.5	%		88,890		60.6	%		3,332			3.7	%

	Gross Profit	$	813,826		51.6	%	$	790,891		52.1	%	$	22,935			2.9	%

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

The Wholesale/US Nutrition segment's gross profit as a percentage of net sales remained consistent at 41.8% for the nine months ended June 30, 2008 from the prior comparable period of 41.5%. 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.

The increase in the North American Retail segment's gross profit percentage to 62.2% for the nine months ended June 30, 2008 from the comparable period of 59.4% reflects a shift in promotional strategy as well as a focus on rationalizing SKU's and enhanced visual merchandising. The decrease in the European Retail segment's gross profit is the result of increased product costs. In local currency, the European Retail segment's gross profit decreased 5% from the prior comparable period. The decrease in the gross profit percentage in the Direct Response/E-Commerce segment to 59.5% from 60.6% in the prior comparable period reflects the increase in promotional activity.

Advertising, Promotion and Catalog Expenses

Total advertising, promotion and catalog expenses by segment for the nine months ended June 30, 2008 as compared with the prior comparable period were as follows:

		Nine months ended June 30,						Change			Change

		Nine months ended June 30,						2008 vs. 2007			2008 vs. 2007
		2008			2007			2008 vs. 2007			2008 vs. 2007
Wholesale/US Nutrition		$	72,816		$	59,018		$	13,798			23	%
North American Retail			4,988			6,105			(1,117	)		(18	)%
European Retail			10,223			9,745			478			5	%
Direct Response/E-Commerce			20,595			14,049			6,546			47	%
Corporate			286			555			(269	)		(48	)%

	Total	$	108,908		$	89,472		$	19,436			22	%

	Percentage of net sales		6.9	%		5.9	%

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 nine months ended June 30, 2008, we conducted television campaigns for our Ester-C, Osteo Bi-Flex and Flex-a-min brands which increased the Wholesale/US Nutrition segment's advertising expense. We create our own advertising materials through our in-house staff of advertising associates. The increase in the European Retail segment's advertising expense is the result of an increase in a television campaign, advertising for new stores and foreign currency translation. 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. The increase in the Direct Response segment's advertising relates to increased internet marketing and advertising costs.

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

Selling, General and Administrative Expenses

Selling, general and administrative expenses by segment for the nine months ended June 30, 2008 as compared with the prior comparable period were as follows:

		Nine months ended, June 30,						Dollar Change

		2008			2007			2008 vs. 2007
Wholesale/US Nutrition		$	108,783		$	95,209		$	13,574
North American Retail			90,557			90,787			(230	)
European Retail			179,852			167,101			12,751
Direct Response/E-Commerce			40,904			34,963			5,941
Corporate			80,494			73,327			7,167

	Total	$	500,590		$	461,387		$	39,203

	Percentage of net sales		31.7	%		30.4	%

The Wholesale/US Nutrition's selling, general and administrative expense ("SG&A") increased $13,574 due to wage increases and bonuses in payroll and payroll related expenses of $2,083, an increase in freight of $4,240 for additional shipments and higher fuel surcharges and $2,168 for additional commissions to brokers. The European Retail's SG&A increased $3,881 due to the effect of foreign currency translation. Excluding the effect of foreign currency translation, the European Retail segment's SG&A increased $3,562 due to increased payroll and payroll related expenses and $4,391 due to occupancy expenses related to new stores. The Direct Response/E-Commerce SG&A increased $5,941 resulting from payroll and payroll related expenses, including temporary labor of $2,918 and $710 for freight charges as well as higher expenses across most other categories due to increased sales volume. The Corporate segment's SG&A increased $7,167 due to inflationary wage increases and bonuses in payroll and payroll related expenses of $4,020 and information technology costs of $1,987.

Interest Expense

Interest expense decreased primarily due to a write off of deferred financing fees of $1,126 in the nine months ended June 30, 2007 for costs related to the termination of a prior credit agreement.

Miscellaneous, net

The components of miscellaneous, net were as follows:

	Nine months ended June 30,				Dollar Change

	2008		2007		2008 vs. 2007
Foreign exchange gains	$	2,407	$	2,012	$	395
Rental income		1,089		589		500
Investment income		6,839		3,995		2,844
Other		754		872		(118	)

Total	$	11,089	$	7,468	$	3,621

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

Miscellaneous, net increased primarily due to interest income earned on higher cash equivalents and investment 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 nine months ended June 30, 2008 was 33.6% as compared to and June 30, 2007 was 32.0%. The effective income tax rate was higher for the nine months ended June 30, 2008 as compared to the prior comparable period primarily due to the reinvestment of foreign earnings at a lower tax rate in fiscal 2007. 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 FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109" ("FIN 48"). 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 changing consumer demands and current news on nutritional supplements, the timing of our introduction of new products, promotional incentives offered to customers, general economic and industry conditions affecting consumer spending, 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. 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. 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.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(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 June 30, 2008		As of September 30, 2007

Cash and cash equivalents at end of the period	$	121,976	$	92,902
Cash and cash equivalents held by foreign subsidiaries	$	92,614	$	70,663
Investments (short-term)	$	19,997	$	121,382
Working capital	$	528,567	$	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:

	Nine months ended June 30,

	2008			2007
Cash flow provided by operating activities	$	161,795		$	206,415
Cash flow provided by (used in) investing activities	$	49,567		$	(232,799	)
Cash flow (used in) provided by financing activities	$	(180,316	)	$	947
Inventory turnover		2.60			2.61
Days sales outstanding in accounts receivable		37			38

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 decrease in working capital of $46,688 as compared to September 30, 2007 was primarily due to the liquidation of investments and the utilization of cash to repurchase shares of the Company's common stock. The annualized inventory turnover rate remained the same during the current period ended June 30, 2008 compared to the prior like period. Inventory levels have increased consistent with increased sales volume.

Cash provided by operating activities during the nine month period ended June 30, 2008 was mainly attributable to net income adjusted for non-cash charges, offset by changes in operating assets

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

and liabilities. Cash provided by operating activities during the nine months ended June 30, 2008 was lower than the prior comparable period due to lower net income.

For the nine month period ended June 30, 2008, cash flows provided by investing activities consisted primarily of net proceeds of auction rate securities, offset by purchases of property, plant and equipment and cash paid in connection with acquisitions.

For the nine month period ended June 30, 2008 cash flows used in financing activities related to the repurchase of Company shares (subsequently retired), principal payments under long-term debt agreements and principal payments under capital lease obligations, offset by excess income tax benefits and proceeds from the exercise of stock options.

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.

At June 30, 2008, our short-term investments consisted of U.S. Treasury securities and our non-current investments (included in other assets) consisted of auction rate securities ("ARS"), both of which are classified as available-for-sale marketable securities. ARS 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. The auctions have historically provided a liquid market for these securities. However, as a result of liquidity issues in the financial credit and capital markets, we have experienced multiple failed auctions, beginning with the second half of February 2008. Based on our assessment of the credit quality of the underlying securities, including consideration given to the lack of liquidity for the securities, a downgrade of the credit ratings of the Alabama municipal agency securities and the overall unstable current market conditions, we believe that these ARS have experienced insignificant impairments. If uncertainties in the financial credit and capital markets continue, these markets deteriorate further or there are additional ratings downgrades on any ARS that we hold, we may be required to recognize impairment charges in the future which could adversely impact our future earnings. As of June 30, 2008, the $3,200 of ARS are classified as non-current assets due to the fact that there is uncertainty in the current market and, although there has been an occasional successful auction, current conditions in the general financial markets have created uncertainty as to when successful auctions will occur on a more regular basis. In addition, while these ARS are available for sale, we believe we have the ability to hold these securities to maturity or until the credit market recovers.

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.

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

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 June 30, 2008, we had $522,018 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 $132,799 at June 30, 2008. 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 nine months ended June 30, 2008 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 $9,144 in open capital commitments at June 30, 2008, primarily related to manufacturing equipment as well as to computer hardware and software.

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 at the effective income tax rate. We do not believe that the amount will change significantly in the next 12 months. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes.

We have employment agreements with two of our executive officers. The agreements, entered into on March 1, 2008, each have a term of three years and are automatically renewed each year thereafter unless either party notifies the other to the contrary. These agreements provide for minimum salary levels and contain provisions regarding severance and change in control of the Company. The remaining commitment for salaries to these two officers as of June 30, 2008 was approximately $2,796. In addition, five members of Holland & Barrett's senior executive staff have service contracts terminable by us upon twelve months notice. The annual aggregate commitment for such senior executive staff as of June 30, 2008 was approximately $1,770.

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.

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

$325,000 revolving credit facility. The terms and financial covenants of the term loan and amended revolving credit agreement are similar to the prior agreement.

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 energy costs can affect the cost of all raw materials and components. The competitive environment may somewhat limit our ability to raise prices in order to recover higher costs resulting from inflation. However, to the extent possible, it is anticipated that a portion of these cost increases will be reflected in the higher selling 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 also 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 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 advantage of business or acquisition opportunities. We are in compliance with all covenants under our credit arrangements at June 30, 2008.

At July 11, 2008, credit ratings were as follows:

Credit Rating Agency	Secured Debt	7¹/8% Notes	Overall

Standard and Poors	BBB-	BB	BB/Stable
Moody's	Ba1/LGD3	B1/LGD6	Ba2

Recent Accounting Developments

NBTY, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
(in thousands, except per share amounts)

and related hedge items are accounted for under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", and its related interpretations; and how derivative instruments and related hedge items affect an entity's financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of SFAS 161 will not have a material impact on our financial position, results of operations or liquidity since we currently do not enter into derivatives or other hedging instruments.

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 February 2008, the FASB issued FASB Staff Position 157-2, which provides for a one-year deferral of the provisions of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a non-recurring basis. We anticipate that the adoption of SFAS 157 will not have a significant impact on our consolidated financial position or results of operations.

NBTY, Inc.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
(in thousands)

Quantitative and Qualitative Disclosures About Market Risk

We are subject to currency fluctuations, primarily with respect to the British pound sterling, the euro, the Canadian dollar and the Chinese yuan, and interest rate risks that arise from normal business operations. We regularly assess these risks. As of June 30, 2008, we had not entered into any hedging transactions.

We have subsidiaries whose operations are denominated in foreign currencies (primarily the British pound sterling, the euro, the Canadian dollar and the Chinese yuan). We consolidate the earnings of our international subsidiaries by translating them into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52 "Foreign Currency Translation." 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 $546,226, or 34.6% of total net sales, for the nine months ended June 30, 2008. A majority of our foreign currency exposure is denominated in the British pound sterling. During the nine months ended June 30, 2008, the U.S. dollar weakened approximately 2.4% against the British pound sterling, as compared to the prior comparable period, resulting in an increase in net sales of approximately $11,390 and an increase in operating income of approximately $2,072. The related impact on net income was approximately $0.05 per diluted share for the nine months ended June 30, 2008.

We are exposed to changes in interest rates on our floating rate revolving credit facility, our interest income earned on investments and our $300,000 term loan entered into on July 25, 2008. However, at June 30, 2008 we had no borrowings outstanding on our floating rate revolving credit facility. Our interest income would be lower if interest rates declined. In addition, our short-term investments at June 30, 2008 consist of U.S. Treasury securities which have lower interest rates than the auction rate securities we have, in the past, typically invested in.

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 June 30, 2008. We will be impacted by interest rate changes with respect to the $300,000 term loan entered into on July 25, 2008. 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 June 30, 2008, based on then quoted market prices, of $180,500. At June 30, 2008, 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.
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 June 30, 2008.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2008 (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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings

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. Plaintiffs moved for class certification in 2007, and on February 22, 2008, the court denied plaintiffs' motion for certification. Plaintiffs' have appealed that ruling.

MET-Rx also filed a motion to dismiss the lawsuit based upon plaintiffs' failure to prosecute the case diligently. That motion was granted in May 2008.

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.
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 third quarter of fiscal 2008 (shares in thousands):

			Average Price Paid per Share

5/1/2008–5/31/2008		603	$	28.91	603	3,850

	Total	603			603

(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 June 30, 2008, there were 3,850 shares available to be repurchased under this program.

NBTY, Inc.
Item 6. Exhibits

Exhibit No.			Description

	3.1		Restated Certificate of Incorporation of NBTY, Inc.(1)
	3.2		Amended and Restated By-Laws of NBTY, Inc.(2)
	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.(9)
	10.5		Fourth Amendment to Executive Consulting Agreement, effective January 1, 2007, by and between NBTY, Inc., and Rudolph Management Associates, Inc.(10)
	10.6		Fifth Amendment to Executive Consulting Agreement, effective January 1, 2007, by and between NBTY, Inc., and Rudolph Management Associates, Inc.(2)
	10.7		Sixth Amendment to Executive Consulting Agreement, effective January 1, 2008, by and between NBTY, Inc., and Rudolph Management Associates, Inc.(11)
	10.8		NBTY, Inc. Associates Stock Ownership Plan(15)
	10.9		NBTY, Inc. Year 2000 Incentive Stock Option Plan(7)
	10.10		NBTY, Inc. Year 2002 Stock Option Plan(8)
	10.11		NBTY, Inc. Year 2008 Stock Option Plan(12)
	10.12		Amended and Restated Credit Agreement, dated as of July 25, 2008, 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., Citibank, N.A., HSBC Bank USA, National Association and Wachovia Bank, National Association as Co-Syndication Agents(16)
	10.13		Amended and Restated Guarantee and Collateral Agreement, by NBTY, Inc. and the other grantors party thereto in favor of JPMorgan Chase Bank, N.A., as Administrative Agent, dated as of July 25, 2008(16)
	10.14		Facility Agreement, dated September 20, 2006 for Good 'N Natural Limited with JPMorgan Chase Bank, N.A., London Branch(2)
	10.15		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(13)

NBTY, Inc.
Item 6. Exhibits (Continued)

Exhibit No.			Description

	10.16		Employment Agreement, effective March 1, 2008, by and between NBTY, Inc. and Scott Rudolph(14)
	10.17		Employment Agreement, effective March 1, 2008, by and between NBTY, Inc. and Harvey Kamil(14)
	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, 2005 filed on December 22, 2005 (File #001-31788).
(2): 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).
(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 10-Q, filed on May 9, 2005 (File #001-31788).
(10): Incorporated by reference to NBTY, Inc.'s Form 10-Q, filed on February 2, 2006 (File #001-31788).
(11): Incorporated by reference to NBTY, Inc.'s Form 8-K, filed on November 30, 2007 (File #001-31788).
(12): Incorporated by reference to NBTY, Inc.'s Proxy Supplement, filed on February 6, 2008 (File #001-31788).
(13): Incorporated by reference to NBTY, Inc.'s Form 10-Q, filed on February 8, 2008 (File #001-31788).
(14): Incorporated by reference to NBTY, Inc.'s Form 8-K, filed on April 3, 2008 (File #001-31788).
(15): Incorporated by reference to NBTY, Inc.'s Form 10-Q, filed on May 9, 2008 (File #001-31788).
(16): Incorporated by reference to NBTY, Inc.'s Form 8-K, filed on July 30, 2008 (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: August 6, 2008	By:	/s/ SCOTT RUDOLPH Scott Rudolph Chairman and Chief Executive Officer (Principal Executive Officer)
Date: August 5, 2008	By:	/s/ HARVEY KAMIL Harvey Kamil President and Chief Financial Officer (Principal Financial and Accounting Officer)

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