NBTY 10Q 2015 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, 2015
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: 333-186802

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) 200-2000
(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 o NO ý

Note: The registrant was subject to the reporting requirements of Section 15(d) of the Exchange Act from June 16, 2011 through September 30, 2011. As of October 1, 2011, the registrant is a voluntary filer not subject to these filing requirements. However, the registrant has filed all reports required pursuant to Section 13 or 15(d) as if the registrant was subject to such filing requirements since June 16, 2011.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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.


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

As of July 31, 2015, the number of shares of common stock outstanding was 1,000.

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NBTY, Inc. and Subsidiaries
INDEX



PART I
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Income and Comprehensive Income (Loss)	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	59
PART II
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	63
Item 6.	Exhibits	64
Signatures		65
Exhibits

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PART I
Item 1. Financial Statements

NBTY, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

	June 30, 2015			September 30, 2014

				(As Adjusted)
Assets
Current assets:
Cash and cash equivalents	$	282,908		$	139,488
Accounts receivable, net		192,315			175,701
Inventories		809,050			853,226
Deferred income taxes		26,900			28,915
Other current assets		50,401			61,509

Total current assets		1,361,574			1,258,839
Property, plant and equipment, net		614,566			597,202
Goodwill		1,132,507			1,163,282
Intangible assets, net		1,743,090			1,791,592
Other assets		9,512			8,207

Total assets	$	4,861,249		$	4,819,122



Liabilities and Stockholder's Equity
Current liabilities:
Current portion long-term debt	$	—		$	261
Accounts payable		293,935			227,877
Accrued expenses and other current liabilities		241,523			221,056

Total current liabilities		535,458			449,194
Long-term debt, net of current portion		2,111,807			2,099,487
Deferred income taxes		695,569			707,962
Other liabilities		44,269			53,386

Total liabilities		3,387,103			3,310,029

Commitments and contingencies
Stockholder's equity:
Common stock, successor, $0.01 par; one thousand shares authorized, issued and outstanding at June 30, 2015 and September 30, 2014		—			—
Capital in excess of par		1,563,073			1,561,014
Accumulated deficit		(12,408	)		(22,718	)
Accumulated other comprehensive loss		(76,519	)		(29,203	)

Total stockholder's equity		1,474,146			1,509,093

Total liabilities and stockholder's equity	$	4,861,249		$	4,819,122

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

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NBTY, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income (Loss)

(Unaudited)

(in thousands)

	Three Months Ended June 30,						Nine Months Ended June 30,

	2015			2014			2015			2014
Net sales	$	815,610		$	806,961		$	2,429,257		$	2,413,092

Costs and expenses:
Cost of sales (See Note 2)		429,948			431,204			1,313,992			1,304,003
Advertising, promotion and catalog		45,849			60,931			151,249			158,236
Selling, general and administrative		246,895			235,538			720,042			707,115
Facility restructuring charges (See Note 2)		9,533			—			14,435			—

		732,225			727,673			2,199,718			2,169,354

Income from operations		83,385			79,288			229,539			243,738

Other income (expense):
Interest		(32,593	)		(33,794	)		(99,765	)		(101,698	)
Miscellaneous, net		2,127			2,534			3,296			1,809

		(30,466	)		(31,260	)		(96,469	)		(99,889	)

Income from operations before income taxes		52,919			48,028			133,070			143,849
Provision for income taxes		15,657			14,761			44,362			46,861

Net Income		37,262			33,267			88,708			96,988

Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment, net of taxes of $1,975, $(813), $(118), and $2,718		34,724			11,127			(48,037	)		22,615
Change in fair value of interest rate swaps, net of taxes of $0, $(436), $(442) and $(1,559)		—			699			721			2,469

Total other comprehensive (loss) income, net of tax:		34,724			11,826			(47,316	)		25,084
Comprehensive (loss) income	$	71,986		$	45,093		$	41,392		$	122,072

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

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NBTY, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Nine Months Ended June 30,

	2015			2014
Cash flows from operating activities:
Net income	$	88,708		$	96,988
Adjustments to reconcile net income to net cash provided by operating activities:
Impairments and disposals of assets		5,091			5,974
Depreciation of property, plant and equipment		57,800			44,076
Amortization of intangible assets		34,120			34,633
Foreign currency transaction (gain) loss		(50	)		632
Amortization and write-off of deferred financing fees		14,165			14,200
Stock-based compensation		2,059			3,373
Allowance for doubtful accounts		419			579
Inventory reserves		8,485			3,681
Deferred income taxes		(8,527	)		(4,184	)
Changes in operating assets and liabilities:
Accounts receivable		(20,340	)		(13,107	)
Inventories		8,665			(130,953	)
Other assets		8,616			(1,033	)
Accounts payable		64,834			(3,798	)
Accrued expenses and other liabilities		21,990			(24,044	)

Net cash provided by operating activities		286,035			27,017

Cash flows from investing activities:
Purchase of property, plant and equipment		(83,592	)		(72,436	)
Proceeds from sale of property, plant and equipment		933			—
Proceeds from sale of powder facility		23,983			—

Net cash used in investing activities		(58,676	)		(72,436	)

Cash flows from financing activities:
Principal payments		(778	)		(298	)
Payments for financing fees		(611	)		—
Dividends paid		(78,398	)		(60,063	)

Net cash used in financing activities		(79,787	)		(60,361	)

Effect of exchange rate changes on cash and cash equivalents		(4,152	)		1,636

Net increase (decrease) in cash and cash equivalents		143,420			(104,144	)
Cash and cash equivalents at beginning of period		139,488			198,561

Cash and cash equivalents at end of period	$	282,908		$	94,417



Non-cash investing and financing information:
Property, plant and equipment additions included in total liabilities	$	14,176		$	6,804

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

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(in thousands)

1. Basis of Presentation

NBTY, Inc. ("NBTY"), together with its subsidiaries, (the "Company," "we," or "us"), is the leading global vertically integrated manufacturer, marketer, distributor and retailer of a broad line of high-quality vitamins, nutritional supplements and related products in the United States, with operations worldwide. We have prepared these financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") applicable to interim financial information and on a basis that is consistent with the accounting principles applied in our audited financial statements for the fiscal year ended September 30, 2014 (as adjusted), including the notes thereto (our "2014 Financial Statements") included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014 ("2014 Annual Report"). 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 financial statements do not include all information or notes necessary for a complete presentation in conformity with GAAP. Accordingly, these financial statements should be read in conjunction with the 2014 Financial Statements. Results for interim periods are not necessarily indicative of results which may be achieved for a full year.

During the three and nine months ended June 30, 2015, the Company recorded adjustments for immaterial errors in its previously reported financial statements. Accordingly, we recorded a reduction in selling, general and administrative expenses of $0 and $2,520, related to prepaid rent in our retail operations and a reduction in cost of sales of $732, and $4,440 primarily related to an increase in the value of its label inventory for the three and nine months ended June 30, 2015, respectively, which has an immaterial impact on the current year financial statements.

Estimates

The preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and reported amounts of revenues and expenses during the reporting periods. These judgments can be subjective and complex, and consequently actual results could differ materially from those estimates and assumptions. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our most significant estimates include: sales returns, promotions and other allowances; inventory valuation and obsolescence; valuation and recoverability of long-lived assets, including goodwill and intangible assets; stock-based compensation; income taxes and accruals for the outcome of current litigation.

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

1. Basis of Presentation (Continued)

Segment Reporting

During the fiscal quarter ended June 30, 2015 we changed the names of our four segments to more accurately portray the brands and markets in which we do business. There were no other changes in the presentation of our segments. The changes to the names are as follows:

New Segment Name		Previous Segment Name

Consumer Products Group		Wholesale
Holland & Barrett International		European Retail
Puritan's Pride		Direct Response/E-Commerce
Vitamin World		North American Retail

Accounts Receivable Reserves

Accounts receivable are presented net of the following reserves:

	June 30, 2015		September 30, 2014

Promotional program incentive allowances	$	99,072	$	83,768
Allowance for sales returns		18,235		15,409
Allowance for doubtful accounts		2,797		2,564

	$	120,104	$	101,741

Recent Accounting Developments

In May 2014, the Financial Accounting Standards Board ("FASB") issued guidance on revenue from contracts with customers that will supersede virtually all existing revenue recognition guidance, including industry-specific guidance, and is designed to create greater comparability for financial statement users across industries and jurisdictions. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The guidance was effective for us beginning October 1, 2017, however in July 2015, the FASB decided to defer the effective date of the new standard by one year. Early adoption would be permitted for us beginning October 1, 2017. The guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet selected a transition method and are currently evaluating the impact of the amended guidance on our consolidated financial statements and related disclosures.

In January 2015, the FASB issued guidance which eliminates from GAAP the concept of extraordinary items. The guidance is effective for us beginning October 1, 2016, and early adoption is permitted, provided that adoption is applied from the beginning of the fiscal year of adoption. This guidance may be applied prospectively or retrospectively to all prior periods presented in the financial

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

1. Basis of Presentation (Continued)

statements. The adoption of this guidance is not expected to have an impact on our consolidated financial statements.

In February 2015, the FASB issued guidance that amends the current consolidation guidance. The amendments affect both the variable interest entity and voting interest entity consolidation models. The new guidance is effective for the Company beginning October 1, 2016, with early adoption permitted. This new guidance is not expected to have a material impact on our consolidated financial statements.

In April 2015, the FASB issued guidance which changes the presentation of debt issuance costs. Under the new guidance, debt issuance costs are presented as a reduction of the carrying amount of the related liability, rather than as an asset. The guidance was effective for us beginning October 1, 2016, and early adoption was permitted. This guidance has been early adopted and applied retrospectively to the prior period presented in the consolidated financial statements. See Note 5 "Long-Term Debt."

In July 2015, the FASB issued guidance which applies to inventory for which cost is determined by methods other than the last-in first-out and the retail inventory method. Under the new guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance is effective for us beginning January 1, 2017, and should be applied prospectively with early adoption permitted. We are currently evaluating the impact of adopting this guidance on our consolidated financial statements and related disclosures.

Revision

See Note 13 for a revision that was made to the Condensed Consolidating Financial Statements of Guarantors.

2. Sale of Nutritional Bar Assets and Powder Facility

In March 2015, NBTY and Nellson Nutraceutical, LLC ("Nellson") entered into (i) a bar asset purchase agreement, (the "Bar APA") and (ii) a powder asset purchase agreement (the "Powder APA" and, together with the Bar APA, the "APAs"), pursuant to which NBTY agreed to sell certain production assets, raw materials, packaging, labeling, in process products, component inventories and contracts (the "Transferred Assets") associated with NBTY's nutritional bar and powder manufacturing operations (the "Divested Manufacturing Operations").

The closing of the sale pursuant to the Powder APA occurred on June 26, 2015. The sales price for the production assets and transferred contracts was $4,228, subject to post-closing adjustments. The sales price for the raw materials, packaging, labels, work-in-process and component inventories was $19,755, subject to post-closing adjustments.

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

2. Sale of Nutritional Bar Assets and Powder Facility (Continued)

to the Bar APA will be equal to NBTY's book value for such assets, as estimated by NBTY prior to the closing of the transactions, and subject to post-closing adjustments.

As a result of these arrangements, the Company will incur cumulative net charges of approximately $21,000 before tax over the period in which these transactions are completed, of which non-cash charges will consist primarily of accelerated depreciation and a write-off of Goodwill of approximately $17,000; costs related to workforce reductions will be approximately $2,200 and other costs will be approximately $3,492, partially offset by a gain of $1,692 on the sale of a contract. All costs associated with the Divested Manufacturing Operations will be reflected in Corporate / Manufacturing.

Charges related to these divestitures of $9,533 for the three months ended June 30, 2015 were $5,541 for a write-off of Goodwill associated with the fair value of the assets related to the powder facility, $4,942 for accelerated depreciation, $28 for severance and employee related costs and $714 of other costs, partially offset by a gain on a transferred contract of $1,692. Charges related to these divestitures of $14,435 for the nine months ended June 30, 2015 were $6,589 for accelerated depreciation, $5,541 for a write-off of Goodwill associated with the fair value of assets related to the powder facility, $2,199 for severance and employee related costs and $1,798 of other costs, partially offset by a gain on a transferred contract of $1,692.

In connection with the sale of the Divested Manufacturing Operations, NBTY has entered into long-term supply agreements with Nellson, pursuant to which NBTY will purchase from Nellson the nutritional bar and powder products for a period of ten years.

3. Inventories

The components of inventories are as follows:

	June 30, 2015		September 30, 2014

Raw materials	$	177,892	$	217,697
Work-in-process		21,995		20,898
Finished goods		609,163		614,631

Total	$	809,050	$	853,226

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

4. Goodwill and Intangible Assets

The change in the carrying amount of goodwill by segment is as follows:

	Consumer Products Group			Holland & Barrett International			Puritan's Pride			Consolidated

Balance at September 30, 2014	$	638,630		$	321,257		$	203,395		$	1,163,282
Write off due to sale of powder facility		(4,892	)		—			(649	)		(5,541	)
Foreign currency translation		(8,789	)		(16,445	)		—			(25,234	)

Balance at June 30, 2015	$	624,949		$	304,812		$	202,746		$	1,132,507

The carrying amounts of acquired other intangible assets, which are subject to the impact of changes in foreign currency for the periods indicated are as follows:

	June 30, 2015				September 30, 2014

	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization		Amortization period (years)
Definite lived intangible assets:
Brands and customer relationships	$	909,278	$	184,964	$	912,200	$	155,776	17 - 25
Tradenames and other		172,808		26,512		175,872		22,644	15 - 30

		1,082,086		211,476		1,088,072		178,420
Indefinite lived intangible assets:
Tradenames		872,480		—		881,940		—

Total intangible assets	$	1,954,566	$	211,476	$	1,970,012	$	178,420

Aggregate amortization expense of definite lived intangible assets included in the consolidated statements of income and comprehensive income (loss) in selling, general and administrative expenses for the three months ended June 30, 2015 and 2014 was $11,445 and $11,495, respectively. Amortization expense for the nine months ended June 30, 2015 and 2014 was $34,120 and $34,633, respectively.

Assuming no changes in our intangible assets, estimated amortization expense for each of the five succeeding years will be approximately $45,000 per year.

5. Long-Term Debt

As a result of adopting the new guidance related to the presentation of debt issuance costs (see Note 1), our September 30, 2014 consolidated balance sheet has been retrospectively adjusted to reduce long-term debt by $58,600, reduce other assets by $41,285 and reduce other current assets by $17,315. Debt issuance costs relating to unused revolving lines of credit will remain in other assets and other current assets.

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

5. Long-Term Debt (Continued)

The components of long-term debt are as follows:

	June 30, 2015			September 30, 2014

Senior Secured Credit Facilities:
Term loan B-2
Principal amount	$	1,507,500		$	1,507,500
Less unamortized debt issuance costs		(34,731	)		(45,539	)

		1,472,769			1,461,961
Notes
Principal amount		650,000			650,000
Less unamortized debt issuance costs		(10,962	)		(13,061	)

		639,038			636,939
Other		—			848

		2,111,807			2,099,748
Less current portion		—			(261	)

Total	$	2,111,807		$	2,099,487

Senior secured credit facilities

On October 1, 2010, NBTY entered into its senior secured credit facilities with Barclays Bank PLC, as administrative agent (the "Original Credit Agreement"). The Original Credit Agreement was amended pursuant to the First Amendment and Refinancing Agreement, dated as of March 1, 2011, and further amended pursuant to that Second Amendment Agreement, dated as of October 11, 2012.

On March 21, 2013, NBTY, Alphabet Holding Company, Inc. ("Holdings"), our parent company, Barclays Bank PLC, as administrative agent, and several other lenders entered into the Third Amendment and Second Refinancing Agreement (the "Second Refinancing") pursuant to which NBTY repriced its term loan B-1 under its then existing credit agreement. Under the terms of the Second Refinancing, the $1,750,000 term loan B-1 was replaced with a new $1,507,500 term loan B-2. Borrowings under term loan B-2 and the revolving credit facility bear interest at a floating rate which can be, at NBTY's option, either (i) eurodollar (LIBOR) rate plus an applicable margin, or (ii) base rate plus an applicable margin, in each case, subject to a eurodollar (LIBOR) rate floor of 1.00% or a base rate floor of 2.00%, as applicable. The applicable margin for term loan B-2 is 2.50% per annum for eurodollar (LIBOR) loans and 1.50% per annum for base rate loans. The applicable margin for the revolving credit facility remained at 3.25% per annum for eurodollar (LIBOR) loans and 2.25% per annum for base rate loans, with a step-down of 25 basis points upon the achievement of a total senior secured leverage ratio as set forth in the senior secured credit facilities. Substantially all other terms are consistent with the original term loan B- 1, including the maturity dates. As a result of the Second Refinancing, $4,232 of previously capitalized deferred financing costs, as well as $1,151 of the call

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

5. Long-Term Debt (Continued)

premium on term loan B-1, were expensed and included in interest expense. In addition, costs incurred and recorded as deferred financing costs were approximately $15,190, including $13,924 of the call premium paid on term loan B-1, and are being amortized using the effective interest method. In accordance with the provisions of the credit agreement governing the senior secured credit facilities, future scheduled payments of principal will not be required until the final balloon payment at maturity in October 2017.

On November 20, 2014, NBTY amended its senior secured revolving credit facility, extending its maturity to September 2017 and reducing the commitment from $200,000 to $175,000. In connection with this amendment, deferred financing costs of $611 were incurred and are being amortized over the remaining period and $359 of previously capitalized financing costs were written off.

The following fees are applicable under the revolving credit facility: (i) an unused line fee of 0.50% per annum, based on the unused portion of the revolving credit facility; (ii) a letter of credit participation fee on the aggregate stated amount of each letter of credit available to be drawn equal to the applicable margin for eurodollar rate loans; (iii) a letter of credit fronting fee equal to 0.25% per annum on the daily amount of each letter of credit available to be drawn; and (iv) certain other customary fees and expenses of our letter of credit issuers.

As of June 30, 2015, there were no borrowings drawn from our $175,000 revolving credit facility and there was a letter of credit totaling $4,400, reducing the net availability to $170,600. In July 2015, the letter of credit was increased to $6,100.

NBTY may voluntarily prepay loans or reduce commitments under its senior secured credit facilities, in whole or in part, subject to minimum amounts, with prior notice but without premium or penalty.

NBTY must make prepayments on the term loan B-2 facility with the net cash proceeds of certain asset sales, casualty and condemnation events, the incurrence or issuance of indebtedness (other than indebtedness permitted to be incurred under its senior secured credit facilities unless specifically incurred to refinance a portion of its senior secured credit facilities) and 50% of excess cash flow, as defined in the credit agreement (such percentage subject to reduction based on achievement of total senior secured leverage ratios), in each case, subject to certain reinvestment rights and other exceptions. NBTY is also required to make prepayments under its revolving credit facility at any time when, and to the extent that, the aggregate amount of the outstanding loans and letters of credit under the revolving credit facility exceeds the aggregate amount of commitments in respect of the revolving credit facility.

Obligations under the senior secured credit facilities are guaranteed by Holdings and each of NBTY's current and future direct and indirect subsidiaries other than (i) foreign subsidiaries, (ii) unrestricted subsidiaries, (iii) non-wholly owned subsidiaries, (iv) certain receivables financing subsidiaries, (v) certain immaterial subsidiaries and (vi) certain holding companies of foreign subsidiaries, and are secured by a first lien on substantially all of their assets, including capital stock of subsidiaries (subject to certain exceptions).

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

5. Long-Term Debt (Continued)

The senior secured credit facilities contain customary negative covenants, including, but not limited to, restrictions on NBTY and its restricted subsidiaries' ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances or investments, pay dividends, sell or otherwise transfer assets, prepay or modify terms of certain junior indebtedness, enter into transactions with affiliates, amend organizational documents, or change our line of business or fiscal year. In addition, NBTY's senior secured credit facilities require the maintenance of a maximum total senior secured leverage ratio on a quarterly basis, calculated with respect to Consolidated EBITDA, as defined therein, if at any time amounts are outstanding under the revolving credit facility, including swingline loans and letters of credit. NBTY was in compliance with all financial covenants under the senior secured credit facilities at June 30, 2015.

The senior secured credit facilities provide that, upon the occurrence of certain events of default, the obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy proceedings, material money judgments, material ERISA/pension plan events, certain change of control events and other customary events of default.

Holdco Notes

On October 17, 2012, Holdings issued $550,000 in aggregate principal amount of 7.75%/8.50% contingent cash pay senior notes ("Holdco Notes") that mature on November 1, 2017. Interest on the Holdco Notes accrues at the rate of 7.75% per annum with respect to cash interest and 8.50% per annum with respect to any paid-in-kind interest ("PIK Interest"). Interest on the Holdco Notes is payable semi-annually in arrears on May 1 and November 1 of each year. All interest payments made to date have been in cash. Holdings is a holding company with no operations and has no ability to service interest or principal on the Holdco Notes, other than through dividends it may receive from NBTY. NBTY is restricted, in certain circumstances, from paying dividends to Holdings by the terms of the indenture governing NBTY's 9.00% Senior Notes due 2018 ("Notes") and the senior secured credit facilities. NBTY has not guaranteed the indebtedness of Holdings, nor pledged any of its assets as collateral, and the Holdco Notes are not reflected in NBTY's financial statements. The proceeds from the offering of the Holdco Notes, along with $200,000 of cash on hand from NBTY, as described below, were used to pay transaction fees and expenses, including a consent fee of $17,345 and a $721,682 cash dividend to Holdings' shareholders in October 2012.

On December 12, 2013, Holdings issued an additional $450,000 in aggregate principal amount of Holdco Notes that mature on November 1, 2017. The additional $450,000 Holdco Notes and the $550,000 of original Holdco Notes previously issued on October 17, 2012 have identical terms and are treated as a single class for all purposes under the indenture governing the Holdco Notes. The gross proceeds from the offering of the $450,000 additional Holdco Notes was $460,125, inclusive of a $10,125 premium, which were used to pay transaction fees and expenses, including a consent fee, totaling $18,560 and a $445,537 dividend to Holdings' shareholders in December 2013.

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

5. Long-Term Debt (Continued)

Interest on the Holdco Notes shall be payable entirely in cash ("Cash Interest") to the extent that it is less than the maximum amount of allowable dividends and distributions plus any cash at Holdings ("Applicable Amount") as defined by the indenture governing the Holdco Notes. For any interest period after May 1, 2013 (other than the final interest period ending at stated maturity), if the Applicable Amount for such interest period will:

(i) equal or exceed 75%, but be less than 100%, of the aggregate amount of Cash Interest that would otherwise be due on the relevant interest payment date, then Holdings may, at its option, elect to pay interest on (a) 25% of the then outstanding principal amount of the Holdco Notes by increasing the principal amount of the outstanding Holdco Notes or by issuing payment in kind notes ("PIK Notes") in a principal amount equal to such interest and (b) 75% of the then outstanding principal amount of the Holdco Notes as Cash Interest;

(ii) equal or exceed 50%, but be less than 75%, of the aggregate amount of Cash Interest that would otherwise be due on the relevant interest payment date, then Holdings may, at its option, elect to pay interest on (a) 50% of the then outstanding principal amount of the Holdco Notes as PIK Interest and (b) 50% of the then outstanding principal amount of the Holdco Notes as Cash Interest;

(iii) equal or exceed 25%, but be less than 50%, of the aggregate amount of Cash Interest that would otherwise be due on the relevant interest payment date, then Holdings may, at its option, elect to pay interest on (a) 75% of the then outstanding principal amount of the Holdco Notes as PIK Interest and (b) 25% of the then outstanding principal amount of the Holdco Notes as Cash Interest; or

(iv) be less than 25% of the aggregate amount of Cash Interest that would otherwise be due on the relevant interest payment date, then Holdings may, at its option, elect to pay interest on the Holdco Notes as PIK Interest.

As described above, Holdings' ability to pay PIK Interest depends on the calculation of the Applicable Amount regardless of the availability of cash at Holdings.

All interest payments to date have been in cash and were funded by dividends from NBTY.

Holdings may redeem the Holdco Notes, at its option, in whole at any time or in part from time to time, at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on November 1 of the years set forth below:

Period

2014	102.00	%
2015	101.00	%
2016 and thereafter	100.00	%

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

5. Long-Term Debt (Continued)

Notes

On October 1, 2010, NBTY issued $650,000 in aggregate principal amount of senior notes bearing interest at 9% in a private placement. On August 2, 2011, these privately placed notes were exchanged for substantially identical notes that were registered under the Securities Act of 1933, as amended, and therefore are freely tradable (the privately placed notes and such registered notes exchanged therefor, the "Notes"). The Notes are senior unsecured obligations and mature on October 1, 2018. Interest on the Notes is paid on April 1 and October 1 of each year, and commenced on April 1, 2011.

NBTY may redeem the Notes, at its option, in whole at any time or in part from time to time, at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on October 1 of the years set forth below:

Period

2014	104.50	%
2015	102.25	%
2016 and thereafter	100.00	%

The Notes are jointly and severally irrevocably and unconditionally guaranteed by each of NBTY's subsidiaries that is a guarantor under the credit agreement. The Notes are uncollateralized and rank senior in right of payment to existing and future indebtedness that is expressly subordinated to the Notes, rank equally in right of payment to NBTY and its subsidiary guarantors' senior unsecured debt, and are effectively junior to any of NBTY or its subsidiary guarantors' secured debt, to the extent of the value of the collateral securing such debt. The Notes contain certain customary covenants including, but not limited to, restrictions on NBTY and its restricted subsidiaries' ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances or investments, or pay dividends. NBTY was in compliance with all financial covenants under the Notes at June 30, 2015.

6. Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

•: Level 1—Quoted prices in active markets for identical assets or liabilities.
•: Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•: Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

6. Fair Value of Financial Instruments (Continued)

The following table summarizes the liabilities measured at fair value on a recurring basis at June 30, 2015:

	Level 1		Level 2		Level 3

Current (included in accrued expenses and other current liabilities):
Cross currency swaps	$	—	$	—	$	3,299
Non-current (included in other assets):
Cross currency swaps	$	—	$	—	$	4,740

The following table summarizes the liabilities measured at fair value on a recurring basis at September 30, 2014:

	Level 1		Level 2		Level 3

Current (included in accrued expenses and other current liabilities):
Interest rate swaps	$	—	$	1,151	$	—
Cross currency swaps	$	—	$	—	$	3,857
Non-current (included in other liabilities):
Cross currency swaps	$	—	$	—	$	14,773

The Company's swap contracts are measured at fair value based on a market approach valuation technique. With the market approach, fair value is derived using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Although non-performance risk of the Company and the counterparty is present in all swap contracts and is a component of the estimated fair values, we did not view non-performance risk to be a significant input to the fair value for the interest rate swap contracts. However, with respect to our cross currency swap contracts, we believe that non-performance risk is higher; therefore, the Company classifies these swap contracts as "Level 3" in the fair value hierarchy and, accordingly, records estimated fair value adjustments based on internal projections and views of those contracts. The performance risk for the cross currency swap contracts as a percentage of the unadjusted assets / (liabilities) ranged from 10.1% to 10.7% (10.3% weighted average) as of June 30, 2015 and 8.1% to 8.5% (8.3% weighted average) as of September 30, 2014.

The following table shows the Level 3 activity related to our cross currency swaps for the three and nine months ended June 30, 2015 and 2014:

	Three Months Ended June 30,						Nine Months Ended June 30,

	2015			2014			2015			2014
Beginning balance:	$	8,810		$	(29,221	)	$	(18,630	)	$	(22,254	)
Unrealized gain (loss) on cross currency swaps		(16,849	)		(6,701	)		10,591			(13,668	)

Ending balance:	$	(8,039	)	$	(35,922	)	$	(8,039	)	$	(35,922	)

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

6. Fair Value of Financial Instruments (Continued)

Interest Rate Swaps

During March 2011, we entered into three interest rate swap contracts to fix the LIBOR indexed interest rates on a portion of our senior secured credit facilities until the indicated expiration dates of these swap contracts. Each swap contract had a declining notional amount with a fixed interest rate of 1.92% for a four-year term and matured in December 2014. Under the terms of the swap contracts, variable interest payments for a portion of our senior secured credit facilities were swapped for fixed interest payments. These interest rate swap contracts were designated as a cash flow hedge of the variable interest payments on a portion of our term loan debt. Hedge effectiveness was assessed based on the overall changes in the fair value of the interest rate swap contracts. Hedge ineffectiveness was insignificant, and was recorded in Miscellaneous, net.

Cross Currency Swaps

To manage the potential exposure from adverse changes in currency exchange rates, specifically the British pound sterling, arising from our net investment in British pound sterling denominated operations, we entered into three cross currency swap contracts in December 2010, to hedge a portion of the net investment in our British pound denominated foreign operations. The aggregate notional amount of the swap contracts is £194,200 British pounds sterling (approximately $300,000 U.S. dollars), with a forward rate of 1.565, and a termination date of September 30, 2017.

These cross currency contracts were designated as a net investment hedge to the net investment in our British pound sterling denominated operations. Hedge effectiveness is assessed based on the overall changes in the fair value of the cross currency swap contracts. Any potential hedge ineffectiveness is measured using the hypothetical derivative method and is recognized in current earnings. Hedge ineffectiveness loss/(gain) for the three months ended June 30, 2015 and 2014 was ($613) and $1,463, respectively, and is recorded in Miscellaneous, net. Hedge ineffectiveness loss/(gain) for the nine months ended June 30, 2015 and 2014 was $1,136 and $2,415, respectively.

The following table shows the effect, net of tax impact, of the Company's derivative instruments designated as cash flow and net investment hedging instruments:

	Three Months Ended June 30,

	2015					2014
	Amount of Gain or (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion)			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Amount of Gain or (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion)			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Cash Flow Hedges:
Interest rate swaps	$	—		$	—	$	(460	)	$	(1,159	)
Net Investment Hedges:
Cross currency swaps		(10,992	)		—		(5,591	)		—

Total	$	(10,992	)	$	—	$	(6,051	)	$	(1,159	)

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

6. Fair Value of Financial Instruments (Continued)

	Nine Months Ended June 30,

	2015						2014
	Amount of Gain or (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion)			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Amount of Gain or (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion)			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Cash Flow Hedges:
Interest rate swaps	$	(438	)	$	(1,159	)	$	(1,705	)	$	(4,174	)
Net Investment Hedges:
Cross currency swaps		7,660			—			(10,835	)		—

Total	$	7,222		$	(1,159	)	$	(12,540	)	$	(4,174	)

Notes

The fair value of the Notes, based on quoted market prices (Level 2), was approximately $680,875 as of June 30, 2015.

Term loan B-2

The face amount of the term loan B-2 is $1,507,500, which approximates fair value based on Level 2 inputs, as this loan accrues interest at a variable interest rate.

7. Litigation Summary

Herbal Dietary Supplements

In February 2015, the New York State Office of the Attorney General ("NY AG") began an investigation concerning the authenticity and purity of herbal supplements and associated marketing. As part of this investigation, the NY AG is reviewing the sufficiency of the measures that several manufacturers and retailers, including NBTY, are taking to independently assess the validity of their representations and advertising in connection with the sale of herbal supplements. NBTY has fully cooperated with the NY AG; however until this investigation is concluded, no final determination can be made as to its ultimate outcome or the amount of liability, if any, on the part of NBTY. However, we do not believe the ultimate outcome will have a material adverse effect on our consolidated financial statements.

Following the NY AG investigation, starting in February 2015, numerous putative class actions were filed in various jurisdictions against NBTY, certain of its customers and/or other companies as to which there may be a duty to defend and indemnify, challenging the authenticity and purity of herbal supplements and associated marketing, under various states' consumer protection statutes. Motions for transfer and consolidation of all of the federal actions as multidistrict litigation into a single district before a single judge were granted on June 9, 2015, and the cases are consolidated before Judge John W. Darrah of the United States District Court, North District of Illinois—Eastern Division (the "MDL Case:"). An initial conference is scheduled for August 20, 2015. Three class actions against one

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

7. Litigation Summary (Continued)

of our customers to which we may have a duty to indemnify have not been transferred and consolidated with the MDL Case, and are at the initial stages of litigation.

At this time, no determination can be made as to the ultimate outcome of the litigation or the amount of liability, if any, on the part of NBTY; however, we do not believe the ultimate outcome will have a material adverse effect on our consolidated financial statements.

Glucosamine-Based Dietary Supplements

Beginning in June 2011, certain putative class actions have been filed in various jurisdictions against NBTY, its subsidiary Rexall Sundown, Inc. ("Rexall"), and/or other companies as to which there may be a duty to defend and indemnify, challenging the marketing of glucosamine- based dietary supplements, under various states' consumer protection statutes. The lawsuits against NBTY and its subsidiaries are:Cardenas v. NBTY, Inc. and Rexall Sundown, Inc. (filed June 14, 2011) in the United States District Court for the Eastern District of California, on behalf of a putative class of California consumers seeking unspecified compensatory damages based on theories of restitution and disgorgement, plus punitive damages and injunctive relief;Jennings v. Rexall Sundown, Inc. (filed August 22, 2011) in the United States District Court for the District of Massachusetts, on behalf of a putative class of Massachusetts consumers seeking unspecified trebled compensatory damages; andNunez v. NBTY, Inc. et al. (filed March 1, 2013) in the United States District Court for the Southern District of California (the "Nunez Case"), on behalf of a putative class of California consumers seeking unspecified compensatory damages based on theories of restitution and disgorgement, plus injunctive relief, as well as other cases in California and Illinois against certain Consumer Products Group customers as to which we may have certain indemnification obligations.

In March 2013, NBTY agreed upon a proposed settlement with plaintiffs, which included all cases and resolved all pending claims without any admission of or concession of liability by NBTY, and which provided for a release of all claims in return for payments to the class, together with attorneys' fees, and notice and administrative costs. Fairness Hearings took place on October 4, 2013 and November 20, 2013. On January 3, 2014, the court issued an opinion and order approving the settlement as modified (the "Order"). The final judgment was issued on January 22, 2014 (the "Judgment"). Certain objectors filed a notice of appeal of the Order and the Judgment on January 29, 2014 and the plaintiffs filed a notice of appeal on February 3, 2014. In fiscal 2013, NBTY recorded a provision of $12,000 reflecting its best estimate of exposure for payments to the class together with attorney's fees and notice and administrative costs in connection with this class action settlement. As a result of the court's approval of the settlement and the closure of the claims period, NBTY reduced its estimate of exposure to $6,100. This reduction in the estimated exposure was reflected in the Company's first quarter results for fiscal 2014.

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

7. Litigation Summary (Continued)

providing for a release of all claims in return for payments to the class, together with attorneys' fees, and notice and administrative costs estimated to be in the amount of $9,000, which resulted in an additional charge of $4,300 in the second quarter results for fiscal 2015. On May 14, 2015, the settlement was submitted to the court for preliminary approval and a preliminary conference was held before the court on July 22, 2015. Until the cases are resolved, no final determination can be made as to the ultimate outcome of the litigation or the amount of liability on the part of NBTY.

Telephone Consumer Protection Act Claim

NBTY, and certain of its subsidiaries, are defendants in a class-action lawsuit, captionedJohn H. Lary Jr. v. Rexall Sundown, Inc.; Rexall Sundown 3001, LLC; Rexall, Inc.; NBTY, Inc.; Corporate Mailings, Inc. d/b/a CCG Marketing Solutions ("CCG") and John Does 1-10 (originally filed October 22, 2013), brought in the United States District Court, Eastern District of New York. The plaintiff alleges that the defendants faxed advertisements to plaintiff and others without invitation or permission, in violation of the Telephone Consumer Protection Act ("TCPA").

On May 2, 2014, NBTY and its named subsidiary defendants cross-claimed against CCG, who was a third party vendor engaged by NBTY, and CCG cross-claimed against NBTY and named subsidiary defendants on June 13, 2014. CCG brought a third party complaint against an unrelated entity, Healthcare Data Experts, LLC, on June 27, 2014. On July 21, 2014, CCG filed a motion to dismiss the amended complaint and on February 11, 2015 the court issued an Order and Opinion dismissing the class-action. On February 27, 2015, Plaintiff filed an appeal to the court's dismissal of the action and that appeal is pending.

At this time, no determination can be made as to the ultimate outcome of the litigation or the amount of liability on the part of NBTY, however, we do not believe the ultimate outcome will have a material adverse effect on our consolidated financial statements.

Claims in the Ordinary Course

In addition to the foregoing, other regulatory inquiries, claims, suits and complaints (including product liability, intellectual property and Proposition 65 claims) arise from time to time in the ordinary course of our business. We currently believe that such other inquiries, claims, suits and complaints would not have a material adverse effect on our consolidated financial statements, if adversely determined against us.

Over the past several years, we have been served with various false advertising putative class action cases in various U.S. jurisdictions, as have various other companies in the industry. Over the past few years, the number of these cases has increased, such that at any given time we are defending several suits concerning a variety of products. These cases challenge the marketing of the subject dietary supplements under various states' consumer protection statutes and generally seek unspecified compensatory damages based on theories of restitution and disgorgement, plus punitive damages and injunctive relief. Until these cases are resolved, no determination can be made as to the ultimate outcome of the litigation or the amount of liability on our part.

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

8. Income Taxes

The effective income tax rate for the three months ended June 30, 2015 and 2014 was 29.6% and 30.7%, respectively. The effective income tax rate for the nine months ended June 30, 2015 and 2014 was 33.3% and 32.6%, respectively. Our effective tax rates for the three and nine month periods are different than the federal statutory rate generally due to the impact of state and local taxes and the partial reinvestment of foreign earnings in fiscal 2015 and 2014.

We accrue interest and penalties related to unrecognized tax benefits in the provision for income taxes. At June 30, 2015, we had accrued $679 and $174 for the potential payment of interest and penalties, respectively. As of June 30, 2015, we were subject to U.S. federal income tax examinations for the tax years 2012 through 2014, and to non-U.S. examinations for tax years 2009 through 2014. In addition, we are generally subject to state and local examinations for fiscal years 2011 through 2014.

During our fiscal second quarter ended March 31, 2015, the Internal Revenue Service ("IRS") finalized its examination of the Company for tax years 2011 and 2012, which resulted in an immaterial reduction to its unrecognized tax benefit.

9. Accumulated Other Comprehensive Income (Loss)

Additions to and reclassifications out of accumulated other comprehensive income (loss) attributable to the Company for the three and nine months ended June 30, 2015 and 2014 were as follows:

	Three Months Ended June 30, 2015(1)

	Foreign currency translation adjustments			Gains and losses on cash flow hedges		Total
Balance at March 31, 2015	$	(111,243	)	$	—	$	(111,243	)
Other comprehensive income (loss) before reclassifications		34,724			—		34,724
Amounts reclassified from accumulated other comprehensive income (loss)(2)		—			—		—

Balance at June 30, 2015	$	(76,519	)	$	—	$	(76,519	)

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

9. Accumulated Other Comprehensive Income (Loss) (Continued)

	Three Months Ended June 30, 2014(1)

	Foreign currency translation adjustments		Gains and losses on cash flow hedges			Total
Balance at March 31, 2014	$	1,809	$	(2,133	)	$	(324	)
Other comprehensive income (loss) before reclassifications		11,127		(460	)		10,667
Amounts reclassified from accumulated other comprehensive income (loss)(2)		—		1,159			1,159

Balance at June 30, 2014	$	12,936	$	(1,434	)	$	11,502

	Nine Months Ended June 30, 2015(1)

	Foreign currency translation adjustments			Gains and losses on cash flow hedges			Total
Balance at September 30, 2014	$	(28,482	)	$	(721	)	$	(29,203	)
Other comprehensive income (loss) before reclassifications		(48,037	)		(438	)		(48,475	)
Amounts reclassified from accumulated other comprehensive income (loss)(2)		—			1,159			1,159

Balance at June 30, 2015	$	(76,519	)	$	—		$	(76,519	)

	Nine Months Ended June 30, 2014(1)

	Foreign currency translation adjustments			Gains and losses on cash flow hedges			Total
Balance at September 30, 2013	$	(9,679	)	$	(3,903	)	$	(13,582	)
Other comprehensive income (loss) before reclassifications		22,615			(1,705	)		20,910
Amounts reclassified from accumulated other comprehensive income (loss)(2)		—			4,174			4,174

Balance at June 30, 2014	$	12,936		$	(1,434	)	$	11,502

(1): All amounts are net of tax, amounts in parentheses indicate debits.
(2): These losses are reclassified into Interest expense. See Note 6, Fair Value of Financial Instruments.

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

10. Business and Credit Concentration

Financial Instruments

Financial instruments that 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.

Customers

We perform on-going credit evaluations of our customers and adjust credit limits based upon payment history and the customers' current creditworthiness, as determined by review of their current credit information. Customers' account activity is continuously monitored. As a result of this review process, we record bad debt expense, which is based upon historical experience as well as specific customer collection issues that have been identified, to adjust the carrying amount of the related receivable to its estimated realizable value. While such bad debt expenses historically have been within expectations and the allowances established, if the financial condition of one or more of our customers were to deteriorate, additional bad debt provisions may be required.

The following customers accounted for the following percentages of net sales for the three and nine months ended June 30, 2015 and 2014, respectively:

	Consumer Products Group Segment Net Sales						Total Consolidated Net Sales

	Three Months Ended June 30,						Three Months Ended June 30,
	2015			2014			2015			2014
Customer A		19	%		18	%		11	%		11	%
Customer B		16	%		13	%		10	%		7	%

	Consumer Products Group Segment Net Sales						Total Consolidated Net Sales

	Nine Months Ended June 30,						Nine Months Ended June 30,
	2015			2014			2015			2014
Customer A		18	%		19	%		11	%		11	%
Customer B		15	%		12	%		9	%		7	%

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

10. Business and Credit Concentration (Continued)

The following customers accounted for the following percentages of the Consumer Products Group segment's gross accounts receivable:



Customer A	11	%	13	%
Customer B	16	%	11	%

The loss of any of these customers, or any one of our other major customers, would have a material adverse effect on our consolidated financial statements if we were unable to replace that customer.

11. Related Party Transactions

Consulting Agreement—The Carlyle Group ("Carlyle")

NBTY entered into a consulting agreement with Carlyle under which it pays Carlyle a fee for consulting services Carlyle provides to it and its subsidiaries. Under this agreement, subject to certain conditions, NBTY expects to pay an annual consulting fee to Carlyle of $3,000; NBTY reimburses Carlyle for out-of-pocket expenses, and may pay Carlyle additional fees associated with other future transactions. For the three and nine months ended June 30, 2015 and 2014, these fees totaled $750 and $2,250, in each of the respective periods, and are recorded in selling, general and administrative expenses. Out of pocket expenditures paid to Carlyle were $14 and $24 for the three months ended June 30, 2015 and 2014, respectively, and $402 and $392 for the nine months ended June 30, 2015 and 2014, respectively.

Services from Portfolio Companies of Funds Affiliated with Carlyle

From time to time, we receive services from other portfolio companies of funds that are affiliated with Carlyle, but these services are not significant and such services are provided on what we believe is an arms-length basis.

Holdings

Holdings does not have any operations or cash flow other than dividends from NBTY. Holdings has $1,000,000 of Holdco Notes and relies on dividends from NBTY to service the debt. See Note 5 Long-Term Debt for further information.

12. Segment Information

We are organized by segments on a worldwide basis. We evaluate performance based on a number of factors; however, the primary measures of performance are the net sales and income or loss from operations (before corporate allocations) of each segment, as these are the key performance indicators that we review. Operating income or loss for each segment does not include the impact of any intercompany transfer pricing mark-up, corporate general and administrative expenses, interest expense and other miscellaneous income/expense items. Corporate general and administrative expenses include,

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

12. Segment Information (Continued)

but are not limited to, human resources, legal, finance, and various other corporate-level activity related expenses. Such unallocated expenses remain within Corporate/Manufacturing.

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

•: Consumer Products Group—This segment sells products worldwide under various brand names and third-party private labels, each targeting specific market groups which include virtually all major mass merchandisers, club stores, drug store chains and supermarkets. This segment also sells products to independent pharmacies, health food stores, the military and other retailers.
•: Holland & Barrett International—This segment generates revenue through its 1,007 Holland & Barrett and co-branded stores; including company-owned stores in the following countries: 690 in the UK, 151 in the Netherlands, 48 in Ireland, 18 in Belgium; and franchised stores in the following countries: 32 in China, 28 in Singapore, 15 in United Arab Emirates,10 in Cyprus, five in each of Malta and the Netherlands, two in each of Spain and Kuwait and one in Gibraltar. We also have 49 GNC / MET-Rx branded UK stores, as well as internet-based sales fromwww.hollandandbarrett.com, www.hollandandbarrett.co.uk, www.hollandandbarrett.ie,www.detuinen.nl andwww.gnc.co.uk. Such revenue consists of sales of proprietary brand and third-party products as well as franchise fees. We are currently in the process of co-branding the De Tuinen, Essenza and Natures Way stores to leverage the value of the Holland & Barrett brand.
•: Puritan's Pride—This segment generates revenue through the sale of proprietary brand and third-party products primarily through the internet and mail order catalogs under the Puritan's Pride tradename. Catalogs are strategically mailed to customers who order by mail, internet, or phone.
•: Vitamin World—This segment generates revenue through its 386 owned and operated Vitamin World stores selling proprietary brand and third-party products, as well as internet-based sales from www.vitaminworld.com.

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

12. Segment Information (Continued)

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

	Total Reportable Business Segments

	Consumer Products Group		Holland & Barrett International		Puritan's Pride		Vitamin World		Total		Corporate/ Manufacturing			Consolidated
*Three Months Ended June 30, 2015:*
Net sales	$	476,452	$	225,428	$	62,467	$	51,263	$	815,610	$	—		$	815,610
Income (loss) from operations		61,897		45,890		6,685		1,395		115,867		(32,482	)		83,385
Depreciation and amortization		8,993		5,848		2,838		945		18,624		15,498			34,122
Capital expenditures		602		17,139		22		1,460		19,223		18,403			37,626
*Three Months Ended June 30, 2014:*
Net sales	$	471,344	$	215,328	$	63,940	$	56,349	$	806,961	$	—		$	806,961
Income (loss) from operations		41,355		48,386		9,009		3,073		101,823		(22,535	)		79,288
Depreciation and amortization		9,032		4,807		2,830		892		17,561		9,748			27,309
Capital expenditures		41		12,380		402		4,388		17,211		7,981			25,192
*Nine Months Ended June 30, 2015:(1)(2)*
Net sales	$	1,425,918	$	655,831	$	188,984	$	158,524	$	2,429,257	$	—		$	2,429,257
Income (loss) from operations		151,571		138,287		19,735		7,310		316,903		(87,364	)		229,539
Depreciation and amortization		27,021		16,005		8,508		2,745		54,279		37,641			91,920
Capital expenditures		1,301		40,291		293		3,131		45,016		38,576			83,592
*Nine Months Ended June 30, 2014:*
Net sales	$	1,420,067	$	635,556	$	187,904	$	169,565	$	2,413,092	$	—		$	2,413,092
Income (loss) from operations		143,087		142,260		23,372		7,568		316,287		(72,549	)		243,738
Depreciation and amortization		27,199		12,984		8,475		2,365		51,023		27,686			78,709
Capital expenditures		244		27,248		1,084		11,977		40,553		31,883			72,436

(1): Included in the income (loss) from operations is an adjustment to correct the Company's accounting for prepaid rent, whereby a benefit was recorded and benefited the Consumer Products Group, Puritan's Pride and Vitamin World segments by $588, $78 and $66, for the three months ended June 30, 2015, respectively and $588, $78 and $2,586 for the nine months ended June 30, 2015, respectively.
(2): Included in the income (loss) from operations for the nine months ended June 30, 2015, is an adjustment to correct the valuation of our labels inventory, whereby a benefit of $3,708 was recorded and benefited the Consumer Products Group, Puritan's Pride and Vitamin World segments by $2,975, $397, and $336, respectively.

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

12. Segment Information (Continued)

Total assets by segment are as follows:

	June 30, 2015		September 30, 2014

Reportable Business Segments:
Consumer Products Group	$	2,468,588	$	2,500,659
Holland & Barrett International		992,960		948,010
Puritan's Pride		511,283		512,642
Vitamin World		111,257		107,442

Total Reportable Business Segments:		4,084,088		4,068,753

Corporate / Manufacturing		777,161		750,369

Consolidated assets	$	4,861,249	$	4,819,122

13. Condensed Consolidating Financial Statements of Guarantors

The Notes were issued by NBTY and are guaranteed by each of its current and future direct and indirect 100% owned subsidiaries, subject to certain exceptions. 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, 2015 and September 30, 2014 and for the three and nine months ended June 30, 2015 and 2014 of (a) NBTY, the parent and issuer, (b) the guarantor subsidiaries, (c) the non-guarantor subsidiaries and (d) NBTY on a consolidated basis; and
2.: Elimination entries necessary to consolidate NBTY, 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, other comprehensive income, 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 financial statements and other notes related thereto.

We revised the statement of operations with respect to equity in income of subsidiaries from the non-guarantor subsidiaries to the guarantor. This revision impacted the condensed consolidating statement of operations and comprehensive income (loss) for the three and nine months ended June 30, 2014 increasing net income for the guarantors and decreasing the eliminations by $8,228 and $21,874, respectively. The revision to this supplemental information did not impact any amounts reported in our previously issued Consolidated Financial Statements. In accordance with SEC Staff Accounting Bulletin Nos. 99 and 108, we assessed the materiality of these revisions and concluded that the revisions were not material to any of our previously issued consolidating financial statements. As comparative prior period supplemental guarantor subsidiaries financial information is presented in future filings, we will similarly revise such prior period information.

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Condensed Consolidating Balance Sheet
As of June 30, 2015

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	142,540		$	1,439		$	138,929		$	—		$	282,908
Accounts receivable, net		—			139,592			52,723			—			192,315
Intercompany		14,635			—			17,860			(32,495	)		—
Inventories		—			603,215			205,835			—			809,050
Deferred income taxes		—			26,206			694			—			26,900
Other current assets		876			17,025			32,500			—			50,401

Total current assets		158,051			787,477			448,541			(32,495	)		1,361,574
Property, plant and equipment, net		118,197			283,156			213,213			—			614,566
Goodwill		—			720,813			411,694			—			1,132,507
Other intangible assets, net		—			1,407,432			335,658			—			1,743,090
Other assets		1,094			8,342			76			—			9,512
Intercompany loan receivable		2,468,492			1,292,113			—			(3,760,605	)		—
Investments in subsidiaries		2,150,194			152,944			—			(2,303,138	)		—

Total assets	$	4,896,028		$	4,652,277		$	1,409,182		$	(6,096,238	)	$	4,861,249



Liabilities and Stockholder's Equity
Current liabilities:
Current portion of long-term debt	$	—		$	—		$	—		$	—		$	—
Accounts payable		—			198,255			95,680			—			293,935
Intercompany		—			32,495			—			(32,495	)		—
Accrued expenses and other current liabilities		17,934			176,928			46,661			—			241,523

Total current liabilities		17,934			407,678			142,341			(32,495	)		535,458
Intercompany loan payable		1,277,112			2,111,807			371,686			(3,760,605	)		—
Long-term debt, net of current portion		2,111,807			—			—			—			2,111,807
Deferred income taxes		10,289			586,116			99,164			—			695,569
Other liabilities		4,740			14,789			24,740			—			44,269

Total liabilities		3,421,882			3,120,390			637,931			(3,793,100	)		3,387,103
Commitments and contingencies
Stockholder's Equity:
Common stock		—			—			—			—			—
Capital in excess of par		1,563,073			1,404,555			746,911			(2,151,466	)		1,563,073
(Accumulated deficit) retained earnings		(12,408	)		139,437			92,293			(231,730	)		(12,408	)
Accumulated other comprehensive income (loss)		(76,519	)		(12,105	)		(67,953	)		80,058			(76,519	)

Total stockholder's equity		1,474,146			1,531,887			771,251			(2,303,138	)		1,474,146

Total liabilities and stockholder's equity	$	4,896,028		$	4,652,277		$	1,409,182		$	(6,096,238	)	$	4,861,249

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Condensed Consolidating Balance Sheet
As of September 30, 2014

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	77,550		$	751		$	61,187		$	—		$	139,488
Accounts receivable, net		—			130,749			44,952			—			175,701
Intercompany		30,425			—			32,102			(62,527	)		—
Inventories		—			650,484			202,742			—			853,226
Deferred income taxes		—			27,002			1,913			—			28,915
Other current assets		2,618			18,048			40,843			—			61,509

Total current assets		110,593			827,034			383,739			(62,527	)		1,258,839
Property, plant and equipment, net		95,022			304,274			197,906			—			597,202
Goodwill		—			726,354			436,928			—			1,163,282
Other intangible assets, net		—			1,439,374			352,218			—			1,791,592
Other assets		—			8,116			91			—			8,207
Intercompany loan receivable		2,438,743			1,060,793			—			(3,499,536	)		—
Investments in subsidiaries		2,095,763			148,921			—			(2,244,684	)		—

Total assets	$	4,740,121		$	4,514,866		$	1,370,882		$	(5,806,747	)	$	4,819,122



Liabilities and Stockholder's Equity
Current liabilities:
Current portion of long-term debt	$	—		$	—		$	261		$	—		$	261
Accounts payable		—			140,761			87,116			—			227,877
Intercompany		—			62,527			—			(62,527	)		—
Accrued expenses and other current liabilities		34,282			112,136			74,638			—			221,056

Total current liabilities		34,282			315,424			162,015			(62,527	)		449,194
Intercompany loan payable		1,060,793			2,098,900			339,843			(3,499,536	)		—
Long-term debt, net of current portion		2,098,900			—			587			—			2,099,487
Deferred income taxes		22,280			586,116			99,566			—			707,962
Other liabilities		14,773			13,732			24,881			—			53,386

Total liabilities		3,231,028			3,014,172			626,892			(3,562,063	)		3,310,029
Commitments and contingencies
Stockholder's Equity:
Common stock		—			—			—			—			—
Capital in excess of par		1,561,014			1,417,462			739,911			(2,157,373	)		1,561,014
(Accumulated deficit) retained earnings		(22,718	)		89,265			24,570			(113,835	)		(22,718	)
Accumulated other comprehensive income (loss)		(29,203	)		(6,033	)		(20,491	)		26,524			(29,203	)

Total stockholder's equity		1,509,093			1,500,694			743,990			(2,244,684	)		1,509,093

Total liabilities and stockholder's equity	$	4,740,121		$	4,514,866		$	1,370,882		$	(5,806,747	)	$	4,819,122

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Consolidated Statements of Operations and Comprehensive (Loss) Income
For three months ended June 30, 2015

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Net sales	$	—		$	528,588		$	302,656		$	(15,634	)	$	815,610

Costs and expenses:
Cost of sales (See Note 2)		—			313,567			132,015			(15,634	)		429,948
Advertising, promotion and catalog		—			30,405			15,444			—			45,849
Selling, general and administrative		27,876			115,397			103,622			—			246,895
Facility restructuring charges (see Note 2)		—			9,533			—			—			9,533

		27,876			468,902			251,081			(15,634	)		732,225

Income (loss) from operations		(27,876	)		59,686			51,575			—			83,385

Other income (expense):
Intercompany interest		49,415			(44,630	)		(4,785	)		—			—
Interest		(44,630	)		12,092			(55	)		—			(32,593	)
Miscellaneous, net		601			727			799			—			2,127

		5,386			(31,811	)		(4,041	)		—			(30,466	)

Income (loss) before income taxes		(22,490	)		27,875			47,534			—			52,919
Provision (benefit) for income taxes		(5,212	)		10,174			10,695			—			15,657
Equity in income of subsidiaries		54,540			6,303			—			(60,843	)		—

Net income (loss)		37,262			24,004			36,839			(60,843	)		37,262

Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment, net of taxes		34,724			7,003			36,589			(43,592	)		34,724
Change in fair value of interest rate swaps, net of taxes		—			—			—			—			—

Total other comprehensive (loss) income, net of tax		34,724			7,003			36,589			(43,592	)		34,724
Comprehensive (loss) income	$	71,986		$	31,007		$	73,428		$	(104,435	)	$	71,986

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Consolidated Statements of Operations and Comprehensive Income (Loss)
Three Months Ended June 30, 2014

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Net sales	$	—		$	543,930		$	294,293		$	(31,262	)	$	806,961

Costs and expenses:
Cost of sales		—			335,320			127,146			(31,262	)		431,204
Advertising, promotion and catalog		—			51,122			9,809			—			60,931
Selling, general and administrative		22,441			112,937			100,160			—			235,538

		22,441			499,379			237,115			(31,262	)		727,673

Income (loss) from operations		(22,441	)		44,551			57,178			—			79,288

Other income (expense):
Intercompany interest		39,222			(34,167	)		(5,055	)		—			—
Interest		(34,167	)		388			(15	)		—			(33,794	)
Miscellaneous, net		1,538			586			410			—			2,534

		6,593			(33,193	)		(4,660	)		—			(31,260	)

Income (loss) before income taxes		(15,848	)		11,358			52,518			—			48,028
Provision (benefit) for income taxes		(2,344	)		3,975			13,130			—			14,761
Equity in income of subsidiaries		46,771			8,228			—			(54,999	)		—

Net income (loss)	$	33,267		$	15,611		$	39,388		$	(54,999	)	$	33,267



Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment, net of taxes		11,127			2,737			13,238			(15,975	)		11,127
Change in fair value of interest rate swaps net of taxes		699			699			—			(699	)		699

Total other comprehensive income (loss), net of tax		11,826			3,436			13,238			(16,674	)		11,826

Comprehensive income (loss)	$	45,093		$	19,047		$	52,626		$	(71,673	)	$	45,093

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Consolidated Statements of Operations and Comprehensive (Loss) Income
For nine months ended June 30, 2015

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Net sales	$	—		$	1,603,410		$	875,270		$	(49,423	)	$	2,429,257

Costs and expenses:
Cost of sales (see Note 2)		—			976,709			386,706			(49,423	)		1,313,992
Advertising, promotion and catalog		—			110,008			41,241			—			151,249
Selling, general and administrative		78,034			340,685			301,323			—			720,042
Facility restructuring charges (see Note 2)		—			14,435			—						14,435

		78,034			1,441,837			729,270			(49,423	)		2,199,718

Income (loss) from operations		(78,034	)		161,573			146,000			—			229,539

Other income (expense):
Intercompany interest		156,652			(142,120	)		(14,532	)		—			—
Interest		(142,120	)		42,456			(101	)		—			(99,765	)
Miscellaneous, net		(745	)		67			3,974			—			3,296

		13,787			(99,597	)		(10,659	)		—			(96,469	)

Income (loss) before income taxes		(64,247	)		61,976			135,341			—			133,070
Provision (benefit) for income taxes		(8,711	)		22,621			30,452			—			44,362
Equity in income of subsidiaries		144,244			19,607			—			(163,851	)		—

Net income (loss)		88,708			58,962			104,889			(163,851	)		88,708

Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment, net of taxes		(48,037	)		(6,793	)		(47,462	)		54,255			(48,037	)
Change in fair value of interest rate swaps, net of taxes		721			721			—			(721	)		721

Total other comprehensive (loss) income, net of tax		(47,316	)		(6,072	)		(47,462	)		53,534			(47,316	)
Comprehensive (loss) income	$	41,392		$	52,890		$	57,427		$	(110,317	)	$	41,392

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Consolidated Statements of Operations and Comprehensive Income (Loss)
For nine months ended June 30, 2014

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Net sales	$	—		$	1,629,806		$	868,902		$	(85,616	)	$	2,413,092

Costs and expenses:
Cost of sales		—			1,008,111			381,508			(85,616	)		1,304,003
Advertising, promotion and catalog		—			127,945			30,291			—			158,236
Selling, general and administrative		72,527			343,606			290,982			—			707,115

		72,527			1,479,662			702,781			(85,616	)		2,169,354

Income (loss) from operations		(72,527	)		150,144			166,121			—			243,738

Other income (expense):
Intercompany interest		118,051			(103,170	)		(14,881	)		—			—
Interest		(103,170	)		994			478			—			(101,698	)
Miscellaneous, net		2,543			(115	)		(619	)		—			1,809

		17,424			(102,291	)		(15,022	)		—			(99,889	)

Income (loss) before income taxes		(55,103	)		47,853			151,099			—			143,849
Provision (benefit) for income taxes		(7,662	)		16,748			37,775			—			46,861
Equity in income of subsidiaries		144,429			21,874			—			(166,303	)		—

Net income (loss)	$	96,988		$	52,979		$	113,324		$	(166,303	)	$	96,988



Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment, net of taxes		22,615			6,340			21,666			(28,006	)		22,615
Change in fair value of interest rate swaps net of taxes		2,469			2,469			—			(2,469	)		2,469

Total other comprehensive income (loss), net of tax		25,084			8,809			21,666			(30,475	)		25,084

Comprehensive income (loss)	$	122,072		$	61,788		$	134,990		$	(196,778	)	$	122,072

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2015

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Cash (used in) provided by operating activities	$	(1,062	)	$	168,917		$	155,346		$	(37,166	)	$	286,035

Cash flows from investing activities:
Purchase of property, plant and equipment		(27,245	)		(13,839	)		(42,508	)		—			(83,592	)
Proceeds from sale of property, plant and equipment		—			933			—			—			933
Proceeds from sale of powder facility		—			23,983			—			—			23,983
Investment in subsidiary		(7,000	)		—			—			7,000			—

Net cash used in investing activities		(34,245	)		11,077			(42,508	)		7,000			(58,676	)

Cash flows from financing activities:
Principal payments		—			—			(778	)		—			(778	)
Payments for financing fees		(611	)		—			—			—			(611	)
Dividends paid		(78,398	)		—			(37,166	)		37,166			(78,398	)
Capital contribution		—			—			7,000			(7,000	)		—
Intercompany accounts		179,306			(179,306	)		—			—			—

Net cash provided by (used in) financing activities		100,297			(179,306	)		(30,944	)		30,166			(79,787	)

Effect of exchange rate changes on cash		—			—			(4,152	)		—			(4,152	)

Net increase in cash and cash equivalents		64,990			688			77,742			—			143,420
Cash and cash equivalents at beginning of period		77,550			751			61,187			—			139,488

Cash and cash equivalents at end of period	$	142,540		$	1,439		$	138,929		$	—		$	282,908

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

NBTY, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2014

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Cash (used in) provided by operating activities	$	(36,434	)	$	58,813		$	26,137		$	(21,499	)	$	27,017

Cash flows from investing activities:
Purchase of property, plant and equipment		(17,979	)		(25,615	)		(28,842	)		—			(72,436	)
Investment in subsidiary		(6,500	)		—			—			6,500			—

Net cash used in investing activities		(24,479	)		(25,615	)		(28,842	)		6,500			(72,436	)

Cash flows from financing activities:
Principal payments		—			—			(298	)		—			(298	)
Dividends paid		(60,063	)		—			(16,843	)		16,843			(60,063	)
Capital contribution		—			—			6,500			(6,500	)		—
Intercompany accounts		63,355			(68,555	)		5,200			—			—

Net cash used in financing activities		3,292			(68,555	)		(5,441	)		10,343			(60,361	)

Effect of exchange rate changes on cash		—			—			1,636			—			1,636

Net decrease in cash and cash equivalents		(57,621	)		(35,357	)		(6,510	)		(4,656	)		(104,144	)
Cash and cash equivalents at beginning of period		81,356			35,357			81,848			—			198,561

Cash and cash equivalents at end of period	$	23,735		$	—		$	75,338		$	(4,656	)	$	94,417

14. Subsequent Events

Sale-leaseback

In July 2015, the Company sold facilities related to the Holland & Barrett International segment for £34,200 British pounds sterling (approximately $54,000) and entered into a 30 year lease for these facilities. The lease will be accounted for as a capital lease that will result in an obligation of approximately $54,000 to be recorded on our consolidated balance sheet in the fourth fiscal quarter of 2015.

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

Forward-Looking Statements

This Quarterly Report ("Report") contains "forward-looking statements" within the meaning of the securities laws. You should not place undue reliance on these statements. Forward-looking statements include information concerning our liquidity and our possible or assumed future results of operations, including descriptions of our business strategies. These statements often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "seek," "will," "may," or similar expressions. These statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate in these circumstances. As you read and consider this Report, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions. Many factors could affect our actual financial results and could cause actual results to differ materially from those expressed in the forward-looking statements. Some important factors include:

•: consumer perception of our products due to adverse scientific research or findings, regulatory investigations, litigation, national media attention and other publicity regarding nutritional supplements;
•: potential slow or negative growth in the vitamin, mineral and supplement market;
•: increases in the cost of borrowings or unavailability of additional debt or equity capital, or both;
•: volatile conditions in the capital, credit and commodities markets and in the overall economy;
•: dependency on retail stores for sales;
•: the loss of significant customers;
•: compliance with new and existing federal, state, local or foreign legislation or regulation, or adverse determinations by regulators anywhere in the world (including the banning of products) and, in particular, Good Manufacturing Practices in the United States, the Food Supplements Directive and Traditional Herbal Medicinal Products Directive in Europe, the new Food Safety Law in China and greater enforcement by any such federal, state, local or foreign governmental entities;
•: material product liability claims and product recalls;
•: our inability to obtain or renew insurance, or to manage insurance costs;
•: international market exposure and compliance with anti-corruption laws in the U.S. and foreign jurisdictions;
•: difficulty entering new international markets;
•: legal proceedings initiated by regulators in the United States or abroad or lawsuits arising in the ordinary course of business;
•: unavailability of, or our inability to consummate, advantageous acquisitions in the future, or our inability to integrate acquisitions into the mainstream of our business;
•: loss of executive officers or other key personnel;
•: loss of certain third party suppliers;

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•: the availability of raw materials;
•: disruptions in manufacturing operations that produce nutritional supplements and loss of manufacturing certifications;
•: increased competition and failure to compete effectively;
•: our inability to respond to changing consumer preferences;
•: interruption of business or negative impact on sales and earnings due to acts of God, acts of war, sabotage, terrorism, bio-terrorism, civil unrest or disruption of delivery service;
•: work stoppages at our facilities;
•: increased raw material, utility and fuel costs;
•: fluctuations in foreign currencies, including the British pound sterling, the euro, the Canadian dollar and the Chinese renminbi;
•: interruptions in information processing systems and management information technology, including system interruptions and security breaches;
•: failure to maintain and/or upgrade our information technology systems;
•: our inability to protect our intellectual property rights;
•: our exposure to, and the expense of defending and resolving, product liability claims, intellectual property claims and other litigation;
•: failure to maintain effective controls over financial reporting;
•: other factors disclosed in this Report; and
•: other factors beyond our control.

In light of these risks, uncertainties and assumptions, the forward-looking statements contained in this Report might not prove accurate. You should not place undue reliance upon them. All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date of this Report, and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

The statements in the following discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and the forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under the heading, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014 (our "2014 Annual Report"). Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the consolidated financial statements, including the related notes, contained elsewhere herein and with the 2014 Annual Report. All references to years, unless otherwise noted, refer to our fiscal years, which end on September 30. All dollar values in this section, unless otherwise noted, are denoted in thousands. Numerical figures have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.

Executive Summary

NBTY is the leading vertically integrated manufacturer, marketer, distributor and retailer of a broad line of high-quality vitamins, nutritional supplements and related products in the United States, with operations worldwide. We currently market over 25,000 SKUs under numerous owned and

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private-label brands, including Nature's Bounty®, Ester-C®, Solgar®, MET-Rx®, American Health®, Osteo Bi-Flex®, SISU®, Sundown®, Rexall®, Pure Protein®, Balance Bar®, Body Fortress®, Natural Wealth®, Puritan's Pride®, Holland & Barrett®, GNC (UK)®, Physiologics®, De Tuinen®, Essenza® and Vitamin World®. Our vertical integration includes purchasing raw materials and formulating and manufacturing products, which we then market through the following four channels of distribution.

New Segment Name		Previous Segment Name

Consumer Products Group		Wholesale
Holland & Barrett International		European Retail
Puritan's Pride		Direct Response/E-Commerce
Vitamin World		North American Retail

•: Consumer Products Group—This segment sells products worldwide under various brand names and third-party private labels, each targeting specific market groups which include virtually all major mass merchandisers, club stores, drug store chains and supermarkets. This segment also sells products to independent pharmacies, health food stores, the military and other retailers.
•: Holland & Barrett International—This segment generates revenue through its 1,007 Holland & Barrett and co-branded stores; including company-owned stores in the following countries: 690 in the UK, 151 in the Netherlands, 48 in Ireland, 18 in Belgium; and franchised stores in the following countries: 32 in China, 28 in Singapore, 15 in United Arab Emirates,10 in Cyprus, five in each of Malta and the Netherlands, two in each of Spain and Kuwait and one in Gibraltar, 49 GNC / MET-Rx branded UK stores, as well as internet-based sales fromwww.hollandandbarrett.com, www.hollandandbarrett.co.uk, www.hollandandbarrett.ie, www.detuinen.nl andwww.gnc.co.uk. Such revenue consists of sales of proprietary brand and third-party products as well as franchise fees. We are currently in the process of co-branding the De Tuinen, Essenza and Natures Way stores to leverage the value of the Holland & Barrett brand.
•: Puritan's Pride—This segment generates revenue through the sale of proprietary brand and third-party products primarily through the internet and mail order catalogs under the Puritan's Pride tradename. Catalogs are strategically mailed to customers who order by mail, internet, or phone.
•: Vitamin World—This segment generates revenue through its 386 owned and operated Vitamin World stores selling proprietary brand and third-party products, as well as internet-based sales from www.vitaminworld.com.

Operating data for each of the four distribution channels does not include the impact of any intercompany transfer pricing mark-up, 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 and various other corporate-level activity related expenses. We attribute such unallocated expenses to Corporate/Manufacturing.

Sale of Nutritional Bar Assets and Powder Facility

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The closing of the sale pursuant to the Bar APA is expected to occur during the second half of calendar 2015, and is subject to customary closing conditions. The aggregate sales price for the production assets to be sold pursuant to the Bar APA is approximately $12,000. The sales price for the raw materials, packaging, labels, work-in-process and component inventories to be transferred pursuant to the Bar APA will be equal to NBTY's book value for such assets, as estimated by NBTY prior to the closing of the transactions, and subject to post-closing adjustments.

Other Adjustments

During the three and nine months ended June 30, 2015, the Company identified and recorded adjustments for immaterial errors in its previously reported financial statements. Accordingly, we recorded a reduction in selling, general and administrative expenses of $0 and $2,520, related to prepaid rent in our retail operations and a reduction in cost of sales of $732, and $4,440 primarily related to increase the value of its label inventory for the three and nine months ended June 30, 2015, respectively, which has an immaterial impact on the current year financial statements.

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Results of Operations

Three Months Ended June 30, 2015 Compared to the Three Months Ended June 30, 2014:

Net Sales

Net sales by segment were as follows:

	Three Months Ended June 30,

	2015					2014
	Net Sales		% of total			Net Sales		% of total			$ change			% change
Consumer Products Group	$	476,452		58.4	%	$	471,344		58.4	%	$	5,108			1.1	%
Holland & Barrett International		225,428		27.6	%		215,328		26.7	%		10,100			4.7	%
Puritan's Pride		62,467		7.7	%		63,940		7.9	%		(1,473	)		(2.3	)%
Vitamin World		51,263		6.3	%		56,349		7.0	%		(5,086	)		(9.0	)%

Net sales	$	815,610		100.0	%	$	806,961		100.0	%	$	8,649			1.1	%

Consumer Products Group

Net sales for the Consumer Products Group segment increased $5,108, or 1.1%, to $476,452 for the three months ended June 30, 2015, as compared to the prior comparable period. This increase is due to $19,591 higher net sales of our branded products, primarily driven by increases in core brands, partially offset by $14,483 lower net sales to certain contract manufacturing and private label accounts. Domestic branded net sales increased $14,197 and international branded net sales increased $5,394 for the three months ended June 30, 2015, as compared to the prior comparable period.

We continue to adjust shelf space allocation among our numerous brands to provide the best overall product mix and to respond to changing market conditions. The Consumer Products Group segment continues to leverage valuable consumer sales information obtained from our Vitamin World retail stores and Puritan's Pride operations to provide our mass market customers with data and analyses to drive mass market sales.

We use targeted promotions to grow overall net sales. Promotional programs and rebates were 16.4% of net sales for the three months ended June 30, 2015, as compared to 15.8% of net sales for the prior comparable period; this increase is a result of the increase in the percentage of branded net sales which is more promotionally driven. We expect promotional programs and rebates as a percentage of net sales to fluctuate on a quarterly basis.

Product returns were 1.6% of net sales for the three months ended June 30, 2015 as compared to 1.2% of net sales for the prior comparable period, and are primarily attributable to returns in the ordinary course of business. We expect product returns relating to normal operations to trend between 1% and 2% of Consumer Products Group net sales in future quarters.

The following customers accounted for the following percentages of net sales for the three months ended June 30, 2015 and 2014, respectively:

	Consumer Products Group Segment Net Sales						Total Consolidated Net Sales

	Three Months Ended June 30,						Three Months Ended June 30,
	2015			2014			2015			2014
Customer A		19	%		18	%		11	%		11	%
Customer B		16	%		13	%		10	%		7	%

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The loss of any of these customers, or any one of our other major customers, would have a material adverse effect on our consolidated financial statements if we were unable to replace that customer.

Holland & Barrett International

Net sales for the Holland & Barrett International segment increased $10,100, or 4.7%, to $225,428 for the three months ended June 30, 2015, as compared to the prior comparable period. This increase is attributable to more successful promotional activity and additional stores opened during the period. Offsetting the increase, the average exchange rate of the British pound sterling to the U.S. dollar decreased 8.9% and the euro to the U.S. dollar decreased 19.3% as compared to the prior comparable period. In local currency, net sales increased 17.4% and sales for stores open more than one year (same store sales which include online sales) increased 12.4% as compared to the prior comparable period.

The following is a summary of Holland & Barrett International store activity:

	Three Months Ended June 30,

	2015			2014
*Company-owned stores*
Open at beginning of the period		943			902
Opened during the period		15			8
Closed during the period		(2	)		(2	)

Open at end of the period		956			908



*Franchised stores*
Open at beginning of the period		98			86
Opened during the period		5			1
Closed during the period		(3	)		(4	)

Open at end of the period		100			83



*Total company-owned and franchised stores*
Open at beginning of the period		1,041			988
Opened during the period		20			9
Acquired during the period		—			—
Closed during the period		(5	)		(6	)

Open at end of the period		1,056			991

Puritan's Pride

Net sales for the Puritan's Pride segment decreased by $1,473, or 2.3%, to $62,467 for the three months ended June 30, 2015, as compared to the prior comparable period. The total number of orders increased approximately 3%, while the average order size declined approximately 5% for the three months ended June 30, 2015, as compared to the prior comparable period. E-commerce orders comprised 74% of total Puritan's Pride orders for the three months ended June 30, 2015 as compared to 72% in the prior comparable period. We remain among the leaders for vitamin and nutritional supplements in the direct response and e-commerce sectors, and we continue to evaluate the number of products available via our catalog and websites.

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Historical results reflect this pattern and therefore this segment should be viewed on an annual, and not quarterly, basis.

Vitamin World

Net sales for the Vitamin World segment decreased $5,086, or 9.0%, to $51,263 for the three months ended June 30, 2015, as compared to the prior comparable period. Same store sales (which include online sales) declined 6.3% due to declines in sales of weight loss products as well as overall declines in mall traffic.

The following is a summary of Vitamin World store activity:

	Three Months Ended June 30,

	2015			2014
Open at beginning of the period		390			417
Opened during the period		2			5
Closed during the period		(6	)		(3	)

Open at end of the period		386			419

Cost of Sales

Cost of sales was as follows:

	Three Months Ended June 30,

	2015			2014			$ change			% change
Cost of sales	$	429,948		$	431,204		$	(1,256	)		(0.3	)%
Percentage of net sales		52.7	%		53.4	%

Cost of sales as a percentage of net sales decreased by 0.7 percentage points. The decrease in the percentage of cost of sales was primarily due to higher margins in our Consumer Products Group due to lower materials costs, supply chain efficiencies and the higher proportion of branded product sales, which was partially offset by lower margins earned in our retail businesses due to increased promotional activity.

Due to competitive pressure in the private label business, the cost of sales for our private label business as a percentage of net sales could fluctuate. This would adversely affect gross profits during the affected periods. To address these matters, we continuously seek to implement additional improvements in our supply chain and we are increasing our focus on our branded sales.

Advertising, Promotion and Catalog Expenses

Total advertising, promotion and catalog expenses were as follows:

	Three Months Ended June 30,

	2015			2014			$ change			% change
Advertising, promotion and catalog	$	45,849		$	60,931		$	(15,082	)		(24.8	)%
Percentage of net sales		5.6	%		7.6	%

Advertising, promotion and catalog expenses declined $15,082, or 24.8%, for the three months ended June 30, 2015 as compared to the prior comparable period. This was a result of declines in the

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Consumer Products Group relating to a significant product launch in the prior comparable period, partially offset by increases in the Holland & Barrett International segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") were as follows:

	Three Months Ended June 30,

	2015			2014			$ change		% change
Selling, general and administrative	$	246,895		$	235,538		$	11,357		4.8	%
Percentage of net sales		30.3	%		29.2	%

The SG&A increase of $11,357, or 4.8%, for the three months ended June 30, 2015, as compared to the prior comparable period, is primarily due to increases of: (i) salaries of $10,404 due to increased stores in the Holland & Barrett International segment as well as a lower accrual for annual bonus expense in the prior comparable period; (ii) professional fees of $3,769 relating to various Consumer Product Group initiatives; (iii) building and occupancy costs of $3,459 primarily relating to additional stores in the Holland & Barrett International segment; (iv) additional depreciation of $2,733 primarily due to the implementation of a POS system in our Holland & Barrett International segment and the ongoing implementation and support of our ERP system in Corporate/Manufacturing, partially offset by decreases of $9,403 due to foreign currency, as the British pound sterling and Euro have weakened as compared to the U.S. dollar, and $1,151 of lower insurance costs as a result of lower premiums.

Income from Operations

Income from operations was as follows:

	Three Months Ended June 30,

	2015			2014			$ change			% change
Consumer Products Group	$	61,897		$	41,355		$	20,542			49.7	%
Holland & Barrett International		45,890			48,386			(2,496	)		(5.2	)%
Puritan's Pride		6,685			9,009			(2,324	)		(25.8	)%
Vitamin World		1,395			3,073			(1,678	)		(54.6	)%
Corporate / Manufacturing		(32,482	)		(22,535	)		(9,947	)		(44.1	)%

Total	$	83,385		$	79,288		$	4,097			5.2	%



Percentage of net sales		10.2	%		9.8	%

The increase in the Consumer Products Group segment was primarily due to the increase in net sales and related margins and decreases in advertising expense, partially offset by increased SG&A expenses. The decrease in the Holland & Barrett International segment was the result of increased advertising and SG&A expenses, partially offset by a decrease in foreign currency due to the decline in the British pound sterling and Euro. On a local currency basis, income from operations increased approximately 5%. The decrease in the Puritan's Pride segment was primarily due to lower net sales, increased cost of sales as a percentage of net sales due to additional sales promotions and increased SG&A expenses (primarily salary costs), partially offset by decreases in advertising expenses. The decrease in the Vitamin World segment was primarily due to the decrease in net sales due to store closures and lower same store sales from the prior year, partially offset by decreases in SG&A expenses primarily related to reductions in salaries from store closures as compared to the prior comparable period. Corporate / Manufacturing increased primarily due to increases in salary costs and costs related to the sale of the bar and powder facilities.

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Interest Expense

Interest expense for the three months ended June 30, 2015 decreased, as compared to the prior comparable period, due to interest on the interest rate swaps which matured in December 2014.

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 2015 and 2029. 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, 2015 and 2014 was 29.6% and 30.7%, respectively. Our effective tax rate for the three months ended June 30, 2015 and 2014 was lower than the federal statutory rate generally due to the timing and mixture (foreign and domestic) of income and the partial reinvestment of foreign earnings in fiscal 2015 and 2014.

Nine Months Ended June 30, 2015 Compared to the Nine Months Ended June 30, 2014:

Net Sales

Net sales by segment were as follows:

	Nine Months Ended June 30, 2015					Nine Months Ended June 30, 2014

	Net Sales		% of total			Net Sales		% of total			$ change			% change
Consumer Products Group	$	1,425,918		58.7	%	$	1,420,067		58.8	%	$	5,851			0.4	%
Holland & Barrett International		655,831		27.0	%		635,556		26.4	%		20,275			3.2	%
Puritan's Pride		188,984		7.8	%		187,904		7.8	%		1,080			0.6	%
Vitamin World		158,524		6.5	%		169,565		7.0	%		(11,041	)		(6.5	)%

Net sales	$	2,429,257		100.0	%	$	2,413,092		100.0	%	$	16,165			0.7	%

Consumer Products Group

Net sales for the Consumer Products Group segment increased $5,851, or 0.4% to $1,425,918 for the nine months ended June 30, 2015, as compared to the prior comparable period. This increase is due to $48,047 higher net sales of our branded products, partially offset by $42,196 lower net sales to certain contract manufacturing and private label accounts. The increase in net sales of our branded products was primarily driven by increases in core brands, and partially offset by declines in our joint care products. Domestic branded net sales increased $46,331 and international branded net sales increased $1,716 for the nine months ended June 30, 2015, as compared to the prior comparable period.

We use targeted promotions to grow overall net sales. Promotional programs and rebates were 16.9% of net sales for the nine months ended June 30, 2015, as compared to 15.9% of net sales for the prior comparable period; this increase is a result of the increase in the percentage of branded net sales which is more promotionally driven. We expect promotional programs and rebates as a percentage of net sales to fluctuate on a quarterly basis.

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Product returns were 1.3% of net sales for the nine months ended June 30, 2015 as compared to 1.4% of net sales for the prior comparable period and are primarily attributable to returns in the ordinary course of business. We expect product returns relating to normal operations to trend between 1% and 2% of Consumer Products Group net sales in future quarters.

The following customers accounted for the following percentages of net sales for the nine months ended June 30, 2015 and 2014, respectively:

	Consumer Products Group Segment Net Sales						Total Consolidated Net Sales

	Nine Months Ended June 30,						Nine Months Ended June 30,
	2015			2014			2015			2014
Customer A		18	%		19	%		11	%		11	%
Customer B		15	%		12	%		9	%		7	%

The loss of any of these customers, or any one of our other major customers, would have a material adverse effect on our consolidated financial statements if we were unable to replace that customer.

Holland & Barrett International

Net sales for the Holland & Barrett International segment increased $20,275, or 3.2%, to $655,831 for the nine months ended June 30, 2015, as compared to the prior comparable period. This increase is attributable to more successful promotional activity and additional stores opened during the period. Offsetting this increase, the average exchange rate of the British pound sterling to the U.S. dollar decreased 6.6% and the euro to the U.S. dollar decreased 15.1% as compared to the prior comparable period. In local currency, net sales increased 12.6% and sales for stores open more than one year (same store sales which include online sales) increased 9.2% as compared to the prior comparable period.

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The following is a summary of Holland & Barrett International store activity:

	Nine Months Ended June 30,

	2015			2014
*Company-owned stores*
Open at beginning of the period		927			901
Opened during the period		36			22
Closed during the period		(7	)		(11	)

Open at end of the period		956			912



*Franchised stores*
Open at beginning of the period		89			79
Opened during the period		21			13
Closed during the period		(10	)		(6	)

Open at end of the period		100			86



*Total company-owned and franchised stores*
Open at beginning of the period		1,016			980
Opened during the period		57			35
Acquired during the period		—			—
Closed during the period		(17	)		(17	)

Open at end of the period		1,056			998

Puritan's Pride

Net sales for the Puritan's Pride segment increased by $1,080, or 0.6%, to $188,984 for the nine months ended June 30, 2015, as compared to the prior comparable period. The total number of orders increased approximately 8%, while the average order size declined approximately 9% for the nine months ended June 30, 2015, as compared to the prior comparable period. E-commerce orders comprised 75% of total Puritan's Pride orders for the nine months ended June 30, 2015 as compared to 71% in the prior comparable period. We remain among the leaders for vitamin and nutritional supplements in the direct response and e-commerce sectors, and we continue to increase the number of products available via our catalog and websites.

This segment continues to vary its promotional strategy throughout the fiscal year, utilizing highly promotional catalogs and internet promotions which are not offered on a consistent basis every quarter. Historical results reflect this pattern and therefore this segment should be viewed on an annual, and not quarterly, basis.

Vitamin World

Net sales for the Vitamin World segment decreased $11,041, or 6.5%, to $158,524 for the nine months ended June 30, 2015, as compared to the prior comparable period. Same store sales (which include online sales) declined 4.3% due to declines in sales of weight loss products as well as overall declines in mall traffic.

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The following is a summary of Vitamin World store activity:

	Nine Months Ended June 30,

	2015			2014
Open at beginning of the period		414			421
Opened during the period		5			17
Closed during the period		(33	)		(19	)

Open at end of the period		386			419

Cost of Sales

Cost of sales was as follows:

	Nine Months Ended June 30,

	2015			2014			$ change		% change
Cost of sales	$	1,313,992		$	1,304,003		$	9,989		0.8	%
Percentage of net sales		54.1	%		54.0	%

Cost of sales as a percentage of net sales remained relatively consistent, as higher margins in our Consumer Products Group due to lower materials costs, supply chain efficiencies and the higher proportion of branded product sales, were offset by lower margins earned in our retail businesses due to increased promotional activity.

Advertising, Promotion and Catalog Expenses

Total advertising, promotion and catalog expenses were as follows:

	Nine Months Ended June 30,

	2015			2014			$ change			% change
Advertising, promotion and catalog	$	151,249		$	158,236		$	(6,987	)		(4.4	)%
Percentage of net sales		6.2	%		6.6	%

Advertising, promotion and catalog expenses decreased $6,987, or 4.4%, for the nine months ended June 30, 2015, as compared to the prior comparable period. This was a result of significant declines in the Consumer Products Group relating to a significant product launch in the prior comparable period and marginal declines in our Puritan's Pride segment relating to on-line search advertising, partially offset by an increase in the Holland & Barrett International segment.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") were as follows:

	Nine Months Ended June 30,

	2015			2014			$ change		% change
Selling, general and administrative	$	720,042		$	707,115		$	12,927		1.8	%
Percentage of net sales		29.6	%		29.3	%

The SG&A increase of $12,927, or 1.8%, for the nine months ended June 30, 2015, as compared to the prior comparable period, is primarily due to increases of: (i) salaries of $19,244due to increased stores in the Holland & Barrett International segment as well as a lower accrual for the annual bonus expense in the prior comparable period; (ii) professional fees of $6,887 relating to various Consumer Products Group initiatives as well as increased legal settlement costs primarily related to the recording of an estimated settlement value in the current period related to the Glucosamine case; (iii) building and occupancy costs of $5,128 primarily relating to additional stores in the Holland & Barrett International segment, partially offset by the correction of prepaid rent within the Vitamin World segment; and (iv) additional depreciation of $8,807 primarily due to the implementation of a POS system in our Holland & Barrett International segment and the ongoing implementation and support of our ERP system in Corporate/Manufacturing, partially offset by decreases of $20,910 due to foreign currency, as the British pound sterling and Euro have weakened as compared to the U.S. dollar and $3,693 of lower insurance costs as a result of lower premiums.

Income from Operations

Income from operations was as follows:

	Nine Months Ended June 30,

	2015			2014			$ change			% change
Consumer Products Group	$	151,571		$	143,087		$	8,484			5.9	%
Holland & Barrett International		138,287			142,260			(3,973	)		(2.8	)%
Puritan's Pride		19,735			23,372			(3,637	)		(15.6	)%
Vitamin World		7,310			7,568			(258	)		(3.4	)%
Corporate / Manufacturing		(87,364	)		(72,549	)		(14,815	)		(20.4	)%

Total	$	229,539		$	243,738		$	(14,199	)		(5.8	)%



Percentage of net sales		9.4	%		10.1	%

The increase in the Consumer Products Group segment was primarily due to the increase in net sales and the decrease in advertising expenses, partially offset by increases in SG&A expenses (primarily salaries and professional fees). The decrease in the Holland & Barrett International segment was the result of increased advertising and SG&A expenses, partially offset by higher sales volume. On a local currency basis, income from operations increased approximately 5%. The decrease in the Puritan's Pride segment was primarily due to increased cost of sales as a percentage of net sales due to additional sales promotions and increased SG&A expenses (primarily salary costs), partially offset by a decrease in advertising expenses. The Vitamin World segment remained relatively consistent due to decreased sales, which was offset by decreases in SG&A expenses primarily related to the correction of prepaid rent, as well as reductions in salaries. Corporate/Manufacturing increased due to increases in depreciation expense with the ongoing implementation of our ERP system and accelerated depreciation from the pending sale of the bar and powder facilities as well as, severance costs related to the sale of the bar and powder facilities.

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Interest Expense

Interest expense for the nine months ended June 30, 2015 decreased, as compared to the prior comparable period, due to interest on the interest rate swaps which matured in December 2014.

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 2015 and 2029. 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, 2015 and 2014 was 33.3% and 32.6%, respectively. Our effective tax rate for the nine months ended June 30, 2015 and 2014 was lower than the federal statutory rate generally due to the timing and mixture (foreign and domestic) of income and the partial reinvestment of foreign earnings in fiscal 2015 and 2014.

Liquidity and Capital Resources

NBTY's primary sources of liquidity and capital resources are cash generated from operations and funds available under its revolving credit facility. We expect that ongoing requirements for debt service and capital expenditures will be funded from these sources.

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

	As of June 30, 2015		As of September 30, 2014

Cash and cash equivalents	$	282,908	$	139,488
Working capital (including cash and cash equivalents)	$	826,116	$	809,645

We monitor current and anticipated future levels of cash and cash equivalents in relation to anticipated operating, investing and financing requirements. As of June 30, 2015, cash and cash equivalents of $138,929 were held by our foreign subsidiaries and are generally subject to U.S. income taxes upon repatriation to the United States. We generally repatriate all earnings from our foreign subsidiaries where permitted under local law. During fiscal 2015, the Company intends to indefinitely reinvest $50,000 of earnings from our foreign subsidiaries to fund various capital expenditures.

The increase in cash and cash equivalents of $143,420 at June 30, 2015 as compared to September 30, 2014 was primarily due to net income, proceeds from sale of the powder facility, lower inventories and the increase in accounts payable, partially offset by the increase in accounts receivables.

The increase in working capital of $16,471 at June 30, 2015 as compared to September 30, 2014 was primarily due to the increases in cash and cash equivalents and accounts receivable, partially offset by the increase in accounts payable and decrease in inventory.

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The following table sets forth, for the periods indicated, net cash flows provided by (used in) operating, investing and financing activities and other operating measures:

	Nine Months Ended June 30,

	2015			2014
Net cash provided by operating activities	$	286,035		$	27,017
Net cash used in investing activities	$	(58,676	)	$	(72,436	)
Net cash used in financing activities	$	(79,787	)	$	(60,361	)
Inventory turnover		2.1			2.1
Days sales (Consumer Products Group) outstanding in accounts receivable		37			35

Net cash provided by operating activities increased for the nine months ended June 30, 2015 as compared to the prior comparable period, primarily due to an increase in accounts payable due to timing and inventory fluctuations whereby the inventory levels increased in the prior comparable period to increase order fulfillment rates and due to operational efficiencies we have decreased inventory levels in the current period.

During the nine months ended June 30, 2015, net cash used in investing activities consisted primarily of purchases of property, plant and equipment, partially offset by proceeds from the sale of the powder facility. During the nine months ended June 30, 2014, net cash used in investing activities consisted primarily of purchases of property, plant and equipment.

For the nine months ended June 30, 2015 and 2014, net cash used in financing activities primarily related to dividends paid to Holdings.

We expect our fiscal 2015 capital expenditures to be higher than fiscal 2014 as a result of the continued investment in our ERP systems, as well as additional investments in stores of our Holland & Barrett International segment.

Senior Secured Credit Facilities, Holdco Notes and Notes

On March 21, 2013, NBTY, Holdings, Barclays Bank PLC, as administrative agent, and several other lenders entered into the Third Amendment and Second Refinancing Agreement and completed the Second Refinancing, amending the credit agreement governing NBTY's senior secured credit facilities pursuant to which NBTY repriced its term loan B-1 under its then existing credit agreement. Under the terms of the Second Refinancing, the $1,750,000 term loan B-1 was replaced with a new $1,507,500 (the current principal amount outstanding) term loan B-2. Borrowings under term loan B-2 and the revolving credit facility bear interest at a floating rate which can be, at NBTY's option, either (i) eurodollar (LIBOR) rate plus an applicable margin, or (ii) base rate plus an applicable margin, in each case, subject to a eurodollar (LIBOR) rate floor of 1.00% or a base rate floor of 2.00%, as applicable. The applicable margin for term loan B-2 is 2.50% per annum for eurodollar (LIBOR) loans and 1.50% per annum for base rate loans. The applicable margin for the revolving credit facility remained at 3.25% per annum for eurodollar (LIBOR) loans and 2.25% per annum for base rate loans, with a step-down of 25 basis points upon the achievement of a total senior secured leverage ratio as set forth in the senior secured credit facilities. Substantially all other terms are consistent with the original term loan B-1, including the maturity dates. As a result of the Second Refinancing, $4,232 of previously

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capitalized deferred financing costs as well as $1,151 of the call premium on term loan B-1 were expensed and costs incurred and recorded as deferred financing costs were approximately $15,190, including $13,924 of the call premium paid on term loan B-1, and are being amortized using the effective interest method. In accordance with the provisions of the credit agreement governing the senior secured credit facilities, future scheduled payments of principal will not be required until the final balloon payment at maturity in October 2017.

NBTY must make prepayments on the term loan B-2 facility with the net cash proceeds of asset sales, casualty and condemnation events, the incurrence or issuance of indebtedness (other than indebtedness permitted to be incurred under its senior secured credit facilities unless specifically incurred to refinance a portion of its senior secured credit facilities) and 50% of excess cash flow (such percentage subject to reduction based on achievement of specified total senior secured leverage ratios), in each case, subject to certain reinvestment rights and other exceptions. NBTY is also required to make prepayments under its revolving credit facility at any time when, and to the extent that, the aggregate amount of the outstanding loans and letters of credit under the revolving credit facility exceeds the aggregate amount of commitments in respect of the revolving credit facility.

In addition, the credit agreement requires the maintenance of a maximum total senior secured leverage ratio on a quarterly basis, calculated with respect to Consolidated EBITDA, as defined therein, if at any time amounts are outstanding under the revolving credit facility (including swingline loans and letters of credit). As of June 30, 2015, NBTY was in compliance with all covenants under the credit agreement.

Original Holdco Notes

On October 17, 2012, Holdings issued $550,000 of the original Holdco Notes. Interest on the original Holdco Notes accrues at the rate of 7.75% per annum with respect to Cash Interest (as defined below) and 8.50% per annum with respect to any paid- in-kind interest. The proceeds from the offering of the original Holdco Notes, along with the $200,000 from NBTY, were used to pay transaction fees and expenses and a dividend of approximately $721,682 to Holdings' shareholders.

Additional Holdco Notes

On December 2, 2013, Holdings launched the consent solicitation. The purpose of the consent solicitation was to amend the restricted payment covenant in the indenture governing the Holdco Notes. Holdings sought consent to add a new "basket" in the restricted payment covenant (Section 3.4 of the indenture governing the Holdco Notes) for a dividend or distribution to Holdings' shareholders up to the net proceeds of the offering of additional Holdco Notes in the aggregate principal amount of $450,000 less the amount available as of September 30, 2013 for restricted payments under the "builder" basket in Section 3.4(a)(C) of the indenture governing the Holdco Notes (the "Proposed Amendments").

On December 10, 2013, the requisite holders of the original Holdco Notes had consented to the Proposed Amendments and Holdings entered into the First Supplemental Indenture to the indenture governing the Holdco Notes. The First Supplemental Indenture became operative upon the payment of

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the consent fee by Holdings to the paying agent on behalf of the holders of the original Holdco Notes, which was paid concurrently with the closing of the offering of the additional Holdco Notes.

On December 12, 2013, Holdings issued $450,000 of additional Holdco Notes that mature on November 1, 2017. The $450,000 of additional Holdco Notes and the $550,000 of original Holdco Notes previously issued on October 17, 2012 have identical terms and are treated as a single class for all purposes under the indenture governing the Holdco Notes. The gross proceeds from the offering of the $450,000 of additional Holdco Notes was $460,125, inclusive of a $10,125 premium, which was used to pay transaction fees and expenses, including the consent fee, and a $445,537 dividend to Holdings' shareholders in December 2013.

Interest on the Holdco Notes is payable semi-annually in arrears on May 1 and November 1 of each year. Holdings is a holding company with no operations of its own and has no ability to service interest or principal on the Holdco Notes, other than through dividends it may receive from NBTY. NBTY is restricted, in certain circumstances, from paying dividends to Holdings by the terms of the indenture governing the Notes and the senior secured credit facilities. NBTY has not guaranteed the indebtedness of Holdings, nor pledged any of its assets as collateral and the Holdco Notes are not reflected on NBTY's balance sheet.

Interest on the Holdco Notes is payable entirely in cash ("Cash Interest") to the extent that it is less than the maximum amount of allowable dividends and distributions, plus cash at Holdings ("Applicable Amount") as defined by the indenture governing the Holdco Notes. For any interest period after May 1, 2013 (other than the final interest period ending at stated maturity), if the Applicable Amount for such interest period will:

(i) equal or exceed 75%, but be less than 100%, of the aggregate amount of Cash Interest that would otherwise be due on the relevant interest payment date, then Holdings may, at its option, elect to pay interest on (a) 25% of the then outstanding principal amount of the Holdco Notes by increasing the principal amount of the outstanding Holdco Notes or by issuing other PIK notes under the indenture governing the Holdco Notes, on the same terms and conditions of the Holdco Notes, in a principal amount equal to such interest ("PIK Interest") and (b) 75% of the then outstanding principal amount of the Holdco Notes as Cash Interest;

As described above, Holdings' ability to pay PIK Interest depends on the calculation of the Applicable Amount regardless of the availability of cash at Holdings. All interest payments made to date have been in cash. As of June 30, 2015, NBTY currently anticipates that it will have sufficient restricted payment capacity to enable Holdings to pay cash interest on the Holdco Notes for the current interest period; however, this may change as a result of a variety of factors. To the extent Holdings makes such interest payments in cash, NBTY will be required to provide the necessary funding.

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The indenture governing the Notes, the credit agreement and the indenture governing the Holdco Notes contain a number of covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. The restrictions these covenants place on us include limitations on our ability to:

•: incur or guarantee additional indebtedness;
•: make certain investments;
•: pay dividends or make distributions on our capital stock;
•: sell assets, including capital stock of restricted subsidiaries;
•: agree to payment restrictions affecting our restricted subsidiaries;
•: consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
•: enter into transactions with our affiliates;
•: incur liens; and
•: designate any of our subsidiaries as unrestricted subsidiaries.

Our ability to make payments on and to refinance our indebtedness, including the Notes and Holdco Notes, will depend on our ability to generate cash in the future. We believe that our cash on hand, together with dividends from NBTY generated by NBTY's cash from operations and, if required, available borrowing capacity under the revolving portion of our senior secured credit facilities, will be sufficient for our cash requirements for the next twelve months.

We or our affiliates, at any time and from time to time, may purchase Notes, Holdco Notes, or other indebtedness. Any such purchases may be made through the open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration, as we, or any of our affiliates, may determine.

EBITDA and Consolidated EBITDA

EBITDA consists of earnings before interest expense, taxes, depreciation and amortization. Consolidated EBITDA, as defined in our senior secured credit facilities, as amended, eliminates the impact of a number of items we do not consider indicative of our ongoing operating performance. You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. Consolidated EBITDA is a component of certain covenants under NBTY's senior secured credit facilities. We present Consolidated EBITDA because NBTY's senior secured credit facilities provide for certain total senior secured leverage ratio thresholds calculated on a period of four consecutive fiscal quarters, with respect to Consolidated EBITDA and the senior secured debt which can be reduced by unrestricted cash-on-hand up to a maximum of $150 million during any fiscal quarter end that revolving loans or letters of credit (to the extent not cash collateralized) are outstanding or at the time of incurrence of revolving loans. The maximum senior secured leverage ratio thresholds, to the extent then applicable, are as follows: 3.75 to 1.00 in fiscal 2015; 3.50 to 1.00 in fiscal 2016 and 3.25 to 1.00 in fiscal 2017. Furthermore, we present both EBITDA and Consolidated EBITDA because we consider these items to be important supplemental measures of our performance and believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry with similar capital structures. We believe issuers of debt securities also present EBITDA and Consolidated EBITDA because investors, analysts and rating agencies consider it useful in measuring the ability of those issuers to meet debt service obligations. We believe that these items are appropriate supplemental measures of debt service

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capacity, because cash expenditures for interest are, by definition, available to pay interest, and tax expense is inversely correlated to interest expense because tax expense goes down as deductible interest expense goes up; and depreciation and amortization are non-cash charges.

The computation of NBTY's senior secured leverage ratio, to the extent then applicable, is as follows:

		June 30, 2015			June 30, 2014

Senior secured debt		$	1,507,500		$	1,507,500
Less up to $150,000 unrestricted cash balance			(150,000	)		(85,376	)

	(a)	$	1,357,500		$	1,422,124



NBTY Consolidated EBITDA (Four consecutive quarters)	(b)	$	502,902		$	517,203



Senior Secured Leverage Ratio	(a /b)		2.70x			2.75x
Maximum Allowed (per the senior secured credit facilities)			3.75x			4.00x

EBITDA and Consolidated EBITDA have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•

EBITDA and Consolidated EBITDA:

•: exclude certain tax payments that may represent a reduction in cash available to us;
•: do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
•: do not reflect changes in, or cash requirements for, our working capital needs; and
•: do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on our debt, including the Notes and the Holdco Notes;

•

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Consolidated EBITDA do not reflect any cash requirements for such replacements; and

•

other companies in our industry may calculate EBITDA and Consolidated EBITDA differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Consolidated EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. As a result, we rely primarily on our GAAP results and use EBITDA and Consolidated EBITDA only supplementally.

In addition, in calculating Consolidated EBITDA, we make certain adjustments that are based on assumptions and estimates that may prove to be inaccurate.

In addition, in evaluating Consolidated EBITDA, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Our presentation of Consolidated EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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The following table reconciles net income (loss) to EBITDA and Consolidated EBITDA (as defined in NBTY's senior secured credit facilities) for the three and nine months ended and four consecutive quarters ended June 30, 2015 and 2014:

	Three Months Ended June 30,						Nine Months Ended June 30,						Four Consecutive quarters ended June 30,

	2015			2014			2015			2014			2015			2014
Net (loss) income	$	37,262		$	33,267		$	88,708		$	96,988		$	(52,430	)	$	96,760
Interest expense		32,593			33,794			99,766			101,698			134,109			203,540
Provision for income taxes		15,657			14,761			44,362			46,861			7,645			43,251
Depreciation and amortization		34,122			27,310			91,920			78,709			119,767			105,401

EBITDA		119,634			109,132			324,756			324,256			209,091			448,952
Severance costs(a)		3,151			2,435			13,487			3,732			14,733			4,272
Stock-based compensation(b)		652			817			2,059			3,373			2,773			3,511
Management fee(c)		750			750			2,250			2,250			3,000			3,000
Consulting fees(d)		8,539			6,527			18,088			16,903			24,796			26,463
Impairments and disposals(e)		5,579			739			7,374			5,198			216,859			5,800
Other items(f)		1,475			1,613			24,440			8,949			34,896			14,922
Pro forma cost savings(g)		9,923			5,949			29,768			17,847			39,691			23,796
Limitation on certain EBITDA adjustments(h)		(10,734	)		(3,415	)		(32,202	)		(10,246	)		(42,937	)		(13,662	)

Consolidated EBITDA	$	138,969		$	124,547		$	390,020		$	372,262		$	502,902		$	517,054

(a): Reflects the exclusion of severance costs incurred at various subsidiaries of the Company.
(b): Reflects the exclusion of non-cash expenses related to stock options.
(c): Reflects the exclusion of the Carlyle management fee.
(d): Reflects the exclusion of consulting fees, as permitted in our senior secured credit facilities, for items such as business optimization consulting.
(e): Reflects the impairment of certain assets, including the impairment of $207,334 relating to goodwill and intangible assets in our Puritan's Pride and Vitamin World segments in the four consecutive quarters ended June 30, 2015.
(f): Reflects the exclusion of various items, as permitted in NBTY's senior secured credit facilities, which among other items includes: restructuring charges, business optimization expenses, ineffectiveness on certain derivative instruments, gains and losses on dispositions.
(g): Reflects three months and four consecutive quarters of prospective savings in accordance with NBTY's senior secured credit facilities; specifically, the amount of cost savings expected to be realized from operating expense reductions and other operating improvements as a result of specified actions taken or initiated, less the amount of any actual cost savings realized during the period.
(h): In accordance with the definition of Consolidated EBITDA under NBTY's senior secured credit facilities, this represents the limitation of certain Consolidated EBITDA adjustments such as pro forma cost savings, restructuring charges, business optimization expenses and integration costs associated with acquisitions that exceed 10% of Consolidated EBITDA for the applicable period, without giving effect to these adjustments.

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Off-Balance Sheet Arrangements

See description of the Holdco Notes in the Liquidity and Capital Resources section for the off-balance sheet arrangements.

Seasonality

Although we believe that our business is not seasonal in nature, historically we have experienced, and expect to continue to experience, variations in our net sales and operating results from quarter to quarter. The factors that influence this variability of quarterly results include general economic and industry conditions affecting consumer spending, changing consumer demands and current news on nutritional supplements, the timing of our introduction of new products, promotional program incentives offered to customers, the timing of catalog promotions, the level of consumer acceptance of new products and actions of competitors. Accordingly, a comparison of our results of operations from consecutive periods is not necessarily meaningful, and our results of operations for any period are not necessarily indicative of future performance. Additionally, we may experience higher net sales in a quarter depending upon when we have engaged in significant promotional activities.

Foreign Currency

Approximately 35% of our net sales during the nine months ended June 30, 2015 and 2014 were denominated in currencies other than U.S. dollars, principally British pounds sterling and to a lesser extent euros, Canadian dollars and Chinese renminbi. A significant weakening of such currencies versus the U.S. dollar could have a material adverse effect on us, as this would result in a decrease in our consolidated operating results.

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



Total Assets	29	%	26	%
Total Liabilities	5	%	3	%

In preparing the consolidated financial statements, the financial statements of the foreign subsidiaries are translated from the functional currency, generally the local currency, into U.S. dollars. This process results in exchange rate gains and losses, which are included as a separate component of stockholder's equity under the caption "Accumulated other comprehensive income (loss)."

During the nine months ended June 30, 2015 and 2014, translation (losses) gains of ($48,037) and $22,615, respectively, were included in determining other comprehensive income (loss). Accordingly, cumulative translation losses of approximately ($76,519) and ($28,481) were included as part of accumulated other comprehensive loss within the consolidated balance sheets at June 30, 2015 and September 30, 2014, respectively.

The magnitude of these gains or losses is dependent upon movements in the exchange rates of the foreign currencies against the U.S. dollar. These currencies include the British pound sterling, the euro, the Canadian dollar and the Chinese renminbi. Any future translation gains or losses could be significantly different than those noted in each of these years.

Recent Accounting Developments

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recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The guidance was effective for us beginning October 1, 2017, however in July 2015 the FASB decided to defer the effective date of the new standard by one year. Early adoption would be permitted for us beginning October 1, 2017. The guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet selected a transition method and are currently evaluating the impact of the amended guidance on our consolidated financial statements and related disclosures.

Critical Accounting Policies and Estimates

We describe our significant accounting policies in Note 2 of the notes to consolidated financial statements included in our 2014 Annual Report. We discuss our critical accounting estimates in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the 2014 Annual Report. There have been no significant changes in our significant accounting policies or critical accounting estimates since September 30, 2014. As noted in the Form 10-K, relatively small declines in the future performance and cash flows within the Consumer Products Group business may result in the recognition of asset impairment charges. Certain categories within the Consumer Products Group, Puritan's Pride and Vitamin World segments are performing below expectations, which increases the risk of impairment for the indefinite-lived tradenames associated with those categories. The carrying value of the tradenames associated with the Consumer Products Group, Puritan's Pride and Vitamin World as of June 30, 2015 was approximately $435,000, $160,000 and $55,000, respectively. The carrying value of goodwill associated with the Consumer Products Group and Puritan's Pride segments are $624,949 and $202,746, respectively.

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NBTY, Inc. and Subsidiaries
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 renminbi, and interest rate risks that arise from normal business operations. We regularly assess these risks.

We have subsidiaries whose operations are denominated in foreign currencies (primarily the British pound sterling, the euro, the Canadian dollar and the Chinese renminbi). We consolidate the earnings of our foreign subsidiaries by translating them 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 currency 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.

To manage the potential exposure from adverse changes in currency exchange rates, specifically the British pound sterling, arising from our net investment in British pound sterling denominated operations, on December 16, 2010, we entered into three cross currency swap contracts to hedge a portion of the net investment in our British pound sterling denominated foreign operations. The aggregate notional amount of the swap contracts is £194,200 (approximately $300,000), with a forward rate of 1.565, and a termination date of September 30, 2017.

Net sales denominated in foreign currencies were approximately $861,017, or 35.4%, of total net sales for the nine months ended June 30, 2015. A majority of our foreign currency exposure is denominated in British pounds sterling, the euro, Canadian dollar and the Chinese renminbi. For the nine months ended June 30, 2015, as compared to the prior comparable period, the British pound sterling, the euro and Canadian dollar decreased 6.6%, 15.1% and 9.9% , respectively, as compared to the U.S. dollar. The combined effect of the changes in these currency rates resulted in a decrease of $74,128 in net sales and a decrease of $14,513 in operating income. The change in the Chinese renminbi was insignificant.

Additionally, NBTY's senior secured credit facilities are subject to market conditions, whereby interest rates will fluctuate based on the Eurodollar LIBOR, as defined in the agreement. Assuming NBTY's senior secured credit facilities are fully drawn, each one eighth percentage point increase or decrease, above the interest rate floor, in the applicable interest rates would correspondingly change our interest expense on our senior secured credit facilities by approximately $2,103 per year. `

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NBTY, Inc. and Subsidiaries
Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, are designed to ensure 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. We designed our disclosure controls and procedures 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 officers, to allow timely decisions regarding required disclosure. Our chief executive officer and chief financial officer, with assistance from other members of our management, have reviewed the effectiveness of our disclosure controls and procedures as of June 30, 2015, and, based on their evaluation, have concluded that our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the nine months ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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NBTY, Inc. and Subsidiaries
PART II. OTHER INFORMATION
Item 1. Legal Proceedings

Herbal Dietary Supplements

Following the NY AG investigation, starting in February 2015, numerous putative class actions were filed in various jurisdictions against NBTY, certain of its customers and/or other companies as to which there may be a duty to defend and indemnify, challenging the authenticity and purity of herbal supplements and associated marketing, under various states' consumer protection statutes. Motions for transfer and consolidation of all of the federal actions as multidistrict litigation into a single district before a single judge were granted on June 9, 2015, and the cases are consolidated before Judge John W. Darrah of the United States District Court, North District of Illinois—Eastern Division (the "MDL Case"). An initial conference is scheduled for August 20, 2015. Three class actions against one of our customers to which we may have a duty to indemnify have not been transferred and consolidated with the MDL Case, and are at the initial stages of litigation.

Glucosamine-Based Dietary Supplements

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settlement as modified (the "Order"). The final judgment was issued on January 22, 2014 (the "Judgment"). Certain objectors filed a notice of appeal of the Order and the Judgment on January 29, 2014 and the plaintiffs filed a notice of appeal on February 3, 2014. In fiscal 2013, NBTY recorded a provision of $12 million reflecting its best estimate of exposure for payments to the class together with attorney's fees and notice and administrative costs in connection with this class action settlement. As a result of the court's approval of the settlement and the closure of the claims period, NBTY reduced its estimate of exposure to $6.1 million. This reduction in the estimated exposure was reflected in the Company's first quarter results for fiscal 2014.

On November 19, 2014, the appellate court issued a decision granting the objectors' appeal. The appellate court reversed and remanded the matter to the district court for further proceedings consistent with the appellate court's decision.In April 2015, NBTY agreed upon a revised proposed settlement with certain plaintiffs which includes all cases and resolves all pending claims without any admission of or concession of liability by NBTY. The parties have signed settlement documentation providing for a release of all claims in return for payments to the class, together with attorneys' fees, and notice and administrative costs estimated to be in the amount of $9 million, which resulted in an additional charge of $4.3 million in the second quarter results for fiscal 2015. On May 14, 2015, the settlement was submitted to the court for preliminary approval and a preliminary conference was held before the court on July 22, 2015. Until the cases are resolved, no final determination can be made as to the ultimate outcome of the litigation or the amount of liability on the part of NBTY.

Telephone Consumer Protection Act Claim

Claims in the Ordinary Course

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supplements under various states' consumer protection statutes and generally seek unspecified compensatory damages based on theories of restitution and disgorgement, plus punitive damages and injunctive relief. Until these cases are resolved, no determination can be made as to the ultimate outcome of the litigation or the amount of liability on our part.

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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 the caption "Risk Factors" in the 2014 Annual Report, and the additional risk factors set forth below. These factors could materially adversely affect our business, financial condition, operating results and cash flows. The risks and uncertainties described in the 2014 Annual Report and below 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. Except as set forth below, there have been no significant changes relating to the risk factors described in the 2014 Annual Report.

We may be exposed to legal proceedings or actions initiated by regulators in the United States or abroad that could increase our costs and adversely affect our reputation, revenues and operating income.

In all jurisdictions in which we operate, non-compliance with relevant legislation can result in regulators bringing administrative, civil or, in some cases, criminal proceedings. In the United States, the FTC has brought and considered bringing actions against us in the past. In China regulators have strengthened administration of regulations on dietary supplements products in anticipation of the Food Safety Law Amendment becoming effective on October 1, 2015. In the United Kingdom, it is common for regulators to prosecute retailers and manufacturers for non-compliance with legislation governing foodstuffs and medicines. In the United States, we are undergoing an audit of our compliance of unclaimed or abandoned property (escheat) laws currently for nineteen states for the years 1986 through the present. On February 2, 2015, the State of New York Office of the Attorney General sent letters to several major retailers demanding that they cease and desist selling their store brands for specific manufacturing lots of a select number of popular herbal supplements that the Attorney General alleges were inaccurately labeledand began an investigation concerning the authenticity and purity of herbal supplements and associated marketing. Because we manufacture certain of these private label products, we have been subject to the Attorney General's investigation as well as numerous legal actions filed in various jurisdictions against us since the investigation. The investigation or these legal actions seek some combination of monetary damages, injunctive relief and specific performance. At this time, no determination can be made as to the ultimate outcome of the investigation or the litigation or the amount of liability on our part but an adverse result in the investigation or the litigation could have a material adverse impact on the industry overall and our business, results of operations, financial condition and cash flows. On June 26, 2015, Health Canada conducted a routine inspection of Good Manufacturing Practices of the OTC drug operations of our Canadian subsidiary, Vita Health. In connection with such inspection, Health Canada identified certain deficiencies primarily around electronic data management procedures in Vita Health's quality control laboratory pertaining to OTC drugs. On July 24, 2015, we submitted a remediation plan to Health Canada as Vita Health's formal response to these inspection findings and expect a response from Health Canada by the end of fiscal 2015. If these deficiencies are not addressed in a manner acceptable to Health Canada, additional actions may result from the inspection including, without limitation, shortened inspection cycles, additional reporting requirements or the suspension or revocation of Vita Health's OTC and/or Natural Health Products (NHPs) site licenses. Our failure to comply with applicable legislation could occur from time to time, and prosecution for any such violations could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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NBTY, Inc. and Subsidiaries
Item 6. Exhibits

Exhibit No.			Description

	3.1		Amended and Restated Certificate of Incorporation of NBTY, Inc. (Incorporated by reference to Exhibit 3.1 to NBTY's Registration Statement on Form S-4 (No. 333-172973) (the "Registration Statement").
	3.2		Second Amended and Restated By-Laws of NBTY, Inc. (Incorporated by reference to Exhibit 3.2 to the Registration Statement).
	10.1		Bar Asset Purchase Agreement dated March 3, 2015, between Nellson Nutraceutical, LLC and NBTY, Inc.*
	10.2		Powder Asset Purchase Agreement dated March 3, 2015, between Nellson Nutraceutical, LLC and NBTY, Inc.*
	10.3		Management Incentive Plan of NBTY, Inc. for U.S. based associates.*
	31.1		Rule 13a-14(a) Certification of Principal Financial Officer.*
	31.2		Rule 13a-14(a) Certification of Principal 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.**
	101.INS		XBRL Instance Document***
	101.SCH		XBRL Taxonomy Extension Schema Document***
	101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document***
	101.DEF		XBRL Taxonomy Extension Definition Linkbase Document***
	101.LAB		XBRL Taxonomy Extension Label Linkbase Document***
	101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document***

*: Filed herewith
**: Furnished, not filed
***: Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

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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 5, 2015	By:	/s/ STEVEN CAHILLANE Steven Cahillane Chief Executive Officer, President and Director
Date: August 5, 2015	By:	/s/ DIPAK GOLECHHA Dipak Golechha Chief Financial Officer

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NBTY (NTY) Inactive 10-Q2015 Q3 Quarterly report

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