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Table of Contents


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, 2014

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: 333-172973

LOGO

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

Delaware
(State or other jurisdiction of
incorporation or organization)
  11-2228617
(I.R.S. Employer
Identification No.)

2100 Smithtown Avenue,
Ronkonkoma, New York 11779
(Address of principal executive offices) (Zip Code)

(631) 567-9500
(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES 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

        The number of shares of common stock outstanding as of July 31, 2014 was 1,000.

   


Table of Contents


NBTY, Inc. and Subsidiaries
INDEX


Table of Contents


PART I
Item 1. Financial Statements


NBTY, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

 
  June 30,
2014
  September 30,
2013
 

Assets

             

Current assets:

             

Cash and cash equivalents

  $ 94,417   $ 198,561  

Accounts receivable, net

    184,532     171,670  

Inventories

    872,766     739,952  

Deferred income taxes

    24,373     23,637  

Other current assets

    78,846     78,579  
           

Total current assets

    1,254,934     1,212,399  

Property, plant and equipment, net

   
590,365
   
571,529
 

Goodwill

    1,274,447     1,260,802  

Intangible assets, net

    1,941,512     1,960,351  

Other assets

    64,521     68,235  
           

Total assets

  $ 5,125,779   $ 5,073,316  
           
           

Liabilities and Stockholder's Equity

             

Current liabilities:

             

Current portion long-term debt

  $ 295   $ 376  

Accounts payable

    256,615     259,060  

Accrued expenses and other current liabilities

    198,897     219,766  
           

Total current liabilities

    455,807     479,202  

Long-term debt, net of current portion

    2,158,203     2,158,405  

Deferred income taxes

    747,900     751,419  

Other liabilities

    73,647     59,451  
           

Total liabilities

    3,435,557     3,448,477  
           

Commitments and contingencies

             

Stockholder's equity:

   
 
   
 
 

Common stock, $0.01 par; one thousand shares authorized, issued and outstanding

         

Capital in excess of par

    1,560,298     1,556,926  

Retained earnings

    118,422     81,497  

Accumulated other comprehensive income (loss)

    11,502     (13,584 )
           

Total stockholder's equity

    1,690,222     1,624,839  
           

Total liabilities and stockholder's equity

  $ 5,125,779   $ 5,073,316  
           
           

   

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

3


Table of Contents


NBTY, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

(Unaudited)

(in thousands)

 
  Three Months Ended
June 30,
  Nine Months Ended
June 30,
 
 
  2014   2013   2014   2013  

Net sales

  $ 806,961   $ 802,829   $ 2,413,092   $ 2,349,930  
                   

Costs and expenses:

                         

Cost of sales

    431,204     424,870     1,304,003     1,267,635  

Advertising, promotion and catalog

    60,931     48,150     158,236     142,706  

Selling, general and administrative

    235,538     224,422     707,115     675,388  

Facility restructuring charge

        4,944         35,144  
                   

    727,673     702,386     2,169,354     2,120,873  
                   

Income from operations

    79,288     100,443     243,738     229,057  
                   

Other income (expense):

                         

Interest

    (33,794 )   (34,064 )   (101,698 )   (112,749 )

Miscellaneous, net

    2,534     3,824     1,809     4,284  
                   

    (31,260 )   (30,240 )   (99,889 )   (108,465 )
                   

Income from operations before income taxes

    48,028     70,203     143,849     120,592  

Provision for income taxes

   
14,761
   
18,953
   
46,861
   
34,575
 
                   

Net income

    33,267     51,250     96,988     86,017  
                   

Other comprehensive income, net of tax:

                         

Foreign currency translation adjustment, net of taxes of $(813), $(253), $2,718 and $(7,088)

   
11,127
   
(2,857

)
 
22,615
   
(45,221

)

Change in fair value of interest rate swaps, net of taxes of $(436), $(730), $(1,559) and $(2,151)

    699     1,161     2,469     3,422  
                   

Total other comprehensive income (loss), net of tax

    11,826     (1,696 )   25,084     (41,799 )

Comprehensive income

 
$

45,093
 
$

49,554
 
$

122,072
 
$

44,218
 
                   
                   

   

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

4


Table of Contents


NBTY, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 
  Nine Months
Ended June 30,
2014
  Nine Months
Ended June 30,
2013
 

Cash flows from operating activities:

             

Net income

  $ 96,988   $ 86,017  

Adjustments to reconcile net income to net cash provided by operating activities:

             

Impairments and disposals of assets

    5,974     4,532  

Depreciation of property, plant and equipment

    44,076     49,821  

Amortization of intangible assets

    34,633     34,123  

Foreign currency transaction loss (gain)

    632     (1,289 )

Amortization and write-off of deferred financing fees

    14,200     16,735  

Stock-based compensation

    3,373     1,885  

Allowance for doubtful accounts

    579     25  

Inventory reserves

    3,681     868  

Deferred income taxes

    (4,184 )   (9,543 )

Call premium on term loan

        (15,075 )

Changes in operating assets and liabilities:

             

Accounts receivable

    (13,107 )   (23,456 )

Inventories

    (130,953 )   16,609  

Other assets

    (1,033 )   14,120  

Accounts payable

    (3,798 )   27,818  

Accrued expenses and other liabilities

    (24,044 )   9,845  
           

Net cash provided by operating activities

    27,017     213,035  
           

Cash flows from investing activities:

             

Purchase of property, plant and equipment

    (72,436 )   (96,854 )

Proceeds from sale of building

        7,548  

Cash paid for acquisitions, net of cash acquired

        (82,472 )
           

Net cash used in investing activities

    (72,436 )   (171,778 )
           

Cash flows from financing activities:

             

Principal payments under long-term agreements

    (298 )   (442 )

Proceeds from borrowings under the revolver

        80,000  

Paydowns of borrowings under the revolver

        (80,000 )

Payments for financing fees

        (7,387 )

Dividends paid

    (60,063 )   (216,926 )
           

Net cash used in financing activities

    (60,361 )   (224,755 )
           

Effect of exchange rate changes on cash and cash equivalents

    1,636     (4,254 )
           

Net decrease in cash and cash equivalents

    (104,144 )   (187,752 )

Cash and cash equivalents at beginning of period

    198,561     315,136  
           

Cash and cash equivalents at end of period

  $ 94,417   $ 127,384  
           
           

Non-cash investing and financing information:

             

Property, plant and equipment additions included in accounts payable

  $ 6,804   $ 10,438  
           
           

   

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

5


Table of Contents


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, 2013, including the notes thereto (our "2013 Financial Statements") included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013 ("2013 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 2013 Financial Statements. Results for interim periods are not necessarily indicative of results which may be achieved for a full year.

Estimates

        The preparation of financial statements in conformity with 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; stock-based compensation; income taxes and accruals for the outcome of litigation.

Accounts Receivable Reserves

        Accounts receivable are presented net of the following reserves:

 
  June 30,
2014
  September 30,
2013
 

Allowance for sales returns

  $ 12,730   $ 13,549  

Promotional program incentive allowances

    93,446     82,827  

Allowance for doubtful accounts

    3,946     2,472  
           

  $ 110,122   $ 98,848  
           
           

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Table of Contents


NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

1. Basis of Presentation (Continued)

Recent Accounting Developments

        In February 2013, the Financial Accounting Standards Board ("FASB") issued guidance on disclosure requirements for items reclassified out of Accumulated Other Comprehensive Income ("AOCI"). This new guidance requires entities to present (either on the face of the income statement or in the notes thereto) the effects on the line items of the income statement for amounts reclassified out of AOCI. The new guidance became effective for us beginning October 1, 2013. See Note 10, "Accumulated Other Comprehensive Income (Loss)" and the Consolidated Statements of Operations and Comprehensive Income (Loss).

        In March 2013, the FASB issued guidance on a parent's accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for us beginning on October 1, 2014. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.

        In July 2013, the FASB issued guidance which amends the guidance related to the presentation of unrecognized tax benefits and allows for the reduction of a deferred tax asset for a net operating loss carryforward whenever the net operating loss carryforward or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. The new guidance will be effective for us beginning on October 1, 2014. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.

        In April 2014, the FASB issued revised guidance to reduce diversity in practice for reporting discontinued operations. The revised guidance only allows disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity) and that have a major effect on a reporting entity's operations and financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. The revised guidance is effective for all disposals (or classifications as held for sale) of components for us beginning October 1, 2015, and early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.

        In May 2014, the 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

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Table of Contents


NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

1. Basis of Presentation (Continued)

guidance is effective for us beginning October 1, 2017 (early adoption is not permitted). 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 June 2014, the FASB issued guidance to clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The guidance is effective for us beginning October 1, 2016, and early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.

Revision

        A revision was made to the prior year's Statements of Operations and Comprehensive Income to correct the prior year presentation, whereby changes in the fair value of the cross-currency swaps were reclassified from changes in the fair value of interest rate swaps to foreign currency translation adjustments. In addition, see Note 14 for a revision that was made to the Condensed Consolidating Financials Statements of Guarantors.

2. Facility Restructuring Charge

        On March 12, 2013, NBTY initiated a restructuring plan to streamline its operations and improve the profitability and return on invested capital of its manufacturing/packaging and distribution facilities. The restructuring involved the sale or closure of seven of NBTY's manufacturing/packaging and distribution facilities.

        The restructuring plan commenced in the second quarter of fiscal 2013 and was completed in fiscal 2014. The restructuring resulted in cumulative charges of $32,695 before tax over that period, of which non-cash charges consisted primarily of accelerated depreciation of approximately $12,588.

        The following summarizes the restructuring cash charges recorded and reconciles these charges to accrued expenses:

 
  Workforce
Reductions
  Facility
Costs
  Total  

Restructuring accrual—October 1, 2013

  $ 12,436   $ 2,649   $ 15,085  

Cash payments

    (8,780 )   (1,588 )   (10,368 )

Other

        (509 )   (509 )
               

Restructuring accrual—June 30, 2014

  $ 3,656   $ 552   $ 4,208  
               
               

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Table of Contents


NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

3. Acquisitions

    Balance Bar

        On November 26, 2012, NBTY acquired all of the outstanding shares of Balance Bar Company ("Balance Bar"), a company that markets and sells nutritional bars, for a purchase price of $77,978 of cash. NBTY used funds drawn from the revolving portion of our senior secured credit facilities to finance this acquisition.

        The purchase price has been allocated to assets acquired and liabilities assumed based on the fair value of such assets and liabilities at the date of the acquisition. The fair values of the net assets acquired were determined using discounted cash flow analyses and estimates made by management. The purchase price was allocated to intangible assets as follows: approximately $35,500 to goodwill, which is non-amortizable under GAAP and is not currently deductible for income tax purposes, approximately $26,000 to tradenames, which are amortizable over 30 years and approximately $29,000 to customer relationships, which are amortizable over 22 years. Amortization of the acquired intangible assets is not currently deductible for income tax purposes. The acquisition of Balance Bar has expanded our operations in the Wholesale segment in the distribution of nutritional bars.

    Essenza

        In June 2013, our subsidiary, NBTY Europe Limited, acquired Essenza N.V. ("Essenza"), a Belgian company operating 13 retail stores, for a net purchase price of approximately $4,163 (€3,200 euros). The allocation of net assets acquired consisted of cash, inventory, property, plant and equipment, tradename, goodwill, accounts payable and accrued liabilities and long term debt. The goodwill of approximately $4,200 associated with this acquisition is not currently deductible for tax purposes.

4. Inventories

        The components of inventories are as follows:

 
  June 30,
2014
  September 30,
2013
 

Raw materials

  $ 211,933   $ 195,713  

Work-in-process

    22,184     25,068  

Finished goods

    638,649     519,171  
           

Total

  $ 872,766   $ 739,952  
           
           

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Table of Contents


NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

5. Goodwill and Intangible Assets

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

 
  Wholesale   European
Retail
  Direct
Response /
E-Commerce
  North
American
Retail
  Consolidated  

Balance at September 30, 2013

  $ 645,220   $ 324,853   $ 264,985   $ 25,744   $ 1,260,802  

Purchase price adjustments

        517             517  

Foreign currency translation

    (1,188 )   14,316             13,128  
                       

Balance at June 30, 2014

  $ 644,032   $ 339,686   $ 264,985   $ 25,744   $ 1,274,447  
                       
                       

        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, 2014   September 30, 2013    
 
  Gross
carrying
amount
  Accumulated
amortization
  Gross
carrying
amount
  Accumulated
amortization
  Amortization
period
(years)

Definite lived intangible assets:

                           

Brands and customer relationships

  $ 914,567   $ 146,216   $ 913,971   $ 116,330   17 - 25

Tradenames and other

    178,023     21,544     177,903     16,677   20 - 30
                     

    1,092,590     167,760     1,091,874     133,007    

Indefinite lived intangible assets:

                           

Tradenames

    1,016,682         1,001,484        
                     

Total intangible assets

  $ 2,109,272   $ 167,760   $ 2,093,358   $ 133,007    
                     
                     

        Aggregate amortization expense of other definite lived intangible assets included in the consolidated statements of operations in selling, general and administrative expenses for the three months ended June 30, 2014 and 2013 was $11,495 and $11,449, respectively. Amortization expense for the nine months ended June 30, 2014 and 2013 was $34,633 and $34,123, respectively.

        Assuming no changes in our intangible assets, estimated amortization expense for each of the five succeeding years will be approximately $46,000 per year.

6. Long-Term Debt

        The components of long-term debt are as follows:

 
  June 30,
2014
  September 30,
2013
 

Senior Credit Facilities:

             

Term loan B-2

  $ 1,507,500   $ 1,507,500  

Notes

    650,000     650,000  

Other

    998     1,281  
           

    2,158,498     2,158,781  

Less: current portion

    (295 )   (376 )
           

Total

  $ 2,158,203   $ 2,158,405  
           
           

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

6. Long-Term Debt (Continued)

Senior credit facilities

        On October 1, 2010, NBTY entered into its senior secured credit facilities (the "senior secured credit facilities") consisting of a $250,000 revolving credit facility, a $250,000 term loan A and a $1,500,000 term loan B.

        On March 1, 2011, NBTY, Alphabet Holding Company, Inc. ("Holdings"), as the parent company of NBTY, and Barclays Bank PLC, as administrative agent, and several other lenders entered into the First Amendment and Refinancing Agreement pursuant to which NBTY repriced its loans. Under the terms of the agreement, the $1,750,000 term loan B-1 and revolving credit facility of $200,000 were established. Substantially all other terms are consistent with the original term loan B, including the amortization schedule of term loan B-1 and maturity dates.

        On December 30, 2011, NBTY prepaid $225,000 of its future principal payments on its term loan B-1. As a result of this prepayment $9,289 of deferred financing costs were charged to interest expense. In accordance with the prepayment 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 in October 2017.

        On October 11, 2012, NBTY amended its credit agreement to allow Holdings to issue and sell the Holdco Notes. In addition, among other things, the amendment (i) increased the general restricted payments basket to $50,000, (ii) increased the maximum total leverage ratio test which governs the making of restricted payments using Cumulative Credit (as defined in the credit agreement) and (iii) modified the definition of Cumulative Credit so that it conforms to the builder basket used in NBTY's indenture governing the Notes. Interest on the Holdco Notes will be paid via dividends from NBTY to Holdings, to the extent that NBTY is permitted under its credit agreement and the indenture governing the Notes. Expenses of $6,121 related to the amendment were capitalized as a deferred financing cost and are being amortized using the effective interest method. In conjunction with the amendment, NBTY paid Holdings a dividend of $193,956 in October 2012.

        In November 2012, NBTY drew $80,000 from the revolving portion of its senior secured credit facilities to finance the acquisition of Balance Bar. As of June 30, 2013, NBTY repaid this borrowing in its entirety.

        On March 21, 2013 (the "Second Refinancing Date"), NBTY, Holdings, 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 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

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

6. Long-Term Debt (Continued)

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 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.

        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.

        The revolving credit facility matures in October 2015 and term loan B-2 matures in October 2017.

        NBTY may voluntarily prepay loans or reduce commitments under our senior secured credit facilities, in whole or in part, subject to minimum amounts, with prior notice but without premium or penalty. The Second Refinancing extended the 1.00% prepayment penalty payable pursuant to a repricing transaction to one year after the Second Refinancing Date.

        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 our senior secured credit facilities unless specifically incurred to refinance a portion of our 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).

        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

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

6. Long-Term Debt (Continued)

change our line of business or fiscal year. In addition, our 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, 2014. All other financial covenants in the original credit agreement governing the senior secured credit facilities were removed as part of the First Refinancing.

        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 will accrue 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 $721,678 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 existing 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.

        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

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

6. Long-Term Debt (Continued)

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.

        The interest on the Holdco Notes was paid in cash on May 1, 2013, November 1, 2013 and May 1, 2014 and was funded by a dividend of $22,970, $21,313 and $38,750, respectively from NBTY.

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.

        On or after October 1, 2014, 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 and additional interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

6. Long-Term Debt (Continued)

relevant interest payment date), if redeemed during the 12-month period commencing on October 1 of the years set forth below:

Period
  Redemption
Price
 

2014

    104.50 %

2015

    102.25 %

2016 and thereafter

    100.00 %

        In addition, at any time prior to October 1, 2014, NBTY may redeem the Notes at its option, in whole at any time or in part from time to time, at a redemption price equal to 100% of the principal amount of the Notes redeemed plus the Applicable Premium (as defined in the indenture governing the Notes) as of, and accrued and unpaid interest and additional interest, if any, to the applicable 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).

        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 our and our 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 covenants under the Notes at June 30, 2014.

7. Fair Value of Financial Instruments

        GAAP establishes a framework for measuring fair value and requires disclosures about fair value measurements. 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)

7. Fair Value of Financial Instruments (Continued)

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

 
  Level 1   Level 2   Level 3  

Current:

                   

Interest rate swaps (included in accrued expenses and other current liabilities)

  $   $ (2,306 ) $  

Cross currency swaps (included in accrued expenses and other current liabilities)

  $   $   $ (4,797 )

Non-current:

                   

Cross currency swaps (included in other liabilities)

  $   $   $ (31,125 )

        The following table summarizes liabilities measured at fair value on a recurring basis at September 30, 2013:

 
  Level 1   Level 2   Level 3  

Current:

                   

Interest rate swaps (included in accrued expenses and other current liabilities)

  $   $ (5,268 ) $  

Cross currency swaps (included in accrued expenses and other current liabilities)

  $   $   $ (3,855 )

Non-current:

                   

Interest rate swaps (included in other liabilities)

  $   $ (1,066 ) $  

Cross currency swaps (included in other liabilities)

  $   $   $ (18,399 )

        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 do 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 liabilities ranged from 7.6% to 7.7% (7.7% weighted average) as of June 30, 2014 and 9.5% to 10.3% (9.8% weighted average) as of September 30, 2013.

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

7. Fair Value of Financial Instruments (Continued)

        The following table shows the Level 3 activity related to our cross currency swaps for the three and nine months ended June 30, 2014 and 2013:

 
  Three Months Ended   Nine Months Ended  
 
  June 30,
2014
  June 30,
2013
  June 30,
2014
  June 30,
2013
 

Beginning balance:

  $ (29,221 ) $ (6,127 ) $ (22,254 ) $ (24,862 )

Unrealized (loss) gain on cross currency swaps

    (6,701 )   3,492     (13,668 )   22,227  
                   

Ending balance:

  $ (35,922 ) $ (2,635 ) $ (35,922 ) $ (2,635 )
                   
                   

Interest Rate Swaps

        To manage the potential risk arising from changing interest rates and their impact on long-term debt, our policy is to maintain a combination of available fixed and variable rate financial instruments. 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 has an initial notional amount of $333,333 (for a total of one billion dollars), with a fixed interest rate of 1.92% for a four-year term. The notional amount of each swap decreased to $266,666 in December 2012, decreased to $166,666 in December 2013 and has a maturity date of December 2014. Under the terms of the swap contracts, variable interest payments for a portion of our senior secured credit facilities are 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 is being assessed based on the overall changes in the fair value of the interest rate swap contracts. Any potential ineffectiveness is measured using the hypothetical derivative method. Any ineffectiveness is recognized in current earnings. Hedge ineffectiveness from inception to June 30, 2014 was $0.

Cross Currency Swaps

        To manage the potential exposure from adverse changes in currency exchange rates, specifically the British pound, arising from our net investment in British pound 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 (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 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 gains for the three months ended June 30, 2014 and 2013 was $1,463and $2,065, respectively, and is recorded in Miscellaneous, net. Hedge ineffectiveness gains for the nine months ended June 30, 2014 and 2013 was $2,415 and $1,345, respectively.

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

7. Fair Value of Financial Instruments (Continued)

        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,  
 
  2014   2013  
 
  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 ) $ (695 ) $ (1,855 )

Net Investment Hedges:

                         

Cross currency swaps

    (5,591 )       877      
                   

Total

  $ (6,051 ) $ (1,159 ) $ 182   $ (1,855 )
                   
                   

 

 
  Nine Months Ended June 30,  
 
  2014   2013  
 
  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

  $ (1,705 ) $ (4,173 ) $ (2,607 ) $ (6,029 )

Net Investment Hedges:

                         

Cross currency swaps

    (10,835 )       12,822      
                   

Total

  $ (12,540 ) $ (4,173 ) $ 10,215   $ (6,029 )
                   
                   

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.

Notes

        The fair value of the Notes based on quoted market prices (Level 2), was approximately $688,000 as of June 30, 2014.

8. Litigation Summary

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

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

8. Litigation Summary (Continued)

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; and Nunez 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 wholesale customers as to which we may have certain indemnification obligations. The Nunez Case settled on an individual basis on June 20, 2013.

        In March 2013, NBTY agreed upon a proposed settlement with the remaining plaintiffs, which includes all cases and resolves all pending claims without any admission of or concession of liability by NBTY, and which provides 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, and those appeals are pending.

        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 has 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. Until the appeal is 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, captioned John 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 that motion is pending. At

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

8. Litigation Summary (Continued)

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 each of our consolidated financial statements.

Claims in the Ordinary Course

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

9. 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 2014 and 2028. Therefore, our overall effective income tax rate could vary.

        The effective income tax rate for the three months ended June 30, 2014 and 2013 was 30.7% and 27.0%, respectively. The effective income tax rate for the nine months ended June 30, 2014 and 2013 was 32.6% and 28.7%, respectively. Our effective tax rate for the three and nine month periods is different than the Federal statutory rate generally due to the timing and mixture (foreign and domestic) of income, revisions to annual estimates of net income, the partial reinvestment of foreign earnings in fiscal 2014 and 2013, as well as the facility restructuring charge which had a favorable impact on the prior year.

        We accrue interest and penalties related to unrecognized tax benefits in the provision for income taxes. This methodology is consistent with previous periods. At June 30, 2014, we had $1,904 and $662 accrued for the potential payment of interest and penalties, respectively. As of June 30, 2014, we were subject to U.S. federal income tax examinations for the tax years 2007-2013, and to non-U.S. examinations for the tax years 2006-2013. In addition, we are generally subject to state and local examinations for fiscal years 2008-2013.

        The Company is under an Internal Revenue Service ("IRS") examination for tax years 2007-2012. Among other issues, the IRS has questioned the values used by the Company to transfer product and provide services to an international subsidiary. The Company believes it has appropriately valued such product transfers and services and intends to continue to support this position as the IRS examination progresses.

        At June 30, 2014, we had a liability of $14,260 for unrecognized tax benefits, the recognition of which would have an effect of $10,670 on provision for income taxes at the effective income tax rate. The Company expects to finalize its IRS examination for the tax years 2007-2010 during the next 12 months and the results of this examination could have an impact on this liability. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes.

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Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

10. Accumulated Other Comprehensive Income (Loss)

        Additions to and reclassifications out of accumulated other comprehensive income (loss) attributable to the Company were as follows:

 
  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, 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  
               
               

 

 
  Three Months Ended June 30, 2013(1)  
 
  Foreign currency
translation
adjustments
  Gains and losses
on cash flow
hedges
  Total  

Balance at March 31, 2013

  $ (52,652 ) $ (6,045 ) $ (58,697 )

Other comprehensive income (loss) before reclassifications

    (2,857 )   (695 )   (3,552 )

Amounts reclassified from accumulated other comprehensive income (loss)(2)

        1,855     1,855  
               

Balance at June 30, 2013

  $ (55,509 ) $ (4,885 ) $ (60,394 )
               
               

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

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


 
  Nine Months Ended June 30, 2013(1)  
 
  Foreign currency
translation
adjustments
  Gains and losses
on cash flow
hedges
  Total  

Balance at September 30, 2012

  $ (10,288 ) $ (8,306 ) $ (18,594 )

Other comprehensive income (loss) before reclassifications

    (45,221 )   (2,607 )   (47,828 )

Amounts reclassified from accumulated other comprehensive income (loss)(2)

        6,029     6,029  
               

Balance at June 30, 2013

  $ (55,509 ) $ (4,884 ) $ (60,393 )
               
               

(1)
All amounts are net of tax, amounts in parentheses indicate debits.

(2)
These (gains) losses are reclassified into Interest expense. See Note 7, Fair Value of Financial Instruments.

11. 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.

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

11. Business and Credit Concentration (Continued)

        The following customers accounted for the following percentages of the Wholesale segment's net sales and our consolidated net sales, respectively:

 
  Wholesale
Segment Net
Sales
  Total
Consolidated
Net Sales
 
 
  Three Months
Ended
June 30,
  Three Months
Ended
June 30,
 
 
  2014   2013   2014   2013  

Customer A

    18 %   22 %   11 %   13 %

Customer B

    13 %   12 %   7 %   7 %

Customer C

    8 %   10 %   4 %   6 %

 

 
  Wholesale
Segment Net
Sales
  Total
Consolidated
Net Sales
 
 
  Nine Months
Ended
June 30,
  Nine Months
Ended
June 30,
 
 
  2014   2013   2014   2013  

Customer A

    19 %   22 %   11 %   13 %

Customer B

    12 %   11 %   7 %   7 %

Customer C

    8 %   10 %   5 %   6 %

        The following customers accounted for the following percentages of the Wholesale segment's gross accounts receivable:

 
  June 30,
2014
  September 30,
2013
 

Customer A

    16 %   12 %

Customer B

    13 %   11 %

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

12. Related Party Transactions

Consulting Agreement—Carlyle

        NBTY entered into a consulting agreement with Carlyle under which we pay Carlyle a fee for consulting services Carlyle provides to us and our subsidiaries. Under this agreement, subject to certain conditions, we expect to pay an annual consulting fee to Carlyle of $3,000; we will reimburse them for out-of-pocket expenses, and we may pay Carlyle additional fees associated with other future transactions. For the three and nine months ended June 30, 2014 and 2013, these fees totaled $750 and $2,250, respectively, and are recorded in selling, general and administrative expenses. Out of pocket expenditures paid to Carlyle were $24 and $0 for the three months ended June 30, 2014 and 2013, respectively, and $392 and $311 for the nine months ended June 30, 2014 and 2013, respectively.

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

12. Related Party Transactions (Continued)

Holdings

        Holdings does not have any significant 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 6 Long-Term Debt for further information.

13. 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, 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:

    Wholesale—This segment sells products 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.

    European Retail—This segment generates revenue through its 746 Holland & Barrett stores (including franchised stores in the following countries: 28 in China, 27 in Singapore, nine in each of United Arab Emirates and Cyprus, four in Malta and one in each of Gibraltar and Iceland), 138 De Tuinen stores (including seven franchised locations) in the Netherlands, 54 GNC (UK) stores in the U.K., 47 Nature's Way stores in Ireland and 13 Essenza stores in Belgium which were acquired in June of 2013, as well as internet-based sales from www.hollandandbarret.com, www.detuinen.nl and www.gnc.co.uk. Such revenue consists of sales of proprietary brand and third-party products as well as franchise fees.

    Direct Response/E-Commerce—This segment generates revenue through the sale of proprietary brand and third-party products primarily through mail order catalog and internet under the Puritan's Pride tradename. Catalogs are strategically mailed to customers who order by mail, internet or phone.

    North American Retail—This segment generates revenue through its 419 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)

13. Segment Information (Continued)

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

 
  Total Reportable Business Segments    
   
 
 
  Wholesale   European
Retail
  Direct
Response/
E-Commerce
  North
American
Retail
  Total   Corporate/
Manufacturing
  Consolidated  

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  

Three Months Ended June 30, 2013:

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Net sales

  $ 489,228   $ 191,692   $ 63,670   $ 58,239   $ 802,829   $   $ 802,829  

Income (loss) from operations

    65,995     45,478     9,001     7,247     127,721     (27,278 )   100,443  

Depreciation and amortization

    9,171     3,544     2,506     609     15,830     15,444     31,274  

Capital expenditures

    177     7,494     2,280     1,475     11,426     19,736     31,162  

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  

Nine Months Ended June 30, 2013:

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Net sales

  $ 1,429,103   $ 557,779   $ 186,252   $ 176,796   $ 2,349,930   $   $ 2,349,930  

Income (loss) from operations

    162,886     127,979     32,325     19,995     343,185     (114,128 )   229,057  

Depreciation and amortization

    27,319     10,405     7,515     1,851     47,090     36,854     83,944  

Capital expenditures

    407     21,412     3,048     2,900     27,767     69,087     96,854  

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Segment Information (Continued)

        Total assets by segment are as follows:

 
  June 30,
2014
  September 30,
2013
 

Reportable Business Segments:

             

Wholesale

  $ 2,647,424   $ 2,553,857  

European Retail

    992,482     924,979  

Direct Response / E-Commerce

    690,254     692,685  

North American Retail

    128,983     119,395  
           

Total Reportable Business Segments:

    4,459,143     4,290,916  
           

Corporate / Manufacturing

    666,636     782,400  
           

Consolidated assets

  $ 5,125,779   $ 5,073,316  
           
           

14. 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, 2014 and September 30, 2013 and for the three and nine months ended June 30, 2014 and 2013 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. For cashflow presentation purposes, cash transfers between the Guarantors and Non-guarantors (the "Operating Entities") are presented as operating activities and cash transfers between the Parent and the Operating Entities are presented as financing cashflows, unless the cash transfers relate to a statutorily recorded dividend or a formally documented loan agreement. Cash transfers which are statutorily recorded as dividends are presented as a financing outflow by the remitting entity and an operating inflow for the receiving entity, provided that the dividends remitted do not exceed the cumulative earnings of the remitting entity. Cash transfers related to formally documented loans are treated as financing activities for all entities that are party to the transfer. This financial information should be read in conjunction with the financial statements and other notes related thereto.

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

14. Condensed Consolidating Financial Statements of Guarantors (Continued)

        In the first quarter of fiscal 2014, we revised the presentation of certain amounts related to the application of push-down accounting in connection with the acquisition of the Company by Carlyle on October 1, 2010 which resulted in a revised presentation of a debt balance and the associated intercompany interest between the parent and guarantors and the presentation of certain transactions previously reflected as intercompany activities as equity transactions. In addition, we revised the cash flow presentation for dividends remitted from the non-guarantor subsidiaries as well as funds remitted from the guarantor to the parent. These revisions impacted the consolidating balance sheet as of September 30, 2013, the consolidating statements of income and comprehensive income for the three and nine months ended June 30, 2013 and cash flows for the nine months ended June 30, 2013. The revisions 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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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

14. Condensed Consolidating Financial Statements of Guarantors (Continued)

Condensed Consolidating Balance Sheet
As of June 30, 2014

 
  Parent
Company
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Assets

                               

Current assets:

                               

Cash and cash equivalents

  $ 23,735   $   $ 75,338   $ (4,656 ) $ 94,417  

Accounts receivable, net

        134,636     49,896         184,532  

Intercompany

    16,957         84,149     (101,106 )    

Inventories

        665,922     206,844         872,766  

Deferred income taxes

        23,705     668         24,373  

Other current assets

    19,703     23,270     35,873         78,846  
                       

Total current assets

    60,395     847,533     452,768     (105,762 )   1,254,934  

Property, plant and equipment, net

    90,823     305,318     194,224         590,365  

Goodwill

        813,688     460,759         1,274,447  

Other intangible assets, net

        1,570,022     371,490         1,941,512  

Other assets

    46,348     18,083     90         64,521  

Intercompany loan receivable

    2,503,720     1,130,845         (3,634,565 )    

Investments in subsidiaries

    2,339,036             (2,339,036 )    
                       

Total assets

  $ 5,040,322   $ 4,685,489   $ 1,479,331   $ (6,079,363 ) $ 5,125,779  
                       
                       

Liabilities and Stockholder's Equity

                               

Current liabilities:

                               

Current portion of long-term debt

  $   $   $ 295   $   $ 295  

Accounts payable

        185,181     76,090     (4,656 )   256,615  

Intercompany

        101,106         (101,106 )    

Accrued expenses and other current liabilities

    21,755     136,728     40,414         198,897  
                       

Total current liabilities

    21,755     423,015     116,799     (105,762 )   455,807  

Intercompany loan payable

    1,130,845     2,157,500     346,220     (3,634,565 )    

Long-term debt, net of current portion

    2,157,500         703         2,158,203  

Deferred income taxes

    8,875     639,285     99,740         747,900  

Other liabilities

    31,125     16,140     26,382         73,647  
                       

Total liabilities

    3,350,100     3,235,940     589,844     (3,740,327 )   3,435,557  

Commitments and contingencies

   
 
   
 
   
 
   
 
   
 
 

Stockholder's Equity:

                               

Common stock

                     

Capital in excess of par

    1,560,298     1,211,581     739,911     (1,951,492 )   1,560,298  

Retained earnings

    118,422     239,400     126,679     (366,079 )   118,422  

Accumulated other comprehensive income (loss)

    11,502     (1,432 )   22,897     (21,465 )   11,502  
                       

Total stockholder's equity

    1,690,222     1,449,549     889,487     (2,339,036 )   1,690,222  
                       

Total liabilities and stockholder's equity

  $ 5,040,322   $ 4,685,489   $ 1,479,331   $ (6,079,363 ) $ 5,125,779  
                       
                       

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

14. Condensed Consolidating Financial Statements of Guarantors (Continued)

Condensed Consolidating Balance Sheet
As of September 30, 2013

 
  Parent
Company
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Assets

                               

Current assets:

                               

Cash and cash equivalents

  $ 81,356   $ 35,357   $ 81,848   $   $ 198,561  

Accounts receivable, net

        127,894     43,776         171,670  

Intercompany

    34,549             (34,549 )    

Inventories

        561,276     178,676         739,952  

Deferred income taxes

        23,004     633         23,637  

Other current assets

    19,033     24,104     35,442         78,579  
                       

Total current assets

    134,938     771,635     340,375     (34,549 )   1,212,399  

Property, plant and equipment, net

    88,612     308,852     174,065         571,529  

Goodwill

        813,688     447,114         1,260,802  

Other intangible assets, net

        1,601,963     358,388         1,960,351  

Other assets

    61,218     6,938     79         68,235  

Intercompany loan receivable

    2,480,760     1,062,900     29,082     (3,572,742 )    

Investments in subsidiaries

    2,180,814             (2,180,814 )    
                       

Total assets

  $ 4,946,342   $ 4,565,976   $ 1,349,103   $ (5,788,105 ) $ 5,073,316  
                       
                       

Liabilities and Stockholder's Equity

                               

Current liabilities:

                               

Current portion of long-term debt

  $   $   $ 376   $   $ 376  

Accounts payable

        195,712     63,348         259,060  

Intercompany

        34,549         (34,549 )    

Accrued expenses and other current liabilities

    38,407     109,865     71,494         219,766  
                       

Total current liabilities

    38,407     340,126     135,218     (34,549 )   479,202  

Intercompany loan payable

    1,091,982     2,157,500     323,260     (3,572,742 )    

Long-term debt, net of current portion

    2,157,500         905         2,158,405  

Deferred income taxes

    14,151     637,726     99,542         751,419  

Other liabilities

    19,463     14,650     25,338         59,451  
                       

Total liabilities

    3,321,503     3,150,002     584,263     (3,607,291 )   3,448,477  

Commitments and contingencies

                               

Stockholder's Equity:

                               

Common stock

                     

Capital in excess of par

    1,556,926     1,211,581     733,411     (1,944,992 )   1,556,926  

Retained earnings

    81,497     208,295     30,198     (238,493 )   81,497  

Accumulated other comprehensive income (loss)

    (13,584 )   (3,902 )   1,231     2,671     (13,584 )
                       

Total stockholder's equity

    1,624,839     1,415,974     764,840     (2,180,814 )   1,624,839  
                       

Total liabilities and stockholder's equity           

  $ 4,946,342   $ 4,565,976   $ 1,349,103   $ (5,788,105 ) $ 5,073,316  
                       
                       

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

14. 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             (46,771 )    
                       

Net income (loss)

    33,267     7,383     39,388     (46,771 )   33,267  
                       

Other comprehensive income (loss), net of tax:

                               

Foreign currency translation adjustment, net of taxes

    11,127         13,238     (13,238 )   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     699     13,238     (13,937 )   11,826  

Comprehensive income (loss)

 
$

45,093
 
$

8,082
 
$

52,626
 
$

(60,708

)

$

45,093
 
                       
                       

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NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

14. Condensed Consolidating Financial Statements of Guarantors (Continued)


Consolidated Statements of Operations and Comprehensive Income (Loss)
Three Months Ended June 30, 2013

 
  Parent
Company
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Net sales

  $   $ 560,753   $ 268,735   $ (26,659 ) $ 802,829  
                       

Costs and expenses:

                               

Cost of sales

        333,113     118,416     (26,659 )   424,870  

Advertising, promotion and catalog

        38,315     9,835         48,150  

Selling, general and administrative

    22,320     114,205     87,897         224,422  

Facility restructuring charge

        4,944             4,944  
                       

    22,320     490,577     216,148     (26,659 )   702,386  
                       

Income (loss) from operations

    (22,320 )   70,176     52,587         100,443  
                       

Other income (expense):

                               

Intercompany interest

    38,825     (34,142 )   (4,683 )        

Interest

    (34,142 )       78         (34,064 )

Miscellaneous, net

    2,045     3,049     (1,270 )       3,824  
                       

    6,728     (31,093 )   (5,875 )       (30,240 )
                       

Income (loss) before income taxes

    (15,592 )   39,083     46,712         70,203  

Provision (benefit) for income taxes

   
(7,805

)
 
13,679
   
13,079
   
   
18,953
 

Equity in income of subsidiaries

    59,037             (59,037 )    
                       

Net income (loss)

    51,250     25,404     33,633     (59,037 )   51,250  
                       

Other comprehensive income (loss), net of tax:

                               

Foreign currency translation adjustment, net of taxes

    (2,857 )       (2,938 )   2,938     (2,857 )

Change in fair value of interest rate swaps net of taxes

    1,161     1,161         (1,161 )   1,161  
                       

Total other comprehensive income (loss), net of tax

    (1,696 )   1,161     (2,938 )   1,777     (1,696 )

Comprehensive income (loss)

 
$

49,554
 
$

26,565
 
$

30,695
 
$

(57,260

)

$

49,554
 
                       
                       

31


Table of Contents


NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

14. Condensed Consolidating Financial Statements of Guarantors (Continued)

Consolidated Statements of Operations and Comprehensive Income (Loss)
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  

Merger expenses

                           
                       

    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             (144,429 )    
                       

Net income (loss)

    96,988     31,105     113,324     (144,429 )   96,988  
                       

Other comprehensive income (loss), net of tax:

                               

Foreign currency translation adjustment, net of taxes

    22,615         21,666     (21,666 )   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     2,469     21,666     (24,135 )   25,084  

Comprehensive income (loss)

 
$

122,072
 
$

33,574
 
$

134,990
 
$

(168,564

)

$

122,072
 
                       
                       

32


Table of Contents


NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

14. Condensed Consolidating Financial Statements of Guarantors (Continued)


Consolidated Statements of Operations and Comprehensive Income (Loss)
Nine Months Ended June 30, 2013

 
  Parent
Company
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Net sales

  $   $ 1,652,668   $ 773,719   $ (76,457 ) $ 2,349,930  
                       

Costs and expenses:

                               

Cost of sales

        1,000,989     343,103     (76,457 )   1,267,635  

Advertising, promotion and catalog

        116,450     26,256         142,706  

Selling, general and administrative

    78,838     338,137     258,413         675,388  

Merger expenses

        35,144                 35,144  
                       

    78,838     1,490,720     627,772     (76,457 )   2,120,873  
                       

Income (loss) from operations

    (78,838 )   161,948     145,947         229,057  
                       

Other income (expense):

                               

Intercompany interest

    122,628     (113,033 )   (9,595 )        

Interest

    (113,033 )       284         (112,749 )

Miscellaneous, net

    1,182     6,640     (3,538 )       4,284  
                       

    10,777     (106,393 )   (12,849 )       (108,465 )
                       

Income (loss) before income taxes

    (68,061 )   55,555     133,098         120,592  

Provision (benefit) for income taxes

   
(22,136

)
 
19,444
   
37,267
   
   
34,575
 

Equity in income of subsidiaries

    131,942             (131,942 )    
                       

Net income (loss)

    86,017     36,111     95,831     (131,942 )   86,017  
                       

Other comprehensive income (loss), net of tax:

                               

Foreign currency translation adjustment, net of taxes

    (45,221 )       (35,403 )   35,403     (45,221 )

Change in fair value of interest rate swaps net of taxes

    3,422     3,422         (3,422 )   3,422  
                       

Total other comprehensive income (loss), net of tax

    (41,799 )   3,422     (35,403 )   31,981     (41,799 )

Comprehensive income (loss)

 
$

44,218
 
$

39,533
 
$

60,428
 
$

(99,961

)

$

44,218
 
                       
                       

33


Table of Contents


NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

14. Condensed Consolidating Financial Statements of Guarantors (Continued)

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      
                       

Cash used in investing activities

    (24,479 )   (25,615 )   (28,842 )   6,500     (72,436 )
                       

Cash flows from financing activities:

  &