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

FORM 10-K
፤

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended September 30, 2014.

អ

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the transition period from to .

or

Commission file number 333-172973

1MAY200918354900

NBTY, Inc.

(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)

11-2228617
(I.R.S. Employer
Identification No.)

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

11779
(Zip Code)

(631) 567-9500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes អ No ፤
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act.
Yes ፤ No អ
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 អ No ፤
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, if any, 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 ፤ No អ
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ፤
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 the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer អ
Accelerated filer អ
Non-Accelerated Filer ፤
Smaller reporting company អ
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes អ No ፤
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant as of March 31, 2014 was $0. The number of shares of common stock of the registrant outstanding at November 24, 2014 was 1,000.

DOCUMENTS INCORPORATED BY REFERENCE.
None

NBTY, INC.
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2014
TABLE OF CONTENTS
Page

PART I
Item
Item
Item
Item
Item

1.
1A.
2.
3.
4.

Business . . . . . . . . . . . .
Risk Factors . . . . . . . . .
Properties . . . . . . . . . . .
Legal Proceedings . . . . .
Mine Safety Disclosures .

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18
42
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46

PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

47
48
49
76
76
77
77
78

PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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100
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Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . .

105

PART IV
Item 15.
Exhibits

i

FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K for the fiscal year ended September 30, 2014 (this ‘‘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 (‘‘GMPs’’) in the United States, the Food
Supplements Directive and Traditional Herbal Medicinal Products Directive (the ‘‘Herbal
Products Directive’’) in Europe 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 United States 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;
• the availability and pricing of raw materials;
• disruptions in manufacturing operations that produce nutritional supplements and loss of manufacturing certifications;

ii

• 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 forwardlooking 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.
INDUSTRY AND MARKET DATA
In this Report, we rely on and refer to information and statistics regarding our industry, products or market share. We obtained some of this information and statistics from third-party sources, such as independent trade associations, industry publications, government publications or reports by market research firms. Additionally, we have supplemented third-party information where necessary with management estimates, based on our review of internal surveys, information from our customers and suppliers, trade and business organizations and other contacts in the markets in which we operate, and our management’s knowledge and experience. However, these estimates are subject to change and are uncertain due to limits on the availability and reliability of primary sources of information and the voluntary nature of the data gathering process. Although we believe that these independent sources and our management’s estimates are reliable as of the date of this Report, we have not independently verified this information, and we cannot assure you of its accuracy or completeness. As a result, you should be aware that market share and industry data included in this Report, and estimates and beliefs based on that data, may not be reliable. We make no representation as to the accuracy or completeness of the information.

iii

OTHER DATA
Numerical figures included in this Report 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.
References in this Report to our fiscal year refer to the fiscal year ended September 30 in the specified year. For example, references to ‘‘fiscal 2014’’ refer to our fiscal year ended September 30,
2014.

iv

PART I
Item 1.

Business

The following description of our business should be read in conjunction with the information included elsewhere in this Report. This description contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from the results discussed in the forward-looking statements due to the factors set forth in ‘‘Forward-Looking Statements,’’ ‘‘Risk Factors’’ and elsewhere in this Report. Unless the context otherwise requires, references in this Report to ‘‘we,’’ ‘‘our,’’ ‘‘us,’’ or the
‘‘Company,’’ refer to NBTY, Inc. together with its subsidiaries.
Our Company
We are the leading vertically integrated manufacturer, marketer, distributor and retailer of high-quality vitamins, nutritional supplements and related products in the United States, with operations worldwide. Our products are marketed through four operating segments: Wholesale,
European Retail, Direct Response/E-Commerce and North American Retail. We currently market over
25,000 individual stock keeping units (‘‘SKUs’’) under a portfolio of well-known brands, with leading category positions across their respective categories, channels and geographies. With our broad range of products, we are able to offer our wholesale customers a ‘‘one-stop’’ source for a wide assortment of both branded and private label products across the value spectrum. Additionally, we have a significant presence in virtually every major vitamins, minerals, herbs and supplements (‘‘VMHS’’) product category and in multiple key distribution channels. We utilize our direct-to-consumer channels to identify new consumer trends and leverage our flexible manufacturing capabilities and strong supplier relationships to bring new products to market quickly. Through our extensive manufacturing operations and significant economies of scale, we believe we are a low-cost manufacturer that offers attractively priced products to retailers and consumers. In addition, we enjoy long-standing relationships with several domestic retailers, including Wal-Mart, Costco, CVS, Walgreens, Kroger and Target. We believe our diversified product, channel and geographic revenue mix, strong key customer relationships and strong demand for VMHS products provide for a diversified, stable and profitable business with strong cash flows.
NBTY, Inc. (‘‘NBTY’’) was incorporated in New York in 1971 under the name Nature’s
Bounty, Inc. We changed our state of incorporation to Delaware in 1979 by merger. In 1995, we changed our name to NBTY, Inc. NBTY’s principal executive offices are located at 2100 Smithtown
Avenue, Ronkonkoma, New York 11779, our telephone number is (631) 567-9500, and our website is www.nbty.com. NBTY is a wholly owned subsidiary of Alphabet Holding Company, Inc. (‘‘Holdings’’).
Carlyle Transaction
On October 1, 2010, NBTY consummated a merger (the ‘‘Merger’’) with an affiliate of The
Carlyle Group (‘‘Carlyle’’), under which the Carlyle affiliate acquired 100% of NBTY’s equity. Carlyle financed the Merger with equity financing provided by an investment fund affiliated with Carlyle, proceeds from the sale of NBTY’s 9% senior notes due 2018 (the ‘‘Notes’’), cash on hand at NBTY and senior secured credit facilities initially consisting of (1) senior secured term loan facilities of
$1.75 billion and (2) a senior secured revolving credit facility with commitments of $250 million (the
‘‘senior secured credit facilities’’). NBTY refinanced its senior secured credit facilities on March 1,
2011, March 21, 2013 and November 20, 2014.
See Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ for additional information.

1

Operating Segments
We market our products through a global omni-channel distribution platform, supported by our industry-leading manufacturing operations and supply chain.
Wholesale. We are the leading wholesale manufacturer of VMHS products in the United States.
We sell our products domestically in virtually all major mass merchandisers, club stores, drug store chains and supermarkets and to independent pharmacies, health food stores, the military and other retailers. We also sell our products internationally primarily through subsidiaries, distributors, and key retailers. Our key brands include Nature’s Bounty↧, Osteo Bi-Flex↧, Pure Protein↧, Body Fortress↧,
Sundown↧, MET-Rx↧, Balance Bar↧ and Ester-C↧. We sell directly to health and natural food stores under the Solgar↧, SISU↧ and Good ‘N Natural↧ brands, to health and natural food stores as well as wholesalers under our American Health↧, Ester-C↧ and Home Health↧ brands and to healthcare practitioners through our Physiologics↧ brand. We also have licensing relationships with Disney
Consumer Products, Inc. and Marvel Characters, B.V. to manufacture VMHS products for children using their character images and licensed art work. In addition to our strong brand positions, we are a leading private label manufacturer in the industry. Fiscal 2014 branded sales accounted for approximately 71% and private label sales accounted for approximately 29% of our Wholesale sales.
European Retail. We have significant retail operations throughout Europe. We are the leading
VMHS specialty retailer in the United Kingdom. As of September 30, 2014, this segment generated revenue through the retail operations of 755 Holland & Barrett stores (including 29 franchised stores in
China, 28 franchised stores in Singapore, 11 franchised stores in the United Arab Emirates, nine franchised stores in Cyprus, four franchised stores in Malta and one franchised store in each of
Gibraltar and Iceland), 53 GNC-branded UK stores, 47 Nature’s Way stores in Ireland, 146 De Tuinen stores in the Netherlands, including six franchised locations, and 15 Essenza stores in Belgium, as well as internet-based sales from www.hollandandbarrett.com, www.hollandandbarrett.co.uk, www.hollandandbarrett.ie, www.detuinen.nl and www.gnc.co.uk. Holland & Barrett, the leading VHMS specialty retailer in the United Kingdom, sells VMHS products and food products, such as fruits and nuts, through a broad range of approximately 4,800 SKUs. Our GNC-branded UK stores specialize in vitamins, minerals and sports nutrition products, marketing approximately 950 SKUs targeted at the more health-conscious sports enthusiasts and price-sensitive customers, and are a strong complement to the Holland & Barrett stores. We believe the breadth of our product offering, the superior customer service provided in our stores and the deep category and product knowledge of our well trained sales associates are key differentiators relative to our competitors.
Direct Response/E-Commerce. Through our internet platform and mail-order catalogs, we are a leader in the U.S. direct response VMHS industry, offering a full line of VMHS products and selected personal care and sports nutrition items under our Puritan’s Pride↧ brand, as well as products manufactured by third parties, at prices that are generally at a discount to similar products sold in retail stores. During fiscal 2014, our Puritan’s Pride website, www.puritan.com, generated an average of approximately 1.2 million unique visitors per month. As of September 30, 2014, Puritan’s Pride products are sold through eight active websites in four languages. Puritan’s Pride offers high-quality products at low direct-from-manufacturer prices, as well as multi-buy promotions, creating a seamless shopping experience for customers. Our highly automated equipment enables us to process orders quickly, economically and efficiently. Internet orders accounted for approximately 72% of our total fiscal 2014 Direct Response/E-Commerce orders.
North American Retail. As of September 30, 2014, we operated 414 Vitamin World retail stores throughout the United States, including Puerto Rico, Guam and the U.S. Virgin Islands, primarily in regional and outlet malls, as well as our Vitamin World website, www.vitaminworld.com. Each store carries a full line of store brand products, as well as products manufactured by third parties. Vitamin
World stores serve as an effective channel to identify early consumer and market trends, as well as to

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test new product introductions and ascertain product acceptance. We are able to provide insight into the marketplace to our domestic wholesale customers and can leverage our vertically integrated model to bring new products to the market quickly. We believe the direct-to-consumer channels also serve a key role in educating consumers on the VMHS category, including new products and the latest clinical studies and research.
Operating Segment and Geographic Financial Information
For a presentation of financial information for each of our operating segments, including financial information relating to the geographic areas in which we conduct our business, see Item 7,
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of
Operations,’’ and Note 20 to the fiscal 2014 Consolidated Financial Statements included elsewhere in this Report.
Our Industry
The VMHS industry is comprised of several distinct product sub-categories:
• Vitamins. This sub-category includes single and multi-vitamin supplements. Products in the vitamin category include: vitamin C, vitamin E, B vitamins, vitamin A/beta carotene, niacin, folic acid, and multi-vitamin formulae.
• Minerals. This sub-category includes single and multi-mineral supplements. Products in the mineral category include: calcium, magnesium, chromium, zinc, selenium, potassium, iron, manganese, other single minerals and multi-mineral formulae.
• Herbs & Botanicals. Single herb or multi-herb supplements made primarily from plants or plant components. Products in this category include: echinacea, garlic, ginseng, and ginkgo biloba.
• Specialty Supplements. This sub-category includes supplements falling outside other sub-categories, such as glucosamine, melatonin, probiotics, docasahexanenoic acid (‘‘DHA’’), fish oils and shark cartilage, Co-enzyme Q10 (‘‘Co-Q10’’), amino acids and homeopathic remedies.
• Sports Nutrition. Sports Nutrition products include tablets, powders, nutrition bars and drinks formulated to enhance physical activity, and include creatine, amino acids and protein formulae, among others.
• Meal Replacements. This sub-category includes powders, nutrition bars and liquid nutritional formulae. Our Strategy
We continuously evaluate strategies to drive revenues and cash flows at each of our operating segments by building on our leading market positions and strong customer relationships.
Increase Sales from Existing and New Customers
We expect to continue to drive organic growth through incremental shelf space with existing customers, new customer additions and focus on our branded products. We will continue our brandbuilding efforts for key brands by leveraging consumer insights and new product innovation capabilities to drive revenue and profit growth. Our ability to supply both branded and private label products across all price points broadens and deepens our partnerships with key retail customers, providing us more opportunities for category leadership and growth. We view the private label business as an important and valuable service that we provide to key accounts.

3

New Product Introductions
We have been among the first in the industry to introduce innovative products in response to health trends, consumer preferences and research studies. Given our presence in multiple distribution channels and our leading market positions, we have strong consumer insights and therefore, are well-positioned to identify trends and demand for new products. We have robust new product development capabilities that allow us to be at the forefront of innovation within the industry. We also have the manufacturing scale, expertise and supplier relationships to respond rapidly and bring new products to market. During fiscal 2014, we introduced approximately 165 new products.
Further Penetrate International Markets
Our products are currently marketed and sold in approximately 100 countries. However, only
$1.3 billion (or 40%) of our sales in fiscal 2014 were sold to customers outside the United States, of which $767 million was to customers located in the United Kingdom. We plan to capitalize on our manufacturing and distribution capabilities to drive incremental international sales of our key brands in emerging markets, which are characterized by a rising middle class and a strong demand for high quality VMHS products from U.S.-based manufacturers. In addition, we plan to further strengthen
Solgar’s position in the premium segment in Western European markets, where there is a demand for high-quality VMHS products.
Drive Growth and Profitability in Retail Operations
We will continue to focus on positioning our Vitamin World operations for growth and profitability through various strategies, including a pricing strategy that focuses on value, optimization of our store base, a new store format and development of our associates. We have gradually been remodeling our stores to the new format and believe that the enhanced customer experience has a favorable impact on store sales. We continue to strengthen our position as a customer-centric specialty retailer through our associate development initiatives which provide associates at all levels with resources to enhance customer service and sales skills, to improve product knowledge and to provide a clear path for career growth. We have also implemented several successful initiatives in our European Retail operations. We are focused on maximizing omni-channel business and driving increased customer traffic by modifying our promotional pricing strategy, increasing our focus on associate training, and developing loyalty and customer relationship management programs.
Free Cash Flow Generation
We expect our strong and stable cash flows to be driven by continued top-line growth and targeted initiatives for ongoing improvement in our manufacturing and supply chain operations, as well as improvements in working capital efficiency.
Enhance Manufacturing Efficiencies
We expect to continue to focus on reducing costs and improving efficiency in our manufacturing operations and driving supply chain strategies to maintain our low-cost manufacturing. 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 and was completed in fiscal 2014.

4

Disciplined Acquisition Strategy
Since 1986, we have acquired and successfully integrated more than 30 companies, expanding our brands, geographic presence, distribution channels and product offerings. In the fragmented, global
VMHS industry, there remains a robust pool of acquisition opportunities across channels and geographies. We expect to continue to take a disciplined approach to acquisitions as these opportunities arise. Employees
As of September 30, 2014, we employed approximately 13,500 persons. In addition, we sell products through commissioned sales representative organizations. As of September 30, 2014, CAW
Local 468, Retail Wholesale Canada Division, represented approximately 290 of our associates in
Canada under a collective bargaining agreement. We believe we have strong employee and labor relations both domestically and internationally, and historically have not experienced work stoppages that materially adversely affected our operations.
Advertising
For fiscal 2014, 2013 and 2012, we spent approximately $203 million, $189 million and
$164 million, respectively, on advertising, promotions and catalogs, including print, media and cooperative advertising. Our in-house advertising staff creates most of the domestic advertising materials, which include print, radio, television and internet advertising. Our European Retail businesses advertise through various media channels and conduct sales promotions. Our Solgar business advertises in magazines, operates web sites and conducts sales promotions and our Vita Health business in Canada advertises in newspapers, trade publications and magazines and operates web sites.
Manufacturing, Distribution and Quality Control
At September 30, 2014, we employed approximately 3,850 manufacturing, shipping and packaging associates. We manufacture domestically in Arizona, California, Florida, New Jersey, New York and
Texas. In addition, at September 30, 2014, we manufactured internationally in Winnipeg, Manitoba,
Canada; Burton, United Kingdom; and Zhongshan, China. We have technologically advanced manufacturing and production facilities, with total production capacity of approximately 63 billion tablets, capsules and softgels per year.
All our domestic manufacturing operations are subject to GMPs, promulgated by the U.S. Food and Drug Administration (‘‘FDA’’), and other applicable regulatory standards. We believe our U.S. manufacturing processes comply with the GMPs for dietary supplements or foods, and our manufacturing and distribution facilities generally have sufficient capacity to meet our current business requirements and our currently anticipated sales. In certain instances, we outsource to third party manufacturers who we screen for compliance with the GMPs. We place special emphasis on quality control. We assign lot numbers to all raw materials and, except in rare cases, initially hold them in quarantine while our Quality Department evaluates them for compliance with established specifications.
Once released, we retain samples and process the material according to approved formulae by blending, mixing and technically processing as necessary. We manufacture products in final delivery form as a capsule, tablet, powder, softgel, nutrition bar or liquid. After a product is manufactured, our laboratory analysts test its weight, purity, potency, disintegration and dissolution, if applicable. Except in rare instances, we hold the product in quarantine until we complete the quality evaluation and determine that the product meets all applicable specifications before packaging. In those instances when we release a product concurrently with testing, we implement a conditional release process to ensure the product is not distributed before we complete testing. When the manufactured product meets all specifications, our automated packaging equipment packages the product with at least one

5

tamper-evident safety seal and affixes a label, an indelible lot number and, in most cases, the expiration or ‘‘best by’’ date. We use sophisticated computer-generated documentation for picking and packing for order fulfillment.
We are subject to regulations and standards of a similar nature in Canada, China and the United
Kingdom with respect to our manufacturing activities in those countries. We maintain Health Canada mandated natural health product and drug licenses, market authorizations and establishment and site licenses. In the United States and Canada, we have received recognition from many prestigious private organizations, including U.S. Pharmacopeia GMP Certification (as part of their Dietary Supplement
Verification Program). Additionally, we have been recognized in the United Kingdom with MHRA
Importation License and Wholesale Dealers License, as well as the BRC Global Standard for Food
Safety and the certificate of conformity of the Organic Food Federation.
Our manufacturing operations are designed to allow low-cost production of a wide variety of products of different quantities, physical sizes and packaging formats, while maintaining a high level of customer service and quality. Flexible production line changeover capabilities and reduced cycle times allow us to respond quickly to changes in manufacturing schedules and customer demands.
We have inventory control systems at our facilities that track each manufacturing and packaging component as we receive it from our supply sources through manufacturing and shipment of each product to customers. To facilitate this tracking, most products we sell are bar coded. Our inventory control systems report shipping, sales and, in most cases, individual SKU level inventory information.
We manage the retail sales process by monitoring customer sales and inventory levels by product category. We believe our distribution capabilities increase our flexibility in responding to our customers’ delivery requirements. Our purchasing and merchandising staff regularly reviews and analyzes information from our U.S. point-of-sale computer system and makes merchandise allocation and markdown decisions based on this information. We use an automated reorder system in the United
States to maintain in-stock positions on key items. These systems give us the information we need to determine the proper timing and quantity of reorders.
Our financial reporting systems provide us with detailed financial reporting to support our operating decisions and cost control efforts. These systems provide functions such as payment scheduling, application of payment receipts, general ledger interface, vendor tracking and flexible reporting options.
Research and Development
We did not expend material amounts for research and development of new products during the last three fiscal years.
Competition; Customers
The market for nutritional supplement products is highly competitive. Our direct competition consists of publicly and privately owned companies, which tend to be highly fragmented in terms of both geographic market coverage and product categories. Competition is based primarily on quality and assortment of products, customer service (including timely deliveries), marketing support, availability of new products and price. Given our significant scale and broad scope relative to our competition, strong innovation capabilities, high-quality manufacturing and vertical integration, we believe that we are well positioned to capitalize on the industry’s favorable long term secular trends and gain share.
There are numerous companies in the vitamin and nutritional supplement industry with which we compete that sell products to retailers, including mass merchandisers, convenience stores, drug store chains, club stores, independent drug stores, supermarkets and health food stores.

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During fiscal 2014 and 2013, Wal-Mart, individually, accounted for 19% and 21% of our Wholesale segment’s net sales, respectively, and 11% and 13% of our consolidated net sales, respectively. As of
September 30, 2014, Wal- Mart, individually, accounted for 13% of our Wholesale segment’s gross accounts receivable. We sell products to Wal-Mart under individual purchase orders placed by Wal-Mart under Wal-Mart’s standard terms and conditions of sale. These terms and conditions include insurance requirements; representations by us with respect to the quality of our products and our manufacturing process; our obligations to comply with law; and indemnifications by us if we breach our representations or obligations. There is no commitment from Wal-Mart to purchase from us, or from us to sell to Wal-Mart, any minimum amount of product. The loss of Wal-Mart, or any other major customer, would have a material adverse effect on us if we were unable to replace that customer. See
‘‘Item 1A. Risk Factors—Risks Relating to Our Business—One of our customers accounted for 11% of our consolidated net sales during fiscal 2014, and the loss of this customer, or any of our other major customers, could have a material adverse effect on our results of operations.’’
Government Regulation
United States
The processing, formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by federal agencies, including the FDA, the United States
Federal Trade Commission (‘‘FTC’’), the U.S. Customs and Border Protection (‘‘CBP’’), the U.S. Postal
Service (‘‘USPS’’), the Consumer Product Safety Commission (‘‘CPSC’’), the U.S. Department of
Agriculture, the U.S. Department of Labor’s Occupational Safety & Health Administration (‘‘OSHA’’) and the U.S. Environmental Protection Agency (‘‘EPA’’). These activities also are subject to regulation by various agencies of the states, localities and foreign countries in which we sell our products. In particular, the FDA, under the Federal Food, Drug, and Cosmetic Act (the ‘‘FDCA’’), regulates the biennial registration, formulation, manufacturing, packaging, labeling, distribution and sale of foods, including dietary supplements, vitamins, minerals and herbs and cosmetics. The FTC regulates the advertising of these products, and the USPS regulates advertising claims with respect to such products sold by mail order. The National Advertising Division (‘‘NAD’’) of the Council of Better Business
Bureaus oversees an industry-sponsored self-regulatory system that permits competitors to resolve disputes over advertising claims, applying FTC guides and rules and prior NAD decisions. The NAD may refer matters to the FTC and/or other agencies for further action, if the advertiser does not participate in the NAD system or implement the NAD’s recommendations.
The FDCA has been amended several times with respect to dietary supplements, in particular by the Dietary Supplement Health and Education Act of 1994 (‘‘DSHEA’’). DSHEA establishes a framework governing the composition and labeling of dietary supplements. With respect to composition, DSHEA defines ‘‘dietary supplements’’ as vitamins, minerals, herbs, other botanicals, amino acids and other dietary substances for human use to supplement the diet, as well as concentrates, constituents, extracts or combinations of such dietary ingredients. Generally, under
DSHEA, dietary ingredients that were marketed in the United States before October 15, 1994 may be used in dietary supplements without notifying the FDA. However, a ‘‘new’’ dietary ingredient (a dietary ingredient that was not marketed in the United States before October 15, 1994) must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been ‘‘present in the food supply as an article used for food’’ without being ‘‘chemically altered.’’ A new dietary ingredient notification must provide the FDA with evidence of a ‘‘history of use or other evidence of safety’’ establishing that use of the dietary ingredient ‘‘will reasonably be expected to be safe.’’ A new dietary ingredient notification must be submitted to the FDA at least 75 days before the initial marketing of the new dietary ingredient. There can be no assurance that the FDA will accept the evidence of safety for any new dietary ingredients that we may want to market, and the FDA’s refusal to accept such evidence could prevent the marketing of such dietary ingredients. The FDA has

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published guidance for the industry to attempt to clarify the FDA’s interpretation of the new dietary ingredient notification requirements, and this guidance raises new challenges to the development of new dietary ingredients. In addition, increased FDA enforcement could lead the FDA to challenge dietary ingredients already on the market as ‘‘illegal’’ under the FDCA because of the failure to submit a new dietary ingredient notification.
The FDA generally prohibits the use in labeling for a dietary supplement of any ‘‘disease claim,’’ correlating use of the product with a decreased risk of disease, unless the claim is specifically pre-approved or authorized by the FDA. DSHEA permits ‘‘statements of nutritional support’’ to be included in labeling for dietary supplements without FDA pre-approval. Such statements may describe how a particular dietary ingredient affects the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect body structure, function or well-being
(but may not state that a dietary supplement will diagnose, cure, mitigate, treat, or prevent a disease).
FDA deems internet materials as labeling in most cases, so our internet materials must comply with
FDA requirements and could be the subject of regulatory action if the FDA, or the FTC reviewing the materials as advertising, considers the materials false or misleading. A company that uses a statement of nutritional support in labeling must possess evidence substantiating that the statement is truthful and not misleading. FTC has in recent years imposed extremely stringent, claim-specific substantiation standards on certain dietary supplement manufacturers, to settle charges that they deceptively advertised their supplements’ efficacy. When such a claim is made on labels, we must disclose on the label that the FDA has not ‘‘evaluated’’ the statement, disclose that the product is not intended for use for a disease, and notify the FDA about our use of the statement within 30 days of marketing the product. However, there can be no assurance that the FDA will not determine that a particular statement of nutritional support that we want to use is an ‘‘unauthorized health or disease claim’’ or an unauthorized version of a ‘‘health claim.’’ Such a determination might prevent us from using the claim.
In addition, DSHEA provides that certain so-called ‘‘third-party literature,’’ such as a reprint of a peer-reviewed scientific publication linking a particular dietary ingredient with health benefits, may be used ‘‘in connection with the sale of a dietary supplement to consumers’’ without the literature being subject to regulation as labeling. Such literature must not be, among other things, false or misleading; the literature may not promote a particular manufacturer or brand of dietary supplement; and the literature must present a balanced view of the available scientific information on the subject matter.
There can be no assurance, however, that all third-party literature that we would like to disseminate in connection with our products will satisfy these requirements, and failure to satisfy all requirements could prevent use of the literature or subject the product involved to regulation as an unapproved drug.
As authorized by DSHEA, the FDA adopted GMPs specifically for dietary supplements, which became effective in June 2008. These GMP regulations are more detailed than the GMPs that previously applied to dietary supplements and require, among other things, dietary supplements to be prepared, packaged and held in compliance with specific rules, and require quality control provisions similar to those in the GMP regulations for drugs. We believe our manufacturing and distribution practices comply with these new rules.
We also must comply with the Dietary Supplement and Nonprescription Drug Consumer
Protection Act (the ‘‘AER Act’’), which became effective in December 2007. The AER Act amended the FDCA to require that manufacturers, packers, and distributors of dietary supplements report serious adverse events (as defined in the AER Act) to the FDA within specific time periods. We believe we are in compliance with the AER Act.
The FDA Food Safety Modernization Act (‘‘FSMA’’), signed into law by President Obama on
January 4, 2011, is considered one of the most significant changes to the FDCA with respect to strengthening the U.S. food safety system. It enables the FDA to focus more on preventing food safety problems rather than relying primarily on reacting to problems after they occur. The law also provides

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the FDA with new enforcement authorities designed to achieve higher rates of compliance with prevention- and risk-based food safety standards and to better respond to and contain problems when they do occur. The law also gives the FDA important new tools to hold imported foods to the same standards as domestic foods and directs the FDA to build an integrated national food safety system in partnership with state and local authorities. The law has led to increased FDA food inspections and questions at customs regarding imported goods.
The FDA has broad authority to enforce the provisions of the FDCA applicable to foods, dietary supplements and cosmetics, including powers to issue a public ‘‘warning letter’’ to a company, to publicize information about illegal products, to request a voluntary recall of illegal products from the market, and to request the Department of Justice to initiate a seizure action, an injunction action, or a criminal prosecution in the U.S. courts. The FTC exercises jurisdiction over the advertising of foods, dietary supplements and cosmetics. In recent years, the FTC has instituted numerous enforcement actions against dietary supplement companies for failure to adequately substantiate claims made in advertising, or for the use of false or misleading advertising claims. These enforcement actions have often resulted in consent decrees requiring higher levels of substantiation for certain health claims and the payment of civil penalties, restitution, or both, by the companies involved. We currently are subject to FTC consent decrees resulting from past advertising claims for certain of our products. As a result, we are required to maintain compliance with these decrees and are subject to an injunction and substantial civil monetary penalties if we should fail to comply. We are also subject to consent judgments under the Safe Drinking Water and Toxic Enforcement Act of 1986 (‘‘Proposition 65’’).
Further, the USPS has issued cease and desist orders against certain mail order advertising claims made by dietary supplement manufacturers, including us, and we are required to maintain compliance with the orders applicable to us, subject to civil monetary penalties for any noncompliance. Violations of these orders could result in substantial monetary penalties. These civil penalty actions could have a material adverse effect on our consolidated financial position, results of operations and cash flows.
In October 2009, the FTC issued Guides Concerning the Use of Endorsements and Testimonials in
Advertising (‘‘Endorsement Guides’’). These Endorsement Guides significantly extend the scope of potential liability associated with the use of testimonials, endorsements, and new media methods, such as blogging, in advertising. As of December 1, 2009, the effective date of the Endorsement Guides, advertisements with testimonials claiming specific results usually will be interpreted to mean that the endorser’s experience is what others can expect, regardless of disclaimers such as ‘‘results may vary.’’
Therefore, advertisers are required either to substantiate that the experiences conveyed by testimonials or endorsements represent typical consumer experiences with the advertised product or clearly and conspicuously disclose the typical consumer experience with the advertised product and have proper substantiation. In most instances, this will require advertisers to possess ‘‘competent and reliable scientific evidence’’ to substantiate the endorser representations. Under the Endorsement Guides, advertisers also may be liable for statements made by consumers in the context of ‘‘new media,’’ including blogs, depending on the relationship between the consumer and the advertiser, and any material connection between them must be disclosed. Although an advertiser’s control over the consumer’s comments will be relevant to a determination regarding liability for false or misleading statements, it will not necessarily be dispositive.
In October 2012, the FTC announced revisions to its Guides For The Use Of Environmental
Marketing Claims (‘‘Green Guides’’). These Green Guides are intended to assist advertisers in avoiding the dissemination of false or deceptive environmental claims for their products. The latest revisions to the Green Guides include guidance regarding advertisers’ use of product certifications and seals of approval, ‘‘recyclable’’ claims, ‘‘renewable materials’’ claims, and ‘‘carbon offset’’ claims. Many of these provisions instruct advertisers to specify and qualify environmental claims even more extensively than previously required. The FTC simultaneously has reminded advertisers that environmental claims inconsistent with the Green Guides may trigger FTC challenge. In addition, although these Green

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Guides do not themselves have the force of law and are not independently enforceable, violations of them might give rise not only to FTC scrutiny but also to actions under state consumer fraud statutes.
In March 2013, the FTC released guidance for mobile and other online advertisers that explains how to make disclosures clear and conspicuous to avoid deception. Updating FTC guidance known as
Dot Com Disclosures, which was released in 2000, the new FTC staff guidance, ‘‘.com Disclosures: How to Make Effective Disclosures in Digital Advertising’’ (‘‘Dot Com Guides’’), takes into account the expanding use of smartphones with small screens and the rise of social media marketing. It also contains mock ads that illustrate the updated principles. Like the original, the updated Dot Com
Guides emphasize that consumer protection laws apply equally to marketers across all mediums, whether delivered on a desktop computer, a mobile device, or more traditional media such as television, radio, or print. If a disclosure is needed to prevent an online ad claim from being deceptive or unfair, it must be clear and conspicuous. Under the new guidance, this means advertisers should ensure that the disclosure is clear and conspicuous on all devices and platforms that consumers may use to view the advertisement. The new guidance also explains that if an advertisement without a disclosure would be deceptive or unfair, or would otherwise violate an FTC rule, and the disclosure cannot be made clearly and conspicuously on a device or platform due to space constraints or otherwise, then the advertisement should not be disseminated on that device or platform. Although the
Dot Com Guides do not themselves have the force of law and are not independently enforceable, violations of them might give rise not only to FTC scrutiny but also to actions under state consumer fraud statutes.
We also are subject to regulation under various state and local laws that include provisions governing, among other things, the registration, formulation, manufacturing, packaging, labeling, advertising and distribution of foods, dietary supplements and cosmetics.
In addition, from time to time in the future, we may become subject to additional laws or regulations administered by the FDA or by other federal, state, local or foreign regulatory authorities, to the repeal of laws or regulations that we consider favorable, such as DSHEA, or to more stringent interpretations of current laws or regulations. We believe that the dietary supplement industry is likely to face a more aggressive enforcement environment in the future even in the absence of new regulation. We cannot predict the nature of future laws, regulations, repeals or interpretations, and we cannot predict what effect additional governmental regulation, when and if it occurs, would have on our business in the future. Such developments, however, could require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, additional personnel, or other new requirements. Any such development could have a material adverse effect on our consolidated financial position, results of operations and cash flows.
European Union
In the European Union (‘‘EU’’), the EU Commission is responsible for developing legislation to regulate foodstuffs and medicines. Although the government of each member state may implement legislation governing these products, national legislation must be compatible with, and cannot be more restrictive than, European requirements. Each member state is responsible for its enforcement of the provisions of European and national legislation.
In July 2002, the EU published in its Official Journal the final text of a Supplements Directive, which became effective in the EU at that time and which sets out a process and timetable by which the member states must bring their domestic legislation in line with its provisions. The Supplements
Directive seeks to harmonize the regulation of the composition, labeling and marketing of food supplements (at this stage only vitamins and minerals) throughout the EU. It does this by specifying

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what nutrients and nutrient sources may be used (and by interpretation the rest which may not), and the labeling and other information which must be provided on packaging. In addition, the Supplements
Directive is intended to regulate the levels at which these nutrients may be present in a supplement.
These maximum permitted levels are still to be announced.
By harmonizing member state legislation, the Supplements Directive should provide opportunities for businesses to market one product or a range of products to a larger number of potential customers without having to reformulate or repackage it. This development may lead to some liberalizing of the more restrictive regimes in Europe, providing new business opportunities. Conversely, however, it may limit the range of nutrients and nutrient sources substantially, and eventually the potencies at which some nutrients may be marketed by us in the more liberal countries in Europe, such as the United
Kingdom, which may lead to some reformulation costs and loss of some specialty products.
In April 2004, the EU published the Herbal Products Directive which requires traditional herbal medicines to be registered in each member state in which they are intended to be marketed. A registration requires a product be manufactured to pharmaceutical GMP standards; however, generally, there is no need to demonstrate efficacy, provided that the product is safe, is manufactured to high standards, and has a history of supply on the market for 30 years, 15 years of which must be in the EU.
The Herbal Products Directive is intended to provide a safe harbor in EU law for a number of categories of herbal remedies, which may otherwise be found to fall outside EU law. However, it does not provide a mechanism for new product development, and would entail some compliance costs in registering the many herbal products already on the market. Full compliance was required by April
2011.
In December 2006, the EU published the Nutrition and Health Claim Regulation to apply from
July 1, 2007. This regulation controls nutrition and health claims by means of lists of authorized claims that can be made in advertising, labeling and presentation of all foods, including food supplements, together with the criteria a product must meet to use them. Since December 14, 2012, except in respect of botanical products which will be considered separately, only permitted lists of health claims produced by the European Food Safety Authority and approved by the EU Commission can be used.
Additional European legislation is being developed to regulate sports nutrition products, including the composition of such products. In particular, such legislation could restrict the type of nutrients we may use in our products. Legislation introducing maximum permitted levels for nutrients in fortified foods is also under discussion together with legislation introducing a positive list for enzymes. These proposals, if implemented, could require us to reformulate our existing products. Also, proposals to amend medicine legislation will impact traditional herbal medicines and introduce new requirements, such as Braille labeling, which may lead to higher associated costs.
United Kingdom
In the United Kingdom, the two main pieces of legislation that affect the operations of our
Holland & Barrett and GNC-branded stores are the Medicines Act 1968, which regulates the licensing and sale of medicines, and the Food Safety Act 1990, which provides for the safety of food products. A large volume of secondary legislation in the form of Statutory Instruments adds detail to the main provisions of these Acts, governing composition, packaging, labeling and advertising of products.
In the United Kingdom regulatory system, a product intended to be taken orally will fall within either the category of food or the category of medicine. There is currently no special category of dietary supplement as provided for in the United States by DSHEA. Some products which are intended to be applied externally, for example creams and ointments, may be classified as medicines and others as cosmetics.

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The Medicines and Healthcare Products Regulatory Agency (‘‘MHRA’’), an executive agency of the
Department of Health, has responsibility for the implementation and enforcement of the Medicines
Act 1968 and the Herbal Products Directive, and is the licensing authority for medicinal products. The
MHRA directly employs enforcement officers from a wide range of backgrounds, including the police, and with a wide range of skills, including information technology. However, the MHRA still relies heavily on competitor complaints to identify non-compliant products. The MHRA decides whether a product is a medicine or not and, if so, considers whether it can be licensed. It determines the status of a product by considering whether it is medicinal by ‘‘presentation’’ or by ‘‘function.’’
The FSA deals with legislation, policy and oversight of food products, with enforcement action in most situations being handled by local authority Trading Standards Officers. The large number of local authorities in the United Kingdom can lead to an inconsistent approach to enforcement. Unlike the
MHRA, local authorities regularly purchase products and analyze them to identify issues of non-compliance. Most vitamin and mineral supplements, and some products with herbal ingredients, are considered to be food supplements and fall under general food law which requires them to be safe.
Despite the differences in approaches in identifying non-compliant products, both the MHRA and local authorities can, and do, prosecute where issues of non-compliance are identified.
Ireland
The legislative and regulatory situation in the Republic of Ireland is similar, but not identical, to that in the United Kingdom. The Irish Medicines Board has a similar role to that of the U.K.’s MHRA and the Food Safety Authority of Ireland is analogous to the U.K.’s FSA. Ireland has brought its domestic legislation into line with the provisions of the Supplements Directive and the Herbal Products
Directive. Thus, the market prospects for Ireland, in general, are similar to those outlined in the
United Kingdom.
Netherlands
The regulatory environment in the Netherlands is similar to the United Kingdom in terms of availability of products. The Netherlands currently has the same liberal market, with no restrictions on potency of nutrients. Licensed herbal medicines are available. However, some herbal medicines are sold freely as in the United Kingdom without the need to be licensed, based on the claims made for them.
The Netherlands is also more liberal regarding certain substances, for which unlicensed sales are allowed. The government department dealing with this sector is the Ministry for Health, Welfare and
Sport.
Responsibility for food safety falls to the Voedsel en Warenautoriteit (Inspectorate for Health
Protection and Veterinary Public Health), which deals with all nutritional products. The Medicines
Evaluation Board (College ter Beoordeling van Geneesmiddelen), which is the equivalent of the U.K.’s
MHRA, is charged with responsibility for the safety of medicines which are regulated under the Supply of Medicines Act.
The overall market prospects for the Netherlands, in general, are similar to those outlined for the
United Kingdom above. Traditional herbal medicinal products that are currently on sale in the
Netherlands fall within the scope of the Herbal Products Directive.
Canada
Natural health products (‘‘NHPs’’), prescription drugs, and non-prescription drugs are all classified and regulated under the federal Food and Drugs Act (Canada) (the ‘‘Canadian FDA’’).
The product safety, quality, manufacturing, packaging, labeling, storage, importation, advertising, distribution, sale and clinical trials of NHPs, drugs, cosmetics and foods are subject to regulation

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primarily under the Canadian FDA and associated regulations, including the Food and Drug
Regulations, Cosmetic Regulations and the Natural Health Products Regulations, and related Health
Canada guidance documents and policies (collectively, the ‘‘Canadian Regulations’’). In addition, drugs and NHPs are regulated under the federal Controlled Drugs and Substances Act if the product is considered a ‘‘controlled substance’’ or a ‘‘precursor,’’ as defined in that statute or in related regulatory provisions. Health Canada is primarily responsible for administering the Canadian FDA and the Canadian
Regulations.
The Canadian FDA and Canadian Regulations also set out requirements for establishment and site licenses, market authorization for drugs and NHP licenses. Effective January 2004, each NHP must have a product license issued by Health Canada before it can be sold in Canada, subject to certain transition rules. Health Canada assigns a natural health product number (‘‘NPN’’) to each NHP once
Health Canada issues the license for that NHP. The Canadian Regulations require that all drugs and
NHPs be manufactured, packaged, labeled, imported, distributed and stored under Canadian GMPs or the equivalent thereto, and that all premises used for manufacturing, packaging, labeling and importing drugs and NHPs have a site license (NHPs) or establishment license (drugs), which requires GMP compliance. The Canadian Regulations also set out requirements for labeling, packaging, clinical trials and adverse reaction reporting.
Health Canada approval for drug marketing authorizations and NHP licenses can take time. The approval time for NHPs and drugs can vary depending on the product and the application or submission. For NHPs, the Canadian Regulations indicate that certain product licenses should be processed within 60 days. However, the regulations also include provisions to extend this time frame if, for example, more information is required. There can be significant delays. Effective August 3, 2010, regulations to the Canadian FDA came into force which provided that each application for an NPN that was in process, that had not been disallowed and was for a product that was neither a specified restricted product nor a product that contained an ingredient that was likely to result in injury to the health of a consumer, was to be issued an Exemption Number (‘‘EN’’). Upon the completion of certain formalities, a product license was deemed to have been issued for a product with an EN and such license remained in effect until the associated application was processed. If Health Canada refused to issue a product license, the NHP could no longer be sold in Canada unless and until Health Canada issued such a license. These unprocessed product license application regulations are no longer in effect as of February 2013 and no new ENs for NHPs will be issued. Health Canada has transitioned to the requirement that all NHPs sold in Canada have NPNs or a Homeopathic Medicine Number
(‘‘DIN-HM’’) on the label.
The Canadian FDA and Canadian Regulations, among other things, govern the manufacture, formulation, packaging, labeling, advertising and sale of NHPs and drugs, and regulate what may be represented on labels and in promotional materials regarding the claimed properties of products. The
Canadian Regulations also require NHPs and drugs sold in Canada to affix a label showing specified information, such as the proper and common name of the medicinal and non-medicinal ingredients and their source, the name and address of the manufacturer/product license holder, its lot number, adequate directions for use, a quantitative list of its medical ingredients and its expiration date. In addition, the Canadian Regulations require labeling to bear evidence of the marketing authorization as evidenced by the designation drug identification number (‘‘DIN’’), DIN-HM or NPN, followed by an eight-digit number assigned to the product and issued by Health Canada.
Health Canada can perform routine and unannounced inspections of companies in the industry to ensure compliance with the Canadian Regulations. The overall risk factors and market prospects for
Canada, in general, are similar to those in the United States, as outlined above. Health Canada can

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suspend or revoke licenses for lack of compliance. In addition, if Health Canada perceives a product to present an unacceptable level of risk, it can also impose fines and jail terms.
The advertising of drugs and NHPs in Canada also is regulated under the misleading advertising and deceptive marketing practices of the Competition Act (Canada), a federal statute. The labeling of products also may be regulated under the federal Consumer Packaging and Labelling Act (Canada) and also under certain provincial statutes. Both the Competition Act and the Consumer Packaging and
Labelling Act (except in respect of food products) are administered by the federal Competition Bureau.
See ‘‘Item 1A. Risk Factors—Risks Relating to Our Business—Complying with new and existing government regulation, both in the United States and abroad, could increase our costs significantly, reduce our growth prospects and adversely affect our financial results,’’ for additional information.
China
In China, the packaging, labeling, importation, advertising, distribution and sale of our products are primarily subject to the Food Safety Law, the Imported and Exported Goods Inspection Law, the
Product Quality Law, the Law on the Protection of Consumer Rights and Interests and the Advertising
Law, as well as various administrative regulations, rules, orders and policies issued by the national and local government agencies regarding food regulation including the Regulations on Implementation of
Food Safety Law, Regulatory Measures on Labeling of Imported & Exported Foods, General Standards for the Labeling of Prepackaged Foods For Special Dietary Uses, Guidelines for Labeling Inspection of
Imported & Exported Foods, Regulations on Food Advertising, Health Food Regulations, Health Food
Registration Regulations, and Regulatory Measures on Health Food Advertising (collectively ‘‘PRC
Food Regulations’’).
On June 30, 2014, the Standing Committee of the National People’s Congress (‘‘NPC’’) published for public comment a draft amendment of the Food Safety Law (the ‘‘Food Safety Law Amendment’’).
With respect to ‘‘health food’’ products, the Food Safety Law Amendment is intended to establish both
‘‘registration’’ and ‘‘notification’’ based systems depending on the type of health food product. Health food products that contain new health food ingredients or are imported into China for the first time will be subject to registration with the China Food and Drug Administration (‘‘CFDA’’). All other health food products will be subject to a notification process with the provincial-level food and drug regulatory authorities. Although the public comment period has ended, the draft Food Safety Law
Amendment is still under discussion among lawmakers of the Standing Committee of the NPC.
Currently, the National Health and Family Planning Commission (‘‘NHFPC’’), the General
Administration of Quality Supervision, Inspection and Quarantine (‘‘AQSIQ’’), the CFDA, the State
Administration for Industry and Commerce (‘‘SAIC’’) and their local counterparts have the power and responsibility for the implementation and enforcement of the PRC Food Regulations. In particular, the
NHFPC is responsible for enacting food safety standards, publishing food safety information and coordinating with other agencies to handle major food safety incidents. The AQSIQ (mostly through its local counterparts) is responsible for inspection and regulation of the imported food as well as quality inspection and control. The SAIC (mostly through its local counterparts) is responsible for regulating the advertising of food. The CFDA (together with its local counterparts) is responsible for examination and approval of the registration, labeling, advertising and supervision of health foods (including imported health foods).
The PRC Food Regulations require that imported food conform to the national food safety standards and be subject to inspection by the AQSIQ and its local counterparts. After passing the inspection and obtaining a sanitation registration certificate issued by the AQSIQ or its local counterparts, food products can be imported into China and then distributed in the China market.
The PRC Food Regulations also require packaging for food imported into China to have labels and instructions in Chinese showing specific information, such as the name, list of ingredients and

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quantitative labeling of ingredients, energy and nutrients, place of origin, name and address of the domestic importer or distributor, production date, date of minimum durability, storage instructions, instructions for use and target population group, but any claims as to prevention, alleviation, treatment or cure of a disease or use of a drug’s name implying the treatment and functional effects must not appear in the labeling.
China currently is implementing a stricter inspection system for health foods. To the extent that some of our products may be deemed to be health foods, we may have to comply with the special regulations and rules applicable to health foods. For example, in addition to AQSIQ’s inspection and labeling requirement, the PRC Food Regulations could require us to apply for registration of health foods with the CFDA and obtain a Health Food Import Approval Certificate. Furthermore, advertisement about any health food would be reviewed and approved by the CFDA before placement or publication.
The AQSIQ, the SAIC, the CFDA and their local counterparts can perform routine and unannounced inspections of importers and distributors in the food industry to ensure compliance with the PRC Food Regulations. In recent years, these government agencies have jointly taken numerous inspection and enforcement actions to deal with illegal practices in the food market and promote sound development of food industry in China. The enforcement actions have often resulted in correction orders, monetary penalties, revocation of business licenses or approval certificates, or suspension of import decisions imposed by such agencies for non-compliance.
Since the beginning of 2014, the CFDA, AQSIQ, their local counterparts and certain ports of entry have strengthened overall administration on ‘‘special forms of food products’’ which mainly target dietary supplement products in the form of tablets and capsules that have not obtained certain registrations related to health foods (‘‘blue hat’’ registrations) from the CFDA. It is expected that the
Food Safety Law Amendment will clarify the registration requirements for ‘‘health food’’ products and create a more streamlined and simplified registration system compared to the ‘‘blue hat’’ registration system that is currently in place with respect to certain products. However, the CFDA and AQSIQ may continue to take actions that can adversely impact our ability to import products into China and our overall business operations in China.
In addition, even though it is expected that the Food Safety Law Amendment will simplify the regulatory registration procedures for certain products; products with high potency or containing sensitive ingredients are likely to face a more aggressive enforcement environment in the future, which could result in recalls or discontinuance of certain products, reformulation or relabeling of certain products and other new standards and requirements, which could negatively affect our consolidated financial position, results of operation and cash flows.
Environmental Regulation
Our facilities and operations, in common with those of similar industries making similar products, are subject to many federal, state, provincial and local requirements, rules and regulations relating to the protection of the environment and of human health and safety, including those regulating the discharge of materials into the environment. We continually examine ways to reduce our emissions, minimize waste and limit our exposure to any liabilities, as well as decrease costs related to environmental compliance. Costs to comply with current and anticipated environmental requirements, rules and regulations and any estimated capital expenditures for environmental control facilities are not anticipated to be material when compared with overall costs and capital expenditures. Accordingly, we do not anticipate that such costs will have a material effect on our financial position, results of operations, cash flows or competitive position.

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International Operations
We market nutritional supplement products through subsidiaries, distributors, retailers and e-commerce in approximately 100 countries throughout Europe, the Middle East, Africa, Central
America, North America, South America, Asia, the Caribbean islands and the Pacific Rim countries.
We conduct our international operations to conform to local variations, economic realities, market customs, consumer habits and regulatory environments. We modify our products (including labeling of such products) and our distribution and marketing programs in response to local and foreign legal requirements and customer preferences.
Our international operations are subject to many of the same risks our domestic operations face.
These include competition and the strength of the relevant economy. In addition, international operations are subject to certain risks inherent in conducting business abroad, including foreign regulatory restrictions, fluctuations in monetary exchange rates, import-export controls and the economic and political policies of foreign governments. Government regulations in foreign countries may prevent or delay the introduction, or require the reformulation, of certain of our products.
Compliance with such foreign governmental regulations is generally the responsibility of our distributors in those countries. These distributors are independent contractors whom we do not control.
The importance of these risks increases as our international operations grow and expand. Foreign currency fluctuations, and, more particularly, changes in the value of the British pound sterling, the euro, the Canadian dollar and the Chinese renminbi as compared to the U.S. dollar, affect virtually all our international operations.
See Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations,’’ for additional information regarding the geographic areas in which we conduct our business and the effect of foreign currency exchange rates on our operations.
Trademarks and Patents
General
We own trademarks registered with the U.S. Patent and Trademark Office (the ‘‘PTO’’) and many foreign jurisdictions for our Nature’s Bounty↧, Body Fortress↧, Balance Bar↧, Pure Protein↧, Ester-C↧,
Solgar↧, MET-Rx↧, American Health↧, Osteo Bi-Flex↧, Sundown↧, Worldwide Sport Nutrition↧,
Puritan’s Pride↧, Holland & Barrett↧, Vitamin World↧ and Leiner↧ trademarks, among others, and with the appropriate United Kingdom, EU, Benelux, Canadian and Irish authorities for our Holland &
Barrett↧, De Tuinen↧, SISU↧, Nature’s Way↧ and Essenza↧ trademarks, respectively, among others. We have an exclusive license to use the GNC mark in the United Kingdom. Our policy is to pursue registrations for all trademarks associated with our key products. U.S. registered trademarks have a perpetual life, as do trademarks in most other jurisdictions, as long as they are renewed on a timely basis and used properly as trademarks, subject to the rights of third parties to seek cancellation of the trademarks. We regard our trademarks and other proprietary rights as valuable assets and believe they have significant value in marketing our products. We hold U.S. and foreign patents on inventions embodied in certain products, including Ester-C↧ products.
We have developed many brand names, trademarks and other intellectual property for products in all areas. We consider the overall protection of our patent, trademark, license and other intellectual property rights to be paramount. As such, we vigorously protect these rights against infringement. We have approximately 2,400 trademark registrations and applications with the PTO or foreign trademark offices. We hold approximately 50 patents and patent applications in the United States and in certain other countries, most of which relate to Ester-C↧. We also are prosecuting a patent application on
Ester-C↧ compositions in the EU. U.S. patents for Ester-C↧ expire June 2019. Most foreign patents for

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Ester-C↧ products expire between February 2019 and June 2021, with a large number of foreign patents expiring in 2019.
Canada
Each of our Solgar, Vita Health, Nature’s Bounty, MET-Rx and SISU subsidiaries owns the trademarks registered in Canada for its respective brand.
United Kingdom/Ireland
Our Holland & Barrett subsidiary owns trademarks registered in the United Kingdom and in the
EU for its Holland & Barrett↧ trademark, and has rights to use other names essential to its business.
NBTY Europe Limited uses GNC trademarks under an exclusive license in the United Kingdom and these trademarks are considered essential to the business. Our Nature’s Way subsidiary owns the
Nature’s Way↧ trademarks in Ireland. One of our Solgar subsidiaries owns trademarks in the United
Kingdom and in the EU.
Benelux
Our De Tuinen subsidiary owns trademarks registered in the Benelux Office for Intellectual
Property, and Community Trademarks, which are in force throughout the EU, for its De Tuinen↧ trademarks and our Essenza subsidiary owns a Community Trademark and a trademark registered in the Benelux Office for Intellectual Property.
China
We own trademark applications and registrations for most of our material trademarks, which are filed with the Chinese Trademark Office. We also own patents for Ester-C↧ compositions, issued by the
Chinese Patent Office.
Raw Materials
In fiscal 2014, we spent approximately $789 million on raw materials (approximately $709 million domestically), excluding packaging and similar product materials. The principal raw materials required in our operations are vitamins, minerals, herbs and gelatin. We believe that there are adequate sources of supply for all our principal raw materials, and in general we maintain two to three suppliers for many of our raw materials. From time to time, weather or unpredictable fluctuations in the supply and demand may affect price, quantity, availability or selection of raw materials. We believe that our strong relationships with our suppliers yield high quality, competitive pricing and overall good service to our customers. Although we cannot be sure that our sources of supply for our principal raw materials will be adequate in all circumstances, we believe that we can develop alternate sources in a timely and cost effective manner if our current sources become inadequate. During fiscal 2014, no one supplier accounted for more than 10% of our raw material purchases. Due to the availability of numerous alternative suppliers, we do not believe that the loss of any single supplier would have a material adverse effect on our consolidated financial condition or results of operations.
For a description of the impact of seasonality on our financial performance, please see Item 7,
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Seasonality.’’

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Item 1A.

Risk Factors

Please carefully consider the following risk factors, which could materially adversely affect our business, financial condition, operating results and cash flows. The risk factors described below are not the only ones we face. Risks and uncertainties not known to us currently, or that may appear immaterial, also may have a material adverse effect on our business, financial condition, operating results and cash flows.
Risks Relating to Our Business
Unfavorable publicity or consumer perception of our products and any similar products distributed by other companies could have a material adverse effect on our business.
We believe the nutritional supplement market is highly dependent upon consumer perception regarding the safety, efficacy and quality of nutritional supplements generally, as well as of products distributed specifically by us. Consumer perception of our products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, national media attention and other publicity regarding the consumption of nutritional supplements. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the nutritional supplement market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for our products and our business, results of operations, financial condition and cash flows. Our dependence upon consumer perceptions means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or with merit, could have a material adverse effect on us, the demand for our products, and our business, results of operations, financial condition and cash flows. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of nutritional supplements in general, or our products specifically, or associating the consumption of nutritional supplements with illness, could have such a material adverse effect. Such adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately or as directed.
Our success is linked to the size and growth rate of the vitamin, mineral and supplement market and an adverse change in the size or growth rate of that market could have a material adverse effect on us.
An adverse change in size or growth rate of the vitamin, mineral and supplement market could have a material adverse effect on us. Underlying market conditions are subject to change based on economic conditions, consumer preferences and other factors that are beyond our control, including media attention and scientific research, which may be positive or negative.
Our ability to obtain additional capital on commercially reasonable terms may be limited or non-existent.
Although we believe our cash, cash equivalents and short-term investments, as well as future cash from operations and availability under NBTY’s revolving credit facility, provide adequate resources to fund ongoing operating requirements for the foreseeable future, we may need to seek additional financing to compete effectively.
If we are unable to obtain capital or obtain capital on commercially reasonable terms, it could:
• reduce funds available to us for purposes such as working capital, capital expenditures, research and development, strategic acquisitions and other general corporate purposes;
• restrict our ability to introduce new services or products or exploit business opportunities;

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• increase our vulnerability to economic downturns and competitive pressures in the markets in which we operate; and
• place us at a competitive disadvantage.
Difficult and volatile conditions in the capital, credit and commodities markets and in the overall economy could materially adversely affect our financial position, results of operations and cash flows.
Our financial position, results of operations and cash flows could be materially adversely affected by difficult conditions and volatility in the capital, credit and commodities markets and in the overall economy. Difficult conditions in these markets and the overall economy affect our business in a number of ways. For example:
• under difficult market conditions there can be no assurance that borrowings under our revolving credit facility would be available or sufficient, and in such a case, we may not be able to successfully obtain additional financing on reasonable terms, or at all;
• in order to respond to market conditions, we may need to seek waivers of various provisions in
NBTY’s senior secured credit facilities, and we might not be able to obtain such waivers on reasonable terms, if at all; and
• market conditions could result in our key customers experiencing financial difficulties and/or electing to limit spending because many consumers consider the purchase of our products discretionary, which in turn could result in decreased sales and earnings for us.
Because a substantial majority of our sales are to or through retail stores, we are dependent to a large degree upon the success of this channel as well as the success of specific retailers in the channel.
Approximately 60% of our sales for fiscal 2014 were in the United States. In this market, we sell our products primarily to or through our retail stores and third-party retail stores. Because of this, we are dependent to a large degree upon the growth and success of that channel as well as the growth and success of specific retailers in the channel, which are outside our control. There can be no assurance that the retail channel will be able to grow as it faces price and service pressure from other channels.
One of our customers accounted for 11% of our consolidated net sales during fiscal 2014 and the loss of this customer, or any of our other major customers, could have a material adverse effect on our results of operations. During fiscal 2014 and 2013, Wal-Mart, individually, accounted for 19% and 21% of our Wholesale segment’s net sales, respectively, and 11% and 13% of our consolidated net sales, respectively. As of the end of fiscal 2014, Wal-Mart, individually, accounted for 13% of our Wholesale segment’s total gross accounts receivable. Additionally, for fiscal 2014, our other top three wholesale customers collectively accounted for approximately 28%, of our Wholesale segment’s net sales and 17% of our consolidated net sales. We do not have a long-term contract with Wal-Mart or any other major customer, and the loss of this customer or any other major customer could have a material adverse effect on our results of operations. In addition, our results of operations and ability to service our debt obligations would be impacted negatively to the extent Wal-Mart is unable to make payments to us, or does not make timely payments on outstanding accounts receivables.
Complying with new and existing government regulation, both in the United States and abroad, could increase our costs significantly, reduce our growth prospects and adversely affect our financial results.
The processing, formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by several U.S. federal agencies, including the FDA, the FTC, the CBP, the USPS, the CPSC, the Department of Agriculture, OSHA and the EPA, as well as various

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state, local and international laws and agencies of the localities in which our products are sold, including Health Canada and the Competition Bureau in Canada, the Food Standards Agency (‘‘FSA’’) and the Department of Health in the United Kingdom and similar regulators in Ireland, the
Netherlands, the EU and China. Government regulations may prevent or delay the introduction, or require the reformulation or relabeling, of our products. Some agencies, such as the FDA, could require us to remove a particular product from the market, delay or prevent the import of raw materials for the manufacture of our products, or otherwise disrupt the marketing of our products. Any such government actions would result in additional costs to us, including lost revenues from any additional products that we are required to remove from the market, which could be material. Any such government actions also could lead to liability, substantial costs and reduced growth prospects. In addition, complying with the AER Act, GMPs and other legislation may impose additional costs on us, which could become significant. Moreover, there can be no assurance that new laws or regulations imposing more stringent regulatory requirements on the dietary supplement industry will not be enacted or issued or that certain agencies will not enforce the existing laws or regulations more strictly.
We currently are subject to FTC consent decrees and a USPS consent order, prohibiting certain advertising claims for certain of our products. We also are subject to consent judgments under
Proposition 65. A determination that we have violated these obligations could result in substantial monetary penalties, which could have a material adverse effect on our business, results of operations, financial condition and cash flows. In addition, we could incur costs as a result of violations of or liabilities hereunder, environmental laws and regulations, or to maintain compliance with such environmental laws, regulations or permit requirements.
Additional or more stringent regulations and enforcement of dietary supplements and other products have been considered from time to time in the United States and globally. These developments could require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, adverse event reporting or other new requirements. These developments also could increase our costs significantly.
In the United Kingdom, an application for judicial review was submitted to the High Court of
Justice in 2013 on behalf of a holder of an EU-wide medicinal license for certain glucosamine products.
The application sought an order that the MHRA should remove food supplement (‘‘FS’’) status for all glucosamine products or, alternatively, remove the FS status of glucosamine-based products having dosages at levels equal to or above the licensed equivalents. The MHRA robustly defended the case and the application was rejected by the High Court in June 2014—as was a subsequent application to the High Court for leave to appeal. However, the applicant is now seeking leave to appeal by applying to the Court of Appeal itself. If such leave is granted and the applicant’s appeal ultimately succeeds, there may be a material negative impact on the sales of numerous glucosamine-based products currently being sold by our retail stores in the United Kingdom.
In Europe, we anticipate the enactment of legislation that could significantly impact the formulation and marketing of our products. For example, in accordance with the Supplements
Directive, maximum permitted content levels for vitamin and mineral supplements are expected to be enacted but have not yet been announced. European legislation regulating food supplements other than vitamins and minerals also is expected to be introduced. The introduction of this anticipated legislation could require us to reformulate our existing products to meet the new standards and, in some cases, may lead to some products being discontinued.
The Nutrition and Health Claims Regulation implemented in July 2007 controls the types of claims that can be made for foodstuffs (including supplements) in Europe, and the criteria a product must meet for the claims to be made. Except in relation to botanical products, after December 14, 2012, only

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certain permitted health claims can be made for foodstuffs, and this may impact our sales of those products in Europe.
In addition, the General Product Safety Directive governing product safety came into force in
Europe at the beginning of 2004. This legislation requires manufacturers to notify regulators as soon as they know that a product is unsafe and gives regulators in each EU member state the power to order a product recall and, if necessary, instigate the product recall themselves. A recall of any of our products in Europe could have a material adverse effect on our business, results of operations, financial condition and cash flows.
In China, the Food Safety Law, which replaced prior regulations, came into force on June 1, 2009.
This legislation requires all imported food to comply with applicable national food safety standards and subjects it to inspection by the AQSIQ. Where there are no national food safety standards for some imported food, the NHFPC approval must be obtained before applying for the inspection; otherwise the food in question cannot be imported into China. The revision of the national food safety standards by the NHFPC and other government agencies is in progress and various new and updated standards are expected to be promulgated and implemented by the end of 2015. The introduction of these new food safety standards may require us to reformulate our existing products to meet the new standards and in some cases, may lead to some products being discontinued.
The Food Safety Law also requires overseas food manufacturers to register with AQSIQ or its local counterparts, which must establish records of the credit standing of importers, exporters and manufacturers of imported goods. The imported foods, importers, exporters or manufacturers with unsatisfactory records are subject to stricter inspection or even suspension of their import business. Any restriction or suspension of import of any of our products into China could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The Food Safety Law provides for strict regulation and supervision over food claimed to have particular effects on human health, namely health food, which is mainly subject to the regulation by the
CFDA. To the extent AQSIQ or CFDA determines some of our products fall into this category, the manufacture, exportation, importation and sale of such products could be subject to the more complicated registration and licensing requirements, and stricter inspection by CFDA and AQSIQ. We are in the process of applying for registration of certain of our products as health food to meet applicable requirements for manufacture and export of such products, however, the timing and successful completion of such registrations are uncertain due to the shifting landscape for registration of such products in China, as further explained immediately below.
On June 30, 2014, the Standing Committee of the NPC published for public comment the Food
Safety Law Amendment. With respect to health food products, the Food Safety Law Amendment is intended to establish both ‘‘registration’’ and ‘‘notification’’ based systems depending on the type of health food product. Health food products that contain new health food ingredients or are imported into China for the first time will be subject to registration with the CFDA. All other health food products will be subject to a notification process with the provincial-level food and drug regulatory authorities. Although the public comment period has ended, the draft Food Safety Law Amendment is still under discussion among lawmakers of the Standing Committee of NPC.
AQSIQ promulgated the Imported and Exported Food Safety Regulatory Measures on July 22,
2011, which provide for detailed safety and inspection requirements applicable to imported and exported food. These regulations became effective on March 1, 2012 and require us to go through complicated procedures for importing and exporting our products into and from China.
Since the beginning of 2014, the CFDA, AQSIQ, their local counterparts and certain ports of entry have strengthened overall administration on ‘‘special forms of food products’’ which mainly target dietary supplement products in the form of tablets and capsules that have not obtained certain

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registrations related to health foods (the ‘‘blue hat’’ registrations) from the CFDA. It is expected that the Food Safety Law Amendment will clarify the registration requirements for ‘‘health food’’ products and create a more streamlined and simplified registration system compared to the ‘‘blue hat’’ registration system that is currently in place with respect to certain of these products. However, the
CFDA and AQSIQ may continue to take actions that can adversely impact our ability to import products into China and have a material adverse effect on our business, financial condition, results of operations and cash flows.
See ‘‘Item 1. Business—Government Regulation’’ for more information about the regulatory environment in which we conduct our business.
We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues and operating income.
As a retailer, marketer and manufacturer of products designed for human and animal consumption, we are subject to product liability claims if the use of our products is alleged to have resulted in injury. Our products consist of vitamins, minerals, herbs and other ingredients that are classified as foods, dietary supplements, or NHPs, and, in most cases, are not necessarily subject to pre-market regulatory approval in the United States. One of our Canadian subsidiaries also manufactures and sells non-prescription medications such as headache and cold remedies and contract manufactures some prescription medications. Some of our products contain innovative ingredients that do not have long histories of human consumption. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. In addition, some of the products we sell are produced by third-party manufacturers. As a marketer of products manufactured by third parties, we also may be liable for various product liability claims for products we do not manufacture. We have been in the past, and may be in the future, subject to various product liability claims, including, among others, that our products include inadequate instructions for use or inadequate warnings concerning possible side effects and interactions with other substances. A product liability claim against us could result in increased costs and could adversely affect our reputation with our customers, which, in turn, could have a material adverse effect on our business, results of operations, financial condition and cash flows. See Item 3, ‘‘Legal Proceedings,’’ for additional information.
If we experience product recalls, we may incur significant and unexpected costs, and our business reputation could be adversely affected.
We may be exposed to product recalls and adverse public relations if our products are mislabeled or alleged to cause injury or illness, or if we are alleged to have violated governmental regulations. A product recall could result in substantial and unexpected expenditures, which would reduce operating profit and cash flow. In addition, a product recall may require significant management attention.
Product recalls may hurt the value of our brands and lead to decreased demand for our products.
Product recalls also may lead to increased scrutiny by federal, state or international regulatory agencies of our operations and increased litigation and could have a material adverse effect on our business, results of operations, financial condition and cash flows. See ‘‘—Complying with new and existing government regulation, both in the United States and abroad, could increase our costs significantly, reduce our growth prospects and adversely affect our financial results’’ and other risks summarized in this Report.
Insurance coverage, even where available, may not be sufficient to cover losses we may incur.
Our business exposes us to the risk of liabilities arising from our operations. For example, we may be liable for claims brought by users of our products or by employees, customers or other third parties for personal injury or property damage occurring in the course of our operations. We seek to minimize these risks through various insurance contracts from third-party insurance carriers. However, our

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insurance coverage is subject to large individual claim deductibles, individual claim and aggregate policy limits, and other terms and conditions. We retain an insurance risk for the deductible portion of each claim and for any gaps in insurance coverage. We do not view insurance, by itself, as a material mitigant to these business risks.
We cannot assure that our insurance will be sufficient to cover our losses. Any losses that insurance does not substantially cover could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The insurance industry has become more selective in offering some types of coverage and we may not be able to obtain insurance coverage in the future.
The insurance industry has become more selective in offering some types of insurance, such as product liability, product recall, property and directors’ and officers’ liability insurance. Our current insurance program is consistent with both our past level of coverage and our risk management policies.
However, we cannot assure that we will be able to obtain comparable insurance coverage on favorable terms, or at all, in the future.
International markets expose us to certain risks.
As of September 30, 2014, we operated 1,016 retail stores outside of the United States, including
89 franchised stores. In addition, we had significant wholesale sales outside of the United States. For fiscal 2014, international sales represented approximately 40% of our net sales. These international operations expose us to certain risks, including:
• local economic conditions;
• inflation;
• changes in or interpretations of foreign regulations that may limit our ability to sell certain products or repatriate profits or capital to the United States;
• exposure to currency fluctuations;
• potential imposition of trade or foreign exchange restrictions or increased tariffs;
• changes and limits in export and import controls;
• difficulty in collecting international accounts receivable;
• difficulty in staffing, developing and managing foreign operations;
• potentially longer payment cycles;
• difficulties in enforcement of contractual obligations and intellectual property rights;
• renegotiation or modification of various agreements;
• national and regional labor strikes;
• increased costs in maintaining international manufacturing and marketing efforts;
• quarantines for products or ingredients, or restricted mobility of key personnel due to disease outbreaks; • government regulations and laws;
• geographic time zone, language and cultural differences between personnel in different areas of the world;
• political instability;

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• trademarks availability and registration issues;
• changes in exchange rates;
• changes in taxation; and
• wars and other hostilities.
As we continue to expand our international operations, these and other risks associated with international operations are likely to increase. These risks, if they occur, could have a material adverse effect on our business and results of operations.
Our international operations require us to comply with anti-corruption laws and regulations of the U.S. government and various international jurisdictions in which we do business.
Doing business on a worldwide basis requires us and our subsidiaries to comply with the laws and regulations of the U.S. government and various international jurisdictions, and our failure to successfully comply with these rules and regulations may expose us to liabilities. These laws and regulations apply to companies, individual directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act (‘‘FCPA’’) and the U.K. Bribery Act (‘‘UKBA’’). The FCPA prohibits us from providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment, and requires us to maintain adequate record-keeping and internal accounting practices to accurately reflect our transactions. As part of our business, we may deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA and UKBA.
In addition, some of the international locations in which we operate lack a developed legal system and have elevated levels of corruption. As a result of the above activities, we are exposed to the risk of violating anti-corruption laws. Violations of these legal requirements are punishable by criminal fines and imprisonment, civil penalties, disgorgement of profits, injunctions, debarment from government contracts as well as other remedial measures. We have established policies and procedures designed to assist us and our personnel in complying with applicable U.S. and international laws and regulations.
However, there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, and such a violation could adversely affect our reputation, business, financial condition and results of operations.
We may not be successful in expanding globally.
We may experience difficulty entering new international markets due to regulatory barriers, the necessity of adapting to new regulatory systems, and problems related to entering new markets with different cultural bases and political systems. These difficulties may prevent, or significantly increase the cost of, our international expansion.
We may be exposed to legal proceedings 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 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. Our failure to comply with applicable legislation could occur from time

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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. See ‘‘Item 1. Business—Government
Regulation’’ for additional information.
We may not be successful in our future acquisition endeavors, if any, which may have an adverse effect on our business and results of operations.
Historically, we have engaged in substantial acquisition activity. We may be unable to identify suitable targets, opportunistic or otherwise, for acquisition in the future. If we identify a suitable acquisition candidate, our ability to successfully implement the acquisition will depend on a variety of factors, including our ability to obtain financing on acceptable terms and to comply with the restrictions contained in our debt agreements. Historical instability in the financial markets indicates that obtaining future financing to fund acquisitions may present significant challenges. If we need to obtain our lenders’ consent to an acquisition, they may condition their consent on our compliance with additional restrictive covenants that may limit our operating flexibility. Acquisitions involve risks, including:
• significant expenditures of cash;
• the risk that acquired businesses may not perform in accordance with expectations;
• risks associated with integrating the operations, financial reporting, disparate technologies and personnel of acquired companies;
• managing geographically dispersed operations;
• diversion of management’s attention from other business concerns;
• the inherent risks in entering markets or lines of business in which we have either limited or no direct experience;
• the potential loss of key employees, customers and strategic partners of acquired companies;
• incurrence of liabilities and claims arising out of acquired businesses;
• inability to obtain financing; and
• incurrence of indebtedness or issuance of additional stock.
We may not integrate any businesses or technologies we acquire in the future successfully and may not achieve anticipated operating efficiencies and effective coordination of sales and marketing as well as revenue and cost benefits. Acquisitions may be expensive, time consuming and may strain our resources. Acquisitions may impact our results of operations negatively as a result of, among other things, the incurrence of debt.
We are dependent on our executive officers and other key personnel, and we may not be able to pursue our current business strategy effectively if we lose them.
Our continued success will depend largely on the efforts and abilities of our executive officers and certain other key employees. For additional information about these individuals, see Item 10,
‘‘Directors, Executive Officers and Corporate Governance’’ elsewhere in this Report. Our ability to manage our operations and meet our business objectives could be affected adversely if, for any reason, we are unable to recruit and retain executive talent.
We are dependent on certain third-party suppliers.
We purchase from third-party suppliers certain important ingredients and raw materials. The principal raw materials required in our operations are vitamins, minerals, herbs, gelatin and packaging components. We purchase the majority of our vitamins, minerals and herbal raw materials from

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manufacturers and distributors globally. Real or perceived quality control problems with raw materials outsourced from certain regions could negatively impact consumer confidence in our products, or expose us to liability. In addition, although raw materials are available from numerous sources, an unexpected interruption of supply or material increases in the price of raw materials, for any reason, such as changes in economic and political conditions, tariffs, trade disputes, regulatory requirements, import restrictions, loss of certifications, power interruptions, fires, hurricanes, drought or other climate-related events, war or other events, could have a material adverse effect on our business, results of operations, financial condition and cash flows. Also, currency fluctuations, including the decline in the value of the U.S. dollar, could result in higher costs for raw materials purchased abroad. In addition, we rely on outside printing services and availability of paper stock in our printed catalog operations. We rely on our manufacturing operations to produce the vast majority of the nutritional supplements that we sell, and disruptions in our manufacturing system or losses of manufacturing certifications could affect our results of operations adversely.
During fiscal 2014, we manufactured approximately 87% of the nutritional supplements that our
Wholesale segment sold. We currently operate manufacturing facilities in Arizona, California, Florida,
New Jersey, New York and Texas in the United States, and in Canada, the United Kingdom and China.
All our domestic and foreign operations manufacturing products for sale to the United States are subject to GMPs promulgated by the FDA and other applicable regulatory standards, including in the areas of environmental protection and worker health and safety. We are subject to similar regulations and standards in Canada, the United Kingdom and China. Any significant disruption in our operations at any of these facilities, including any disruption due to any regulatory requirement, could affect our ability to respond quickly to changes in consumer demand and could have a material adverse effect on our business, results of operations, financial condition and cash flows. Additionally, we may be exposed to risks relating to the transfer of work between facilities or risks associated with opening new facilities or closing existing facilities that may cause a disruption in our operations. There have been a number of well-publicized incidents of tainted food and drugs manufactured in foreign countries such as China in the past few years. Although we have implemented GMPs in our facilities, there can be no assurance that products manufactured in our other plants around the world, will not be contaminated or otherwise fail to meet our quality standards. Any such contamination or other quality failures could result in costly recalls, litigation, regulatory actions or damage to our reputation, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We operate in a highly competitive industry, and our failure to compete effectively could affect our market share, financial condition and growth prospects adversely.
The VMHS industry is a large and growing industry and is highly fragmented in terms of both geographical market coverage and product categories. The market for vitamins and other nutritional supplements is highly competitive in all our channels of distribution. We compete with companies that may have broader product lines or larger sales volumes, or both, than we do, and our products compete with nationally advertised brand name products. Several of the national brand companies have resources greater than ours. Numerous companies compete with us in the development, manufacture and marketing of vitamins and nutritional supplements worldwide. In addition, our North American and European retail stores compete with specialty vitamin stores, health food stores and other retail stores worldwide. With respect to mail order sales, we compete with a large number of smaller mail order and internet companies, some of which manufacture their own products and some of which sell products manufactured by others. The market is highly sensitive to the introduction of new products, which may rapidly capture a significant share of the market. We also may face competition from low-cost entrants to the industry, including from international markets. Increased competition from companies that distribute through the wholesale channel, especially the private label market, could have

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a material adverse effect on our business, results of operations, financial condition and cash flows as these competitors may have greater financial and other resources available to them and possess extensive manufacturing, distribution and marketing capabilities far greater than ours.
We may not be able to compete effectively in some or all our markets, and our attempt to do so may require us to reduce our prices, which may result in lower margins. Failure to compete effectively could have a material adverse effect on our market share, business, results of operations, financial condition, cash flows and growth prospects. See ‘‘Item 1. Business—Competition; Customers.’’
Our failure to appropriately respond to changing consumer preferences and demand for new products and services could harm our customer relationships and product sales significantly.
The nutritional supplement industry is characterized by rapid and frequent changes in demand for products and new product introductions. Our failure to accurately predict these trends could negatively impact consumer opinion of us as a source for the latest products, which, in turn, could harm our customer relationships and cause decreases in our net sales. The success of our new product offerings depends upon a number of factors, including our ability to:
• accurately anticipate customer needs;
• innovate and develop new products;
• successfully commercialize new products in a timely manner;
• price our products competitively;
• manufacture and deliver our products in sufficient volumes and in a timely manner; and
• differentiate our product offerings from those of our competitors.
In addition, we are subject to the risk of a potential shift in customer demand towards more private label products, which could have an adverse effect on our profitability. If any new products fail to gain market acceptance, are restricted by regulatory requirements or have quality problems, this would harm our results of operations. If we do not introduce new products or make enhancements to meet the changing needs of our customers in a timely manner, some of our products could be rendered obsolete, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We are subject to acts of God, war, sabotage and terrorism risk.
Acts of God, war, sabotage and terrorist attacks or any similar risk may affect our operations in unpredictable ways, including disruptions of the shopping and commercial behavior of our customers, changes in the insurance markets and disruptions of fuel supplies and markets.
We may be subject to work stoppages at our facilities, which could negatively impact the profitability of our business. As of September 30, 2014, we had approximately 13,500 employees. As of September 30, 2014,
CAW Local 468, Retail Wholesale Canada Division represented approximately 290 of our associates in
Canada under a collective bargaining agreement. If our employees were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant disruption of our operations, which could interfere with our ability to deliver products on a timely basis and could have other negative effects, such as decreased productivity and increased labor costs. Any interruption in the delivery of our products could reduce demand for our products and could have a material adverse effect on us.

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We may be affected adversely by increased raw material, utility and fuel costs.
Inflation and other factors affect the cost of raw materials, goods and services we use. Increased raw material and other costs may adversely affect our results of operations to the extent we are unable to pass these costs through to our customers or to benefit from offsetting cost reductions in the manufacture and distribution of our products. Furthermore, increasing fuel costs may affect our results of operations adversely in that consumer traffic to our retail locations may be reduced and the costs of our sales may increase as we incur fuel costs in connection with our manufacturing operations and the transportation of goods from our warehouse and distribution facilities to stores or direct response/ e-commerce customers. Also, high oil costs can affect the cost of our raw materials and components and the competitive environment in which we operate may limit our ability to recover higher costs resulting from rising fuel prices.
Our profits may be affected negatively by currency exchange rate fluctuations.
Our assets, earnings and cash flows are influenced by currency fluctuations due to the geographic diversity of our sales and the countries in which we operate. These fluctuations may have a significant impact on our financial results. For fiscal 2014, 35% of our sales were denominated in a currency other than the U.S. dollar, and as of fiscal 2014, 27% of our assets and 6% of our total liabilities were denominated in a currency other than the U.S. dollar. We have entered into various cross currency swap transactions. See ‘‘Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Quantitative and Qualitative Disclosures About Market Risk.’’
Our success is dependent on the accuracy, reliability, and proper use of sophisticated and dependable information processing systems and management information technology and any interruption in these systems could have a material adverse effect on our business, financial condition, and results of operations.
Our success is dependent on the accuracy, reliability, and proper use of sophisticated and dependable information processing systems and management information technology. Our information technology systems are designed and selected to facilitate order entry and customer billing, maintain customer records, accurately track purchases and incentive payments, manage accounting, finance and manufacturing operations, generate reports, and provide customer service and technical support. Any interruption in these systems or any interruption associated with the transition of these systems to a new information technology platform could have a material adverse effect on our business, financial condition, and results of operations.
System interruptions or security breaches may affect sales.
Customer access to, and ability to use, our websites affects our Direct Response/E-Commerce sales, in addition to online sales within our European Retail and North American Retail segments. If we are unable to maintain and continually enhance the efficiency of our systems, we could experience system interruptions or delays that could affect our operating results negatively. In addition, we could be liable for breaches of security on our websites, loss or misuse of our customers’ personal information or payment data. Although we have developed systems and processes that are designed to protect consumer information and prevent fraudulent credit card transactions and other security breaches, failure to prevent or mitigate such fraud or breaches may negatively affect our operating results. 28

We must successfully maintain and/or upgrade our information technology systems, and our failure to do so could have a material adverse effect on our business, financial condition or results of operations.
We rely on various information technology systems to manage our operations. Recently we have implemented, and we continue to implement, modifications and upgrades to such systems and acquired new systems with new functionality. These types of activities subject us to inherent costs and risks associated with replacing and changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time and other risks and costs of delays or difficulties in transitioning to or integrating new systems into our current systems. These implementations, modifications and upgrades may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the difficulties with implementing new technology systems may cause disruptions in our business operations and have a material adverse effect on our business, financial condition or results of operations.
Our inability to protect our intellectual property rights could adversely affect our business.
Despite our efforts, we may not be able to determine the extent of unauthorized use of our trademarks and patents. In any case, such efforts are difficult, expensive, and time-consuming, and there can be no assurance that infringing goods could not be manufactured without our knowledge and consent. Many of our products are not subject to patent protection, and thus they can be legally reverse-engineered by competitors. Moreover, even with respect to some of our products that are covered by patents, such as Ester-C↧ products, there are numerous similar yet non-infringing supplement products in the marketplace, and this negatively affects sales we might otherwise make.
Our patents, or certain claims made in such patents, could be found to be invalid or unenforceable.
From time to time we face opposition to our applications to register trademarks, and we may not ultimately be successful in our attempts to register certain trademarks. Further, there can be no assurance that in those foreign jurisdictions in which we conduct business the trademark and patent protection available to us will be as extensive as the protection available to us in the United States.
Intellectual property litigation and infringement claims against us could cause us to incur significant expenses or prevent us from manufacturing, selling or marketing our products, which could adversely affect our revenues and market share.
We may be subject to intellectual property litigation and infringement claims, which could cause us to incur significant expenses or prevent us from manufacturing, selling or marketing our products in various jurisdictions. Claims of intellectual property infringement also may require us to enter into costly royalty or license agreements. However, we may be unable to obtain royalty or license agreements on terms acceptable to us or at all. Claims that our technology or products infringe on intellectual property rights of others could be costly to defend or settle, could cause reputational injury and would divert the attention of management and key personnel, which in turn could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We are party to a number of lawsuits that arise in the ordinary course of business and may become party to others in the future.
We are party to a number of lawsuits (including product liability, false advertising, intellectual property and Proposition 65 claims) that arise in the ordinary course of business and may become party to others in the future. The possibility of such litigation, and its timing, is in large part outside our control. It is possible that future litigation could arise, or developments could occur in existing litigation, that could have material adverse effects on us.

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Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business and operating results.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our business and operating results could be harmed. The Sarbanes-Oxley Act of 2002, as well as related rules and regulations implemented by the
Securities and Exchange Commission (the ‘‘SEC’’), have required changes in the corporate governance practices and financial reporting standards for public companies. These laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002, have increased our legal and financial compliance costs and made many activities more time-consuming and more burdensome. The costs of compliance with these laws, rules and regulations may adversely affect our financial results.
Moreover, we run the risk of non-compliance, which could adversely affect our financial condition or results of operations.
In the past we have discovered, and in the future we may discover, areas of our internal control over financial reporting that need improvement. We have devoted significant resources to remediate any deficiencies we discovered and to improve our internal control over financial reporting. Based upon management’s assessment of the effectiveness of our internal control over financial reporting as of
September 30, 2014, management concluded that our internal control over financial reporting was effective as of that date. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial information.
Risks Relating to Our Indebtedness
Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under the Notes and the
$1.0 billion aggregate principal amount of 7.75%/8.50% Contingent Cash Pay Senior Notes due 2017 issued by Holdings (the ‘‘Holdco Notes’’).
We have a significant amount of indebtedness. At September 30, 2014, we had $2,158 million of indebtedness on a consolidated basis (including $1,508 million of borrowings under NBTY’s senior secured credit facilities, $650 million in aggregate principal amount of Notes, and $1 million of other indebtedness), of which $1,508 million was secured indebtedness. As of September 30, 2014, after adjusting for outstanding letters of credit, NBTY also had an additional $196 million available under the revolving portion of NBTY’s senior secured credit facilities, as amended. In addition, as of
September 30, 2014, Holdings had indebtedness of $1,000 million. While NBTY has no direct obligation under the Holdco Notes, NBTY is the sole source of cash generation for Holdings. The
Holdco Notes do not appear on NBTY’s balance sheet and the related interest expense is not included in NBTY’s income statement.
Our substantial indebtedness could have important consequences. For example, it could:
• make it more difficult for NBTY to satisfy its obligations with respect to the Notes or Holdings to satisfy its obligations with respect to the Holdco Notes;
• require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund acquisitions, working capital, capital expenditures, research and development efforts and other general corporate purposes; 30

• increase our vulnerability to and limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;
• restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;
• expose us to the risk of increased interest rates as borrowings under NBTY’s senior secured credit facilities will be subject to variable rates of interest;
• expose us to additional risks related to currency exchange rates and repatriation of funds;
• place us at a competitive disadvantage compared to our competitors that have less debt; and
• limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, business development, debt service requirements, acquisitions and general corporate or other purposes.
In addition, the agreements governing NBTY’s senior secured credit facilities and the indentures governing the Notes and the Holdco Notes contain affirmative and negative covenants that limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debts.
Restrictive covenants in the indentures governing the Notes and the Holdco Notes and the credit agreement governing NBTY’s senior secured credit facilities may restrict our ability to pursue our business strategies.
The indentures governing the Notes and the Holdco Notes and the credit agreement governing
NBTY’s senior secured credit facilities limit our ability, and the terms of any future indebtedness may limit our ability, among other things, 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 our assets;
• enter into transactions with our affiliates;
• incur liens; and
• designate any of our subsidiaries as unrestricted subsidiaries.
The restrictions contained in the indentures governing the Notes and the Holdco Notes and the credit agreement governing NBTY’s senior secured credit facilities also could limit our ability to plan for, or react to, market conditions, meet capital needs or make acquisitions or otherwise restrict our activities or business plans.
A breach of any of these restrictive covenants (to the extent applicable at such time), or our inability to comply with the required financial ratios, could result in a default under the credit agreement governing NBTY’s senior secured credit facilities. If a default occurs, the lenders under
NBTY’s senior secured credit facilities may elect to:
• declare all borrowings outstanding, together with accrued interest and other fees, to be immediately due and payable; or
• prevent us from making payments on the Notes,

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either of which would result in an event of default under the indentures governing the Notes and the
Holdco Notes. An event of default under either or both of these indentures or the senior secured credit facilities would permit some of our lenders to declare all amounts borrowed from them to be due and payable. The lenders also have the right in these circumstances to terminate any commitments they have to provide further borrowings. An event of default under either of these indentures or the senior secured credit facilities would likely result in a cross default under either or both of the other instruments. If we are unable to repay outstanding borrowings when due, the lenders under NBTY’s senior secured credit facilities also have the right to proceed against the collateral, including our available cash, granted to them to secure the indebtedness. If the indebtedness under NBTY’s senior secured credit facilities, the Holdco Notes and/or the Notes were to be accelerated, we can give no assurance that our assets would be sufficient to repay in full that indebtedness and our other indebtedness, including the Notes and the Holdco Notes.
Despite current indebtedness levels and restrictive covenants, Holdings, NBTY and their subsidiaries may incur additional indebtedness in the future. This could further exacerbate the risks associated with our substantial financial leverage.
The terms of the indenture governing the Notes, the credit agreement governing NBTY’s senior secured credit facilities and the indenture governing the Holdco Notes permit us to incur a substantial amount of additional debt, including secured debt. Any additional borrowings under the senior secured credit facilities, and any other secured debt, would be effectively senior to the Holdco Notes, the Notes and any guarantees thereof to the extent of the value of the collateral securing such indebtedness. If we incur any additional indebtedness that ranks equally with the Holdco Notes and the Notes, subject to collateral arrangements, the holders of that debt will be entitled to share ratably with noteholders in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of our company. This could reduce the amount of proceeds available to be paid to noteholders. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. In addition, as of September 30, 2014, after adjusting for outstanding letters of credit,
NBTY had an additional $196 million of unused commitments under the revolving portion of NBTY’s senior secured credit facilities. Additionally, NBTY’s senior secured credit facilities may be increased by up to $500 million (of which no more than $100 million may be under NBTY’s revolving credit facility), subject to certain conditions. All of those borrowings would be secured indebtedness. If new debt is added to our and our subsidiaries’ current debt levels, the risks that we now face as a result of our leverage would intensify.
To service our indebtedness, we will require a significant amount of cash and our ability to generate cash depends on many factors beyond our control.
Our ability to make cash payments on and to refinance our indebtedness, including the Holdco
Notes and the Notes, and to fund planned capital expenditures, will depend on our ability to generate significant operating cash flow in the future. This, to a significant extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Our business may not generate sufficient cash flow from operations and future borrowings may not be available under NBTY’s senior secured credit facilities in an amount sufficient to enable us to pay our indebtedness, including the Notes and the Holdco Notes, or to fund our other liquidity needs. In such circumstances, we may need to refinance all or a portion of our indebtedness, including the Notes and the Holdco Notes, on or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable terms, or at all. If we cannot service our indebtedness, we may need to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. Such actions, if necessary, may not be effected on commercially reasonable terms or at all. The indentures governing the Notes and the

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Holdco Notes and the credit agreement governing NBTY’s senior secured credit facilities restrict our ability to sell assets and use the proceeds from such sales.
If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in the instruments governing our indebtedness
(including covenants in NBTY’s senior secured credit facilities, the indenture governing the Notes and the indenture governing the Holdco Notes), Holdco could be required to pay interest-in-kind and/or we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under NBTY’s senior secured credit facilities could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may need to obtain waivers in the future from the required lenders under NBTY’s senior secured credit facilities to avoid being in default. If we breach our covenants under NBTY’s senior secured credit facilities and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under NBTY’s senior secured credit facilities, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.
We are dependent upon our lenders for financing to execute our business strategy and meet our liquidity needs. If our lenders are unable to fund borrowings under their credit commitments or we are unable to borrow, it could negatively impact our business.
In volatile credit markets, there is a risk that any lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including but not limited to: extending credit up to the maximum permitted by NBTY’s senior secured credit facilities and otherwise accessing capital and/or honoring loan commitments. If our lenders are unable to fund borrowings under their credit commitments, or we are unable to borrow, it could be difficult in this environment to replace NBTY’s senior secured credit facilities on similar terms.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under NBTY’s senior secured credit facilities are at variable rates of interest and expose us to interest rate risk. Interest rates are currently at historically low levels. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Assuming all revolving loans are fully drawn and the interest rates are above the interest rate floor set forth in NBTY’s credit agreement, and excluding the portion of our variable rate debt subject to a fixed interest rate swap agreement, each quarter point change in interest rates would result in a $4.0 million change in annual interest expense on our indebtedness under NBTY’s senior secured credit facilities. However, we may maintain interest rate swaps with respect to any of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.

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Risks Relating to the Notes and the Holdco Notes
The right of holders of the Notes and the Holdco Notes to receive payments on the Notes and the Holdco
Notes is effectively subordinated to the rights of our existing and future secured creditors. Further, the guarantees of the Notes and the Holdco Notes, if any, are effectively subordinated to all our guarantors’ existing and future secured indebtedness.
The Notes and the Holdco Notes are general unsecured obligations. Holders of our secured indebtedness and the secured indebtedness of the guarantors of the Notes will have claims that are prior to the claims of holders of the Notes and the Holdco Notes to the extent of the value of the assets securing that other indebtedness. Notably, Holdings, NBTY and certain of its subsidiaries, including the guarantors of the Notes, are parties to the senior secured credit facilities, which are secured by liens on substantially all our assets and the assets of such guarantors. The Notes and Holdco
Notes are effectively subordinated to all our secured indebtedness to the extent of the value of the collateral securing such indebtedness. In the event of any distribution or payment of our assets in any foreclosure, dissolution, winding-up, liquidation, reorganization, or other bankruptcy proceeding, holders of secured indebtedness will have a prior claim to those of our assets that constitute their collateral. Holders of the Notes and the Holdco Notes participate ratably with all holders of our unsecured indebtedness that is deemed to be of the same class as the Notes and the Holdco Notes, and potentially with all our other general creditors, based upon the respective amounts owed to each holder or creditor, in our remaining assets. In any of the foregoing events, we cannot assure holders of the
Notes and the Holdco Notes that there will be sufficient assets to pay amounts due on the Notes or the
Holdco Notes. As a result, holders of the Notes or the Holdco Notes may receive less, ratably, than holders of secured indebtedness.
As of September 30, 2014, the aggregate amount of our secured indebtedness was approximately
$1,508 million. As of September 30, 2014, we had $196 million of unused commitments available for additional borrowing under the revolving portion of NBTY’s senior secured credit facilities, as amended. We are permitted to incur substantial additional indebtedness, including secured debt, in the future under the terms of the indentures governing the Notes and the Holdco Notes.
The trading prices of the Notes and the Holdco Notes may be volatile and can be affected by many factors, including our credit rating.
The trading price of the Notes and the Holdco Notes could be subject to significant fluctuation in response to, among other factors, changes in our operating results, interest rates, the market for non-investment grade securities, general economic conditions and securities analysts’ recommendations, if any, regarding our securities.
Credit rating agencies continually revise their ratings for companies they follow, including us. Any ratings downgrade could adversely affect the trading price of the Notes and the Holdco Notes, or the trading market for the Notes and the Holdco Notes, to the extent a trading market for such securities develops. The condition of the financial and credit markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future and any fluctuation may impact the trading price of the Notes and the Holdco Notes.
We may not be able to satisfy our obligations to holders of the Notes or the Holdco Notes upon a change of control. Upon the occurrence of a ‘‘change of control,’’ as defined in the indentures governing the Notes and the Holdco Notes, each noteholder will have the right to require us to purchase the Notes and the
Holdco Notes at a price equal to 101% of the principal amount, together with any accrued and unpaid interest. Our failure to purchase, or give notice of purchase of, the Notes or the Holdco Notes would be a default under the indentures governing the Notes and the Holdco Notes, which would in turn be a

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default under NBTY’s senior secured credit facilities and the indentures governing the Notes and the
Holdco Notes. In addition, a change of control may constitute an event of default under NBTY’s senior secured credit facilities and the indentures governing the Notes and the Holdco Notes. A default under
NBTY’s senior secured credit facilities and the indentures governing the Notes and Holdco Notes could result in an event of default under the indentures if the lenders accelerate the debt under NBTY’s senior secured credit facilities or the holders accelerate the debt under the indentures governing the
Notes and the Holdco Notes.
If a change of control occurs, we may not have enough assets to satisfy all obligations under
NBTY’s senior secured credit facilities, the indenture related to the Notes and the indenture related to the Holdco Notes. Upon the occurrence of a change of control we could seek to refinance the indebtedness under NBTY’s senior secured credit facilities, the indenture governing the Notes and the indenture governing the Holdco Notes or obtain a waiver from the lenders and holders of the Notes or the Holdco Notes. We can give no assurance, however, that we would be able to obtain a waiver or refinance our indebtedness on commercially reasonable terms, if at all. No assurances can be given that any court would enforce the change of control provisions in the indentures governing the Notes and the
Holdco Notes as written for the benefit of the holders, or as to how these change of control provisions would be impacted were we to become a debtor in a bankruptcy case.
Holders of the Notes or the Holdco Notes may not be able to determine when a change of control giving rise to their right to have the Notes or the Holdco Notes repurchased has occurred following a sale of
‘‘substantially all’’ of our assets.
The definition of change of control in the indentures governing the Notes and the Holdco Notes includes a phrase relating to the sale of ‘‘all or substantially all’’ of our assets. There is no precise established definition of the phrase ‘‘substantially all’’ under applicable law. Accordingly, the ability of a holder of the Notes or the Holdco Notes to require us to repurchase the Notes or Holdco Notes, respectively, as a result of a sale of less than all our assets to another person may be uncertain.
Certain private equity investment funds affiliated with Carlyle own substantially all the equity of Holdings, and their interests may not be aligned with those of the holders of the Notes and the Holdco Notes.
Carlyle owns substantially all the fully diluted equity of Holdings, and, therefore, has the power to control our affairs and policies. Carlyle also controls, to a large degree, the election of directors, the appointment of management, the entry into mergers, sales of substantially all our assets and other extraordinary transactions. The directors so elected have authority, subject to the terms of our debt, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions. Carlyle’s interests could conflict with the interests of the holders of the Notes and the
Holdco Notes. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of Carlyle and certain of its affiliates and co-investors, as equity holders, might conflict with the interests of the holders of the Notes and the Holdco Notes. Carlyle also may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to our noteholders. Additionally, Carlyle is in the business of making investments in companies, and from time to time in the future may acquire interests in businesses that directly or indirectly compete with certain portions of our business, or are suppliers or customers of ours.
Investment funds advised by entities affiliated with Carlyle and affiliates of Carlyle may buy or sell the Notes and the Holdco Notes in open market transactions at any time.

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If a bankruptcy petition were filed by or against us, noteholders may receive a lesser amount for their claim than they paid for the Notes and the Holdco Notes.
If a bankruptcy petition were filed by or against us under the U.S. Bankruptcy Code, a noteholder’s claim for the principal amount of the Notes or the Holdco Notes may be limited to an amount equal to the sum of:
• the lesser of (x) the original issue price for such notes and (y) the principal amount of such notes; and
• any amount of interest that does not constitute ‘‘unmatured interest’’ for purposes of the U.S.
Bankruptcy Code.
Accordingly, under these circumstances, a noteholder may receive a lesser amount than it paid for such notes, even if sufficient funds are available.
Risks Relating to Ownership of the Notes
Claims of noteholders will be effectively subordinated to claims of creditors of all of NBTY’s non-guarantor subsidiaries. The Notes are guaranteed on a senior basis by NBTY’s current and future domestic subsidiaries that are guarantors of NBTY’s senior secured credit facilities. However, the historical consolidated financial statements included in this Report include all our domestic and foreign subsidiaries. NBTY’s foreign subsidiaries, which do not guarantee the Notes, held approximately $1.3 billion, or 27%, of our total assets and $0.2 billion, or 6%, of NBTY’s total liabilities as of September 30, 2014 and accounted for approximately $1.1 billion, or 35%, of NBTY’s net sales, for fiscal 2014 (all amounts presented exclude intercompany balances). In addition, NBTY has the ability to designate certain of its subsidiaries as unrestricted subsidiaries under the terms of the indenture governing the Notes, and any subsidiary so designated will not be a guarantor of the Notes.
NBTY’s non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due under the Notes, or to make any funds available therefor, whether by dividends, loans, distributions or other payments. Any right that NBTY or its subsidiary guarantors have to receive any assets of any of its non-guarantor subsidiaries upon the liquidation or reorganization of those subsidiaries, and the consequent rights of noteholders to realize proceeds from the sale of any of those subsidiaries’ assets, will be effectively subordinated to the claims of those subsidiaries’ creditors, including trade creditors and holders of debt of that subsidiary.
NBTY is a holding company with no operations and may not have access to sufficient cash to make payments on its credit obligations.
NBTY is a holding company and has limited direct operations. NBTY’s most significant assets are the equity interests it holds in its subsidiaries. As a result, it is dependent upon dividends and other payments from its subsidiaries to generate the funds necessary to meet its outstanding debt service and other obligations and such dividends may be restricted by law or the instruments governing its indebtedness, including the indenture governing the Notes, the credit agreement governing its senior secured credit facilities or other agreements of its subsidiaries. NBTY’s subsidiaries may not generate sufficient cash from operations to enable it to make principal and interest payments on its indebtedness, including the Notes. In addition, its subsidiaries are separate and distinct legal entities and, except for its existing and future subsidiaries that will be the guarantors of the Notes, any payments on dividends, distributions, loans or advances to NBTY by its subsidiaries could be subject to legal and contractual restrictions on dividends. In addition, payments to NBTY by its subsidiaries will be contingent upon its subsidiaries’ earnings. Additionally, NBTY may be limited in its ability to cause its existing and any future joint ventures to distribute their earnings to it. Subject to certain

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qualifications, its subsidiaries are permitted under the terms of its indebtedness, including the indenture governing the Notes, to incur additional indebtedness that may restrict payments from those subsidiaries to it. NBTY can give no assurance that agreements governing the current and future indebtedness of its subsidiaries will permit those subsidiaries to provide it with sufficient cash to fund payments of principal premiums, if any, and interest on the Notes when due. In addition, any guarantee of the Notes will be subordinated to any senior secured indebtedness of a subsidiary guarantor to the extent of the assets securing such indebtedness.
Federal and state statutes may allow courts, under specific circumstances, to void the Notes and/or the guarantees of the Notes and require noteholders to return payments received on the Notes.
Under federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the
Notes or the guarantees thereof could be deemed a fraudulent transfer if NBTY or any of the guarantors of the Notes, as applicable, received less than a reasonably equivalent value in exchange for either issuing the Notes or giving the guarantee and:
• NBTY or any such guarantors, as applicable, was insolvent on the date that it issued the Notes or gave the guarantee or became insolvent as a result of issuing the Notes or giving the guarantee; or
• the issuance of the Notes or the giving of such guarantee left NBTY or any of such guarantors, as applicable, with an unreasonably small amount of capital to carry on the business; or
• NBTY or any of such guarantors intended to incur, or believed that NBTY or such guarantor would incur, debts that would be beyond NBTY’s or such guarantor’s ability to pay as those debts matured.
The Notes and/or a guarantee thereof could also be deemed a fraudulent transfer if it was given with actual intent to hinder, delay or defraud any entity to which NBTY or any such guarantor was or became, on or after the date of issuance of the Notes or the giving of the guarantee, as applicable, indebted. The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, NBTY or any such guarantor would be considered insolvent if:
• the sum of its debts, including contingent liabilities, is greater than all its assets, at a fair valuation; or
• the present fair saleable value of its assets is less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
• it could not pay its debts as they become due.
We cannot predict:
• what standard a court would apply to determine whether NBTY or any such guarantor was insolvent as of the date it issued the Notes or its guarantee, as applicable, or whether, regardless of the method of valuation, a court would determine that NBTY or such guarantor was insolvent on that date; or
• whether a court would determine that the payments under the Notes or such guarantee constituted fraudulent transfers or conveyances on other grounds.
The indenture governing the Notes contains a ‘‘savings clause’’ intended to limit each subsidiary guarantor’s liability under its guarantee to the maximum amount that it could incur without causing the

37

guarantee to be a fraudulent transfer under applicable law. There can be no assurance that this provision will be upheld as intended. In a case brought to the U.S. Bankruptcy Court in the Southern
District of Florida, the court found this kind of provision to be ineffective, and held the subsidiary guarantees to be fraudulent transfers and voided them in their entirety. Although this ruling was reversed, there can be no assurance that other courts will not reach the same conclusion as the U.S.
Bankruptcy Court in the Southern District of Florida.
If a guarantee is deemed to be a fraudulent transfer, it could be voided altogether, or it could be subordinated to all other debts of such guarantor. In that case, any payment by such guarantor under its guarantee could be required to be returned to the guarantor or to a fund for the benefit of the creditors of the guarantor. If a guarantee is voided or held unenforceable for any other reason, holders of the Notes would cease to have a claim against the subsidiary based on the guarantee and would be creditors only of NBTY and any guarantor whose guarantee was not similarly voided or otherwise held unenforceable. If a court were to find that the issuance of the Notes or the incurrence of a guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under the Notes or that guarantee, could subordinate the Notes or that guarantee to presently existing and future indebtedness of ours or of the related guarantor or could require the holders of the Notes to repay any amounts received with respect to that guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, holders of the Notes may not receive any repayment on the Notes. Further, the avoidance of the Notes could result in an event of default with respect to our and our subsidiaries’ other debt that could result in acceleration of that debt.
The lenders under NBTY’s senior secured credit facilities have the discretion to release the guarantors under
NBTY’s senior secured credit facilities in a variety of circumstances, which will cause those guarantors to be released from their guarantees of the Notes.
While any obligations under NBTY’s senior secured credit facilities remain outstanding, any guarantee of the Notes may be released without action by, or consent of, any holder of the Notes or the trustee under the indenture governing the Notes, at the discretion of lenders under NBTY’s senior secured credit facilities, if such guarantor is no longer a guarantor of obligations under NBTY’s senior secured credit facilities or any other indebtedness. The lenders under NBTY’s senior secured credit facilities will have the discretion to release the guarantees under NBTY’s senior secured credit facilities in a variety of circumstances. A noteholder will not have a claim as a creditor against any subsidiary that is no longer a guarantor of the Notes, and the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will effectively be senior to claims of noteholders. Risks Relating to Ownership of the Holdco Notes
Holdings is a holding company and relies on dividends, loans and other payments and distributions from its subsidiaries to meet its debt service and other obligations.
Holdings is a holding company with no business operations, revenues, expenses, liabilities other than the $1.0 billion aggregate principal amount of Holdco Notes or assets other than the capital stock of NBTY. Because Holdings’ assets consist of the equity interests it holds in NBTY, Holdings is dependent upon dividends and other payments from NBTY to generate the funds necessary to meet its outstanding debt service and other obligations and such dividends may be restricted by law or the instruments governing certain indebtedness, including the indenture governing the Notes, the credit agreement governing NBTY’s senior secured credit facilities, the indenture governing the Holdco Notes or other agreements of its subsidiaries. The earnings of Holdings’ subsidiaries will depend substantially on their respective financial and operating results, which will be affected by prevailing economic and

38

competitive conditions and by financial, business and other factors beyond Holdings’ and its subsidiaries’ control. Holdings’ subsidiaries may not generate sufficient cash from operations to enable
Holdings to make principal and interest payments on its indebtedness, including the Holdco Notes, or to fund Holdings’ and its subsidiaries’ other cash obligations.
NBTY’s ability to pay dividends or make other distributions to Holdings (‘‘restricted payment capacity’’) is limited under certain covenants in the credit agreement governing NBTY’s senior secured credit facilities and the indenture governing the Notes. For example, under the indenture governing the
Notes, NBTY is permitted to pay dividends or make other distributions to Holdings if the total amount thereof does not exceed a formula based on the sum of (a) 50% of NBTY’s consolidated net income for periods beginning with its fiscal quarter commencing October 1, 2010 and (b) the amount of certain cash proceeds and the fair market value of certain property received by or contributed to NBTY.
Similarly, under the credit agreement governing NBTY’s senior secured credit facilities, NBTY is permitted to pay dividends and make other distributions (or to make loans or advances in lieu thereof) to Holdings but the total amount is limited and such payments are subject to certain terms and conditions. Pursuant to the credit agreement governing NBTY’s senior secured credit facilities, NBTY is permitted to pay dividends or make other distributions (or to make loans or advances in lieu thereof) to Holdings pursuant to the Notes formula payment of dividends, subject to certain terms and conditions. As of September 30, 2014, prior to giving effect to the November 2014 interest payment of
$38.8 million, NBTY had approximately $252 million of restricted payments capacity under its senior secured credit facilities and approximately $287 million of restricted payments capacity under the indenture governing the Notes.
Holdings’ subsidiaries are permitted, under the terms of their existing indebtedness, to incur additional indebtedness that may restrict payments from those subsidiaries to Holdings. The indenture governing the Holdco Notes may also permit these subsidiaries to incur additional indebtedness even if
Holdings would not be able to incur additional indebtedness. Agreements governing current and future indebtedness of Holdings’ subsidiaries may not permit those subsidiaries to provide Holdings with sufficient cash to fund payments on the Holdco Notes when due.
Holdings’ subsidiaries are separate and distinct legal entities and will have no obligation, contingent or otherwise, to pay amounts due under the Holdco Notes or to make any funds available to pay those amounts whether by dividend, distribution, loan or other payment.
Claims of holders of Holdco Notes will be effectively subordinated to claims of creditors of all of Holdings’ subsidiaries. The Holdco Notes will not be guaranteed by any of Holdings’ subsidiaries. However, the historical consolidated financial statements included in this Report include all of Holdings’ subsidiaries. Holdings had $1.0 billion of liabilities as of September 30, 2014 and Holdings’ subsidiaries held almost all of its assets and accounted for all of its net sales as of and for the year ended September 30, 2014.
Holdings’ subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Holdco Notes, or to make any funds available therefor, whether by dividends, loans, distributions or other payments. Any right that Holdings has to receive any assets of any of its subsidiaries upon the liquidation or reorganization of such subsidiaries, and the consequent rights of holders of Holdco Notes to realize proceeds from the sale of any of such subsidiaries’ assets, will be structurally subordinated to the claims of Holdings’ subsidiaries’ creditors, including trade creditors and holders of debt of that subsidiary.

39

If certain conditions for the payment of cash interest are not met, interest on the Holdco Notes may be payment in kind (‘‘PIK’’) interest.
Holdings is required to pay interest on the Holdco Notes entirely in cash unless certain conditions exist, in which case Holdings will be entitled to pay PIK interest. The terms of the Holdco Notes do not restrict Holdings’ ability to use its dividend payment capacity for such alternative uses. In addition, the credit agreement governing NBTY’s senior secured credit facilities, the indenture governing the
Notes and the indenture governing the Holdco Notes allow NBTY and its subsidiaries to utilize amounts that would otherwise be available to pay cash dividends to Holdings for purposes such as making restricted investments, capital expenditures and prepaying subordinated indebtedness and, subject to certain limitations, making cash dividends to and other payments in respect of equityholders, and such uses would reduce the amounts available to pay dividends to Holdings in order to pay cash interest on the Holdco Notes. The indenture governing the Holdco Notes does not restrict Holdings’ ability to use its dividends payment capacity for such alternative uses. As a result, there can be no assurance that Holdings will be required (or able) to make cash interest payments on the Holdco
Notes. The payment of interest through PIK interest will increase the amount of Holdings’ indebtedness and would exacerbate the risks associated with such a high level of indebtedness.
Federal and state statutes may allow courts, under specific circumstances, to void the Holdco Notes and require holders to return payments received from Holdings.
Under federal bankruptcy law and comparable provisions of state fraudulent transfer laws, issuance of notes could be deemed a fraudulent transfer if Holdings received less than a reasonably equivalent value in exchange for issuing the Holdco Notes and
• Holdings was insolvent on the date that it issued the Holdco Notes or became insolvent as a result of issuing the Holdco Notes, or
• Holdings was engaged in business or a transaction, or was about to engage in business or a transaction, for which property remaining with Holdings was an unreasonably small capital, or
• Holdings intended to incur, or believed that it would incur, debts that would be beyond its ability to pay as those debts matured.
The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, an entity would be considered insolvent if:
• the sum of its debts, including contingent liabilities, is greater than all its assets, at a fair valuation, or
• the present fair saleable value of its assets is less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature, or
• it could not pay its debts as they become due.
We cannot predict:
• what standard a court would apply in order to determine whether Holdings was insolvent as of the date Holdings issued the Holdco Notes or whether, regardless of the method of valuation, a court would determine that Holdings was insolvent on that date; or
• whether a court would determine that the payments under the Holdco Notes constituted fraudulent transfers or conveyances on other grounds.

40

If issuance of the Holdco Notes is deemed to be a fraudulent transfer, it could be voided altogether, or it could be subordinated to all other debts of Holdings. In the event of a finding that a fraudulent transfer or conveyance occurred, holders of the Holdco Notes may not receive any repayment on the Holdco Notes. Further, the voidance of the Holdco Notes could result in an event of default with respect to Holdings and its subsidiaries’ other debt that could result in acceleration of that debt. Finally, as a court of equity, the bankruptcy court may subordinate the claims in respect of the
Holdco Notes to other claims against Holdings under the principle of equitable subordination if the court determines that (1) the holder of Holdco Notes engaged in some type of inequitable conduct,
(2) the inequitable conduct resulted in injury to Holdings’ other creditors or conferred an unfair advantage upon the holders of Holdco Notes and (3) equitable subordination is not inconsistent with the provisions of the bankruptcy code.
The Holdco Notes were issued with original issue discount for U.S. federal income tax purposes.
Because no portion of the stated interest on the Holdco Notes is unconditionally payable in cash at least annually, interest payments on the notes are not treated as qualified stated interest for U.S. federal income tax purposes. As a result, the Holdco Notes were issued with original issue discount for
U.S. federal income tax purposes (‘‘OID’’) in an amount equal to the excess of the total payments of principal and interest on the Holdco Notes over their issue price. A holder subject to U.S. federal income taxation, whether on the cash or accrual method for U.S. federal income tax purposes, generally will be required to include the OID in gross income (as ordinary interest income) as the OID accrues (on a constant yield to maturity basis), regardless of whether such holder receives any cash payment attributable to such income at such time.

41

Item 2.

Properties

United States. As of September 30, 2014, we owned a total of approximately 2.28 million square feet, and lease approximately 1.4 million square feet, of administrative, manufacturing, warehouse and distribution space in various locations in the United States and its territories. In addition, as of
September 30, 2014, we operated 414 Vitamin World retail locations in 43 states in the United States,
Guam, Puerto Rico and the Virgin Islands. Generally, we lease retail properties for five to ten years at varying annual base rents and percentage rents. The Vitamin World retail stores are, on average, approximately 1,248 square feet.
UK/Ireland. As of September 30, 2014, Holland & Barrett owned a 270,000 square foot administrative and distribution facility and a 133,220 square foot manufacturing facility in Burton,
United Kingdom. Holland & Barrett owns a 30,000 square foot administrative facility in Nuneaton,
United Kingdom. Solgar leased 50,000 square feet of administrative and distribution space in Tring,
United Kingdom. As of September 30, 2014, we leased all but one of our 772 Holland & Barrett,
GNC-branded UK and Nature’s Way retail stores for varying terms, at varying annual base rents.
Fifty-one Holland & Barrett stores, two GNC-branded UK stores and 15 Nature’s Way stores are subject to percentage rents. As of September 30, 2014, Holland & Barrett stores have an average of approximately 1,000 square feet, Nature’s Way stores have an average of approximately 900 square feet and the GNC-branded UK stores have an average of approximately 800 square feet.
Benelux. As of September 30, 2014, De Tuinen leased a 64,600 square foot administrative and distribution facility and an additional 12,755 square foot administrative and distribution facility in
Beverwijk. At September 30, 2014, De Tuinen leased locations for 146 retail stores on varying terms at varying annual base rents. Of these, 140 are operated as company stores and six are sub-leased to, and operated by, franchisees. No De Tuinen or Essenza store is subject to percentage rents. De Tuinen stores are an average of approximately 1,450 square feet. Essenza stores are an average of approximately 1,650 square feet.
Canada. As of September 30, 2014, Vita Health owned a 185,000 square foot manufacturing, packaging, distribution and administration building in Winnipeg, Manitoba. Vita Health also leased a
52,000 square foot distribution facility in Winnipeg, Manitoba. SISU leases a 19,200 square foot administrative, distribution and warehouse facility in Burnaby, British Columbia.
China. As of September 30, 2014, our subsidiary, Ultimate Biopharma (Zhongshan) Corporation
(‘‘Ultimate’’) owned in Zhongshan, China: a 50,000 square foot facility for manufacturing softgel capsules and for administrative offices, a recently built 75,000 square foot warehouse facility with packaging capabilities and 18.5 acres of vacant land adjacent to the manufacturing facility. In addition,
Ultimate leased 11,300 square feet of dormitory space in Zhongshan City. Also, one of our subsidiaries leased 106,294 square feet of warehouse space in Beijing.

42

The following is a listing, as of September 30, 2014, of all material properties that we own or lease
(excluding retail locations, de minimis locations with less than 4,000 square feet and temporary storage facilities leased for less than six months). We are required to pay real estate taxes and maintenance costs relating to most of our leased properties. All our segments benefit from the use of our material properties. Owned Properties
Location

United States:
Prescott, AZ
Boca Raton, FL(1)
Boca Raton, FL
Boca Raton, FL
Deerfield Beach, FL
Pompano Beach, FL
Bayport, NY
Bayport, NY
Bohemia, NY
Bohemia, NY
Bohemia, NY
Bohemia, NY
Holbrook, NY
Holbrook, NY
N. Amityville, NY
N. Amityville, NY
Ronkonkoma, NY
Wilson, NC(2)
Hazleton, PA
San Antonio, TX
Canada:
Winnipeg, Manitoba
China:
Zhongshan
Zhongshan(3)
United Kingdom:
Burton
Burton
Nuneaton

Type of Facility

Approximate
Square Feet

Manufacturing
Administration
Manufacturing
Distribution
Packaging
Warehousing
Storage
Manufacturing
Administration, Manufacturing & Packaging
Manufacturing
Manufacturing & Packaging
IT
Administration & Distribution
Packaging & Engineering
Manufacturing
Manufacturing
Administration
Manufacturing
Distribution
Manufacturing

65,000
58,000
84,000
100,000
157,000
62,000
12,000
161,500
169,000
80,000
75,000
42,000
230,000
108,000
48,300
66,000
110,000
125,000
413,600
122,600

Manufacturing, Packaging, Distribution & Administration

185,000

Manufacturing & Packaging
Warehousing with packaging capabilities
Administration & Distribution
Manufacturing
Administration
Total approximate square feet owned

50,000
75,000
270,000
133,200
30,000
3,032,200

(1)

We currently sub-lease several small offices in this building on a short-term basis to unaffiliated tenants. (2)

This facility is closed.

(3)

Operations for the manufacturing and packaging of supplements in powder form commenced in a portion of this facility in October 2014.

43

Leased Properties
Location

United States:
Prescott, AZ
Bentonville, AR
Anaheim, CA
Garden Grove, CA
Santa Fe Springs, CA
Naples, FL(1)
Naples, FL(1)
Carbondale, IL
Sparks, NV
Sparks, NV
Leonia, NJ
Leonia, NJ
Lyndhurst, NJ(2)
Ridgefield Park, NJ
Bohemia, NY
Ronkonkoma, NY
Ronkonkoma, NY
Holbrook, NY
Canada:
Burnaby, British Columbia
Winnipeg, Manitoba
China:
Beijing
Beijing
Zhongshan City
United Kingdom:
Burton
Tring
Tring
London
Netherlands:
Beverwijk
Beverwijk
New Zealand:
Auckland
South Africa:
Randburg
Spain:
Madrid
Madrid(3)

Type of Facility

Approximate
Square Feet

Warehousing (term–2020)
Sales Office (term–2017)
Administration, Manufacturing, Packaging & Distribution
(term–2018)
Manufacturing & Packaging (term–December 2016)
Distribution & Administration (term–2016)
Manufacturing (term–February 2015)
Manufacturing (term–February 2016)
Administration—Call Center (term–2017)
Distribution (term–September 2016)
Warehouse (term–September 2016)
Administration & Manufacturing (term–July 2016)
Manufacturing & Warehousing (term–2016)
Warehousing (term–2019)
Sales Office (term 2020)
Administration & Warehousing (term–2020)
Warehousing (term–November 2017)
Warehousing (term–September 2024)
Warehouse/Storage (term–February 2015)

286,100
140,000
82,000
14,700
18,000
15,000
201,300
47,200
49,600
18,500
48,000
11,400
110,000
90,500
75,000
17,000

Administration, Warehousing & Distribution (term–2017)
Warehousing & Administration (term–2017)

19,200
52,000

Offices (term–May 2015)
Warehousing (term–August 2015)
Dormitory (term–January 2015)

29,000
4,900

9,700
106,300
11,300

Offices & Warehouse (term–2023)
Administration & Warehousing (term–2016)
Warehousing, Distribution & Offices (term–2016)
Administration (term–December 2015)

43,300
25,000
25,000
12,300

Administration & Distribution (term–2020)
Administration & Distribution (term–2020)

64,600
12,755

Offices & Warehousing (term–2016)

4,800

Offices & Warehousing (term–2015)

13,800

Administration & Distribution (term–January 2015)
Administration & Distribution (term–2019)

6,500
16,400

Total approximate square feet leased
Total approximate square feet owned and leased

1,681,155
4,713,355

(1)

Operations have ceased at the Naples facilities.

(2)

This facility has been downsized and is used solely for warehousing.

(3)

New leased facility as of September 4, 2014, will replace the current leased facility, which lease expires January 31, 2015.

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Warehousing and Distribution
As of September 30, 2014, we had approximately 2.7 million square feet dedicated primarily to warehousing and distribution. This figure includes our facilities in Long Island, New York; Anaheim and Santa Fe Springs, California; Lyndhurst and Leonia, New Jersey; Boca Raton and Pompano Beach,
Florida; Sparks, Nevada; Hazleton, Pennsylvania; Prescott, Arizona; Burton and Tring, United
Kingdom; Winnipeg, Manitoba and Burnaby, British Columbia, Canada; Madrid, Spain; Randburg,
South Africa; Auckland, New Zealand; Beverwijk, Netherlands and Beijing and Zhongshan City, China.
We currently distribute our products to our customers from distribution centers through contract and common carriers globally. In addition, we ship products overseas in pallet amounts and by container loads. We also operate additional distribution centers in Burton and Tring, United Kingdom;
Madrid, Spain; Auckland, New Zealand; Randburg, South Africa, Beverwijk, Netherlands; Winnipeg,
Manitoba; and Beijing, China. Deliveries are made directly to Vitamin World stores once per week or once every other week, depending on the needs at various store locations. Deliveries are made directly to company-owned and operated Holland & Barrett and GNC-branded UK stores, through company owned trucks, and Nature’s Way, De Tuinen and Essenza stores, through third parties, once or twice per week, depending on each store’s inventory requirements.
Our direct response and e-commerce orders are handled by our domestic distribution center that is integrated with our order entry systems. Once a customer’s telephone, mail or internet order is completed, our computer system forwards the order to our distribution center, where all necessary distribution and shipping documents are printed to facilitate processing. Then, the orders are prepared, picked, packed and shipped continually throughout the business day. We operate a proprietary, automated picking and packing system for frequently shipped items. We are capable of fulfilling 20,000 direct response and e-commerce orders daily. A system of conveyors automatically routes boxes carrying merchandise throughout our primary Long Island distribution center for fulfillment of orders.
Completed orders are bar-coded and scanned and the merchandise and ship date are verified and entered automatically into the customer order file for access by sales associates before shipment.
All our properties are covered by all-risk and liability insurance, in amounts and on terms that we believe are customary for our industry.
We believe that these properties, taken as a whole, are generally well-maintained, and are adequate for current and reasonably foreseeable business needs. We also believe that substantially all our properties are being utilized to a significant degree.
Item 3.

Legal Proceedings

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; 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

45

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. 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 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 million. This reduction in the estimated exposure was reflected in the Company’s first quarter results for fiscal 2014. 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, 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 for the 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 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, audits, claims, suits and complaints
(including product liability, false advertising, intellectual property, escheat laws 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 our consolidated financial statements, if adversely determined against us.
Item 4.

Mine Safety Disclosures

Not applicable.

46

PART II
Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Common Stock
As of the date of this Report, we are a wholly owned subsidiary of Holdings, which is in turn a wholly owned subsidiary of certain investment funds affiliated with Carlyle, and there is no public market for our common stock.
Dividend Policy
In December 2013, Holdings issued and sold $450.0 million in aggregate principal amount of
7.75%/8.50% Contingent Cash Pay Senior Notes due 2017 and used $445.5 million of such proceeds to pay a cash dividend to its shareholders. In November 2013 and May 2014, NBTY paid a cash dividend of approximately $21.3 million and $38.8 million, respectively, to Holdings, in order for Holdings to make an interest payment on the Holdco Notes. Future determination as to the payment of cash or stock dividends will depend upon our results of operations, financial condition, capital requirements, restrictions contained in NBTY’s senior secured credit facilities, limitations contained in the indentures governing the Notes and the Holdco Notes, and such other factors as our Board considers appropriate.
The senior secured credit facilities prohibit our paying dividends or making any other distributions to our stockholder, subject to some exceptions. The indentures under which the Notes and the Holdco
Notes were issued similarly prohibit paying dividends or making any other distributions to stockholders, subject to some exceptions. NBTY’s senior secured credit facilities and the indenture governing the
Notes permit the payment of interest on the Holdco Notes via dividends from NBTY to Holdings, provided that certain conditions are satisfied.
For additional information regarding these lending arrangements and securities (including payment of interest under the Holdco Notes), see Item 7, ‘‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital Resources,’’ and Note 12 to the consolidated financial statements in this Report.
For information regarding securities authorized for issuance under our equity compensation plans as of September 30, 2014, see Item 12, ‘‘Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters’’ in this Report.

47

Item 6.

Selected Financial Data

2014

Fiscal Years Ended September 30,
Successor(1)
2013
2012
2011
2010(2)
(In thousands)

Selected Income Statement Data:
Net sales . . . . . . . . . . . . . . . . . . . . . $3,205,778 $3,163,041 $2,999,733 $2,864,427 $
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . .
Advertising, promotion and catalog
Selling, general and administrative .
Merger expenses . . . . . . . . . . . . . .
Facility restructuring charges . . . . .
Goodwill and intangible asset impairment charges . . . . . . . . . .
Income from operations . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . . . . .
(Loss) income from continuing operations before income taxes . . .
Provision (benefit) for income taxes on continuing operations . . . . . . . .
Income (loss) on continuing operations . . . . . . . . . . . . . . . . . .

1,740,417
202,754
952,533
—
—

1,700,909
189,485
910,187
—
32,695

207,334

—

1,608,436
164,298
832,629
—
—

—
—
—
11,286
—

—

—

237,321 (11,286)
(195,566)
—
1,933
—

1,473,095
136,763
694,803
45,903
—
—

102,740
(136,038)
(709)

329,765
(147,100)
1,693

394,370
(158,584)
(1,003)

(34,007)

184,358

234,783

43,688

(11,286)

329,292

10,145

54,878

65,264

10,989

(3,839)

114,270

(44,152)

129,480

169,519

32,699

(7,447)

215,022

(Loss) from discontinued operations, net of income taxes . . . . . . . . . . . .
—
—
(23,048)
Net (loss) income . . . . . . . . . . . . . . $ (44,152) $ 129,480 $ 146,471 $
Selected Balance Sheet Data:
Working Capital . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . .
Long-term debt, net of current portion . . . . . . . . . . . . . . . . .
Total stockholder’s equity(deficit)

— $2,705,837

1,641,887
152,021
788,719
44,479
—

—

Predecessor
2010

355,273
(30,108)
4,127

(2,780)
—
(1,352)
29,919 $ (7,447) $ 213,670

. . $ 826,960 $ 731,197 $ 882,495 $ 899,699 $(11,158) $ 849,338
. . 4,877,722 5,073,316 5,057,247 5,099,270
7,552 2,200,768
..
..

2,158,087
1,509,093

2,158,405
1,624,839

2,157,500
1,705,232

2,369,375
1,536,895

—
341,128
(7,446) 1,379,953

(1)

On October 1, 2010 we consummated the Merger which required us to record acquisition accounting adjustments that primarily impacted cost of sales due to recording the acquired inventory to fair value of $122,104, depreciation and amortization expense within our selling, general and administrative costs due to the recording of our property plant and equipment and various intangible assets to fair value as well as additional interest expense relating to the additional long-term debt associated with the Merger.

(2)

May 11, 2010 (date of inception) to September 30, 2010.

48

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 in this Report under the heading Forward Looking Statements’’ and ‘‘Risk Factors.’’ 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.
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.
Carlyle Transaction
On October 1, 2010, NBTY consummated the Merger with an affiliate of Carlyle under which the
Carlyle affiliate acquired 100% of NBTY for a net purchase price of $3,635,949. The purchase price was funded through the net proceeds of our $1,750,000 senior secured credit facilities, the issuance of
$650,000 principal amount of notes and a cash equity contribution of $1,550,000 from an affiliate of
Carlyle.
As a result of the Merger and the application of acquisition accounting, our assets and liabilities have been adjusted to their fair values as of October 1, 2010, the closing date of the Merger and related financings. Additionally, the excess of the total purchase price over the fair value of our assets and liabilities at closing was allocated to goodwill.
Goodwill and Other Intangible Asset Impairment Charges
The Direct Response/E-Commerce and North American Retail segments have seen increased competition as well as increased use of promotions in order to maintain sales levels. During the fourth quarter of fiscal 2014, the Direct Response/E-Commerce and North American Retail segments recorded an impairment charge of $61,590 and $25,744, respectively, related to the impairment of goodwill. This was in connection with our annual impairment assessment and the completion of a strategic planning process relating to the rates of growth of sales, profit and cash flow and expectations for future performance. In addition, as a part of this process, we recorded an impairment charge of
$110,000 and $10,000 on the indefinite lived tradenames of the Direct Response / E-Commerce and
North American Retail segments, respectively.
The assessment did not reveal any impairment indicators in the Wholesale and European Retail segments and a 10% change in the estimate of fair value of these segments would not have impacted our assessment.
Consent Solicitation and Debt Offering
On December 2, 2013, Holdings launched a consent solicitation (the ‘‘Consent Solicitation’’) of consents from holders of Holdings’ $550,000 in aggregate principal amount of 7.75%/8.50% contingent cash pay senior notes due 2017 that were originally issued on October 17, 2012 (the ‘‘original Holdco
Notes’’). 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 Holdings’ additional
7.75%/8.50% contingent cash pay senior notes in an aggregate principal amount of $450,000 due 2017
(the ‘‘additional Holdco Notes’’ and, together with the original Holdco Notes, the ‘‘Holdco Notes’’) less

49

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 existing Holdco Notes consented to the
Proposed Amendments and Holdings entered into a supplemental indenture (the ‘‘First Supplemental
Indenture’’) to the indenture governing the Holdco Notes. The First Supplemental Indenture became operative upon the payment of the consent fee by Holdings to the paying agent on behalf of the holders of the existing Holdco Notes, which was paid concurrently with the closing of the offering of the additional Holdco Notes.
On December 12, 2013, Holdings issued the additional Holdco Notes in an aggregate principal amount of $450,000. The $450,000 of additional Holdco Notes and the $550,000 of original Holdco
Notes have identical terms and are treated as a single class for all purposes under the indenture governing the Holdco Notes. The proceeds from the offering of the $450,000 additional Holdco Notes were used to pay transaction fees and expenses, including the consent fee of $18,560, and a $445,537 dividend to Holdings’ shareholders in December 2013.
Plan of Restructuring
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.
Refinancing
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 amending the credit agreement governing NBTY’s senior secured credit facilities (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 (the current principal amount outstanding) term loan B-2. Borrowings under term loan B-2 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.
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. 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 will be amortized using the effective interest method.
Discontinued Operations
On July 2, 2012, Julian Graves Limited (‘‘Julian Graves’’), an NBTY subsidiary organized under the laws of the United Kingdom and Wales, was placed into administration and its management, affairs, business and property were under the direct control of Deloitte LLP as administrator. During the course of the administration, attempts to sell the business were unsuccessful and the operations were wound down by the end of August 2012. Additionally, on August 31, 2012, we sold Le Naturiste Inc.
(‘‘Le Naturiste’’), an NBTY subsidiary organized under the laws of Canada, to an unrelated third party.

50

As a result of these events, the results of these two former subsidiaries are not reflected in the results of operations for fiscal 2012, but are reflected as discontinued operations. In addition, all prior periods in the Management’s Discussion and Analysis of Financial Condition and Results of Operations below are presented exclusive of discontinued operations. There were no results of operations for Julian
Graves or Le Naturiste in fiscal 2014 or 2013.
Executive Summary
NBTY is the leading vertically integrated manufacturer, marketer, distributor and retailer 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 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.
• Wholesale—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 in the United States. This segment also sells products to independent pharmacies, health food stores, the military and other retailers.
• European Retail—This segment generates revenue through its 755 Holland & Barrett stores
(including franchised stores in the following countries: 29 in China, 28 in Singapore, 11 in
United Arab Emirates, 9 in Cyprus, four in Malta and one in each of Gibraltar and Iceland),
146 De Tuinen stores (including 6 franchised locations) in the Netherlands, 53 GNC branded
UK stores, 47 Nature’s Way stores in Ireland and 15 Essenza stores in Belgium, as well as internet-based sales from www.hollandandbarrett.com, www.hollandandbarrett.co.uk, www.hollandandbarrett.ie,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 the 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 414 owned and operated
Vitamin World stores selling proprietary brand and third-party products, as well as internetbased 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.
We have continued to grow through our marketing practices and through a series of strategic acquisitions. Since 1986, we have acquired and successfully integrated approximately 30 companies or businesses engaged in the manufacturing, retail and direct response sale of nutritional supplements, including: • Fiscal 1997: Holland & Barrett;
• Fiscal 1998: Nutrition Headquarters Group;

51

• Fiscal 2000: Nutrition Warehouse Group;
• Fiscal 2001: Global Health Sciences, NatureSmart and Nature’s Way;
• Fiscal 2002: Healthcentral.com, Knox NutraJoint↧, and Synergy Plus↧ product lines/operations;
• Fiscal 2003: Rexall Sundown Inc., Health and Diet Group Ltd. (‘‘GNC (UK)’’), FSC Wholesale, and the De Tuinen chain of retail stores;
• Fiscal 2005: Le Naturiste Jean-Marc Brunet, SISU, Inc. (‘‘SISU’’) and Solgar Vitamin and Herb
(‘‘Solgar’’), formerly a division of Wyeth Consumer Healthcare;
• Fiscal 2007: The Ester-C Company (formerly Zila Nutraceuticals, Inc.);
• Fiscal 2008: Doctor’s Trust, Leiner and Julian Graves;
• Fiscal 2010: Ultimate Biopharma (Zongshen) Corporation;
• Fiscal 2011: Vitarich Laboratories, Inc. and Sun Valley Natural Products, LLC; and
• Fiscal 2013: Balance Bar Company and Essenza N.V.
Critical Accounting Estimates and Policies
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to 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. As with any set of assumptions and estimates, there is a range of reasonably likely amounts that may be reported.
The following critical accounting policies have been identified as those that affect the more significant judgments and estimates used in the preparation of the consolidated financial statements.
Revenue Recognition
We recognize product revenue when title and risk of loss have transferred to the customer, there is persuasive evidence of an arrangement to deliver a product, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. The delivery terms for most sales within the Wholesale and Direct Response/ E-Commerce segments are F.O.B. destination. Generally, title and risk of loss transfer to the customer at the time the product is received by the customer. With respect to our retail store operations, we recognize revenue upon sale of products to customers. Net sales represent gross sales invoiced to customers, less certain related charges for discounts, returns, and other promotional program incentive allowances.
Allowance for Sales Returns
Estimates for sales returns are based on a variety of factors, including actual return experience of specific products or similar products. We are able to make reasonable and reliable estimates of product returns based on our 40-year history in this business. We also review our estimates for product returns based on expected return data communicated to us by customers. Additionally, we monitor the levels of inventory at some of our largest customers to avoid excessive customer stocking of merchandise.
Allowances for returns of new products are estimated by reviewing data of any prior relevant new

52

product introduction return information. We also monitor the buying patterns of the end-users of our products based on sales data received by our retail outlets in North America and Europe. Historically, the difference in the amount of actual sales returns compared to our estimate for sales returns has not been significant.
Promotional Program Incentive Allowance
We estimate our allowance for promotional program incentives based on specific outstanding marketing programs and historical experience. The allowance for sales incentives offered to customers is based on various contractual terms or other arrangements agreed to in advance with certain customers. Generally, customers earn such incentives as they achieve sales volumes. We accrue these incentives as a reduction to sales either at the time of sale or over the period of time in which they are earned, depending on the nature of the program. Historically, we have not experienced material adjustments to the estimate of our promotional program incentive allowance and we do not expect that there will be a material change in the future estimates and assumptions we use.
Allowance for Doubtful Accounts
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 our review of current credit information. We estimate bad debt expense based upon historical experience as well as customer collection issues to adjust the carrying amount of the related receivable to its estimated net realizable value. While such bad debt expense has historically been within expectations and allowances established, we cannot guarantee that we will continue to experience the same credit loss rates that we had in the past. If the financial condition of one or more of our customers were to deteriorate, additional bad debt expense may be required.
Inventories
Inventories are stated at the lower of cost (first-in first-out method) or market. The cost elements of inventories include materials, labor and overhead. In evaluating whether inventories are stated at the lower of cost or market, we consider such factors as the amount of inventory on hand, estimated time required to sell such inventory, remaining shelf life and current and expected market conditions, including levels of competition. Based on this evaluation, we record an adjustment to cost of goods sold to reduce inventories to net realizable value. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer demand or competition differ from expectations.
Long-Lived Assets
We evaluate the need for an impairment charge relating to long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. We consider the following to be some examples of important indicators that may trigger an impairment review: (i) a history of cash flow losses at retail stores; (ii) significant changes in the manner or use of the acquired assets in our overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; and (v) regulatory changes.
Goodwill and Intangible Assets
Goodwill is tested for impairment using a two-step process. In the first step, the fair value of a reporting unit is compared to its carrying value. If the fair value of a reporting unit exceeds the carrying value of the net assets assigned to a reporting unit, goodwill is not considered impaired and no further testing is required. If the carrying amount of the reporting unit exceeds its fair value, a second

53

step is performed to determine whether there is a goodwill impairment, and if so, the amount of the impairment. This step revalues all assets and liabilities of the reporting unit to their current fair value and then compares the implied fair value of the reporting unit’s goodwill to the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, an impairment is recognized in an amount equal to the excess. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. We use a combination of the income and market approaches, weighted equally, to estimate the fair value of our reporting units.
The fair value of our trademarks is determined based on the relief from royalty method under the income approach, which requires us to estimate a reasonable royalty rate, identify relevant projected revenues and expenses, and select an appropriate discount rate. The evaluation of indefinite-lived intangible assets for impairment requires management to use significant judgments and estimates including, but not limited to, projected future net sales, operating results, and cash flows of our business. We base our fair value estimates on assumptions we believe to be reasonable, but such assumptions are subject to inherent uncertainties. If actual external conditions or future operating results differ from our judgments, this may result in an impairment of our goodwill and/or intangible assets. An impairment charge would reduce operating income in the period it was determined that the charge was needed.
On a quarterly basis, we monitor the key drivers of fair value to detect events or other changes that would warrant an interim impairment test of our goodwill and intangibles. The key assumptions that drive the cash flows of our reporting units and intangible assets are estimated revenue growth rates and levels of profitability. Terminal value growth rate assumptions, weighted average cost of capital rates (‘‘WACC’’) as well as royalty rates are used in conjunction with these key assumptions in order to derive the estimated fair value. These assumptions are subject to uncertainties, including our ability to grow revenue and improve or maintain profitability levels. Relatively small declines in the future performance and cash flows of a reporting unit or asset group or small changes in other key assumptions may result in the recognition of significant asset impairment charges. For example, keeping all other variables constant, an increase in the WACC applied of 175 basis points or a 270 basis point decrease in the terminal year profit margin would require that we perform the second step of the goodwill impairment test for the Wholesale reporting unit. The estimates used for our future cash flows and discount rates represent management’s best estimates, which we believe to be reasonable, but future declines in business performance may impair the recoverability of our goodwill and intangible asset balances. Currently the estimated fair value of the Wholesale reporting unit exceeds its carrying value by 10% and the carrying value of the goodwill that is within the Wholesale reporting unit is
$638,630.
Income Taxes
We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as tax credit carrybacks and carryforwards. We periodically review the recoverability of deferred tax assets recorded on the balance sheet and provide valuation allowances as we deem necessary to reduce such deferred tax assets to the amount that will, more likely than not, be realized. We make judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. In our opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

54

Accruals for Litigation and Other Contingencies
We are subject to legal proceedings, lawsuits and other claims related to various matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. We determine the amount of reserves needed, if any, for each individual issue based on our knowledge and experience and discussions with legal counsel. These reserves may change in the future due to new developments in each matter (including the enactment of new laws), the ultimate resolution of each matter or changes in approach, such as a change in settlement strategy. In some instances, we may be unable to make a reasonable estimate of the liabilities that may result from the final resolution of certain contingencies disclosed and accordingly, no reserve is recorded until such time that a reasonable estimate may be made.
Recent Accounting Developments
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 has been effective for us since October 1, 2014. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated 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 has been effective for us since October 1, 2014. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated 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 consolidated 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 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.

55

In June 2014, the FASB issued guidance to clarify the proper method of accounting for sharebased 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 consolidated financial statements.
In August 2014, the FASB issued guidance which requires management to assess an entity’s ability to continue as a going concern every reporting period, and provide certain disclosures if management has substantial doubt about the entity’s ability to operate as a going concern, or an express statement if not, by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The guidance is effective for us for the annual period ending September 30, 2017, and for interim periods thereafter. Early application is permitted. The adoption of this guidance is not expected to have an impact on our consolidated financial statements.
Revision
A revision was made to the Statements of Operations and Comprehensive Income (loss) to correct the prior year presentation, whereby changes in the fair value of the cross-currency swap were reclassified from changes in the fair value of interest rate swaps to foreign currency translation adjustments. In addition, see Note 21 in our consolidated financial statements for a revision that was made to the Condensed Consolidating Financial Statements of Guarantors.

56

Results of Operations
The following table sets forth for the periods indicated, the consolidated statements of operations and comprehensive income (loss). Items are expressed as a percentage of total net sales. Percentages may not sum to 100% due to rounding.
Fiscal year ended September 30,
2014
2013
2012

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . .
Advertising, promotion and catalog . . . . .
Selling, general and administrative . . . . .
Goodwill and intangible asset impairment
Facility restructuring charges . . . . . . . . .

......
......
...... charges ......

.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

100.0% 100.0% 100.0%
54.3%
6.3%
29.7%
6.5%
0.0%

53.8%
6.0%
28.8%
0.0%
1.0%

53.6%
5.5%
27.8%
0.0%
0.0%

96.8%

89.6%

86.9%

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.2%

10.4%

13.1%

Other income (expense):
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4.2)%
(0.0)%

(4.7)%
0.1%

(5.3)%
(0.0)%

(4.3)%

(4.6)%

(5.3)%

(Loss) income from continuing operations before income taxes . . . .
(Benefit) provision for income taxes on continuing operations . . . . .

(1.1)%
0.3%

5.8%
1.7%

7.8%
2.2%

Loss from discontinued operations, net of income taxes . . . . . . . . .
Net (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.0%
(1.4)%

0.0%
4.1%

(0.8)%
4.9%

Fiscal Year Ended September 30, 2014 (‘‘fiscal 2014’’) Compared to Fiscal Year Ended September 30, 2013
(‘‘fiscal 2013’’)
Net Sales
Net sales by segment were as follows:
Fiscal year ended September 30,
2014
2013
Net Sales
% of total
Net Sales
% of total

Segment

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

.
.
.
.

.
.
.
.

.
.
.
.

$1,879,481
850,797
250,224
225,276

58.6% $1,938,921
26.5%
743,861
7.8%
246,731
7.0%
233,528

Net sales . . . . . . . . . . . . . . . . .

$3,205,778

100.0% $3,163,041

$ change

61.3% $ (59,440)
23.5% 106,936
7.8%
3,493
7.4%
(8,252)

% change

(3.1)%
14.4%
1.4%
(3.5)%

100.0% $ 42,737

1.4%

Wholesale
Net sales for the Wholesale segment decreased $59,440, or 3.1%, to $1,879,481 in fiscal 2014 from
$1,938,921 in fiscal 2013. The decrease was primarily attributable to the following:
• $(57,845) from decreased sales of domestic private label products, primarily driven by lower volume to existing customers and pricing pressure,

57

• $(20,914) from decreased sales of domestic branded products, primarily driven by decreases in joint care and sports nutrition categories, partially offset by continued growth in Nature’s
Bounty↧, and
• $19,319 from increased sales of branded and private label sales to international customers.
We continue to adjust shelf space allocation between the Wholesale brands to provide the best overall product mix and to respond to changing market conditions. These efforts have helped to strengthen Wholesale’s position in the mass market. Wholesale continues to leverage valuable consumer sales information obtained from our retail stores and Direct Response/E-Commerce operations to provide our mass-market customers with data and analyses to drive mass market sales.
We use targeted promotions to grow overall sales. Promotional programs and rebates were
$371,344, or 16.2% of sales for fiscal 2014 as compared to $326,963, or 14.2% of sales for fiscal 2013.
Product returns represented $37,520, or 1.6% of sales for fiscal 2014 as compared to $31,087, or
1.4% of sales for fiscal 2013. The product returns for fiscal 2014 and fiscal 2013 were mainly attributable to returns in the ordinary course of business. We expect returns relating to normal operations to trend between 1% to 2% of Wholesale’s sales in future years.
One customer, Wal-Mart, represented 19% and 21% of the Wholesale segment’s net sales for fiscal 2014 and 2013, respectively. It also represented 11% and 13% of consolidated net sales for fiscal
2014 and 2013, respectively. The loss of this customer, or any of our other major customers, could have a material adverse effect on our results of operations if we were unable to replace that customer.
European Retail
Net sales for the European Retail segment increased $106,936, or 14.4%, to $850,797 in fiscal 2014 from $743,861 in fiscal 2013. For fiscal 2014 same store sales in U.S. dollars increased 10.1%, or
$71,230, as compared to fiscal 2013 (same store sales include online sales). In local currency, same store sales increased 4.2% as compared to fiscal 2013. The average exchange rate of the British pound sterling to the U.S. dollar strengthened 6.1% and the euro to the US dollar strengthened 3.4% as compared to the prior comparable period.

58

The following is a summary of European Retail store activity:
Fiscal
2014

Company-owned stores
Open at beginning of the period
Opened during the period . . . . .
Acquired during the period . . . .
Closed during the period . . . . . .

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Open at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fiscal
2013

901
39
—
(13)

856
36
13
(4)

927

901

Franchised stores
Open at beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Opened during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closed during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

79
17
(7)

40
45
(6)

Open at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

89

79

980
56
—
(20)

896
81
13
(10)

Total company-owned and franchised stores
Open at beginning of the period . . . . . .
Opened during the period . . . . . . . . . . .
Acquired during the period . . . . . . . . . .
Closed during the period . . . . . . . . . . . .

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Open at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,016

980

Direct Response/E-Commerce
Net sales for the Direct Response/E-Commerce segment increased $3,493, or 1.4%, to $250,224 in fiscal 2014 from $246,731 in fiscal 2013. The total number of orders increased approximately 7% and the average order size declined 5% for fiscal 2014 as compared to fiscal 2013. Online orders comprised
71.8% of this segment’s net sales for fiscal 2014 as compared to 70.1% for fiscal 2013.
This segment continues to vary its promotional strategy throughout the fiscal year, utilizing highly promotional catalogs which are not offered in every quarter.
North American Retail
Net sales for the North American Retail segment decreased $8,252, or 3.5%, to $225,276 in fiscal
2014 from $233,528 in fiscal 2013. Same store sales (including online sales) decreased 3.0% due to declines in volume which are partially attributable to a softer retail environment and lower revenue in the weight management product category due to positive media attention for certain products in this category in the prior comparable period.
The following is a summary of North American Retail store activity:
Fiscal
2014

Total North American Retail
Open at beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Opened during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closed during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59

Fiscal
2013

421
18
(25)

426
4
(9)

414

421

Cost of Sales
Cost of sales was as follows:
Fiscal year ended
September 30,
2014
2013

Cost of Sales . . . . . . . . . . . . . . . . . . . . . . .
Percentage of net sales . . . . . . . . . . . . . . . .

$ Change

% Change

$1,740,417
$1,700,909
$39,508
54.3%
53.8%

2.3%

The increase in cost of sales relates primarily to increased sales in our European Retail segment.
Cost of sales as a percentage of net sales increased by 0.5 percentage points as compared to the prior comparable period. This was the result of higher promotions to maintain sales, lower sales prices for our private label products as well as costs at our facilities which were not absorbed by certain private label and contract manufacturing products due to lower demand.
Advertising, Promotion and Catalog Expenses
Total advertising, promotion and catalog expenses were as follows:
Fiscal year ended
September 30,
2014
2013

Advertising, promotion and catalog . . . . . . . . . .
Percentage of net sales . . . . . . . . . . . . . . . . .

$ Change

% Change

$202,754
$189,485
$13,269
6.3%
6.0%

7.0%

Advertising promotion and catalog expenses have increased by 0.3 percentage points as a percentage of net sales. The increase in advertising, promotion and catalog expense is primarily due to media and website advertising in our Wholesale segment, as we continue to increase our focus on branded products. To a lesser extent, there were increases in our Direct Response/E-commerce segment due to increased costs associated with internet advertising and in our European Retail segment in which advertising costs increased proportionate to the increase in net sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (‘‘SG&A’’) were as follows:
Fiscal year ended
September 30,
2014
2013

Selling, general and administrative . . . . . . . . . .
Percentage of net sales . . . . . . . . . . . . . . . . .

$ Change

% Change

$952,533
$910,187
$42,346
29.7%
28.8%

4.7%

SG&A for fiscal 2014 increased by $42,346, or 0.9 percentage points as a percentage of net sales compared to fiscal 2013 primarily due to increases of: $16,415 in building and occupancy costs due to additional stores and foreign currency fluctuations in the European Retail segment; $11,099 in payroll and payroll related costs due to increases in salaries in our European Retail segment resulting from the increase in stores and foreign currency fluctuations partially offset by a reduction to performance based compensation; $10,918 in professional services associated with ongoing implementation and support of our ERP system; $9,092 of additional depreciation and amortization due to the implementation of our new ERP system in the third quarter of fiscal 2013 additional stores and the implementation of our new Point of Sale (POS) system in the European Retail segment in the second quarter of fiscal 2014;
$5,321 in freight costs due to increased product and equipment movement between facilities as a result of the facility restructuring. These increases were partially offset by a $13,225 reduction in legal and professional expenses primarily due to the accrual for the Glucosamine case in the prior comparable period of $12,000, of which, approximately $6,000 of that accrual was reversed in the current period, offset by other settlements in the current year.

60

Income (Loss) from Operations
Income (loss) from operations was as follows:
Fiscal year ended
September 30,
2014
2013

Wholesale . . . . . . . . . . . . . . .
European Retail . . . . . . . . . . .
Direct Response/E-Commerce .
North American Retail . . . . . .
Corporate . . . . . . . . . . . . . . .

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$ Change

$ 177,069 $ 231,812 $ (54,743)
191,207
170,479
20,728
(141,660)
39,104
(180,764)
(26,975)
24,538
(51,513)
(96,901) (136,168)
39,267

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 102,740

Percentage of net sales . . . . . . . . . . . . . . . .

$ 329,765

3.2%

$(227,025)

% Change

(23.6)%
12.2%
(462.3)%
(209.9)%
(28.8)%
(68.8)%

10.4%

The decrease in the Wholesale segment is primarily due to decreased net sales as a result of the continued decline in private label sales as well as a decline in the joint care and sports nutrition categories. Furthermore, the Wholesale segment experienced a slight reduction in margins relating to promotional activity due to increased competition, as well as increased marketing and advertising expenses in order to maintain sales. The increase in the European Retail segment was the result of higher sales volume, partially offset by increased advertising and SG&A costs (primarily payroll costs and building costs associated with new and acquired stores), as well as significant fluctuations in foreign currency as the U.S. dollar weakened as compared to the British pound sterling and the euro. The decrease in the Direct Response/E-Commerce segment was primarily due to the impairment of goodwill and intangible assets of $171,590, as well as increased promotions and advertising costs in order to maintain sales. The decrease in the North American Retail segment was primarily due to the impairment of goodwill and intangible assets of $35,744 as well as the decrease in net sales from same store sales and increased SG&A costs. Corporate/Manufacturing loss decreased from the prior comparable period due to the costs of $32,695 associated with the facilities restructuring in the prior year. Interest Expense
Interest expense for fiscal 2014 decreased as compared to fiscal 2013 due to a lower interest rate on the term loan B-2 due to the refinancing that took place in March 2013 and the write-off of deferred financing costs and call premium totaling $5,383 relating to the refinancing in the prior comparable period. See ‘‘Liquidity and Capital Resources’’ for a description of the senior secured credit facilities and the Notes.
Miscellaneous, net
The components of miscellaneous, net were as follows:
Fiscal year ended
September 30,
2014
2013

Foreign exchange losses . . . . . . . . . . .
Investment income . . . . . . . . . . . . . .
Ineffectiveness on cross currency swap
Other . . . . . . . . . . . . . . . . . . . . . . . .

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Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61

$ Change

$(1,994) $(2,196) $ 202
704
1,245
(541)
966
1,611
(645)
(385)
1,033
(1,418)
$ (709) $ 1,693

$(2,402)

Provision for Income Taxes
Our (benefit) 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. Our overall effective income tax rate could vary as a result of these factors. The effective income tax rate for fiscal 2014 and 2013 was 29.8%. The effective income tax rate was lower for fiscal 2014 primarily due to the impact of the impairment of goodwill during fiscal 2014, for which no income tax benefit was recorded.
Fiscal Year Ended September 30, 2013 Compared to Fiscal Year Ended September 30, 2012(‘‘fiscal 2012’’)
Net Sales
Net sales by segment were as follows:
Fiscal year ended September 30,
2013
2012
Net Sales
% of total
Net Sales
% of total

Segment

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

.
.
.
.

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.

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.
.
.

$1,938,921
743,861
246,731
233,528

61.3% $1,826,780
23.5%
699,675
7.8%
239,409
7.4%
233,869

Net sales . . . . . . . . . . . . . . . . .

$3,163,041

100.0% $2,999,733

$ change

% change

60.9% $112,141
23.3%
44,186
8.0%
7,322
7.8%
(341)
100.0% $163,308

6.1%
6.3%
3.1%
(0.1)%
5.4%

Wholesale
Net sales for the Wholesale segment were $1,938,921 for fiscal 2013 as compared to $1,826,780 for fiscal 2012. The increase of $112,141 or 6.1% was primarily attributable to the following:
• $120,468 from increased sales of domestic branded products, primarily driven by continued growth in key brands such as Nature’s Bounty↧, Osteo Bi-Flex↧ and sports nutrition brands
(such as Pure Protein↧ and Body Fortress↧),
• ($64,211) from decreased sales of domestic private label products, primarily driven by decreased
SKUs to existing customers and pricing pressure, and
• $55,884 from increased sales of branded and private label sales to international customers.
We continue to adjust shelf space allocation between the Wholesale brands to provide the best overall product mix and to respond to changing market conditions. These efforts have helped to strengthen Wholesale’s position in the mass market. The Wholesale segment continues to leverage valuable consumer sales information obtained from our retail stores and Direct Response/E-Commerce operations to provide our mass market customers with data and analyses to drive mass market sales.
We use targeted promotions to grow overall sales. Promotional programs and rebates were
$326,963, or 14.2% of sales for fiscal 2013 as compared to $295,325, or 13.7% of sales for fiscal 2012.
Product returns represented $31,087, or 1.4% of sales for fiscal 2013 as compared to $28,333 or
1.3% of sales for fiscal 2012. The product returns for fiscal 2013 and fiscal 2012 were mainly attributable to returns in the ordinary course of business. We expect returns relating to normal operations to trend between 1% to 2% of Wholesale’s sales in future years.
One customer, Wal-Mart, represented 21% and 23% of the Wholesale segment’s net sales for fiscal 2013 and 2012, respectively. It also represented 13% and 14% of consolidated net sales for fiscal

62

2013 and 2012, respectively. The loss of this customer, or any of our other major customers, could have a material adverse effect on our results of operations if we were unable to replace that customer.
European Retail
Net sales for the European Retail segment increased $44,186, or 6.3%, to $743,861 in fiscal 2013 from $699,675 for fiscal 2012. For fiscal 2013 same store sales in U.S. dollars increased 2.4%, or
$16,419, as compared to fiscal 2012 (same store sales include internet sales for such segment). In local currency, same store sales increased 3.1% as compared to fiscal 2012.
The following is a summary of European Retail store activity:
Fiscal
2013

European Retail stores:

Company-owned stores
Open at beginning of the period .
Opened during the period* . . . . .
Acquired during the period . . . .
Closed during the period . . . . . .

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Open at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fiscal
2012

856
36
13
(4)

823
39
—
(6)

901

856

Franchised stores
Open at beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Opened during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closed during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

40
45
(6)

28
13
(1)

Open at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

79

40

896
81
13
(10)

851
52
—
(7)

980

896

Total company-owned and franchised
Open at beginning of the period . .
Opened during the period* . . . . . .
Acquired during the period . . . . .
Closed during the period . . . . . . .

stores
.....
.....
.....
.....

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Open at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*

includes stores that were converted from Julian Graves to either Holland & Barrett, GNC
(UK) or Nature’s Way stores.

Direct Response/E-Commerce
Net sales for the Direct Response/E-Commerce segment increased $7,322, or 3.1%, to $246,731 in fiscal 2013 from $239,409 in fiscal 2012. The total number of orders increased approximately 8% and the average order size declined 7% for fiscal 2013 as compared to fiscal 2012. Online net sales comprised 65.8% of this segment’s net sales for fiscal 2013 as compared to 61.3% for fiscal 2012.
This segment continues to vary its promotional strategy throughout the fiscal year, utilizing highly promotional catalogs which are not offered in every quarter.
North American Retail
Net sales for this segment remained relatively consistent when compared to fiscal 2012. Same store sales increased 1.3%, (same store sales include online sales for such segment).

63

The following is a summary of North American Retail store activity:
Fiscal
2013

Fiscal
2012

Open at beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Opened during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closed during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

426
4
(9)

443
—
(17)

Open at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

421

426

North American Retail stores:

Cost of Sales
Cost of sales was as follows:
Fiscal year ended
September 30,
2013
2012

Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of net sales . . . . . . . . . . . . . . . . . .

$ Change

% Change

$1,700,909 $1,608,436 $92,473
53.8%
53.6%

5.7%

The increase in cost of sales relates primarily to increased sales in our Wholesale and European
Retail segments. Cost of sales as a percentage of net sales increased by 0.2 percentage points as compared to the prior comparable period. This was the result of (i) costs at our facilities which were not absorbed by certain private label and contract manufacturing products due to lower demand (which we expect to be addressed with the supply chain restructuring discussed above at ‘‘Plan of
Restructuring’’), and (ii) a one-time increase of $2,417 in cost of sales related to a fair value adjustment on inventory acquired from Balance Bar, partially offset by (i) increased sales of our branded products which have higher margins and (ii) localized sourcing which has increased margins in our European retail segment. Cost of sales as a percentage of net sales has fluctuated in the last few years, in part due to competitive pressures in the private label business, product mix and fluctuations in the costs of certain raw materials. To address these matters, we continuously seek to implement improvements in our supply chain, and are also increasing our focus on branded sales.
Advertising, Promotion and Catalog Expenses
Total advertising, promotion and catalog expenses were as follows:
Fiscal year ended
September 30,
2013
2012

Advertising, promotion and catalog . . . . . . . . . . . .
Percentage of net sales . . . . . . . . . . . . . . . . . . .

$ Change

% Change

$189,485 $164,298 $25,187
6.0%
5.5%

15.3%

As a percentage of sales, advertising promotion and catalog expense has increased by
0.5 percentage points as a percentage of net sales. The increase in advertising, promotion and catalog expense is primarily due to media and website advertising in our Wholesale segment, as we continue to increase our focus on branded products.

64

Selling, General and Administrative Expenses
SG&A were as follows:
Fiscal year ended
September 30,
2013
2012

Selling, general and administrative . . . . . . . . . . . .
Percentage of net sales . . . . . . . . . . . . . . . . . . .

$ Change

% Change

$910,187 $832,629 $77,558
28.8%
27.8%

9.3%

As a percentage of sales, SG&A remained relatively consistent. SG&A costs increased by $77,558 compared to fiscal 2012 due to increases of: $23,381 in professional and legal fees primarily relating to the settlement of the glucosamine product litigation and consultants for supply chain enhancements; payroll and payroll related costs increases of approximately $10,275 relating primarily to salary increases and increased number of stores in the European Retail segment; $9,962 of temporary help and outside services primarily related to the increased use of temporary personnel in our distribution centers as well as at some of our international retail locations; freight cost increases of approximately
$6,279 primarily due to increased sales and higher fuel costs; building cost increases of $5,469 due to new or acquired stores in our European Retail segment; amortization and depreciation increases of
$3,658 as a result of amortizing intangible assets acquired with Balance Bar during fiscal 2013 as well as assets put into service in relation to our new ERP system; and other cost increases of $11,147 as a result of various items such as additional market and brand research costs, product donations and certain new facility start-up costs.
Income from Operations
Income from operations was as follows:
Fiscal year ended
September 30,
2013
2012

Wholesale . . . . . . . . . . . . . . .
European Retail . . . . . . . . . .
Direct Response/E-Commerce
North American Retail . . . . .
Corporate . . . . . . . . . . . . . . .

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Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of net sales . . . . . . . . . . . . . . . . . .

$ Change

% Change

$ 231,812 $241,504 $ (9,692)
170,479
157,540
12,939
39,104
46,179
(7,075)
24,538
26,758
(2,220)
(136,168) (77,611) (58,557)

(4.0)%
8.2%
(15.3)%
(8.3)%
75.4%

$ 329,765

(16.4)%

10.4%

$394,370

$(64,605)

13.1%

The decrease in the Wholesale segment is primarily due to increased advertising and professional fees. The increase in the European Retail segment is related to the increase in sales partially offset by higher SG&A costs (primarily salaries and store occupancy costs due to new or acquired stores during fiscal 2013). The decrease in the Direct Response/E-Commerce segment is primarily due to lower gross margins due to increased promotional activity and higher SG&A costs. The decrease in the North
American Retail segment is a result of lower margins when compared to the prior comparable period due to increased promotional activity. The increase in the loss at Corporate primarily relates to the facility restructuring costs of $32,695 as well as the accrual of the glucosamine litigation settlement described above.
Interest Expense
Interest expense decreased by $11,484 to $147,100, primarily due to lower interest rates as a result of the refinancing in the second quarter of fiscal 2013 as well as the write-off of deferred financing

65

costs of $9,289 associated with the prior year prepayment of $225,000 of our Term loan B-1. These decreases were partially offset by the write-off of deferred financing costs of $4,232 and $1,151 of the call premium associated with the refinancing of Term Loan B-1 in fiscal 2013 and additional interest on our revolving credit facility as we drew down $80,000 in November 2012 to fund the acquisition of
Balance Bar. The revolving credit facility has been repaid in its entirety as of September 30, 2013. See
‘‘Liquidity and Capital Resources’’ for a description of the senior secured credit facilities and the
Notes.
Miscellaneous, net
The components of miscellaneous, net were as follows:
Fiscal year ended
September 30,
2013
2012

Foreign exchange gains (losses) . . . . .
Investment income . . . . . . . . . . . . . .
Ineffectiveness on cross currency swap
Other . . . . . . . . . . . . . . . . . . . . . . . .

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Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ Change

$(2,196) $ (53) $(2,143)
1,245
1,160
85
1,611
(3,358)
4,969
1,033
1,248
(215)
$ 1,693

$(1,003) $ 2,696

Provision for Income Taxes
Our provision for income taxes was 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 2029. Our overall effective income tax rate could vary as a result of these factors. The effective income tax rate has increased for fiscal 2013 to
29.8% compared to 27.8% in the prior fiscal year, primarily due to the tax benefit for the sale of Le
Naturiste in fiscal 2012, which did not reoccur in fiscal 2013.
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:

2014

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital (including cash and cash equivalents) . . . . .

Fiscal year ended
September 30,
2013

2012

$139,488
$826,960

$198,561
$731,935

$315,136
$882,495

The increase in working capital of $95,025 at September 30, 2014 as compared to September 30,
2013 was primarily due to increases in inventory to achieve higher order fulfillment rates, partially offset by a decrease in accounts payable due to the timing of payments. The decrease in cash and cash equivalents of $59,073 at September 30, 2014 as compared to September 30, 2013 was primarily due to net cash used in operations, primarily for inventory, and purchases of property, plant and equipment.
The decrease in working capital of $149,298 and cash and cash equivalents of $116,575 at
September 30, 2013 as compared to September 30, 2012 was primarily due to the dividend payments of
$721,682 net of the impact of the issuance of the Holdco Notes, discussed above.

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We monitor current and anticipated future levels of cash and cash equivalents in relation to anticipated operating, investing and financing requirements. As of September 30, 2014, cash and cash equivalents of $61,187 was 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. However, during fiscal 2013 and 2012 we permanently reinvested approximately $27,000 and $25,000, respectively, of our foreign earnings outside of the
United States.
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:

2014

Cash flow provided by operating activities . . . . . . .
Cash flow used in investing activities . . . . . . . . . .
Cash flow used in financing activities . . . . . . . . . .
Total inventory turnover . . . . . . . . . . . . . . . . . . . .
Finished goods inventory turnover (excluding bulk)
Days sales outstanding in accounts receivable . . . .

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Fiscal year ended
September 30,
2013

2012

$102,744 $ 311,576 $ 234,050
$ (98,019) $(204,145) $ (85,799)
$ (60,441) $(224,916) $(229,360)
2.08
2.37
2.28
4.11
4.42
4.34
36
34
32

Net cash provided by operating activities of $102,744 during fiscal 2014 was attributable to income earned from operations after adjusting for the impairment charge in our Direct Response/E-commerce and North American Retail segments partially offset by increases in inventory to maintain satisfactory customer fulfillment rates. During fiscal 2014, net cash used in investing activities consisted of purchases of property, plant and equipment, partially offset by cash received from the sale of certain facilities. During fiscal 2014, net cash used in financing activities related to dividends paid to Holdings.
Cash provided by operating activities of $311,576 during fiscal 2013 was mainly attributable to net income of $129,480 and changes in operating assets and liabilities. During fiscal 2013, cash flows used in investing activities consisted primarily of cash paid for acquisitions relating to Balance Bar and purchases of property, plant and equipment. During fiscal 2013, cash flows from financing activities primarily related to the offering of the Holdco Notes and the dividend discussed above.
Cash provided by operating activities of $234,050 during fiscal 2012 was mainly attributable to net income of $146,471. During fiscal 2012, cash flows used in investing activities consisted primarily of cash paid for purchases of property, plant and equipment. During fiscal 2012, cash flows used in financing activities relate to principal payments under long-term debt agreements.
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 European
Retail segment.
Senior Secured Credit Facilities, Holdco Notes and Notes
On October 1, 2010, NBTY entered into senior secured credit facilities totaling $2,000,000, consisting of $1,750,000 term loan facilities and a $250,000 revolving credit facility. In addition, NBTY issued $650,000 aggregate principal amount of the Notes with an interest rate of 9% and a maturity date of October 1, 2018.
On March 1, 2011, NBTY, Holdings and Barclays Bank PLC, as administrative agent, and several other lenders entered into the First Amendment and Refinancing Agreement (the ‘‘First Refinancing’’).
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.

67

On December 30, 2011, NBTY prepaid $225,000 of principal on its term loan B-1. As a result of this prepayment, $9,289 of deferred financing costs were written off. In accordance with the prepayment provisions of the First Refinancing, no scheduled payments of principal will 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
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 is paid via dividends from NBTY to Holdings, to the extent that it 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 cash dividend of approximately $193,956 in October 2012.
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 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 will be amortized using the effective interest method.
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 approximately $600 were incurred and will be amortized over the remaining period.
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.

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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). All other financial covenants required by the senior secured credit facilities were removed as part of the First Refinancing. As of September 30, 2014, NBTY was in compliance with all covenants under the agreement.
As of September 30, 2014 there were no borrowings drawn from the $200,000 revolving credit facility and there was a letter of credit totaling $4,400, reducing the net availability to $195,600.
Original Holdco Notes
On October 17, 2012, Holdings, our parent company, 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 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, our parent company, 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.
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 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, our parent company, 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

69

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;
(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 made to date have been in cash. As of September 30, 2014, 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. 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.

70

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: 4.00 to 1.00 in fiscal 2014; 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 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 is as follows:
Fiscal 2014

Senior secured debt . . . . . . . . . . . . . . . . . . . . .
Less up to $150,000 unrestricted cash balance . .

Fiscal 2013

Fiscal 2012

$1,507,500 $1,507,500 $1,507,500
(132,161)
(150,000)
(150,000)
(a)

Consolidated EBITDA (four consecutive quarters) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Secured Leverage Ratio . . . . . . . . . . . .
Maximum Allowed (per the senior secured credit facilities to the extent then applicable) .

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$1,375,339

$1,357,500

$1,357,500

(b)

$ 486,538

$ 536,183

560,925

2.83x

2.53x

2.42x

4.00x

4.25x

4.50x

(a/b)

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 (loss) income to EBITDA and Consolidated EBITDA (as defined in our senior secured credit facilities) for the four consecutive quarters ended September 30,
2014, 2013 and 2012:
Fiscal 2014

Fiscal 2013

Fiscal 2012

.....
.....

$ (44,152)
136,038

$129,480
147,100

$146,471
158,584

.....
.....

10,145
106,557

54,878
110,636

56,199
104,375

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

208,588

442,094

465,629

Severance costs(a) . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation(b) . . . . . . . . . . . . .
Management fee(c) . . . . . . . . . . . . . . . . . . . .
Inventory fair value adjustment(d) . . . . . . . . .
Consulting Fees(e) . . . . . . . . . . . . . . . . . . . . .
Impairments and disposals(f) . . . . . . . . . . . . .
Other items(g) . . . . . . . . . . . . . . . . . . . . . . .
Proforma cost savings(h) . . . . . . . . . . . . . . . .
Limitation on certain EBITDA adjustments(i) .

7,078
4,088
3,000
—
23,586
214,683
17,202
35,133
(26,820)

22,235
1,982
3,000
2,417
26,826
2,195
41,189
61,300
(67,089)

3,206
2,680
3,000
—
15,570
32,565
12,419
56,054
(30,198)

Net income (loss) . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
(Benefit) provision from income taxes operations . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . .

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on continuing
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Consolidated EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . .

$486,538

$536,149

$560,925

(a)

Reflects the exclusion of severance costs incurred at various subsidiaries of the Company.
Included in fiscal 2013 are workforce reduction costs of $16,752, which relate to the facility restructuring. (b)

Reflects the exclusion of non-cash expenses related to stock options.

(c)

Reflects the exclusion of the Carlyle consulting fee.

(d)

Reflects the exclusion of the sell-through of the increased fair value of opening inventory at time of acquisition required under acquisition accounting.

(e)

Reflects the exclusion of consulting fees, as permitted in our senior secured credit facilities, for items such as business optimization consulting.

(f)

Reflects the impairment of certain assets, including the impairment of $207, 334 relating to goodwill and intangible assets in our Direct Response / E-commerce and North American
Retail segments in fiscal 2014 and $27,509 relating to the impairment and disposal of Julian
Graves Limited in fiscal 2012.

(g)

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 and integration costs associated with acquisitions.

(h)

Reflects four consecutive quarters of prospective savings permitted 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. 73

(i)

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.

Off-Balance Sheet Arrangements
See description of the Holdco Notes above for off-balance sheet arrangements. For additional information relating to certain contractual cash obligations see below.
Contractual Obligations
A summary of contractual cash obligations as of September 30, 2014 is as follows:

Total

Long-term debt, excluding interest(1) . . .
Interest(1) . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . .
Management fee . . . . . . . . . . . . . . . . .
Purchase commitments . . . . . . . . . . . .
Employment and consulting agreements

.
.
.
.
.
.

261
114,171
116,215
3,000
185,178
1,750

After 5
Years

.
.
.
.
.
.

$2,159,318
396,725
685,252
15,000
185,178
7,292

$

$

201
224,030
199,593
6,000
—
2,975

$2,158,682
58,521
149,643
6,000
—
2,567

$

Total contractual cash obligations . . . . . . . .

$3,448,765

$420,575

$432,799

$2,375,413

$219,978

(1)

.
.
.
.
.
.

Payments Due By Period
Less Than
1-3
4-5
1 Year
Years
Years

174
3
219,801
—
—
—

Excludes the $1 billion of Holdco Notes and related interest at 7.75%, assuming cash interest.

Future interest expense included in the above table on our variable rate debt is calculated based on the current rate in effect after the Second Refinancing. Variable interest on our senior secured credit facilities, included in the above table, is calculated assuming the current interest rate following the Second Refinancing of 3.5% (which assumes a 2.5% spread over the LIBOR floor of 1.00%) remains in effect for all future periods. To the extent future LIBOR rates are greater than 1.00%, actual future interest expense will be greater than noted in the above table.
We conduct retail operations under operating leases, which generally have lease terms between
5 and 15 years, with the longest lease term expiring in 2034. Some of the leases contain escalation clauses, as well as renewal options, and provide for contingent rent based upon sales plus certain tax and maintenance costs. At September 30, 2014, we had $685,252 in future minimum rental payments
(excluding real estate tax and maintenance costs) for retail locations and other leases that have initial or noncancelable lease terms in excess of one year. Future minimum rental payments (excluding real estate tax and maintenance costs) for retail locations and other leases that have initial or noncancelable lease terms in excess of one year are noted in the above table.
A management fee of $3,000 per year is paid to Carlyle. For the purposes of the above table, a term of five years was assumed. See Item 13. Certain Relationships and Related Party Transactions, and
Director Independence—Consulting Agreement—Carlyle.
During fiscal 2014, no one supplier individually represented greater than 10% of our raw material purchases. We do not believe that the loss of any single supplier would have a material adverse effect on our consolidated financial statements. We were committed to make future purchases for inventory related items, such as raw materials and finished goods, under various purchase arrangements, with fixed price provisions as well as open capital commitments, primarily related to leasehold

74

improvements, manufacturing equipment, computer hardware and software aggregating $185,178 at
September 30, 2014. Generally, most of our purchase commitments are cancelable at our discretion until the order has been shipped, but require repayment of all expenses incurred through the date of cancellation. At September 30, 2014, we had a liability of $8,030 for unrecognized tax benefits, the recognition of which would have an effect of $5,961 on income tax expense and the effective income tax rate. We do not believe that the amount will change significantly in the next 12 months. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond
12 months due to uncertainties in the timing of tax audit outcomes.
Seasonality
Although we believe that our business is not seasonal in nature, historically we have experienced, and expect to continue to experience, a substantial variation in our net sales and operating results from quarter to quarter. 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%, 32% and 31% of our net sales for fiscal 2014, 2013 and 2012, respectively, 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.
Our foreign subsidiaries accounted for the following percentages of assets and total liabilities as of
September 30, 2014 and 2013:
2014

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2013

27% 26%
6% 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 stockholders’ equity under the caption ‘‘Accumulated other comprehensive income (loss).’’
During fiscal 2014, 2013 and 2012, translation (losses)/gains of ($18,799), $605, and $16,740, respectively, were included in determining other comprehensive income (loss). Accordingly, cumulative translation losses of approximately ($28,481) and ($9,680) were included as part of accumulated other comprehensive income (loss) within the consolidated balance sheet at September 30, 2014 and 2013, 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.

75

Inflation
Inflation affects the cost of raw materials, goods and services we use. High energy costs and fluctuations in commodity prices can affect the cost of all raw materials and components. The competitive environment somewhat limits our ability to recover higher costs resulting from inflation by raising prices. However, we anticipate passing these costs to our customers, to the extent possible. We seek to mitigate the adverse effects of inflation primarily through improved productivity and strategic buying initiatives.
Item 7A.

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, 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 British pounds sterling (approximately
$300,000 U.S. dollars), with a forward rate of 1.56, and a termination date of September 30, 2017.
Net sales denominated in foreign currencies were approximately $1,126,301, or 35% of total net sales, for fiscal 2014. A majority of our foreign currency exposure is denominated in the British pound sterling, euro, Canadian dollars and the Chinese renminbi. For fiscal 2014, as compared to the prior comparable period the following currencies fluctuated against the U.S. dollar as follows: the British pound sterling increased 5.9%; the euro increased 3.7%; the Canadian dollar decreased 6.9%; and the renminbi increased 1.9%. The combined effect of the changes in these currency rates resulted in an increase of $40,833 in net sales and an increase of $10,787 in operating income.
We are exposed to changes in interest rates on our senior secured credit facilities. We are a party to three interest rate swap contracts that 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 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.
Assuming NBTY’s senior secured credit facilities are fully drawn, each one eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our interest expense on our senior secured credit facilities by approximately $1,978 per year.
Item 8.

Financial Statements and Supplemental Data

See the ‘‘Index to Consolidated Financial Statements’’ included in this Report.

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Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.
Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer (‘‘CEO’’) and chief financial officer (‘‘CFO’’), we have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15(d)-15(e) of the Exchange Act as of September 30, 2014, the end of the period covered by this Report. Based on that evaluation, our
CEO and CFO have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.
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 three months ended September 30, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our CEO and CFO, management assessed, as of September 30, 2014, the effectiveness of our internal control over financial reporting.
This assessment was based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 (‘‘COSO’’). Based on our assessment using those criteria, management concluded that our internal control over financial reporting, as of September 30, 2014, was effective.
The effectiveness of our internal control over financial reporting as of September 30, 2014 has been audited by PricewaterhouseCoopers, LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
Internal control over financial reporting is defined as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
• provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with GAAP principles and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and

77

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Item 9B.

Other Information

None.

78

PART III
Item 10.

Directors, Executive Officers and Corporate Governance

The following table sets forth the names and ages of members of our Board of Directors (the
‘‘Board’’ or ‘‘Directors’’) and executive officers and the positions they held with us as of November 24,
2014, each of whom serves an indefinite term until his or her successor has been appointed and qualified. Name

Age

Position

.
.
.
.
.
.
.
.
.
.
.
.

54
60
70
52
67
62
38
49
40
70
57
43

James Flaherty . . . . . . . .
Karla Packer . . . . . . . . .
Bernard O’Keefe . . . . . .

57
55
61

Chairman of the Board
Director
Director
Director
Director
Director
Director
Director, Chief Executive Officer and President
Chief Financial Officer
Vice Chairman
Chief Accounting Officer, Vice President—Finance
Senior Vice President—General Counsel, Chief
Compliance Officer and Corporate Secretary
Senior Vice President—Marketing and Advertising
Senior Vice President—Human Resources
Chief Supply Chain Officer

Sandra J. Horbach . .
Susan Arnold . . . . . .
David Bernauer . . . .
Marco De Benedetti .
Robert Essner . . . . .
Allan Holt . . . . . . . .
Elliot Wagner . . . . . .
Steven Cahillane . . .
Dipak Golechha . . . .
Harvey Kamil . . . . . .
Joseph Looney . . . . .
Christopher Brennan

.
.
.
.
.
.
.
.
.
.
.
.

.
.
.
.
.
.
.
.
.
.
.
.

Sandra J. Horbach
Sandra J. Horbach has served as a member of our Board since October 2010 and Chairman of the
Board since May 2011. She is a Managing Director of The Carlyle Group, where she focuses on U.S. buyout investment opportunities in the consumer and retail industries and serves as head of the Global
Consumer and Retail team. She currently serves on the Board of Directors of Acosta, Inc., CVC Brasil
Operadora e Agencia de Viagens S.A. and Vogue International. Ms. Horbach is a member of the
Board of Trustees at Rockefeller University and the Investment Committee at Rockefeller University, is
Chairman of the Stanford Business School Advisory Council, and serves on the Board of Trustees of
The Chapin School in New York. Before joining Carlyle, Ms. Horbach spent 18 years at Forstmann
Little, a private investment firm. She also spent two years in the mergers and acquisition department of
Morgan Stanley. Ms. Horbach received her Master’s in Business Administration from the Stanford
University Graduate School of Business and her Bachelor of Arts from Wellesley College. This experience, in particular her extensive experience in the retail and consumer industries, and her experience on other boards, led to the conclusion that Ms. Horbach should serve as a Director.
Susan Arnold
Susan Arnold has served as a member of our Board since November 2013. She is an Operating
Executive at The Carlyle Group focused on global investment opportunities in the consumer and retail sectors. Prior to joining Carlyle, Ms. Arnold was an executive with Procter & Gamble for more than
29 years. Prior to retiring in 2009 as President of Procter & Gamble’s Global Business Units,
Ms. Arnold held various positions within the firm, including Vice Chair of Global Beauty and Health.
She has been a director of McDonalds Corporation since 2008 and Director of The Walt Disney
Company since 2007. This experience, including her prior executive and other leadership roles at a major consumer goods company, led to the conclusion that Ms. Arnold should serve as a Director.

79

David Bernauer
David Bernauer has served as a member of our Board since February 2011. He is the retired
Chairman and Chief Executive Officer of Walgreen Co. He previously served as Chairman of Walgreen from July 2006 until July 2007. From 2003 until July 2006, Mr. Bernauer served as Chairman and Chief
Executive Officer of Walgreen. From 2002 to 2003, he served as President and Chief Executive Officer of Walgreen; from 1999 to 2002 as President and Chief Operating Officer of Walgreen; and he has served in various management positions, with increasing areas of responsibility at Walgreen since 1966.
Currently, he also is a lead director of Lowe’s Companies, Inc. Mr. Bernauer also served on the Board of Office Depot, Inc. from 2004 to April 2011. This experience, including his prior executive and other leadership roles at a major national retailer, led to the conclusion that Mr. Bernauer should serve as a
Director.
Marco De Benedetti
Marco De Benedetti has served as a member of our Board since October 2010. He is a Partner and Managing Director of The Carlyle Group and Co-Head of its Europe buyout team. He is based in
Milan, Italy. Mr. De Benedetti serves on the Board of Directors of Cofide S.p.A (since 1994),
CIR S.p.A. (since 2014), Moncler (since 2008), Commscope (since 2010), Twin-Set Simona Barbieri
(since 2012), and Marelli Motori S.p.A. (since 2013), as well as Save the Children Italia. Before joining
Carlyle, Mr. De Benedetti was the Chief Executive Officer of Telecom Italia. Mr. De Benedetti was the
Chief Executive Officer of Telecom Italia Mobile from 1999 until its merger with Telecom Italia.
Previously, Mr. De Benedetti was the Chairman of Infostrada, the main alternative fixed-line carrier for voice services and internet access in Italy, and Chief Executive Officer of Olivetti Telemedia, the telecommunications and multimedia business of the Olivetti Group. Between 1987 and 1989,
Mr. De Benedetti worked for Wasserstein, Perrella & Co. in New York. In 1990, he joined the Olivetti
Group as Assistant to the Chief Executive Officer of Olivetti Systems and Networks, and he was later appointed as Group Director of Marketing and Services. In 1992, he was appointed General Manager of Olivetti Portugal. Mr. De Benedetti received his Bachelor’s degree in history and economics from
Wesleyan University and his Masters in Business Administration from the Wharton School at the
University of Pennsylvania. This experience, in particular his extensive executive and business management experience, led to the conclusion that Mr. De Benedetti should serve as a Director.
Robert Essner
Robert Essner has served as a member of our Board since February 2011. He is an Operating
Executive at The Carlyle Group focused on global investment opportunities in the healthcare sector.
Mr. Essner was Chairman for Wyeth from 2003 until 2008 and Chief Executive Officer for Wyeth from
2001 until 2008. Mr. Essner worked for 32 years in the pharmaceutical industry and during that time served in many leadership roles, including Chairman of the Pharmaceutical Research and
Manufacturers Association. Mr. Essner is currently a director of MassMutual Life Insurance Company,
Pharmaceutical Product Development, LLC and Amicus Therapeutics, Inc. He currently serves as
Chairman of the not-for-profit Children’s Health Fund and as Trustee of Mote Marine Laboratories.
Mr. Essner is Executive-in-Residence and Adjunct Professor at Columbia Business School, where he teaches courses in Healthcare Management. Mr. Essner received a Master’s degree from the University of Chicago and a Bachelor’s degree from Miami University. This experience, including his extensive background and experience in the pharmaceutical industry, led to the conclusion that Mr. Essner should serve as a Director.
Allan Holt
Allan Holt has served as a member of our Board since October 2010. Mr. Holt, a Partner and
Managing Director of The Carlyle Group, is currently a Co-head of its US Buyout group. Mr. Holt is a

80

graduate of Rutgers University and received his Masters in Business Administration from the University of California, Berkeley. He serves on the boards of directors of Axalta Coating Systems, Booz Allen
Hamilton Holding Corporation, Ortho Clinical Diagnostics and SS&C Technologies, Inc., and the boards of managers of HCR ManorCare, LLC and HCRMC Operations, LLC. He is also a member of the United States Holocaust Memorial Museum Council and serves on the board of advisors or directors of the non-profit DC Greens and The Hillside Foundation. Mr. Holt’s prior board service includes the boards of directors of HD Supply, Inc. (June 2007 to April 2012), Sequa Corporation (July
2007 to February 2011) and Vought Aircraft Industries, Inc. (July 2000 to June 2010). This experience and his extensive knowledge of finance led to the conclusion that Mr. Holt should serve as a Director.
Elliot Wagner
Elliot Wagner has served as a member of our Board since October 2010. He is a Managing
Director of The Carlyle Group, where he focuses on U.S. buyout opportunities in the consumer and retail sector. From 2000 to 2008, Mr. Wagner was a member of Carlyle’s Global Aerospace, Defense, and Government/Business Services team. Before joining Carlyle in 2000, Mr. Wagner was with Lehman
Brothers Inc., focusing on mergers, acquisitions and financings for aerospace, defense, consumer and technology companies. Mr. Wagner received his Bachelor of Science degree from Cornell University, where he currently serves on the Advisory Council of the Dyson School of Applied Economics and
Management. Mr. Wagner also currently serves on the Board of Directors for Acosta, Inc. Mr. Wagner was previously a member of the board of directors and audit committee of Sequa Corporation and
Wesco Aircraft Hardware Corporation. This experience, in particular his experience with companies in the retail and consumer industries, led to the conclusion that Mr. Wagner should serve as a Director.
Steven Cahillane
Steven Cahillane has served as a member of our Board and has been our Chief Executive Officer and President since September 8, 2014. Prior to joining our company, Mr. Cahillane served as
Executive Vice President of The Coca Cola Company from February 2013 to February 2014 and
President of Coca-Cola Americas from January 2013 to February 2014. Mr. Cahillane served as
President of various Coca-Cola operating groups from 2007 to 2012. From 2003 until 2005,
Mr. Cahillane served as the Chief Executive for Interbrew UK and Ireland, a division of InBev S.A and from 2005 to 2007 he served as the Chief Commercial Officer of InBev S.A. Mr. Cahillane received his bachelor’s degree from Northwestern University and his Masters in Business Administration from
Harvard University.
Dipak Golechha
Dipak Golechha became our Chief Financial Officer on August 25, 2014. Prior to joining NBTY, he served as Chief Financial Officer of Chobani from January 2014 until June 2014. From 1995 to
2013, Mr. Golechha served in several leadership positions at Procter & Gamble, including Chief
Financial Officer of the snacks global business unit from 2009 until 2012 and Chief Financial Officer of the feminine health & hygiene global business unit from 2012 to 2013. Mr. Golechha received both his bachelor’s and master’s degrees in economics from St. John’s College, Cambridge University.
Harvey Kamil
Harvey Kamil was the President of NBTY from 2002 and CFO from 1982, when he joined our company. Effective June 13, 2011, Mr. Kamil stepped down as President and CFO of NBTY and became Holdings’ and NBTY’s Vice Chairman. Mr. Kamil taught as an adjunct associate professor at
Suffolk County Community College for thirteen years. He serves on the Board of Directors of the
Council for Responsible Nutrition and on the Board of Directors of the Natural Products Association.
Presently, he is a member of the Dean’s Advisory Council of the Zicklin School of Business of Baruch

81

College and a member of the NY State Regional Economic Development Council for Long Island.
Mr. Kamil received his Bachelor of Business Administration and Masters in Business Administration from the Baruch School of Business, City University of New York, and is a Certified Public Accountant and Certified Management Accountant.
Joseph Looney
Joseph Looney has served as Chief Accounting Officer since September 2012 and as Vice
President-Finance since joining NBTY in June 2006. Mr. Looney was the Chief Financial Officer of
EVCI Career College Holding Corp. from October 2005 to May 2006. Previously, he had been the
Chief Financial Officer and Secretary of Astrex, Inc., a distributor of electronic components, since 2002.
From 1996 to 2002, he was the Chief Financial Officer, V.P. of Finance and Assistant Secretary of
Manchester Technologies, Inc., a network integrator and reseller of computer products. From 1984 to
1996, he was employed by the accounting firm of KPMG LLP. He is a Certified Public Accountant and has a B.A. from Queens College, City University of New York and an M.S. from Long Island
University. Since 1996, Mr. Looney has also been an Adjunct Professor of Accounting and Business
Law at Hofstra University.
Christopher Brennan
Christopher Brennan has served as our Senior Vice President/General Counsel since March 2012,
Corporate Secretary since January 2013 and Chief Compliance Officer since February 2013.
Mr. Brennan served as Senior Vice President/General Counsel at PharmaNet Development
Group, Inc., a contract research organization serving the clinical research needs of large and medium sized multi-national pharmaceutical companies from 2009 to early 2012. Before joining PharmaNet,
Mr. Brennan was Executive Vice President/Corporate Affairs & General Counsel at Quinnova
Pharmaceuticals, Inc., a specialty pharmaceutical company with global operations. Prior to joining
Quinnova in 2005, Mr. Brennan was a corporate associate at the law firms of Cravath, Swaine &
Moore LLP and Dechert LLP. Mr. Brennan served as a Captain in the United States Air Force for five years prior to attending law school. He received his Bachelor of Arts and Juris Doctorate degrees from
Fordham University.
James Flaherty
James Flaherty has been the Senior Vice President/Marketing and Advertising of NBTY since
1987. He joined NBTY in 1979 as a Marketing Manager. In his current position, he directs the in-house staff of marketing, advertising, media and graphic design professionals in the planning, creation and execution of the Company’s advertising, packaging and promotional programs across all mediums. Mr. Flaherty is Vice Chair of Council for Responsible Nutrition (‘‘CRN’’) and serves on its
Media Relations committee. Mr. Flaherty received his Bachelor of Science degree in Business
Administration and Marketing from the State University of New York at Albany.
Karla Packer
Karla Packer has served as Senior Vice President/Human Resources since April 2011. Ms. Packer previously served as Senior Vice President of Human Resources at IMS Health Incorporated, a leading provider of market intelligence to the pharmaceutical and healthcare industries since 2007. Before joining IMS Health, Ms. Packer was Vice President of Human Resources for IAC/InteractiveCorp, a
$6 billion E-Commerce entity, whose brands include Ticketmaster, Expedia and Home Shopping
Network. Ms. Packer spent six years at Avon Products, where she developed human resources strategies in support of Global Marketing, Brand Development, Manufacturing, Supply Chain Strategy, and
Research and Development. She started her career at IBM, where she held several positions in the

82

areas of information technology, sales, marketing and human resources. Ms. Packer received her
Bachelor of Science in Mathematics from Tufts University.
Bernard O’Keefe
Bernard O’Keefe has served as our Chief Supply Chain Officer, since September 2012.
Mr. O’Keefe served as Vice President of Product Supply, for multiple businesses of Procter & Gamble, including Global Feminine Care, Corporate Manufacturing and Global Personal Health Care &
Pharmaceuticals since 2002. Prior to 2002, Mr. O’Keefe held several positions in the areas of supply chain management within Procter & Gamble in Asia, Latin America and North America.
Director Independence and Selection
Following the Merger, NBTY’s equity securities are owned by Holdings; certain investment funds affiliated with Carlyle own substantially all the outstanding equity of Holdings. As of November 24,
2014, our Board of Directors consisted of Steven Cahillane and seven persons associated with and appointed by Carlyle. Our Board has not made a formal determination as to whether each director is
‘‘independent’’ because we have no equity securities listed for trading on a national securities exchange.
Because of their relationships with Carlyle or with us, however, we do not believe that any of our directors would be considered independent under the NYSE’s definition of independence.
In identifying nominees for director, consideration is given to the diversity of professional experience, education and backgrounds among the directors so that a variety of points of view are represented in Board discussions and deliberations concerning our business.
Committees of the Board of Directors
Following the Merger, the Board has three standing committees: (i) the Audit Committee; (ii) the
Compensation Committee; and (iii) the Executive Committee.
Audit Committee. The Audit Committee is comprised of Messrs. Bernauer and Wagner and assists the Board in its oversight of:
• the qualifications, independence and performance of our independent accountants and the performance of our internal auditors and internal audit function;
• the integrity of our financial statements and our financial reporting processes and systems of internal control; and
• our compliance with legal and regulatory requirements.
The Audit Committee provides an avenue of communication among management, the independent accountants, the internal auditors and the Board. In carrying out its responsibilities, the Audit
Committee also meets with the Company’s internal audit staff and with the independent accountants in executive session, without members of management present.
Mr. Wagner is an Audit Committee ‘‘financial expert,’’ as defined by SEC rules, based on the experience noted in his biography above.
Compensation Committee. The Compensation Committee is comprised of Mr. De Benedetti and
Ms. Horbach and assists the Board in:
• developing and periodically reviewing our compensation policies, including equity and similar awards, consistent with, and linked to, our strategies;
• evaluating the performance of our CEO and determining his compensation annually;
• evaluating the performance and compensation of our other executive officers annually;

83

• reviewing management’s recommendations on executive compensation policies and programs;
• recommending to the Board the fees of outside directors;
• reviewing and approving new company benefit plans and amendments to existing benefit plans;
• approving all equity-based compensation plans; and
• reviewing benefit plan administration.
The Compensation Committee has the authority to retain and terminate any consultants, including legal counsel, to assist it in performing its duties and to approve all fee arrangements with consultants.
From time to time, the Compensation Committee may seek information and advice regarding executive compensation market practices from outside independent consultants.
Executive Committee. The Executive Committee is composed of Messrs. Cahillane and Wagner and Ms. Horbach. Its primary function is to act on behalf of the Board during intervals between regularly scheduled meetings of the Board. The Executive Committee may exercise all powers of the
Board, except as otherwise provided by law and our by-laws. The Board reviews all actions taken by the
Executive Committee between Board meetings at the following Board meeting.
Code of Ethics for Senior Financial Officers
We have adopted a Code of Ethics for its Directors, officers and employees, including its senior financial officers and CEO. We will provide a copy of the Code of Ethics to any person upon written request made to Christopher Brennan, our General Counsel, at our headquarters at 2100 Smithtown
Avenue, Ronkonkoma, New York 11779. We intend to satisfy the disclosure requirements of amendments to or waivers from a provision of the code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions by posting such information on our website, www.nbty.com. Our website and the information in or connected to its website are not incorporated into this annual report.
Item 11.

Executive Compensation
Compensation Discussion and Analysis

This Compensation Discussion and Analysis (this ‘‘CD&A’’) describes the principles underlying our compensation policy for fiscal 2014 with respect to the individuals listed below and in the ‘‘2014
Summary Compensation Table’’, whom we call our ‘‘named executive officers’’.
Steven Cahillane, Chief Executive Officer and President (effective September 8, 2014)
Dipak Golechha, Chief Financial Officer (effective August 25, 2014)
Jeffrey Nagel, former Chief Executive Officer (resigned, effective September 8, 2014)
Michael Collins, former Chief Financial Officer (resigned, effective September 5, 2014)
Harvey Kamil, Vice Chairman
Glenn Schneider, President—Global Wholesale (resigned, effective October 31, 2014)
Bernard O’Keefe, Chief Supply Chain Officer

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Overview; Compensation Philosophy and Objectives
During fiscal 2014, the boards of directors of NBTY and Holdings, and the compensation committees of NBTY and Holdings, each comprised of the same individuals (collectively, the
‘‘Compensation Committee’’ or the ‘‘Committee’’), oversaw our executive compensation program. The
Committee designed an executive compensation program to achieve the following goals:
• Attract and retain talented professionals by providing competitive compensation levels;
• Align the interests of our executive officers with those of our primary stockholder through equity-based awards with long-term value; and
• Reward our executives for their contributions to our overall performance as well as for their individual performance.
The ratio of short-term compensation to long-term compensation for each executive varies depending upon the roles and responsibilities of the executive, with generally higher proportions of long-term compensation for more senior executives.
The Compensation Committee seeks to encourage our executives to maximize their performance to achieve our strategy and goals. As part of its compensation assessment, the Compensation
Committee considers many factors to understand the compensation landscape among similarly-sized companies. Although the Compensation Committee does not target specific compensation levels based upon an established group, the Compensation Committee uses external data to inform the decisionmaking process.
Executive Compensation Determinations for Fiscal 2014
During fiscal 2014, total compensation for some or all of our named executive officers consisted of the following components, each discussed in more detail below:
• base salary,
• annual cash bonuses,
• long-term incentive (equity) compensation,
• retirement plans, and
• perquisites.
Role of CEO in Compensation Determinations
Our Compensation Committee determines the nature and amount of all compensation for our executive officers. Our Chief Executive Officer (or ‘‘CEO’’) typically provides recommendations to our
Compensation Committee with respect to all elements of compensation for the named executed officers, except himself, and for the other executives that report to him. Our CEO attends
Compensation Committee meetings, except those that address his own compensation. Historically, the
Compensation Committee has given substantial weight to our CEO’s recommendations, insights and observations. However, the Compensation Committee may modify or reject any of our CEO’s recommendations. An Overview
The Compensation Committee’s approach to compensation is consistent with that at other Carlyle portfolio companies, but takes into account factors particular to our company to establish compensation levels appropriate to each executive’s skills, experience and potential value to our company.

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Discussed below is how the Compensation Committee determined the amount and type of compensation best suited to our goals and how the Compensation Committee believes these decisions reflect our compensation philosophy. The Compensation Committee seeks to establish competitive levels of compensation, align executive interests with those of our primary stockholder and closely link compensation to both short-term and long-term company and individual performance.
Competitive Market/Retention of Talent. The Compensation Committee considered the market for executive talent and attempted to set compensation at competitive levels when measured against other similarly-sized companies (based on revenue), regardless of industry. We seek to set our total compensation to be competitive with the market but do not target specific compensation levels based upon an established group.
Company Performance. In evaluating performance, the Compensation Committee considered our overall financial and operating performance during the period, as well as our achievement of strategic and tactical goals. In fiscal 2014, the Committee principally assessed company performance based on earnings before interest, tax, depreciation and amortization, or ‘‘EBITDA’’, adjusted for non-recurring and extraordinary items (‘‘Adjusted EBITDA’’). The Compensation Committee believes that Adjusted
EBITDA is a useful performance metric for a portfolio company, and correlates closely with financial success and growth in equity value.
Individual Contributions and Performance. As discussed in further detail below, the Compensation
Committee evaluated each executive’s contributions to our financial and operational achievements. The
Compensation Committee considered each executive’s individual performance, both in terms of personal responsibilities and contributions to company goals. The Compensation Committee also considered the executive’s potential for future contributions to our long-term success, and evaluated the executive’s experience, management skills and leadership abilities.
Base Salary
We consider base salary adjustments, if any, annually, and we determine these adjustments based upon individual performance, assumption of new responsibilities, employee retention efforts, our annual salary budget guidelines, and other factors that the Compensation Committee considers relevant, such as compensation packages that competitively-sized (based on revenue) companies offer their executives.
Larger annual increases may be made to higher performers and key contributors, if the overall increases are within our budgeted guidelines. We believe we must offer competitive base salaries to attract and retain high-quality executives who provide our primary stockholder and other stakeholders with increased value. Base salaries provide executives with a fixed level of income security, offering stability and predictability. Our executives understand that our entrepreneurial atmosphere and need for performance accountability place their employment, and not their income alone, at risk. The actual base salaries paid to all of our named executive officers during fiscal 2014 are set forth in the
‘‘Summary Compensation Table’’ below.
The Compensation Committee determined that the level of base salaries was appropriate for the named executive officers and there were no base salary increases for our named executive officers in fiscal 2014. Messrs. Cahillane and Golechha joined our company in 2014 and their initial base salaries were determined as a result of arms-length negotiations.
Incentive Compensation; Annual Cash Bonuses
We believe that annual cash bonuses reward our executives on a short-term basis for their individual performance and contributions to our overall performance and motivate them to advance our goals on a year-over-year basis. Our employment agreements with Messrs. Nagel, Collins, Schneider and O’Keefe provide for a targeted annual cash bonus of 100%, 75%, 75% and 65% of annual base

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salary, respectively. Historically, Mr. Kamil has been provided a targeted annual cash bonus of 75% of annual base salary, subject to upward or downward adjustment at the discretion of the Compensation
Committee. Because Messrs. Cahillane and Golechha joined our company towards the end of fiscal
2014, their employment agreements provide for a targeted annual cash bonus of 100% and 75% of annual base salary, respectively, effective beginning in fiscal 2015. In each case, the Compensation
Committee may adjust the cash bonus amount to reflect the executive’s performance.
Under the terms of the annual bonus plan, results of at least 94.8% of the Adjusted EBITDA performance target must be achieved in order for executives to earn 50.0% of their targeted award.
Achievement of 100% of the Adjusted EBITDA performance target results in an award of 100% of the targeted award. Achievement of at least 110.5% of the Adjusted EBITDA performance target results in an award of 200% of the targeted award. Performance for levels achieved between threshold, target and maximum are linearly interpolated. Once the achievement of the Adjusted EBITDA performance target has been determined, the Compensation Committee makes a subjective assessment of personal performance for each officer, and may adjust the award upward or downward based upon that assessment. In addition, incentive amounts paid under the performance-based programs may be adjusted by the Compensation Committee to account for extraordinary transactions.
For fiscal 2014, we achieved $478 million, or 80.9%, of the Adjusted EBITDA performance target of $591 million. Accordingly, before factoring in the achievement of personal objectives, the executive officers did not achieve any percentage of the target award.
Based on the criteria discussed above, Messrs. Nagel, Collins, Kamil, Schneider and O’Keefe were not awarded cash bonuses for fiscal 2014. Messrs. Cahillane and Golechha are not permitted to participate in the annual bonus plan until fiscal 2015.
Incentive Compensation; Long-Term Compensation
In 2011, we implemented an equity compensation program to provide our management team an opportunity to develop an ownership stake in Holdings. Because we are now owned by a private equity investor, the Compensation Committee has concluded that equity awards generally will be granted based on target levels covering a multi-year period, without an expectation that an executive will receive successive annual grants. This approach more closely aligns the interests of the executive with the long-term investment horizon of our primary stockholder.
The Compensation Committee reserves the right to grant equity awards from time-to-time, in its discretion, to maintain the competitiveness of our compensation program and to provide incentives to high performance and long-term service by our executives. The Compensation Committee did not make any grants to named executive officers in fiscal 2014. Equity awards to Messrs. Nagel, Collins, Kamil and Schneider were granted in fiscal 2011. Mr. O’Keefe was granted an initial award upon his joining our company in September 2012. The time-based portion of these awards typically vests in equal increments over five years, subject to continued employment, whereas the performance-based portion vests only upon the occurrence of a liquidity event and pre-determined performance criteria, also typically subject to continued employment.
Retirement Plans
During fiscal 2014, our executive officers (including our named executive officers) participated in the same retirement plans on the same terms as provided to most of our associates. The plan is known as The NBTY Retirement Plan (the ‘‘Plan’’) and consists of both a 401(k) and a profit sharing component. During fiscal 2014, we made a profit sharing contribution of $3,722,743 for the 2013 plan year, which was allocated to eligible participants based upon their relative eligible compensation. We do not intend to make a contribution to the Plan for the 2014 plan year due to the company’s performance. The profit-sharing and 401(k) matching contributions are subject to certain limits under

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the Internal Revenue Code and represent relatively small components of an executive’s compensation.
Profit-sharing contributions, if any, will be allocated among participants who completed at least
1,000 hours of service in the plan year and who were employed on the last day of the plan year, based upon their relative compensation for the year. Under the terms of the Plan, we provide a matching contribution of up to 4% of the eligible compensation of each participant who has met the eligibility requirements and defers salary into the Plan.
Perquisites
During fiscal 2014, we provided a limited number of perquisites to our named executive officers.
One such perquisite is a life insurance arrangement under which Mr. Kamil is entitled to payments upon retirement, on or after age 65, or death. See the narrative disclosure under the ‘‘Nonqualified
Deferred Compensation,’’ table below. The Compensation Committee believes that this cash value insurance program, which is similar to a defined contribution arrangement, provides an element of retirement income at reasonable annual cost to us. The cost of the fiscal 2014 company-paid premiums is reflected as compensation to Mr. Kamil in the ‘‘All Other Compensation’’ column of the Summary
Compensation Table.
Each of our named executive officers is also entitled to either a company-paid automobile lease or an automobile allowance, with the exception of Messrs. Cahillane and Golechha. In fiscal 2014, we reimbursed Mr. O’Keefe for housing expenses and Mr. Golechha for certain moving and temporary housing expenses, which are fully taxable to the executive. In addition, Mr. Cahillane will have use of the corporate jet to commute from Atlanta, Georgia to Ronkonkoma, New York, up to $200,000 per calendar year. Mr. Cahillane is also entitled to the reimbursement of up to $20,000 in legal fees incurred in connection with the negotiation of his employment agreement. We do not consider perquisites to be a principal component of our executives’ compensation and we believe that these benefits are reasonable and competitive with benefits and perquisites provided to executive officers of similarly-sized companies.
Other Benefits
We also offer certain benefits to substantially all employees, including our named executive officers. These include health and welfare benefits, disability and life insurance, education and tuition reimbursement and an employee assistance program.
Severance and Change in Control Benefits
As more fully described below in the sections entitled ‘‘Employment Agreements’’ and ‘‘Potential
Payments upon Termination or Change in Control’’, in fiscal 2014 Messrs. Cahillane, Golechha, Nagel,
Collins, Schneider, and O’Keefe were parties to employment agreements that each provide for certain payments and benefits upon a qualifying termination of employment, including salary continuation and a pro-rated bonus for the fiscal year of termination. In addition, our named executive officers may be eligible to receive acceleration of certain unvested equity awards in connection with a qualifying termination of employment or qualifying corporate event involving our company.
We believe that such severance and change in control benefits are reasonable and competitive with such benefits provided to executive officers of similarly-sized companies and are necessary to sustain a fully competitive executive compensation program.

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Employment Agreements
Employment Agreement with Steven Cahillane
NBTY and Holdings entered into an employment agreement, dated August 18, 2014, with
Steven Cahillane under which Mr. Cahillane serves as Chief Executive Officer and President of
Holdings and NBTY, as well as a member of the board of directors of each of Holdings and NBTY, effective September 8, 2014. The agreement has an initial five-year term, beginning on September 8,
2014, and provides for successive one-year renewals at the expiration of each term, unless prior written notice of non-renewal by any party is provided 60 days in advance. Under the employment agreement,
Mr. Cahillane’s initial annual base salary is $850,000. His base salary may be increased but not decreased upon periodic review by the Compensation Committee. Beginning with the fiscal year ending
September 30, 2015, Mr. Cahillane will be eligible to receive an annual performance-based bonus targeted at 100% of his annual base salary (i.e., $850,000), subject to adjustments between the range of
50% and 200% of such target for under- or over-performance, as determined by the Compensation
Committee. In addition, pursuant to his employment agreement, Mr. Cahillane will be entitled to receive a stock option award to purchase 50,000 shares of common stock of Holdings at an exercise price equal to the stock’s fair market value on the grant date, which grant will be subject to certain vesting provisions. Mr. Cahillane is also entitled to the reimbursement of up to $20,000 in legal fees and expenses incurred in connection with the negotiation of his employment agreement, and reimbursement of reasonable moving expenses incurred in connection with his relocation to Long
Island, New York.
The employment agreement provides that if Mr. Cahillane’s employment is terminated by us without ‘‘cause’’ or by Mr. Cahillane for ‘‘good reason’’ (each, as defined in his employment agreement), due to non-extension of the term by NBTY and Holdings, or due to death or disability, then, subject to his (or, in the event of his death or disability, his eligible representative’s) timely execution and non-revocation of a release, he will be entitled to receive an amount equal to his annual base salary, payable over the one-year period following his employment termination, and a pro-rata bonus for the fiscal year in which the termination occurs if his employment termination occurs after
April 1st of the applicable fiscal year. The employment agreement contains customary confidentiality provisions, and non-solicitation and non-competition terms applicable to Mr. Cahillane that survive for a period of one year following the termination of his employment with NBTY and Holdings.
Employment Agreement with Jeffrey Nagel
Effective December 6, 2010, NBTY and Holdings entered into an employment agreement with
Jeffrey Nagel under which Mr. Nagel was appointed as CEO of Holdings and NBTY, as well as a member of the board of directors of each of Holdings and NBTY. Under the employment agreement,
Mr. Nagel’s initial annual base salary was $750,000 and he was is eligible to receive a performancebased bonus under NBTY’s annual bonus program targeted at 100% of annual base salary, subject to adjustments between the range of 50% and 200% of such target for under or over performance, as determined by the Compensation Committee. Effective September 8, 2014, Mr. Nagel resigned from his position as CEO and member of the boards of directors and executive committees of NBTY and
Holdings. In connection with his resignation, Mr. Nagel is eligible to receive the following payments:
(i) an amount equal to two times his annual base salary, payable over the two-year period following his employment termination and (ii) a pro rata bonus, based on actual fiscal results, for fiscal 2014 (though no fiscal 2014 bonus is due to Mr. Nagel due to financial underperformance). The employment agreement contained customary confidentiality provisions, and non-solicitation and non-competition terms applicable to Mr. Nagel that survive for a period of two years following the termination of his employment with NBTY and Holdings.

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Employment Agreement with Dipak Golechha
NBTY and Holdings entered into an employment agreement, dated August 14, 2014, with Dipak
Golechha under which Mr. Golechha serves as Senior Vice President and Chief Financial Officer of
Holdings and NBTY. The agreement has an initial five-year term, beginning on August 25, 2014, and provides for successive one-year renewals at the expiration of each term, unless prior written notice of non-renewal by any party is provided 60 days in advance. Under the employment agreement,
Mr. Golechha’s initial annual base salary is $550,000. His base salary may be increased but not decreased upon periodic review by the Compensation Committee. Beginning with the fiscal year ending
September 30, 2015, Mr. Golechha will be eligible to receive an annual performance-based bonus targeted at 75% of his annual base salary (i.e., $412,500), subject to adjustments between the range of
50% and 200% of such target for under- or over-performance, as determined by the Compensation
Committee. In addition, pursuant to his employment agreement, Mr. Golechha will be entitled to receive a stock option award to purchase 10,000 shares of common stock of Holdings at an exercise price equal to the stock’s fair market value on the grant date, which grant shall be subject to certain vesting provisions. Mr. Golechha is also entitled to the reimbursement of reasonable moving expenses incurred in connection with his relocation to Long Island, New York.
The employment agreement provides that if Mr. Golechha’s employment is terminated by us without ‘‘cause’’ or by Mr. Golechha with ‘‘good reason’’ (each, as defined in his employment agreement), or due to non-extension of the term by NBTY and Holdings, then, subject to his timely execution and non-revocation of a release, he will be entitled to receive an amount equal to his annual base salary, payable over the one-year period following his employment termination, and a pro-rata bonus for the fiscal year in which the termination occurs if his employment termination occurs after
April 1st of the applicable fiscal year. The employment agreement contains customary confidentiality provisions, and non-solicitation and non-competition terms applicable to Mr. Golechha that survive for a period of one year following the termination of his employment with NBTY and Holdings.
Employment Agreement with Michael Collins
NBTY and Holdings entered into an employment agreement, dated May 24, 2011, with Mr. Collins under which Mr. Collins served as Chief Financial Officer of Holdings and NBTY, beginning June 13,
2011. Under the employment agreement, Mr. Collins’s initial annual base salary was $600,000 and he was eligible to receive a performance-based bonus under NBTY’s annual bonus program targeted at
75% of annual base salary, subject to adjustments between the range of 50% and 200% of such target for under or over performance, as determined by the Compensation Committee. Effective September 5,
2014, Mr. Collins resigned from his position as Chief Financial Officer of NBTY and Holdings. In connection with his resignation, Mr. Collins is eligible to receive the following payments: (i) an amount equal to his annual base salary, payable over the one-year period following his employment termination, and (ii) a pro-rata bonus for fiscal 2014 (though no fiscal 2014 bonus is due to Mr. Collins due to financial underperformance). The employment agreement contained customary confidentiality provisions, and non-solicitation and non-competition terms applicable to Mr. Collins that survive for a period of one year following the termination of his employment with NBTY and Holdings.
Harvey Kamil Agreement
Under a letter agreement dated May 18, 2011, which amended an employment agreement that we and Mr. Kamil entered into in 2008 (the ‘‘2008 Agreement’’), Mr. Kamil agreed to serve as our Vice
Chairman. As Vice Chairman, Mr. Kamil provides services on an as-needed basis and is entitled to receive annual compensation at an annual rate of total compensation of $624,600. The amendment also provides that the provisions of the 2008 Agreement that were intended to survive the termination of the 2008 Agreement will continue to survive according to their terms, including the non-competition and non-solicitation of business provisions that continue for one-year beyond the termination of

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Mr. Kamil’s employment, and non-solicitation of employees provision that continues for two-years beyond the termination of Mr. Kamil’s employment. Mr. Kamil is not entitled to severance benefits under the letter agreement.
Employment Agreement with Bernard O’Keefe
NBTY and Holdings entered into an employment agreement, dated August 14, 2012, with
Bernard O’Keefe under which Mr. O’Keefe serves as Chief Supply Chain Officer of Holdings and
NBTY. The agreement has an initial five-year term and provides for successive one-year renewals at the expiration of each term, unless prior written notice of non-renewal by any party is provided 60 days in advance. Under the employment agreement, Mr. O’Keefe’s initial annual base salary is $480,000. His base salary may be increased but not decreased upon periodic review by the Compensation Committee.
Mr. O’Keefe also is eligible to receive a performance-based bonus targeted at 65% of annual base salary, subject to adjustments between the range of 50% and 200% of such target for under or over performance, as determined by the Compensation Committee. In addition, under the employment agreement, to maintain a local residence, Mr. O’Keefe is entitled to the reimbursement of up to $3,000 in rent plus utilities each month for the duration of his agreement.
The employment agreement provides that if Mr. O’Keefe’s employment is terminated by us without ‘‘cause’’ or by Mr. O’Keefe with ‘‘good reason’’ (each, as defined in his employment agreement), or due to non-extension of the term by NBTY and Holdings, then, subject to his timely execution and non-revocation of a release, he will be entitled to receive an amount equal to his annual base salary, payable over the one-year period following his employment termination, and a pro-rata bonus for the fiscal year in which the termination occurs if his employment termination occurs after
April 1st of the applicable fiscal year. The employment agreement contains customary confidentiality provisions, and non-solicitation and non-competition terms applicable to Mr. O’Keefe that survive for a period of 18 months following the termination of his employment with NBTY and Holdings.
Employment Agreement with Glenn Schneider
NBTY and Holdings entered into an employment agreement, dated August 6, 2012, with Glenn
Schneider under which Mr. Schneider serves as President, Global Wholesale of Holdings and NBTY.
Under the employment agreement, Mr. Schneider’s initial annual base salary was $525,000.
Mr. Schneider also is eligible to receive a performance-based bonus targeted at 75% of annual base salary, subject to adjustments between the range of 50% and 200% of such target for under or over performance, as determined by the Compensation Committee. No fiscal 2014 bonus is due to
Mr. Schneider as a result of financial underperformance.
Effective October 31, 2014, Mr. Schneider resigned from his position as President Global
Wholesale of NBTY and Holdings. The employment agreement provided that in connection with his resignation Mr. Schneider was entitled to receive an amount equal to his annual base salary, payable over the one-year period following his employment termination, and a pro-rata bonus for the fiscal year in which the termination occurred if his employment termination occurred after April 1st of the applicable fiscal year. The employment agreement contained customary confidentiality provisions, and non-solicitation and non-competition terms applicable to Mr. Schneider that survive for a period of one year following the termination of his employment with NBTY and Holdings.
NBTY and Holdings entered into an agreement, dated November 19, 2014, with Mr. Schneider pursuant to which he will provide certain consulting services to NBTY for one year. Under the agreement, Mr. Schneider shall receive aggregate fees of $525,000 for his services. In addition, during the term of the agreement, Mr. Schneider’s time-based options shall continue to vest in accordance with the schedule set forth in his stock-option grant. Mr. Schneider agreed to be subject to non-solicitation and non-competition obligations that survive until October 31, 2016 or a liquidation

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event occurs. NBTY, Holdings and Mr. Schneider separately agreed that any severance payments payable under Mr. Schneider’s employment agreement shall be postponed until after the expiration of the consulting agreement.
For a discussion of amounts payable to each of our named executive officers if his or her employment were terminated, or if a change in control occurred, as of the end of our most recent fiscal year, see ‘‘Potential Payments upon Termination or Change in Control’’ below.
Tax and Accounting Considerations
Section 162(m) of the Internal Revenue Code
Generally, Section 162(m) of the Internal Revenue Code, or Section 162(m), disallows a tax deduction for any publicly-held corporation for individual compensation exceeding $1.0 million in any taxable year to its chief executive officer and each of its three other most highly compensated executive officers, other than its chief financial officer, unless compensation qualifies as ‘‘performance-based compensation’’ within the meaning of the Internal Revenue Code. We are not currently subject to the deduction limits of Section 162(m) and as a result we do not take Section 162(m) into consideration in setting compensation.
Section 409A of the Internal Revenue Code
Section 409A of the Internal Revenue Code, or Section 409A, requires that ‘‘nonqualified deferred compensation’’ be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters.
Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities and penalty taxes and interest on their vested compensation under such plans.
Accordingly, we generally intend to design and administer our compensation and benefits plans and arrangements for all of our employees and other service providers, including our named executive officers, so that they are either exempt from, or satisfy the requirements of, Section 409A.
Section 280G of the Internal Revenue Code
Section 280G of the Internal Revenue Code, or Section 280G, disallows a tax deduction with respect to excess parachute payments to certain executives of companies which undergo a change in control. In addition, Section 4999 of the Internal Revenue Code, or Section 4999, imposes a 20% penalty on the individual receiving the excess payment.
Parachute payments are compensation that is linked to or triggered by a change in control and may include, but are not limited to, bonus payments, severance payments, certain fringe benefits, and payments and acceleration of vesting from long-term incentive plans including stock options and other equity-based compensation. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G based on the executive’s prior compensation. In approving the compensation arrangements for our named executive officers in the future, the Committee will consider all elements of the cost to us of providing such compensation, including the potential impact of
Section 280G. However, the Committee may, in its judgment, authorize compensation arrangements that could give rise to loss of deductibility under Section 280G and the imposition of excise taxes under
Section 4999 when it believes that such arrangements are appropriate to attract and retain executive talent. Accounting Standards
ASC Topic 718, Compensation—Stock Compensation, or ASC Topic 718 (formerly known as
FASB 123(R)), requires us to recognize an expense for the fair value of equity-based compensation

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awards. Grants of stock options, restricted stock, restricted stock units and performance units under our equity incentive award plans are accounted for under ASC Topic 718. The Committee regularly considers the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.
Compensation Committee Report
The members of our Compensation Committee reviewed and discussed the above CD&A with our management and, based on that review and discussion, recommended to the Board that the CD&A be included in this Report.
By the Company’s Compensation Committee
/s/ Sandra Horbach
/s/ Marco DeBenedetti
Compensation Committee Interlocks and Insider Participation
As of September 30, 2014, the Compensation Committee consisted of Sandra Horbach and Marco
DeBenedetti. No member of the Compensation Committee had a relationship during fiscal 2014 requiring disclosure under Item 404 of Regulation S-K.
During fiscal 2014, none of our executive officers served as a member of the board or compensation committee of any other company that has one or more executive officers serving as a member of our Board or Compensation Committee.
2014 Summary Compensation Table
The following table sets forth information concerning total compensation earned by or paid to our named executive officers for service in fiscal 2014, 2013 and 2012. Mr. O’Keefe’s total compensation is only shown for fiscal 2014 and 2013 because fiscal 2013 was the year in which he was first deemed a named executive officer of our company.

Name and Principal Position

Year

Non-Equity
Stock Option Incentive Plan
All Other
Salary Bonus Awards Awards Compensation Compensation
(1)
($)
($)
($)
($)
($)
($)(2)

Steven Cahillane . . . . . . . . . . . . . . . . . . 2014 32,692
Chief Executive Officer
Dipak Golechha . . . . . . . . . . . . . . . . . . . 2014 42,308
Chief Financial Officer
Jeffrey Nagel . . . . . . . . . . . . . . . . . . . . . 2014 724,039
Former Chief Executive Officer
2013 750,000
2012 750,000
Michael Collins . . . . . . . . . . . . . . . . . . . 2014 576,923
Former Chief Financial Officer
2013 600,000
2012 600,000
Harvey Kamil . . . . . . . . . . . . . . . . . . . . 2014 624,600
Vice Chairman
2013 624,600
2012 624,600
Glenn Schneider . . . . . . . . . . . . . . . . . . . 2014 525,000
President Global Wholesale
2013 525,000
2012 525,000
Bernard O’Keefe . . . . . . . . . . . . . . . . . . 2014 480,000
Chief Supply Chain Officer
2013 480,000
(1)

Total
($)

—

—

—

—

26,407

59,099

—

—

—

—

70,568

112,876

—
—
—
—
—
—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—
—
—
—
—
—

1,530,511
28,823
27,523
626,669
27,188
99,145
39,691
35,405
37,325
29,870
27,188
24,181
71,010
48,642

2,254,550
1,153,823
1,377,523
1,203,592
852,188
1,059,145
664,291
894,230
1,036,925
554,870
906,563
874,181
551,010
762,642

375,000
600,000
225,000
360,000
—
234,225
375,000
—
354,375
325,000
—
234,000

For Messrs. Cahillane, Golechha, Nagel and Collins, amounts represent the executive’s base salary for the partial-year of service with us in 2014.

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(2)

Amounts reflected in table under ‘‘All Other Compensation’’ for fiscal 2014 consist of the following:
Company
Contributions to Defined
Moving &
Life
Company Company Contribution Temporary Insurance Legal
Severance Airplane Automobile
Plans
Housing Premiums Fees
($)
($)(a)
($)
($)
($)(b)
($)
($)

Name
Steven Cahillane
Dipak Golechha
Jeffrey Nagel . .
Michael Collins .
Harvey Kamil . .
Glenn Schneider
Bernard O’Keefe

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—
.
—
. 1,500,000
.
600,000
.
—
.
—
.
—

6,832
—
—
—
—
—
—

—
—
16,242
15,000
11,452
15,600
11,334

70,568
—
—
—
—
36,000

14,269
11,669
13,076
14,270
23,676

—
—
—
—
15,163
—
—

Total
($)

19,575
26,407
—
70,568
— 1,530,511
—
626,669
—
39,691
—
29,870
—
71,010

(a)

In fiscal 2014, Mr. Cahillane did not use the company’s airplane; instead, the amount reflects the incremental cost to the company associated with Mr. Cahillane’s personal use of company-paid private charter aircraft.

(b)

In fiscal 2014, Mr. Golechha was reimbursed $70,568 for relocation. Mr. O’Keefe is reimbursed up to $3,000 per month plus utilities to maintain a local residence, which, in fiscal 2014, was $36,000.

Grants of Plan-Based Awards in 2014
The following table sets forth information regarding grants of plan-based awards made to our named executive officers during fiscal 2014. Messrs. Cahillane and Golechha were not granted any plan-based awards in fiscal 2014.
Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards
Threshold
Target
Maximum
($)
($)
($)

Name

Steven Cahillane .
Dipak Golechha .
Jeffrey Nagel . . .
Michael Collins .
Harvey Kamil . . .
Glenn Schneider .
Bernard O’Keefe .

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94

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—
—
375,000
225,000
234,225
196,875
156,000

—
—
750,000
450,000
468,450
393,750
312,000

—
—
1,500,000
900,000
936,900
787,500
624,000

2014 Outstanding Equity Awards at Fiscal Year-End
The following table shows the outstanding equity-based awards relating to the common stock of
Holdings that were held by our named executive officers as of September 30, 2014. Messrs. Cahillane and Golechha did not hold any outstanding equity-based awards as of September 30, 2014.

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

Name

Steven Cahillane .
Dipak Golechha . .
Jeffrey Nagel(3) . .
Michael Collins(3)
Harvey Kamil . . .
Glenn Schneider .
Bernard O’Keefe .

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Option Awards
Equity
Incentive
Plan Awards:
Number of
Number of
Securities
Securities
Underlying
Underlying
Unexercised
Unexercised
Options (#)
Unearned
Unexercisable(1) Options (#)(2)

—
—
18,567
3,600
240
2,475
1,000

—
—
—
—
160
1,650
1,500

—
—
—
—
400
4,125
2,500

Option
Exercise
Price ($)

Option
Expiration
Date

—
—
123.59
123.59
123.59
123.59
298.59

—
—
3/4/2015
12/4/2014
5/13/2021
5/13/2021
9/24/2022

(1)

The grants vest in five equal increments on each of September 4, 2012 (for Mr. O’Keefe) and
January 1, 2011 (for Messrs. Kamil and Schneider).

(2)

The grants vest upon achievement of a certain performance condition and a market condition relating to the achievement of a minimum investor rate of return.

(3)

Due to their respective resignations, Messrs. Nagel and Collins forfeited their unexercisable and unearned stock options.

Nonqualified Deferred Compensation
The following table shows the non-qualified deferred compensation benefits for Mr. Kamil for fiscal 2014. Our other named executive officers do not participate in a non-qualified deferred compensation plan.
Registrant
Contributions in
Last FY(1) ($)

Name

Harvey Kamil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aggregate
Earnings in
Last FY(2) ($)

Aggregate
Balance at
Last FYE(3) ($)

15,163

46,444

309,711

(1)

Represents the amounts credited in fiscal 2014 as company contributions. These amounts are also reported in the ‘‘2014 Summary Compensation Table’’ in the ‘‘All Other Compensation’’ column.

(2)

Represents the net amounts credited to Mr. Kamil’s account as a result of the performance of the investment vehicles in which his account was deemed invested, as well as a 4% annual interest rate. These amounts do not represent above-market earnings, and thus are not reported in the
‘‘2014 Summary Compensation Table.’’

(3)

Represents the amount of Mr. Kamil’s account balance at the end of fiscal 2014, $46,444 of which was previously reported as compensation for Mr. Kamil in the ‘‘2014 Summary Compensation
Table.’’

95

We entered into a deferred compensation life insurance agreement with Mr. Kamil. This agreement requires us to maintain a variable life insurance policy on his life.
Upon retirement on or after age 65, this agreement provides that Mr. Kamil will be entitled to receive (i) the cash surrender value of the insurance policy maintained on his life, pursuant to his previously made election (A) in a cash lump sum, or (B) in monthly installments to be paid over a period not to exceed 10 years, or (ii) the insurance policy. The cash surrender value of the policy will vary over time.
If Mr. Kamil dies while employed by us, or retires and subsequently dies before receiving all the post-retirement payments, his beneficiary will be entitled to receive a lump sum payment equal to the death benefit under the insurance policy in full discharge of all of our obligations under the deferred compensation agreement.
If Mr. Kamil’s employment with us is terminated involuntarily due to a permanent disability (as defined in the relevant deferred compensation life insurance agreement) before his voluntary retirement from us, Mr. Kamil will receive a lump sum payment equal to the cash surrender value of the insurance policy unless he elects that we transfer the policy to him, and such payment or transfer will fully discharge all our obligations under the deferred compensation agreement.
Mr. Kamil will not be entitled to any benefits under the deferred compensation agreement if his employment with us is terminated under circumstances other than as described above.
Potential Payments upon Termination or Change in Control
Our named executive officers are entitled to certain payments and benefits upon a qualifying termination of employment or a change in control. The following discussion describes the payments and benefits to which our named executive officers (other than Messrs. Nagel and Collins) would have become entitled upon a qualifying termination of employment or a change in control occurring on
September 30, 2014. Because Messrs. Nagel and Collins resigned in fiscal 2014, the following discussion describes the payments and benefits they actually received in connection with their resignations.
As described above, Messrs. Cahillane, Golechha, Schneider and O’Keefe each would receive an amount equal to their respective annual base salaries, payable over the one-year period following the date of termination. In addition, each would receive a pro-rata bonus with respect to the fiscal year in which the employment termination occurs (if the termination occurs on or after April 1).
In addition, Messrs. Schneider and O’Keefe may be entitled to accelerated vesting of their
Holdings stock options in the event of a qualifying termination of employment or certain change in control transactions. Our named executive officers have stock option agreements under which vesting will accelerate under certain scenarios. Any and all time-based vesting options will become fully vested at the effective time of a ‘‘liquidity event,’’ as defined in the option agreement. In the event of a
‘‘change in control’’ (as defined in the option agreement) that is not also a liquidity event, any and all time-based vesting options will become fully vested if the executive is terminated without cause or the executive resigns with good reason, in either case, within the 12 month period following the change in control, provided certain other conditions are met. The portion of each option grant that is subject to performance-based conditions vests, in whole or in part, as of the effective date of the first liquidity event based upon the achievement of pre-determined internal rate of return targets, as long as the named executive officer remains continuously in service through the effective date of such liquidity event. Based on the most recent valuation, as of September 30, 2014, the value of the common stock underlying the options was $473 per share.
As described above, in connection with their resignations, Messrs. Nagel and Collins are eligible to receive the following payments: (i) an amount equal to the executive’s annual base salary (2x, for
Mr. Nagel), payable over the one-year period (two-year period, for Mr. Nagel) following his

96

employment termination, and (ii) a pro-rata bonus for fiscal 2014. Based on the company’s performance, Messrs. Nagel and Collins will not receive a pro-rata bonus for fiscal 2014.
Under the terms of a December 6, 2010 stock option grant to Mr. Nagel relating to Holdings common stock, 24,734 options were subject to time-based vesting provisions and 24,734 options were subject to performance-based vesting provisions. The options subject to time-based vesting provisions were scheduled to vest in five equal increments on each of the first five anniversaries of December 6,
2010. Upon Mr. Nagel’s resignation on September 8, 2014, 60% of the options, or 14,840 options, had vested. In connection with his resignation, a pro rata portion of the unvested options subject to time-based vesting provisions that would otherwise have vested on December 6, 2014 vested, as specified in Mr. Nagel’s employment agreement, increasing the total number of Mr. Nagel’s vested options to 18,567. The vesting of Mr. Nagel’s performance-based options were not accelerated upon his termination and were therefore forfeited.
Under the terms of a June 13, 2011 stock option grant to Mr. Collins relating to Holdings common stock, 6,000 options were subject to time-based vesting provisions and 6,000 options were subject to performance-based vesting provisions. The options subject to time-based vesting provisions were scheduled to vest in five equal increments on each of the first five anniversaries of June 13, 2011. Upon
Mr. Collins’s resignation on September 5, 2014, 60% of the options, or 3,600 options, had vested. The vesting of Mr. Collins’s performance-based options were not accelerated upon his termination and were therefore forfeited.
Please refer to the narrative under the ‘‘Nonqualified Deferred Compensation’’ table above for a description of payments that may be made to Mr. Kamil in the event of the termination of his employment due to death or disability under his deferred compensation life insurance agreement.
Summary of Potential Payments
The following table summarizes the payments that would be made to Messrs. Cahillane, Golechha,
Schneider and O’Keefe upon the occurrence of a qualifying termination of employment, change in control or liquidity event, assuming that each named executive officer’s termination of employment with our company occurred on September 30, 2014 or a change in control of our company or liquidity event occurred on September 30, 2014, as applicable. Because Messrs. Nagel and Collins resigned in fiscal
2014, the following table summarizes the payments and benefits they actually received in connection with their resignations. Amounts shown do not include (i) accrued but unpaid salary through the date

97

of termination, and (ii) other benefits earned or accrued by the named executive officer during his employment that are available to all employees, such as accrued vacation.

Name

Qualifying
Termination (no
Change in Control or
Liquidity Event)(1)
($)

Steven Cahillane
Cash Severance . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .

850,000(2)
850,000

Dipak Golechha
Cash Severance . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .

550,000(2)
550,000

Death or
Disability
($)

850,000(2)
850,000
—
—

Qualifying
Termination in connection with
Change in Control
($)

Liquidity
Event
($)

850,000(2)
850,000

—
—

550,000(2)
550,000

—
—

Jeffrey Nagel . . . . . . . . . . . . . . . . . . . . . . . .
Cash Severance . . . . . . . . . . . . . . . . . . . .
Acceleration of Equity Awards . . . . . . . . .

1,500,000
1,302,000

—
—
—

—
—
—

—
—
—

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,802,000

—

—

—

Michael Collins . . . . . . . . . . . . . . . . . . . . . .
Cash Severance . . . . . . . . . . . . . . . . . . . .
Acceleration of Equity Awards . . . . . . . . .

600,000
—

—
—
—

—
—
—

—
—
—

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .

600,000

—

—

—

Harvey Kamil
Cash Severance . . . . . . . . . . . . . . . . . . . .
Life Insurance . . . . . . . . . . . . . . . . . . . . .
Acceleration of Equity Awards(3) . . . . . . . .

—
263,267
—

—
263,267
—

—
—
56,000

—
—
56,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Glenn Schneider(4)
Cash Severance . . . . . . . . . . . . . . . . . . . .
Acceleration of Equity Awards(3) . . . . . . . .

263,267

263,267

56,000

56,000

525,000(2)
—

—
—

525,000(2)
577,000

—
577,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .

525,000

—

480,000(2)
—

—
—

480,000(2)
262,000

—
262,000

480,000

—

742,000

262,000

Bernard O’Keefe
Cash Severance . . . . . . . . . . . . . . . . . . . .
Acceleration of Equity Awards(3) . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,102,000

450,450

(1)

With respect to Messrs. Cahillane, Golechha, Schneider and O’Keefe, a qualifying termination includes a termination of employment by us without cause, by the executive for good reason or in connection with our non-extension of the executive’s employment agreement term.

(2)

Amount represents (1) cash severance and (2) a cash bonus for the 2014 fiscal year; however, none of the named executive officers received a cash bonus for the 2014 fiscal year due to the company’s performance.

(3)

Amounts represent the aggregate value of the executive’s unvested time-vesting stock options that would have vested on the applicable event. Upon the occurrence of a liquidity event on
September 30, 2014, no outstanding performance-based vesting stock options would have accelerated since the minimum internal rate of return would not have been achieved as of such date. The value of the accelerated stock option was calculated by multiplying (x) the number of

98

shares subject to acceleration by (y) the difference between the fair market value of a share of our common stock on September 30, 2014 ($473) and the per share exercise price of the accelerated option. (4)

Mr. Schneider has entered into a one-year consulting agreement with NBTY and Holdings pursuant to which he will receive $525,000 in fees. In addition, during the term of the agreement,
Mr. Schneider’s time-based options shall continue to vest in accordance with the schedule set forth in his stock-option grant. NBTY, Holdings and Mr. Schneider separately agreed that any severance payments payable under Mr. Schneider’s employment agreement shall be postponed until after the expiration of the consulting agreement.

Directors
Set forth below is a discussion of compensation we paid during fiscal 2014 to our non-employee
Directors. In addition, each Director (other than Steven Cahillane and Jeffrey Nagel) was reimbursed for out-of-pocket expenses incurred by him or her to attend meetings of our Board. Directors are also eligible for option grants or other equity awards (each relating to or exercisable for common stock of
Holdings, our parent company) under our equity awards plans, as determined in the discretion of the
Compensation Committee. We do not offer a pension plan or other compensation to our Directors.
During fiscal 2014, any Director who was also our executive officer did not receive additional compensation for his services as a Director. See ‘‘2014 Summary Compensation Table’’ above for information regarding Steven Cahillane’s and Jeffrey Nagel’s compensation.
Fees Earned or Paid in
Cash ($)

Name

Susan Arnold . . . .
David Bernauer . . .
Marco DeBenedetti
Robert Essner . . . .
Sandra Horbach . .
Allan Holt . . . . . .
Elliot Wagner . . . .

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150,000
90,000
—
75,000
—
—
—

Option
Awards(1)

221,423

Total ($)

371,423
90,000
—
75,000
—
—
—

The aggregate number of option awards outstanding at September 30, 2014 was 600 for
Messrs. Bernauer and Essner, and 1,600 for Ms. Arnold. Ms. Arnold was awarded additional options in fiscal 2014 to recognize her increased role during the management transition.
(1)

Amounts shown represent the grant date fair value of stock options awards made during fiscal 2014. We calculated this fair value based on the Monte Carlo Simulation option-pricing model, determined in accordance with GAAP based on the assumptions described in Note 14 to our audited financial statements included in this Report.
Ms. Arnold’s stock option is scheduled to vest in five increments on each of the first five anniversaries of the vesting commencement date, subject to continued service. The number of shares subject to outstanding stock option awards as of September 30, 2014 was 600 for Messrs. Bernauer and Essner, and 1,600 for Ms. Arnold.

99

Risk Assessment of Compensation Practices
Our Compensation Committee, with input from our management, assists our Board in reviewing and assessing whether any of our compensation policies and programs could potentially encourage excessive risk-taking. In considering our employee compensation policies and practices, the
Compensation Committee reviews, in depth, our policies related to payment of salaries and wages, benefits, bonuses, stock-based compensation and other compensation-related practices and considers the relationship between risk management policies and practices, corporate strategy and compensation.
A primary focus of our compensation program is intended to incentivize and reward growth in
Adjusted EBITDA among other metrics. We believe these metrics are positive indicators of our long-term growth, operating results and increased stockholder value and therefore believe that our compensation program does not create risks that are reasonably likely to have a material adverse effect on us.
Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

NBTY is a direct, wholly-owned subsidiary of Holdings. All the outstanding capital stock of
Holdings is owned by Carlyle and certain of its affiliates and co-investors.
The following table sets forth the number of shares of Holdings common stock beneficially owned as of November 24, 2014 by: (i) each of our Directors; (ii) the executive officers named in the
Summary Compensation Table set forth above under Item 11, ‘‘Executive Compensation;’’ and (iii) the current Directors and executive officers as a group:
Number of Shares
Beneficially Owned(1)

Name of Beneficial Owner

Funds affiliated with The Carlyle Group(3) . . . . . . .
Directors(4)
Susan Arnold . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David Bernauer . . . . . . . . . . . . . . . . . . . . . . . . . .
Marco DeBenedetti(5) . . . . . . . . . . . . . . . . . . . . . .
Robert Essner . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sandra Horbach(5) . . . . . . . . . . . . . . . . . . . . . . . .
Allan Holt(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steven Cahillane . . . . . . . . . . . . . . . . . . . . . . . . .
Elliot Wagner(5) . . . . . . . . . . . . . . . . . . . . . . . . . .
Named Executive Officers(1)(4)
Dipak Golechha . . . . . . . . . . . . . . . . . . . . . . . . .
Harvey Kamil . . . . . . . . . . . . . . . . . . . . . . . . . . .
Glenn Schneider(6) . . . . . . . . . . . . . . . . . . . . . . . .
Bernard O’Keefe . . . . . . . . . . . . . . . . . . . . . . . . .
Jeffrey Nagel(7) . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael Collins(8) . . . . . . . . . . . . . . . . . . . . . . . . .
All Directors and Executive Officers as a group (15

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Percent of
Class(2)

3,100,000

98.9%

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120
360
—
360
—
—
—
—

—
*
—
*
—
—
*
—

.......
.......
.......
.......
.......
.......
persons)

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—
320
3,300
1,000
19,367
3,600
7,080

*
*
*
*
*
*
0.2%

(1)

The shares beneficially owned by directors and named executive officers, except for Mr. Nagel’s, are Class B non-voting shares. This Column includes shares which Directors and executive officers have the right to acquire within 60 days after November 24, 2014.

(2)

* Indicates percentage ownership of less than one percent.

(3)

Consists of 1,902,202 shares of Class A common stock owned directly by Carlyle Partners V, L.P.,
38,256 shares of Class A common stock owned directly by Carlyle Partners V-A, L.P., 71,759 shares

100

of Class A common stock owned directly by CP V Coinvestment A, L.P., 8,846 shares of Class A common stock owned directly by CP V Coinvestment B, L.P., 278,937 shares of Class A common stock owned directly by Carlyle NBTY Coinvestment, L.P., and 800,000 shares of Class A common stock owned directly by CEP III Participations S.` r.l., SICAR. Carlyle Group Management L.L.C. a is the general partner of The Carlyle Group L.P., which is a publicly traded entity listed on
NASDAQ. The Carlyle Group L.P. is the managing member of Carlyle Holdings II GP L.L.C., which is the general partner of Carlyle Holdings II L.P., which is the general partner of TC Group
Cayman Investment Holdings, L.P., which is the general partner of TC Group Cayman Investment
Holdings Sub L.P., which is the managing member of TC Group V, L.L.C. and the sole shareholder of CEP III Managing GP Holdings, Ltd. TC Group V, L.L.C. is the general partner of
TC Group V, L.P., which is the general partner of each of Carlyle Partners V, L.P., Carlyle
Partners V-A, L.P., CP V Coinvestment A, L.P., CP V Coinvestment B, L.P. and Carlyle NBTY
Coinvestment, L.P. CEP III Managing GP Holdings, Ltd. is the general partner of CEP III
Managing GP, L.P., which is the general partner of Carlyle Europe Partners III, L.P., which is the sole shareholder of CEP III Participations S.` r.l., SICAR. Accordingly, each of Carlyle Group a Management L.L.C., The Carlyle Group L.P., Carlyle Holdings II GP L.L.C., Carlyle
Holdings II L.P., TC Group Cayman Investment Holdings, L.P., TC Group Cayman Investment
Holdings Sub L.P., TC Group V, L.L.C., TC Group V, L.P., CEP III Managing GP Holdings, Ltd.,
CEP III Managing GP, L.P., and Carlyle Europe Partners III, L.P. may be deemed to share beneficial ownership of the Class A common stock held of record by each of Carlyle
Partners V, L.P., Carlyle Partners V-A, L.P., CP V Coinvestment A, L.P., CP V
Coinvestment B, L.P., Carlyle NBTY Coinvestment, L.P. and CEP III Participations S.` r.l., a SICAR.
(4)

The address of each of our named executive officers and Directors is our headquarters at 2100
Smithtown Avenue, Ronkonkoma, New York 11779.

(5)

Does not include shares of common stock of Holdings held by Carlyle. Messrs. DeBenedetti, Holt and Wagner and Ms. Horbach are directors of NBTY Inc. and Managing Directors of Carlyle.
Such persons disclaim beneficial ownership of the shares of Holdings held by Carlyle.

(6)

Mr. Schneider was our former President Global Wholesale and resigned effective October 31,
2014.

(7)

Mr. Nagel was our former Chief Executive Officer and director and resigned effective
September 8, 2014.

(8)

Mr. Collins was our former Chief Financial Officer and resigned effective September 5, 2014.

101

Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes the Equity Incentive Plan of Holdings, as of September 30, 2014:

Plan Category

Equity compensation plans approved by security holders . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by security holders . . . . . . . . . . . . . . . . . . .
Total: . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13.

Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)

Weighted-average exercise price of outstanding options, warrants and rights
(b)

Number of securities remaining available for future issuance under equity compensation plans
(excluding securities reflected in column (a))
(c)

139,201

212

117,583

—

—

—

139,201

212

117,583

Certain Relationships and Related Party Transactions, and Director Independence

Procedures for Review, Approval or Ratification of Related Person Transactions
Our Code of Business Conduct requires our Directors, officers and employees to act in the best interests of the Company, regardless of personal relationships. To avoid actual or perceived conflicts of interests, the Board has implemented a written policy requiring the Board to review and approve all transactions in which any of the following persons had, has, or will have, a direct or indirect material interest: • any Director, nominee for Director, or executive officer;
• any person we know beneficially owns more than 5% of our common stock;
• any immediate family member of any Director, executive officer, or 5% beneficial owner; and
• any entity in which any such person is employed or has a 5% or greater beneficial interest, or of which any such person is a partner or principal (or holds a similar position).
The Board (excluding the interested Director, if any) is responsible for reviewing and approving these transactions. Except as disclosed below, no transactions required review since the beginning of the last fiscal year and no proposed transactions are currently being considered.
The Board will approve only those transactions that are in, or are not inconsistent with, the best interests of the Company.
Related Party Transactions
Consulting Agreement—Carlyle
In connection with the Merger, NBTY entered into a consulting agreement with Carlyle under which NBTY pays Carlyle a fee for consulting services Carlyle provides to us and our subsidiaries.
Pursuant to this agreement, NBTY pays an annual consulting fee to Carlyle of $3 million and may pay
Carlyle additional fees associated with other future transactions. This agreement is effective until the date as of which Carlyle or one or more of its affiliates no longer collectively control, in the aggregate, at least 5% of the equity interests of NBTY, or such earlier date as NBTY and Carlyle may mutually agree. 102

Consulting Agreement—Glenn Schneider
On November 19, 2014, NBTY and Holdings entered into a consulting agreement with Glenn
Schneider. See Item 11. Executive Compensation—Employment Agreements—Employment Agreement for Glenn Schneider.
Employees Related to Our Directors and Officers
NBTY employs certain members of the immediate family of Glenn Schneider (an officer of the
Company). During fiscal 2014, two of Mr. Schneider’s immediate family members received aggregate compensation (excluding bonuses) and fringe benefits from NBTY totaling $653,477, of which $466,470, was paid to Darren Schneider and $187,007 (primarily severance payments) was paid to Jeffrey
Schneider, for services they rendered as associates of NBTY. Mr. Jeffrey Schneider is no longer an employee of NBTY.
Stockholders Agreement
On December 3, 2010, Holdings entered into a stockholders agreement with Carlyle, certain affiliates of Carlyle, and a former member of management who purchased common stock and was awarded options to purchase common stock on or about such date. Certain other employees of
Holdings who purchase common stock or exercise options from time to time may also become parties to this agreement. We refer to Carlyle and its affiliates as the Carlyle Shareholders and to the member of management and to each of the other employees who becomes a party to the agreement as an
Employee Shareholder. The stockholders agreement contains, among other things:
• a restriction on the transfer of shares by the Employee Shareholders without the consent of the board of directors of Holdings;
• an agreement by the Employee Shareholders to sell a pro rata portion of their shares and options in the event of a transfer of common stock by Carlyle Shareholders to a third party purchaser; and
• a right of Holdings or its designee to repurchase the shares and options of an Employee
Shareholder following the termination of such Employee Shareholder’s employment by Holdings or its affiliates or the expiration of Employee Shareholder’s vested options.
The stockholders agreement will terminate when Holdings becomes a reporting company and its common stock is listed on one or more National Securities Exchanges or is quoted on NASDAQ, or upon a resolution of the Board of Directors.
Director Independence
Information on the independence of our Board is included above under Item 10, ‘‘Directors,
Executive Officers and Corporate Governance—Director Independence and Selection.’’
Item 14.

Principal Accounting Fees and Services

Audit Fees
PricewaterhouseCoopers LLP audit services during fiscal 2014 consisted of the examination of our financial statements and services related to our filings with the SEC. All fees paid to
PricewaterhouseCoopers LLP and all services provided by PricewaterhouseCoopers LLP during fiscal
2014 were reviewed, considered for independence, and approved by the Audit Committee.

103

Aggregate fees billed to the Company for fiscal 2014 and 2013 represent the fees for services performed by PricewaterhouseCoopers LLP.
Fiscal
2014

Audit Fees . . . . . .
Audit-Related Fees
Tax Fees . . . . . . . .
All Other Fees . . .

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Fiscal
2013

$3,310,100
386,000
861,500
7,950

$3,450,500
809,000
482,000
5,200

$4,565,550

Type of Fee

$4,746,700

Audit Fees
For fiscal 2014 aggregate audit fees, including out-of-pocket expenses, were for professional services rendered in connection with (i) the integrated audit of our consolidated financial statements and internal control over financial reporting as of, and for the year ended, September 30, 2014, including statutory audits of the financial statements of our affiliates, (ii) review of our unaudited condensed consolidated interim financial statements as of December 31, 2013, March 31, 2014 and
June 30, 2014, (iii) reviews of documents filed with the SEC and (iv) agreed upon procedures for certain affiliates.
For fiscal 2013 aggregate audit fees, including out-of-pocket expenses, were for professional services rendered in connection with (i) the integrated audit of our consolidated financial statements and internal control over financial reporting as of, and for the year ended, September 30, 2013, including statutory audits of the financial statements of our affiliates, (ii) review of our unaudited condensed consolidated interim financial statements as of December 31, 2012, March 31, 2013 and
June 30, 2013, (iii) reviews of documents filed with the SEC and (iv) agreed upon procedures for certain affiliates.
Audit-Related Fees
For both fiscal 2014 and 2013, aggregate audit-related fees, including out-of-pocket expenses, were for professional services related to due diligence procedures in connection with acquisitions.
Tax Fees
For both fiscal 2014 and 2013, aggregate tax fees, including out- of-pocket expenses, were for professional services rendered in connection with tax compliance and advice for the applicable fiscal year. Tax services included U.S. and foreign tax compliance assistance, consultation and advice on various foreign tax matters.
All Other Fees
For fiscal 2014 and 2013 other fees were for accounting research software license fees.
Procedures for Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditor
The Charter for the Audit Committee provides that the Audit Committee pre-approve, on an annual basis, the audit, audit-related, tax and other non-audit services to be rendered by the Company’s accountants, based on historical information and anticipated requirements for the following fiscal year. The
Audit Committee must pre-approve specific types or categories of engagements constituting audit, auditrelated, tax and other non-audit services, as well as the range of fee amounts corresponding to each such engagement. During fiscal 2014, the Audit Committee approved all fees for audit, audit-related, tax services and non-audit services rendered to the Company under this policy.

104

PART IV
Item 15.
(a)

Exhibits and Financial Statement Schedules

Financial Statements and Financial Statement Schedule.
See the ‘‘Index to Consolidated Financial Statements’’ included in this Report.

(b) Exhibits. The following exhibits are attached as a part of this Report, or incorporated by reference, and will be furnished to any security holder upon request for such exhibit and payment of any reasonable expenses incurred by us. A security holder should send requests for any of the exhibits set forth below to NBTY, Inc., 2100 Smithtown Avenue, Ronkonkoma, New York 11779, Attention:
General Counsel.
Exhibit No.

Description

2.1

Agreement and Plan of Merger, dated July 15, 2010, among NBTY, Inc., Alphabet Holding
Company, Inc. and Alphabet Merger Sub, Inc.(1)
Stock Purchase Agreement among NBTY, Inc., Balance Bar Company, Balance Bar
Holdings LLC dated November 19, 2012.(2)
Amended and Restated Certificate of Incorporation of NBTY, Inc.(3)
Second Amended and Restated By-Laws of NBTY, Inc.(3)
Indenture, dated as of October 1, 2010, among NBTY, Inc., certain of its guarantor subsidiaries named therein, and The Bank of New York Mellon, as trustee, governing the
9% Senior Notes due 2018.(3)
First Supplemental Indenture, dated May 3, 2011, among NBTY, Inc., NBTY Florida, Inc. and The Bank of New York Mellon(4)
Form of 9% Senior Notes due 2018 (included as Exhibit A to Exhibit 4.1).
Second Supplemental Indenture, dated June 29, 2012 among NBTY, Inc., NBTY
Manufacturing Texas, LLC and The Bank of New York Mellon(5)
Third Supplemental Indenture, dated August 14, 2012, among NBTY, Inc., NBTY
Manufacturing South, LLC, Natural Products Group, LLC, NBTY Manufacturing New
Jersey, Inc. and NBTY Manufacturing New York, Inc. and The Bank of New York
Mellon(6)
Fourth Supplemental Indenture, dated December 21, 2012 among NBTY, Inc., Balance Bar
Company, Balance Holdings Inc. and The Bank of New York Mellon.(7)
Fifth Supplemental Indenture, dated April 1, 2013 among NBTY, Inc., Perfectly Pure, LLC and The Bank of New York Mellon(8)
Sixth Supplemental Indenture, dated November 6, 2013 among NBTY, Inc., Nature’s
Origin, LLC and The Bank of New York Mellon(9)
Employment Agreement, dated November 8, 2010, by and among NBTY, Inc., Alphabet
Holding Company, Inc. and Jeffrey A. Nagel(3)
Stock Option Agreement, dated December 6, 2010, by and between Alphabet Holding
Company, Inc. and Jeffrey Nagel(3)
Stock Purchase Agreement, dated December 17, 2010, by and between Alphabet Holding
Company, Inc. and Jeffrey Nagel(3)
Employment Agreement, dated May 24, 2011, by and among NBTY, Inc., Alphabet
Holding Company, Inc. and Michael Collins(10)
Employment Agreement, effective March 1, 2008, by and between NBTY, Inc. and Harvey
Kamil(11)
Indemnification Agreement, dated May 18, 2011 between NBTY, Inc. and Harvey Kamil(10)

2.2
3.1
3.2
4.1

4.2
4.3
4.4
4.5

4.6
4.7
4.8
10.1
10.2
10.3
10.4
10.5
10.6

105

Exhibit No.

Description

10.7
10.8

Letter Agreement, dated May 18, 2011, by and between NBTY, Inc. and Harvey Kamil(10)
Employment Agreement, dated April 25, 2011, by and among NBTY, Inc., Alphabet
Holding Company, Inc. and Karla Packer(10)
NBTY, Inc. Retirement Profit Sharing Plan(12)
Credit Agreement, dated October 1, 2010 (the ‘‘Credit Agreement’’), among NBTY, Inc.,
Alphabet Holding Company, Inc., Barclays Bank PLC and the other lenders party thereto.(3) First Amendment and Refinancing Agreement, dated March 1, 2011, amending the Credit
Agreement.(3)
Subsidiary Guaranty, dated October 1, 2010, from the Guarantors named therein in favor of the secured parties named in the Credit Agreement(3)
Security Agreement, dated October 1, 2010, from the Grantors named therein to Barclays
Bank PLC.(3)
Form of Director Indemnification Agreement(3)
Equity Incentive Plan of Alphabet Holding Company, Inc.(3)
Form of Stock Option Agreement for Equity Incentive Plan of Alphabet Holding
Company, Inc.(3)
Executive Severance Pay Plan(12)
Form of Employment Agreement dated February 29, 2012, by and among NBTY, Inc.,
Alphabet Holding Company, Inc. and Katia Facchetti.(13)
Form of Employment Agreement dated March 2, 2012, by and among NBTY, Inc.,
Alphabet Holding Company, Inc. and Christopher S. Brennan.(13)
Employment Agreement, dated August 6, 2012, by and among NBTY, Inc., Alphabet
Holding Company, Inc. and Glenn Schneider.(5)
Employment Agreement, dated August 14, 2012, by and among NBTY, Inc., Alphabet
Holding Company, Inc. and Bernard O’Keefe.(6)
Second Amendment Agreement, dated October 11, 2012, amending the Credit
Agreement.(6)
Third Amendment and Second Refinancing Agreement, dated March 21, 2013, by and among NBTY, Inc. as Borrower, Alphabet Holding Company, Inc., Barclays Bank PLC as
Lead Arranger and Bookrunner, Barclays Bank PLC as Administrative Agent, and the banks and other financial institutions party thereto as lenders.(14)
Management Incentive Plan of NBTY, Inc. for U.S. based associates.(15)
Employment Agreement, dated August 14, 2014, by and among NBTY, Inc., Alphabet
Holding Company, Inc. and Dipak Golechha*
Employment Agreement, dated August 18, 2014, by and among NBTY, Inc., Alphabet
Holding Company, Inc. and Steven Cahillane*
Fourth Amendment and Third Refinancing to Credit Agreement, dated November 20, 2014, by and among, NBTY, Inc., Alphabet Holding Company, Inc., Barclays Bank PLC, and the banks and other financial institutions party thereto as lenders.*
Consulting Agreement dated November 19, 2014, among NBTY, Inc., Alphabet Holding
Company, Inc. and Glenn Schneider.*
Agreement and Release, dated November 19, 2014, among NBTY, Inc., Alphabet Holding
Company, Inc. and Glenn Schneider.*
Statement regarding Computation of Ratio of Earnings to Fixed Charges*
Subsidiaries of NBTY, Inc.*

10.9
10.10

10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23

10.24
10.25
10.26
10.27

10.28.
10.29
12.1
21.1

106

Exhibit No.

31.1
31.2
32.1
32.2
99.1

101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE

Description

Rule 13a-14(a) Certification of Principal Executive Officer.*
Rule 13a-14(a) Certification of Principal Financial Officer.*
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.*
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.*
Indenture, dated as of October 17, 2012, between Alphabet Holding Company, Inc. and
The Bank of New York Mellon, as trustee, governing the 7.75% / 8.50% Contingent Cash
Pay Senior Notes due 2017.(6)
XBRL Instance Document.**
XBRL Taxonomy Extension Schema Document**
XBRL Taxonomy Extension Calculation Linkbase Document**
XBRL Taxonomy Extension Definition Linkbase Document**
XBRL Taxonomy Extension Label Linkbase Document**
XBRL Taxonomy Extension Presentation Linkbase Document**

*

Filed herewith.

**

Pursuant to rule 406T of Regulation S-T, the Interactive Data Files included in Exhibit 101 hereto 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, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

(1)

Incorporated by reference to NBTY, Inc.’s Form 8-K, filed July 16, 2010 (File #001-31788).

(2)

Incorporated by reference to NBTY, Inc.’s Form 8-K, filed November 26, 2012 (File #001-31788).

(3)

Incorporated by reference to NBTY, Inc.’s Registration Statement on Form S-4, filed March 21,
2011 (File #333-172973).

(4)

Incorporated by reference to NBTY, Inc.’s Form 10-Q, filed August 10, 2011 (File #001-31788).

(5)

Incorporated by reference to NBTY, Inc.’s Form 10-Q, filed August 7, 2012 (File #001-31788).

(6)

Incorporated by reference to NBTY, Inc.’s Form 10-K, filed November 27, 2012 (File #001-31788).

(7)

Incorporated by reference to NBTY, Inc.’s Form 10-Q, filed February 1, 2013 (File #001-31788).

(8)

Incorporated by reference to NBTY, Inc.’s Form 10-Q, filed May 13, 2013 (File #001-31788).

(9)

Incorporated by reference to NBTY, Inc.’s Form 10-K, filed November 26, 2013 (File #001-31788).

(10)

Incorporated by reference to NBTY, Inc.’s Amendment No. 1 to the Registration Statement on
Form S-4/A, filed June 10, 2011 (File #333-172973).

(11)

Incorporated by reference to NBTY, Inc.’s Form 8-K, filed April 3, 2008 (File #001-31788).

(12)

Incorporated by reference to NBTY, Inc.’s Form 10-K, filed November 23, 2011 (File #001-31788).

(13)

Incorporated by reference to NBTY, Inc.’s Form 10-Q, filed May 9, 2012 (File #001-31788).

(14)

Incorporated by reference to NBTY, Inc.’s Form 8-K, filed March 21, 2013 (File #001-31788).

(15)

Incorporated by reference to NBTY, Inc.’s Form 10-Q, filed August 7, 2013 (File #001-31788).

107

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ STEVEN CAHILLANE
Steven Cahillane
Chief Executive Officer, President and Director
Dated: November 24, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature

/s/ STEVEN CAHILLANE
Steven Cahillane
/s/ DIPAK GOLECHHA
Dipak Golechha
/s/ JOSEPH LOONEY
Joseph Looney
/s/ SANDRA J. HORBACH
Sandra J. Horbach
/s/ SUSAN ARNOLD
Susan Arnold
/s/ DAVID BERNAUER
David Bernauer
/s/ MARCO DE BENEDETTI
Marco De Benedetti
/s/ ROBERT ESSNER
Robert Essner
/s/ ALLAN HOLT
Allan Holt
/s/ ELLIOT WAGNER
Elliot Wagner

Title

Date

Chief Executive Officer, President and
Director (Principal Executive Officer)

November 24, 2014

Chief Financial Officer
(Principal Financial Officer)

November 24, 2014

Chief Accounting Officer

November 24, 2014

Director (Chairman)

November 24, 2014

Director

November 24, 2014

Director

November 24, 2014

Director

November 24, 2014

Director

November 24, 2014

Director

November 24, 2014

Director

November 24, 2014

108

NBTY, Inc. and Subsidiary
Index to Consolidated Financial Statements
September 30, 2014, 2013 and 2012
Page(s)

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-1

Consolidated Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-2

Statements of Income and Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-3

Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-4

Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-5

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-6

Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

S-1

109

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of NBTY, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of NBTY, Inc. and its subsidiaries (the
‘‘Company’’) at September 30, 2014 and September 30, 2013, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2014, based on criteria established in
Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (‘‘COSO’’). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits .We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
November 24, 2014

F-1

NBTY, Inc., and Subsidiaries
Consolidated Balance Sheets
September 30, 2014 and 2013
(in thousands, except share and per share amounts)
2014

Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net .
Inventories . . . . . . . . . . .
Deferred income taxes . . .
Other current assets . . . .

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2013

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$ 139,488
175,701
853,226
28,915
78,824

$ 198,561
171,670
739,952
23,637
78,579

Total current assets . . . . . . . .
Property, plant and equipment, net
Goodwill . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . .

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1,276,154
597,202
1,163,282
1,791,592
49,492

1,212,399
571,529
1,260,802
1,960,352
68,234

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,877,722

$5,073,316

$

$

Liabilities and Stockholder’s Equity
Current liabilities:
Current portion long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . .
Long-term debt, net of current portion
Deferred income taxes . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . .

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449,194
2,158,087
707,962
53,386

479,202
2,158,405
751,419
59,451

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,368,629

3,448,477

—
1,561,014
(22,718)
(29,203)

—
1,556,926
81,497
(13,584)

Total stockholder’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,509,093

1,624,839

Total liabilities and stockholder’s equity . . . . . . . . . . . . . . . . . . . . . . . . .

$4,877,722

$5,073,316

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376
259,060
219,766

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Commitments and contingencies
Stockholder’s equity:
Common stock, successor, $0.01 par; one thousand shares authorized, issued and outstanding at September 30, 2014 and 2013 . . . . . . . . .
Capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Accumulated deficit) retained earnings . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . .

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261
227,877
221,056

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

F-2

NBTY, Inc., and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
Years Ended September 30, 2014, 2013 and 2012
(in thousands)
2014

2013

2012

$3,205,778

$3,163,041

$2,999,733

1,740,417
202,754
952,533
207,334
—

1,700,909
189,485
910,187
—
32,695

1,608,436
164,298
832,629
—
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3,103,038

2,833,276

2,605,363

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

102,740

329,765

394,370

Other income (expense):
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(136,038)
(709)

(147,100)
1,693

(158,584)
(1,003)

(136,747)

(145,407)

(159,587)

(Loss) income from continuing operations before income taxes .
(Benefit) provision for income taxes on continuing operations . .

(34,007)
10,145

184,358
54,878

234,783
65,264

(Loss) income from contining operations . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of income taxes . . . . . . .

(44,152)
—

129,480
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169,519
(23,048)

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(44,152)

129,480

146,471

Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment, net of taxes of
$(3,437), $958, $5,406 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of interest rate swaps, net of taxes of
$(2,003), $(2,790), $(1,529) . . . . . . . . . . . . . . . . . . . . . . . .

(18,799)

605

16,740

4,405

2,431

(15,619)
5,010
$ (59,771) $ 134,490

19,171
$ 165,642

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising, promotion and catalog . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . .
Goodwill and intangible asset impairment charges
Facility restructuring charges . . . . . . . . . . . . . . . .

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Total other comprehensive (loss) income, net of tax: . . . . . . . .
Comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . .

3,180

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

F-3

NBTY, Inc., and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Years Ended September 30, 2014, 2013 and 2012
(in thousands)

Common Stock
Number of
Shares
Amount

Balance at September 30,
2011 . . . . . . . . . . . . . . .
Net income . . . . . . . . . . .
Other comprehensive income, net of tax . . . . .
Capital contribution . . . . .
Stock-based compensation .
Balance at September 30,
2012 . . . . . . . . . . . . . . .
Net income . . . . . . . . . . .
Other comprehensive income, net of tax . . . . .
Dividends to Holdings . . .
Stock-based compensation .
Balance at September 30,
2013 . . . . . . . . . . . . . . .
Net income . . . . . . . . . . .
Other comprehensive income, net of tax . . . . .
Dividends to Holdings . . .
Stock-based compensation .

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1

$—

Capital in Excess of Par

$1,552,188

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$ 22,472
146,471

$(37,765)

Total
Stockholder’s
Equity

$1,536,895
146,471

19,171

1

—

1,554,883

168,943
129,480

19,171
15
2,680

(18,594)

1,705,232
129,480

5,010

1

—

81,497
(44,152)

(13,584)

1,624,839
(44,152)
(15,619)
(60,063)
4,088

(216,926)
—

1,556,926

5,010
(216,926)
2,043

(15,619)

—
2,043

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Balance at September 30,
2014 . . . . . . . . . . . . . . . .

Accumulated
Other
Comprehensive
Income (Loss)

15
2,680

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(Accumulated
Deficit)
Retained
Earnings

(60,063)
4,088
1

$—

$1,561,014

$ (22,718)

$(29,203)

$1,509,093

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

F-4

NBTY, Inc., and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended September 30, 2014, 2013 and 2012
(in thousands)
2014

2013

2012

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$ (44,152)

$ 129,480

$ 146,471

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214,813
—
60,530
46,027
1,702
19,033
4,088
988
—
6,006
(48,881)
—

5,269
—
64,883
45,753
(946)
22,504
2,043
(2,587)
2,417
2,042
5,293
(15,075)

764
23,048
58,311
43,960
(289)
23,700
2,680
297
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(2,652)
(17,057)
—

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(6,700)
(123,071)
372
(30,932)
2,921

(4,696)
(14,350)
(3,733)
45,753
27,526

(22,380)
(44,790)
(2,147)
16,097
5,491

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . .

102,744

311,576

231,504

Cash provided by operating activities of discontinued operations . . . . . . . . . . . .

—

—

2,546

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . .

102,744

311,576

234,050

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(105,207)
7,188
—
—

(129,220)
7,548
(82,473)
—

(86,314)
—
—
515

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(98,019)

(204,145)

(85,799)

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(378)
—
—
—
(60,063)
—

(603)
80,000
(80,000)
(7,387)
(216,926)
—

(229,375)
—
—
—
—
15

(224,916)

(229,360)

Cash flows from operating activities:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Impairments and disposals of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and write-off of deferred financing fees . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of incremental inventory fair value . . . . . . . . . . . . . . . . . . . . . . .
Inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Call premium on term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash flows from investing activities:
Purchases of property, plant and equipment . . . . .
Proceeds from sale of buildings and equipment . . .
Cash paid for acquisitions, net of cash acquired . .
Net proceeds from sale of discontinued operations .
Cash flows from financing activities:
Principal payments . . . . . . . . . . . . . . . . .
Proceeds from borrowings under the revolver
Paydowns of borrowings under the revolver .
Payments for financing fees . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . .
Capital contribution . . . . . . . . . . . . . . . .

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Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(60,441)

Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . .

(3,357)

Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in cash for discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(59,073)
—
198,561

Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 139,488

910
(116,575)
—
315,136
$ 198,561

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

F-5

1,839
(79,270)
1,071
393,335
$ 315,136

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share amounts)

1.

Nature of Business

NBTY, Inc. and 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. Our products are marketed through four operating segments: Wholesale,
European Retail, Direct Response/E-Commerce and North American Retail. We market over 25,000 individual stock keeping units (‘‘SKUs’’) under numerous owned and private-label brands, including
Nature’s Bounty↧, Ester-C↧, Balance Bar↧, Solgar↧, MET-Rx↧, American Health↧, Osteo Bi-Flex↧,
SISU↧, Sundown↧, Pure Protein↧, Body Fortress↧, Natural Wealth↧, Puritan’s Pride↧, Holland &
Barrett↧, GNC↧ (UK), Physiologics↧, De Tuinen↧, Essenza↧ and Vitamin World↧.
2.

Summary of Significant Accounting Policies

Basis of Presentation and Consolidation
On October 1, 2010, pursuant to an Agreement and Plan of Merger, dated as of July 15, 2010, among NBTY, Holdings formed by an affiliate of TC Group, L.L.C. (d/b/a The Carlyle Group) and
Alphabet Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Holdings
(‘‘Merger Sub’’) formed solely for the purpose of entering into the Merger, Merger Sub merged with and into NBTY with NBTY as the surviving corporation (also referred herein as the ‘‘Merger’’). As a result of the Merger, NBTY became a wholly owned subsidiary of Holdings.
Our financial statements are prepared in conformity with U.S. generally accepted accounting principles (‘‘GAAP’’). The consolidated financial statements include the financial statements of the
Company and its wholly-owned subsidiaries. All inter-company balances and transactions are eliminated in consolidation.
Effective July 2, 2012, Julian Graves Limited was placed into administration under the laws of the
United Kingdom and Wales, and this former subsidiary is reported as discontinued operations in the accompanying financial statements. During the course of the administration, attempts to sell the business were unsuccessful and the operations were wound down by the end of August 2012. The operations of this subsidiary were previously reported in the European Retail segment.
Effective August 31, 2012, we sold certain assets and liabilities of Le Naturiste, Inc., and have reported this former subsidiary as discontinued operations in the accompanying financial statements.
The operations of this subsidiary were previously reported in the North American Retail segment.
All amounts related to discontinued operations are excluded from the notes to the consolidated financial statements unless otherwise indicated. See Note 4 for additional information about discontinued operations.
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

F-6

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

2.

Summary of Significant Accounting Policies (Continued)

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.
Cash and Cash Equivalents
We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Revenue Recognition
We recognize product revenue when title and risk of loss have transferred to the customer, there is persuasive evidence of an arrangement to deliver a product, delivery has occurred, the sales price is fixed or determinable and collectibility is reasonably assured. The delivery terms for most sales within the Wholesale and Direct Response/E-Commerce segments are F.O.B. destination. Generally, title and risk of loss transfer to the customer at the time the product is received by the customer. With respect to retail store operations, we recognize revenue upon the sale of products to customers. Net sales represent gross sales invoiced to customers, less certain related charges for discounts, returns and other promotional program incentive allowances.
Sales Returns and Other Allowances
Allowance for sales returns: Estimates for sales returns are based on a variety of factors, including actual return experience of specific products or similar products. We are able to make reasonable and reliable estimates of product returns based on our 40 plus year history in this business. We also review our estimates for product returns based on expected return data communicated to us by customers.
Additionally, we monitor the levels of inventory at our largest customers to avoid excessive customer stocking of merchandise. Allowances for returns of new products are estimated by reviewing data of any prior relevant new product return information. We also monitor the buying patterns of the end-users of our products based on sales data received by our retail outlets in North America and
Europe.
Promotional program incentive allowances: We estimate our allowance for promotional program incentives based upon specific outstanding marketing programs and historical experience. The allowance for sales incentives offered to customers is based on various contractual terms or other arrangements agreed to in advance with certain customers. Generally, customers earn such incentives as specified sales volumes are achieved. We accrue these incentives as a reduction to sales either at the time of sale or over the period of time in which they are earned, depending on the nature of the program. Allowance for doubtful accounts: We perform on-going credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current credit worthiness, as determined by our review of current credit information. We estimate bad debt expense based upon historical experience as well as specifically identified customer collection issues to adjust the carrying amount of the related receivable to its estimated net realizable value.

F-7

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

2.

Summary of Significant Accounting Policies (Continued)
Accounts receivable are presented net of the following reserves at September 30:
2014

$ 83,768
15,409
2,564

$82,827
13,549
2,472

$101,741

Promotional program incentive allowances . . . . . . . . . . . . . . . .
Allowance for sales returns . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . .

2013

$98,848

Inventories
Inventories are stated at the lower of cost (first-in first-out method) or market. The cost elements of inventories include materials, labor and overhead. In evaluating whether inventories are stated at the lower of cost or market, we consider such factors as the amount of inventory on hand, estimated time required to sell such inventory, remaining shelf life and current and expected market conditions, including levels of competition. Based on this evaluation, we record an adjustment to cost of sales to reduce inventories to its estimated net realizable value.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is charged on a straight-line basis over the estimated useful lives of the related assets. The costs of normal maintenance and repairs are charged to expense when incurred. Expenditures which significantly improve or extend the life of an asset are capitalized and depreciated over the asset’s remaining useful life. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the estimated useful lives of the related assets or the remaining lease term. Upon sale or disposition, the related cost and accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is reflected in operations.
Capitalized Software Costs
We capitalize certain costs related to the acquisition and development of software for internal use and amortize these costs using the straight-line method over the estimated useful life of the software.
These costs are included in property, plant and equipment in the accompanying Consolidated Balance
Sheets.
Goodwill and Intangible Assets
Goodwill and indefinite-lived intangible assets are tested for impairment annually or more frequently if impairment indicators are present. We consider the following to be some examples of important indicators that may trigger an impairment review: (i) a history of cash flow losses at retail stores; (ii) significant changes in the manner or use of the acquired assets in our overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; and
(v) regulatory changes. Our annual impairment testing date is as of July 1, the first day of our fourth quarter. Goodwill is tested for impairment using a two-step process. In the first step, the fair value of a reporting unit is compared to its carrying value. If the fair value of a reporting unit exceeds the

F-8

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

2.

Summary of Significant Accounting Policies (Continued)

carrying value of the net assets assigned to a reporting unit, goodwill is not considered impaired and no further testing is required. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to determine whether there is a goodwill impairment, and if so, the amount of the impairment. This step revalues all assets and liabilities of the reporting unit to their current fair value and then compares the implied fair value of the reporting unit’s goodwill to the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. We use a combination of the income and market approaches, weighted equally, to estimate the fair value of our reporting units.
The fair value of our trademarks is determined based on the relief from royalty method under the income approach, which requires us to estimate a reasonable royalty rate, identify relevant projected revenues and expenses, and select an appropriate discount rate. The evaluation of indefinite-lived intangible assets for impairment requires management to use significant judgments and estimates including, but not limited to, projected future net sales, operating results, and cash flows of our business. We base our fair value estimates on assumptions we believe to be reasonable, but such assumptions are subject to inherent uncertainties. Accordingly, if actual results fall short of such estimates, significant future impairments could result. An impairment charge would reduce income from operations in the period it was determined that the charge was needed. Goodwill and intangible assets are further discussed in Note 8 to the Consolidated Financial Statements.
Impairment of Long-Lived Assets
We evaluate the need for an impairment charge relating to long-lived assets, including definite lived intangible assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset group to its expected future net cash flows generated by the asset group. If the carrying amount of an asset group exceeds its estimated undiscounted future cash flows, the carrying amount is compared to its fair value and an impairment charge is recognized to the extent of the difference. On a quarterly basis, we assess whether events or changes in circumstances occur that potentially indicate that the carrying value of long-lived assets may not be recoverable. Considerable management judgment is necessary to estimate projected future operating cash flows. Accordingly, if actual results fall short of such estimates, significant future impairments could result.
Income Taxes
We recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
We estimate the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined that such assets will, more likely than not, go unused.

F-9

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

2.

Summary of Significant Accounting Policies (Continued)

If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reversed. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. We believe adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Accruals for Litigation and Other Contingencies
We are subject to legal proceedings, lawsuits and other claims related to various matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. We determine the amount of reserves needed, if any, for each individual issue based on our knowledge and experience and discussions with legal counsel. These reserves may change in the future due to new developments in each matter (including the enactment of new laws), the ultimate resolution of each matter or changes in approach, such as a change in settlement strategy. In some instances, we may be unable to make a reasonable estimate of the liabilities that may result from the final resolution of certain contingencies disclosed and accordingly, no reserve is recorded until such time that a reasonable estimate may be made.
Shipping and Handling Costs
We incur shipping and handling costs in all segments of our operations. These costs, included in selling, general and administrative expenses in the Consolidated Statements of Operations and
Comprehensive Income (Loss), were $97,382, $92,062 and $85,784 for the fiscal years ended
September 30, 2014, 2013 and 2012, respectively. Of these amounts, $20,862, $14,050 and $13,831 have been billed to customers and are included in net sales for the fiscal years ended September 30, 2014,
2013 and 2012, respectively.
Advertising, Promotion and Catalog
We expense the production costs of advertising as incurred, except for the cost of mail order catalogs, which are capitalized and amortized over our expected period of future benefit, which typically approximates two months. Capitalized costs for mail order catalogs at September 30, 2014 and
2013 were $671 and $740, respectively. Total mail order catalog expense was $9,093, $7,713 and $9,378 for the fiscal years ended September 30, 2014, 2013 and 2012, respectively, and is included in advertising, promotion and catalog in the Consolidated Statements of Operations and Comprehensive
Income (Loss).
Foreign Currency
The functional currency of our foreign subsidiaries is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts and cash flows using average rates of exchange prevailing during the year. Adjustments resulting from the translation of foreign currency financial statements are accumulated in a separate component of stockholders’ equity.

F-10

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

2.

Summary of Significant Accounting Policies (Continued)

Derivatives and Hedging Activities
All derivative financial instruments are recognized as either assets or liabilities in the Consolidated
Balance Sheets and measurement of those instruments is at fair value. Changes in the fair values of these derivatives are reported in operations or accumulated other comprehensive income (loss) depending on the designation of the derivative and whether it qualifies for hedge accounting. For derivatives that have been formally designated as cash flow hedges (interest rate swap agreements), the effective portion of changes in the fair value of the derivative is recorded in accumulated other comprehensive income (loss) and reclassified into operations when interest expense on the underlying borrowings is recognized. For hedges of the net investment in foreign subsidiaries (cross currency swap agreements), changes in fair value of the derivative are recorded in accumulated other comprehensive income (loss) to offset the change in the value of the net investment being hedged. We do not use derivative financial instruments for trading purposes.
Revision
A revision was made to the Statements of Operations and Comprehensive Income (Loss) to correct the prior year presentation, whereby changes in the fair value of the cross-currency swap were reclassified from changes in the fair value of interest rate swaps to foreign currency translation adjustments. In addition, see Note 21 for a revision that was made to the Condensed Consolidating
Financial Statements of Guarantors.
Recent Accounting Developments
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 has been effective for us since October 1, 2014. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated 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 has been effective for us since October 1, 2014. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated 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

F-11

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

2.

Summary of Significant Accounting Policies (Continued)

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 consolidated 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 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 sharebased 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 consolidated financial statements.
In August 2014, the FASB issued guidance which requires management to assess an entity’s ability to continue as a going concern every reporting period, and provide certain disclosures if management has substantial doubt about the entity’s ability to operate as a going concern, or an express statement if not, by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The guidance is effective for us for the annual period ending September 30, 2017, and for interim periods thereafter. Early application is permitted. The adoption of this guidance is not expected to have an impact on our consolidated financial statements.
3.

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.

F-12

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

3.

Facility Restructuring Charge (Continued)

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

Restructuring accrual—October 1, 2012
Charges . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .

.
.
.
.

.
.
.
.

.
.
.
.

.
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.
.
.
.

.
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.
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.

.
.
.
.

$

Restructuring accrual—September 30, 2013 . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
16,752
(4,316)
—

$

12,436
(10,140)
—

Restructuring accrual—September 30, 2014 . . . . . .
4.

Facility
Costs

Total

— $
—
3,355
20,107
(564)
(4,880)
(142)
(142)
2,649
(1,729)
(246)

$ 2,296

$

674

15,085
(11,869)
(246)
$ 2,970

Discontinued Operations

Julian Graves
On July 2, 2012, the board of directors of Julian Graves Limited, a company organized under the laws of the United Kingdom and Wales (the ‘‘UK Debtor’’) and an indirect, wholly-owned subsidiary of the Company, Deloitte LLP (the ‘‘Administrators’’) were appointed as administrators in respect of the
UK Debtor (the ‘‘UK Administration’’). The UK Administration, which was limited to the UK Debtor, was initiated in response to continuing operating losses of the UK Debtor and their related impact on the Company’s cash flows. The effect of the UK Debtor’s entry into administration was to place the management, affairs, business and property of the UK Debtor under the direct control of the
Administrators. The Administrators have wound the operations down and there are no material adjustments anticipated.
The results of the Julian Graves business included in discontinued operations (previously in the
European Retail Segment) for the fiscal year ended September 30, 2012 are summarized in the following table:
2012

Net sales . . . . . . . . . . . . . . . . . . . . . . . . .
Impairments and deconsolidation loss . . . .
Loss from operations, before income taxes
Benefit for income taxes . . . . . . . . . . . . . .
Loss, net of income taxes . . . . . . . . . . . . .

.
.
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.

$ 43,999
(27,509)
(27,682)
(9,065)
(18,617)

As of June 30, 2012, the carrying value of all assets relating to the UK Debtor were evaluated and an impairment of $20,106, primarily relating to the Julian Graves Tradename, was recorded. As of
July 2, 2012, concurrent with the transfer of control of the UK Debtor to the Administrator, a deconsolidation loss of approximately $7,403 was recorded.

F-13

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

4.

Discontinued Operations (Continued)

Le Naturiste
On August 31, 2012 we sold certain assets and liabilities of our subsidiary Le Naturiste, Inc. for a net sales price of $1,600. The sale of Le Naturiste resulted in a loss of approximately $3,088 which is included in discontinued operations for the year ended September 30, 2012. The results of the Le
Naturiste business included in discontinued operations (previously in the North American Retail
Segment) for the fiscal year ended September 30, 2012 are summarized in the following table:
2012

Net sales . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of business . . . . . . . . . . . . . .
Loss from operations, before income taxes
Benefit for income taxes . . . . . . . . . . . . .
Loss, net of income taxes . . . . . . . . . . . . .
5.

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.
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.
.
.

$17,228
(3,088)
(4,431)
—
(4,431)

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 its 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
(A3,200 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. Pro forma financial information and actual year to date results related to Essenza and Balance Bar are not provided as their impact was not material to our consolidated financial statements, individually or in the aggregate.

F-14

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

6.

Inventories
The components of inventories are as follows at September 30:
2014

Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$217,697
20,898
614,631

$195,713
25,068
519,171

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.

2013

$853,226

$739,952

Property, Plant and Equipment
Property, plant and equipment is as follows at September 30:

2014

.
.
.
.
.
.
.

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.

Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .

$ 66,833
279,112
163,095
121,907
140,628
6,138
22,769

$ 70,597
272,833
166,810
103,259
81,356
6,044
42,487

800,482

Land . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and leasehold improvements
Machinery and equipment . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . .
Computer software and equipment . . .
Transportation equipment . . . . . . . . . .
Construction in progress . . . . . . . . . . .

2013

743,386

(203,280)

Depreciation and amortization period (years)

(171,857)

$ 597,202

4–40
3–13
3–10
3–7
3–4

$ 571,529

Included in construction in process are assets related to implementing a new world-wide ERP system. Depreciation and amortization of property, plant and equipment for the fiscal years ended
September 30, 2014, 2013 and 2012 was approximately $60,530, $64,883 and $58,311, respectively.
8.

Goodwill and Intangible Assets

The Company’s goodwill and intangible assets relate primarily to assets valued as a result of the
Merger on October 1, 2010. The Company does not amortize its goodwill or indefinite lived intangible assets. Instead, the Company performs an assessment to test these assets for impairment annually, or more frequently if events or changes in circumstances indicate they may be impaired.

F-15

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

8.

Goodwill and Intangible Assets (Continued)

On a quarterly basis, we monitor the key drivers of fair value to detect events or other changes that would warrant an interim impairment test of our goodwill and intangibles. The key assumptions that drive the cash flows of our reporting units and intangible assets are estimated revenue growth rates and levels of profitability. Terminal value growth rate assumptions, weighted average cost of capital rates (‘‘WACC’’) as well as royalty rates are used in conjunction with these key assumptions in order to derive the estimated fair value. These assumptions are subject to uncertainty, including our ability to grow revenue and improve or maintain profitability levels. Relatively small declines in the future performance and cash flows of a reporting unit or asset group or small changes in other key assumptions may result in the recognition of significant asset impairment charges.
Goodwill and Other Intangible Asset Impairment Charges
The North American Retail and Direct Response/E-Commerce segments have seen increased competition as well as increased use of promotions in order to maintain sales levels. During the fourth fiscal quarter of 2014, the Direct Response/E-Commerce and North American Retail segments recorded impairment charges of $61,590 and $25,744, respectively, related to goodwill. This was in connection with our annual impairment assessment and the completion of a strategic planning process relating to the rates of growth of sales, profit and cash flow and expectations for future performance.
In addition, as a part of this process, we recorded impairment charges of $110,000 and $10,000 on the indefinite lived tradenames of the Direct Response/E-Commerce and North American Retail segments, respectively. Goodwill
The changes in the carrying amount of goodwill by segment for the fiscal years ended
September 30, 2014 and 2013 are as follows:
European
Retail

Direct
Response/
E-Commerce

North
American
Retail

Consolidated

$613,561 $281,025
—
35,000
35,500
4,147
(3,841)
4,681

$317,985
(53,000)
—
—

$ 7,744
18,000
—
—

$1,220,315
—
39,647
840

Wholesale

Balance at September 30, 2012
Reassignment of goodwill(1) . . .
Acquisitions . . . . . . . . . . . . . .
Foreign currency translation . .

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.

.
.
.
.

.
.
.
.

.
.
.
.

Balance at September 30, 2013
Purchase price adjustments . . .
Impairment of goodwill . . . . . .
Foreign currency translation . .

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

Balance at September 30, 2014 . . . . . . . . . . .
(1)

645,220
—
—
(6,590)
$638,630

324,853
517
—
(4,113)
$321,257

264,985
—
(61,590)
—
$203,395

25,744
—
(25,744)
—
$

—

1,260,802
517
(87,334)
(10,703)
$1,163,282

Goodwill was reassigned based on the relative fair values of the elements transferred and the elements remaining in the respective segment.

F-16

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

8.

Goodwill and Intangible Assets (Continued)

Other Intangible Assets
The carrying amounts of acquired other intangible assets are as follows at September 30:
2014
Gross carrying amount

Definite lived intangible assets
Brands and customer relationships . .
Tradenames and other . . . . . . . . . . .

2013

Accumulated amortization Gross carrying amount

Accumulated amortization Amortization period (years)

$ 912,200
175,872

$155,776
22,644

$ 913,972
177,903

$116,330
16,677

17–25
20–30

1,088,072

178,420

1,091,875

133,007

Indefinite lived intangible asset
Tradenames . . . . . . . . . . . . . . . . . .

881,940

—

1,001,484

—

Total intangible assets . . . . . . . . .

$1,970,012

$178,420

$2,093,359

$133,007

Aggregate amortization expense of other definite lived intangible assets included in the
Consolidated Statements of Operations and Comprehensive Income (Loss) in selling, general and administrative expenses in fiscal 2014, 2013 and 2012 was $46,027, $45,753 and $43,960, respectively.
Assuming no changes in our other intangible assets, estimated amortization expense for each of the five succeeding years will be approximately $46,000 per year.
9.

Accrued Expenses and Other Current Liabilities
The components of accrued expenses and other current liabilities are as follows at September 30:
2014

Accrued compensation and benefits
Accrued interest . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . .

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

F-17

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

$ 44,189
29,273
37,147
110,447

$ 53,491
29,281
16,833
120,161

$221,056

.
.
.
.

2013

$219,766

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

10.

Long-Term Debt
Long-term debt consists of the following at September 30:
2014

Senior Credit Facilities:
Term loan B-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2013

$1,507,500
650,000
848

$1,507,500
650,000
1,281

2,158,348
(261)
$2,158,087

2,158,781
(376)
$2,158,405

Senior secured 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, Holdings 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, our parent company, 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 is 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.
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

F-18

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

10.

Long-Term Debt (Continued)

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 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.
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 approximately $600 were incurred and will be amortized over the remaining period.
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 September 30, 2014, there were no borrowings drawn from our $200,000 revolving credit facility and there were letters of credit totaling $4,400, reducing the net availability to $195,600.
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

F-19

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

10.

Long-Term Debt (Continued)

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 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 covenants under the senior secured credit facilities at September 30, 2014.
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, our parent company, 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, totaling $17,345 and a $721,682 dividend to Holdings’ shareholders in October 2012.
On December 12, 2013, Holdings, our parent company, 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.

F-20

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

10.

Long-Term Debt (Continued)

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 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.
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.
On or after November 1, 2013, 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

F-21

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

10.

Long-Term Debt (Continued)

date), if redeemed during the 12-month period commencing on November 1 of the years set forth below: Redemption
Price

Period

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

102.00%
101.00%
100.00%

On March 10, 2014 and June 21, 2013, $450,000 and $549,925, respectively, in aggregate principal amount of the Holdco Notes were exchanged for substantially identical notes that were registered under the Securities Act of 1933, as amended, and therefore are freely tradable.
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 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:
Redemption
Price

Period

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

104.50%
102.25%
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 covenants under the Notes at September 30, 2014.

F-22

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

11.

Fair Value of Financial Instruments

GAAP establishes a framework for measuring fair value and includes 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 between market participants on the measurement date. GAAP also establishes a fair value hierarchy, 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.
The following table summarizes the liabilities measured at fair value on a recurring basis at
September 30:
Level 1

Liabilities:
Current (included in accrued expenses and other current liabilities):
Interest rate swaps . . . . . . . . . . . . . . . . . . .
Cross currency swaps . . . . . . . . . . . . . . . . . .
Non-current (included in other liabilities):
Interest rate swaps . . . . . . . . . . . . . . . . . . .
Cross currency swaps . . . . . . . . . . . . . . . . . .

2014
Level 2

Level 3

Level 1

2013
Level 2

Level 3

.
.

$—
$—

$1,151 $
—
$ — $ 3,857

$—
$—

$5,268 $
—
$ — $ 3,855

.
.

$—
$—

$
$

$—
$—

$1,066 $
—
$ — $18,399

—
—

$
—
$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 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 8.1% to 8.5%
(8.3% weighted average) as of September 30, 2014 and 9.5% to 10.3% (9.8% weighted average) as of
September 30, 2013.

F-23

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

11.

Fair Value of Financial Instruments (Continued)

The following table shows the Level 3 activity related to our cross currency swaps for the fiscal years ended September 30:
2014

2013

Beginning balance: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on hedging instruments . . . . . . . . . . . . . . . . .

$(22,254) $(24,862)
3,624
2,608

Ending balance: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(18,630) $(22,254)

Assets Re-measured at Fair Value on a Non-recurring Basis
In connection with our annual impairment assessment of goodwill and intangible assets, an impairment was recorded for the Direct Response/E-Commerce and North American Retail segments of $171,590and $35,744, respectively (See Note 8). In connection with the UK Administration (See
Note 4), we re-measured the Julian Graves tradename and certain fixed assets using Level 3 inputs, which resulted in an impairment of $20,106 in fiscal 2012.
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, in connection with the Refinancing, we entered into three interest rate swap contracts to fix the LIBOR indexed interest rates on a portion of our senior 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% and a term ending
December 30, 2014. 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 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 will be 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 and will be recognized in current operations. Hedge ineffectiveness from inception to September 30, 2014 was insignificant and recorded in Miscellaneous, net.
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, during
December 2010, we entered into three cross currency swap contracts 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
1.56, 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

F-24

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

11.

Fair Value of Financial Instruments (Continued)

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 operations. Hedge ineffectiveness for the years ended September 30, 2014, 2013 and 2012 resulted in gains (losses) of
$966, $1,611 and ($3,358), respectively, and is recorded in Miscellaneous, net.
The following table shows the effect of the Company’s derivative instruments designated as cash flow and net investment hedging instruments for the years ended September 30, 2014 and 2013:
Amount of Gain or
Amount of Gain or
Amount of Gain or
Amount of Gain or
(Loss) Recognized in (Loss) Reclassified (Loss) Recognized in (Loss) Reclassified
Accumulated
from Accumulated
Accumulated
from Accumulated
OCI on Derivative OCI into Operations OCI on Derivative OCI into Operations
(Effective Portion)
(Effective Portion)
(Effective Portion)
(Effective Portion)
2014
2014
2013
2013

Cash Flow Hedges:
Interest rate swaps . . . . . . . . .
Net Investment Hedges:
Cross currency swaps . . . . . . .
Total . . . . . . . . . . . . . . . . .

$(2,166)

$(5,346)

1,266

—

$ (900)

$(5,346)

$(3,499)
612
$(2,887)

$(7,904)
—
$(7,904)

Notes
The fair value of the Notes, based on quoted market prices (Level 2), was approximately $676,000, as of September 30, 2014.
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.
Other Fair Value Considerations
During the fourth quarter of each year, the Company evaluates goodwill at the reporting unit level and indefinite-lived intangibles for impairment using market data and a cash flow model using Level 3 inputs. Additionally, on a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value.
12.

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 there may be a duty to defend and indemnify, challenging the marketing of glucosamine- based dietary

F-25

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

12.

Litigation Summary (Continued)

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. 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 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 million. This reduction in the estimated exposure was reflected in the Company’s first quarter results for fiscal 2014. Until the cases are 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,

F-26

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

12.

Litigation Summary (Continued)

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 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.
13.

Income Taxes

(Loss) income from continuing operations before income taxes consists of the following components for the fiscal years ended September 30:
2014

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2013

2012

$(225,767) $ 10,452
191,760
173,906

$ 76,096
158,687

$ (34,007) $184,358

$234,783

(Benefit) provision for income taxes consists of the following for the fiscal years ended
September 30:
2014

Federal
Current .
Deferred
State
Current .
Deferred
Foreign
Current .
Deferred

.....................................
.....................................

2013

$ 10,668 $ 6,831
(43,708) 10,231

2012

$ 32,287
(15,315)

.....................................
.....................................

3,495
(5,689)

2,727
(4,106)

5,261
(2,275)

.....................................
.....................................

44,863
516

40,027
(832)

44,773
533

Total (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 10,145

F-27

$54,878

$ 65,264

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)
13.

Income Taxes (Continued)

The following is a reconciliation of the (benefit) provision for income taxes on continuing operations computed using the statutory Federal income tax rate to the actual income tax expense and the effective income tax rate for the fiscal years ended September 30:
2014

Amount

Income tax expense at statutory rate . . . . . . .
State income taxes, net of federal income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . .
Effect of international operations, including foreign export benefit and earnings indefinitely reinvested . . . . . . . . . . . . . . . .
Domestic manufacturing deduction . . . . . . . .
Tax benefit attributable to Le Naturiste sale .
Goodwill impairment . . . . . . . . . . . . . . . . . .
Change in tax reserves . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Percent of pretax income 2013
Percent
of pretax
Amount income

2012
Percent
of pretax
Amount income

. $(11,902)

35.0% $64,525

35.0% $82,174

35.0%

.
.

(3,415)
—

10.0%
0.0%

(1,379)
(1,259)

(0.7)%
(0.7)%

1,566
(539)

0.7%
(0.2)%

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.
.

(38)
(1,071)
—
30,567
(4,801)
805

0.1%
3.1%
0.0%
(89.9)%
14.1%
(2.4)%

(5,645)
(1,715)
—

(3.1)% (8,476)
(0.9)% (1,918)
0.0% (7,792)

(3.6)%
(0.8)%
(3.3)%

$ 10,145

—
351

(29.8)% $54,878

—
0.2%

—
249

—
0.1%

29.8% $65,264

27.8%

The difference in the effective rate in fiscal 2014 as compared to the statutory rate is mainly attributable to the impact of the goodwill impairment during fiscal 2014 for which no income tax benefit was recorded.
The difference in the effective rate in fiscal 2013 as compared to the statutory rate is mainly attributable to the restructuring which had a favorable impact on our state tax rate due to the closing of facilities in California (a relatively high tax state) and the partial indefinite reinvestment of foreign earnings. The difference in the effective rate in fiscal 2012 as compared to the statutory rate is mainly attributable to the benefit attributable to the sale of Le Naturiste, as well as the partial indefinite reinvestment of certain foreign earnings in the year.

F-28

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)
13.

Income Taxes (Continued)
The components of deferred tax assets and liabilities are as follows as of September 30:
2014

Deferred tax assets:
Inventory reserves and UNICAP . . . . . . . . . . . . . . . . .
Accrued expenses and reserves not currently deductible
Other comprehensive income . . . . . . . . . . . . . . . . . . .
Foreign and state tax credits . . . . . . . . . . . . . . . . . . . .
Foreign and state net operating losses . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .

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2013

$ 15,524 $ 10,543
19,936
20,874
8,670
13,282
107,460
109,895
8,434
11,863
(9,543)
(14,116)

Total deferred income tax assets, net of valuation allowance . . . .

150,481

152,341

Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Undistributed foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . .

(50,307)
(656,843)
(122,378)

(52,557)
(707,679)
(119,887)

Total deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . .

(829,528)

(880,123)

Total net deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . .
Less current deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . .

(679,047)
(28,915)

(727,782)
(23,637)

Long-term deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . .

$(707,962) $(751,419)

At September 30, 2014 and 2013, we had the following foreign net operating losses, foreign tax credit and New York State (‘‘NYS’’) investment tax credit carryforwards:
2014

Foreign net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NYS investment tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . .

2013

$ 19,600
104,923
2,537

$ 30,798
109,959
3,807

At September 30, 2014 and 2013, we maintained the following valuation allowances:
2014

NYS investment tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2013

$ 2,537
7,005

$ 3,807
10,309

The NYS investment tax credits expire primarily between 2014 and 2029 and the foreign net operating loss carryforwards expire in accordance with applicable tax law. We provide a valuation allowance for these credit and loss carryforwards because we do not consider realization of such assets to be more likely than not. We continue to monitor the need for these valuation allowances on an on-going basis.
At September 30, 2014, we had $111,547 of undistributed international earnings on which we have not provided any U.S. tax expense as we intend to permanently reinvest these earnings outside of the
U.S. If these earnings are repatriated to the United States, or if the Company determines that such earnings will be remitted in the foreseeable future, additional tax provisions may be required. Due to

F-29

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)
13.

Income Taxes (Continued)

the complexities in the tax laws and the assumptions that would have to be made, it is not practicable to estimate the amounts of income tax provisions that may be required.
The following table summarizes the changes in the valuation allowance for the fiscal years ended
September 30:
2014

2013

2012

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NYS investment tax credit carryforwards expired/(generated) .
Foreign net operating losses utilized . . . . . . . . . . . . . . . . . . .
Foreign net operating losses acquired . . . . . . . . . . . . . . . . . .

$(14,116) $(14,867) $(15,404)
1,269
(321)
(694)
3,304
1,580
1,231
—
(508)
—

Balance at September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (9,543) $(14,116) $(14,867)

The following table summarizes the activity related to gross unrecognized tax benefits for the fiscal years ended September 30:
2014

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase related to current year tax positions . . . . . . . .
Increases related to prior year tax positions . . . . . . . . .
Decreases related to settlements with taxing authorities .
Decreases related to lapsing of statute of limitations . . .

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Balance as of September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . .

2013

2012

$13,635 $12,888 $10,687
1,260
—
—
85
1,512
2,201
(5,305)
(249)
—
(1,646)
(516)
—
$ 8,029

$13,635

$12,888

These liabilities are primarily included as a component of other liabilities in our consolidated balance sheet because we generally do not anticipate that settlement of the liabilities will require payment of cash within the next twelve months.
Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were
$5,961 and $10,263 as of September 30, 2014 and 2013, respectively. We do not believe that the amount will significantly change in the next 12 months.
We accrue interest and penalties related to unrecognized tax benefits in income tax expense. This methodology is consistent with previous periods. At September 30, 2014, we had accrued $332 and $174 for the potential payment of interest and penalties, respectively. As of September 30, 2014, we were subject to U.S. Federal Income Tax examinations for the tax years 2011 through 2013, and to non-US examinations for the tax years of 2008 through 2014. In addition, we are generally subject to state and local examinations for fiscal years 2011 through 2014. The changes to accrued penalties and interest during the fiscal year ended September 30, 2014 were primarily a result of the effective settlement of the IRS examination for the years 2007 through 2010. The Company received an effective settlement with the IRS for tax years 2007 through 2010 which resulted in a reduction of its unrecognized tax benefit. The Company is under an Internal Revenue Service (‘‘IRS’’) examination for tax years 2011 through 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 continues to progress.

F-30

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

14.

Stock-Based Compensation and Employee Benefit Plans

On November 30, 2010, Holdings adopted the Equity Incentive Plan of Alphabet Holding
Company, Inc. (the ‘‘Plan’’), pursuant to which Holdings may grant options to selected employees and directors of the Company. The aggregate number of shares which may be issued under the Plan is
50,268 shares of the Class A common stock and 208,404 shares of the Class B common stock. Options granted under the Plan expire no later than 10 years from the date of grant and the exercise price may not be less than the fair market value of the common stock on the date of grant.
During fiscal 2014, 2013 and 2012, Holdings granted 13,430, 19,180 and 24,850, respectively, of
Class B common stock options to certain Company employees under the Plan. Vesting of the awards is based on the passage of time, in equal installments over five years /or the achievement of a performance condition (i.e., a liquidity event as defined in the plan agreement) and market conditions
(i.e., the achievement of a minimum investor rate of return). The fair value of each of the Holdings time-based stock option awards is expensed in the Company’s records on a straight-line basis over the requisite service period, which is generally the five year vesting period of the options. However, for options granted with a performance condition, compensation expense is recognized when it is probable that the performance condition will be met. As the Company has determined it is not probable the performance condition will be achieved, no compensation cost has been recognized relating to the performance based awards. Pursuant to the Plan, Holdings is required to modify all options in an equitable manner under certain circumstances. The dividends of $445,537 and $721,682 in fiscal 2014 and 2013, respectively, as described in the Long-Term Debt Note, required this modification.
The weighted-average grant date fair value per share of options granted in fiscal 2014 was $147 for time based vesting and $98 for performance based vesting. The weighted-average grant date fair value per share of options granted in fiscal 2013 was $167 for time based vesting and $96 for performance based vesting. The weighted-average grant date fair value per share of options granted in fiscal 2012 was $239 for time based vesting and $108 for performance based vesting. The fair value of each option award is estimated on the date of grant utilizing a Monte Carlo simulation model. The following weighted-average assumptions were used for the options granted:
Fiscal year ended September 30,
2014
2013
2012

Significant assumptions:
Time based vesting
Risk-free rate(1) . . . .
Expected term(2) . . .
Expected volatility(3)
Expected dividends .

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.02%–3.65% .11%–4.59% .10%–3.12%
6.5 years
6.5 years
6.5 years
37%
36%
37%
0.0%
0.0%
0.0%

Performance based vesting
Risk-free rate(1) . . . . . . .
Expected term(4) . . . . . .
Expected volatility(3) . . .
Expected dividends . . . .
(1)

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.02%–3.65% .11%–4.59% .10%–3.12%
3.1 years
4.5 years
5.6 years
33%
37%
38%
0.0%
0.0%
0.0%

The risk free interest rate assumption was based on yields of U.S. Treasury securities in effect at the date of grant with terms similar to the expected term.

F-31

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

14.

Stock-Based Compensation and Employee Benefit Plans (Continued)
(2)

The expected term of the options was estimated utilizing the simplified method. We utilize the simplified method because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The simplified method was used for all stock options that require only a service vesting condition.

(3)

Expected volatility was estimated based on historical volatility of peer companies over a period equivalent to the expected term. Peer companies are determined based on relevant industry and/or market capitalization.

(4)

The expected term of the options was estimated utilizing a Monte Carlo simulation model.

A summary of stock option activity follows:
Fiscal Year Ended September 30,
2014
2013
Weighted
Weighted average average
Number
exercise
Number
exercise of shares price of shares price Outstanding at beginning of period
Granted . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . .

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173,183
13,430
(614)
(46,352)

$179
$473
$133
$153

162,951
19,180
(730)
(8,218)

$151
$397
$124
$124

Outstanding at end of period . . . . . . . . . . . . . . . . . . . . . .

139,647

$212

173,183

$179

Exercisable at end of period . . . . . . . . . . . . . . . . . . . . . .

50,360

$152

29,833

$139

Number of shares available for future grant . . . . . . . . . . .

117,269

As share-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures of 0% and 5% per year for senior management and other management, respectively. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical and forecasted turnover.
The following table summarizes information about stock options outstanding at September 30,
2014:

Range of
Exercise Prices

$124
$299
$396
$473

Options Outstanding
Weighted
Average
Remaining
Shares
Contractual
Outstanding
Life

87,047
29,890
10,630
12,080

Options Exercisable
Weighted
Average
Exercise
Price

$124
$299
$396
$473

4.9
7.8
8.6
9.6

Shares
Exercisable

Weighted
Average
Exercise
Price

Intrinsic
Value

43,090
5,664
1,456
150

$124
$299
$396
$473

$15,056
$ 988
$ 112
$
—

As of September 30, 2014, $4,748 of total unrecognized compensation cost related to the non-vested time-based vesting options is expected to be recognized over the weighted average period of
2.7 years.
F-32

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

14.

Stock-Based Compensation and Employee Benefit Plans (Continued)

As of September 30, 2014, the total potential unrecognized compensation cost related to the performance-based vesting options is $4,022 and no compensation cost will be recognized until the related performance condition is deemed probable of occurring.
Employee Benefit Plans
We sponsor a Retirement Savings Plan consisting of a 401(k) plan covering substantially all employees with more than six months of service. As allowed under Section 401(k) of the Internal
Revenue Code, the Plan provides tax-deferred salary deductions for eligible employees. Employees may contribute from one to fifty percent of their annual compensation to the Plan, limited to a maximum annual amount as set, and periodically updated, by the Internal Revenue Service. We provide a
Company match of 100% of employee contributions, up to three percent of the employee’s gross earnings and 50% match of the next two percent of earnings, limited to an annual match contribution of $10 per employee. Employees become fully vested in employer match contributions after three years of service.
We also have an Associate Profit Sharing Plan (‘‘PSP), which is allocated among participants who have completed 1,000 hours of service in the plan year end who were employed on the last day of the plan year, based upon their relative compensation for the year. Contributions are discretionary and are based on performance targets set forth by management. As of September 30, 2014 and 2013, the amount allocated and accrued for the PSP was approximately $0 and $3,723, respectively.
15.

Commitments

Operating Leases
We conduct retail operations under operating leases, which expire at various dates through 2034.
Some of the leases contain escalation clauses, as well as renewal options, and provide for contingent rent based upon sales plus certain tax and maintenance costs.
Future minimum rental payments (excluding real estate tax and maintenance costs) for retail locations and other leases that have initial or noncancelable lease terms are as follows for the fiscal year ending September 30:
2015 . . . . .
2016 . . . . .
2017 . . . . .
2018 . . . . .
2019 . . . . .
Thereafter

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$116,215
106,415
93,178
80,047
69,596
219,801
$685,252

Operating lease rent expense (including real estate taxes and maintenance costs) and leases on a month to month basis were approximately $154,889, $146,843 and $153,763 during fiscal years ended
September 30, 2014, 2013 and 2012, respectively.

F-33

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

15.

Commitments (Continued)

Purchase Commitments
We were committed to make future purchases primarily for inventory related items, such as raw materials and finished goods, under various purchase arrangements with fixed price provisions aggregating approximately $185,178 at September 30, 2014.
16.

Related Party Transactions

Consulting Agreement—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 will reimburse them for out-of-pocket expenses, and may pay Carlyle additional fees associated with other future transactions. For the years ended September 30, 2014, 2013 and 2012 these fees totaled $3,000 and are recorded in Selling, general and administrative expenses. Out of pocket expenditures paid to Carlyle for the years ended September 30, 2014, 2013 and 2012 were $915, $311 and $0, respectively.
Holdings
Holdings does not have any operations or cashflow other than dividends from NBTY. Holdings has
$1,000,000 of Holdco Notes and relies on dividends from NBTY to service the debt. See the Long-Term
Debt Note for further information.
17.

Accumulated Other Comprehensive Income (Loss)

Additions to and reclassifications out of accumulated other comprehensive income (loss) attributable to the Company were as follows:
Fiscal year ended
September 30, 2014(1)
Foreign
Gains and currency losses on translation cash flow adjustments hedges
Total

Balance at September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,683) $(3,901) $(13,584)
Other comprehensive income (loss) before reclassifications . . . . . . . . . (18,799) (2,166) (20,965)
Amounts reclassified from accumulated other comprehensive income
(loss)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
5,346
5,346
Balance at September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(28,482) $ (721) $(29,203)
(1)

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

F-34

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

17.
(2)

Accumulated Other Comprehensive Income (Loss) (Continued)
These (gains) losses are reclassified into Interest expense. See Note 11, Fair Value of Financial
Instruments.
Fiscal year ended
September 30, 2013(1)
Foreign
Gains and currency losses on translation cash flow adjustments hedges
Total

Balance at September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassifications . . . . . .
Amounts reclassified from accumulated other comprehensive income (loss)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(10,288)
605

Balance at September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (9,683)

—

$(8,306)
(3,499)
7,904
$(3,901)

$(18,594)
(2,894)
7,904
$(13,584)

(1)

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

(2)

These (gains) losses are reclassified into Interest expense. See Note 11, Fair Value of Financial
Instruments.

During the fiscal years ended September 30, 2014, 2013 and 2012 we recorded an (increase) decrease in our deferred tax liability relating to other comprehensive income (loss) incurred during the year of ($7,722), ($240) and $2,136, respectively.
18.

Business and Credit Concentration

Financial instruments
Financial instruments which potentially subject us to credit risk consist primarily of cash and cash equivalents (the amounts of which may, at times, exceed Federal Deposit Insurance Corporation limits on insurable amounts), investments and trade accounts receivable. We mitigate our risk by investing in or through major financial institutions.
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.

F-35

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

18.

Business and Credit Concentration (Continued)

One customer accounted for the following percentages of net sales for the fiscal years ended
September 30:
Wholesale Segment
Net Sales
2014
2013
2012

Customer A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Consolidated
Net Sales
2014
2013
2012

19% 21% 23% 11% 13% 14%

The loss of this customer, or any of our other major customers, would have a material adverse effect on our consolidated results of operations if we were unable to replace such customer(s).
The following customers accounted for the following percentages of the Wholesale Segment’s gross accounts receivable at fiscal years ended:
2014

Customer A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2013

13% 12%
11% 11%

Suppliers
During fiscal 2014, 2013 and 2012, no one supplier provided more than 10% of our raw material purchases. We do not believe that the loss of any single supplier would have a material adverse effect on our consolidated financial condition or results of operations.
19.

Supplemental Disclosure of Cash Flow Information
2014

2013

2012

.........
.........

$116,988
$ 48,824

$125,803
$ 43,241

$138,419
$ 73,638

.........
.........
.........

$

—
—
—

$111,141 $
(28,537)
(131)

—
—
—

Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

—

$ 82,473

—

9,488

8,242

Cash interest paid, net of capitalized interest . . . . . . . . .
Cash income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash investing and financing information:
Acquisitions accounted for under the acquisition method:
Fair value of assets acquired . . . . . . . . . . . . . . . . . . . .
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . .

Property, plant and equipment additions included in accounts payable
20.

$

11,986

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.

F-36

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

20.

Segment Information (Continued)
All of our products fall into one or more of these four segments:
• Wholesale—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 in the United States. This segment also sells products to independent pharmacies, health food stores, the military and other retailers.
• European Retail—This segment generates revenue through its 755 Holland & Barrett stores
(including franchised stores in the following countries: 29 in China, 28 in Singapore, 11 in
United Arab Emirates, 9 in Cyprus, four in Malta and one in each of Gibraltar and Iceland),
146 De Tuinen stores (including 6 franchised locations) in the Netherlands, 53 GNC branded
UK stores, 47 Nature’s Way stores in Ireland and 15 Essenza stores in Belgium, as well as internet-based sales from www.hollandandbarrett.com, www.hollandandbarrett.co.uk, www.hollandandbarrett.ie, 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 the 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 414 owned and operated
Vitamin World stores selling proprietary brand and third-party products, as well as internetbased sales from www.vitaminworld.com.

F-37

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

20.

Segment Information (Continued)
The following table represents key financial information of our business segments:
Total Reportable Business Segments
Direct
North
European Response/ American
Wholesale
Retail
E-Commerce
Retail

Fiscal 2014:
Net sales . . . . . . . .
Income (loss) from operations(1) . . . . .
Depreciation and amortization . . . .
Capital expenditures .
Fiscal 2013:
Net sales . . . . . . . .
Income (loss) from operations(2) . . . . .
Depreciation and amortization . . . .
Capital expenditures .
Fiscal 2012:
Net sales . . . . . . . .
Income (loss) from operations . . . . . .
Depreciation and amortization . . . .
Capital expenditures .

. . . . . $1,879,481 $850,797

$ 250,224

Corporate /
Manufacturing Consolidated

Total

$225,276 $3,205,778

$

—

$3,205,778

.....

177,069

191,207

(141,660)

(26,975)

199,641

(96,901)

102,740

.....
.....

36,092
482

18,048
42,315

11,319
1,456

3,344
14,095

68,803
58,348

37,754
46,859

106,557
105,207

. . . . . $1,938,921 $743,861

$ 246,731

—

$3,163,041

$233,528 $3,163,041

$

.....

231,812

170,479

39,104

24,538

465,933

(136,168)

329,765

.....
.....

36,517
971

14,320
27,198

10,137
4,411

2,708
5,557

63,682
38,137

46,954
91,083

110,636
129,220

. . . . . $1,826,780 $699,675

$ 239,409

—

$2,999,733

$233,869 $2,999,733

$

.....

241,504

157,540

46,179

26,758

471,981

(77,611)

394,370

.....
.....

39,692
804

13,988
22,428

10,504
131

3,196
596

67,380
23,959

34,891
62,355

102,271
86,314

(1)

Includes charges of $171,590 and $35,744 for the Direct Response/E-Commerce and North American Retail segments, respectively, relating to the goodwill and intangible asset impairment charges (see Note 8).

(2)

Includes charges of $32,695 relating to the facility restructuring (see Note 3) and $12,000 relating to the accrual of an anticipated legal settlement (see Note 12).

Total assets by segment as of September 30 are as follows:
2014

2013

.
.
.
.

$2,581,069
948,010
512,642
107,442

$2,553,857
924,979
692,685
119,395

Total Reportable Business Segments: . . . . . . . . . . . . . . . . . . . . . . .

4,149,163

4,290,916

Corporate / Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

728,559

782,400

Consolidated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,877,722

$5,073,316

Reportable Business Segments:
Wholesale . . . . . . . . . . . . . . . .
European Retail . . . . . . . . . . .
Direct Response / E-Commerce
North American Retail . . . . . . .

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F-38

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NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

20.

Segment Information (Continued)
Total net sales by location of customer for the fiscal years ended September 30, are as follows:
2014

2013

2012

.
.
.
.
.
.

$1,934,668
767,173
118,814
116,107
40,235
228,781

$2,024,178
675,378
129,476
98,673
36,655
198,681

$1,938,751
641,752
111,047
84,167
33,341
190,675

Consolidated net sales . . . . . . . . . . . . . . . .

$3,205,778

$3,163,041

$2,999,733

United States . . . . . . .
United Kingdom . . . . .
Canada . . . . . . . . . . .
Netherlands . . . . . . . .
Ireland . . . . . . . . . . . .
Other foreign countries

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Long-lived assets—Property, plant and equipment as of September 30, are as follows:
2014

2013

.
.
.
.
.
.

$399,296
146,814
15,778
4,454
10,687
20,173

$397,464
124,666
13,768
5,486
11,752
18,393

Consolidated long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$597,202

$571,529

United States . . . . . . . .
United Kingdom . . . . .
Netherlands . . . . . . . . .
Ireland . . . . . . . . . . . .
Canada . . . . . . . . . . . .
Other foreign countries .

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Approximately 35%, 32% and 31% of our net sales for the fiscal years ended September 30, 2014,
2013 and 2012, respectively, were denominated in currencies other than U.S. dollars, principally British pounds, euros, Renminbi and Canadian dollars. A significant weakening of such currencies versus the
U.S. dollar could have a material adverse effect on the Company, 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 as of September 30:
2014

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.

2013

27% 26%
6% 3%

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 September 30, 2014 and 2013 and for the fiscal years ended September 30, 2014, 2013 and 2012 of (a) NBTY, the parent and issuer,
(b) the guarantor subsidiaries, (c) the non-guarantor subsidiaries and (d) NBTY on a consolidated basis; and
F-39

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

21.

Condensed Consolidating Financial Statements of Guarantors (Continued)
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
Nonguarantors (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.
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. Furthermore, we revised the consolidating statements of operations and comprehensive income (loss) to reflect the earnings of certain non-guarantor entities within the guarantor’s operations, with a corresponding offset in the eliminations column. These revisions impacted the consolidating balance sheet as of
September 30, 2013, the consolidating statements of operations and comprehensive income (loss) and cash flows for the fiscal years ended September 30, 2013 and 2012. 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.

F-40

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

21.

Condensed Consolidating Financial Statements of Guarantors (Continued)
NBTY, INC. and SUBSIDIARIES
Condensed Consolidating Balance Sheet
As of September 30, 2014
Parent
Company

Assets
Current assets:
Cash and cash equivalents . . . . .
Accounts receivable, net . . . . . .
Intercompany . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . .
Other current assets . . . . . . . . .
Total current assets . . . . . . . .
Property, plant and equipment, net
Goodwill . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . .
Other assets . . . . . . . . . . . . . . . .
Intercompany loan receivable . . . .
Investments in subsidiaries . . . . . .
Total assets . . . . . . . . . . . . . .

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Liabilities and Stockholder’s Equity
Current liabilities:
Current portion of long-term debt . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . .
Intercompany . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . .
Intercompany loan payable . . . . . . . . . . . . .
Long-term debt, net of current portion . . . .
Deferred income taxes . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholder’s Equity:
Common stock . . . . . . . . . . . . . . . . . . . .
Capital in excess of par . . . . . . . . . . . . . .
(Accumulated deficit) retained earnings . .
Accumulated other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholder’s equity . . . . . . . . . . .
Total liabilities and stockholder’s equity .

Guarantor Non-Guarantor
Subsidiaries Subsidiaries
Eliminations Consolidated

. $ 77,550 $
751
.
—
130,749
.
30,425
—
.
—
650,484
.
—
27,002
.
19,932
18,049
.
127,907
827,035
.
95,022
304,274
.
—
726,354
.
— 1,439,374
.
41,286
8,115
. 2,497,343 1,060,793
. 2,037,163
148,921
. $4,798,721 $4,514,866

$

61,187
44,952
32,102
202,742
1,913
40,843
383,739
197,906
436,928
352,218
91
—
—
$1,370,882

(62,527)
—
—
—
(62,527)
—
—
—
—
(3,558,136)
(2,186,084)
$(5,806,747)

. $
.
.

$

$

— $
—
—
140,761
—
62,527

261
87,116
—

$ 139,488
175,701
—
853,226
28,915
78,824
1,276,154
597,202
1,163,282
1,791,592
49,492
—
—
$4,877,722

— $
261
—
227,877
(62,527)
—

.
.
.
.
.
.
.

34,282
34,282
1,060,793
2,157,500
22,280
14,773
3,289,628

112,136
315,424
2,157,500
—
586,116
13,732
3,072,772

74,638
162,015
339,843
587
99,566
24,881
626,892

—
221,056
(62,527)
449,194
(3,558,136)
—
— 2,158,087
—
707,962
—
53,386
(3,620,663) 3,368,629

.
.
.

—
—
1,561,014 1,358,862
(22,718)
89,265

—
739,911
24,570

—
—
(2,098,773) 1,561,014
(113,835)
(22,718)

.
(29,203)
(6,033)
(20,491)
26,524
(29,203)
. 1,509,093 1,442,094
743,990
(2,186,084) 1,509,093
. $4,798,721 $4,514,866 $1,370,882 $(5,806,747) $4,877,722

F-41

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

21.

Condensed Consolidating Financial Statements of Guarantors (Continued)
NBTY, INC. and SUBSIDIARIES
Condensed Consolidating Balance Sheet
As of September 30, 2013
Parent
Company

Assets
Current assets:
Cash and cash equivalents . . . . .
Accounts receivable, net . . . . . .
Intercompany . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . .
Other current assets . . . . . . . . .
Total current assets . . . . . . . .
Property, plant and equipment, net
Goodwill . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . .
Other assets . . . . . . . . . . . . . . . .
Intercompany loan receivable . . . .
Investments in subsidiaries . . . . . .
Total assets . . . . . . . . . . . . . .

.
.
.
.
.
.
.
.
.
.
.
.
.
.

.
.
.
.
.
.
.
.
.
.
.
.
.
.

.
.
.
.
.
.
.
.
.
.
.
.
.
.

.
.
.
.
.
.
.
.
.
.
.
.
.
.

.
.
.
.
.
.
.
.
.
.
.
.
.
.

.
.
.
.
.
.
.
.
.
.
.
.
.
.

.
.
.
.
.
.
.
.
.
.
.
.
.
.

Guarantor Non-Guarantor
Subsidiaries Subsidiaries
Eliminations Consolidated

. $ 81,356 $ 35,357
.
—
127,894
.
34,549
—
.
—
561,276
.
—
23,004
.
19,033
24,104
.
134,938
771,635
.
88,612
308,852
.
—
813,688
.
— 1,601,964
.
61,218
6,937
. 2,480,760 1,091,982
. 2,180,814
152,680
. $4,946,342 $4,747,738

$

81,848
43,776
29,082
178,676
633
35,442
369,457
174,065
447,114
358,388
79
—
—
$1,349,103

Liabilities and Stockholder’s Equity
Current liabilities:
Current portion of long-term debt . . . . . . . $
— $
— $
376
Accounts payable . . . . . . . . . . . . . . . . . . .
—
195,712
63,348
Intercompany . . . . . . . . . . . . . . . . . . . . . .
—
63,631
—
Accrued expenses and other current liabilities .
38,407
109,865
71,494
Total current liabilities . . . . . . . . . . . . . .
38,407
369,208
135,218
Intercompany loan payable . . . . . . . . . . . . . . 1,091,982 2,157,500
323,260
Long-term debt, net of current portion . . . . . 2,157,500
—
905
Deferred income taxes . . . . . . . . . . . . . . . . .
14,151
637,726
99,542
Other liabilities . . . . . . . . . . . . . . . . . . . . . .
19,463
14,650
25,338
Total liabilities . . . . . . . . . . . . . . . . . . . 3,321,503 3,179,084
584,263
Commitments and contingencies
Stockholder’s Equity:
Common stock . . . . . . . . . . . . . . . . . . . . .
—
—
—
Capital in excess of par . . . . . . . . . . . . . . . 1,556,926 1,358,862
733,411
Retained earnings . . . . . . . . . . . . . . . . . . .
81,497
216,501
30,198
Accumulated other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,584)
(6,709)
1,231
Total stockholder’s equity . . . . . . . . . . . . 1,624,839 1,568,654
764,840
Total liabilities and stockholder’s equity . . $4,946,342 $4,747,738 $1,349,103

F-42

$

—
—
(63,631)
—
—
—
(63,631)
—
—
—
—
(3,572,742)
(2,333,494)
$(5,969,867)

$ 198,561
171,670
—
739,952
23,637
78,579
1,212,399
571,529
1,260,802
1,960,352
68,234
—
—
$5,073,316

$

— $
376
—
259,060
(63,631)
—
—
219,766
(63,631)
479,202
(3,572,742)
—
— 2,158,405
—
751,419
—
59,451
(3,636,373) 3,448,477
—
—
(2,092,273) 1,556,926
(246,699)
81,497

5,478
(13,584)
(2,333,494) 1,624,839
$(5,969,867) $5,073,316

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

21.

Condensed Consolidating Financial Statements of Guarantors (Continued)
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Year Ended September 30, 2014
Parent
Company

Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . .
Advertising, promotion and catalog
Selling, general and administrative .
Goodwill and intangible asset impairment charges . . . . . . . . . .

Eliminations

Consolidated

—

$2,158,213

$1,160,397

$(112,832)

$3,205,778

—
—
96,771

1,339,925
163,894
459,309

513,324
38,860
396,453

(112,832)
—
—

1,740,417
202,754
952,533

—

$

Non-Guarantor
Subsidiaries

207,334

—

96,771

Net sales . . . . . . . . . . . . . . . . . . . . .

Guarantor
Subsidiaries

2,170,462

948,637

—
(112,832)

207,334
3,103,038

Income (loss) from operations . . . . .

(96,771)

(12,249)

211,760

—

102,740

Other income (expense):
Intercompany interest . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . .

157,567
(137,589)
1,497

(137,589)
1,106
(1,665)

(19,978)
445
(541)

—
—
—

—
(136,038)
(709)

21,475

(138,148)

(20,074)

—

(136,747)

Income (loss) before income taxes . .
Provision (benefit) for income taxes .
Equity in income of subsidiaries . . . .

(75,296)
(10,816)
20,328

(150,397)
(24,416)
24,086

191,686
45,377
—

—
—
(44,414)

(34,007)
10,145
—

Net income (loss) . . . . . . . . . . . . . .

(44,152)

(101,895)

146,309

(44,414)

(44,152)

(18,799)

(2,503)

(21,722)

24,225

(18,799)

3,180

3,180

(3,180)

3,180

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment, net of taxes . . . . . . . .
Change in fair value of interest rate swaps, net of taxes . . . . . . . . . . . .
Total other comprehensive income
(loss), net of tax . . . . . . . . . . . . . .
Comprehensive income (loss) . . . . . .

(15,619)
677
$ (59,771) $ (101,218)

F-43

—
(21,722)
$ 124,587

21,045
$ (23,369)

(15,619)
$ (59,771)

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

21.

Condensed Consolidating Financial Statements of Guarantors (Continued)
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Year Ended September 30, 2013
Parent
Company

Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . .
Advertising, promotion and catalog
Selling, general and administrative .
Facility restructuring charges . . . . .

Eliminations

Consolidated

—

$2,226,010

$1,040,601

$(103,570)

$3,163,041

—
—
103,625
—

$

Non-Guarantor
Subsidiaries

1,343,613
153,418
458,065
32,695

460,866
36,067
348,497

(103,570)
—
—

1,700,909
189,485
910,187
32,695

103,625

Net sales . . . . . . . . . . . . . . . . . . . . .

Guarantor
Subsidiaries

1,987,791

845,430

(103,570)

2,833,276

Income (loss) from operations . . . . .

(103,625)

238,219

195,171

—

329,765

Other income (expense):
Intercompany interest . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . .

162,091
(147,676)
(341)

(147,676)
—
9,532

(14,415)
576
(7,498)

—
—
—

—
(147,100)
1,693

14,074

(138,144)

(21,337)

—

(145,407)

Income (loss) before income taxes . .
Provision (benefit) for income taxes .
Equity in income of subsidiaries . . . .

(89,551)
(26,871)
192,160

100,075
33,075
20,010

173,834
48,674
—

—
—
(212,170)

184,358
54,878
—

Net income (loss) . . . . . . . . . . . . . .

129,480

87,010

125,160

(212,170)

129,480

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment, net of taxes . . . . . . . .
Change in fair value of interest rate swaps, net of taxes . . . . . . . . . . . .

4,405

Total other comprehensive income
(loss), net of tax . . . . . . . . . . . . . .
Comprehensive income (loss) . . . . . .

5,010
$ 134,490

605

(2,950)

2,191

759

605

4,405

$

F-44

—

(4,405)

4,405

1,455
88,465

2,191
$ 127,351

(3,646)
$(215,816)

5,010
$ 134,490

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

21.

Condensed Consolidating Financial Statements of Guarantors (Continued)
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Year Ended September 30, 2012
Parent
Company

Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . .
Advertising, promotion and catalog
Selling, general and administrative .

Eliminations

Consolidated

—

$2,173,443

$947,941

$(121,651)

$2,999,733

—
—
77,156

$

Non-Guarantor
Subsidiaries

1,303,122
134,076
431,047

426,965
30,222
324,426

(121,651)
—
—

1,608,436
164,298
832,629

77,156

Net sales . . . . . . . . . . . . . . . . . . . . .

Guarantor
Subsidiaries

1,868,245

781,613

(121,651)

2,605,363

166,328

Income (loss) from operations . . . . .

(77,156)

305,198

Other income (expense):
Intercompany interest . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . .

163,353
(158,584)
365

(158,584)
—
1,564
(157,020)

5,134

—

394,370

(4,769)
—
(2,932)

—
—
—

—
(158,584)
(1,003)

(7,701)

—

(159,587)

Income (loss) from continuing operations before income taxes . . .
(Benefit) provision for income taxes .
Equity in income of subsidiaries . . . .

(72,022)
(27,021)
191,472

148,178
47,870
16,525

158,627
44,415
—

—
—
(207,997)

234,783
65,264
—

Income (loss) from continuing operations . . . . . . . . . . . . . . . . . .

146,471

116,833

114,212

(207,997)

169,519

Loss from discontinued operations, net of income taxes . . . . . . . . . . .

—

—

Net income (loss) . . . . . . . . . . . . . .

146,471

116,833

91,164

(207,997)

146,471

16,740

2,500

13,193

(15,693)

16,740

2,431

2,431

—

(2,431)

2,431

19,171
$ 165,642

4,931
$ 121,764

13,193
$104,357

(18,124)
$(226,121)

19,171
$ 165,642

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment, net of taxes . . . . . . . .
Change in fair value of interest rate swaps, net of taxes . . . . . . . . . . . .
Total other comprehensive income
(loss), net of tax . . . . . . . . . . . . . .
Comprehensive income (loss) . . . . . .

F-45

(23,048)

—

(23,048)

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

21. Condensed Consolidating Financial Statements of Guarantors (Continued)
NBTY, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Fiscal Year Ended September 30, 2014
Parent
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated

Cash flows from operating activities:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . $ (44,152) $(101,895)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Equity in earnings of subsidiaries . . . . . . . . . . (20,328)
(24,086)
Impairments and disposals of assets . . . . . . . .
—
213,314
Depreciation of property, plant and equipment
11,956
28,234
Amortization of intangible assets . . . . . . . . . .
—
42,590
Foreign currency transaction loss (gain) . . . . .
—
1,372
Amortization and write-off of financing fees . .
19,033
—
Stock-based compensation . . . . . . . . . . . . . .
3,521
185
Allowance for doubtful accounts . . . . . . . . . .
—
407
Inventory reserves . . . . . . . . . . . . . . . . . . . .
—
2,874
Deferred income taxes . . . . . . . . . . . . . . . . .
—
(49,158)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . .
—
(3,956)
Inventories . . . . . . . . . . . . . . . . . . . . . . .
—
(88,597)
Other assets . . . . . . . . . . . . . . . . . . . . . .
—
7,451
Accounts payable . . . . . . . . . . . . . . . . . . .
—
(56,196)
Accrued expenses and other liabilities . . . . .
—
(973)
Dividends received . . . . . . . . . . . . . . . . . . 126,596
25,341
Intercompany accounts . . . . . . . . . . . . . . .
—
(545)

$ 146,309

$ (44,414)

$ (44,152)

—
1,499
20,340
3,437
330
—
382
581
3,132
277

44,414
—
—
—
—
—
—
—
—
—

—
214,813
60,530
46,027
1,702
19,033
4,088
988
6,006
(48,881)

(2,744)
(34,474)
(7,079)
25,264
3,894
—
545

—
—
—
—
—
(151,937)
—

(6,700)
(123,071)
372
(30,932)
2,921
—
—

(151,937)

102,744

Cash (used in) provided by operating activities . . . .

96,626

(3,638)

161,693

Cash flows from investing activities:
Purchase of property, plant and equipment . . . . .
Proceeds from sale of building . . . . . . . . . . . . .
Investment in subsidiary . . . . . . . . . . . . . . . . .

(22,031)
—
(6,500)

(34,701)
7,178
—

(48,475)
10
—

—
—
6,500

(105,207)
7,188
—

Net cash used in investing activities . . . . . . . .

(28,531)

(27,523)

(48,465)

6,500

(98,019)

.
.
.
.

—
(60,063)
—
(11,838)

—
—
—
(3,445)

(378)
(151,937)
6,500
15,283

—
151,937
(6,500)
—

(378)
(60,063)
—
—

Net cash used in financing activities . . . . . . . .

(71,901)

(3,445)

(130,532)

145,437

(60,441)

Cash flows from financing activities:
Principal payments under long-term agreements
Dividends paid . . . . . . . . . . . . . . . . . . . . . . .
Capital contribution . . . . . . . . . . . . . . . . . . .
Intercompany accounts . . . . . . . . . . . . . . . . .

Effect of exchange rate changes on cash . . . . . . . .
Net decrease in cash and cash equivalents . . . . . . .
Cash and cash equivalents at beginning of year . . .

—
(3,806)
81,356

Cash and cash equivalents at end of year . . . . . . . $ 77,550 $

F-46

—
(34,606)
35,357
751

(3,357)

—

(3,357)

(20,661)
81,848

—
—

(59,073)
198,561

$ 61,187

$

—

$ 139,488

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

21. Condensed Consolidating Financial Statements of Guarantors (Continued)
NBTY, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Fiscal Year Ended September 30, 2013
Parent
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated

Cash flows from operating activities:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Equity in earnings of subsidiaries . . . . . . . . . .
Impairments and disposals of assets . . . . . . . .
Depreciation of property, plant and equipment .
Amortization of intangible assets . . . . . . . . . .
Foreign currency transaction loss (gain) . . . . . .
Amortization and write-off of financing fees . . .
Stock-based compensation . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . .
Amortization of incremental inventory fair value
Inventory reserves . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . .
Call premium on term loan . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of acquisitions: Accounts receivable . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . .
Dividends received . . . . . . . . . . . . . . . . . .
Intercompany accounts . . . . . . . . . . . . . . .

. $ 129,480

$ 87,010

$125,160

$(212,170)

$ 129,480

.
.
.
.
.
.
.
.
.
.
.
.

(192,160)
—
8,213
—
(745)
22,504
1,845
—
—
—
—
(15,075)

(20,010)
5,014
40,124
42,341
—
—
72
(2,587)
2,417
2,042
5,293
—

—
255
16,546
3,412
(201)
—
126
—
—
—
—
—

212,170
—
—
—
—
—
—
—
—
—
—
—

—
5,269
64,883
45,753
(946)
22,504
2,043
(2,587)
2,417
2,042
5,293
(15,075)

.
.
.
.
.
.
.

—
—
—
—
—
62,010
—

9,126
(11,297)
1,721
42,331
20,544
27,589
44,124

(13,822)
(3,053)
(5,454)
3,422
6,982
—
(44,124)

—
—
—
—
—
(89,599)
—

(4,696)
(14,350)
(3,733)
45,753
27,526
—
—

Net cash provided by operating activities . . . . . . . . .

16,072

295,854

89,249

(89,599)

311,576

Cash flows from investing activities:
Purchase of property, plant and equipment . . . . . .
Proceeds from sale of building . . . . . . . . . . . . . .
Cash paid for acquisitions, net of cash acquired . . .

(35,186)
7,548
(77,936)

(59,039)
—
(4,537)

(34,995)
—
—

—
—
—

(129,220)
7,548
(82,473)

Cash used in investing activities . . . . . . . . . . . .

(105,574)

(63,576)

(34,995)

—

(204,145)

.
.
.
.
.
.

—
80,000
(80,000)
(7,387)
(216,926)
211,510

—
—
—
—
—
(211,510)

(603)
—
—
—
(89,599)
—

—
—
—
—
89,599
—

(603)
80,000
(80,000)
(7,387)
(216,926)
—

Net cash used in financing activities . . . . . . . . .

(12,803)

(211,510)

(90,202)

89,599

(224,916)

Cash flows from financing activities:
Principal payments under long-term agreements
Proceeds from borrowings under the revolver . .
Paydowns of borrowings under the revolver . . .
Payments for financing fees . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . .
Intercompany . . . . . . . . . . . . . . . . . . . . . . .

.
.
.
.
.
.

.
.
.
.
.
.

Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents .
Cash and cash equivalents at beginning of year . . . . .

—
(102,305)
183,661

Cash and cash equivalents at end of year . . . . . . . . . $ 81,356

F-47

—
20,768
14,589
$ 35,357

910

—

(35,038)
116,886
$ 81,848

—
—
$

—

910
(116,575)
315,136
$ 198,561

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

21. Condensed Consolidating Financial Statements of Guarantors (Continued)
NBTY, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Fiscal Year Ended September 30, 2012
Parent
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Equity in earnings of subsidiaries . . . . . . . . . . .
Impairments and disposals of assets, net . . . . . . .
Loss from discontinued operations . . . . . . . . . .
Depreciation of property, plant and equipment . . .
Amortization of intangible assets . . . . . . . . . . .
Foreign currency transaction gain . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . .
Amortization and write-off of deferred charges . . .
Allowance for doubtful accounts . . . . . . . . . . . .
Inventory reserves . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of acquisition: Accounts receivable . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . .
Dividends recevied . . . . . . . . . . . . . . . . . . .
Intercompany accounts . . . . . . . . . . . . . . . .

. . $ 146,471

$116,833

$ 91,164

$(207,997)

$ 146,471

.
.
.
.
.
.
.
.
.
.
.

.
.
.
.
.
.
.
.
.
.
.

(191,472)
—
—
5,275
—
(12)
2,482
23,700
—
—
—

(16,525)
266
—
37,603
40,680
—
72
—
297
(2,652)
(23,852)

—
498
23,048
15,433
3,280
(277)
126
—
—
—
6,795

207,997
—
—
—
—
—
—
—
—
—
—

—
764
23,048
58,311
43,960
(289)
2,680
23,700
297
(2,652)
(17,057)

.
.
.
.
.
.
.

.
.
.
.
.
.
.

—
—
—
—
—
145,174
—

(18,843)
(28,139)
2,066
14,220
(14,924)
3,186
(22,778)

(3,537)
(16,651)
(4,213)
1,877
20,415
—
22,778

—
—
—
—
—
(148,360)
—

(22,380)
(44,790)
(2,147)
16,097
5,491
—
—

Cash provided by operating activities of continuing operations . . . . . . . . . . . . . . . .

131,618

87,510

160,736

(148,360)

231,504

Cash provided by operating activities of discontinued operations . . . . . . . . . . . . . . .

—

—

2,546

Net cash provided by operating activities . . . . . .

131,618

87,510

163,282

Cash flows from investing activities:
Purchase of property, plant and equipment . . . . . . . .
Net proceeds from sale of discontinued operations . . . .

(20,287)
515

(41,182)
—

(24,845)
—

—
—

(86,314)
515

Net cash used in investing activities of continuing operations . . . . . . . . . . . . . . . . . . . . . . .

(19,772)

(41,182)

(24,845)

—

(85,799)

.
.
.
.

(224,325)
15
—
35,027

—
—
—
(35,027)

(5,050)
—
(148,360)
—

—
—
148,360
—

(229,375)
15
—
—

Net cash used in financing activities . . . . . . . . .

(189,283)

(35,027)

(153,410)

148,360

(229,360)

Cash flows from financing activities:
Principal payments under long-term debt and capital leases . . . . . . . . . . . . .
Capital contribution . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . .
Intercompany . . . . . . . . . . . . . . . . .

agreements
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .

.
.
.
.

Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . .
Change in cash for discontinued operations . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . .

—
(77,437)
—
261,098

Cash and cash equivalents at end of year . . . . . . . . . . . $ 183,661

F-48

—
11,301
—
3,288
$ 14,589

—
(148,360)

1,839

—

(13,134)
1,071
128,949
$ 116,886

—
—
—
$

—

2,546
234,050

1,839
(79,270)
1,071
393,335
$ 315,136

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

21.

Condensed Consolidating Financial Statements of Guarantors (Continued)
Parent Company

($ in millions)

Non-Guarantor
Subsidiaries

Guarantor Subsidiaries

Eliminations

As Reported As Revised As Reported As Revised As Reported As Revised As Reported As Revised

Consolidating Balance sheets as
September 30, 2013
Balance Sheet
Current Assets
Intercompany . . . . . . . . . . .
Other current assets . . . . . . .
Total current assets . . . . . . .

of

. . . . .
. . . . .
. . . . .

$ 857.7
$
—
$ 939.0

$ 34.5
$ 19.0
$ 134.9

$
—
$ 43.1
$ 790.7

$
—
$ 24.1
$ 771.6

$ 264.1
$ 35.4
$ 604.4

$ 29.1
$ 35.4
$ 369.5

$(1,121.8)
$
—
$(1,121.8)

$
$
$

Other assets . . . . . . . .
Intercompany . . . . . . . .
Investments in subsidiaries
Total assets . . . . . . . . .

.
.
.
.

$
—
$ 323.3
$3,211.1
$4,562.0

$ 61.2
$2,480.8
$2,180.8
$4,946.3

$ 68.2
$
—
$
—
$3,583.3

$
6.9
$1,092.0
$ 152.7
$4,747.7

$
0.1
$
—
$
—
$1,584.1

$
0.1
$
—
$
—
$1,349.1

$
—
$ (323.3)
$(3,211.1)
$(4,656.1)

$
—
$(3,572.7)
$(2,333.5)
$(5,969.9)

Liabilities and Stockholder’s Equity
Current liabilities:
Intercompany . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . .

$
$

$
$

—
38.4

$1,121.8
$1,427.3

$ 63.6
$ 369.2

$
—
$ 135.2

$
—
$ 135.2

$(1,121.8)
$(1,121.8)

$
$

Intercompany . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . .

$
—
$ 721.8
$2,937.2

$1,092.0
$ 14.2
$3,321.5

$
—
$ 22.0
$1,464.0

$2,157.5
$ 637.7
$3,179.0

$ 323.3
$
7.5
$ 492.3

$ 323.3
$ 99.5
$ 584.3

$ (323.3)
$
—
$(1,445.0)

$(3,572.7)
$
—
$(3,636.4)

$1,556.9
$ 81.5

$1,556.9
$ 81.5

$ 352.0
$1,767.3

$1,358.9
$ 216.5

$ 301.3
$ 789.3

$ 733.4
$ 30.2

$ (653.3)
$(2,556.6)

$(2,092.3)
$ (246.7)

$ (13.6)
$1,624.8
$4,562.0

$ (13.6)
$1,624.8
$4,946.3

$
—
$2,119.3
$3,583.3

$ (6.7)
$1,568.7
$4,747.7

$
1.2
$1,091.8
$1,584.1

$
1.2
$ 764.8
$1,349.1

$
(1.2)
$(3,211.1)
$(4,656.1)

$
5.5
$(2,333.5)
$(5,969.9)

$
$
$
$
$
$
$
$
$

103.6
(103.6)
14.4
(0.3)
(133.6)
(237.2)
(71.2)
295.5
129.5

$
$
$
$
$
$
$
$
$

$
$
$
$
$
$
$
$
$

458.1
238.2
—
9.5
9.5
247.8
77.4
—
170.4

$
$
$
$
$
$
$
$
$

458.1
238.2
(147.7)
9.5
(138.1)
100.1
33.1
20.0
87.0

$
$
$
$
$
$
$
$
$

$
$
$
$
$
$
$
$
$

$
—
$
—
$
—
$
—
$
—
$
—
$
—
$ (295.5)
$ (295.5)

$
—
$
—
$
—
$
—
$
—
$
—
$
—
$ (212.2)
$ (212.2)

$

(0.7)

$

$

—

$

(3.0)

$

$

$

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

Stockholder’s Equity:
Capital in excess of par . . . . . . . . . .
Retained earnings . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . .
Total stockholder’s equity . . . . . . . . .
Total liabilities and stockholder’s equity .

—
38.4

(63.6)
—
(63.6)

(63.6)
(63.6)

Consolidating Statements of Operations and Comprehensive Income (Loss) for the year ended September 30,
2013
Selling, general and administrative . . . .
Income (loss) from operations . . . . . .
Intercompany interest . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . . . .
Total other income (expense) . . . . . . .
Income (loss) before income taxes . . . .
Provision (benefit) for income taxes . . .
Equity in income of subsidiaries . . . . .
Net income (loss) . . . . . . . . . . . . .
Foreign currency translation adjustment, net of taxes . . . . . . . . . . . . . . .
Change in fair value of interest rate swaps, net of taxes . . . . . . . . . . .
Comprehensive income (loss) . . . . . .

103.6
(103.6)
162.1
(0.3)
14.1
(89.6)
(26.9)
192.2
129.5
0.6

348.5
195.2
(14.4)
(7.5)
(21.3)
173.8
48.7
—
125.2
2.2

$

348.5
195.2
(14.4)
(7.5)
(21.3)
173.8
48.7
—
125.2
2.2

(2.2)

0.8

$
5.7
$ 134.5

$
4.4
$ 134.5

$
—
$ 170.4

$
$

4.4
88.5

$
—
$ 127.4

$
—
$ 127.4

$
—
$ (297.7)

$
(4.4)
$ (215.8)

$
$
$
$
$
$
$

$
$
$
$
$
$
$

$
$
$
$
$
$
$

$
$
$
$
$
$
$

431.0
305.2
(158.6)
1.6
(157.0)
148.2
47.9

$ 324.4
$ 166.3
$ (4.8)
$ (2.9)
$ (7.7)
$ 158.6
$ 44.4

$ 324.4
$ 166.3
$ (4.8)
$ (2.9)
$ (7.7)
$ 158.6
$ 44.4

$
$
$
$
$
$
$

$
$
$
$
$
$
$

Consolidating Statements of Operations and Comprehensive Income (Loss) for the year ended September 30,
2012
Selling, general and administrative .
Income (loss) from operations . . .
Intercompany interest . . . . . . . .
Miscellaneous, net . . . . . . . . . .
Total other income (expense) . . . .
Income (loss) before income taxes .
Provision (benefit) for income taxes

.
.
.
.
.
.
.

.
.
.
.
.
.
.

.
.
.
.
.
.
.

77.2
(77.2)
4.8
0.4
(153.5)
(230.6)
(86.5)

77.2
(77.2)
163.4
0.4
5.1
(72.0)
(27.0)

431.0
305.2
—
1.6
1.6
306.8
107.4

F-49

—
—
—
—
—
—
—

—
—
—
—
—
—
—

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

21.

Condensed Consolidating Financial Statements of Guarantors (Continued)

Parent Company
($ in millions)

Consolidating Statements of cash flows for the year ended September 30,
2012
Equity in earnings of subsidiaries . . .
Dividends received . . . . . . . . . . . .
Intercompany accounts . . . . . . . . .
Cash provided by (used in) operating activities . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . .
Cash used in financing activities . . . .

Eliminations

As Reported As Revised As Reported As Revised As Reported As Revised As Reported As Revised

Equity in income of subsidiaries . . . . .
Net income (loss) . . . . . . . . . . . . .
Foreign currency translation adjustment, net of taxes . . . . . . . . . . . . . . .
Change in fair value of interest rate swaps, net of taxes . . . . . . . . . . .
Comprehensive income (loss) . . . . . .
Consolidating Statements of cash flows for the year ended September 30,
2013
Equity in earnings of subsidiaries . . .
Dividends received . . . . . . . . . . . .
Intercompany accounts . . . . . . . . .
Cash provided by (used in) operating activities . . . . . . . . . . . . . . . .
Cash paid for acquisitions, net of cash acquired . . . . . . . . . . . . . . . .
Cash used in investing activities . . . .
Dividends paid . . . . . . . . . . . . . .
Cash used in financing activities . . . .

Non-Guarantor
Subsidiaries

Guarantor Subsidiaries

$ 290.6
$ 146.5

$ 191.5
$ 146.5

$
—
$ 199.4

$ 16.5
$ 116.8

$
$

—
91.2

$
$

—
91.2

$ (290.6)
$ (290.6)

$ (208.0)
$ (208.0)

$

$

$

$

$

13.2

$

13.2

$

$

23.1

16.7

—

2.5

(13.2)

(15.7)

$ (3.9)
$ 165.6

$
2.4
$ 165.6

$
—
$ 199.4

$
2.4
$ 121.8

$
—
$ 104.4

$
—
$ 104.4

$
—
$ (303.8)

$
(2.4)
$ (226.1)

.
.
.

$ (295.5)
$
—
$ 378.0

$ (192.2)
$ 62.0
$
—

$
—
$
—
$ (243.7)

$ (20.0)
$ 27.6
$ 44.1

$
—
$
—
$ (134.3)

$
—
$
—
$ (44.1)

$
$
$

295.5
—
—

$
$
$

212.2
(89.6)
—

.

$ 227.6

$

16.1

$

$ 295.9

$

$

$

—

$

(89.6)

.
.
.
.

$
$
$
$

$
$
$
$

(77.9)
(105.6)
(216.9)
(12.8)

$ (4.5)
$ (63.6)
$
—
$ (0.6)

$ (4.5)
$ (63.6)
$
—
$ (211.5)

$
—
$ (35.0)
$
—
$
—

$
—
$ (35.0)
$ (89.6)
$ (90.2)

$
$
$
$

—
—
—
—

$
$
$
$

—
—
89.6
89.6

.
.
.

$ (290.6)
$
—
$ 279.3

$ (191.5)
$ 145.2
$
—

$
—
$
—
$ (153.7)

$ (16.5)
$
3.2
$ (22.8)

$
—
$
—
$ (125.6)

$
$
$

$
$
$

290.6
—
—

$ 208.0
$ (148.4)
$
—

.
.
.

$ 166.6
$
—
$ (224.3)

$ 131.6
$
—
$ (189.3)

$
$
$

$ 87.5
$
—
$ (35.0)

$
$
$

$ 163.3
$ (148.4)
$ (153.4)

$
$
$

—
—
—

$ (148.4)
$ 148.4
$ 148.4

(77.9)
(105.6)
(216.9)
(224.3)

84.9

52.5
—
—

F-50

(1.0)

14.9
—
(5.1)

89.2

—
—
22.8

NBTY, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share amounts)

22.

Quarterly Results of Operations (Unaudited)

The following is a summary of the unaudited quarterly results of operations for fiscal 2014 and
2013 (amounts may not equal fiscal year totals due to rounding)
December 31,
2013

Fiscal 2014:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . .

....
....

$827,105
385,387

$779,026
347,945

$806,961
375,757

....
....

80,353
53,821

15,468
9,900

48,028
33,267

December 31,
2012

Fiscal 2013:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . .

Quarter ended
March 31,
June 30,
2014
2014

....
....

$789,227
360,478

....
....

68,440
45,171

Quarter ended
March 31,
June 30,
2013(2)
2013

$757,874
343,858
(18,050)
(10,401)

September 30,
2014(1)

$ 792,686
356,272
(177,856)
(141,140)
September 30,
2013

$802,829
377,959

$813,111
379,836

70,203
51,250

63,764
43,461

(1)

Includes charges of $207,334 relating to the goodwill and intangible asset impairment charges (see
Note 8).

(2)

Includes charges of $30,200 relating to the facility restructuring (see Note 3) and $12,000 relating to the accrual of an anticipated legal settlement (see Note 12).

F-51

SCHEDULE II
NBTY, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Column A

Column B

Description

Balance at beginning of period

Column C
Additions
Charged to Charged to costs and other expenses accounts $21,753
$ 2,472
$82,827
$13,549

$ 6,006
$
988
$329,562
$ 37,521

$
$
$
$

—
—
—
—

$
—
$
(896)(a)
$ (328,621)
$ (35,661)(b)

$27,759
$ 2,564
$83,768
$15,409

$14,116

$ (1,269) $

—

$

$ 9,543

$19,712
$ 5,244
$71,845
$10,360

$ 2,041
$ (2,588)
$329,683
$ 31,087

$
$
$
$

—
—
—
—

$
—
$
(184)(a)
$ (318,701)
$ (27,898)(b)

$21,753
$ 2,472
$82,827
$13,549

$14,867

$

$

—

$

$14,116

$22,364
$ 5,376
$74,593
$10,793

$ (2,652)
$
297
$307,371
$ 28,333

$
$
$
$

—
—
—
—

$
—
$
(429)(a)
$ (310,119)
$ (28,766)(b)

$19,712
$ 5,244
$71,845
$10,360

$15,404

$

$

—

$

$14,867
$
—

Fiscal year ended September 30, 2014:
Inventory reserves . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . .
Promotional program incentive allowance .
Allowance for sales returns . . . . . . . . . . .
Valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year ended September 30, 2013:
Inventory reserves . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . .
Promotional program incentive allowance .
Allowance for sales returns . . . . . . . . . . .
Valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year ended September 30, 2012:
Inventory reserves . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . .
Promotional program incentive allowance .
Allowance for sales returns . . . . . . . . . . .
Valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . .

(a) Uncollectible accounts written off.
(b) Represents actual product returns.

S-1

829

1,240

Column D

Column E

Deductions

Balance at end of period (3,304)

(1,580)

(1,777)

Exhibit 12.1
NBTY, Inc.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
2014
(Dollars in thousands)

EARNINGS AVAILABLE TO COVER
FIXED CHARGES:
Income before provision for income taxes . . . .
Less:
Interest capitalized . . . . . . . . . . . . . . . . . .
Add:
Fixed charges deducted from earnings (see below) . . . . . . . . . . . . . . . . . . . . . . . . . .

Fiscal year ended September 30,
2013
2012
2011
Sucessor

$ (34,007) $184,358
(1,611)

(3,219)

$234,783
(1,349)

2010
Predecessor

$ 43,688

$329,292

—

—

184,482

193,468

204,125

238,596

68,233

$148,864

$374,607

$437,559

$282,284

$397,525

$137,649

$150,319

$159,933

$195,566

$ 30,108

46,833

43,149

44,192

43,030

38,125

Fixed charges . . . . . . . . . . . . . . . . . . . . . . . .

$184,482

$193,468

$204,125

$238,596

$ 68,233

Ratio of Earnings to Fixed Charges . . . . . . . .

0.81

1.94

2.14

1.18

5.83

Earnings available to cover fixed charges . . . .
FIXED CHARGES:
Interest expensed and capitalized and amortized premiums, discounts and capitalized expenses related to indebtedness . . . . . . . . . . . . . . . . . . . .
Appropriate portion (1/3) of rentals representing interest . . . . . . . . . . . . . .

Exhibit 21.1
Subsidiaries of
NBTY, Inc. (Delaware)
Balance Bar Company
De Tuinen B.V. (Netherlands)
Holland & Barrett Retail Limited (United Kingdom)
NBTY Acquisition, LLC (Delaware) d/b/a
Leiner Health Products
NBTY Europe Limited (United Kingdom)
Puritan’s Pride, Inc. (New York)
Rexall Sundown, Inc. (Florida)
Solgar, Inc. (Delaware) d/b/a Solgar Vitamin and Herb
Solgar UK Limited
United States Nutrition, Inc. (Delaware), d/b/a US Nutrition
Vita Health Products Inc.
Vitamin World, Inc. (Delaware)

Exhibit 31.1
CERTIFICATIONS
I, Steven Cahillane, certify that:
1.

I have reviewed this annual report on Form 10-K of NBTY, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 24, 2014
Signature:

/s/ STEVEN CAHILLANE
Steven Cahillane
Principal Executive Officer

Exhibit 31.2
CERTIFICATIONS
I, Dipak Golechha, certify that:
1.

I have reviewed this annual report on Form 10-K of NBTY, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 24, 2014
Signature:

/s/ DIPAK GOLECHHA
Dipak Golechha
Principal Financial Officer

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of NBTY, Inc. (the ‘‘Company’’) on Form 10-K for the period ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, Steven Cahillane, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ STEVEN CAHILLANE
Steven Cahillane
Chief Executive Officer
November 24, 2014

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of NBTY, Inc. (the ‘‘Company’’) on Form 10-K for the period ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, Dipak Golechha, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ DIPAK GOLECHHA
Dipak Golechha
Chief Financial Officer
November 24, 2014