Use these links to rapidly review the document
TABLE OF CONTENTS

Table of Contents

 

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

---

FORM 10-Q

Commission File Number: 333-186802

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

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

(631) 200-2000
(Registrant's telephone number, including area code)

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

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

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý    NO o

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

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

        As of May 4, 2015, the number of shares of common stock outstanding was 1,000.

   

---

Table of Contents

NBTY, Inc. and Subsidiaries
INDEX

---

Table of Contents

PART I
Item 1. Financial Statements

        

NBTY, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

   

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

3

---

Table of Contents

NBTY, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive (Loss) Income

(Unaudited)

(in thousands)

   

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

4

---

Table of Contents

NBTY, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

   

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

5

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(in thousands)

1. Basis of Presentation

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

        During the three and six months ended March 31, 2015, the Company identified and recorded adjustments for immaterial errors in its previously reported financial statements. Accordingly, we recorded a reduction in selling, general and administrative expenses of $2,520, primarily related to prepaid rent in our retail operations and a reduction in cost of sales of $0, and $3,708 to increase the value of its label inventory for the three and six months ended March 31, 2015, respectively, which has an immaterial impact on the current year financial statements.

Estimates

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

6

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

1. Basis of Presentation (Continued)

Accounts Receivable Reserves

        Accounts receivable are presented net of the following reserves:

Recent Accounting Developments

        In January 2015, the Financial Accounting Standards Board ("FASB") issued guidance which eliminates from GAAP the concept of extraordinary items. The guidance is effective for us beginning October 1, 2016, and early adoption is permitted, provided that adoption is applied from the beginning of the fiscal year of adoption. This guidance may be applied prospectively or retrospectively to all prior periods presented in the financial statements. The adoption of this guidance is not expected to have an impact on our consolidated financial statements.

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

        In April 2015, the FASB issued guidance which changes the presentation of debt issuance costs. Under the new guidance, debt issuance costs will be presented as a reduction of the carrying amount of the related liability, rather than as an asset. The new treatment is consistent with the current literature for accounting for debt discounts. The guidance is effective for us beginning October 1, 2016, and early adoption is permitted. This guidance has been early adopted as of March 31, 2015 and applied retrospectively to the prior period presented in the consolidated financial statements. See Note 5 "Long-Term Debt."

Revision

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

2. Sale of Nutritional Bar and Powder Product Assets

        On March 3, 2015, NBTY and Nellson Nutraceutical, LLC ("Nellson") entered into (i) a bar asset purchase agreement,(the "Bar APA") and (ii) a powder asset purchase agreement (the "Powder APA" and, together with the Bar APA, the "APAs"), pursuant to which NBTY agreed to sell certain production assets, raw materials, packaging, labeling, in process products, component inventories and

7

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

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

contracts (the "Transferred Assets") associated with NBTY's nutritional bar and powder manufacturing operations (the "Divested Manufacturing Operations").

        The aggregate sales price for the production assets and transferred contracts is approximately $17,000. The sales price for the raw materials, packaging, labels, work in process and component inventories to be transferred under each of the APAs will be equal to NBTY's cost for such assets, as estimated by NBTY prior to the closing of the transactions, and subject to post-closing adjustments.

        The closing of the sale pursuant to the Powder APA is expected to occur on or around the end of May 2015, and the closing of the sale pursuant to the Bar APA is expected to occur during the second half of calendar 2015, in each case subject to customary closing conditions.

        In connection with the APAs, NBTY has entered into supply agreements with Nellson, pursuant to which NBTY will purchase from Nellson the nutritional bar and powder products for a period of ten years. NBTY currently manufactures using the Transferred Assets.

        As a result of these arrangements, the Company will incur cumulative charges of approximately $15,000 before tax over the period in which these transactions are completed, of which charges will consist primarily of accelerated depreciation of approximately $11,500 (non-cash); costs related to workforce reductions will be approximately $2,200 and other costs will be approximately $1,300. All costs associated with the Divested Manufacturing Operations will be reflected in the Corporate / Manufacturing segment.

        Charges related to this divestiture of $4,418 for the three and six months ended March 31, 2015 were $2,171 for severance and employee related costs, $1,647 for accelerated depreciation and $600 of other costs.

3. Inventories

        The components of inventories are as follows:

8

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

4. Goodwill and Intangible Assets

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

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

        Aggregate amortization expense of definite lived intangible assets included in the consolidated statements of operations and comprehensive (loss) income in selling, general and administrative expenses for the three months ended March 31, 2015, and 2014 was $11,316 and $11,534, respectively. Amortization expense for the six months ended March 31, 2015, and 2014 was $22,675 and $23,137, respectively.

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

5. Long-Term Debt

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

9

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

5. Long-Term Debt (Continued)

        The components of long-term debt are as follows:

Senior secured credit facilities

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

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

10

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

5. Long-Term Debt (Continued)

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

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

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

        As of March 31, 2015, there were no borrowings drawn from our $175,000 revolving credit facility and there was a letter of credit totaling $4,400, reducing the net availability to $170,600.

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

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

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

11

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

5. Long-Term Debt (Continued)

        The senior secured credit facilities contain customary negative covenants, including, but not limited to, restrictions on NBTY and its restricted subsidiaries' ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances or investments, pay dividends, sell or otherwise transfer assets, prepay or modify terms of certain junior indebtedness, enter into transactions with affiliates, amend organizational documents, or change our line of business or fiscal year. In addition, NBTY's senior secured credit facilities require the maintenance of a maximum total senior secured leverage ratio on a quarterly basis, calculated with respect to Consolidated EBITDA, as defined therein, if at any time amounts are outstanding under the revolving credit facility, including swingline loans and letters of credit. NBTY was in compliance with all covenants under the senior secured credit facilities at March 31, 2015.

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

Holdco Notes

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

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

12

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

5. Long-Term Debt (Continued)

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

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

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

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

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

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

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

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

13

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

5. Long-Term Debt (Continued)

Notes

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

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

        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 March 31, 2015.

6. Fair Value of Financial Instruments

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

•

Level 1—Quoted prices in active markets for identical assets or liabilities.



•

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

14

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

6. Fair Value of Financial Instruments (Continued)

•

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 assets / (liabilities) measured at fair value on a recurring basis at March 31, 2015:

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

        The Company's swap contracts are measured at fair value based on a market approach valuation technique. With the market approach, fair value is derived using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Although non-performance risk of the Company and the counterparty is present in all swap contracts and is a component of the estimated fair values, we did not view non-performance risk to be a significant input to the fair value for the interest rate swap contracts. However, with respect to our cross currency swap contracts, we believe that non-performance risk is higher; therefore, the Company classifies these swap contracts as "Level 3" in the fair value hierarchy and, accordingly, records estimated fair value adjustments based on internal projections and views of those contracts. The performance risk for the cross currency swap contracts as a percentage of the unadjusted assets / (liabilities) ranged from 6.0% to 9.7% (8.2% weighted average) as of March 31, 2015 and 8.1% to 8.5% (8.3% weighted average) as of September 30, 2014.

15

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

6. Fair Value of Financial Instruments (Continued)

        The following table shows the Level 3 activity related to our cross currency swaps for the three and six months ended March 31, 2015 and 2014:

Interest Rate Swaps

        During March 2011, we entered into three interest rate swap contracts to fix the LIBOR indexed interest rates on a portion of our senior secured credit facilities until the indicated expiration dates of these swap contracts. Each swap contract had a declining notional amount with a fixed interest rate of 1.92% for a four-year term and matured in December 2014. Under the terms of the swap contracts, variable interest payments for a portion of our senior secured credit facilities were swapped for fixed interest payments. These interest rate swap contracts were designated as a cash flow hedge of the variable interest payments on a portion of our term loan debt. Hedge effectiveness was assessed based on the overall changes in the fair value of the interest rate swap contracts. Hedge ineffectiveness from inception to March 31, 2015 was insignificant, and was recorded in Miscellaneous, net.

Cross Currency Swaps

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

        These cross currency contracts were designated as a net investment hedge to the net investment in our British pound sterling denominated operations. Hedge effectiveness is assessed based on the overall changes in the fair value of the cross currency swap contracts. Any potential hedge ineffectiveness is measured using the hypothetical derivative method and is recognized in current earnings. Hedge ineffectiveness loss/(gain) for the three months ended March 31, 2015 and 2014 was $(185) and $58, respectively, and is recorded in Miscellaneous, net. Hedge ineffectiveness loss/(gain) for the six months ended March 31, 2015 and 2014 was $1,749 and ($952), respectively.

16

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

6. Fair Value of Financial Instruments (Continued)

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

 

Notes

        The fair value of the Notes based on quoted market prices (Level 2), was approximately $677,677 as of March 31, 2015.

Term loan B-2

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

17

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

7. Litigation Summary

Herbal Dietary Supplements

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

        Following the NY AG investigation, starting in February 2015, numerous putative class actions were filed in various jurisdictions against NBTY, certain of its customers and/or other companies as to which there may be a duty to defend and indemnify, challenging the authenticity and purity of herbal supplements and associated marketing, under various states' consumer protection statutes. Motions for transfer and consolidation of all of the federal actions as multidistrict litigation into a single district before a single judge ("MDL motions") are currently pending and the hearing date of the MDL motions is scheduled for May 28, 2015. Certain state court actions are proceeding independently or have been removed to federal court and stayed pending a decision on the MDL motions. These cases seek some combination of monetary damages, injunctive relief and specific performance.

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

Glucosamine-Based Dietary Supplements

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

18

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

7. Litigation Summary (Continued)

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

        On November 19, 2014, the appellate court issued a decision granting the objectors' appeal. The appellate court reversed and remanded the matter to the district court for further proceedings consistent with the appellate court's decision. In April 2015, NBTY agreed upon a revised proposed settlement with certain plaintiffs which includes all cases and resolves all pending claims without any admission of or concession of liability by NBTY. The parties have signed settlement documentation providing for a release of all claims in return for payments to the class, together with attorneys' fees, and notice and administrative costs estimated to be in the amount of $9,000, which resulted in an additional charge of $4,300 in the second quarter results for fiscal 2015. The settlement has not yet been submitted to the court for preliminary approval. 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, Eastern District of New York. The plaintiff alleges that the defendants faxed advertisements to plaintiff and others without invitation or permission, in violation of the Telephone Consumer Protection Act ("TCPA").

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

19

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

7. Litigation Summary (Continued)

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

Claims in the Ordinary Course

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

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

8. Income Taxes

        Our provision for income taxes is impacted by a number of factors, including federal taxes, our international tax structure, state tax rates in the jurisdictions where we conduct business, and our ability to utilize state tax credits that expire between 2015 and 2029. Therefore, our overall effective income tax rate could vary.

        The effective income tax rate for the three months ended March 31, 2015 and 2014 was 36.0%. The effective income tax rate for the six months ended March 31, 2015 and 2014 was 35.8% and 33.5%, respectively. Our effective tax rates for the three and six month periods are different than the federal statutory rate generally due to the impact of state and local taxes and the partial reinvestment of foreign earnings in fiscal 2014.

        We accrue interest and penalties related to unrecognized tax benefits in the provision for income taxes. At March 31, 2015, we had accrued $563 and $174 for the potential payment of interest and penalties, respectively. As of March 31, 2015, we were subject to U.S. federal income tax examinations for the tax years 2011 through 2014, and to non-U.S. examinations for tax years 2009 through 2014. In addition, we are generally subject to state and local examinations for fiscal years 2011 through 2014.

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

20

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

9. Accumulated Other Comprehensive Income (Loss)

        Additions to and reclassifications out of accumulated other comprehensive income (loss) attributable to the Company for the three and six months ended March 31, 2015 and 2014 were as follows:

 

 

21

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

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

10. Business and Credit Concentration

Financial Instruments

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

Customers

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

22

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

10. Business and Credit Concentration (Continued)

        The following customers accounted for the following percentages of net sales for the three and six months ended March 31, 2015 and 2014, respectively:

 

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

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

11. Related Party Transactions

Consulting Agreement—The Carlyle Group ("Carlyle")

        NBTY entered into a consulting agreement with Carlyle under which it pays Carlyle a fee for consulting services Carlyle provides to it and its subsidiaries. Under this agreement, subject to certain conditions, NBTY expects to pay an annual consulting fee to Carlyle of $3,000; NBTY reimburses Carlyle for out-of-pocket expenses, and may pay Carlyle additional fees associated with other future transactions. For the three and six months ended March 31, 2015 and 2014, these fees totaled $750 and $1,500, in each of the respective periods, and are recorded in selling, general and administrative expenses. Out of pocket expenditures paid to Carlyle were $54 and $39 for the three months ended

23

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

11. Related Party Transactions (Continued)

March 31, 2015 and 2014, respectively, and $388 and $368 for the six months ended March 31, 2015 and 2014, respectively.

Services from Portfolio Companies of Funds Affiliated with Carlyle

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

Holdings

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

12. Segment Information

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

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

•

Wholesale—This segment sells products worldwide under various brand names and third-party private labels, each targeting specific market groups which include virtually all major mass merchandisers, club stores, drug store chains and supermarkets. This segment also sells products to independent pharmacies, health food stores, the military and other retailers.



•

European Retail—This segment generates revenue through its 992 Holland & Barrett and co-branded stores; including company-owned stores in the following countries: 684 in the UK, 145 in the Netherlands, 48 in Ireland, 17 in Belgium; and franchised stores in the following countries: 30 in China, 30 in Singapore, 14 in United Arab Emirates, 10 in Cyprus, five in each of Malta and the Netherlands, two in Kuwait and one in each of Gibraltar and Spain. We also have 49 GNC branded UK stores, 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. We are currently in the process of co-branding the De Tuinen, Essenza and Natures Way stores to leverage the value of the Holland & Barrett brand.



•

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

24

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

12. Segment Information (Continued)

•

North American Retail—This segment generates revenue through its 390 owned and operated Vitamin World stores selling proprietary brand and third-party products, as well as internet-based sales from www.vitaminworld.com.

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

25

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

12. Segment Information (Continued)

        Total assets by segment are as follows:

13. Condensed Consolidating Financial Statements of Guarantors

        The Notes were issued by NBTY and are guaranteed by each of its current and future direct and indirect 100% owned subsidiaries, subject to certain exceptions. These guarantees are full, unconditional and joint and several. The following condensed consolidating financial information presents:

1.

Condensed consolidating financial statements as of March 31, 2015 and September 30, 2014 and for the three and six months ended March 31, 2015 and 2014 of (a) NBTY, the parent and issuer, (b) the guarantor subsidiaries, (c) the non-guarantor subsidiaries and (d) NBTY on a consolidated basis; and



2.

Elimination entries necessary to consolidate NBTY, the parent, with guarantor and non-guarantor subsidiaries.

        The condensed consolidating financial statements are presented using the equity method of accounting for investments in wholly owned subsidiaries. Under this method, the investments in subsidiaries are recorded at cost and adjusted for our share of the subsidiaries' cumulative results of operations, other comprehensive income, capital contributions, distributions and other equity changes. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. This financial information should be read in conjunction with the financial statements and other notes related thereto.

        We revised the statement of operations with respect to equity in income of subsidiaries from the non-guarantor subsidiaries to the guarantor. This revision impacted the condensed consolidating statement of operations and comprehensive income (loss) for the three and six months ended March 31, 2014 increasing net income for the guarantors and decreasing the eliminations by $7,480 and $13,646, respectively. The revision to this supplemental information did not impact any amounts reported in our previously issued Consolidated Financial Statements. In accordance with SEC Staff Accounting Bulletin Nos. 99 and 108, we assessed the materiality of these revisions and concluded that the revisions were not material to any of our previously issued consolidating financial statements. As

26

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

comparative prior period supplemental guarantor subsidiaries financial information is presented in future filings, we will similarly revise such prior period information.

Condensed Consolidating Balance Sheet
As of March 31, 2015

27

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Condensed Consolidating Balance Sheet
As of September 30, 2014

28

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Consolidated Statements of Operations and Comprehensive (Loss) Income
For three months ended March 31, 2015

29

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Consolidated Statements of Operations and Comprehensive Income (Loss)
Three Months Ended March 31, 2014

30

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Consolidated Statements of Operations and Comprehensive (Loss) Income
For six months ended March 31, 2015

31

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Consolidated Statements of Operations and Comprehensive Income (Loss)
Six Months Ended March 31, 2014

32

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

Condensed Consolidating Statement of Cash Flows
Six Months Ended March 31, 2015

33

---

Table of Contents

NBTY, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(in thousands)

13. Condensed Consolidating Financial Statements of Guarantors (Continued)

NBTY, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Six Months Ended March 31, 2014

34

---

Table of Contents

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

Forward-Looking Statements

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

•

consumer perception of our products due to adverse scientific research or findings, regulatory investigations, litigation, national media attention and other publicity regarding nutritional supplements;



•

potential slow or negative growth in the vitamin, mineral and supplement market;



•

increases in the cost of borrowings or unavailability of additional debt or equity capital, or both;



•

volatile conditions in the capital, credit and commodities markets and in the overall economy;



•

dependency on retail stores for sales;



•

the loss of significant customers;



•

compliance with new and existing federal, state, local or foreign legislation or regulation, or adverse determinations by regulators anywhere in the world (including the banning of products) and, in particular, Good Manufacturing Practices in the United States, the Food Supplements Directive and Traditional Herbal Medicinal Products Directive in Europe, the new Food Safety Law in China and greater enforcement by any such federal, state, local or foreign governmental entities;



•

material product liability claims and product recalls;



•

our inability to obtain or renew insurance, or to manage insurance costs;



•

international market exposure and compliance with anti-corruption laws in the U.S. and foreign jurisdictions;



•

difficulty entering new international markets;



•

legal proceedings initiated by regulators in the United States or abroad or lawsuits arising in the ordinary course of business;



•

unavailability of, or our inability to consummate, advantageous acquisitions in the future, or our inability to integrate acquisitions into the mainstream of our business;



•

loss of executive officers or other key personnel;



•

loss of certain third party suppliers;

35

---

Table of Contents

•

the availability of raw materials;



•

disruptions in manufacturing operations that produce nutritional supplements and loss of manufacturing certifications;



•

increased competition and failure to compete effectively;



•

our inability to respond to changing consumer preferences;



•

interruption of business or negative impact on sales and earnings due to acts of God, acts of war, sabotage, terrorism, bio-terrorism, civil unrest or disruption of delivery service;



•

work stoppages at our facilities;



•

increased raw material, utility and fuel costs;



•

fluctuations in foreign currencies, including the British pound sterling, the euro, the Canadian dollar and the Chinese renminbi;



•

interruptions in information processing systems and management information technology, including system interruptions and security breaches;



•

failure to maintain and/or upgrade our information technology systems;



•

our inability to protect our intellectual property rights;



•

our exposure to, and the expense of defending and resolving, product liability claims, intellectual property claims and other litigation;



•

failure to maintain effective controls over financial reporting;



•

other factors disclosed in this Report; and



•

other factors beyond our control.

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

36

---

Table of Contents

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

Executive Summary

        NBTY is the leading vertically integrated manufacturer, marketer, distributor and retailer of a broad line of high-quality vitamins, nutritional supplements and related products in the United States, with operations worldwide. We currently market over 25,000 SKUs under numerous owned and 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. This segment also sells products to independent pharmacies, health food stores, the military and other retailers.



•

European Retail—This segment generates revenue through its 992 Holland & Barrett and co-branded stores; including company-owned stores in the following countries: 684 in the UK, 145 in the Netherlands, 48 in Ireland, 17 in Belgium; and franchised stores in the following countries: 30 in China, 30 in Singapore, 14 in United Arab Emirates,10 in Cyprus, five in each of Malta and the Netherlands, two in Kuwait and one in each of Gibraltar and Spain. We also have 49 GNC branded UK stores, 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. We are currently in the process of co-branding the De Tuinen, Essenza and Natures Way stores to leverage the value of the Holland & Barrett brand.



•

Direct Response/E-Commerce—This segment generates revenue through the sale of proprietary brand and third-party products primarily through mail order catalogs 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 390 owned and operated Vitamin World stores selling proprietary brand and third-party products, as well as internet-based sales from www.vitaminworld.com.

        Operating data for each of the four distribution channels does not include the impact of any intercompany transfer pricing mark-up, corporate general and administrative expenses, interest expense and other miscellaneous income/expense items. Corporate general and administrative expenses include, but are not limited to, human resources, legal, finance and various other corporate-level activity related expenses. We attribute such unallocated expenses to Corporate/Manufacturing.

37

---

Table of Contents

Sale of Nutritional Bar and Powder Product Assets

        On March 3, 2015, NBTY and Nellson Nutraceutical, LLC ("Nellson") entered into (i) a bar asset purchase agreement,(the "Bar APA") and (ii) a powder asset purchase agreement (the "Powder APA" and, together with the Bar APA, the "APAs"), pursuant to which NBTY agreed to sell certain production assets, raw materials, packaging, labeling, in process products, component inventories and contracts (the "Transferred Assets") associated with NBTY's nutritional bar and powder manufacturing operations (the "Divested Manufacturing Operations").

        The aggregate sales price for the production assets and transferred contracts is approximately $17,000. The sales price for the raw materials, packaging, labels, work in process and component inventories to be transferred under each of the APAs will be equal to NBTY's cost for such assets, as estimated by NBTY prior to the closing of the transactions, and subject to post-closing adjustments.

        The closing of the sale pursuant to the Powder APA is expected to occur on or around the end of May 2015, and the closing of the sale pursuant to the Bar APA is expected to occur during the second half of calendar 2015, in each case subject to customary closing conditions.

        In connection with the APAs, NBTY has entered into supply agreements with Nellson, pursuant to which NBTY will purchase from Nellson the nutritional bar and powder products for a period of ten years. NBTY currently manufactures using the Transferred Assets.

        As a result of these arrangements, the Company will incur cumulative charges of approximately $15,000 before tax over the period in which these transactions are completed, of which non-cash charges will consist primarily of accelerated depreciation of approximately $11,500; costs related to workforce reductions will be approximately $2,200 and other costs will be approximately $1,300. All costs associated with the Divested Manufacturing Operations will be reflected in the Corporate / Manufacturing segment.

        Charges related to this divestiture of $4,418 for the three and six months ended March 31, 2015 were $2,171 for severance and employee related costs, $1,647 for accelerated depreciation and $600 of other costs.

Other Adjustments

        During the three and six months ended March 31, 2015, the Company identified and recorded adjustments for immaterial errors in its previously reported financial statements. Accordingly, we recorded a reduction in selling, general and administrative expenses of $2,520, primarily related to prepaid rent in our retail operations and a reduction in cost of sales of $0, and $3,708 to increase the value of its label inventory for the three and six months ended March 31, 2015, respectively, which has an immaterial impact on the current year financial statements.

38

---

Table of Contents

Results of Operations

Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014:

Net Sales

        Net sales by segment were as follows:

Wholesale

        Net sales for the Wholesale segment increased $10,891, or 2.5%, to $454,340 for the three months ended March 31, 2015, as compared to the prior comparable period. This increase is due to $24,650 higher net sales of our branded products, primarily driven by increases in core brands, partially offset by $13,759 lower net sales to certain contract manufacturing and private label accounts. Domestic branded net sales increased $30,348 and international branded net sales decreased $5,968 primarily due to the changing regulatory environment in China and foreign currency for the three months ended March 31, 2015, as compared to the prior comparable period.

        We continue to adjust shelf space allocation among our numerous wholesale brands to provide the best overall product mix and to respond to changing market conditions. 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.

39

---

Table of Contents

        We use targeted promotions to grow overall sales. Promotional programs and rebates were 17.1% of sales for the three months ended March 31, 2015, as compared to 16.0% of sales for the prior comparable period. We expect promotional programs and rebates as a percentage of sales to fluctuate on a quarterly basis.

        Product returns were 1.1% and 1.5% of Wholesale sales for each of the three months ended March 31, 2015 and 2014, respectively, and are primarily attributable to returns in the ordinary course of business. We expect product returns relating to normal operations to trend between 1% and 2% of Wholesale sales in future quarters.

        The following customers accounted for the following percentages of net sales for the three months ended March 31, 2015 and 2014, respectively:

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

European Retail

        Net sales for the European Retail segment increased $1,488, or 0.7%, to $216,805 for the three months ended March 31, 2015, as compared to the prior comparable period. This increase is attributable to more successful promotional activity and additional stores opened during the period. Offsetting the increase, the average exchange rate of the British pound sterling to the U.S. dollar decreased 8.4% and the euro to the U.S. dollar decreased 17.7% as compared to the prior comparable period. In local currency, net sales increased 12.2% and sales for stores open more than one year (which include online sales) increased 8.8% as compared to the prior comparable period.

40

---

Table of Contents

        The following is a summary of European Retail store activity:

Direct Response/E-Commerce

        Net sales for the Direct Response/E-Commerce segment decreased by $226, or 0.4%, to $63,375 for the three months ended March 31, 2015, as compared to the prior comparable period. The total number of orders increased approximately 10%, while the average order size declined approximately 9% for the three months ended March 31, 2015, as compared to the prior comparable period. E-commerce orders comprised 76% of total Direct Response/E-Commerce orders for the three months ended March 31, 2015 as compared to 71% in the prior comparable period. We remain among the leaders for vitamin and nutritional supplements in the direct response and e-commerce sectors, and we continue to evaluate the number of products available via our catalog and websites.

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

North American Retail

        Net sales for the North American Retail segment decreased $3,303, or 5.8%, to $53,356 for the three months ended March 31, 2015, as compared to the prior comparable period. Same store sales (which include online sales) declined 3.4% due to a softer retail environment.

41

---

Table of Contents

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

Cost of Sales

        Cost of sales was as follows:

        Cost of sales as a percentage of net sales increased by 0.4 percentage points. The increase in the percentage of cost of sales was primarily due to lower margins earned in our retail businesses due to increased promotional activity.

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

Advertising, Promotion and Catalog Expenses

        Total advertising, promotion and catalog expenses were as follows:

        Advertising, promotion and catalog expenses remained relatively consistent for the three months ended March 31, 2015 as compared to the prior comparable period. There were marginal declines in the Wholesale and Direct Response / E-Commerce segments, partially offset by increases in the European Retail segment.

42

---

Table of Contents

Selling, General and Administrative Expenses

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

        The SG&A decrease of $3,434, or 1.4%, for the three months ended March 31, 2015, as compared to the prior comparable period, is primarily due to the reduction of building costs of $3,287 resulting from the correction of prepaid rent within the North American Retail segment; $2,948 of lower freight costs due to lower energy costs; $2,075 of lower outsourced services costs; $1,115 of lower insurance costs as a result of lower premiums; and decreases of $6,998 due to foreign currency, as the British pound sterling and Euro have weakened as compared to the U.S. dollar. These reductions in SG&A were partially offset by $5,563 of additional salaries related to severance, new stores in the European Retail segment and higher corporate salaries relating to new management; $4,168 of additional depreciation primarily due to the implementation of a POS system in our European Retail segment and the ongoing implementation and support of our ERP system in Corporate/Manufacturing; $3,667 of increased legal settlement costs primarily related to an increase in the estimated settlement value in the current period related to the Glucosamine case.

Income from Operations

        Income from operations was as follows:

        The increase in the Wholesale segment was primarily due to the increase in net sales and decrease in advertising expense. For the European Retail segment, on a local currency basis, income from operations increased slightly. In U.S. dollars, the decrease was due to foreign currency fluctuations and increased advertising costs. The decrease in the Direct Response/E-Commerce segment was primarily due to increased cost of sales as a percentage of net sales due to additional sales promotions, partially offset by decreases in advertising costs. The increase in the North American Retail segment was primarily due to the decrease in SG&A costs related to the correction of prepaid rent, as well as reductions in salaries and consulting costs, partially offset by a decrease in net sales from store closures and lower same store sales from the prior year. Corporate/Manufacturing increased due to increases in legal settlements related to the Glucosamine case, increases in depreciation expense with the ongoing implementation of our ERP system, excess depreciation from the pending sale of the bar and powder facilities, increased salary costs related to severance for the pending sale of the bar and powder facilities as well as other cost cutting initiatives, partially offset by decreases in consulting costs.

43

---

Table of Contents

Interest Expense

        Interest expense for the three months ended March 31, 2015 remained relatively consistent with the prior comparable period.

Provision for Income Taxes

        Our provision for income taxes is impacted by a number of factors, including federal taxes, our international tax structure, state tax rates in the jurisdictions where we conduct business, and our ability to utilize state tax credits that expire between 2015 and 2029. Our overall effective income tax rate could vary as a result of these factors. The effective income tax rate for the three months ended March 31, 2015 and 2014 was 36%. Our effective tax rate is higher than the federal statutory rate generally due to the impact of state and local taxes.

Six Months Ended March 31, 2015 Compared to the Six Months Ended March 31, 2014:

Net Sales

        Net sales by segment were as follows:

Wholesale

        Net sales for the Wholesale segment increased $744 to $949,467 for the six months ended March 31, 2015, as compared to the prior comparable period. This increase is due to $28,456 higher net sales of our branded products, partially offset by $27,712 lower net sales to certain contract manufacturing and private label accounts. The increase in net sales of our branded products was primarily driven by increases in core brands, and partially offset by declines in our joint care products. Domestic branded net sales increased $32,135 and international branded net sales decreased $3,679 for the six months ended March 31, 2015, as compared to the prior comparable period.

        We continue to adjust shelf space allocation among our numerous wholesale brands to provide the best overall product mix and to respond to changing market conditions. 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 17.1% of sales for the six months ended March 31, 2015, as compared to 16.0% of sales for the prior comparable period. We expect promotional programs and rebates as a percentage of sales to fluctuate on a quarterly basis.

        Product returns were 1.2% and 1.5% of Wholesale sales for each of the six months ended March 31, 2015 and 2014, respectively, and are primarily attributable to returns in the ordinary course of business. We expect product returns relating to normal operations to trend between 1% and 2% of Wholesale sales in future quarters.

44

---

Table of Contents

        The following customers accounted for the following percentages of net sales for the six months ended March 31, 2015 and 2014, respectively:

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

European Retail

        Net sales for the European Retail segment increased $10,173, or 2.4%, to $430,402 for the six months ended March 31, 2015, as compared to the prior comparable period. This increase is attributable to more successful promotional activity and additional stores opened during the period. Offsetting the increase, the average exchange rate of the British pound sterling to the U.S. dollar decreased 5.4% and the euro to the U.S. dollar decreased 13.0% as compared to the prior comparable period. In local currency, net sales increased 10.2% and sales for stores open more than one year (which include online sales) increased 7.6% as compared to the prior comparable period.

        The following is a summary of European Retail store activity:

45

---

Table of Contents

Direct Response/E-Commerce

        Net sales for the Direct Response/E-Commerce segment increased by $2,554, or 2.1%, to $126,517 for the six months ended March 31, 2015, as compared to the prior comparable period. The total number of orders increased approximately 10%, while the average order size declined approximately 7% for the six months ended March 31, 2015, as compared to the prior comparable period. E-commerce orders comprised 76% of total Direct Response/E-Commerce orders for the six months ended March 31, 2015 as compared to 71% in the prior comparable period. We remain among the leaders for vitamin and nutritional supplements in the direct response and e-commerce sectors, and we continue to increase the number of products available via our catalog and websites.

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

North American Retail

        Net sales for the North American Retail segment decreased $5,955, or 5.3%, to $107,261 for the six months ended March 31, 2015, as compared to the prior comparable period. Same store sales (which include online sales) declined 3.3% due to a softer retail environment.

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

Cost of Sales

        Cost of sales was as follows:

        Cost of sales as a percentage of net sales increased by 0.5 percentage points. The increase in the percentage of cost of sales was primarily due to lower margins earned on private label products and an increase in reserves on certain foreign inventory due to regulatory uncertainty.

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

46

---

Table of Contents

Advertising, Promotion and Catalog Expenses

        Total advertising, promotion and catalog expenses were as follows:

        The $8,094 or 8.3% increase in advertising, promotion and catalog expenses primarily related to increased advertising in our Wholesale segment, as we continue to increase our focus on branded products and increased spending on media and loyalty program costs in our European Retail segment, partially offset by a decrease in advertising expense in the Direct Response / E-Commerce segment.

Selling, General and Administrative Expenses

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

        The SG&A increase of $2,055, or 0.4%, for the six months ended March 31, 2015, as compared to the prior comparable period, is primarily due to $8,264 of additional depreciation resulting from the implementation of a POS system in our European Retail segment and the ongoing implementation and support of our ERP system in Corporate/Manufacturing; $8,031 of additional salaries related to severance, new stores in the European Retail segment and higher corporate salaries relating to new management; $2,972 of increased legal settlement costs primarily related to the recording of an estimated settlement value in the current period related to the Glucosamine case. These increases in SG&A were partially offset by decreases of $8,322 due to foreign currency fluctuations, as the British pound sterling and Euro have weakened as compared to the U.S. dollar; the reduction of freight costs of $2,747 due to lower energy costs; $2,604 of lower insurance costs as a result of a lower premium; $2,207 of reductions in other administrative costs and $1,704 of lower building costs primarily due to the correction of prepaid rent within the North American Retail segment.

Income from Operations

        Income from operations was as follows:

47

---

Table of Contents

        The decrease in the Wholesale segment was primarily due to the increase in reserves on certain foreign inventory due to the changing regulatory environment in China and increase in advertising expense. For the European Retail segment, on a local currency basis, income from operations increased slightly. In U.S. dollars, the decrease was due to foreign currency fluctuations and increased advertising costs. The decrease in the Direct Response/E-Commerce segment was primarily due to increased cost of sales as a percentage of net sales due to additional sales promotions, increased SG&A costs (primarily freight costs), partially offset by a decrease in advertising costs. The increase in the North American Retail segment was primarily due to the decrease in SG&A costs related to the correction of prepaid rent, as well as reductions in salaries and consulting costs, partially offset by a decrease in net sales from store closures and lower same store sales from the prior year. Corporate/Manufacturing increased due to increases in legal settlements related to the Glucosamine case, increases in depreciation expense with the ongoing implementation of our ERP system and excess depreciation from the pending sale of the bar and powder facilities, increased salary costs related to severance for the pending sale of the bar and powder facilities as well as other cost cutting initiatives.

Interest Expense

        Interest expense for the six months ended March 31, 2015 remained relatively consistent with the prior comparable period.

Provision for Income Taxes

        Our provision for income taxes is impacted by a number of factors, including federal taxes, our international tax structure, state tax rates in the jurisdictions where we conduct business, and our ability to utilize state tax credits that expire between 2015 and 2029. Our overall effective income tax rate could vary as a result of these factors. The effective income tax rate for the six months ended March 31, 2015 and 2014 was 35.8% and 33.5%, respectively. Our effective tax rate for the six months ended March 31, 2015 is higher than the federal statutory rate generally due to the impact of state and local taxes. Our effective tax rate for the six months ended March 31, 2014 was lower than the federal statutory rate generally due to the timing and mixture (foreign and domestic) of income and the partial reinvestment of foreign earnings in fiscal 2014.

Liquidity and Capital Resources

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

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

        We monitor current and anticipated future levels of cash and cash equivalents in relation to anticipated operating, investing and financing requirements. As of March 31, 2015, cash and cash equivalents of $98,180 were held by our foreign subsidiaries and are generally subject to U.S. income taxes upon repatriation to the United States. We generally repatriate all earnings from our foreign subsidiaries where permitted under local law.

        The increase in cash and cash equivalents of $110,910 at March 31, 2015 as compared to September 30, 2014 was primarily due to lower inventories and the increase in accounts payable, partially offset by the increase in accounts receivable.

48

---

Table of Contents

        Working capital as of March 31, 2015 remained relatively consistent with September 30, 2014 due to increases in cash offset by increases in accounts payable and decreases in inventory.

        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:

        Net cash provided by operating activities increased for the six months ended March 31, 2015 as compared to the prior comparable period, primarily due to inventory fluctuations whereby the inventory levels increased in the prior comparable period to increase order fulfillment rates and have decreased inventory levels in the current period.

        During the six months ended March 31, 2015 and 2014, net cash used in investing activities consisted primarily of purchases of property, plant and equipment.

        For the six months ended March 31, 2015 and 2014, net cash used in financing activities primarily related to dividends paid to Alphabet Holding Company, Inc. ("Holdings").

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

Senior Secured Credit Facilities, Holdco Notes and Notes

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

        On March 21, 2013, NBTY, 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,

49

---

Table of Contents

including $13,924 of the call premium paid on term loan B-1, and are being amortized using the effective interest method. In accordance with the provisions of the credit agreement governing the senior secured credit facilities, future scheduled payments of principal will not be required until the final balloon payment at maturity in October 2017.

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

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

        In addition, the credit agreement requires the maintenance of a maximum total senior secured leverage ratio on a quarterly basis, calculated with respect to Consolidated EBITDA, as defined therein, if at any time amounts are outstanding under the revolving credit facility (including swingline loans and letters of credit). As of March 31, 2015, NBTY was in compliance with all covenants under the credit agreement.

        As of March 31, 2015, there were no borrowings drawn from our $175,000 revolving credit facility and there was a letter of credit totaling $4,400, reducing the net availability to $170,600.

Original Holdco Notes

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

Additional Holdco Notes

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

        On December 10, 2013, the requisite holders of the original Holdco Notes had consented to the Proposed Amendments and Holdings entered into the First Supplemental Indenture to the indenture governing the Holdco Notes. The First Supplemental Indenture became operative upon the payment of the consent fee by Holdings to the paying agent on behalf of the holders of the original Holdco Notes, which was paid concurrently with the closing of the offering of the additional Holdco Notes.

        On December 12, 2013, Holdings issued $450,000 of additional Holdco Notes that mature on November 1, 2017. The $450,000 of additional Holdco Notes and the $550,000 of original Holdco

50

---

Table of Contents

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

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

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

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

         (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 March 31, 2015, NBTY currently anticipates that it will have sufficient restricted payment capacity to enable Holdings to pay cash interest on the Holdco Notes for the current interest period; however, this may change as a result of a variety of factors. To the extent Holdings makes such interest payments in cash, NBTY will be required to provide the necessary funding.

        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

51

---

Table of Contents

potential business opportunities as they arise. The restrictions these covenants place on us include limitations on our ability to:

•

incur or guarantee additional indebtedness;



•

make certain investments;



•

pay dividends or make distributions on our capital stock;



•

sell assets, including capital stock of restricted subsidiaries;



•

agree to payment restrictions affecting our restricted subsidiaries;



•

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;



•

enter into transactions with our affiliates;



•

incur liens; and



•

designate any of our subsidiaries as unrestricted subsidiaries.

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

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

EBITDA and Consolidated EBITDA

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

52

---

Table of Contents

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

        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.

53

---

Table of Contents

        The following table reconciles net income (loss) to EBITDA and Consolidated EBITDA (as defined in NBTY's senior secured credit facilities) for the three and six months ended and four consecutive quarters ended March 31, 2015 and 2014:

54

---

Table of Contents

Off-Balance Sheet Arrangements

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

Seasonality

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

Foreign Currency

        Approximately 35% of our net sales during the six months ended March 31, 2015 and 2014, were denominated in currencies other than U.S. dollars, principally British pounds sterling and to a lesser extent euros, Canadian dollars and Chinese renminbi. A significant weakening of such currencies versus the U.S. dollar could have a material adverse effect on us, as this would result in a decrease in our consolidated operating results.

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

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

        During the six months ended March 31, 2015 and 2014, translation (losses) gains of ($82,761) and $11,489, respectively, were included in determining other comprehensive income (loss). Accordingly, cumulative translation losses of approximately ($111,243) and ($28,481) were included as part of accumulated other comprehensive loss within the consolidated balance sheets at March 31, 2015 and September 30, 2014, respectively.

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

Recent Accounting Developments

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

55

---

Table of Contents

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

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

        In April 2015, the FASB issued guidance which changes the presentation of debt issuance costs. Under the new guidance, debt issuance costs will be presented as a reduction of the carrying amount of the related liability, rather than as an asset. The new treatment is consistent with the current literature for accounting for debt discounts. The guidance is effective for us beginning October 1, 2016, and early adoption is permitted. This guidance has been early adopted as of March 31, 2015 and applied retrospectively to the prior period presented in the consolidated financial statements. See Note 5 "Long-Term Debt."

Critical Accounting Policies and Estimates

        We describe our significant accounting policies in Note 2 of the Notes to Consolidated Financial Statements included in our 2014 Annual Report. We discuss our critical accounting estimates in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the 2014 Annual Report. There have been no significant changes in our significant accounting policies or critical accounting estimates since September 30, 2014. As noted in the Form 10-K, relatively small declines in the future performance and cash flows within the wholesale business may result in the recognition of asset impairment charges. Certain categories within the Wholesale segment performing below expectations increases the risk of impairment for the indefinite-lived tradenames associated with those categories. The carrying value of the tradenames associated with the Wholesale business as of March 31, 2015 was approximately $435,000.

56

---

Table of Contents

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

Quantitative and Qualitative Disclosures About Market Risk

        We are subject to currency fluctuations, primarily with respect to the British pound sterling, the euro, the Canadian dollar and the Chinese renminbi, and interest rate risks that arise from normal business operations. We regularly assess these risks.

        We have subsidiaries whose operations are denominated in foreign currencies (primarily the British pound sterling, the euro, the Canadian dollar and the Chinese renminbi). We consolidate the earnings of our foreign subsidiaries by translating them into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar weakens against foreign currencies, the remeasurement of these foreign currency denominated transactions results in increased net sales, operating expenses and net income. Similarly, our net sales, operating expenses and net income will decrease when the U.S. dollar strengthens against foreign currencies.

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

        Net sales denominated in foreign currencies were approximately $564,432, or 35.0%, of total net sales for the six months ended March 31, 2015. A majority of our foreign currency exposure is denominated in British pounds sterling, the euro, Canadian dollars and the Chinese renminbi. For the six months ended March 31, 2015, as compared to the prior comparable period, the British pound sterling, the euro, Canadian dollars and the Chinese renminbi decreased 5.4%, 13.0%, 9.3% and 0.4%, respectively, as compared to the U.S. dollar. The combined effect of the changes in these currency rates resulted in a decrease of $40,904 in net sales and a decrease of $8,091 in operating income.

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

   

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

57

---

Table of Contents

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

Evaluation of Disclosure Controls and Procedures

        Our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. We designed our disclosure controls and procedures to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure. Our chief executive officer and chief financial officer, with assistance from other members of our management, have reviewed the effectiveness of our disclosure controls and procedures as of March 31, 2015, and, based on their evaluation, have concluded that our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

        There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the six months ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

58

---

Table of Contents

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

Herbal Dietary Supplements

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

        Following the NY AG investigation, starting in February 2015, numerous putative class actions were filed in various jurisdictions against NBTY, certain of its customers and/or other companies as to which there may be a duty to defend and indemnify, challenging the authenticity and purity of herbal supplements and associated marketing, under various states' consumer protection statutes. Motions for transfer and consolidation of all of the federal actions as multidistrict litigation into a single district before a single judge ("MDL motions") are currently pending and the hearing date of the MDL motions is scheduled for May 28, 2015. Certain state court actions are proceeding independently or have been removed to federal court and stayed pending a decision on the MDL motions. These cases seek some combination of monetary damages, injunctive relief and specific performance.

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

Glucosamine-Based Dietary Supplements

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

        In March 2013, NBTY agreed upon a proposed settlement with plaintiffs, which included all cases and resolved all pending claims without any admission of or concession of liability by NBTY, and which provided for a release of all claims in return for payments to the class, together with attorneys' fees, and notice and administrative costs. Fairness Hearings took place on October 4, 2013 and November 20, 2013. On January 3, 2014, the court issued an opinion and order approving the settlement as modified (the "Order"). The final judgment was issued on January 22, 2014 (the

59

---

Table of Contents

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

        On November 19, 2014, the appellate court issued a decision granting the objectors' appeal. The appellate court reversed and remanded the matter to the district court for further proceedings consistent with the appellate court's decision. In April 2015, NBTY agreed upon a revised proposed settlement with certain plaintiffs which includes all cases and resolves all pending claims without any admission of or concession of liability by NBTY. The parties have signed settlement documentation providing for a release of all claims in return for payments to the class, together with attorneys' fees, and notice and administrative costs estimated to be in the amount of $9 million, which resulted in an additional charge of $4.3 million in the second quarter results for fiscal 2015. The settlement has not yet been submitted to the court for preliminary approval. 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, Eastern District of New York. The plaintiff alleges that the defendants faxed advertisements to plaintiff and others without invitation or permission, in violation of the Telephone Consumer Protection Act ("TCPA").

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

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

Claims in the Ordinary Course

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

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

60

---

Table of Contents

NBTY, Inc. and Subsidiaries
Item 1A. Risk Factors

Risk Factors

        In addition to the other information set forth in this Report, you should carefully consider the risk factors disclosed under the caption "Risk Factors" in the 2014 Annual Report, the quarterly report for the quarter ended December 31, 2014 (the "Q1 Quarterly Report") and the additional risk factors set forth below. These factors could materially adversely affect our business, financial condition, operating results and cash flows. The risks and uncertainties described in the 2014 Annual Report, the Q1 Quarterly Report and below are not the only ones we face. Risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition, operating results or cash flows. Except as set forth below, there have been no significant changes relating to the risk factors described in the 2014 Annual Report and the Q1 Quarterly Report.

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

        In all jurisdictions in which we operate, non-compliance with relevant legislation can result in regulators bringing administrative, civil or, in some cases, criminal proceedings. In the United States, the FTC has brought and considered bringing actions against us in the past. In China regulators have strengthened administration of regulations on dietary supplements products in anticipation of the Food Safety Law Amendment becoming effective on October 1, 2015. In the United Kingdom, it is common for regulators to prosecute retailers and manufacturers for non-compliance with legislation governing foodstuffs and medicines. In the United States, we are undergoing an audit of our compliance of unclaimed or abandoned property (escheat) laws currently for nineteen states for the years 1986 through the present. On February 2, 2015, the State of New York Office of the Attorney General sent letters to several major retailers demanding that they cease and desist selling their store brands for specific manufacturing lots of a select number of popular herbal supplements that the Attorney General alleges were inaccurately labeledand began an investigation concerning the authenticity and purity of herbal supplements and associated marketing. Because we manufacture certain of these private label products, we have been subject to the Attorney General's investigation as well as numerous legal actions filed in various jurisdictions against us since the investigation. The investigation or these legal actions seek some combination of monetary damages, injunctive relief and specific performance. At this time, no determination can be made as to the ultimate outcome of the investigation or the litigation or the amount of liability on our part but an adverse result in the investigation or the litigation could have a material adverse impact on the industry overall and our business, results of operations, financial condition and cash flows. Our failure to comply with applicable legislation could occur from time to time, and prosecution for any such violations could have a material adverse effect on our business, results of operations, financial condition and cash flows.

61

---

Table of Contents

NBTY, Inc. and Subsidiaries
Item 6. Exhibits

62

---

Table of Contents

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

63

---