Carlyle Merger

9 Months Ended

Jun. 30, 2011

Carlyle Merger

Carlyle Merger

3. Carlyle Merger

        On October 1, 2010, an affiliate of The Carlyle Group ("Carlyle") completed its Acquisition of NBTY for $55.00 per share of NBTY's common stock, or $3,570,191, plus the repayment of NBTY's historical debt of $427,367 (which includes accrued interest and a redemption premium on the notes) and net of cash acquired of $361,609 (which includes restricted cash collateral of $15,126) for a total net purchase price of $3,635,949. The purchase price was funded through the net proceeds from our $1,750,000 senior credit facilities, the issuance of $650,000 senior notes and a cash equity contribution from Holdings.

        In connection with the Acquisition, the following transactions occurred:

• •

  investment funds affiliated with Carlyle and certain co-investors capitalized Holdings with an aggregate equity contribution of $1,550,000;

  •

  Merger Sub, a subsidiary of Holdings formed solely for the purpose of completing the Acquisition, issued $650,000 aggregate principal amount of 9% senior notes due 2018 (the "outstanding notes") and entered into senior credit facilities consisting of (1) senior secured term loan facilities of $1,750,000 and (2) a senior secured revolving credit facility with commitments of $250,000. (See Note 8 for information related to the subsequent refinancing of the senior credit facilities);

  •

  the Merger became effective;

  •

  at the effective time of the Merger, each share of NBTY's common stock outstanding and each restricted stock unit outstanding immediately before the effective time of the Merger was cancelled and converted into the right to receive $55.00 per share in cash, without interest, less applicable withholding tax;

  •

  at the effective time of the Merger, each outstanding and unexercised option to purchase shares of NBTY's common stock, whether or not then vested, was cancelled and entitled the holder thereof to receive a cash amount equal to the excess of $55.00 over the per-share exercise price of such option, without interest, less applicable withholding tax;

  •

  NBTY's existing 7¹/8% senior subordinated notes due 2015 were satisfied and discharged and certain indebtedness of NBTY was repaid, including its existing credit facilities, its multi-currency term loan facility and mortgage; and

  •

  approximately $184,600 of fees and expenses were incurred related to the foregoing, which included capitalized financing costs of $115,431 (of which $1,524 in financing costs were paid in fiscal 2010).

        We refer to the Merger, the Acquisition, the equity contribution from Holdings, the borrowings under our senior credit facilities, the issuance of the 9% senior notes and the other transactions described above collectively as the "Transactions."

        The following provides the allocation of the purchase price of the Acquisition:

Cash consideration		$	3,982,432
Allocated to:
	Cash and cash equivalents		346,483
	Accounts receivable		135,377
	Inventories		782,354
	Deferred income taxes		7,457
	Prepaids and other current assets		51,078
	Property, plant, and equipment		493,115
	Intangibles		2,053,000
	Other assets		18,404
	Accounts payable		(141,139	)
	Accrued expenses and other current liabilities		(190,459	)
	Deferred income taxes		(762,774	)
	Other liabilities		(27,601	)
	Debt and Capital leases		(803	)
Net assets acquired		$	2,764,492
	Goodwill	$	1,217,940

        The following provides the fair value of property, plant and equipment acquired (as of the date of the Acquisition):

		Fair Value		Depreciation and amortization period (years)
Land		$	67,832
Building and leasehold improvements			216,571	4 - 40
Machinery and equipment			119,405	3 - 13
Furniture and fixtures			53,109	3 - 10
Computer equipment			18,113	3 - 5
Transportation equipment			5,844	3 - 4
Construction in progress			12,241
	Total property, plant and equipment	$	493,115

        The following provides the fair value of identifiable intangible assets acquired (as of the date of the Acquisition):

		Fair Value		Amortization period (years)
Definite lived intangible assets:
Brands and customer relationships		$	885,000		17 - 25
Tradenames and other			171,000		20 - 30
			1,056,000
Indefinite lived intangible asset:
Tradenames			997,000
	Total intangible assets	$	2,053,000

        The following unaudited pro forma financial information presents a summary of our consolidated net sales and net income for the three and nine months ended June 30, 2010, assuming the Acquisition took place October 1, 2009:

	Three months ended June 30, 2010		Nine months ended June 30, 2010
Net Sales	$	695,856	$	2,152,167
Net Income	$	39,027	$	47,861

        The above unaudited pro forma financial information has been prepared for comparative purposes only and includes certain adjustments to actual financial results, such as imputed interest costs, and estimated additional depreciation and amortization expense as a result of property, plant and equipment and intangible assets acquired. The pro forma financial information does not purport to be indicative of the results of operations that would have been achieved had the Acquisition taken place on the date indicated or the results of operations that may result in the future.

        Pro forma net income for the nine months ended June 30, 2010 includes an increase in cost of sales relating to an increase in acquired inventory to its fair value as required under purchase accounting, which was sold during the period, as well as non-recurring Merger expenses of $90,382 which consisted of legal and professional advisory services, the acceleration of vesting of all unvested stock-based compensation, fees related to an unused bridge loan and a portion of the transaction fee paid to Carlyle.