Carlyle Merger

12 Months Ended

Sep. 30, 2012

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 $1,550,400;

  •

  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 "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);

  •

  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 Acquisition was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interests. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair value of such assets and liabilities at the date of the Acquisition. The allocation of the purchase price is as follows:

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

        Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and other current liabilities were stated at their historical carrying values, which approximate their fair value, given the short-term nature of these assets and liabilities. Inventories were recorded at fair value, based on computations which considered many factors, including the estimated selling price of the inventory, the cost to dispose of the inventory, as well as the replacement cost of the inventory, where applicable.

        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 Company has allocated $997,000 to tradenames that have been determined to have indefinite lives. Management considered numerous factors in determining to account for these assets as indefinite-lived intangible assets, including the current market leadership position of the names as well as their recognition in the industry. The indefinite-lived intangible assets are not amortized, but instead tested for impairment at least annually (more frequently if certain conditions are present).

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

	2010 Pro Forma
Net sales	$	2,826,737
Net income	$	622

        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 year ended September 30, 2010 includes an increase in cost of sales of $122,104 relating to an increase in acquired inventory to its fair value as required under acquisition 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.