NBTY, Inc. F1Q09 (Qtr End 12/31/08) Earnings Call Transcript

Feb.12.09 | About: NBTY Inc. (NTY)

NBTY, Inc. (NTY) F1Q09 (Qtr End 12/31/08) Earnings Call Transcript January 29, 2009 9:00 AM ET

Executives

Carl Hymans – G.S. Schwartz & Company

Scott Rudolph – Chairman & CEO

Harvey Kamil – President & CFO

Analysts

Larry Solow – CJS Securities

Michael Gallo – C.L. King

Greg Badishkanian – Citi

Ed Aaron – RBC Capital Markets

Stefan Mykytiuk – Pike Place Capital

Karen Howland – Barclays

Nick Genova – B. Riley & Company

Justin Maurer – Lord Abbett

Bill Alexander [ph] – Darfle Associates [ph]

David Sachs – Hocky

Operator

Good morning. My name is Kimberly and I will be your conference operator today. At this time, I would like to welcome everyone to the NBTY first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator instructions) I would now like to turn the call over to Carl Hymans with G.S. Schwartz & Company. Sir, please go ahead.

Carl Hymans

Thank you. Good morning, everyone. With us on today’s call would be Mr. Scott Rudolph, Chairman and CEO; and, Mr. Harvey Kamil, President and CFO of NBTY. I would like to point out that today's conference call contains forward-looking statements. The official forward-looking statements are in yesterday’s press release and on the NBTY corporate Web site. In the interest of time, the forward-looking statement will be read in its entirety at the conclusion of this conference call. At this point, I would like to turn the call over to Mr. Scott Rudolph. Scott?

Scott Rudolph

Yes. Thank you, Carl. Good morning, and welcome to the NBTY first quarter 2009 conference call. Once again, we will begin this conference call with our mission statement. We believe it is why we’re successful in growing our business. Our mission is to deliver the highest quality nutritional supplements with the best value to our customers. The philosophy of our company is to give the customers the right product at great value, and they will always come back and buy more. That’s the core of our success.

For the quarter, we reported sales of $661 million, approximately $13.5 million in net income, and earned $0.21 per diluted share. That is compared to $511 million in sales, $46 million in net income, and $0.67 per diluted share for the prior comparable quarter.

This was a difficult quarter. The quarter was adversely affected by several factors, inflationary pressures on raw materials, which were not passed to our customers; the IT right off; the weakness in the British pound sterling and the Canadian dollar; the general slowness in the global economy, which affected retailing; and, the Leiner integration costs.

So here are the steps we have taken to improve operations. First, we are in the process of notifying customers of price increases reflecting higher raw material costs. We adjust prices on a continuous basis and expect adjustments to be made throughout the year. With respect to raising prices to our customers, our philosophy is to be the last company to raise prices. While our gross profits are grossly affected, we gain market share, which positions the company well for our future.

Second, we continuously evaluate the management of our divisions. It became apparent to us that operating management in the direct/e-commerce division had to be replaced. With the change of management, newly purchased or partially installed IT programs, which were determined that were ineffective were written off with a charge of $8.6 million. The operation is now on a positive footing with appropriate cost controls. We expect to see improved direct response results in the future quarters.

Third, we expect that by July 2009, if not sooner, the Leiner integration will be completed and most costs eliminated. At that time, we expect to achieve efficiencies at Leiner that are comparable to the whole company as a whole.

However, as previously discussed, some issues are expected to continue. We expect the retail environment in both the US and the UK to persist. The value of the British pound sterling decreased 23% for the quarter. The Canadian dollar declined 19% for the quarter. We expect these types of weaknesses to continue through fiscal 2009.

On a positive note, the overall nutritional supplements marketplace is expanding. According to the latest Nielsen data for the 13-week period ended December 27, 2008, the overall marketplace for nutritional supplements has grown at a rate of 8%, with our wholesale brands gaining greater market share of 13%. We are pleased to report that the Holland & Barret franchising initiative has led some franchising in South Africa with four new stores being opened this quarter. We expect to continue in this endeavor.

We believe that NBTY is well positioned to grow in this difficult marketplace. A strong balance sheet and continuous market share increases, and operating efficiencies should lead to greater shareholder value over the long run. We remain focused on our mission statement to deliver the highest quality nutritional supplements with the best value to our customers. With that, I would give the phone call to Harvey Kamil who’ll give you a detailed review of our results. After that, Harvey and I will answer any questions that you may have.

Harvey Kamil

Thank you, Scott. Good morning, everyone. Again, let’s review operations. As Scott said, net sales of $661 million, compared with $511 million last year. The increase was $150 million in sales, an increase of 29%. Net income of $14 million – $13.4 million – yes, $13.4 million, compared to – close to $46 million. So that’s $0.21 compared to $0.67, unfortunately close to 71% decrease.

Let’s just look at now first at the sales numbers. Wholesale recorded sales of $407 million, an increase for that of a $148 million. Our direct response business, $49 million, an increase of $12 million. North American retail, $48 million, there is a decrease of almost $8 million. And our European retail, $156 million, with a decrease of about $3 million, compared with just about a $159 million. So the total sales numbers, $661 million, compared to $511 million, an increase of 29%

When we look at gross profits – looking into gross profit of the wholesale division, it was – and I’ll give you more exact numbers again. I’ll go through it. It’s another digit. Wholesale gross profit was 27.5%, compared to 43.9%. So that’s a major decrease. At a 27.5% gross profit, that’s the lowest the company has reported in many, many years. In terms of direct response, 58.8% gross profit for this quarter, compared to the prior year like quarter, 63.4%. So it is down. Our North American retail operations are operating at 66.9%, compared to 59.3%. So it’s a big increase there. And in terms of European retail, 63.3%, compared to 63.1%. So it’s just about the same. Again, overall gross profits of 41.2% for this quarter, compared to 53% last year at this time.

If we look at EBITDA, EBITDA was just about $53 million, compared to $87 million, reflecting the weak operations that we had. If we look at our balance sheet, inventory is up $23 million. Other than that, really nothing else to talk about in the balance sheet. Important to know that our – we paid back, in the month of January, an additional $10 million to our banks. So in terms of our revolving credit agreement, we have un-drawn now on our revolving credit agreement, $300 million.

Again, when we talk about inventory, inventory turn is really just about close to where we are. It’s a little actually higher now than in previous quarters. So we think our inventory levels will sustain those types of inventory levels.

In terms of property plant and equipment, we invested, without that write off, close to $17 million. And the plan is this – to have in terms of capital improvements something in the neighborhood of $16 million. We will vary that number depending upon how projects come up and depending upon what we see.

In terms of interest expense for the quarter, interest expense was a little under $10 million. We’re anticipating that the interest expense for the year will be about $37 million. As we spoke about my announcement and Scott again spoke about it in his delivery, the British pound sterling as well as the Canadian dollar affected operations to the extent of approximately $0.15. And we should anticipate something to that extent because the British pound sterling was still strong last year at this time.

Now, when we look at – looking at some of the operations, when we look at the percentage of SG&A costs to our total operations without the IT write off, SG&A cost went to – as a percentage of sales, it was 29.7%, compared to 32.9%. So it’s going down a bit. We expect it to go down, as Scott said, as the integration costs start falling off.

In terms of advertising, advertising expenses were 4.7% this year, compared to 6.7% last year. We also believe that will be – we’ll probably move up advertising this quarter, but probably not as high as last year at this time. More than that, I think we have – we’d be interested in your questions. The rest, I think, is all in the announcement. So let’s open it up for questions.

Question-and-Answer Session

Operator

Okay. (Operator instructions) We’ll pause for just a moment to compile the Q&A roster. You’re first question comes from the line of Larry Solow with CJS Securities.

Larry Solow – CJS Securities

Hi. Good morning. Harvey, can you maybe just give a little more detail on the Leiner integration expenses that you had this quarter? I think you’ve said there were $5 million of non-manufacturing payroll expense plus other expense. And then also on that note, I think on the last call you said you expected a $12 million in total for the first two fiscal quarters, and then (inaudible) complete? But now I think you say that you may not be complete until July, which implies I guess another quarter in Q3 of more expenses. And then again if –?

Harvey Kamil

I think what we wanted to make sure is that we know – we believe that everything’s going to be gone by July. In terms of the integration costs, we are just about exactly on target. And I apologize if in fact you think we’re just trying to extend it out – it’s really probably not going to be extended out. We intended, when we purchased Leiner, to have approximately $30 million of cost savings.

And we are right on target with that $30 million of cost savings because what actually happens is each quarter the amount of expenses that are being cut out are smaller as – there’s a (inaudible) of personnel and duplications and redundancies that we eliminate. But we’ll be right on target with the $30 million of cost savings. And the chances are that most of – all integrations costs would be way gone. As Scott said, no later – it really was no later than July, but probably sooner. But yes, I’d say that sometime in the early part of the third quarter it’ll all be gone.

Now in terms of giving you a feel in terms of the costs, we know there were $5 million of costs and there’s other related other costs. Multiplying those numbers, that gives you the $30 million of savings we anticipate.

Larry Solow – CJS Securities

Okay. And then it looks like you did a $53 million in a month. Was there anything in particularly strong and have fulfillment rates (inaudible) are they improving? Or you guys still on a – from your competitors and said that they were capturing some share from Leiner. It looks like maybe – I know one month doesn’t make a trend, but it looks like you haven’t made some profit in the month of December.

Harvey Kamil

I’m sorry. I didn’t hear. We have a little garbled sound. The question was for what, because I didn’t hear?

Larry Solow – CJS Securities

The Leiner. The Leiner –

Harvey Kamil

The Leiner. The Leiner.

Scott Rudolph

Before we purchased the company, Leiner lost a few sales here and there. But we’re right on track. We have a great relationship with the customers. Things are moving ahead. And if anything, market share is slowly starting to come back, which is getting more and more items, and more distribution place.

Larry Solow – CJS Securities

Well then just last question, the $8.6 million charge, if I just wanted to add it back on a segment basis, would that all be in direct response?

Harvey Kamil

Yes.

Larry Solow – CJS Securities

Okay. Great. Thank you.

Operator

Your next question comes from the line of Michael Gallo with C.L. King.

Michael Gallo – C.L. King

Hi. Good morning. The question I have, I just wanted to drill down a little bit on the wholesale margins, Harvey, just to kind of understand. How much of the margin decrease is attributable to, obviously, the shift in mix that the more private label with Leiner? How much was due to this raw material price compression? And with the pricing action being talked about, when you might expect those to return more towards historic norms? Obviously, there’s going to be a bigger mix of private label related to Leiner, but I just want to get a feel for how those two issues bifurcated in regard to the margins? Thank you.

Harvey Kamil

Well, again, I’m going to look to Scott for some answers. But I would say first as it relates to the how much of the gross profit was caused by the Leiner operations, I can’t give you a definite number because it’s more of a general answer. The first general answer is the higher cost affected all operations. So it’s a cost all of the – everything we did. We could not – we just could not pass on these cost increases fast enough. And in fact, in terms of vitamin C, Scott, you say we’re losing on vitamin C.

Scott Rudolph

Right.

Harvey Kamil

But we’re actually losing on – it’s just that vitamin C went up.

However, again, the Leiner operation, as we said, was played by making sure we get our fulfillment rates up. So we are anticipating those numbers should be better. I would say in terms of how to give you some general detail, the Leiner gross profits were running about a half of what they would have run without these price – without these costs – without cost increases. So it really was hit very, very hard. Again, the rest of the operation was hit hard.

But we really can’t quantify directly what was the shortfall in Leiner and what was the shortfall in our operations. Obviously, we’re not going to have, with the Leiner operations giving us on an annualize basis close to $400 million of sales, we’re not going to be able to maintain a gross profit of what we had last year, 43.9 as we said in our announcement because there’s so many – we have this very large amount of commoditized sales that have very low margins. But we’ll have to see this quarter as the – we’ll see much more stability of our gross profits, and we’ll learn much more of what happens. Scott, can you then answer that?

Scott Rudolph

I’m just saying we’re pushing the price increases more than necessary. It was kind of confusing right after we purchased Leiner because the raw materials were so volatile, going up and down so rapidly. We didn’t know what the direct costs for the raw material and we didn’t know what to charge to our customers. I think the raw materials have stabilized somewhat, even if there are continuous increases in costs here or there, and we continue to raise prices. Price amount is volatile, so. And we’ll see how that shapes up this quarter.

Michael Gallo – C.L. King

Are you finding that you’re able to get the price and cash through? Obviously, there’s – in the current economic environment, there is a lot of resistance in general for price increases. Are you finding a lot of push back? Are you finding that the customers understand the margin situation? Or just a little bit of color about what kind of feedback you’re seeing from your customers regarding that?

Harvey Kamil

Okay. So we had at the beginning, there was a lot of push backs. And there was a lot of confusion because the raw materials were volatile. And also at the beginning, we didn’t even want to notify our customers about our price increases until we had deliveries fully put in place, right. So this way they were satisfied with our deliveries. When we purchased lotteries in chapter 11, up until (inaudible) deliveries, and so that put more pressure on us to delay the price increases. But I think there’s a full understanding. And not only do we have price increases, all our competitions have the same price increases. And so, we’ve always delivered product to our efficient manufacturing plants, and we’re able to generally sell products at slightly lower prices than our competition and still be very efficient. So I think we’ll still right on track and that’s been our philosophy for the last 20 years here. So I don’t really see any problems with those things.

Michael Gallo – C.L. King

It sounds like we can refer to that – it sounds like you’ve been able to pass it through, is that the inference?

Harvey Kamil

Yes. That is true.

Michael Gallo – C.L. King

Okay. Thank you.

Operator

The next question comes from the line of Greg Badishkanian with Citi.

Greg Badishkanian – Citi

Great. Thank you. Just kind of looking at Europe a little bit, can you talk a little bit about discounting over there, by your competitors, yourself as well just kind of where you stand in terms of market share? Did you loose some market share or is it just that the market is very weak due to the tough macro there?

Harvey Kamil

Well, we look at the – most of the decrease is because of the currency exchange. Scott, just make sure I’m correct (inaudible) with that. And so, it’s a tough marketplace there, but we’re still – we’re holding as much the prices where we can. And in the present market there, I think we’re doing extremely well in the present conditions that we are in right now. And we’re not really losing market shares through competition. That would never really let that happen. We’ve always fought because we have low cost of product. So that’s not really the issue. The issue is it’s a weak market, especially in the United Kingdom. And the retailers are – they’re not doing well. But we look at it Holland & Barrett – I feel Holland & Barrett is doing extremely well for marketplace that it’s in right now.

Scott Rudolph

And just to add to that, Greg, the gross profit for the entire European operations really stayed the same. So the answer is, in terms of the question what about discounting, the company is not under any pressure to discount and move merchandise?

Harvey Kamil

By the way, we’ll always do the normal discounting. It’s a very promotional part of the business. But in terms of the way it’s run, it seems to be the same gross profits as it was last year.

Greg Badishkanian – Citi

No change then in the competitive landscape. It’s just a tougher market given the macro.

Scott Rudolph

Yes, by the way it’s a tough one – but you should know, it’s very tough and competitive market. It’s very competitive. We have competition from supermarkets, from everyone. And it’s always a lot of competition. But it’s not – there’s no difference this year compared to last year.

Greg Badishkanian – Citi

Got it.

Harvey Kamil

In terms of competition. Just in terms of –

Scott Rudolph

If anything, our price is slightly higher because of the devaluation of the pound, right, to the dollar, the cost of (inaudible) that we’re shipping are actually higher. So our pricing is slightly higher right now than it was last year at this time.

Greg Badishkanian – Citi

Good. And just a little bit more maybe color in terms of the US landscape, with commodities and what your competitors are doing in terms of potential price increases. What are you seeing out there in the landscape that might be able to help your margins to improve here in the US?

Harvey Kamil

Every single one of our competition has been raising prices. They’re in the same exact situation as we are in. And when you have a product like Vitamin C, and it goes up four times the cost, even five times the cost, came back down a little bit. They’ve had the same issues we’ve had.

Greg Badishkanian – Citi

When did they –

Harvey Kamil

And start raising prices?

Greg Badishkanian – Citi

When did they start raising prices?

Harvey Kamil

Probably, a little bit sooner than us. Because they were under the pressure. They were delivering, right? When we purchased Leiner, they started a little earlier than we did. We had the transition of the Leiner integration, and we had the situation with Leiner who’s not making deliveries. So if we had customers that we were shipping product to, through NBTY, before the Leiner. And then you have Leiner added to that, we couldn’t even raise the prices on the NBTY side because they’re saying, we’ll let your deliveries – from the products you’re not delivering to us. We wanted to hold off prices increases completely until we got our deliveries back on track. All our deliveries are back on track right now, as everything’s moving forward to do what we have to do, to charge the prices that are fair to our customers.

Greg Badishkanian – Citi

And fair prices, that’s going to get you to the old margin or is it not going to get you there just because it’s a tough market right now?

Harvey Kamil

I don’t think we’ll get exactly to the old margin right now, it’s a tougher market. Our customers have pressure also, and the way I think – we have to work at slightly lower margins than in the past, but I feel we’ll get there to be (inaudible) profitable off.

Greg Badishkanian – Citi

Okay. So you’ll have some improvements but not back to old levels. Thank you very much.

Operator

The next question comes from the lines of Ed Aaron with RBC Capital Markets.

Ed Aaron – RBC Capital Markets

Great. Thanks. So a few questions for you, on the price increases, can you just elaborate a little bit on how it works from a timing perspective? Because I’m under the impression that most of them are going through a decrease effective January 1st. But, Scott, you gave in your prepared remarks, you said that they’re going to be adjusted throughout the year. So did you get, substantially, all you planned for Jan 1 or is it going to be a little bit more progressive?

Scott Rudolph

You have two parts to the price increase, one is you have brands. Brands can generally raise either once in the past, you can raise once a year – you don’t – but now maybe about twice a year or who knows exactly what’s going to happen out there in the marketplace. And then you have the private label side.

On the private label side, you usually try to give customers a good 30 to 60 days notice on those kinds of things. And so it’s not just one price increase, even equal across the board, so. Because there are many different companies involved, and each one works a little differently. And each one – each division of a company, price have raised. They generally – what the market’s going to bear at that particular time in the marketplace.

So for example, you might have health food store brands that – they work on a higher margin. Maybe the competition, they’re not really raising the pricings in that particular division as higher as fast. So every division goes a little differently. And you have private label areas where every company’s affected immediately if we’re working on lower margins. You can’t live with you not making a profit through this. So through the company competition and us, we’ll raise the prices much faster in that area.

And that’s where we had a delay in there when we had the Leiner acquisition. As I mentioned before, we’re not making deliveries. We have our handcuffs on. It was not a good idea to try to raise prices. So we got our deliveries back up to satisfactory levels with the customers. And so we got delayed, probably over 90 days before we started that process.

Ed Aaron – RBC Capital Markets

Maybe I’ll ask the question a little bit differently. What percent of the price increases that you feel that you need to take have gone through so far?

Scott Rudolph

75%, 80%.

Ed Aaron – RBC Capital Markets

Okay.

Harvey Kamil

And I’d like to really just –

Scott Rudolph

I would say we’re almost there.

Ed Aaron – RBC Capital Markets

Okay. In the direct business, you mentioned that you expect to see some improvement going forward. I guess, I’m trying to figure out what date we’re talking about. Because if you include the chart that you had, it was a very low margin quarter. But if you exclude that charge, I think your operating margin on that business was about 22%, which is actually pretty good, especially relative to last quarter when I think it was about 7%. So when you talk about improvements, which dates are you talking about? If you think there’s room to further improve from the 22% adjusted EBIT margin that you had in the quarter?

Scott Rudolph

Okay, well let me explain. The man we had running this division before, taught us how to grow our sales, taught us how to really communicate to our customers much better than we had in the past. He just couldn’t control his expenses and the cost of doing business. And so, we checked the technology. We’ve had to notify the customers and contact them, and bring new customers in. And we’ve taken all the areas of – now to follow our cost.

Through that process, a total of about 35 people’s positions were eliminated. And we can operate just the same way without those 35 positions. And so the company has shed the expenses and is moving forward now.

Ed Aaron – RBC Capital Markets

Okay.

Harvey Kamil

I tend to move ahead of you, you said can we improve on the 22%? The answer is yes.

Scott Rudolph

I think so.

Harvey Kamil

We don’t think we could improve on the gross profit on wholesale because of the nature of the business. On the other side, we think we can improve in terms of bottom line numbers on the direct response business. That’s a forward-looking statement.

Ed Aaron – RBC Capital Markets

Okay, fair enough. On the UK business, does the current – does the currency impact sort of partially in that other income? There usually is another income number and now it was in other – an other expense number of $5million and change. Can you give us a – is that –?

Scott Rudolph

What part of the income item are (inaudible) –?

Harvey Kamil

Yes. And what you do – we have to restate all the inter-company accounts so it’s put into the balance sheet. But we’re giving you in terms of $0.15 of actual – what did – what the income stated. If the foreign exchange – it was the same as it was last year, the company would have earned an additional $015. But that’s – it’s not here anymore. It is what it is. But yes. When you get – when we have the foreign exchange, understand it not only affects sales, because again, every British pound sterling that we sell there is then reflected at the current – at the current exchange rate here. At the same time, other expenses, such as rent and payroll costs are also – use the lower exchange rate. So while it hits you on the top line, there is some relief on expenses. Obviously, we still would like stronger foreign currencies. If you’re a global company like we are, we would like to – again, much stronger foreign currencies. But that’s what that is.

Ed Aaron – RBC Capital Markets

Okay. And last question if I could, did you see any – the December sales trend was a little bit stronger than what we saw for October and November. I was curious to know if you had any customers buying ahead of expected price increases in January? Thanks.

Harvey Kamil

There might have been some of that. I don’t have the exact details because we’ve never tried to load our customers up with a product. In any way and every quarter, we’ve never done that. And so I look at it as the equal flow of product. I think we might have had a slight bump.

Ed Aaron – RBC Capital Markets

All right. Thanks for taking my questions.

Operator

The next question comes from the line of Stefan Mykytiuk with Pike Place Capital.

Stefan Mykytiuk – Pike Place Capital

Good Morning. I just want to make sure I understand directionally what’s going on over the next few quarters. So if I hear you correctly, we’re going to start to see, in the wholesale business over the next couple of quarters, the benefits of price increases reflected in the gross margin, is that the case?

Scott Rudolph

Yes.

Stefan Mykytiuk – Pike Place Capital

Okay. And –

Harvey Kamil

Actually (inaudible) – I’m sorry.

Stefan Mykytiuk – Pike Place Capital

Go ahead. (inaudible) You’re also going to see an improvement in the Leiner gross margins somehow flowing through as well. But it seems like in the way you see there’s – it’s trying to catch up on these raw material price increases is very important, right?

Scott Rudolph

Absolutely. But it’s effects – it affects first the, as you call it, our legacy business. It affects the Leiner business, and also affecting the wholesale operations is also the integration cost, which had been hit. So we’ll be – hopefully we’ll have higher gross profits and lower costs.

Stefan Mykytiuk – Pike Place Capital

Right. That’s the second piece. So the Leiner – those $5million of payroll costs, is that showing up in cost of sales or is that in SG&A?

Scott Rudolph

SG&A.

Harvey Kamil

In terms of the Leiner manufacturing, we have kept all the people. We are keeping the plants open, there are no cuts whatsoever planned or anticipated, or anything that has to do with the manufacturing. The cost cuts are strictly – have been strictly in the non-manufacturing payroll and overhead costs. We also would expect, over time, to have efficiency costs because of our engineering departments, through the Leiner plants and making them more efficient, so. There are a multitude of things happening. The big expense decrease has to be with the non-manufacturing SG&A costs.

Stefan Mykytiuk – Pike Place Capital

Okay. And on a segment basis though, on the segment EBITDA, obviously, those Leiner costs are impacting the wholesale EBITDA though, right?

Scott Rudolph

Yes.

Stefan Mykytiuk – Pike Place Capital

Okay. And then the corporate, is the IT charged down in corporate?

Scott Rudolph

No. It’s in the – It’s in direct response. A whole bunch of other IT charges have to be incorporated, but we cannot specifically identify.

Stefan Mykytiuk – Pike Place Capital

Okay. And on the last call, you were talking about how you thought there would be increased IT costs over the next couple of quarters. Was that due to this direct response despite the project that’s now been cancelled?

Harvey Kamil

Partially. We are also putting in a POS system, which is also an extra cost that’s part of – when we have at IT that continues on.

Stefan Mykytiuk – Pike Place Capital

Okay. All right. And just so I understand the –what you were saying that the – how the other income flipped to expense, that was really FX driven? Why you have –?

Harvey Kamil

(inaudible) other income. What we have – in terms of the foreign exchange, we were – but it’s not – doesn’t (inaudible) to the income statement. It’s just we revalue assets based upon the current exchange rates. That’s all.

Stefan Mykytiuk – Pike Place Capital

Well, that’s translation, not transaction though, right?

Harvey Kamil

Correct, that’s translation.

Stefan Mykytiuk – Pike Place Capital

Okay. What I’m asking now is the transaction, the $5.6million of other expense. Historically, you’ve always had the other income and now it’s other expense. I didn’t really understand your answer to the previous question. About why that flipped so dramatically.

Harvey Kamil

Let me look at that – what’s in that number. Yes, I believe it’s foreign exchange. I’ll get an email from my accounting department, and we’ll give you an answer, in very (inaudible) –

Stefan Mykytiuk – Pike Place Capital

Okay. I can follow up over –

Harvey Kamil

–we’ll get a detail of that number.

Stefan Mykytiuk – Pike Place Capital

Great.

Scott Rudolph

We’re right in the call here, we’ll have it in about a minute.

Stefan Mykytiuk – Pike Place Capital

Okay. Sure. Thank you.

Operator

Your next question comes from the line of Karen Howland with Barclays.

Karen Howland – Barclays

Hi. I just wanted to confirm, you said that you’ve taken around 75% to 80% of the price increase that you think necessary to – at the current level of cost of goods. Just to make sure, that’s including Leiner and your legacy wholesale business?

Harvey Kamil

Yes.

Karen Howland – Barclays

And that was taken on January 1. So it should be reflected for this entire quarter.

Scott Rudolph

Well, not all of them was in January 1. I think some of them are in place right now, some of them February 1st. I don’t have the details of each division, direct responses completed, various areas. I think we’re all done here, and I know how the (inaudible) on a continuous basis. So it’s more of the price available –

Karen Howland – Barclays

So if I just – if I just think about the wholesale business, so that 75% to 80% are price increases that are either – that are in place or have actually been implemented?

Scott Rudolph

I know they’re implemented. And I don’t know exactly the dates when they actually have been, but everything is pretty much completed.

Karen Howland – Barclays

Okay. But if they have been implemented as of now, I mean the worst case scenario is that you missed a month of it. It likely would have been January 1st to January 15th.

Scott Rudolph

I think we’d be hitting February 1st. I don’t have the exact dates. I don’t have the exact dates. So I just know that – well I just know that it’s completed, and I can’t really tell you each customer and how it was negotiated, but it’s in that timeframe. But in general, we try to – being fair to all our customers and try and do things simultaneously so one customer doesn’t get an advantage over another.

Karen Howland – Barclays

Okay. So that 75% to 80% will be entirely implemented as of February 1st though?

Harvey Kamil

I can’t tell you. I can’t give you the exact dates. Let’s say by the quarter, how does that sound?

Karen Howland – Barclays

Okay. And it’s a huge difference for this quarter, obviously, as we’re trying to build our model. If we assume it happened January 1st, but it happened March –

Harvey Kamil

I would say they’re – (inaudible) by the end of this quarter, I’ll say.

Karen Howland – Barclays

By the end of this quarter. Okay. Great. Thank you for that clarity. And then, just so I understand, I was surprised that the gross margin actually was flat in the European business given that 50% of the products I think are manufactured in the US. And so, it would have been subject to significantly higher foreign exchange of 20% or so. Did prices go outside 20%? Was there a change in the commercial environment?

Scott Rudolph

Well, there’s quite a few factors there. One is they’re charging higher prices. The second part is the items they’re promoting could be higher margined items also. So they’re very focused knowing that the cost of goods is going up that they’re going to kind of – and they’re watching the gross margins very closely.

Karen Howland – Barclays

Okay. So it sounds like partially with the promotional shift in the – and the promotional environment partially was – I guess, I would –

Scott Rudolph

(inaudible) price increases and watching items that are promoted.

Karen Howland – Barclays

Okay. And then I noticed that you’d opened up a couple of the – a couple of new stores in the US, given that it’s kind of in a struggling business for a while, and it seems like recently you’ve actually been in the closure of stores. What was the strategy there?

Scott Rudolph

We think the – Again, we think that our retail operations are on a much firmer footing. They’re profitable. And if in fact the retailing environment would even be better, we think we can do better than they are right now. Remember the loss – any losses we’re taking would have to be only in Canada. The US Operations are profitable.

Harvey Kamil

And also, the commitment to those stores were probably made over a year ago.

Karen Howland – Barclays

Okay. So those are all vitamin world, US vitamin world, right?

Harvey Kamil

They’re not all. We have some – we’ve opened up some stores in Canada also, a few stores there.

Karen Howland – Barclays

Okay. Even though that business – I mean I recognize it’s profitable, but $250,000 profitable this quarter.

Harvey Kamil

We understand. We are much more positive about our business. And we look at – if we would be emotional and we keep on looking – well if we read the newspaper, you do nothing. And so that the – what we see – when we see we have an opportunity to do business we think we’d be profitable, it’ll be there.

Karen Howland – Barclays

Okay. I think you guys are right. I think some of the only ones who are actually opening up a – opening up a US retail outlets right now. And then –

Harvey Kamil

Just remember that we are manufacturers. So when we look at our gross profits, the stores are making a manufacturing gross profit as well as a retailing for our gross profits. So we think we have a competitive advantage, provided we do things right. And we think we’re doing it right now.

Karen Howland – Barclays

Okay. And then I was wondering, within the e-commerce business, who’s running it now? And how come (inaudible) of the right team in place running it?

Carl Hymans

I’m partially running it with Scott Rudolph, and I’m meeting with another gentleman here in the company right now, who has the right experience. We will be running this property for another nine months to a year. And then we will try to put someone in place after everything is cleaned up.

Karen Howland – Barclays

So the person that was brought in was hired about a year ago, is that right?

Carl Hymans

He was here two years ago, he started in November of ’06. And he was terminated, I guess – I’m not sure of the exact date, in December, I think December last year. And it’s been run by myself and another gentleman here in the company. And we plan on passing this after we clean it up first. So all the systems are in place and it’s well run. So that the person that’s coming will have a good footing for the company. We’ve pretty much cleaned up most of the excess things. We wrote stuff down, we cleaned up all the software and any stuff that that’s not going to give us any – an advantage. And the business has been put backHHHhHewearasdddddddcff

so it shouldn’t be making much higher margins that didn’t – and through the prior year. And we still want to make sure that we’re aggressive in getting new customers.

Karen Howland – Barclays

Okay. Great. Thank you very much.

Operator

Our next –

Harvey Kamil

Before you give that – get someone else to ask another question, in answer to the prior question, I just – I was flipping, I have the worksheet right in front of me right now. In terms of the question for miscellaneous net, last year’s number was $4.8 million. That $4.8 million was made up of a $2.5 million in investment income. Again, we had a large amount of cash as well as some foreign exchange gains, about $1.5 million there.

This year what we’ve done is we have a decrease in either realized or unrealized foreign currency losses. So that’s $7 million there. And again, there’s been no minimal amounts of investment income of about $700,000. So that’s where the change is mainly. So the main change is in foreign exchange gains, whether it be realized or unrealized. It’s put into the income statement. So I trust I answered that question. If it’s not, please dial in and ask again. But yes, operator, you can have another question.

Operator

Your next question comes from the line of Nick Genova with B. Riley & Company.

Nick Genova – B. Riley & Company

Hey, guys. I just wanted to follow up on Leiner, one of the questions earlier, Leiner reported $130 million in sales, which if you would annualize that would come in somewhat ahead of what we are looking for. How much of that is – would you classify as one time in nature or just going up the channels versus what would be more recurring in nature?

Scott Rudolph

I think it’s maybe slightly higher because some customers did some promotions to offset some of those things. But I don’t really think that it seems to be that significant.

Nick Genova – B. Riley & Company

Okay. It sounds like there are (inaudible) pretty fair number to use then going forward.

Scott Rudolph

It’s just slightly higher, though.

Nick Genova – B. Riley & Company

Okay. Then, I know you guys have talked in the past after the Leiner position that maybe you have a leverage on some of the customer relationships that Leiner had. Can you give us an update and progress on that front?

Harvey Kamil

(inaudible) leverage to get more brands and stuff.

Scott Rudolph

That’s hard for me to give details. It’s tough just listening on the phone here. But it definitely gives us entrée into many more areas and we see it working. It’s just building our relationship, better worth for more of the customers.

Harvey Kamil

Are we –

Nick Genova – B. Riley & Company

And moving on to the Canadian operation, how long it’s been struggling for a while. From an operational perspective, is there room for you guys to improve that or is there maybe an opportunity to pursue some strategic alternatives there? What’s the plan on that front?

Scott Rudolph

Are you talking about the Leiner part of their –

Nick Genova – B. Riley & Company

No. Just on the retail –

Scott Rudolph

(inaudible) – the Leiner. I’m sorry?

Nick Genova – B. Riley & Company

The retail line of it.

Harvey Kamil

LeNaturiste.

Scott Rudolph

LeNaturiste, we are working, doing the same thing that we’ve done with Vitamin World, work on higher margins, not work on lower margins. That is just going to start to take effect very shortly. I don’t have the exact date in front of me. I’m just getting a report next week when that communication will take place. But the strategy that we set forward there is the same strategy we’ve done in the United States for them to work on higher margins.

Harvey Kamil

In addition, we have – now that we have a Canadian facility, the amount of product going from in-house manufacturing will increase into the stores. And their gross margins should increase there also.

Nick Genova – B. Riley & Company

Okay. Thanks, guys.

Operator

Your next question comes from the line of Justin Maurer with Lord Abbett.

Justin Maurer – Lord Abbett

Good morning, guys. A couple of points of clarity I think on, first, the FX issue. So it sounds like from what you’re saying the delta and the other line pretty much accounts for the $0.15 (inaudible) because of the currencies. Is that fair or is there something imbedded in gross margin? I didn’t do the calculation, but it just seems like –

Scott Rudolph

Yes. I know. When you say imbedded in gross margin –

Justin Maurer – Lord Abbett

Well, some of the (inaudible) –

Scott Rudolph

Let me just pull back how – let me just – I have a specific sheet on gross – on that. This is, again, what we’re trying to do is when we say, “How did we calculate that number?” What we did is we took the operating profit from the entity and then restated it into the foreign exchange. So it took everything. It has everything in it.

Justin Maurer – Lord Abbett

But the operating profit though would exclude the other line, would it not? I guess, the reason I’m asking –

Scott Rudolph

(inaudible) We went to that and we added back the other line. So we did. We took all issues in foreign exchange and put it into that $0.15 cents.

Justin Maurer – Lord Abbett

Okay. All right. That’s –

Scott Rudolph

Again, this is just a calculation so you could see what happened this quarter compared to a year – last year at this time. But again, we’ll have to live with it. We have to live with a moving – weaker currency.

Justin Maurer – Lord Abbett

Sure. I know. I think it’s pertinent because of the earlier question about how it’s pretty remarkable that you guys were able to hold the margins over there despite what would be a fairly severe transactional hit as you’re shipping products there to sell it. And as Scott said, obviously, you’re trying to dial back the promotions. So I think we’re all trying to get a sense of how – are those levels of margin sustainable over the next few quarters and do you still have the FX problem?

Scott Rudolph

We had the FX problem – we have the foreign exchange problem totally in the first quarter. And those are the gross profits. I don’t believe there’s anything different – anything different will happen the following quarter. The exchange will be – we still have a high – we’ll have a foreign exchange loss, but in terms of the way we’re running our business, the anticipation is that we’ll be able to run at the same as we ran it in the first quarter.

Justin Maurer – Lord Abbett

Okay. And then, secondly, Scott, on the pricing issue. You had said in the prepared remarks that you wanted to get fulfillment levels to a level where you’re comfortable, the customers are comfortable where could roll price in. That would imply that there was more pricing taken on the Leiner side than on the base business? Is that fair or not really?

Scott Rudolph

Not really. What happened – same thing over again. What happened is when we purchased Leiner, they have a very long purchase road going forward because they were in chapter 11. And they also were not delivering – making good deliveries. So by the time we placed – purchased us the new product, we created an enormous demand for raw materials, which raised the cost of raw materials up higher than expected also. And then the second part was they weren’t making deliveries. So we couldn’t stop the process of raising the prices until deliveries were in place.

Now, I tell you, when those raw materials went up, it caused the raw materials to go up the entire company here at the same time. Not just for Leiner, but also for all the NBTY products at the same time. And so, that’s where the confusion came in. And we didn’t really know what the exact raw material prices were going to be because we created this tremendous demand to fill the pipeline back up not only to Leiner, but to all the customers they’ve had. And so, it caused some confusion. It just delayed us to do – it delayed us at least three to four months for doing the price increases that we normally would have done much earlier.

Justin Maurer – Lord Abbett

So hypothetically in Vitamin C, you didn’t miss any take – or need to take more price on the Leiner side than you did your own business but that was – you were delaying it, kind of pending – getting it all put together and rolled out and so on, and then did it across the board, just on one item for example.

Scott Rudolph

That’s correct.

Justin Maurer – Lord Abbett

Okay.

Scott Rudolph

But, usually when you have brands or full line, you don’t raise one price of one product and set price increase on a brand, right? In general – it didn’t have to be done this way. But in general people usually go through the whole – across the board of the price increases. And I know some of our competition raised the price up December 1st and ours was January 1st. So we weren’t that far off. And I’m sure the competition was just as much confused as to where the prices were going to land also.

Justin Maurer – Lord Abbett

And then, Harvey, on the inventory. The comments you just made again about you are getting to the proper levels. Will that imply that the absolute inventory level in dollars should be at these levels if not maybe coming down a little bit as the year progresses? What are your thoughts here?

Harvey Kamil

If I had to take a guess, I’d tell you just at these levels. I don’t think it’s coming down.

Justin Maurer – Lord Abbett

Okay. All right. And then last question just on the VR management change. Were you guys surprised by that at all? I guess, somewhat surprising about the IT write off and some of them have been there for a couple of years, and Scott temporarily running it. There was – maybe surprised by that a little bit?

Scott Rudolph

I was in shock to be quite honest with you. That was there because the management was very effective in bringing the sales in, looking at how you’re going to get new customers but didn’t really understand how to control the cost and do it in an efficient manner that we’ve been used to for many years. So we took care of things and wanted to make sure that this was stable. And it’s stable. It’s running. It’s fine right now and I think it’s doing well.

Justin Maurer – Lord Abbett

Was there any kind of artificial boost, if you will, to sales in prior quarters that maybe will be a drag? Or, conversely on the cost side will this thing drag –

Scott Rudolph

Slightly be a little more on the fourth quarter. It’s a slight thing on the fourth quarter than in the – right now, the first quarter. A slight increase in the first quarter and there will be a slight decrease in the second quarter.

Justin Maurer – Lord Abbett

Got you. Okay. Thanks a lot.

Operator

Your next question comes from the line of Bill Alexander [ph] with Darfle Associates [ph].

Bill Alexander – Darfle Associates

Good morning. Hello?

Scott Rudolph

Yes, we’re here.

Bill Alexander – Darfle Associates

Oh, good morning. Could you give me your estimated capital expenditures on depreciation for this year?

Scott Rudolph

Yes. In terms of depreciation let me just grab the sheet and I’ll read it off to you. We’re anticipating depreciation for the year – depreciation for the year should be about $67 million. Depreciation for the quarter was a little under $17 million.

Bill Alexander – Darfle Associates

Capital expenditures for ’09?

Scott Rudolph

Are you there?

Bill Alexander – Darfle Associates

Yes, I am.

Scott Rudolph

Okay. Operator?

Operator

His line is open.

Scott Rudolph

Okay.

Operator

Can you speak up, sir?

Bill Alexander – Darfle Associates

Oh, I was just asking capital expenditure for ’09.

Scott Rudolph

Capital expenditure – oh, I’m sorry. I though you said depreciation. Capital expenditures will be and around $60 million. As we said, we could – we’ll vary that number as projects come up. But it’s around $60 million for this year. We’ve read off what the capital expenditures were for the quarter. For the quarter without the write off was about $70 million. So it’s in line with what we did this quarter.

Bill Alexander – Darfle Associates

Fine. And I was just wondering on your direct response on the reorganization in IT costs into this year. Can you give us any feel as to what the negative charges might be?

Scott Rudolph

Direct response? I think we took all the negative charges –

Harvey Kamil

It’s done.

Scott Rudolph

It’s done.

Bill Alexander – Darfle Associates

You took it all in the fourth quarter?

Scott Rudolph

No. No –

Harvey Kamil

In the first quarter.

Scott Rudolph

We deal with fiscal quarters. Our fiscal quarters. So October, November, December is our first quarter. We always talk about that being our first quarter. We talk about our fiscal quarters. So yes. We expect that all these write offs are in the first quarter and we don’t anticipate any additional expenditures for this – for these write offs.

Bill Alexander – Darfle Associates

I thank you. And as far as – how long do you think it will take you to get your new IT system into effect?

Scott Rudolph

We’re not. We’re using our existing IT system, which we feel will be sufficient for us for the next – for many, many years, right now where we are. And it’s running fine and it was actually – with no cost to run it.

Bill Alexander – Darfle Associates

I want to thank you very much.

Operator

Your next question comes from the line of David Sachs with Hocky.

David Sachs – Hocky

Yes. I have a couple of questions. One, if you could discuss the raw materials trend for 2009. If you’re seeing any additional pressures as you look at 2009 and on. And then, which specific raw materials might be in short supply?

Scott Rudolph

I don’t think there’s any raw materials in short supply. I think you’ll have some increase but nothing we saw for the volatility earlier that went on. But we do see some slight increases but there’s no – I think some of the increases came when through the Leiner acquisition. And this just created tremendous demand for raw materials. I mean some of our raw materials are starting to come down too, right now.

David Sachs – Hocky

Scott, that would have been you putting pressure on raw materials; buying to replace the lack of inventory at Leiner or do you think it was just a self-inflicted blow?

Scott Rudolph

Our summary was definitely self-inflicted. So in other words, raw materials last year when Leiner went into chapter 11, I didn’t realize that what would happen is that they might have been buying less and less raw materials all along, right? And creating excess price decreases in the marketplace. And all of a sudden, we come along and purchase the company. And now, I have to fill the pipeline back up and we create this tremendous demand in a three month period to fill the pipeline up, which caused probably to artificially raise the prices up even higher and it caused some of the problems.

David Sachs – Hocky

The way to think about how this flows going forward is we’ve raised prices in this March quarter, you’re saying towards the end of the quarter we should be fully reset on price versus the current level of raw materials. And that by the end of the June quarter we should have the benefit of all the Leiner cost structure taken out of the business. So during the second half of calendar 2009 should be normalized for NBTY on an integrated basis?

Harvey Kamil

We think so.

Scott Rudolph

We believe that’s what’s going to happen.

David Sachs – Hocky

And in that environment, what should the gross margins of Leiner look like on the wholesale side? Is that a business that could get back to high 20s gross margin or is that a business that’s stuck at a much lower gross margin level?

Scott Rudolph

It would be at a much lower gross margin level, but your expenses are substantially lower in that business too.

David Sachs – Hocky

But you need a –

Scott Rudolph

You don’t have the SG&A of course, but you have it all in the brands.

David Sachs – Hocky

Right. You implied that the expenses were going close to zero once fully integrated?

Harvey Kamil

I wouldn’t say zero, but close.

Scott Rudolph

Yes, close.

Harvey Kamil

It would be very close. It would be a skeleton crew of people. Obviously, we’re keeping sales people who are an integral part of the Leiner team. And, other than that, all back office functions are consolidated.

David Sachs – Hocky

If you look at the wholesale gross margin, which today is in the 20s and (inaudible) much higher number, where does that number normalize at if you look at the mix of business between Leiner and the traditional NBTY franchise?

Harvey Kamil

Again, we don’t have that number. And we don’t know that number. We’ll have to see how things go work. What we would look at is if we would talk about our legacy business. Our legacy business should, in a run, run again without all these large amounts of commoditized, the private label. We’ve been running in and around a 40% gross profit, generally speaking, ignoring the returns that we had to take prior years for the Rexall-Sundown transaction.

And then, in terms of the Leiner, it’s up in the air. What that business is going to come in on, we expect it to come in greater than we have right now. We do not believe it’s going to come in at what the Leiner would run in previous years. Which, as you said, was over 20. It just doesn’t do that. That’s not the type of the business that you have right now. But we couldn’t give you a number yet and we’ll just see how things turn out.

David Sachs – Hocky

Okay. And then, as far as production or manufacturing capacity utilization, where would you estimate your facilities are running today? And are there opportunities as you look at the next six months and the remaining integration of Leiner to close some additional production capacity?

Scott Rudolph

I have actually a worksheet on that. If I could find it. But generally speaking, without – here it is. For the most part our operations vary between a low of about 50%% to a high of about 80. Remember we have multiple plants. So we’re dealing with 60% or 65% capacity and utilization. Our soft gel plants are high and that’s it.

David Sachs – Hocky

Are you evaluating opportunities to rationalize footprint here or you just expect to grow into that with a market share gains and further future acquisitions?

Scott Rudolph

We need all the plants. We need all the plants but there’s no – we don’t anticipate any closing of any – closure of our manufacturing plants.

David Sachs – Hocky

All right, last question. In the U.K., is there are (inaudible) time line for the anti-trust review and then the extent you’re allowed to complete or continue with the acquisition as configured? What are the next steps in integrating that business and where you’re thinking operationally on your U.K. retail business; your U.K. retail business can get to profitably?

Scott Rudolph

Well, we have a time line. I don’t think the office of fair trading has the same time line. Again, just to give you the facts as much as we know, once you’ve made a submission – we made a submission – you have 40 days, they give – they have 40 days to review the transaction. We have made the submission. The clock started ticking. They then came back and said they wanted a consumer survey. With the consumer survey taking place, which will take about 30 days, they have stopped. What they call “stopped the clock.” So we are still waiting for the survey to come in. Once that survey comes in they’re going to review the transaction. And if they refer – the referral means they go to yet another organization called the Competition Commission. And that is then review a second time. I’ll have to learn all the facts and figures with the Competition Commission.

In terms of our integration plan, I would prefer not to say anything about integration plans because we are heavy into – not negotiations, but we’re heavy into this OFT, the Office of Fair Trading. Obviously, we believe that there is a – we believe there is room for both chains in the United Kingdom, and we’ll work on it accordingly. But the exact plans, again, I don’t think it makes sense to review them right now. Let’s get through with the Office of Fair Trading. We believe, again, both chains together with – utilizing certain costs together would be very, very helpful to both chains.

David Sachs – Hocky

Perfect. Good luck with that. Thank you very much.

Operator

You have a follow-up question from the line of Larry Solow with CJS Securities.

Larry Solow – CJS Securities

I hate to be a (inaudible), but just on the current issue, it seems to me that what you have in your operating above the line is (inaudible), and then the miscellaneous item, which also shows up in your financial statements (inaudible) transaction losses really an accounting thing and that’s more than mark-to-market. Would that be a correct way to look at it?

Harvey Kamil

Yes.

Larry Solow – CJS Securities

Okay. So if I have to do the math on that, it seems like it’s like $0.10 in – above the line and about $0.12 below the line. Okay. The other question is do you – the last couple of quarters, you have kind of been given us a better break out of the North American retail and how the US – turned profitable. And I think operating margins were 10% in Q3 and 5% in Q4 in the US side. Do you happen to have a breakdown for Q1 (inaudible) –?

Harvey Kamil

Yes, we do. The Vitamin World stores made up more than $1 million for the quarter. Its operating margin runs around 2.5%. And the LeNaturiste rounded a loss of about $800,000, and that was a negative 18%.

Larry Solow – CJS Securities

Okay. So they’re both, basically, just around positive one, with solid loss and one solid above the breakeven line.

Harvey Kamil

That’s correct.

Larry Solow – CJS Securities

Okay. Last question on – just on cash flow, you mentioned inventories have been – do you think they’ve probably stabilized now? I know that they’ve been coming up and it makes sense because your sales come up. On the receivables side, they’ve also been coming up a little bit, and I guess that makes sense too as your revenues have come up. But do you think those have also – maybe will stabilize? I don’t know, days outstanding basis will you see that (inaudible)?

Scott Rudolph

In terms of receivables, it’s been stabilizing. It’s just a reflection of greater wholesale sales. When we look at the days outstanding on our receivables, they’re actually – days outstanding are lower. At year-end in 2008, there were 38 days of – days outstanding were down to 34 days.

Larry Solow – CJS Securities

Okay.

Harvey Kamil

The issue that we have with the accounts receivables is just to make sure that our allowance for doubtful accounts is reasonable based upon the current economic conditions. And we’re always looking at the very – the customers and the way we hold the customers to be able to survive this tough – this very tough economic environment. But it’s in line, and it’s not going to go down. Hopefully, it’ doesn’t go down because it’s a reflection of the business.

Larry Solow – CJS Securities

Right. And then, just last question, last quarter there was approximately $4 million impact on gross margin due to – do you kind of have a true up of the – on the quarter inventory. And I think you kind of said it was going to be somewhere about $2 million this quarter on the hotel front. Is that what it was?

Harvey Kamil

That’s correct. We had $2million – that is correct. We had $2 million in number. When we prepare our financial statements you’ll see those all as footnotes in terms of what’s affected in the quarters.

Larry Solow – CJS Securities

Okay. Would that be included in the $5 million Leiner integration number or is that an addition to the $5 million?

Harvey Kamil

No. No. That’s not included. The $5 million is strictly payroll.

Larry Solow – CJS Securities

Got you. Okay. Great. Thanks a lot.

Operator

There are no further questions at this time. Do you have any closing remarks?

Scott Rudolph

Thanks, everyone for attending our first quarter – fiscal quarter NBTY. Thank you. Have a good day.

Harvey Kamil

I just want to Carl. Carl, do you want to get on?

Carl Hymans

Yes. Thank you, Harvey. Thank you, everyone. At this point, I would just like to read the forward-looking statements that were mentioned at the beginning of the conference call and are in yesterday’s press release.

The release refers to non-GAAP financial measures, such as adjusted EBITDA. Adjusted EBITDA is defined as net income, excluding the aggregate amount of all non-cash losses reducing net income, plus interest, taxes, depreciation, and amortization. This non-GAAP financial measure is not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation of the non-GAAP measure to the comparable GAAP measure is included in the attached financial tables of the earnings press release.

Management believes the presentation of adjusted EBITDA is relevant and useful because adjusted EBITDA is a measurement in which the analysts utilize when evaluating NBTY's operating performance. Management also believes adjusted EBITDA enhances an investor's understanding of NBTY's results of operations because it measures NBTY's operating performance, exclusive of interest and non-cash charges for depreciation and amortization. Management also provides this non-GAAP measurement as a way to help investors better understand its core operating performance, enhance comparisons of NBTY's core operating performance from period-to-period, and to allow better comparisons of NBTY's operating performance to that of its competitors.

The press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to NBTY financial conditions, results of operations, and business. Therefore, forward-looking statements can be identified by the use of terminology such as, subject to, believe, expects, plan, project, estimate, intend, may, will, should, can, or anticipate, with the negative thereof or variations thereon, or comparable terminology or by discussions of strategy.

Although all of these forward-looking statements are believed to be reasonable, they are inherently uncertain. Factors, which may materially affect such forward-looking statements include, slow or negative growth in the nutritional supplement industry; interruption of business or negative impact on sales and earnings due to acts of God, acts of war, terrorism, bio-terrorism, civil unrest or disruption of mail service; adverse publicity regarding nutritional supplements; inability to retain customers of companies or mailing lists recently acquired; increased competition; increased costs; loss or retirement of key members of management; increases in the cost of borrowings and/or unavailability of additional debt or equity capital; the unavailability of, or inability to consummate, advantageous acquisitions in the future, including those that may be subject to bankruptcy approval or the inability of NBTY to integrate acquisitions into the mainstream of its business; changes in general worldwide economic and political conditions in the markets, in which NBTY may compete from time to time; the inability of NBTY to gain and/or hold market share of its wholesale and/or retail customers anywhere in the world; the unavailability of electricity in certain geographical areas; the inability of NBTY to obtain and/or renew insurance and/or the costs of the same; exposure to and expense of defending and resolving product liability and

intellectual property claims and other litigation; the ability of NBTY to successfully implement its business strategy; the inability of NBTY to manage its retail, wholesale, manufacturing, and other operations efficiently; consumer acceptance of NBTY's products; the inability of NBTY to renew leases for its retail locations; the inability of NBTY's retail stores to attain or maintain profitability; the absence of clinical trials for many of NBTY's products; sales and earnings volatility and/or trends for the company and its market segments; the efficacy of NBTY's internet and online sales and marketing strategies; fluctuations in foreign currencies, including the British pound, the Euro and the Canadian dollar; import-export controls on sales to foreign countries; the inability of NBTY to secure favorable new sites for and delays in opening new retail and manufacturing locations; the introduction of and compliance with new federal, state, local or foreign legislation or regulation or adverse determinations our regulators anywhere in the world, including the banning of products and more particularly good manufacturing practices in the United States, the Food Supplements Directive and Traditional Herbal Medicinal Products Directive in Europe and Section 404 requirements of the Sarbanes-Oxley Act of 2002; the mix of NBTY's products and the profit margins thereon; the availability and pricing of raw materials; risk factors discussed in NBTY's filings with the US Securities and Exchange Commission; adverse effects on NBTY as a result of increased energy prices and potentially reduced traffic flow to NBTY's retail locations; adverse tax determinations; the loss of a significant customer of the company; potential investment losses as a result of liquidity conditions; and, other factors beyond the company's control.

Readers are cautioned not to place undue reliance on forward-looking statements. NBTY cannot guarantee future results, trends, events, levels of activity, performance, or achievements. NBTY do not undertake and specifically declines any obligation to update, republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events.

Consequently, such forward-looking statements should be regarded solely as the NBTY's current plans, estimates, and beliefs.

I’d like to thank everyone for being on this morning’s conference call. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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