Use these links to rapidly review the document
TABLE OF CONTENTS
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the Quarterly Period Ended June 30, 2010
Commission file number 000-23731
NUTRACEUTICAL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
(State of incorporation)
|
|
87-0515089
(IRS Employer Identification No.)
|
1400 Kearns Boulevard, 2
nd
Floor, Park City, Utah
(Address of principal executive office)
|
|
84060
(Zip code)
|
(435) 655-6106
(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
ý
NO
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). YES
o
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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:
|
|
|
|
|
|
|
Large accelerated filer
o
|
|
Accelerated filer
ý
|
|
Non-accelerated filer
o
(Do not check if a
smaller reporting company)
|
|
Smaller reporting company
o
|
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
At July 29, 2010, the registrant had 10,404,929 shares of common stock outstanding.
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
INDEX
2
Table of Contents
PART IFINANCIAL INFORMATION
Item 1. Financial Statements
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2009(1)
|
|
June 30,
2010
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,858
|
|
$
|
4,540
|
|
|
Accounts receivable, net
|
|
|
11,539
|
|
|
11,428
|
|
|
Inventories, net
|
|
|
29,238
|
|
|
38,818
|
|
|
Prepaid expenses and other current assets
|
|
|
2,344
|
|
|
2,244
|
|
|
Deferred income taxes
|
|
|
1,603
|
|
|
1,535
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
50,582
|
|
|
58,565
|
|
Property, plant and equipment, net
|
|
|
55,584
|
|
|
61,933
|
|
Goodwill
|
|
|
1,177
|
|
|
5,041
|
|
Intangible assets, net
|
|
|
14,452
|
|
|
18,857
|
|
Other non-current assets, net
|
|
|
1,094
|
|
|
2,289
|
|
Deferred income taxes, net
|
|
|
11,071
|
|
|
9,512
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
133,960
|
|
$
|
156,197
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
11,248
|
|
$
|
12,195
|
|
|
Accrued expenses
|
|
|
6,890
|
|
|
6,680
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
18,138
|
|
|
18,875
|
|
Long-term debt
|
|
|
18,500
|
|
|
29,500
|
|
Other non-current liabilities
|
|
|
1,684
|
|
|
1,873
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
38,322
|
|
|
50,248
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
106
|
|
|
104
|
|
|
Additional paid-in capital
|
|
|
26,458
|
|
|
24,228
|
|
|
Retained earnings
|
|
|
68,751
|
|
|
81,590
|
|
|
Accumulated other comprehensive income
|
|
|
323
|
|
|
27
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
95,638
|
|
|
105,949
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
133,960
|
|
$
|
156,197
|
|
|
|
|
|
|
|
-
(1)
-
The
condensed consolidated balance sheet as of September 30, 2009 has been prepared using information from the audited financial statements at that
date.
The
accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Nine months ended June 30,
|
|
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
Net sales
|
|
$
|
39,406
|
|
$
|
44,506
|
|
$
|
120,992
|
|
$
|
137,241
|
|
Cost of sales
|
|
|
19,250
|
|
|
21,523
|
|
|
56,964
|
|
|
65,441
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20,156
|
|
|
22,983
|
|
|
64,028
|
|
|
71,800
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
15,099
|
|
|
16,381
|
|
|
46,585
|
|
|
49,809
|
|
|
Amortization of intangible assets
|
|
|
163
|
|
|
329
|
|
|
480
|
|
|
941
|
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
37,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
4,894
|
|
|
6,273
|
|
|
(20,556
|
)
|
|
21,050
|
|
Interest and other (income) expense, net
|
|
|
177
|
|
|
147
|
|
|
951
|
|
|
403
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
4,717
|
|
|
6,126
|
|
|
(21,507
|
)
|
|
20,647
|
|
Provision (benefit) for income taxes
|
|
|
1,698
|
|
|
2,332
|
|
|
(4,279
|
)
|
|
7,808
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,019
|
|
$
|
3,794
|
|
$
|
(17,228
|
)
|
$
|
12,839
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax
|
|
|
147
|
|
|
(221
|
)
|
|
(286
|
)
|
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
3,166
|
|
$
|
3,573
|
|
$
|
(17,514
|
)
|
$
|
12,543
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.28
|
|
$
|
0.37
|
|
$
|
(1.58
|
)
|
$
|
1.23
|
|
|
Diluted
|
|
|
0.27
|
|
|
0.36
|
|
|
(1.58
|
)
|
|
1.22
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,903,394
|
|
|
10,386,829
|
|
|
10,874,382
|
|
|
10,420,505
|
|
|
Dilutive effect of stock options
|
|
|
78,780
|
|
|
106,176
|
|
|
|
|
|
93,568
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
10,982,174
|
|
|
10,493,005
|
|
|
10,874,382
|
|
|
10,514,073
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
4
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
June 30,
|
|
|
|
2009
|
|
2010
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(17,228
|
)
|
$
|
12,839
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,959
|
|
|
5,440
|
|
|
Amortization of deferred financing fees
|
|
|
42
|
|
|
42
|
|
|
Impairment of goodwill
|
|
|
37,519
|
|
|
|
|
|
Losses on disposals of property and equipment
|
|
|
3
|
|
|
|
|
|
Deferred income taxes
|
|
|
(9,513
|
)
|
|
1,627
|
|
|
Changes in assets and liabilities, net of effects of acquisitions
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
1,571
|
|
|
1,520
|
|
|
|
Inventories, net
|
|
|
3,870
|
|
|
(8,001
|
)
|
|
|
Prepaid expenses and other current assets
|
|
|
972
|
|
|
202
|
|
|
|
Other non-current assets, net
|
|
|
(419
|
)
|
|
(1,023
|
)
|
|
|
Accounts payable
|
|
|
(3,157
|
)
|
|
947
|
|
|
|
Accrued expenses
|
|
|
(1,835
|
)
|
|
(459
|
)
|
|
|
Other non-current liabilities
|
|
|
464
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
17,248
|
|
|
13,323
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired
|
|
|
|
|
|
(13,145
|
)
|
Purchases of property and equipment
|
|
|
(7,358
|
)
|
|
(10,150
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(7,358
|
)
|
|
(23,295
|
)
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
3,000
|
|
|
18,500
|
|
Payments on long-term debt
|
|
|
(12,500
|
)
|
|
(7,500
|
)
|
Proceeds from issuances of common stock
|
|
|
405
|
|
|
511
|
|
Purchases of common stock for treasury
|
|
|
|
|
|
(2,830
|
)
|
Tax benefit from stock option exercises
|
|
|
81
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(9,014
|
)
|
|
8,768
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(108
|
)
|
|
(114
|
)
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
768
|
|
|
(1,318
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
5,189
|
|
|
5,858
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
5,957
|
|
$
|
4,540
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
5
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(dollars in thousands, except
per share data)
1. BASIS OF PRESENTATION
Nutraceutical International Corporation and its subsidiaries (the "Company") is an integrated manufacturer, marketer, distributor and retailer of branded nutritional supplements and
other natural products sold primarily to and through domestic health and natural food stores. Internationally, the Company markets and distributes branded nutritional supplements and other natural
products to and through health and natural product distributors and retailers. The Company's core business strategy is to acquire, integrate and operate businesses in the natural products industry
that manufacture, market and distribute branded nutritional supplements. The Company believes that the consolidation and integration of these acquired businesses provides ongoing financial synergies
through increased scale and market penetration, as well as strengthened customer relationships.
The
Company manufactures and sells nutritional supplements and other natural products under numerous brands including
Solaray
®,
KAL
®,
Nature's
Life
®,
LifeTime
®,
Natural Balance
®,
bioAllers
®,
Herbs for Kids
,
NaturalCare
®,
Health from the Sun
®,
Life-flo
®,
Organix South
®,
Pioneer
® and
Monarch
Nutraceuticals
.
The
Company owns neighborhood natural food markets, which operate under the trade names
The Real Food Company
,
Thom's Natural Foods
and
Cornucopia Community Market
. The Company also own
health food stores, which operate under the trade names
Fresh Vitamins
and
Granola's
.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements include all necessary adjustments to present fairly the consolidated financial
position of the Company as of June 30, 2010, the results of their operations for the three and nine months ended June 30, 2009 and 2010 and their cash flows for the nine months ended
June 30, 2009 and 2010, in conformity with accounting principles generally accepted in the United States of America for interim
financial information applied on a consistent basis. Results for the three and nine months ended June 30, 2010 are not necessarily indicative of the results to be expected for the full fiscal
year.
Certain
information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United
States of America have been omitted. Accordingly, these financial statements should be read in conjunction with the Company's Form 10-K for the Fiscal Year Ended
September 30, 2009, which was filed with the Securities and Exchange Commission on December 10, 2009.
Use of Estimates
The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of
America required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of net sales and expenses during the reported periods. Significant estimates included values and lives assigned to acquired intangible assets, reserves
for customer returns and allowances, uncollectible accounts receivable, slow moving, obsolete and/or damaged inventory and valuation and recoverability of long-lived assets. Actual results
may differ from these estimates.
6
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
(dollars in thousands, except per share data)
1. BASIS OF PRESENTATION (Continued)
New Accounting Standards
In September 2006, the Financial Accounting Standards Board ("FASB") issued authoritative guidance which is included in Accounting
Standards Codification ("ASC") 820, "Fair Value Measurements and Disclosures." This guidance defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. The guidance does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in prior
accounting pronouncements. The Company adopted the provisions of this guidance as of October 1, 2008 for assets and liabilities measured at fair value on a recurring basis. On October 1,
2009, the Company adopted the provisions of this guidance for assets and liabilities measured at fair value on a non-recurring basis. The adoption of this guidance did not have a material
impact on the Company's consolidated financial statements.
In
December 2007, the FASB issued authoritative guidance included in ASC 805, "Business Combinations," which addresses fair value accounting and the related disclosure for assets and
liabilities acquired in a business combination and generally requires acquisition-related costs to be expensed as incurred. This guidance was effective for the Company as of October 1, 2009 and
did not have a material impact on the three acquisitions completed in the first and third quarters of fiscal 2010 but may have a material impact on future acquisitions depending on the nature of the
acquisition.
In
December 2007, the FASB issued authoritative guidance included in ASC 810, "Consolidation," which changes the accounting and reporting for the noncontrolling interests in a subsidiary
in consolidated financial statements. The guidance recharacterizes minority interests as noncontrolling interests and requires noncontrolling interests to be classified as a component of stockholders'
equity. This guidance was effective for the Company as of October 1, 2009 and did not have a material impact on the Company's consolidated financial statements.
In
April 2008, the FASB issued authoritative guidance included in ASC 350, "IntangiblesGoodwill and Other," which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This guidance was effective for the Company as of October 1, 2009 and did not have a
material impact on the Company's consolidated financial statements.
The
Company periodically reviews new accounting standards that are issued from time to time. Although some of these accounting standards may be applicable to the Company, the Company has
not identified any other new standards that the Company believes merit further discussion, and the Company expects that none would have a significant impact on the Company's consolidated financial
statements.
7
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
(dollars in thousands, except per share data)
2. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net of allowances for sales returns and doubtful accounts, consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2009
|
|
June 30,
2010
|
|
Accounts receivable
|
|
$
|
13,718
|
|
$
|
13,666
|
|
Less allowances
|
|
|
(2,179
|
)
|
|
(2,238
|
)
|
|
|
|
|
|
|
|
|
$
|
11,539
|
|
$
|
11,428
|
|
|
|
|
|
|
|
3. INVENTORIES, NET
Inventories, net of reserves for slow moving, obsolete and/or damaged inventory, were comprised of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2009
|
|
June 30,
2010
|
|
Raw materials
|
|
$
|
12,608
|
|
$
|
15,363
|
|
Work-in-process
|
|
|
4,847
|
|
|
6,875
|
|
Finished goods
|
|
|
13,705
|
|
|
18,417
|
|
|
|
|
|
|
|
|
|
|
31,160
|
|
|
40,655
|
|
Less reserves
|
|
|
(1,922
|
)
|
|
(1,837
|
)
|
|
|
|
|
|
|
|
|
$
|
29,238
|
|
$
|
38,818
|
|
|
|
|
|
|
|
4. ACQUISITIONS
During the nine months ended June 30, 2010, the Company made three acquisitions. On October 9, 2009, the Company acquired from Nutritional Specialties, Inc. and its
parent corporation, Baywood International, Inc., substantially all of the assets of the LifeTime Products nutritional supplement business. On December 18, 2009, the Company acquired
substantially all of the assets of Organix-South, Inc. On April 15, 2010, the Company acquired substantially all of the operating assets of Honey Gardens Apiaries, Inc. and
Apitherapy, LLC.
The
aggregate purchase price of these acquisitions was $13,145 in cash. The Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Cash Flows
presented herein include the activities of these acquired businesses from their respective dates of acquisition. The expected long-term sales and expense synergies of acquired businesses
generally are not realized immediately following acquisition as certain transition and integration matters must be completed.
These
acquisitions are in keeping with the Company's business strategy of consolidating the fragmented industry in which it competes and were accounted for using the acquisition method
of accounting. Accordingly, the aggregate purchase price was assigned to the assets acquired and liabilities assumed based on their fair market values at their respective dates of acquisition. The
excess of
8
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
(dollars in thousands, except per share data)
4. ACQUISITIONS (Continued)
aggregate
purchase price over the fair market values of the assets acquired and liabilities assumed was classified as goodwill. The following reflects the final allocation of the aggregate purchase
price for these acquisitions to the aggregate assets acquired and liabilities assumed:
|
|
|
|
|
Current assets
|
|
$
|
3,090
|
|
Property, plant & equipment
|
|
|
698
|
|
Goodwill
|
|
|
3,914
|
|
Intangible assets
|
|
|
5,510
|
|
Current liabilities
|
|
|
(67
|
)
|
|
|
|
|
|
|
$
|
13,145
|
|
|
|
|
|
The
acquired intangible assets include trademarks and tradenames totaling $2,580 that have indefinite lives and are not subject to amortization, as well as trademarks and tradenames
totaling $130 and customer relationships totaling $2,800, which are being amortized for financial statement purposes over four to six years. The acquired intangible assets of $5,510, as well as
goodwill of $3,914, which is not subject to amortization for financial statement purposes, are expected to be deductible for tax purposes over 15 years.
5. GOODWILL AND INTANGIBLE ASSETS
The change in the carrying amount of goodwill from September 30, 2009 to June 30, 2010 was as follows:
|
|
|
|
|
|
|
|
Goodwill
|
|
Balance as of September 30, 2009
|
|
|
|
|
|
Goodwill
|
|
$
|
41,571
|
|
|
Accumulated impairment losses
|
|
|
(40,394
|
)
|
|
|
|
|
|
|
|
1,177
|
|
|
Goodwill attributable to fiscal 2010 acquisitions
|
|
|
3,914
|
|
|
Purchase accounting adjustment related to prior acquisition
|
|
|
(50
|
)
|
|
|
|
|
Balance as of June 30, 2010
|
|
|
|
|
|
Goodwill
|
|
|
45,435
|
|
|
Accumulated impairment losses
|
|
|
(40,394
|
)
|
|
|
|
|
|
|
$
|
5,041
|
|
|
|
|
|
9
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
(dollars in thousands, except per share data)
5. GOODWILL AND INTANGIBLE ASSETS (Continued)
The carrying amounts of intangible assets at September 30, 2009 and June 30, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
June 30, 2010
|
|
|
|
|
|
Weighted-
Average
Amortization
Period (Years)
|
|
|
|
Gross
Carrying
Amount(1)
|
|
Accumulated
Amortization(1)
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount(1)
|
|
Accumulated
Amortization(1)
|
|
Net
Carrying
Amount
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks/trade names/patents
|
|
$
|
516
|
|
$
|
(411
|
)
|
$
|
105
|
|
$
|
671
|
|
$
|
(450
|
)
|
$
|
221
|
|
|
6
|
|
|
Customer relationships/distribution rights
|
|
|
4,251
|
|
|
(1,223
|
)
|
|
3,028
|
|
|
6,815
|
|
|
(1,892
|
)
|
|
4,923
|
|
|
6
|
|
|
Developed software and technology
|
|
|
772
|
|
|
(450
|
)
|
|
322
|
|
|
772
|
|
|
(566
|
)
|
|
206
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,539
|
|
|
(2,084
|
)
|
|
3,455
|
|
|
8,258
|
|
|
(2,908
|
)
|
|
5,350
|
|
|
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks/trade names/licenses
|
|
|
10,997
|
|
|
|
|
|
10,997
|
|
|
13,507
|
|
|
|
|
|
13,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,536
|
|
$
|
(2,084
|
)
|
$
|
14,452
|
|
$
|
21,765
|
|
$
|
(2,908
|
)
|
$
|
18,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amounts
include the impact of foreign currency translation adjustments.
Estimated
future amortization expense related to the June 30, 2010 net carrying amount of $5,350 for intangible assets subject to amortization is as follows:
|
|
|
|
|
Year Ending September 30,
|
|
Estimated
Amortization
Expense
|
|
2010(1)
|
|
$
|
334
|
|
2011
|
|
|
1,329
|
|
2012
|
|
|
1,162
|
|
2013
|
|
|
977
|
|
2014
|
|
|
757
|
|
Thereafter
|
|
|
791
|
|
|
|
|
|
|
|
$
|
5,350
|
|
|
|
|
|
-
(1)
-
Estimated
amortization expense for the year ending September 30, 2010 includes only amortization to be recorded after June 30, 2010.
10
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
(dollars in thousands, except per share data)
5. GOODWILL AND INTANGIBLE ASSETS (Continued)
During
the second quarter of fiscal 2009, the Company recorded a non-cash goodwill impairment charge of $37,519 ($27,288 after tax, or $2.51 per diluted share for the nine
months ended June 30, 2009) related to the Company's branded and natural food markets reporting units. The ongoing uncertainty in general and economic conditions may continue to impact retail
and consumer demand, as well as the market price of the Company's common stock, and could negatively impact the Company's future operating performance, cash flow and/or stock price and could result in
additional goodwill and/or intangible asset impairment charges being recorded in future periods which could materially impact the Company's consolidated financial statements. The valuation of goodwill
and intangible assets is subject to a high degree of judgment and complexity.
6. LONG-TERM DEBT
Long-term debt was comprised of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2009
|
|
June 30,
2010
|
|
Revolving Credit Facility
|
|
$
|
18,500
|
|
$
|
29,500
|
|
|
|
|
|
|
|
The
Company's debt is stated at book value which approximated its fair value at September 30, 2009 and June 30, 2010.
The
Company's current revolving credit facility has available credit borrowings of $60,000 with no automatic reductions and provides an accordion feature that can increase the available
credit borrowings to $90,000, subject to approval by the lenders and compliance with certain covenants and conditions. The lenders under the revolving credit facility are Rabobank International and
Wells Fargo. To date, the Company has not experienced any difficulties in accessing the available funds under the revolving credit facility.
At
June 30, 2010, the Company had outstanding revolving credit borrowings of $29,500. Borrowings under the revolving credit facility are collateralized by substantially all assets
of the Company. At the Company's election, borrowings bear interest at the applicable Eurodollar Rate plus a variable margin or at a base rate, which is the higher of the Federal Funds Rate plus 0.5%
or the Prime Lending Rate, plus a variable margin. At June 30, 2010, the applicable weighted-average interest rate for outstanding borrowings was 1.18%. The Company is also required to pay a
variable quarterly fee on the unused balance under the revolving credit facility. At June 30, 2010, the applicable rate was 0.18%. Accrued interest on Eurodollar Rate borrowings is payable
based on elected intervals of one, two or three months. Accrued interest on base rate borrowings is payable quarterly. The revolving credit facility matures on September 7, 2011, and the
Company is required to repay all principal and interest outstanding under the revolving credit facility on such date.
The
revolving credit facility contains restrictive covenants, including limitations on incurring other indebtedness and requirements that the Company maintain certain financial ratios.
Upon the occurrence of a default, the lender has various remedies or rights, which may include proceeding against the collateral or requiring the Company to repay all amounts outstanding under the
revolving credit facility.
11
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
(dollars in thousands, except per share data)
7. SHARE REPURCHASES
During the three months ended June 30, 2010, the Company did not purchase or retire any shares of common stock. During the nine months ended June 30, 2010, the Company
purchased and retired 239,409 shares of common stock for an aggregate price of $2,830. During the three and nine months ended June 30, 2009, the Company did not purchase or retire any shares of
common stock. As of June 30, 2010, the Company was permitted to purchase up to 967,731 additional shares under its approved purchase plan. The Company accounts for treasury shares using the
cost method.
8. STOCK OPTIONS
The following table summarizes stock option activity during the nine months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted-Average
Exercise
Price
|
|
Options outstanding and exercisable at September 30, 2009
|
|
|
457,917
|
|
$
|
8.85
|
|
Exercised
|
|
|
(26,229
|
)
|
|
4.84
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable at June 30, 2010
|
|
|
431,688
|
|
$
|
9.10
|
|
|
|
|
|
|
|
|
Options
to purchase 275,300 shares of common stock for three months ended June 30, 2009 and options to purchase 95,100 shares of common stock for the nine months ended
June 30, 2010 were excluded from the computation of diluted earnings per share because the exercise prices of these stock options were greater than the average share price of the Company's
common stock and, therefore, the effect would have been antidilutive. All outstanding options to purchase shares of common stock were excluded from the computation of diluted earnings per share for
the nine months ended June 30, 2009 because the Company recognized a net loss.
During
the nine months ended June 30, 2010, the Company received proceeds of $127 related to the exercise of stock options. During this same period, the Company recorded a tax
benefit of $87 and optionees realized an aggregate pre-tax gain of $226 from these stock option exercises. During the nine months ended June 30, 2009, the Company received proceeds
of $256 from the exercise of stock options, the Company recorded a tax benefit of $81 related to these option exercises and optionees realized an aggregate pre-tax gain of $210 from these
stock option exercises.
9. SEGMENTS
Segment identification and selection is consistent with the management structure used by the Company to evaluate performance and make decisions regarding resource allocation, as well as
the materiality of financial results consistent with that structure. Based on the Company's management structure and method of internal reporting, the Company has one operating segment. The Company
does not review operating results on a disaggregated basis; rather, management reviews operating results on an aggregate basis.
12
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
(dollars in thousands, except per share data)
9. SEGMENTS (Continued)
Net
sales attributed to customers in the United States and foreign countries for the three and nine months ended June 30, 2009 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Nine months ended
June 30,
|
|
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
United States
|
|
$
|
35,346
|
|
$
|
39,715
|
|
$
|
108,599
|
|
$
|
121,673
|
|
Foreign countries
|
|
|
4,060
|
|
|
4,791
|
|
|
12,393
|
|
|
15,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,406
|
|
$
|
44,506
|
|
$
|
120,992
|
|
$
|
137,241
|
|
|
|
|
|
|
|
|
|
|
|
Certain
net sales attributed to customers in the United States are sold to customers who in turn may sell such products to customers in foreign countries while certain net sales
attributed to customers in foreign countries are sold to customers who in turn may sell such products to customers in the United States.
The
Company's net sales by product group for the three and nine months ended June 30, 2009 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Nine months ended
June 30,
|
|
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
Branded nutritional supplements and other natural products
|
|
$
|
35,420
|
|
$
|
40,580
|
|
$
|
108,831
|
|
$
|
125,488
|
|
Other(1)
|
|
|
3,986
|
|
|
3,926
|
|
|
12,161
|
|
|
11,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,406
|
|
$
|
44,506
|
|
$
|
120,992
|
|
$
|
137,241
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Net
sales for any other product or group of similar products are less than 10% of consolidated net sales.
10. SUBSEQUENT EVENTS
On July 16, 2010, the Company acquired substantially all of the operating assets of Nutritech Corporation for approximately $1,750 in cash. The primary assets acquired included
accounts receivable, inventory, trademarks/tradenames, customer relationships and goodwill. As of the date of these financial statements, the Company is determining the fair value of the acquired
assets and the related allocation of the purchase price but deemed it was impracticable to disclose this allocation due to the short time frame between the acquisition date and this filing.
13
Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
General
The following discussion and analysis should be read in conjunction with the other sections of this report on
Form 10-Q, including Part I, Item 1.
We
are an integrated manufacturer, marketer, distributor and retailer of branded nutritional supplements and other natural products sold primarily to and through domestic health and
natural food
stores. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers. Our core business
strategy is to acquire, integrate and operate businesses in the natural products industry that manufacture, market and distribute branded nutritional supplements. We believe that the consolidation and
integration of these acquired businesses provides ongoing financial synergies through increased scale and market penetration, as well as strengthened customer relationships.
We
manufacture and sell nutritional supplements and other natural products under numerous brands including
Solaray
®,
KAL
®,
Nature's Life
®,
LifeTime
®,
Natural Balance
®
,
bioAllers
®,
Herbs for Kids
,
NaturalCare
®,
Health from the Sun
®,
Life-flo
®,
Organix
South
®,
Pioneer
® and
Monarch
Nutraceuticals
.
We
own neighborhood natural food markets, which operate under the trade names
The Real Food Company
,
Thom's Natural Foods
and
Cornucopia Community Market
. We also own health food
stores, which operate under the trade names
Fresh Vitamins
and
Granola's
.
We
were formed in 1993 to effect a consolidation strategy in the fragmented vitamin, mineral, herbal and other nutritional supplements industry (the "VMS Industry"). Since our formation,
we have completed twenty-nine acquisitions of assets or stock. As a result of acquisitions, internal growth and cost management, we believe that we are well positioned to continue to
capitalize on acquisition opportunities that arise in the VMS Industry.
Critical Accounting Policies
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America
required us to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements
and the reported amounts of net sales and expenses during the reported periods. Significant estimates included values and lives assigned to acquired intangible assets, reserves for customer returns
and allowances, uncollectible accounts receivable, slow moving, obsolete and/or damaged inventory and valuation and recoverability of long-lived assets. Actual results may differ from
these estimates. Our critical accounting policies include the following:
Accounts Receivable
Provision is made for estimated bad debts based on periodic analysis
of individual customer balances, including an evaluation of days sales outstanding, payment history, recent payment trends and perceived credit worthiness. If general economic conditions and/or
customer financial condition were to change, additional provisions for bad debts may be required, which could have a material impact on the consolidated financial statements.
Inventories
Provision is made for slow moving, obsolete and/or damaged inventory based on periodic analysis of individual inventory items, including
an evaluation of historical usage and/or movement, age, expiration date and general condition. If market demand and/or consumer preferences are less favorable than historical trends or future
expectations, additional provisions for slow moving, obsolete and/or damaged inventory may be required, which could have a material impact on the consolidated financial statements.
14
Table of Contents
Property, Plant and Equipment
Depreciation and amortization expense is impacted by our judgments regarding the estimated useful lives of assets placed
in service. If the actual lives of assets are significantly less than expected, depreciation and amortization expense would be accelerated, which could have a material impact on the consolidated
financial statements.
We
evaluate the recoverability of our property, plant and equipment which are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of an
asset may not be recoverable. We measure recoverability of the asset by comparison of its carrying amount to the future undiscounted cash flows we expect the asset to generate. If we consider the
asset to be impaired, we measure the amount of any impairment as the difference between the carrying amount and the fair value of the impaired asset.
Goodwill and Intangible Assets
Goodwill and intangible assets require estimates and judgments in determining the initial recognition and measurement
of goodwill and intangible assets, including factors and assumptions used in determining fair values and useful lives. Intangible assets with finite useful lives are amortized, while intangible assets
with indefinite useful lives are not amortized. Amortizable intangible assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.
Goodwill and non-amortizable intangible assets are tested annually for impairment and are tested for impairment between annual tests if an event occurs that would cause us to believe that
value is
impaired. We perform our annual impairment testing as of September 30 each year, which is the last day of our fiscal year.
During
the second quarter of fiscal 2009, we recorded a non-cash goodwill impairment charge of $37.5 million ($27.3 million after tax, or $2.51 per diluted
share for the nine months ended June 30, 2009) related to our branded and natural food markets reporting units. The ongoing uncertainty in general and economic conditions may continue to impact
retail and consumer demand, as well as the market price of our common stock, and could negatively impact our future operating performance, cash flow and/or stock price and could result in additional
goodwill and/or intangible asset impairment charges being recorded in future periods which could materially impact our consolidated financial statements. The valuation of goodwill and intangible
assets is subject to a high degree of judgment and complexity.
Revenue Recognition
Revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the
product has been shipped and the customer takes ownership and assumes the risk of loss; (3) the selling price is fixed or determinable; and (4) collection of the resulting receivable is
reasonably assured. We believe that these criteria are satisfied upon shipment from our facilities or, in the case of our neighborhood natural food markets and health food stores, at the point of sale
within these stores. Revenue is reduced by provisions for estimated returns and allowances, which are based on historical averages that have not varied significantly for the periods presented, as well
as specific known claims, if any. No other significant deductions from revenue must be estimated at the point in time that revenue is recognized.
Other
than our previous discussion of goodwill impairment, our estimates and judgments related to our critical accounting policies, including factors and assumptions considered in making
these estimates and judgments, did not vary significantly for the periods presented and had no material impact on the consolidated financial statements as reported.
New Accounting Standards
See Note 1 to the Condensed Consolidated Financial Statements for information regarding new accounting standards.
15
Table of Contents
Results of Operations
The following table sets forth certain consolidated statements of operations data as a percentage of net sales for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
Nine Months
Ended June 30,
|
|
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
Net sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Cost of sales
|
|
|
48.9
|
%
|
|
48.4
|
%
|
|
47.1
|
%
|
|
47.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
51.1
|
%
|
|
51.6
|
%
|
|
52.9
|
%
|
|
52.3
|
%
|
|
Selling, general and administrative
|
|
|
38.3
|
%
|
|
36.8
|
%
|
|
38.5
|
%
|
|
36.3
|
%
|
|
Amortization of intangible assets
|
|
|
0.4
|
%
|
|
0.7
|
%
|
|
0.4
|
%
|
|
0.7
|
%
|
|
Impairment of goodwill
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
31.0
|
%
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
12.4
|
%
|
|
14.1
|
%
|
|
(17.0
|
)%
|
|
15.3
|
%
|
|
Interest and other (income) expense, net
|
|
|
0.4
|
%
|
|
0.4
|
%
|
|
0.8
|
%
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
12.0
|
%
|
|
13.7
|
%
|
|
(17.8
|
)%
|
|
15.1
|
%
|
|
Provision (benefit) for income taxes
|
|
|
4.3
|
%
|
|
5.2
|
%
|
|
(3.6
|
)%
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
7.7
|
%
|
|
8.5
|
%
|
|
(14.2
|
)%
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1)
|
|
|
16.7
|
%
|
|
18.4
|
%
|
|
18.1
|
%
|
|
19.3
|
%
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
See
"Adjusted EBITDA."
Comparison of the Three Months Ended June 30, 2010 to the Three Months Ended June 30, 2009
Net Sales.
Net sales increased by $5.1 million, or 12.9%, to $44.5 million for the three months ended June 30, 2010
("third
quarter of fiscal 2010") from $39.4 million for the three months ended June 30, 2009 ("third quarter of fiscal 2009"). Net sales of branded nutritional supplements and other natural
products increased by $5.2 million, or 14.6%, to $40.6 million for the third quarter of fiscal 2010 compared to $35.4 million for the third quarter of fiscal 2009. The increase in
net sales of branded nutritional supplements and other natural products was primarily related to the net sales contributions of the three fiscal 2010 acquisitions and the fiscal 2009 acquisition. The
impact on net sales of branded products attributable to price changes was not material. Other net sales remained relatively flat at $3.9 million for the third quarter of fiscal 2010 compared to
$4.0 million for the third quarter of fiscal 2009.
Gross Profit.
Gross profit increased by $2.8 million, or 14.0%, to $23.0 million for the third quarter of fiscal 2010 from
$20.2 million for the third quarter of fiscal 2009. This increase in gross profit was primarily attributable to the increase in net sales. As a percentage of net sales, gross profit increased
to 51.6% for the third quarter of fiscal 2010 from 51.1% for the third quarter of fiscal 2009. This increase in gross profit percentage was primarily attributable to the increase in net sales which
allowed us to better leverage our manufacturing overhead costs, partially offset by changes in sales mix.
Selling, General and Administrative.
Selling, general and administrative expenses increased by $1.3 million, or 8.5%, to
$16.4 million
for the third quarter of fiscal 2010 from $15.1 million for the third quarter of fiscal 2009. This increase in selling, general and administrative expenses was primarily attributable to
operational and transition costs related to the fiscal 2009 and the fiscal 2010 acquisitions. As a percentage of net sales, selling, general and administrative expenses decreased to 36.8% for the
third quarter of fiscal 2010 compared to 38.3% for the third quarter of fiscal 2009. This decrease in selling, general and administrative expenses as a percentage of net sales was primarily
attributable to the increase in net sales, which allowed us to better leverage our cost structure.
16
Table of Contents
Amortization of Intangible Assets.
Amortization of intangible assets was $0.3 million for the third quarter of fiscal 2010 and
$0.2 million for the third quarter of fiscal 2009. For each period, amortization expense was primarily related to intangible assets recorded in connection with acquisitions.
Interest and Other (Income) Expense, Net.
Net interest and other (income) expense was $0.1 million for the third quarter of fiscal
2010 and
$0.2 million for the third quarter of fiscal 2009 and primarily consisted of interest expense on indebtedness under our revolving credit facility with the decrease being primarily related to a
reduction in interest rates.
Provision for Income Taxes.
Our effective tax rate was 38.1% for the third quarter of fiscal 2010 and 36.0% for the third quarter of
fiscal 2009. In
each period, our effective tax rate was higher than the federal statutory rate primarily due to state taxes.
Comparison of the Nine Months Ended June 30, 2010 to the Nine Months Ended June 30, 2009
Net Sales.
Net sales increased by $16.2 million, or 13.4%, to $137.2 million for the nine months ended June 30, 2010
from
$121.0 million for the nine months ended June 30, 2009. Net sales of branded
nutritional supplements and other natural products increased by $16.7 million, or 15.3%, to $125.5 million for the nine months ended June 30, 2010 compared to
$108.8 million for the nine months ended June 30, 2009. The increase in net sales of branded nutritional supplements and other natural products was primarily related to the net sales
contributions of the three fiscal 2010 acquisitions and the fiscal 2009 acquisition, and, to a lesser extent, an increase in sales volume of branded products to certain customers. The impact on net
sales of branded products attributable to price changes was not material. Other net sales were $11.7 million for the nine months ended June 30, 2010 compared to $12.2 million for
the nine months ended June 30, 2009.
Gross Profit.
Gross profit increased by $7.8 million, or 12.1%, to $71.8 million for the nine months ended June 30, 2010
from
$64.0 million for the nine months ended June 30, 2009. This increase in gross profit was primarily attributable to the increase in net sales. As a percentage of net sales, gross profit
decreased to 52.3% for the nine months ended June 30, 2010 from 52.9% for the nine months ended June 30, 2009. This decrease in gross profit percentage was primarily attributable to
increased material costs, which were primarily due to vendor price increases and changes in sales mix, partially offset by the increase in net sales which allowed us to better leverage our
manufacturing overhead costs.
Selling, General and Administrative.
Selling, general and administrative expenses increased by $3.2 million, or 6.9%, to
$49.8 million
for the nine months ended June 30, 2010 from $46.6 million for the nine months ended June 30, 2009. This increase in selling, general and administrative expenses was primarily
attributable to operational and transition costs related to the fiscal 2009 and the fiscal 2010 acquisitions. As a percentage of net sales, selling, general and administrative expenses decreased to
36.3% for the nine months ended June 30, 2010 compared to 38.5% for the nine months ended June 30, 2009. This decrease in selling, general and administrative expenses as a percentage of
net sales was primarily attributable to the increase in net sales, which allowed us to better leverage our cost structure.
Amortization of Intangibles.
Amortization of intangibles was $0.9 million for the nine months ended June 30, 2010 and
$0.5 million for the nine months ended June 30, 2009. For each period, amortization expense was primarily related to intangible assets recorded in connection with acquisitions.
17
Table of Contents
Impairment of Goodwill.
During the nine months ended June 30, 2009, we recorded a $37.5 million ($27.3 million after tax,
or
$2.51 per diluted share) non-cash goodwill impairment charge related to our branded and natural food markets reporting units.
Interest and Other (Income) Expense, Net.
Net interest and other (income) expense was $0.4 million for the nine months ended
June 30,
2010 and $1.0 million for the nine months ended June 30, 2009 and primarily consisted of interest expense on indebtedness under our revolving credit facility with the decrease being
primarily related to a reduction in interest rates.
Provision (Benefit) for Income Taxes.
Our effective tax rate was 37.8% for the nine months ended June 30, 2010 and (19.9%) for the
nine months
ended June 30, 2009. During the second quarter of fiscal 2009, we recorded a non-cash goodwill impairment charge of $37.5 million of which $11.0 million related to
non-tax-deductible goodwill and reduced our effective tax rate from 37.2% to (19.9%) for the nine months ended June 30, 2009.
Adjusted EBITDA
Adjusted EBITDA (a non-GAAP measure) is defined in our debt covenants and performance measures as earnings before net
interest and other (income) expense, taxes, depreciation, amortization and goodwill and intangible asset impairment. Adjusted EBITDA has some inherent limitations in measuring operating performance
due to the exclusion of certain financial elements such as depreciation and amortization and is not necessarily comparable to other similarly-titled captions of other companies due to potential
inconsistencies in the method of calculation. Furthermore, Adjusted EBITDA is not intended to be a substitute for cash flows from operating activities, as a measure of liquidity, or an alternative to
net income in determining our operating performance in accordance with generally accepted accounting principles. Our use of an EBITDA-based metric should be considered within the following
context:
-
-
We acknowledge that plant and equipment (while less important in our line of business due to outsourcing alternatives) are
necessary to earn revenue based on our current business model.
-
-
Our use of an EBITDA-based measure of operating performance is not based on any belief about the reasonableness of
excluding depreciation and amortization when measuring financial performance.
-
-
Our use of an EBITDA-based measure is supported by its importance to the following key
stakeholders:
-
-
Analysts
who estimate our projected Adjusted EBITDA and other
EBITDA-based metrics in their independently developed financial models for investors;
-
-
Creditors
who evaluate our operating performance based on
compliance with certain EBITDA-based debt covenants;
-
-
Investment Bankers
who use EBITDA-based metrics in their
written evaluations and comparisons of companies within our industry; and
-
-
Board of Directors and Executive Management
who use
EBITDA-based metrics for evaluating management performance relative to our operating budget and bank covenant compliance, as well as our ability to service debt and raise capital for growth
opportunities, including acquisitions, which are a critical component of our stated strategy. Historically, we have recorded a monthly accrual for incentive compensation as a percentage of Adjusted
EBITDA, which has been paid out to executive management, as well as other employees, upon completion of our annual audit.
18
Table of Contents
The
following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA for each period included herein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
Nine Months
Ended
June 30,
|
|
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
|
|
(dollars in thousands)
|
|
Net income (loss)
|
|
$
|
3,019
|
|
$
|
3,794
|
|
$
|
(17,228
|
)
|
$
|
12,839
|
|
Provision (benefit) for income taxes
|
|
|
1,698
|
|
|
2,332
|
|
|
(4,279
|
)
|
|
7,808
|
|
Interest and other (income) expense, net(1)
|
|
|
177
|
|
|
147
|
|
|
951
|
|
|
403
|
|
Depreciation and amortization
|
|
|
1,683
|
|
|
1,913
|
|
|
4,959
|
|
|
5,440
|
|
Impairment of goodwill(2)
|
|
|
|
|
|
|
|
|
37,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
6,577
|
|
$
|
8,186
|
|
$
|
21,922
|
|
$
|
26,490
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Includes
amortization of deferred financing fees.
-
(2)
-
For
the nine months ended June 30, 2009, a non-cash goodwill impairment charge of $37.5 million was recorded related to our
branded and natural food markets reporting units.
Our
Adjusted EBITDA increased to $8.2 million for the third quarter of fiscal 2010 from $6.6 million for the third quarter of fiscal 2009. Adjusted EBITDA as a percentage
of net sales increased to 18.4% for the third quarter of fiscal 2010 from 16.7% for the third quarter of fiscal 2009.
Our
Adjusted EBITDA increased to $26.5 million for the nine months ended June 30, 2010 from $21.9 million for the nine months ended June 30, 2009. Adjusted
EBITDA as a percentage of net sales increased to 19.3% for the nine months ended June 30, 2010 from 18.1% for the nine months ended June 30, 2009.
Seasonality
We believe that our business is characterized by minor seasonality. However, sales to any particular customer or sales of any
particular product can vary substantially from
one quarter to the next based on such factors as industry trends, timing of promotional discounts, domestic and international economic conditions and acquisition-related activities. Excluding the
effect of acquisitions, we have historically recorded higher branded products sales volume during the second fiscal quarter (January thru March) due to increased interest in health-related products
among consumers following the holiday season.
Liquidity and Capital Resources
We had working capital of $39.7 million as of June 30, 2010 compared to $32.4 million as of September 30,
2009. This increase in working capital was primarily the result of an increase in inventories and a decrease in accrued expenses partially offset by a decrease in cash and an increase in accounts
payable.
Net
cash provided by operating activities for the nine months ended June 30, 2010 was $13.3 million compared to $17.2 million for the comparable period in fiscal
2009. This decrease in net cash provided by operating activities for the nine months ended June 30, 2010 was primarily attributable to changes in assets and liabilities, net of effects of
acquisitions.
Net
cash used in investing activities was $23.3 million for the nine months ended June 30, 2010 compared to $7.4 million for the comparable period in fiscal 2009.
Our investing activities during these periods consisted of acquisitions of businesses and capital expenditures primarily related to building improvements related to facility consolidation efforts,
distribution and manufacturing equipment and
19
Table of Contents
information
systems. Also, on December 11, 2009, we purchased a facility for $2.8 million in cash to expand our Rapid Response Center in Ogden, Utah. This facility is adjacent to our
existing facilities and will provide us approximately 105,000 square feet of additional gross building space located on 5.4 acres.
During
the nine months ended June 30, 2010, we acquired three businesses for $13.1 million in cash. On October 9, 2009, we acquired selected assets of Nutritional
Specialties, Inc., on December 18, 2009, we acquired selected assets of Organix-South, Inc. and on April 15, 2010, we acquired selected assets of Honey Gardens
Apiaries, Inc. and Apitherapy, LLC. We did not acquire any businesses during the nine months ended June 30, 2009.
Net
cash provided by financing activities was $8.8 million for the nine months ended June 30, 2010 compared to net cash used in financing activities of $9.0 million
for the comparable period in fiscal
2009. During these periods, financing activities primarily related to borrowings and repayments under our revolving credit facility, purchases of common stock for treasury and proceeds from the
issuance of common stock related to stock option exercises and the direct stock purchase plan.
In
October 2007, we registered a direct stock purchase plan with the Securities and Exchange Commission. The purpose of this direct stock purchase plan is to provide a convenient way for
existing stockholders, as well as new investors, to purchase shares of our common stock. A total of 1,500,000 shares of our common stock were registered under the plan with 30,916 shares purchased
during the nine months ended June 30, 2010. As of June 30, 2010, there were 1,433,060 shares of common stock available for purchase.
Our
current revolving credit facility has available credit borrowings of $60.0 million with no automatic reductions and provides an accordion feature that can increase the
available credit borrowings to $90.0 million, subject to approval by the lenders and compliance with certain covenants and conditions.
At
June 30, 2010, we had outstanding revolving credit borrowings of $29.5 million. Borrowings under the revolving credit facility are collateralized by substantially all of
our assets. At our election, borrowings under the revolving credit facility bear interest at the applicable Eurodollar Rate plus a variable margin or at a base rate, which is the higher of the Federal
Funds Rate plus 0.5% or the Prime Lending Rate, plus a variable margin. At June 30, 2010, the applicable weighted-average interest rate for outstanding borrowings was 1.18%. We are also
required to pay a variable quarterly fee on the unused balance under the revolving credit facility. At June 30, 2010, the applicable rate was 0.18%. Accrued interest on Eurodollar Rate
borrowings is payable based on elected intervals of one, two or three months. Accrued interest on base rate borrowings is payable quarterly. The revolving credit facility matures on
September 7, 2011, and we are required to repay all principal and interest outstanding under the revolving credit facility on such date.
The
revolving credit facility contains restrictive covenants, including limitations on incurring certain other indebtedness and requirements that we maintain certain financial ratios. As
of June 30, 2010, we were in compliance with the restrictive covenants. Upon the occurrence of a default, the lender has various remedies or rights, which may include proceeding against the
collateral or requiring us to repay all amounts outstanding under the revolving credit facility.
In
the current volatile credit market, there is risk that any lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal
commitments and obligations under existing credit commitments, including but not limited to: extending credit up to the maximum permitted by a credit facility, allowing access to additional credit
features and otherwise accessing capital and/or honoring loan commitments. The lenders under our credit facility are Rabobank International and Wells Fargo. If our lenders failed to honor their legal
commitments under our credit facility, it could be difficult in this environment to replace our credit facility on similar terms.
20
Table of Contents
To
date, we have not experienced any difficulties in accessing the available funds under our credit facility.
A
key component of our business strategy is to seek to make additional acquisitions, which may require that we obtain additional financing, which could include the incurrence of
substantial additional indebtedness or the issuance of additional stock. We believe that borrowings under our current revolving credit facility or a replacement credit facility, together with cash
flows from operations, will be sufficient to make required payments under the current credit facility or any such replacement facility, and to make anticipated capital expenditures and fund working
capital needs for the next twelve months.
Contractual Obligations and Other Commitments
Our significant non-cancelable contractual obligations and other commitments as of June 30, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
Contractual Obligations and Other Commitments
|
|
Total
|
|
Less Than
1 Year
|
|
1 - 3
Years
|
|
4 - 5
Years
|
|
After
5 Years
|
|
|
|
(dollars in thousands)
|
|
Revolving credit facility
|
|
$
|
29,500
|
|
$
|
|
|
$
|
29,500
|
|
$
|
|
|
$
|
|
|
Interest on revolving credit facility(a)
|
|
|
518
|
|
|
431
|
|
|
87
|
|
|
|
|
|
|
|
Operating leases
|
|
|
4,573
|
|
|
3,016
|
|
|
1,361
|
|
|
162
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,591
|
|
$
|
3,447
|
|
$
|
30,948
|
|
$
|
162
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Represents
estimated interest obligations associated with our outstanding revolving credit facility balance of $29.5 million at June 30, 2010,
assuming no principal payments are made before maturity, a weighted-average interest rate of 1.18% and an underutilization fee rate of 0.18%.
Inflation
Inflation affects the cost of raw materials, goods and services used by us. In recent years, inflation has been modest. The competitive
environment somewhat limits our ability to recover higher costs resulting from inflation by raising prices. We seek to mitigate the adverse effects of inflation primarily through improved productivity
and cost containment programs. We do not believe that inflation has had a material impact on our results of operations for the periods presented, except with respect to increased costs in
manufacturing, packaging and distribution resulting from increased fuel and other petrochemical costs, as well as payroll-related costs, insurance premiums and other costs arising from or related to
government imposed regulations.
Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995 with respect to our financial condition, results of operations and business. These forward-looking statements can be identified by the use of terms such as "believe," "expects," "plan,"
"intend," "may," "will," "should," "can," or "anticipates," or the negative thereof, or variations thereon, or comparable terminology, or by discussions of strategy. These statements involve known and
unknown risks, uncertainties and other factors that may cause industry trends or our actual results to be materially different from any future results expressed or implied by these statements.
Important factors that may cause our results to differ from these forward-looking statements include, but are not limited to: (i) changes in or new government regulations or increased
enforcement of the same, (ii) unavailability of desirable acquisitions or inability to complete them, (iii) increased costs, including from increased raw material or energy prices,
(iv) changes in general worldwide economic or
21
Table of Contents
political
conditions, (v) adverse publicity or negative consumer perception regarding nutritional supplements, (vi) issues with obtaining raw materials of adequate quality or quantity,
(vii) litigation and claims, including product liability, intellectual property and other types, (viii) disruptions from or following acquisitions including the loss of customers,
(ix) increased competition, (x) slow or negative growth in the nutritional supplement industry or the healthy foods channel, (xi) the loss of key personnel or the inability to
manage our operations efficiently, (xii) problems with information management systems, manufacturing efficiencies and operations, (xiii) insurance coverage issues, (xiv) the
volatility of the stock market generally and of our stock specifically, (xv) increases in the cost of borrowings or unavailability of additional debt or equity capital, or both, or fluctuations
in foreign currencies, and (xvi) interruption of business or negative impact on sales and earnings due to acts of God, acts of war, terrorism, bio-terrorism, civil unrest and other
factors outside of our control.
We
undertake no obligation to update or revise publicly any forward-looking statements to reflect new information, events or circumstances occurring after the date of this
Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
At our election, borrowings under our revolving credit facility bear interest at the applicable Eurodollar Rate plus a variable margin
or at a base rate, which is the higher
of the Federal Funds Rate plus 0.5% or the Prime Lending Rate, plus a variable margin. At June 30, 2010, the applicable weighted-average interest rate for borrowings was 1.18% and we had total
borrowings outstanding of $29.5 million.
With
respect to our international operations, we are subject to currency fluctuations; however, we do not believe that these fluctuations would have a material adverse impact on our
financial position because the majority of our net sales to foreign countries are transacted in U.S. dollars. Net sales to foreign countries not transacted in U.S. dollars include sales to customers
in Norway, Sweden, the U.K., the Netherlands and Japan. To date, we have not hedged any of our potential foreign currency exposures.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that
information
required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and
that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow for timely decisions regarding
required disclosure.
In
designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and we are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As
required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision of and with the participation of our management, including our principal
executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the
foregoing, our principal executive and principal financial officers 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 that
occurred during the
last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
22
Table of Contents
PART IIOTHER INFORMATION
Item 1. Legal Proceedings
As discussed in our other filings, we are subject to regulation by a number of federal, state and foreign agencies and are involved in
various legal matters arising in the normal course of business.
We
carry insurance coverage in the types and amounts that we consider reasonably adequate to cover the risks we face in the industry in which we compete.
In
our opinion, the outcomes of individual regulatory and legal matters in which we are presently involved are not probable and no estimate can be made of the range of potential gains or
losses. While incapable of estimation, in the opinion of management, the individual regulatory and legal matters in which we are involved are not expected to have a material adverse effect on our
consolidated financial position, results of operations or cash flows.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in our 2009 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell any unregistered equity securities during the period covered by this Form 10-Q for the Quarterly
Period Ended June 30, 2010.
Prior
to fiscal 2009, our Board of Directors approved a share purchase program authorizing us to buy up to 2,500,000 shares of our common stock. During the year ended
September 30, 2009, our Board of Directors approved the addition of 1,000,000 shares to our previously approved share purchase program. As of June 30, 2010, there were 967,731 shares
available for purchase under this program. The shares available for purchase under this program have no expiration date. There were no purchases under this program during the three months ended
June 30, 2010.
Item 6. Exhibits
|
|
|
31.1
|
|
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
|
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
23
Table of Contents
SIGNATURE
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.
|
|
|
|
|
|
|
NUTRACEUTICAL INTERNATIONAL CORPORATION
(Registrant)
|
Date: July 29, 2010
|
|
By:
|
|
/s/ CORY J. MCQUEEN
Cory J. McQueen
Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer and Duly Authorized Officer)
|
24
Nutraceutical International Corp. (MM) (NASDAQ:NUTR)
Historical Stock Chart
From Jun 2024 to Jul 2024
Nutraceutical International Corp. (MM) (NASDAQ:NUTR)
Historical Stock Chart
From Jul 2023 to Jul 2024