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, ~~2016~~2017

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, 2nd Floor, Park City, Utah (Address of principal executive offices)		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 x 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 x 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, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated ~~filer"~~filer," "smaller reporting company," and ~~"smaller reporting~~"emerging growth company" in Rule 12b-2 of the Exchange Act:



Large accelerated filer o	Accelerated filer x	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 x

At July 26, ~~2016,~~2017, the registrant had ~~9,215,236~~9,246,999 shares of common stock outstanding.

NUTRACEUTICAL INTERNATIONAL CORPORATION

INDEX



Description			Page
Part I .	Financial Information		3

	Item 1.	Financial Statements (unaudited)	3

		Condensed Consolidated Balance Sheets—June 30, ~~2016~~2017 and September 30, ~~2015~~2016	3

		Condensed Consolidated Statements of Comprehensive Income—Three Months and Nine Months Ended June 30, ~~2016~~2017 and ~~2015~~2016	4

		Condensed Consolidated Statements of Cash Flows—Nine Months Ended June 30, ~~2016~~2017 and ~~2015~~2016	5

		Condensed Consolidated Statement of Stockholders' Equity--Nine Months Ended June 30, 2017	6

		Notes to Condensed Consolidated Financial Statements	67

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1416

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2123

	Item 4.	Controls and Procedures	2124

Part II .	Other Information		2325

	Item 1.	Legal Proceedings	2325

	Item 1A.	Risk Factors	2325

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2325

	Item 6.	Exhibits	2426

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

NUTRACEUTICAL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands)


	June 30, 2016			September 30, 2015 (1)			June 30, 2017			September 30, 2016 (1)
ASSETS
Current assets:
Cash	$	3,573		$	4,615		$	4,183		$	6,803
Accounts receivable, net	20,577			16,798			20,993			17,680
Inventories	63,945			59,440			68,558			63,923
Prepaid expenses and other current assets	3,413			4,195			6,085			4,217
Deferred income taxes	1,233			1,167			1,250			1,243
Total current assets	92,741			86,215			101,069			93,866

Property, plant and equipment, net	83,399			77,645			82,184			83,048
Goodwill	30,925			24,384			38,582			30,925
Intangible assets, net	23,190			17,605			28,262			22,277
Deferred income taxes	4,758			4,932			5,037			4,310
Other non-current assets	1,582			1,668			1,324			1,429
Total assets	$	236,595		$	212,449		$	256,458		$	235,855
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	14,098		$	14,023		$	16,372		$	12,696
Accrued expenses	7,117			6,505			6,599			7,469
Total current liabilities	21,215			20,528			22,971			20,165

Long-term debt	46,000			31,500			50,500			43,500
Other non-current liabilities	192			174			750			200
Total liabilities	67,407			52,202			74,221			63,865
Stockholders' equity:
Common stock	93			95			93			92
Additional paid-in capital	1,250			6,961			2,146			52
Retained earnings	168,506			153,618			180,485			172,276
Accumulated other comprehensive income	(514		)	(379		)
Treasury stock	(147		)	(48		)
Accumulated other comprehensive loss							(487		)	(430		)
Total stockholders' equity	169,188			160,247			182,237			171,990
Total liabilities and stockholders' equity	$	236,595		$	212,449		$	256,458		$	235,855

___________________


(1)	The condensed consolidated balance sheet as of September 30, ~~2015~~2016 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.

NUTRACEUTICAL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands, except per share data)


	Three Months Ended June 30,					Nine Months Ended June 30,						Three Months Ended June 30,					Nine Months Ended June 30,
	2016			2015		2016			2015			2017		2016			2017			2016
Net sales	$	60,836		$	54,382	$	176,287		$	162,830		$	64,993	$	60,836		$	182,827		$	176,287
Cost of sales	29,416			27,955		86,430			83,293			31,600		29,416			89,419			86,430
Gross profit	31,420			26,427		89,857			79,537			33,393		31,420			93,408			89,857
Operating expenses
Selling, general and administrative	21,895			19,061		64,016			58,404			25,261		21,895			69,317			64,016
Transaction costs related to merger agreement (Note 11)												2,556		—			2,766			—
Amortization of intangible assets	988			729		2,968			2,189			1,357		988			3,183			2,968
Income from operations	8,537			6,637		22,873			18,944			4,219		8,537			18,142			22,873
Interest and other expense, net	326			257		922			827			380		326			1,022			922
Income before provision for income taxes	8,211			6,380		21,951			18,117			3,839		8,211			17,120			21,951
Provision for income taxes	2,182			1,930		7,063			6,220			1,982		2,182			6,600			7,063
Net income	$	6,029		$	4,450	$	14,888		$	11,897		$	1,857	$	6,029		$	10,520		$	14,888
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax	(118		)	112		(135		)	(218		)	82		(118		)	(57		)	(135		)
Comprehensive income	$	5,911		$	4,562	$	14,753		$	11,679		$	1,939	$	5,911		$	10,463		$	14,753
Net income per common share
Basic	$	0.65		$	0.47	$	1.59		$	1.24		$	0.20	$	0.65		$	1.14		$	1.59
Diluted	0.65			0.47		1.59			1.24			0.20		0.65			1.14			1.59
Weighted average common shares outstanding
Basic	9,310,097			9,561,008		9,390,765			9,612,171			9,246,902		9,310,097			9,235,063			9,390,765
Dilutive effect of stock options	—			2,991		—			4,920
Dilutive effect of equity awards												10,648		—			3,549			—
Diluted	9,310,097			9,563,999		9,390,765			9,617,091			9,257,550		9,310,097			9,238,612			9,390,765

Cash dividends declared per common share												$	—	$	—		$	0.25		$	—

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

NUTRACEUTICAL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)


	Nine Months Ended June 30,						Nine Months Ended June 30,
	2016			2015			2017			2016
Cash flows from operating activities:
Net income	$	14,888		$	11,897		$	10,520		$	14,888
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,599			9,702			10,905			10,599
Amortization of deferred financing fees	94			99			94			94
Losses on disposals of property, plant and equipment	9			9			10			9
Tax benefit from stock option exercises	—			(55		)
Stock-based compensation							669			—
Bad debt							45			45
Inventory obsolescence							1,544			1,722
Deferred income taxes	108			925			(734		)	108
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net	(2,439		)	964			(3,440		)	(2,484		)
Inventories	(1,683		)	(1,340		)	(3,759		)	(3,405		)
Prepaid expenses and other current assets	1,196			605			(1,232		)	1,196
Other non-current assets	(91		)	(107		)	(58		)	(91		)
Accounts payable	(277		)	(761		)	3,283			(277		)
Accrued expenses	1,037			(774		)	(713		)	1,037
Other non-current liabilities	18			19			(260		)	18
Net cash provided by operating activities	23,459			21,183			16,874			23,459
Cash flows from investing activities:
Purchases of property, plant and equipment	(6,394		)	(6,523		)	(6,475		)	(6,394		)
Acquisitions of businesses	(26,235		)	(1,266		)	(17,730		)	(26,235		)
Net cash used in investing activities	(32,629		)	(7,789		)	(24,205		)	(32,629		)
Cash flows from financing activities:
Proceeds from debt	27,000			2,500			20,500			27,000
Payments on debt	(12,500		)	(13,500		)	(13,500		)	(12,500		)
Payments of deferred financing fees	—			(420		)
Proceeds from issuances of common stock	60			432			56			60
Purchases of common stock for treasury	(6,428		)	(3,618		)	—			(6,428		)
Tax benefit from stock option exercises	—			55
Net cash provided by (used in) financing activities	8,132			(14,551		)
Dividends paid on common stock							(2,311		)	—
Net cash provided by financing activities							4,745			8,132
Effect of exchange rate changes on cash	(4		)	(173		)	(34		)	(4		)
Net decrease in cash	(1,042		)	(1,330		)	(2,620		)	(1,042		)
Cash at beginning of period	4,615			6,232			6,803			4,615
Cash at end of period	$	3,573		$	4,902		$	4,183		$	3,573

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

NUTRACEUTICAL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(unaudited)

(dollars in thousands)



	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
	Shares	Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance at September 30, 2016	9,203,790	$	92	$	52		$	172,276		$	(430	)	$	171,990
Net income	—	—		—			10,520			—			10,520
Other comprehensive loss	—	—		—			—			(57		)	(57		)
Issuances of common stock	1,760	—		56			—			—			56
Equity compensation payments	41,449	1		1,429			—			—			1,430
Stock-based compensation expense	—	—		669			—			—			669
Other	—	—		(60		)	—			—			(60		)
Dividends paid on common stock	—	—		—			(2,311		)	—			(2,311		)
Balance at June 30, 2017	9,246,999	$	93	$	2,146		$	180,485		$	(487	)	$	182,237

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

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 provide 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®, Dynamic ~~Health™~~Health®, Nature's Life®, LifeTime®, Natural Balance®, NaturalCare®, Health from the Sun®, Zhou Nutrition®, Pioneer®, Nutra ~~BioGenesis™~~BioGenesis®, Life-flo®, Organix South®, Heritage Store® and Monarch ~~Nutraceuticals™~~Nutraceuticals®.

The Company owns neighborhood natural food markets, which operate under the trade names The Real Food Company™, Thom's Natural Foods™, Cornucopia Community Market™ and ~~Granola's™~~Granola's®. The Company also owns health food stores, which operate under ~~various~~the trade ~~names, including~~name Fresh ~~Vitamins™~~ ~~and~~ ~~Peachtree Natural Foods~~Vitamins®.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all necessary adjustments, consisting of normal recurring adjustments, to state fairly the consolidated financial position of the Company as of June 30, ~~2016,~~2017, the results of its operations for the three and nine months ended June 30, ~~2016~~2017 and ~~2015~~2016 and its cash flows for the nine months ended June 30, ~~2016~~2017 and ~~2015,~~2016, in conformity with accounting principles generally accepted in the United States of America ("US GAAP") for interim financial information applied on a consistent basis. Results for the three and nine months ended June 30, ~~2016~~2017 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 US GAAP 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, ~~2015,~~2016, which was filed with the Securities and Exchange Commission on November ~~19, 2015.~~17, 2016.

Use of Estimates

The preparation of these financial statements in conformity with US GAAP 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, valuation adjustments for slow-moving, obsolete and/or damaged inventory, ~~and~~ valuation and recoverability of long-lived ~~assets.~~assets and valuation of performance-based equity awards. Actual results may differ from these estimates.

New Accounting Standards

In ~~February 2016,~~January 2017, the Financial Accounting Standards Board ("FASB") issued authoritative guidance, which is included in Accounting Standards Codification ("ASC") 805, "Business Combinations." This guidance clarifies the definition of a business, which assists a company with evaluating whether a transaction should be accounted for as an acquisition (or disposal) of an asset or a business. This guidance is effective for the Company as of October 1,

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

2018. The Company is currently evaluating the impact this standard may have on its consolidated financial statements.

In January 2017, the FASB issued authoritative guidance, which is included in ASC 350, "Intangibles--Goodwill and Other." This guidance simplifies the test for goodwill impairment by eliminating Step 2 from the test. This guidance is effective for the Company as of October 1, 2020. The Company is currently evaluating the impact this standard may have on its consolidated financial statements.

In March 2016, the FASB issued authoritative guidance, which is included in ASC 718, "Compensation--Stock Compensation." This guidance simplifies the accounting for share-based payments, including the income tax consequences. This guidance is effective for the Company as of October 1, 2017. The Company is currently evaluating the impact this standard may have on its consolidated financial statements.

In February 2016, the FASB issued authoritative guidance, which is included in ASC 842, "Leases." This guidance requires lessees to recognize most leases on the balance sheet by recording a right-of-use asset and a lease liability. This guidance is effective

~~NUTRACEUTICAL INTERNATIONAL CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~(dollars in thousands, except per share data)~~

for the Company as of October 1, 2019. The Company is currently evaluating the impact this standard may have on its consolidated financial statements.

In November 2015, the FASB issued authoritative guidance, which is included in ASC 740, "Income Taxes." This guidance simplifies the presentation of deferred income taxes and requires that deferred tax assets and liabilities be classified as noncurrent in the classified statement of financial position. This guidance is effective for the Company as of October 1, 2017 and is not expected to have a material impact on ~~the~~its consolidated financial statements as the guidance only changes the classification of deferred income taxes.

~~In September 2015, the FASB issued authoritative guidance, which is included in ASC 805, "Business Combinations~~." This guidance simplifies the accounting for measurement-period adjustments and is effective for the Company as of October 1, 2016. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In July 2015, the FASB issued authoritative guidance, which is included in ASC 330, "Inventory." This guidance simplifies the accounting for measuring inventory at the lower of cost and net realizable value and is effective for the Company as of October 1, 2017. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In May 2014, the FASB issued authoritative guidance, which is included in ASC 606, "Revenue from Contracts with Customers." This guidance provides a single, comprehensive revenue recognition model for all contracts with customers and requires that a company recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In July 2015, the FASB delayed the effective date of this guidance by one year. As a result, this guidance is effective for the Company as of October 1, 2018 and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact this standard may have on its consolidated financial statements.

The Company periodically reviews new accounting standards that are issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified any other new standards that it believes merit further discussion, and the Company expects that none would have a significant impact on its consolidated financial statements.

~~2. ACCOUNTS RECEIVABLE~~

~~Accounts receivable, net of allowances for sales returns and doubtful accounts, consisted of the following:~~

June 30,
2016 September 30,
2015
Accounts receivable $ 21,608
$ 17,882
Less allowances (1,031 ) (1,084 )
$ 20,577
$ 16,798

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

2. ACCOUNTS RECEIVABLE

Accounts receivable, net of allowances for sales returns and doubtful accounts, consisted of the following:



	June 30, 2017			September 30, 2016
Accounts receivable	$	22,040		$	18,732
Less allowances	(1,047		)	(1,052		)
	$	20,993		$	17,680

3. INVENTORIES

Inventories were comprised of the following:


	June 30, 2016		September 30, 2015		June 30, 2017		September 30, 2016
Raw materials	$	27,665	$	23,106	$	30,501	$	25,792
Work-in-process	12,021		9,755		15,200		11,711
Finished goods	24,259		26,579		22,857		26,420
	$	63,945	$	59,440	$	68,558	$	63,923

4. ACQUISITIONS

During the nine months ended June 30, 2017, the Company made one acquisition of a business. On April 6, 2017, the Company acquired certain operating assets associated with the Zhou Nutrition brand from Branson Books, LLC for $19,730, of which $17,730 was paid in cash at the closing date with the remaining $2,000 to be paid in cash over a two-year period from the closing date. During the nine months ended June 30, 2016, the Company made two acquisitions of businesses. On October 6, 2015, the Company acquired certain operating assets of Dynamic Health Laboratories, Inc. ("Dynamic Health"). On February 18, 2016, the Company acquired certain operating assets of Aubrey Organics, Inc. ("Aubrey Organics"). The aggregate purchase price of these acquisitions was $26,235 ~~in cash.~~

During the nine months ended June 30, 2015, the Company made two acquisitions of businesses. On November 18, 2014, the Company acquired certain operating assets of Agape Health Products. On June 4, 2015, the Company acquired certain operating assets of ProClay, LLC. The aggregate purchase price of these acquisitions was $1,266 in cash.

These acquisitions are in keeping with the Company's business strategy of consolidating the fragmented industry in which it competes. These acquisitions were accounted for using the acquisition method of accounting. Accordingly, the purchase price was assigned to the assets acquired based on their fair values at their respective dates of acquisition. The excess of purchase price over the fair values of the assets acquired was classified as goodwill. The goodwill relates to expected synergies from these acquisitions. The following reflects the preliminary allocation of the purchase ~~prices~~price for the fiscal ~~2016 acquisitions~~2017 acquisition and the final allocation of the aggregate purchase prices for the fiscal ~~2015~~2016 acquisitions to the assets acquired:

Fiscal 2016 Acquisition - Dynamic Health Fiscal 2016 Acquisition - Aubrey Organics Fiscal 2015 Acquisitions
Assets acquired:

Current assets $ 3,821
$ 755
$ 111
Property, plant and equipment 644
6,004
—
Goodwill 6,541
—
762
Intangible assets 8,020
450
393
$ 19,026
$ 7,209
$ 1,266

The fiscal 2016 and fiscal 2015 acquired intangible assets totaling $8,470 and $393, respectively, related to trademarks, tradenames and customer relationships, and are being amortized over periods of six to fifteen years for financial statement purposes. The fiscal 2016 and fiscal 2015 acquired intangible assets are expected to be deductible for tax purposes over fifteen years. Goodwill of $6,541 for fiscal 2016 and $762 for fiscal 2015 is not subject to amortization for financial statement purposes and is expected to be deductible for tax purposes over fifteen years.



	Fiscal 2017 Acquisition		Fiscal 2016 Acquisitions
Aggregate assets acquired:
Current assets	$	2,973	$	4,576
Property, plant and equipment	—		6,648
Goodwill	7,657		6,541
Intangible assets	9,100		8,470
	$	19,730	$	26,235

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

The fiscal 2017 and fiscal 2016 acquired intangible assets totaling $9,100 and $8,470, respectively, related to trademarks, tradenames, customer relationships and a non-compete agreement and are being amortized over periods of four to fifteen years for financial statement purposes. The fiscal 2017 and fiscal 2016 acquired intangible assets are expected to be deductible for tax purposes over fifteen years. Goodwill of $7,657 for fiscal 2017 and $6,541 for fiscal 2016 is not subject to amortization for financial statement purposes and is expected to be deductible for tax purposes over fifteen years.

The Condensed Consolidated Statements of Comprehensive Income 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.

Since the date of acquisition ~~(October~~(April 6, ~~2015)~~2017), net sales of ~~$13,338~~$7,306 and gross profit of ~~$5,190~~$4,297 for ~~Dynamic Health~~Zhou Nutrition were included in the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, ~~2016.~~2017. The Company tracks selling, general and administrative expenses on a consolidated basis, not on a brand-by-brand basis. As a result, the disclosure of any results after gross profit is impracticable. The following table provides unaudited pro forma information for the three and nine months ended June 30, ~~2015,~~2017 and 2016, as if the acquisition of ~~Dynamic Health~~Zhou Nutrition had been completed on October 1, 2014. Pro forma information was not provided for the three and nine months ended June 30, 2016 since the acquisition was completed near the beginning of these periods and the pro forma results are not materially different than actual results.2015. The information has been provided for illustrative purposes only and is not necessarily indicative of the actual results that would have been achieved by the Company for the periods presented or that will be achieved in the future. The pro forma information has been adjusted to give effect to items directly attributable to the ~~Dynamic Health~~Zhou Nutrition acquisition. These adjustments include ~~acquisition costs,~~cost of goods sold associated with the write up of inventory to fair value, commission expense associated with growth incentives, amortization expense associated with acquired intangible assets, interest expense associated with borrowings on the Company's revolving credit facility to fund the acquisition ~~application of the Company's depreciable lives policy for property, plant and equipment, elimination of intercompany transactions~~ and any consequential tax effects.


					Three Months Ended June 30,				Nine Months Ended June 30,
	Three Months Ended June 30, 2015		Nine Months Ended June 30, 2015		2017		2016		2017		2016
Net sales	$	58,708	$	176,299	$	65,420	$	62,673	$	194,169	$	180,985
Net income	$	4,392	$	11,972	2,733		4,850		12,143		13,561

This information has not been adjusted to reflect any changes in the operations of the business subsequent to acquisition. Changes in the operations of the acquired business may include, but are not limited to, discontinuation of certain ~~customers and/or~~ products, ~~application of the Company's pricing and credit policies,~~ integration of systems and personnel, changes in manufacturing processes ~~relocation of facilities,~~and potential cost ~~synergies and changes in marketing and sales programs.~~synergies. Due to these changes, future results could be materially different than the pro forma information provided.

~~The actual~~Pro forma information was not provided for Dynamic Health for the three and nine months ended June 30, 2016 since the acquisition was completed near the beginning of these periods and the pro forma ~~net sales and earnings~~results are not materially different than actual results. Pro forma information related to the Aubrey Organics acquisition ~~were~~was not material.

~~5. GOODWILL AND INTANGIBLE ASSETS~~

~~The change in the carrying amount of goodwill from September 30, 2015 to June 30, 2016 was as follows:~~

Goodwill
Accumulated
Impairment
Net
Balance as of September 30, 2015 $ 64,778
$ (40,394 ) $ 24,384
Goodwill attributable to fiscal 2016 acquisitions 6,541
—
6,541
Balance as of June 30, 2016 $ 71,319
$ (40,394 ) $ 30,925

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

5. GOODWILL AND INTANGIBLE ASSETS

The change in the carrying amount of goodwill from September 30, 2016 to June 30, 2017 was as follows:



	Goodwill		Accumulated Impairment			Net
Balance as of September 30, 2016	$	71,319	$	(40,394	)	$	30,925
Goodwill attributable to fiscal 2017 acquisition	7,657		—			7,657
Balance as of June 30, 2017	$	78,976	$	(40,394	)	$	38,582

The carrying amounts of intangible assets at June 30, ~~2016~~2017 and September 30, ~~2015~~2016 were as follows:

June 30, 2016 September 30, 2015
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/tradenames/licenses $ 13,923
$ (2,895 ) $ 11,028
$ 12,470
$ (1,966 ) $ 10,504
11
Customer relationships/non-compete agreements 23,867
(11,705 ) 12,162
16,836
(9,773 ) 7,063
7
Developed software and technology 772
(772 ) —
772
(772 ) —
5
38,562
(15,372 ) 23,190
30,078
(12,511 ) 17,567

Intangible assets not subject to amortization:

Licenses —
—
—
38
—
38

$ 38,562
$ (15,372 ) $ 23,190
$ 30,116
$ (12,511 ) $ 17,605



	June 30, 2017							September 30, 2016							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		Weighted- Average Amortization Period (Years)
Intangible assets subject to amortization:
Trademarks/tradenames	$	15,590	$	(4,134	)	$	11,456	$	13,904	$	(3,137	)	$	10,767	10
Customer relationships/non-compete agreements/licenses	31,118		(14,312		)	16,806		23,867		(12,357		)	11,510		7
Developed software and technology	772		(772		)	—		772		(772		)	—		5
	$	47,480	$	(19,218	)	$	28,262	$	38,543	$	(16,266	)	$	22,277

______________________

(1) Amounts include the impact of foreign currency translation adjustments.

Estimated future amortization expense related to the June 30, ~~2016~~2017 net carrying amount of ~~$23,190~~$28,262 for intangible assets subject to amortization is as follows:


Year Ending September 30,	Estimated Amortization Expense		Estimated Amortization Expense
2016(1)	$	959
2017	3,588
2017(1)			$	1,346
2018	3,398		5,268
2019	2,970		4,840
2020	2,881		4,752
2021			4,265
Thereafter	9,394		7,791
	$	23,190	$	28,262

_________________________


(1)	Estimated amortization expense for the year ending September 30, ~~2016~~2017 includes only amortization to be recorded after June 30, ~~2016.~~2017.

General and economic conditions may 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

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

and/or stock price and could result in goodwill and/or intangible asset impairment charges being recorded in future periods. Also, the Company periodically reviews its brands to achieve marketing, sales and operational synergies. These reviews could result in brands being consolidated or discontinued and could result in intangible asset impairment charges being recorded in future periods. Goodwill and/or intangible asset impairment charges could materially impact the Company's consolidated financial statements. The valuation of goodwill and intangible assets is subject to a high degree of judgment, uncertainty and complexity.

~~NUTRACEUTICAL INTERNATIONAL CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~(dollars in thousands, except per share data)~~

6. DEBT

Debt was comprised of the following:

June 30,
2016 September 30,
2015
Long-term debt—revolving credit facility $ 46,000
$ 31,500



	June 30, 2017		September 30, 2016
Long-term debt—revolving credit facility	$	50,500	$	43,500

The carrying value of the Company's debt approximates fair value at June 30, ~~2016~~2017 and September 30, ~~2015.~~2016. Estimated fair values for debt have been determined based on borrowing rates currently available to the Company for bank loans with similar terms and maturities and are classified as Level 2 (significant observable inputs other than quoted prices) in the FASB's fair value hierarchy.

On November 4, 2014, the Company amended its revolving credit facility (the "Credit Agreement"). The Credit Agreement extends the term of the credit facility to November 2019, increases the available credit borrowings to $100,000 with no automatic reductions and provides an accordion feature that can increase the available credit borrowings to $130,000, subject to approval by the lenders and compliance with certain covenants and conditions. The lenders under the Credit Agreement continue to be Rabobank International and Wells Fargo. To date, the Company has not experienced any difficulties in accessing the available funds under the Credit Agreement. Deferred financing fees of $420 related to the Credit Agreement are being amortized over the term of the Credit Agreement.

At June 30, ~~2016,~~2017, the Company had outstanding revolving credit borrowings of ~~$46,000~~$50,500 under the Credit Agreement. Borrowings under the Credit Agreement 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 plus a variable margin. Base Rate is the higher of: (i) the Prime Lending Rate, (ii) the Federal Funds Rate plus 0.5% or (iii) the one-month Eurodollar Rate multiplied by the Statutory Reserve Rate plus 1.0% (capitalized terms are defined in the Credit Agreement, a copy of which was filed with the Securities and Exchange Commission on November 5, 2014). At June 30, ~~2016,~~2017, the applicable weighted-average interest rate for outstanding borrowings was ~~2.13%~~2.42%. The Company is also required to pay a variable quarterly fee on the unused balance under the Credit Agreement. At June 30, ~~2016,~~2017, the applicable rate was 0.25%. 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 Credit Agreement matures on November 4, 2019, and the Company is required to repay all principal and interest outstanding under the Credit Agreement on such date.

The Credit Agreement contains restrictive covenants, including limitations on incurring other indebtedness and requirements that the Company maintain certain financial ratios. As of June 30, ~~2016,~~2017, the Company was 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 the Company to repay all amounts outstanding under the Credit Agreement.

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

7. SHARE PURCHASES

During the three and nine months ended June 30, 2017, the Company did not purchase or retire any shares of common stock. During the three and nine months ended June 30, 2016, the Company purchased 119,521 and 265,461 shares of common stock for an aggregate price of $2,862 and $6,428, respectively. ~~During the three and nine months ended June 30, 2015, the Company purchased 63,276 and 180,301 shares of common stock for an aggregate price of $1,266 and $3,618, respectively.~~ All of these shares of common stock held in treasury were retired prior to June 30, 2016 except for 6,211 shares, which were subsequently retired in ~~the respective quarter of purchase, except at June 30, 2016 and 2015, the Company held 6,211 and 1,000 shares of common stock in treasury.~~September 2016. As of June 30, ~~2016,~~2017, the Company was permitted to purchase up to ~~215,800~~1,171,170 additional shares under its approved purchase plan, with no expiration date or restrictions. The Company accounts for treasury shares using the cost method.

8. ~~STOCK OPTIONS AND OTHER~~ EQUITY AWARDS

~~As of June 30, 2016, the Company had no outstanding options to purchase shares of common stock, as all previously issued options were exercised or expired prior to September 30, 2015.~~

During the nine months ended June 30, 2015, the Company received proceeds of $356 related to the exercise of stock options. During this same period, the Company recorded a tax benefit of $55 and optionees realized an aggregate pre-tax gain of $141 from these stock option exercises.

No options to purchase shares of common stock for the three and nine months ended June 30, 2015 were excluded from the computation of diluted earnings per share because none of the stock options were anti-dilutive.

On January 28, 2013, stockholders approved the Nutraceutical International Corporation 2013 Long-Term Equity Incentive Plan (the "2013 Plan") and the reservation of 800,000 shares of the Company's common stock for issuance under the 2013 Plan. Equity awards available under the 2013 Plan include stock awards, performance-based awards, stock options and stock appreciation ~~rights and stock awards.~~rights. In conjunction with the Company's fiscal ~~2015~~2016 and fiscal ~~2014~~2015 incentive compensation (bonus) payments, ~~22,664~~41,449 and ~~24,827~~22,664 shares of the Company's common stock were issued, respectively. These non-cash stock awards were granted on December ~~11, 2015~~14, 2016 and December 11, ~~2014~~2015 at an aggregate fair value of ~~$556~~$1,430 and ~~$504,~~$556, respectively, with fair value being determined by the closing price of the Company's common stock on the grant date. These stock awards were registered, unrestricted and fully vested on the grant date.

On December 14, 2016, the Company’s Compensation Committee approved the grant of performance-based stock units (“PSUs”) to certain executives of the Company under the 2013 Plan. The PSUs are a new element of the Company’s executive compensation program. Generally, the PSUs vest at the end of a three-year performance period ending on September 30, 2019. Vesting is based on the achievement of two pre-set financial criteria during the performance period. The first criteria is the three-year moving average growth in net sales and the second criteria is the three-year average Adjusted EBITDA margin (prior to incentive compensation). Each of these criteria receives consideration in determining the actual number of PSUs that ultimately vest. The initial target number of PSUs is 100,000. The actual number of PSUs that are ultimately eligible to vest can range from 0% to 210% of the initial target depending on results during the performance period. Each PSU that vests after the performance period will be exchanged for one share of common stock. The Company recognizes stock-based compensation expense for the probable number of PSUs estimated to vest at the end of the performance period. The fair value of each PSU is $34.50, with fair value being determined by the closing price of the Company’s common stock on the grant date. For the three and nine months ended June 30, 2017, compensation expense related to these PSUs of $309 and $669, respectively, was included in selling, general and administrative expenses. As of June 30, ~~2016, 720,721~~2017, 579,272 shares of the Company's common stock were available for issuance under the 2013 ~~Plan.~~Plan, assuming that the target number of 100,000 PSUs ultimately vest.

For the three months ended June 30, 2017, no PSUs were excluded from the computation of diluted earnings per share. For the nine months ended June 30, 2017, PSUs totaling 29,675 were excluded from the computation of diluted earnings per share because the PSUs were anti-dilutive.

9. DIVIDENDS

On December 1, 2016, the Company's Board of Directors declared a quarterly cash dividend of $0.13 per share on all shares of common stock. This quarterly cash dividend totaled $1,155 and was paid on January 5, 2017 to stockholders of record on December 20, 2016.

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

On March 3, 2017, the Company's Board of Directors declared a quarterly cash dividend of $0.13 per share on all shares of common stock. This quarterly cash dividend totaled $1,156 and was paid on April 5, 2017 to stockholders of record on March 20, 2017.

10. SEGMENTS

Segment identification and selection is consistent with the management structure used by the Company's chief operating decision maker 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's chief operating decision maker does not review operating results on a disaggregated basis; rather, the chief operating decision maker reviews operating results on ~~an aggregate~~a consolidated basis.

~~NUTRACEUTICAL INTERNATIONAL CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~(dollars in thousands, except per share data)~~

Net sales attributed to customers in the United States and foreign countries for the three and nine months ended June 30, ~~2016~~2017 and ~~2015~~2016 were as follows:


	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended June 30,				Nine Months Ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
United States	$	51,454	$	47,671	$	153,854	$	143,203	$	56,590	$	51,454	$	158,648	$	153,854
Foreign countries	9,382		6,711		22,433		19,627		8,403		9,382		24,179		22,433
	$	60,836	$	54,382	$	176,287	$	162,830	$	64,993	$	60,836	$	182,827	$	176,287

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, ~~2016~~2017 and ~~2015~~2016 were as follows:


	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended June 30,				Nine Months Ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
Branded nutritional supplements and other natural products	$	55,342	$	48,520	$	159,520	$	144,710	$	60,146	$	55,342	$	167,774	$	159,520
Other(1)	5,494		5,862		16,767		18,120
Other (1)									4,847		5,494		15,053		16,767
	$	60,836	$	54,382	$	176,287	$	162,830	$	64,993	$	60,836	$	182,827	$	176,287

____________________


(1)	Net sales for any other product or group of similar products are less than 10% of consolidated net sales.

~~In October 2015,~~

11. MERGER AGREEMENT

On May 21, 2017, the Company, ~~made~~Nutrition Parent, LLC ("Parent") and Nutrition Sub, Inc. ("Merger Sub"), affiliates of HGGC, LLC (“HGGC”), a ~~decision~~leading middle-market private equity firm, entered into a definitive agreement under which the Company will be acquired by affiliates of HGGC in a transaction valued at approximately $446 million, including debt to ~~classify certain net sales~~be refinanced. Under the terms of the agreement, Company stockholders will receive $41.80 in cash (without interest) for each outstanding share of Company common stock they own. The transaction is expected to close in the ~~other product group that~~second half of 2017. Transaction costs related to the merger agreement of $2,556, or $0.28 per diluted share, and $2,766, or $0.30 per diluted share, were ~~previously~~ included in the ~~branded nutritional supplements and other natural products group. As a result~~

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

Condensed Consolidated Statements of ~~this decision, the other product group net sales amount~~Comprehensive Income for the three and nine months ended June 30, ~~2015 has been increased by $738~~2017, respectively. These transaction costs generally are not deductible for tax purposes, which resulted in higher effective tax rates of 51.6% and ~~$2,308, respectively, from~~38.6% for the ~~prior year's presentation.~~three and nine months ended June 30, 2017, respectively.

~~10. SUBSEQUENT EVENT~~

On July ~~26, 2016,~~21, 2017, a putative class action complaint challenging the ~~Company's~~merger was filed on behalf of Nutraceutical stockholders in the U.S. District Court for the District of Utah. The case is captioned Robert Berg v. Nutraceutical International Corporation, et al., Case No. 2:17-cv-00830-DS (D. Utah 2017). The complaint asserts claims under Section 14(a) of the Exchange Act, and Rule 14a-9 promulgated thereunder, as well as claims under Section 20(a) of the Exchange Act against the Company, the members of its Board, ~~of Directors approved the addition of 1,000,000 shares~~HGGC, Parent and Merger Sub. The plaintiff alleges that Amendment No. 1 to the Company's ~~previously approved share purchase program. As~~preliminary proxy statement filed on July 12, 2017 omitted certain information with respect to the merger and seeks to enjoin the merger, rescission or an award of ~~July 26, 2016,~~rescissory damages in the ~~Company was authorized~~event the merger is consummated, and an award of the plaintiff's attorneys' fees and costs of the litigation. The defendants deny all of the allegations made by the plaintiff and believe the disclosures in the proxy statement and all amendments are adequate under the law, and intend to ~~buy up to 1,183,170 total shares of its outstanding common stock.~~defend vigorously against all claims asserted.

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 provide 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®, Dynamic ~~Health™~~Health®, Nature's Life®, LifeTime®, Natural Balance®, NaturalCare®, Health from the Sun®, Zhou Nutrition®, Pioneer®, Nutra ~~BioGenesis™~~BioGenesis®, Life-flo®, Organix South®, Heritage Store® and Monarch ~~Nutraceuticals™~~Nutraceuticals®.

We own neighborhood natural food markets, which operate under the trade names The Real Food Company™, Thom's Natural Foods™, Cornucopia Community Market™ and ~~Granola's™~~Granola's®. We also own health food stores, which operate under ~~various~~the trade ~~names, including~~name Fresh ~~Vitamins™~~ ~~and~~ ~~Peachtree Natural Foods~~Vitamins®.

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 numerous acquisitions of businesses in the VMS Industry. 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, valuation adjustments for slow-moving, obsolete and/or damaged inventory, ~~and~~ valuation and recoverability of long-lived ~~assets.~~assets and valuation of performance-based equity awards. 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 creditworthiness. If general economic conditions and/or customer financial conditions were to change, additional provisions for bad debts may be required, which could have a material impact on the consolidated financial statements.

Inventories—Valuation adjustments are made for slow-moving, obsolete and/or damaged inventory based on a 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 valuation adjustments for slow-moving, obsolete and/or damaged inventory may be required, which could have a material impact on the consolidated financial statements.

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 estimated 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 property, plant and equipment whenever events or circumstances indicate that the carrying amount of an asset group may not be recoverable. We measure recoverability of an asset group by comparison of its carrying amount to the future undiscounted cash flows the asset group is expected to generate. If an asset group is considered to be impaired, the difference between the carrying amount and the fair value of the impaired asset group is recognized as an impairment charge.

Goodwill and Intangible Assets—Goodwill and intangible assets require estimates and judgments in determining the initial recognition and measurement, including factors and assumptions used in determining fair values and useful lives. Intangible assets with finite useful lives are amortized and are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is tested annually for impairment and when events or changes in circumstances indicate the carrying value may not be recoverable. We perform our annual impairment testing as of September 30 each year, which is the last day of our fiscal year.

A two-step process is used to test for goodwill impairment. The first step is to determine if there is an indication of impairment by comparing the estimated fair value of each reporting unit to its carrying value, including existing goodwill. Reporting unit fair values are estimated using market data as well as other factors. Goodwill is considered impaired if the carrying value of a reporting unit exceeds the estimated fair value. Upon an indication of impairment, a second step is performed to measure the amount of the impairment by comparing the implied fair value of the reporting unit's goodwill with its carrying value.

Amortizable intangible assets are reviewed for recoverability by comparing an asset group's carrying amount to the future undiscounted cash flows the asset group is expected to generate. If an asset group is considered to be impaired, the difference between the carrying amount and the fair value of the impaired asset group is recorded.

General and economic conditions may 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 goodwill and/or intangible asset impairment charges being recorded in future periods. Also, we periodically review our brands to achieve marketing, sales and operational synergies. These reviews could result in brands being consolidated or discontinued and could result in intangible asset impairment charges being recorded in future periods. Such goodwill and/or intangible asset impairment charges could materially impact our consolidated financial statements. The valuation of goodwill and intangible assets is subject to a high degree of judgment, uncertainty 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 customer 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.

Stock-based Compensation—Stock-based compensation expense related to performance-based stock units ("PSUs") is impacted by our judgments regarding the achievement of certain pre-set financial criteria. The actual number of PSUs that are ultimately eligible to vest can vary from the initial target depending on the results during the performance period. Stock-based compensation expense is recognized for the probable number of PSUs estimated to vest at the end of the performance period.

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.

Results of Operations

The following table sets forth certain Consolidated Statements of Comprehensive Income data as a percentage of net sales for the periods indicated:


	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended June 30,				Nine Months Ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	48.4	%	51.4	%	49.0	%	51.2	%	48.6	%	48.4	%	48.9	%	49.0	%
Gross profit	51.6	%	48.6	%	51.0	%	48.8	%	51.4	%	51.6	%	51.1	%	51.0	%
Selling, general and administrative	36.0	%	35.1	%	36.3	%	35.9	%	38.9	%	36.0	%	37.9	%	36.3	%
Transaction costs related to the merger									3.9	%	—	%	1.5	%	—	%
Amortization of intangible assets	1.6	%	1.3	%	1.7	%	1.3	%	2.1	%	1.6	%	1.7	%	1.7	%
Income from operations	14.0	%	12.2	%	13.0	%	11.6	%	6.5	%	14.0	%	10.0	%	13.0	%
Interest and other expense, net	0.5	%	0.4	%	0.6	%	0.5	%	0.6	%	0.5	%	0.6	%	0.6	%
Income before provision for income taxes	13.5	%	11.8	%	12.4	%	11.1	%	5.9	%	13.5	%	9.4	%	12.4	%
Provision for income taxes	3.6	%	3.6	%	4.0	%	3.8	%	3.0	%	3.6	%	3.6	%	4.0	%
Net income	9.9	%	8.2	%	8.4	%	7.3	%	2.9	%	9.9	%	5.8	%	8.4	%
Adjusted EBITDA(1)	19.9	%	18.1	%	19.0	%	17.6	%	12.4	%	19.9	%	15.9	%	19.0	%

___________________

(1) See "—Adjusted EBITDA."

Comparison of the Three Months Ended June 30, ~~2016~~2017 to the Three Months Ended June 30, ~~2015~~2016

Net Sales. Net sales increased by ~~$6.4~~$4.2 million, or ~~11.9%~~6.8%, to $65.0 million for the three months ended June 30, 2017 (the "third quarter of fiscal 2017") from $60.8 million for the three months ended June 30, 2016 (the "third quarter of fiscal 2016") ~~from $54.4 million for the three months ended June 30, 2015 (the "third quarter of fiscal 2015")~~. Net sales of branded nutritional supplements and other natural products increased by ~~$6.8~~$4.8 million, or ~~14.1%~~8.7%, to $60.1 million for the third quarter of fiscal 2017, compared to $55.3 million for the third quarter of fiscal ~~2016, compared to $48.5 million for the third quarter of fiscal 2015.~~2016. The increase in net sales of branded nutritional supplements and other natural products was primarily related to the net sales ~~contributions~~contribution of $7.3 million from the ~~fiscal 2015 and fiscal 2016 acquisitions and, to a lesser extent, price increases~~April 2017 acquisition of ~~$0.9 million,~~Zhou Nutrition, partially offset by a ~~slight~~ decrease in sales volume of branded products to certain ~~customers.~~customers and, to a lesser extent, price decreases of $0.5 million. Other net sales were $4.9 million for the third quarter of fiscal 2017 and $5.5 million for the third quarter of fiscal ~~2016 and $5.9 million for the third quarter of fiscal 2015.~~2016.

Gross Profit. Gross profit increased by ~~$5.0~~$2.0 million, or ~~18.9%~~6.3%, to $33.4 million for the third quarter of fiscal 2017 from $31.4 million for the third quarter of fiscal 2016 from $26.4 million for the third quarter of fiscal 2015. As a percentage of net sales, gross profit increased to 51.6% for the third quarter of fiscal 2016 from 48.6% for the third quarter of fiscal 2015.2016. This increase in gross profit was primarily related to the increase in net sales. As a percentage of net sales, gross profit was 51.4% for the third quarter of fiscal 2017 and ~~to a lesser extent, a decrease in certain manufacturing overhead costs.~~51.6% for the third quarter of fiscal 2016.

Selling, General and Administrative. Selling, general and administrative expenses increased by ~~$2.8~~$3.4 million, or ~~14.9%~~15.4%, to $25.3 million for the third quarter of fiscal 2017 from $21.9 million for the third quarter of fiscal ~~2016 from $19.1 million for the third quarter of fiscal 2015.~~2016. As a percentage of net sales, selling, general and administrative expenses increased to 38.9% for the third quarter of fiscal 2017 from 36.0% for the third quarter of fiscal ~~2016, compared to 35.1% for the third quarter of fiscal 2015.~~2016. This increase in selling, general and administrative expenses was primarily attributable to operational and transition costs related to the fiscal ~~2015~~2016 and fiscal ~~2016 acquisitions as well as~~2017 acquisitions.

Transaction Costs Related to Merger Agreement. On May 21, 2017, we entered into a definitive agreement with an ~~increase in certain administrative costs.~~affiliate of HGGC, LLC (“HGGC”), a leading middle-market private equity firm, under which we will be acquired by the affiliate. Transaction costs related to the merger agreement of $2.6 million, or $0.28 per diluted share, were recorded during the third quarter of fiscal 2017.

Amortization of Intangible Assets. Amortization of intangible assets was ~~$1.0~~$1.4 million for third quarter of fiscal ~~2016~~2017 and ~~$0.7~~$1.0 million for the third quarter of fiscal ~~2015.~~2016. For each period, amortization expense was primarily related to intangible assets recorded in connection with acquisitions.

Interest and Other Expense, Net. Net interest and other expense was ~~$0.3~~$0.4 million for ~~both~~ the third quarter of fiscal ~~2016~~2017 and $0.3 million for the third quarter of fiscal ~~2015~~2016 and primarily consisted of interest expense on indebtedness under our revolving credit facility.

Provision for Income Taxes. Our effective tax rate was 51.6% for the third quarter of fiscal 2017 and 26.6% for the third quarter of fiscal ~~2016 and 30.3% for the third quarter of fiscal 2015.~~2016. The ~~decrease~~increase in the effective tax rate was primarily related to $2.8 million in transaction costs related to the merger agreement that generally were non-deductible for tax purposes and, to a lesser extent, a decrease in the fiscal 2016 effective tax rate due to increases in the domestic manufacturing deduction and the credit for increasing research activities.

Comparison of the Nine Months Ended June 30, ~~2016~~2017 to the Nine Months Ended June 30, ~~2015~~2016

Net Sales. Net sales increased by ~~$13.5~~$6.5 million, or ~~8.3%~~3.7%, to $182.8 million for the nine months ended June 30, 2017 from $176.3 million for the nine months ended June 30, ~~2016 from $162.8 million for the nine months ended June 30, 2015.~~2016. Net sales of branded nutritional supplements and other natural products increased by ~~$14.8~~$8.3 million, or ~~10.2%~~5.2%, to $167.8 million for the nine months ended June 30, 2017 from $159.5 million for the nine months ended June 30, ~~2016 from $144.7 million for the nine months ended June 30, 2015.~~2016. The increase in net sales of branded nutritional supplements and other natural products was primarily related to the net sales ~~contributions~~contribution of $7.3 million from the ~~fiscal 2015 and fiscal 2016 acquisitions~~April 2017 acquisition of Zhou Nutrition and, to a lesser extent, the net sales contributions of the fiscal 2016 acquisitions and price increases of ~~$3.5~~$0.3 million, partially offset by a decrease in sales volume ~~of branded products~~ to certain customers. Other net sales were $15.0 million for the nine months ended June 30, 2017 and $16.8 million for the nine months ended June 30, ~~2016 and $18.1 million for the nine months ended June 30, 2015.~~2016.

Gross Profit. Gross profit increased by ~~$10.4~~$3.5 million, or ~~13.0%~~4.0%, to $93.4 million for the nine months ended June 30, 2017 from $89.9 million for the nine months ended June 30, 2016 from $79.5 million for the nine months ended June 30, 2015. As a percentage of net sales, gross profit increased to 51.0% for the nine months ended June 30, 2016 from 48.8% for the nine months ended June 30, 2015.2016. This increase in gross profit was primarily related to the increase in net sales. As a percentage of net sales, gross profit was 51.1% for the nine months ended June 30, 2017 and ~~to a lesser extent, a decrease in certain manufacturing overhead costs.~~51.0% for the nine months ended June 30, 2016.

Selling, General and Administrative. Selling, general and administrative expenses increased by ~~$5.6~~$5.3 million, or ~~9.6%~~8.3%, to $69.3 million for the nine months ended June 30, 2017 from $64.0 million for the nine months ended June 30, ~~2016 from $58.4 million~~2016. As a percentage of net sales, selling, general and administrative expenses were 37.9% for the nine months ended June 30, ~~2015.~~2017 and 36.3% for the nine months ended June 30, 2016. This increase in selling, general and administrative expenses was primarily attributable to operational and transition costs related to the fiscal ~~2015~~2016 and fiscal ~~2016~~2017 acquisitions as well as an increase in certain administrative costs. As

Transaction Costs Related to Merger Agreement. On May 21, 2017, we entered into a ~~percentage~~definitive agreement with an affiliate of ~~net sales, selling, general and administrative expenses~~HGGC, LLC (“HGGC”), a leading middle-market private equity firm, under which we will be acquired by the affiliate. Transaction costs related to the merger agreement of $2.8 million, or $0.30 per diluted share, were ~~36.3% for~~recorded during the nine months ended June 30, ~~2016 and 35.9% for the nine months ended June 30, 2015.~~2017.

Amortization of Intangible Assets. Amortization of intangible assets was ~~$3.0~~$3.2 million for nine months ended June 30, ~~2016~~2017 and ~~$2.2~~$3.0 million for the nine months ended June 30, ~~2015.~~2016. For each period, amortization expense was primarily related to intangible assets recorded in connection with acquisitions.

Interest and Other Expense, Net. Net interest and other expense was $1.0 million for the nine months ended June 30, 2017 and $0.9 million for the nine months ended June 30, 2016 ~~and $0.8 million for the nine months ended June 30, 2015~~ and primarily consisted of interest expense on indebtedness under our revolving credit facility.

Provision for Income Taxes. Our effective tax rate was 38.6% for the nine months ended June 30, 2017 and 32.2% for the nine months ended June 30, ~~2016 and 34.3% for the nine months ended June 30, 2015.~~2016. The ~~decrease~~increase in the effective tax rate was primarily related to $2.8 million in transaction costs related to the merger agreement that generally were non-deductible for tax purposes and, to a lesser extent, a decrease in the fiscal 2016 effective tax rate due to increases in the domestic manufacturing deduction and the credit for increasing research activities.

Adjusted EBITDA

Adjusted EBITDA (a non-GAAP measure) is defined in our performance measures as earnings before net interest and other expense, taxes, depreciation, amortization and goodwill and intangible asset impairments. 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;


▪	Investors—who use EBITDA-based metrics in their investment decisions about our common stock; 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. Generally, 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. Adjusted EBITDA is also one of the primary criteria used in determining our performance-based equity awards.The following table sets forth a reconciliation of net income to Adjusted EBITDA for each period included herein:

~~The following table sets forth a reconciliation of net income to Adjusted EBITDA for each period included herein:~~


	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended June 30,				Nine Months Ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
	(dollars in thousands)								(dollars in thousands)
Net income	$	6,029	$	4,450	$	14,888	$	11,897	$	1,857	$	6,029	$	10,520	$	14,888
Provision for income taxes	2,182		1,930		7,063		6,220		1,982		2,182		6,600		7,063
Interest and other expense, net(1)	326		257		922		827		380		326		1,022		922
Depreciation and amortization	3,579		3,195		10,599		9,702		3,821		3,579		10,905		10,599
Adjusted EBITDA	$	12,116	$	9,832	$	33,472	$	28,646	$	8,040	$	12,116	$	29,047	$	33,472

_____________________


(1)	Includes amortization of deferred financing fees.

Our Adjusted EBITDA ~~increased to~~was $8.0 million for the third quarter of fiscal 2017 and $12.1 million for the third quarter of fiscal ~~2016 from $9.8 million for the third quarter of fiscal 2015.~~2016. Adjusted EBITDA as a percentage of net sales ~~increased to~~was 12.4% for the third quarter of fiscal 2017 and 19.9% for the third quarter of fiscal ~~2016 from 18.1% for the third quarter of fiscal 2015.~~2016.

Our Adjusted EBITDA ~~increased to~~was $29.0 million for the nine months ended June 30, 2017 and $33.5 million for the nine months ended June 30, ~~2016 from $28.6 million for the nine months ended June 30, 2015.~~2016. Adjusted EBITDA as a percentage of net sales ~~increased to~~was 15.9% for the nine months ended June 30, 2017 and 19.0% for the nine months ended June 30, ~~2016 from 17.6% for the nine months ended June 30, 2015.~~2016.

Seasonality

We believe that our business is characterized by minor seasonality. However, sales to any particular customer or 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 product sales volume during the second fiscal quarter (January through March) due to increased interest in health-related products among consumers following the holiday season.

Liquidity and Capital Resources

We had working capital of ~~$71.5~~$78.1 million as of June 30, ~~2016,~~2017, compared to ~~$65.7~~$73.7 million as of September 30, ~~2015.~~2016. The increase in working capital was primarily the result of increases in accounts receivable, inventories and ~~inventories,~~prepaid expenses and other current assets, partially offset by ~~a decrease~~an increase in ~~cash.~~accounts payable.

Net cash provided by operating activities for the nine months ended June 30, ~~2016~~2017 was ~~$23.5~~$16.9 million, compared to ~~$21.2~~$23.5 million for the comparable period in fiscal ~~2015.~~2016. This ~~increase~~decrease in net cash provided by operating activities for the nine months ended June 30, ~~2016~~2017 was primarily attributable to ~~an increase~~a decrease in net income as well as changes in operating assets and liabilities.

Net cash used in investing activities was ~~$32.6~~$24.2 million for the nine months ended June 30, ~~2016,~~2017, compared to ~~$7.8~~$32.6 million for the comparable period in fiscal ~~2015.~~2016. Our investing activities consisted of acquisitions of businesses and capital expenditures. The capital expenditures primarily related to buildings, building improvements, distribution and manufacturing equipment and information systems.

During the nine months ended June 30, 2017, we made one acquisition of a business. On April 6, 2017, we acquired certain operating assets associated with the Zhou Nutrition brand from Branson Books, LLC for $19.7 million, of which $17.7 million was paid in cash at the closing date with the remaining $2.0 million to be paid in cash over a two-year period from the closing date. During the nine months ended June 30, 2016, we made two acquisitions of businesses. On October 6, 2015, we acquired certain operating assets of Dynamic Health Laboratories, Inc. On February 18, 2016, we acquired certain operating assets of Aubrey ~~Organics, Inc.~~Organics. The aggregate purchase price of these acquisitions was $26.2 million in cash.

During the nine months ended June 30, 2015, we made two acquisitions of businesses. On November 18, 2014, we acquired certain operating assets of Agape Health Products. On June 4, 2015, we acquired certain operating assets of ProClay, LLC. The aggregate purchase price of these acquisitions was $1.3 million in cash.

Net cash provided by financing activities was $4.7 million and $8.1 million for the nine months ended June 30, 2017 and 2016, ~~and net cash used in financing activities was $14.6 million for the comparable period in fiscal 2015.~~respectively. During these periods, financing activities primarily related to borrowings and repayments under our revolving credit facility, ~~payments of deferred financing fees,~~ purchases of common stock for treasury, ~~and~~ proceeds from the issuance of common stock related to ~~stock option exercises and the~~our direct stock purchase ~~plan. During the nine months ended June 30, 2016, net borrowings under our revolving credit facility were $14.5 million~~plan and ~~primarily related to the acquisition of certain operating assets of Dynamic Health Laboratories, Inc. and Aubrey Organics, Inc.~~dividends paid on common stock.

In October 2007, we ~~registered~~established a direct stock purchase ~~plan with the Securities and Exchange Commission.~~plan. 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 initially registered under the plan, with ~~2,479~~1,760 shares purchased during the nine months ended June 30, ~~2016.~~2017. As of June 30, ~~2016,~~2017, there were ~~1,374,965~~1,372,342 shares of common stock available for purchase.

On November 4, 2014, we amended our revolving credit facility (the "Credit Agreement"). The Credit Agreement extends the term of the credit facility to November 2019, increases the available credit borrowings to $100.0 million with no automatic reductions and provides an accordion feature that can increase the available credit borrowings to $130.0 million, subject to approval by the lenders and compliance with certain covenants and conditions. The lenders under the Credit Agreement continue to be Rabobank International and Wells Fargo. To

date, we have not experienced any difficulties in accessing the available funds under the Credit Agreement. Deferred financing fees of $0.4 million related to the Credit Agreement are being amortized over the term of the Credit Agreement.

At June 30, ~~2016,~~2017, we had outstanding revolving credit borrowings of ~~$46.0~~$50.5 million under the Credit Agreement. Borrowings under the Credit Agreement are collateralized by substantially all of our assets. At our election, borrowings bear interest at the applicable Eurodollar Rate plus a variable margin or at a Base Rate plus a variable margin. Base Rate is the higher of: (i) the Prime Lending Rate, (ii) the Federal Funds Rate plus 0.5% or (iii) the one-month Eurodollar Rate multiplied by the Statutory Reserve Rate plus 1.0% (capitalized terms are defined in the Credit Agreement, a copy of which was filed with the Securities and Exchange Commission on November 5, 2014). At June 30, ~~2016,~~2017, the applicable weighted-average interest rate for outstanding borrowings was ~~2.13%~~2.42%. We are also required to pay a quarterly fee on the unused balance under the Credit Agreement. At June 30, ~~2016,~~2017, the applicable rate was 0.25%. 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 Credit Agreement matures on November 4, 2019, and we are required to repay all principal and interest outstanding under the Credit Agreement on such date.

The Credit Agreement contains restrictive covenants, including limitations on incurring certain other indebtedness and requirements that we maintain certain financial ratios. As of June 30, ~~2016,~~2017, 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 Credit Agreement.

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, ~~2016~~2017 were as follows:


	Payments Due By Period										Payments Due By Period
Contractual Obligations and Other Commitments	Total		Less Than 1 Year		1 - 3 Years		4 - 5 Years		After 5 Years		Total		Less Than 1 Year		1 - 3 Years		4 - 5 Years		After 5 Years
	(dollars in thousands)										(dollars in thousands)
Revolving credit facility	$	46,000	$	—	$	—	$	46,000	$	—	$	50,500	$	—	$	50,500	$	—	$	—
Interest on revolving credit facility(a)	3,836		1,146		2,291		399		—		3,230		1,376		1,854		—		—
Operating leases	6,168		3,899		1,993		276		—		5,920		3,340		2,298		282		—
Total	$	56,004	$	5,045	$	4,284	$	46,675	$	—	$	59,650	$	4,716	$	54,652	$	282	$	—

____________________


(a)	Represents estimated interest obligations associated with our outstanding revolving credit facility balance of ~~$46.0~~$50.5 million at June 30, ~~2016,~~2017, assuming no principal payments are made before maturity, a weighted-average interest rate of ~~2.13%~~2.42% and an underutilization fee rate of 0.25%.

Off-Balance Sheet Arrangements

Our operating lease commitments are disclosed in the Contractual Obligations and Other Commitments table above. As of June 30, ~~2016,~~2017, we had no other off-balance sheet arrangements that have had, or are reasonably likely to have, a material effect on our consolidated financial statements.

Inflation

Inflation affects the cost of raw materials, goods and services we use. 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 including adverse determinations by regulators; (ii) unavailability of desirable acquisitions, inability to complete them or inability to integrate them; (iii) increased costs, including from increased raw material or energy prices; (iv) changes in general worldwide economic or 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, including system interruptions and security/cybersecurity breaches; (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 bear interest at the applicable Eurodollar Rate plus a variable margin or at a Base Rate plus a variable margin. Base Rate is the higher of: (i) the Prime Lending Rate, (ii) the Federal Funds Rate plus 0.5% or (iii) the one-month Eurodollar Rate multiplied by the Statutory Reserve Rate plus 1.0%. At June 30, ~~2016,~~2017, the applicable weighted-average interest rate for borrowings was ~~2.13%~~2.42% and we had total borrowings outstanding of ~~$46.0~~$50.5 million. A hypothetical 100 basis point change in interest rates would not have had a material impact on our reported net income or cash flows for the nine months ended June 30, ~~2016~~2017 and ~~2015.~~2016.

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 or results of operations because the majority of our net sales to foreign customers are transacted in U.S. dollars. Net sales to foreign customers not transacted in U.S. dollars include sales to customers in Barbados, ~~Canada,~~ Dominica, ~~Japan,~~ the Netherlands, Norway, St. Kitts, St. Lucia, St. Vincent, Sweden and the United Kingdom. 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 June 30, ~~2016.~~2017. Based on

the foregoing, our principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, ~~2016.~~2017.

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.

PART II—OTHER 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 ordinary 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 the opinion of management, the losses related to 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, none of the regulatory and legal matters in which we are involved are individually expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, our aggregate liability arising from regulatory and legal proceedings related to these matters or future matters could have a material effect on our financial position, results of operations or cash flows.

On July 21, 2017, a putative class action complaint challenging the merger was filed on behalf of Nutraceutical stockholders in the U.S. District Court for the District of Utah. The case is captioned Robert Berg v. Nutraceutical International Corporation, et al., Case No. 2:17-cv-00830-DS (D. Utah 2017). The complaint asserts claims under Section 14(a) of the Exchange Act, and Rule 14a-9 promulgated thereunder, as well as claims under Section 20(a) of the Exchange Act against us, the members of our Board, HGGC, Nutrition Parent, LLC and Nutrition Sub, Inc. The plaintiff alleges that Amendment No. 1 to our preliminary proxy statement filed on July 12, 2017 omitted certain information with respect to the merger and seeks to enjoin the merger, rescission or an award of rescissory damages in the event the merger is consummated, and an award of the plaintiff's attorneys' fees and costs of the litigation. The defendants deny all of the allegations made by the plaintiff and believe the disclosures in the proxy statement and all amendments are adequate under the law, and intend to defend vigorously against all claims asserted.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in our ~~2015~~2016 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 quarterly period ended June 30, ~~2016.~~2017.

Prior to fiscal ~~2016,~~2017, our Board of Directors approved a share purchase program authorizing us to buy up to ~~4,500,000~~5,500,000 shares of our common stock. As of June 30, ~~2016,~~2017, there were ~~215,800~~1,171,170 shares available for purchase under this program. The shares available for purchase under this program have no expiration date. ~~Purchases~~There were no purchases under this program during the three months ended June 30, ~~2016 occurred in April, May and June as follows:~~

Period
Total Number
of Shares
Purchased

Average Price
Paid Per
Share

Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plan

Maximum
Number of
Shares that
May Yet Be
Purchased Under
the Plan
April 1-30, 2016 31,241
$ 24.66
31,241

May 1-31, 2016 47,201
23.49
47,201

June 1-30, 2016 41,079
23.92
41,079

119,521
23.94
119,521
215,800
2017.

Item 6. Exhibits



2.1		Agreement and Plan of Merger, dated as of May 21, 2017, by and among Nutrition Parent, LLC, Nutrition Sub, Inc. and Nutraceutical International Corporation (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, filed with the SEC on May 22, 2017).
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.

101.INS		XBRL Instance Document(1)

101.SCH		XBRL Taxonomy Extension Schema Document(1)

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document(1)

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document(1)

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document(1)

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document(1)


(1)	Filed herewith.

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 ~~28, 2016~~27, 2017	By:	/s/ CORY J. MCQUEEN
		Cory J. McQueen Vice President and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)

2527



	Fiscal 2016 Acquisition - Dynamic Health		Fiscal 2016 Acquisition - Aubrey Organics		Fiscal 2015 Acquisitions
Assets acquired:
Current assets	$	3,821	$	755	$	111
Property, plant and equipment	644		6,004		—
Goodwill	6,541		—		762
Intangible assets	8,020		450		393
	$	19,026	$	7,209	$	1,266



	Goodwill		Accumulated Impairment			Net
Balance as of September 30, 2015	$	64,778	$	(40,394	)	$	24,384
Goodwill attributable to fiscal 2016 acquisitions	6,541		—			6,541
Balance as of June 30, 2016	$	71,319	$	(40,394	)	$	30,925



	June 30, 2016							September 30, 2015							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		Weighted- Average Amortization Period (Years)
Intangible assets subject to amortization:
Trademarks/tradenames/licenses	$	13,923	$	(2,895	)	$	11,028	$	12,470	$	(1,966	)	$	10,504	11
Customer relationships/non-compete agreements	23,867		(11,705		)	12,162		16,836		(9,773		)	7,063		7
Developed software and technology	772		(772		)	—		772		(772		)	—		5
	38,562		(15,372		)	23,190		30,078		(12,511		)	17,567
Intangible assets not subject to amortization:
Licenses	—		—			—		38		—			38
	$	38,562	$	(15,372	)	$	23,190	$	30,116	$	(12,511	)	$	17,605



Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares that May Yet Be Purchased Under the Plan
April 1-30, 2016	31,241	$	24.66	31,241
May 1-31, 2016	47,201	23.49		47,201
June 1-30, 2016	41,079	23.92		41,079
	119,521	23.94		119,521	215,800