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.

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 December 31, 2016,June 30, 2017, the results of its operations for the three and nine months ended December 31,June 30, 2017 and 2016 and 2015 and its cash flows for the threenine months ended December 31,June 30, 2017 and 2016, and 2015, 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 December 31, 2016June 30, 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, 2016, which was filed with the Securities and Exchange Commission on November 17, 2016.

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, valuation and recoverability of long-lived assets and valuation of performance-based equity awards. Actual results may differ from these estimates.

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.

During the threenine months ended December 31, 2016, the Company made no acquisitions of businesses. During the three months ended December 31, 2015,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. for $19,026("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.

The Condensed Consolidated Statements of Comprehensive Income and the Condensed Consolidated Statements of Cash Flows presented herein include the activities of thisthese acquired businessbusinesses from the datetheir respective dates of acquisition. Pro forma information was not provided for the three months ended December 31, 2015 since the acquisition was completed near the beginning of the period and the pro forma results are not materially different than actual results. 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.

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 results are not materially different than actual results. Pro forma information related to trademarks, tradenames and customer relationships and are being amortized over periods of eight to fifteen years for financial statement purposes. The fiscal 2016 acquired intangible assets are expected to be deductible for tax purposes over fifteen years. Goodwill of $6,541 for fiscal 2016 isthe Aubrey Organics acquisition was not subject to amortization for financial statement purposes and is expected to be deductible for tax purposes over fifteen years.material.

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

The carrying value of the Company's debt approximates fair value at December 31, 2016June 30, 2017 and September 30, 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 December 31, 2016,June 30, 2017, the Company had outstanding revolving credit borrowings of $39,500$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 December 31, 2016,June 30, 2017, the applicable weighted-average interest rate for outstanding borrowings was 2.38%2.42%. The Company is also required to pay a variable quarterly fee on the unused balance under the Credit Agreement. At December 31, 2016,June 30, 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 December 31, 2016,June 30, 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.

During the three and nine months ended December 31, 2016,June 30, 2017, the Company did not purchase or retire any shares of common stock. During the three and nine months ended December 31, 2015,June 30, 2016, the Company purchased 65,411119,521 and 265,461 shares of common stock for an aggregate price of $1,604.$2,862 and $6,428, respectively. All of these shares of common stock held in treasury were retired prior to December 31, 2015.June 30, 2016 except for 6,211 shares, which were subsequently retired in September 2016. As of December 31, 2016,June 30, 2017, the Company was permitted to purchase up to 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.

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. In conjunction with the Company's fiscal 2016 and fiscal 2015 incentive compensation (bonus) payments, 41,449 and 22,664 shares of the Company's common stock were issued, respectively. These non-cash stock awards were granted on December 14, 2016 and December 11, 2015 at an aggregate fair value of $1,430 and $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.

PSUs totaling 32,850 forFor the three months ended December 31, 2016June 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.

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 a consolidated basis.

Net sales attributed to customers in the United States and foreign countries for the three and nine months ended December 31,June 30, 2017 and 2016 and 2015 were as follows:

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 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 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.

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, valuation and recoverability of long-lived assets and valuation of performance-based equity awards. Actual results may differ from these estimates. Our critical accounting policies include the following:

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.

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.

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.

See Note 1 to the Condensed Consolidated Financial Statements for information regarding new accounting standards.

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:

Our Adjusted EBITDA was $10.3$8.0 million for both the firstthird quarter of fiscal 2017 and $12.1 million for the firstthird quarter of fiscal 2016. Adjusted EBITDA as a percentage of net sales was 18.2%12.4% for the firstthird quarter of fiscal 2017 and 18.3%19.9% for the firstthird quarter of fiscal 2016.

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

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.

We had working capital of $75.4$78.1 million as of December 31, 2016,June 30, 2017, compared to $73.7 million as of September 30, 2016. The increase in working capital was primarily the result of an increaseincreases in accounts receivable, inventories and a decrease in accruedprepaid expenses and other current assets, partially offset by an increase in accounts payable.

Net cash provided by operating activities for the threenine months ended December 31, 2016June 30, 2017 was $4.9$16.9 million, compared to $6.9$23.5 million for the comparable period in fiscal 2016. This decrease in net cash provided by operating activities for the threenine months ended December 31, 2016June 30, 2017 was primarily attributable to a decrease in net income as well as changes in operating assets and liabilities.

Net cash used in investing activities was $1.3$24.2 million for the threenine months ended December 31, 2016,June 30, 2017, compared to $21.1$32.6 million for the comparable period in fiscal 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 threenine months ended December 31, 2016, we made no acquisitions of businesses. During the three months ended December 31, 2015,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. for $19.0On February 18, 2016, we acquired certain operating assets of Aubrey Organics. The aggregate purchase price of these acquisitions was $26.2 million in cash.

Net cash used in financing activities was $4.0 million for the three months ended December 31, 2016 and net cash provided by financing activities was $14.9$4.7 million and $8.1 million for the comparable period in fiscal 2016.nine months ended June 30, 2017 and 2016, respectively. During these periods, financing activities primarily related to borrowings and repayments under our revolving credit facility, purchases of common stock for treasury, and proceeds from the issuance of common stock related to our direct stock purchase plan. During the three months ended December 31, 2015, net borrowings under our revolving credit

In October 2007, we registeredestablished 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 6941,760 shares purchased during the threenine months ended December 31, 2016.June 30, 2017. As of December 31, 2016,June 30, 2017, there were 1,373,4071,372,342 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

At December 31, 2016,June 30, 2017, we had outstanding revolving credit borrowings of $39.5$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 December 31, 2016,June 30, 2017, the applicable weighted-average interest rate for outstanding borrowings was 2.38%2.42%. We are also required to pay a quarterly fee on the unused balance under the Credit Agreement. At December 31, 2016,June 30, 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 December 31, 2016,June 30, 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.

Our operating lease commitments are disclosed in the Contractual Obligations and Other Commitments table above. As of December 31, 2016,June 30, 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 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.

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

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.

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 December 31, 2016,June 30, 2017, the applicable weighted-average interest rate for borrowings was 2.38%2.42% and we had total borrowings outstanding of $39.5$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 threenine months ended December 31, 2016June 30, 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, Dominica, 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.