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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
COMMISSION FILE NUMBER 000-23731
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NUTRACEUTICAL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 87-0515089
(State of incorporation) (IRS Employer Identification No.)
1400 KEARNS BOULEVARD, 2ND FLOOR, PARK CITY, UTAH 84060
(Address of principal executive offices) (Zip code)
(435) 655-6106
(Registrant's telephone number, including area code)
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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 / /
At May 15, 2001 the registrant had 10,984,298 shares of common stock
outstanding.
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NUTRACEUTICAL INTERNATIONAL CORPORATION
INDEX
DESCRIPTION PAGE NO.
- ----------- --------
Part I. Financial Information
Item 1. Financial Statements........................................ 3
Condensed Consolidated Balance Sheets--
September 30, 2000 and March 31, 2001....................... 3
Condensed Consolidated Statements of Operations and
Comprehensive Income--Three Months and Six Months Ended
March 31, 2000 and 2001..................................... 4
Condensed Consolidated Statements of Cash Flows--Six Months
Ended March 31, 2000 and 2001............................... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations...................................
Part II. Other Information
Item 1. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, MARCH 31,
2000(1) 2001
------------- ---------
ASSETS
Current assets:
Cash...................................................... $ 1,773 $ 3,349
Accounts receivable, net.................................. 9,551 10,541
Inventories, net.......................................... 24,083 21,637
Prepaid expenses and other current assets................. 976 928
Deferred income taxes..................................... 1,162 1,162
-------- --------
Total current assets.................................... 37,545 37,617
Property, plant and equipment, net.......................... 16,939 18,032
Goodwill, net............................................... 53,068 52,177
Other non-current assets, net............................... 777 749
-------- --------
$108,329 $108,575
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations.............. $ 22 $ 1
Accounts payable.......................................... 6,418 5,881
Accrued expenses.......................................... 3,391 2,259
-------- --------
Total current liabilities............................... 9,831 8,141
Long-term debt.............................................. 38,000 36,500
Deferred income taxes, net.................................. 2,554 2,803
-------- --------
Total liabilities....................................... 50,385 47,444
-------- --------
Stockholders' equity:
Common stock.............................................. 118 118
Additional paid-in capital................................ 41,012 41,072
Retained earnings......................................... 20,105 23,241
Cumulative translation adjustment......................... 18 9
Treasury stock............................................ (3,309) (3,309)
-------- --------
Total stockholders' equity.............................. 57,944 61,131
-------- --------
$108,329 $108,575
======== ========
- ------------------------
(1) The condensed consolidated balance sheet as of September 30, 2000 has been
prepared using information from the audited financial statements at that
date.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS SIX MONTHS ENDED
ENDED MARCH 31, MARCH 31,
------------------------- -------------------------
2000 2001 2000 2001
----------- ----------- ----------- -----------
Net sales................................. $ 28,674 $ 27,009 $ 56,324 $ 52,336
Cost of sales............................. 14,938 13,606 29,456 26,803
----------- ----------- ----------- -----------
Gross profit............................ 13,736 13,403 26,868 25,533
----------- ----------- ----------- -----------
Operating expenses
Selling, general and administrative..... 9,754 9,258 19,154 17,961
Amortization of intangibles............. 429 441 870 883
----------- ----------- ----------- -----------
10,183 9,699 20,024 18,844
----------- ----------- ----------- -----------
Income from operations.................... 3,553 3,704 6,844 6,689
Interest expense, net..................... 709 744 1,364 1,549
----------- ----------- ----------- -----------
Income before provision for income
taxes................................... 2,844 2,960 5,480 5,140
Provision for income taxes................ 1,109 1,154 2,137 2,004
----------- ----------- ----------- -----------
Net income................................ $ 1,735 $ 1,806 $ 3,343 $ 3,136
----------- ----------- ----------- -----------
Other comprehensive income
Foreign currency translation
adjustment............................ (6) (8) 2 (9)
----------- ----------- ----------- -----------
Comprehensive income...................... $ 1,729 $ 1,798 $ 3,345 $ 3,127
=========== =========== =========== ===========
Net income per common share:
Basic................................... $ 0.15 $ 0.17 $ 0.28 $ 0.29
Diluted................................. $ 0.14 $ 0.17 $ 0.27 $ 0.29
Weighted average common shares
outstanding:
Basic................................... 11,803,655 10,935,278 11,798,080 10,926,962
Diluted................................. 12,509,519 10,935,278 12,510,719 10,926,962
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
MARCH 31,
-------------------
2000 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $3,343 $3,136
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 3,019 2,970
Amortization of debt issuance costs....................... 108 108
Losses on disposals of property and equipment............. 30 12
Changes in assets and liabilities:
Accounts receivable, net................................ (1,676) (990)
Inventories, net........................................ 324 2,446
Prepaid expenses and other current assets............... 717 48
Deferred income taxes................................... 150 249
Other non-current assets................................ 86 (73)
Accounts payable........................................ 1,528 (537)
Accrued expenses........................................ (593) (1,146)
------ ------
Net cash provided by operating activities............. 7,036 6,223
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (3,287) (3,191)
------ ------
Net cash used in investing activities................. (3,287) (3,191)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt.................................. (3,250) (1,500)
Payments on capital lease obligations....................... (28) (21)
Proceeds from issuance of common stock...................... 43 60
------ ------
Net cash used in financing activities................. (3,235) (1,461)
------ ------
Effect of exchange rate changes on cash..................... 4 5
------ ------
Net increase in cash........................................ 518 1,576
Cash at beginning of period................................. 869 1,773
------ ------
Cash at end of period....................................... $1,387 $3,349
====== ======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all necessary adjustments (consisting
of normal recurring accruals) to present fairly the financial position of
Nutraceutical International Corporation (the "Company") and its subsidiaries as
of March 31, 2001, the results of its operations for the three months and six
months ended March 31, 2000 and 2001 and its cash flows for the six months ended
March 31, 2000 and 2001, in conformity with generally accepted accounting
principles for interim financial information applied on a consistent basis. The
results for the three months and six months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the full fiscal year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
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, 2000, which was filed with the Securities and Exchange Commission
on December 29, 2000.
2. INVENTORIES, NET
Inventories, net of reserves for obsolete and slow moving inventory, are
comprised of the following:
SEPTEMBER 30, MARCH 31,
2000 2001
------------- ---------
Raw materials......................................... $ 8,277 $ 7,414
Work-in-process....................................... 4,242 3,640
Finished goods........................................ 11,564 10,583
------- -------
$24,083 $21,637
======= =======
3. CAPITAL STOCK
The following table provides a reconciliation of basic weighted average
common shares (which represent the weighted average number of common shares
outstanding without regard to potential
6
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. CAPITAL STOCK (CONTINUED)
common shares) to diluted weighted average common shares (which include
potential common shares in accordance with Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE):
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------------- -------------------------
2000 2001 2000 2001
----------- ----------- ----------- -----------
Net income (Numerator)...................... $ 1,735 $ 1,806 $ 3,343 $ 3,136
Weighted average common shares
(Denominator):
Basic weighted average common shares...... 11,803,655 10,935,278 11,798,080 10,926,962
Dilutive effect of stock options and
warrants................................ 705,864 -- 712,639 --
----------- ----------- ----------- -----------
Diluted weighted average common shares...... 12,509,519 10,935,278 12,510,719 10,926,962
=========== =========== =========== ===========
Net income per common share:
Basic..................................... $ 0.15 $ 0.17 $ 0.28 $ 0.29
Diluted................................... $ 0.14 $ 0.17 $ 0.27 $ 0.29
4. OPERATING SEGMENTS
Based on the Company's method of internal reporting, the Company has two
reportable segments: branded products and bulk materials. The Company is a
manufacturer and marketer of quality branded products sold to health food stores
in the United States, and to distributors and stores worldwide. In addition to
branded products, the Company manufactures bulk materials for use in its own
products and for sale to other manufacturers and marketers in the nutritional
supplement industry.
The accounting policies for these segments are consistent with those of the
Company. The Company evaluates the financial performance of its segments based
on sales performance. Other performance measures beyond net sales, as well as
balance sheet components, are not tracked to these segments.
Segment information for the three months and six months ended March 31, 2000
and 2001 was as follows:
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------- -------------------
2000 2001 2000 2001
-------- -------- -------- --------
Net Sales:
Branded Products...................... $25,550 $24,585 $50,493 $47,416
Bulk Materials........................ 3,124 2,424 5,831 4,920
------- ------- ------- -------
Total............................... $28,674 $27,009 $56,324 $52,336
======= ======= ======= =======
7
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
response to Part I, Item 1 of this report.
The Company was formed in 1993 by certain members of the current management
team and Bain Capital, Inc. to effect a consolidation strategy in the fragmented
vitamin, mineral, herbal and other nutritional supplements industry (the "VMS
Industry"). The Company purchased Solaray, Inc. in October 1993 with a view
toward using it as a platform for future acquisitions of businesses in the VMS
Industry. In fiscal 1995, the Company completed three acquisitions: Premier One
Products, Inc. in October 1994, Makers of KAL, Inc. in January 1995 and Monarch
Nutritional Laboratories, Inc. in September 1995. In fiscal 1998, the Company
completed two acquisitions: Action Labs, Inc. in July 1998 and Ahmed's Sun Force
International Products Inc., now known as NutraForce (Canada)
International, Inc., in August 1998. In fiscal 1999, the Company completed two
acquisitions: Woodland Publishing, Inc. and Summit Graphics, Inc. in April 1999.
In fiscal 2000, the Company completed one acquisition: Thompson Nutritional
Products in May 2000.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of operations
data as a percentage of net sales for the periods indicated:
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
----------------------- -----------------------
2000 2001 2000 2001
-------- -------- -------- --------
Net sales........................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 52.1% 50.4% 52.3% 51.2%
------ ------ ------ ------
Gross profit..................................... 47.9% 49.6% 47.7% 48.8%
Selling, general and administrative.............. 34.0% 34.3% 34.0% 34.3%
Amortization of intangibles...................... 1.5% 1.6% 1.5% 1.7%
------ ------ ------ ------
Income from operations........................... 12.4% 13.7% 12.2% 12.8%
Interest expense, net............................ 2.5% 2.7% 2.5% 3.0%
------ ------ ------ ------
Income before provision for income taxes......... 9.9% 11.0% 9.7% 9.8%
Provision for income taxes....................... 3.8% 4.3% 3.8% 3.8%
------ ------ ------ ------
Net income....................................... 6.1% 6.7% 5.9% 6.0%
====== ====== ====== ======
EBITDA(1)........................................ 17.7% 19.2% 17.5% 18.5%
====== ====== ====== ======
- ------------------------
(1) See "--EBITDA."
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 TO THE THREE MONTHS ENDED
MARCH 31, 2000
NET SALES. Net sales decreased by $1.7 million, or 5.8%, to $27.0 million
for the three months ended March 31, 2001 ("second quarter of fiscal 2001") from
$28.7 million for the three months ended March 31, 2000 ("second quarter of
fiscal 2000"). Net sales of branded products decreased by $1.0 million, or 3.8%,
to $24.6 million for the second quarter of fiscal 2001 from $25.6 million for
the second quarter of fiscal 2000. Net sales of bulk materials decreased by
$0.7 million, or 22.4%, to $2.4 million for the second quarter of fiscal 2001
from $3.1 million for the second quarter of fiscal 2000. The decreases in net
sales of branded products and bulk materials were primarily the result of
8
decreased sales volume. The Company believes that the decreased volume was
primarily attributable to an overall industry slow down in sales of nutritional
supplements.
GROSS PROFIT. Gross profit decreased by $0.3 million, or 2.4%, to
$13.4 million for the second quarter of fiscal 2001 from $13.7 million for the
second quarter of fiscal 2000. This decrease in gross profit was primarily
attributable to the decrease in sales volume. As a percentage of net sales,
gross profit increased to 49.6% for the second quarter of fiscal 2001 from 47.9%
for the second quarter of fiscal 2000. This increase in gross profit as a
percentage of net sales was primarily attributable to manufacturing
improvements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by $0.5 million, or 5.1%, to $9.3 million for
the second quarter of fiscal 2001 from $9.8 million for the second quarter of
fiscal 2000. This decrease in selling, general and administrative expenses was
primarily attributable to cost improvements in most areas of the business. As a
percentage of net sales, selling, general and administrative expenses increased
to 34.3% for the second quarter of fiscal 2001 from 34.0% for the second quarter
of fiscal 2000. This increase in selling, general and administrative expenses as
a percentage of net sales was primarily attributable to the decrease in sales
volume, which was greater than the decrease in selling, general and
administrative expenses.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles was $0.4 million
for the second quarter of fiscal 2001 and $0.4 million for the second quarter of
fiscal 2000. As a percentage of net sales, amortization of intangibles remained
relatively constant at 1.6% for the second quarter of fiscal 2001 and 1.5% for
the second quarter of fiscal 2000.
INTEREST EXPENSE, NET. Net interest expense was $0.7 million for the second
quarter of fiscal 2001 and $0.7 million for the second quarter of 2000. As a
percentage of net sales, net interest expense was 2.7% for the second quarter of
fiscal 2001 compared to 2.5% for the second quarter of fiscal 2000. This
increase in net interest expense as a percentage of net sales was primarily
attributable to the decrease in sales volume.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 39.0% for
both the second quarter of fiscal 2001 and for the second quarter of fiscal
2000. In each fiscal quarter, the Company's effective tax rate is higher than
the federal statutory rate primarily due to state tax considerations.
COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 2001 TO THE SIX MONTHS ENDED
MARCH 31, 2000
NET SALES. Net sales decreased by $4.0 million, or 7.1%, to $52.3 million
for the six months ended March 31, 2001 from $56.3 million for the six months
ended March 31, 2000. Net sales of branded products decreased by $3.1 million,
or 6.1%, to $47.4 million for the six months ended March 31, 2001 from
$50.5 million for the six months ended March 31, 2000. Net sales of bulk
materials decreased by $0.9 million, or 15.6%, to $4.9 million for the six
months ended March 31, 2001 from $5.8 million for the six months ended
March 31, 2000. The decreases in net sales of branded products and bulk
materials were primarily the result of decreased sales volume. The Company
believes that the decreased volume was primarily attributable to an overall
industry slow down in sales of nutritional supplements.
GROSS PROFIT. Gross profit decreased by $1.4 million, or 5.0%, to
$25.5 million for the six months ended March 31, 2001 from $26.9 million for the
six months ended March 31, 2000. This decrease in gross profit was primarily
attributable to the decrease in sales volume. As a percentage of net sales,
gross profit increased to 48.8% for the six months ended March 31, 2001 from
47.7% for the six months ended March 31, 2000. This increase in gross profit as
a percentage of net sales was primarily attributable to manufacturing
improvements.
9
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by $1.2 million, or 6.2%, to $18.0 million for
the six months ended March 31, 2001 from $19.2 million for the six months ended
March 31, 2000. This decrease in selling, general and administrative expenses
was primarily attributable to cost improvements in most areas of the business.
As a percentage of net sales, selling, general and administrative expenses
increased to 34.3% for the six months ended March 31, 2001 from 34.0% for the
six months ended March 31, 2000. This increase in selling, general and
administrative expenses as a percentage of net sales was primarily attributable
to the decrease in sales volume, which was greater than the decrease in selling,
general and administrative expenses.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles was $0.9 million
for the six months ended March 31, 2001 and $0.9 million for the six months
ended March 31, 2000. As a percentage of net sales, amortization of intangibles
increased to 1.7% for the six months ended March 31, 2001 from 1.5% for the six
months ended March 31, 2000. This increase in amortization of intangibles as a
percentage of net sales was primarily attributable to the decrease in sales
volume.
INTEREST EXPENSE, NET. Net interest expense was $1.5 million for the six
months ended March 31, 2001 compared to $1.4 million for the first quarter of
2000. As a percentage of net sales, net interest expense was 3.0% for the six
months ended March 31, 2001 compared to 2.5% for the six months ended March 31,
2000. This increase in net interest expense was primarily attributable to
increased interest rates and decreased sales volume.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 39.0% for
both the six months ended March 31, 2001 and for the six months ended March 31,
2000. In each fiscal period, the Company's effective tax rate is higher than the
federal statutory rate primarily due to state tax considerations.
EBITDA
EBITDA (earnings before net interest expense, taxes, depreciation and
amortization) is a commonly reported standard measure that is widely used by
analysts and investors in the VMS Industry. The following EBITDA information
provides additional information for determining the ability of the Company to
meet its debt service requirements and for other comparative analyses of the
Company's operating performance relative to other nutritional supplement
companies:
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------- -------------------
2000 2001 2000 2001
-------- -------- -------- --------
Net income.................................. $1,735 $1,806 $3,343 $3,136
Provision for income taxes.................. 1,109 1,154 2,137 2,004
Interest expense, net(1).................... 709 744 1,364 1,549
Depreciation and amortization............... 1,510 1,492 3,019 2,970
------ ------ ------ ------
EBITDA...................................... $5,063 $5,196 $9,863 $9,659
====== ====== ====== ======
- ------------------------
(1) Includes amortization of debt issuance costs.
The Company's EBITDA increased $0.1 million to $5.2 million for the second
quarter of fiscal 2001 from $5.1 million for the second quarter of fiscal 2000.
EBITDA as a percentage of net sales increased to 19.2% for the second quarter of
fiscal 2001 from 17.7% for the second quarter of fiscal 2000. Increased gross
profit margin and decreased selling, general and administrative expenses
attributable to the Company's efforts to reduce costs through facility
consolidations, as well as through headcount attrition, contributed to this
increase in EBITDA as a percentage of net sales.
10
The Company's EBITDA decreased $0.2 million to $9.7 million for the six
months ended March 31, 2001 from $9.9 million for the six months ended
March 31, 2000. EBITDA as a percentage of net sales increased to 18.5% for the
six months ended March 31, 2001 from 17.5% for the six months ended March 31,
2000. Increased gross profit margin and decreased selling, general and
administrative expenses attributable to the Company's efforts to reduce costs
through facility consolidations, as well as through headcount attrition,
contributed to this increase in EBITDA as a percentage of net sales.
The Company understands that while EBITDA is frequently used by analysts and
investors in the evaluation of nutritional supplement companies, it is not
necessarily comparable to other similarly titled captions of other companies due
to potential inconsistencies in the method of calculation. EBITDA is not
intended as an alternative to cash flow from operating activities as a measure
of liquidity or as an alternative to net income as an indicator of the Company's
operating performance or any other measure of performance in accordance with
generally accepted accounting principles.
SEASONALITY
The Company believes that its business is characterized by minor
seasonality. Furthermore, sales to any particular customer can vary
substantially from one quarter to the next based on such factors as industry
trends, timing of promotional discounts, international economic conditions and
acquisition-related activities. Historically, the Company has recorded higher
branded products net sales during the second fiscal quarter due to increased
interest in health-related products among consumers following the holiday
season. The Company does not believe that the impact of seasonality on its
results of operations is material. In addition, the Company's sales of bulk
materials are characterized by periodic shipments to certain customers and can
vary significantly from quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $29.5 million as of March 31, 2001
compared to $27.7 million as of September 30, 2000. This increase in working
capital was primarily the result of increases in cash and accounts receivable,
combined with decreases in accounts payable and accrued expenses, which were
primarily offset by a decrease in inventory.
Net cash provided by operating activities for the six months ended
March 31, 2001 was $6.2 million compared to $7.0 million for the comparable
period in fiscal 2000. The decrease in net cash provided by operating activities
for the six months ended March 31, 2001 was primarily attributable to changes in
cash used for accounts payable, accrued expenses and prepaid expenses and other
current assets, which were partially offset by changes in cash used for
inventories and accounts receivable.
Net cash used in investing activities was $3.2 million for the six months
ended March 31, 2001 and $3.3 million for the comparable period in fiscal 2000.
During these periods, the Company's investing activities consisted primarily of
capital expenditures related to leasehold improvements for the Company's Rapid
Response Center, which is the central facility where the Company is, and has
been, consolidating operations, as well as capital expenditures for information
systems, distribution equipment and manufacturing equipment to improve overall
operating efficiency.
Net cash used in financing activities was $1.5 million for the six months
ended March 31, 2001 compared to $3.2 million for the comparable period in
fiscal 2000. Net cash used in financing activities decreased primarily due to
reduced repayments of borrowings under the Company's revolving credit facility.
The Company's current credit facility makes $70.0 million of revolving
credit borrowings available to the Company. The available revolving credit
borrowings are reduced during fiscal 2001, 2002 and
11
2003, respectively. The reduction during fiscal 2001 occurs quarterly beginning
April 30, 2001 with reductions of $2.5 million per quarter for two quarters.
A key component of the Company's business strategy is to seek to make
additional acquisitions, which will likely require the Company to utilize its
current credit facility or obtain additional financing, which could include the
incurrence of substantial additional indebtedness. The Company believes that
borrowings under the Company's current credit facility, together with cash flows
from operating activities, 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
remaining months of fiscal 2001.
NEW ACCOUNTING STANDARDS
The Securities and Exchange Commission issued Staff Accounting
Bulletin 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB 101") effective
for fiscal years beginning after December 15, 1999. SAB 101 reaffirms and
provides guidance for standards of revenue recognition in financial statements.
The Company has adopted SAB 101 in preparing its financial statements.
The Financial Accounting Standards Board issued FASB Interpretation No. 44,
ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION("FIN 44")
effective July 1, 2000. FIN 44 provides guidance for certain transactions
involving stock compensation. The Company has adopted FIN 44 in preparing its
financial statements.
INFLATION
Inflation affects the cost of raw materials, goods and services used by the
Company. In recent years, inflation has been modest. The competitive environment
somewhat limits the ability of the Company to recover higher costs resulting
from inflation by raising prices. Overall, product prices have generally been
stable, and the Company seeks to mitigate the adverse effects of inflation
primarily through improved productivity and cost containment programs. The
Company does not believe that inflation has had a material impact on its results
of operations for the periods presented, except with respect to payroll-related
costs.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Such forward-looking
statements are based on the beliefs of the Company's management as well as on
assumptions made by and information currently available to the Company at the
time such statements were made. When used in this MD&A, the words "anticipate,"
"believe," "estimate," "expect," "intends" and similar expressions, as they
relate to the Company, are intended to identify forward-looking statements,
which include statements relating to, among other things: (i) the ability of the
Company to continue to successfully compete in the nutritional supplement
market; (ii) the anticipated benefits from new product introductions; (iii) the
continued effectiveness of the Company's sales and marketing strategy and
(iv) the ability of the Company to continue to successfully develop and launch
new products. Actual results could differ materially from those projected in the
forward-looking statements as a result of the matters discussed herein and
certain economic and business factors, some of which may be beyond the control
of the Company.
12
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As discussed in the Company's previous filings, the Company is subject to
regulation by a number of federal, state and foreign agencies and is involved in
various legal matters that arise in the normal course of business. The Company
does not believe there are any recent material developments in regulatory and
legal matters referred to in previous filings, or any new material legal
proceedings.
The Company carries insurance coverage in the types and amounts that
management considers reasonably adequate to cover the risks it faces in the
industry in which it competes. There can be no assurance, however, that such
insurance coverage will be adequate to cover all losses that the Company may
incur in future periods or that coverage will be available for all of the types
of claims the Company faces or may face.
In the opinion of management, the Company's liability, if any, arising from
regulatory and legal proceedings related to these matters, and others in which
it is involved, is not expected to have a material adverse impact on the
Company's financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the Company was held on
February 26, 2001, at which meeting the stockholders voted to elect
individuals to serve as part of Class III Directors of the Company and
ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent certified public accountants for the fiscal year ending
September 30, 2001.
The results of the matters voted on at the Annual Meeting are shown below.
(b) The nominees for election as Class III Directors of the Company are
listed below, together with the number of votes cast for, against, and
withheld with respect to each such nominee, as well as the number of
non-votes with respect to each such nominee:
NOMINEE FOR AGAINST WITHHELD NON-VOTING
- ------- ------------ -------- -------- ----------
Frank W. Gay II................................ 10,391,658 25,120 -- 520,075
Robert C. Gay.................................. 10,391,658 25,120 -- 520,075
J. Steven Young................................ 10,391,658 25,120 -- 520,075
(c) The names of other Directors of the Company whose term of office
continued after the Annual Meeting are as follows:
Michael D. Burke
Jeffrey A. Hinrichs
Matthew S. Levin
James D. Stice
(d) Other matters voted upon at the meeting and the results of those votes
are as follows:
FOR AGAINST ABSTAIN NON-VOTING
---------- -------- -------- ----------
Ratification of PricewaterhouseCoopers
LLP as the Company's independent
certified public accountants......... 10,393,301 23,327 150 520,075
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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)
Dated: May 15, 2001 By: /s/ LESLIE M. BROWN, JR.
-----------------------------------------
Leslie M. Brown, Jr.
SENIOR VICE PRESIDENT, FINANCE
AND CHIEF FINANCIAL OFFICER
14