-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QpQ0iY3rRIP0pEAzQNlL/M+d8M5MuAlKzEXHuqMTjcoA9xKAmKzqt9fi4u46emOw l8Jcg3SDwVZHoDboFLmdlQ== 0000912057-00-024837.txt : 20000516 0000912057-00-024837.hdr.sgml : 20000516 ACCESSION NUMBER: 0000912057-00-024837 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUTRACEUTICAL INTERNATIONAL CORP CENTRAL INDEX KEY: 0001050007 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] IRS NUMBER: 870515089 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23731 FILM NUMBER: 635528 BUSINESS ADDRESS: STREET 1: 1400 KEARNS BOULEVARD STREET 2: 2ND FLOOR CITY: PARK CITY STATE: UT ZIP: 84060 BUSINESS PHONE: 4356556000 MAIL ADDRESS: STREET 1: 1400 KEARNS BOULEVARD STREET 2: 2ND FLOOR CITY: PARK CITY STATE: UT ZIP: 84060 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 MARCH 31, 2000 Commission file number 000-23731 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 84060 CITY, UTAH (Zip code) (Address of principal executive office)
(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 / / At May 15, 2000 the registrant had 11,715,099 shares of common stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NUTRACEUTICAL INTERNATIONAL CORPORATION INDEX
DESCRIPTION PAGE NO. - ----------- -------- Part I. Financial Information Item 1. Financial Statements........................................ 3 Condensed Consolidated Balance Sheets-- September 30, 1999 and March 31, 2000....................... 3 Condensed Consolidated Statements of Operations-- Three Months and Six Months Ended March 31, 1999 and 2000... 4 Condensed Consolidated Statements of Cash Flows-- Six Months Ended March 31, 1999 and 2000.................... 5 Notes to Condensed Consolidated Financial Statements........ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 8 Part II. Other Information Item 1. Legal Proceedings........................................... 14 Item 4. Submission of Matters to a Vote of Security Holders......... 14 Item 6. Exhibits and Reports on Form 8-K............................ 14
2 PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NUTRACEUTICAL INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS)
SEPTEMBER 30, MARCH 31, 1999(1) 2000 -------------- ---------- ASSETS Current assets: Cash...................................................... $ 869 $ 1,387 Accounts receivable, net.................................. 9,010 10,686 Inventories, net.......................................... 26,863 26,539 Prepaid expenses and other current assets................. 1,397 680 Deferred income taxes..................................... 1,231 1,231 -------- -------- Total current assets.................................... 39,370 40,523 Property, plant and equipment, net.......................... 14,752 15,861 Goodwill, net............................................... 53,422 52,573 Other non-current assets, net............................... 1,100 885 -------- -------- $108,644 $109,842 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of capital lease obligations.............. $ 57 $ 51 Accounts payable.......................................... 6,879 8,407 Accrued expenses.......................................... 3,185 2,595 -------- -------- Total current liabilities............................... 10,121 11,053 Long-term debt.............................................. 38,750 35,500 Capital lease obligations................................... 23 1 Deferred income taxes, net.................................. 2,460 2,610 -------- -------- Total liabilities....................................... 51,354 49,164 -------- -------- Stockholders' equity: Common stock.............................................. 118 118 Additional paid-in capital................................ 42,637 42,680 Retained earnings......................................... 14,504 17,847 Cumulative translation adjustment......................... 31 33 -------- -------- Total stockholders' equity.............................. 57,290 60,678 -------- -------- $108,644 $109,842 ======== ========
- ------------------------ (1) The condensed consolidated balance sheet as of September 30, 1999 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 (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31, ------------------------------- ----------------------------- 1999 2000 1999 2000 -------------- -------------- ------------- ------------- Net sales................................. $ 27,234 $ 28,674 $ 54,446 $ 56,324 Cost of sales............................. 14,416 14,938 29,440 29,456 ----------- ----------- ----------- ----------- Gross profit............................ 12,818 13,736 25,006 26,868 ----------- ----------- ----------- ----------- Operating expenses Selling, general and administrative..... 8,902 9,754 17,114 19,154 Amortization of intangibles............. 437 429 874 870 ----------- ----------- ----------- ----------- 9,339 10,183 17,988 20,024 ----------- ----------- ----------- ----------- Income from operations.................... 3,479 3,553 7,018 6,844 Interest expense, net..................... 649 709 1,240 1,364 ----------- ----------- ----------- ----------- Income before provision for income taxes................................... 2,830 2,844 5,778 5,480 Provision for income taxes................ 1,090 1,109 2,225 2,137 ----------- ----------- ----------- ----------- Net income................................ $ 1,740 $ 1,735 $ 3,553 $ 3,343 =========== =========== =========== =========== Net income per common share: Basic................................... $ 0.15 $ 0.15 $ 0.30 $ 0.28 Diluted................................. $ 0.14 $ 0.14 $ 0.29 $ 0.27 Weighted average common shares outstanding: Basic................................... 11,674,994 11,803,655 11,673,703 11,798,080 Diluted................................. 12,419,806 12,509,519 12,459,256 12,510,719
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, ------------------- 1999 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................. $ 3,553 $ 3,343 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................. 2,812 3,019 Amortization of debt issuance costs....................... 108 108 Loss on disposal of property and equipment................ 34 30 Changes in assets and liabilities: Accounts receivable..................................... (1,217) (1,676) Inventories............................................. (2,170) 324 Prepaid expenses and other current assets............... 429 717 Deferred income taxes................................... 417 150 Other non-current assets................................ (12) 86 Accounts payable........................................ (1,696) 1,528 Accrued expenses........................................ (1,259) (593) ------- ------- Net cash provided by operating activities............. 999 7,036 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale of property and equipment.............................. 38 -- Purchases of property and equipment......................... (4,467) (3,287) ------- ------- Net cash used in investing activities................. (4,429) (3,287) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt................................ 3,500 -- Payments on long-term debt.................................. (500) (3,250) Payments on capital lease obligations....................... (26) (28) Proceeds from issuance of common stock...................... 60 43 Purchase of treasury stock.................................. (391) -- ------- ------- Net cash provided by (used in) financing activities... 2,643 (3,235) ------- ------- Effect of exchange rate changes on cash..................... 3 4 ------- ------- Net increase (decrease) in cash............................. (784) 518 Cash at beginning of period................................. 1,967 869 ------- ------- Cash at end of period....................................... $ 1,183 $ 1,387 ======= =======
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, 2000, the results of its operations for the three months and six months ended March 31, 1999 and 2000 and its cash flows for the six months ended March 31, 1999 and 2000, 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, 2000 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, 1999, which was filed with the Securities and Exchange Commission on December 29, 1999. 2. INVENTORIES, NET Inventories, net of reserves for obsolete and slow moving inventory, are comprised of the following:
SEPTEMBER 30, MARCH 31, 1999 2000 -------------- ---------- Raw materials......................................... $ 7,491 $ 8,270 Work-in-process....................................... 7,151 5,200 Finished goods........................................ 12,221 13,069 ------- ------- $26,863 $26,539 ======= =======
3. CAPITAL STOCK The Company has adopted Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE. Under this statement, both "basic" earnings per share and "diluted" earnings per share are presented on the face of the income statement. The following table provides a reconciliation of both net income and the number of common shares used in the computations of basic earnings per share, which utilizes the 6 NUTRACEUTICAL INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 3. CAPITAL STOCK (CONTINUED) weighted average number of common shares outstanding without regard to potential common shares, and diluted earnings per share, which includes all such shares:
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31, ------------------------------- ----------------------------- 1999 2000 1999 2000 -------------- -------------- ------------- ------------- Net income (Numerator).................... $ 1,740 $ 1,735 $ 3,553 $ 3,343 Weighted average common shares (Denominator): Basic weighted average common shares.... 11,674,994 11,803,655 11,673,703 11,798,080 Dilutive effect of stock options and warrants.............................. 744,812 705,864 785,553 712,639 ----------- ----------- ----------- ----------- Diluted weighted average common shares................................ 12,419,806 12,509,519 12,459,256 12,510,719 =========== =========== =========== =========== Net income per common share: Basic................................... $ 0.15 $ 0.15 $ 0.30 $ 0.28 Diluted................................. $ 0.14 $ 0.14 $ 0.29 $ 0.27
4. OPERATING SEGMENTS For the fiscal year ended September 30, 1999, the Company adopted Statement of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which requires the Company to report information about its operating segments. The Company has determined that its reportable segments are those that are based on the Company's method of internal reporting. Accordingly, the Company has two reportable segments: branded products and bulk materials. The Company manufactures and markets quality branded products sold to health food stores in the United States and to distributors worldwide. In addition to branded products, the Company manufactures bulk materials for its own use and for sale to other manufactures 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 growth. Other performance measures beyond net sales, as well as balance sheet components, are not tracked to individual segments. Segment information for the three months and six months ended March 31, 1999 and 2000 was as follows:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ------------------- ------------------- 1999 2000 1999 2000 -------- -------- -------- -------- Net Sales: Branded Products...................................... $23,948 $25,550 $46,274 $50,493 Bulk Materials........................................ 3,286 3,124 8,172 5,831 ------- ------- ------- ------- Total............................................... 27,234 28,674 54,446 56,324 ======= ======= ======= =======
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 key 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 significant 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 Nutraforce (Canada) International, Inc. in August 1998. In fiscal 1999, the Company completed two additional acquisitions: Woodland Publishing, Inc. and Summit Graphics, Inc. in April 1999 (the "Fiscal 1999 Acquisitions"). RESULTS OF OPERATIONS The following table sets forth certain consolidated statements of operations data as a percentage of net sales for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ------------------- ------------------- 1999 2000 1999 2000 -------- -------- -------- -------- Net sales................................................ 100.0% 100.0% 100.0% 100.0% Cost of sales............................................ 52.9% 52.1% 54.1% 52.3% ------ ------ ------ ------ Gross profit............................................. 47.1% 47.9% 45.9% 47.7% Selling, general and administrative...................... 32.7% 34.0% 31.4% 34.0% Amortization of intangibles.............................. 1.6% 1.5% 1.6% 1.5% ------ ------ ------ ------ Income from operations................................... 12.8% 12.4% 12.9% 12.2% Interest expense, net.................................... 2.4% 2.5% 2.3% 2.5% ------ ------ ------ ------ Income before provision for income taxes................. 10.4% 9.9% 10.6% 9.7% Provision for income taxes............................... 4.0% 3.8% 4.1% 3.8% ------ ------ ------ ------ Net income............................................... 6.4% 6.1% 6.5% 5.9% ====== ====== ====== ====== EBITDA (1)............................................... 18.1% 17.7% 18.1% 17.5% ====== ====== ====== ======
- ------------------------ (1) See "--EBITDA." COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS ENDED MARCH 31, 1999 NET SALES. Net sales increased by $1.5 million, or 5.3%, to $28.7 million for the three months ended March 31, 2000 ("second quarter of fiscal 2000") from $27.2 million for the three months ended March 31, 1999 ("second quarter of fiscal 1999"). Net sales of branded products increased by $1.7 million, or 6.7%, to $25.6 million for the second quarter of fiscal 2000 from $23.9 million for the second quarter of fiscal 1999. This increase in net sales of branded products was primarily the result of increased sales volume. The Company believes that the increased volume was primarily attributable to industry growth, the success of new product introductions and, to a lesser extent, the Fiscal 1999 Acquisitions. Net sales of bulk materials decreased by $0.2 million, or 4.9%, to $3.1 million for the second quarter of fiscal 2000 from $3.3 million 8 for the second quarter of fiscal 1999. This decrease in net sales of bulk materials was primarily attributable to reduced sales of certain commodity-based materials to key customers. GROSS PROFIT. Gross profit increased by $0.9 million, or 7.2%, to $13.7 million for the second quarter of fiscal 2000 from $12.8 million for the second quarter of fiscal 1999. This increase in gross profit was primarily attributable to an increase in sales volume. As a percentage of net sales, gross profit increased to 47.9% for the second quarter of fiscal 2000 from 47.1% for the second quarter of fiscal 1999. This increase in gross profit as a percentage of net sales was primarily attributable to improvements in direct material pricing and, to a lesser extent, a shift in sales mix to a higher proportion of branded product sales, which have higher gross profit margins, relative to bulk material sales, which have lower gross profit margins. During the second quarter of fiscal 2000, direct material pricing improved due to new material sources, increased supplier competition and reduced packaging costs, which were higher during the second quarter of fiscal 1999 due to bottle and label conversions associated with the Company's efforts to enhance quality and to comply with new labeling laws mandated by the FDA. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by $0.9 million, or 9.6%, to $9.8 million for the second quarter of fiscal 2000 from $8.9 million for the second quarter of fiscal 1999. As a percentage of net sales, selling, general and administrative expenses increased to 34.0% for the second quarter of fiscal 2000 from 32.7% for the second quarter of fiscal 1999. This increase in selling, general and administrative expenses as a percentage of net sales was primarily attributable to the Company's investment in sales force expansion, facility consolidation and the addition of key management personnel. AMORTIZATION OF INTANGIBLES. Amortization of intangibles was $0.4 million for the second quarter of fiscal 2000 and $0.4 million for the second quarter of fiscal 1999. As a percentage of net sales, amortization of intangibles was 1.5% for the second quarter of fiscal 2000 compared to 1.6% for the second quarter of fiscal 1999. INTEREST EXPENSE, NET. Net interest expense was $0.7 million for the second quarter of fiscal 2000 compared to $0.6 million for the second quarter of fiscal 1999. As a percentage of net sales, net interest expense was 2.5% for the second quarter of fiscal 2000 compared to 2.4% for the second quarter of fiscal 1999. PROVISION FOR INCOME TAXES. The Company's effective tax rate increased to 39.0% for the second quarter of fiscal 2000 from 38.5% for the second quarter of fiscal 1999. In each fiscal quarter, the effective tax rate is higher than statutory rates primarily due to the non-deductibility for tax purposes of goodwill amortization arising from the Solaray, Inc. acquisition and, to a lesser extent, the Woodland Publishing, Inc. acquisition. The impact of goodwill arising from the Solaray, Inc. and Woodland Publishing, Inc. acquisitions on the effective tax rate for the second quarter of fiscal 2000 increased compared to the second quarter of fiscal 1999 as a result of the Company's mid-year acquisition of Woodland Publishing, Inc. and the Company's lower year-to-date income before provision for taxes. COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 2000 TO THE SIX MONTHS ENDED MARCH 31, 1999 NET SALES. Net sales increased by $1.9 million, or 3.4%, to $56.3 million for the six months ended March 31, 2000 from $54.4 million for the six months ended March 31, 1999. Net sales of branded products increased by $4.2 million, or 9.1%, to $50.5 million for the six months ended March 31, 2000 from $46.3 million for the six months ended March 31, 1999. This increase in net sales of branded products was primarily the result of increased sales volume. The Company believes that the increased volume was primarily attributable to industry growth, the success of new product introductions and, to a lesser extent, the Fiscal 1999 Acquisitions. Net sales of bulk materials decreased by $2.3 million, or 28.6%, to $5.8 million for the six months ended March 31, 2000 from $8.1 million for the six months ended March 31, 1999. This decrease in net sales of bulk materials was primarily attributable to reduced sales of certain commodity-based materials to key customers. 9 GROSS PROFIT. Gross profit increased by $1.9 million, or 7.4%, to $26.9 million for the six months ended March 31, 2000 from $25.0 million for the six months ended March 31, 1999. This increase in gross profit was primarily attributable to an increase in sales volume. As a percentage of net sales, gross profit increased to 47.7% for the six months ended March 31, 2000 from 45.9% for the six months ended March 31, 1999. This increase in gross profit as a percentage of net sales was primarily attributable to improvements in direct material pricing and, to a lesser extent, a shift in sales mix to a higher proportion of branded product sales, which have higher gross profit margins, relative to bulk material sales, which have lower gross profit margins. During the six months ended March 31, 2000, direct material pricing improved due to new material sources, increased supplier competition and reduced packaging costs, which were higher during the six months ended March 31, 1999 due to bottle and label conversions associated with the Company's efforts to enhance quality and to comply with new labeling laws mandated by the FDA. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by $2.1 million, or 11.9%, to $19.2 million for the six months ended March 31, 2000 from $17.1 million for the six months ended March 31, 1999. As a percentage of net sales, selling, general and administrative expenses increased to 34.0% for the six months ended March 31, 2000 from 31.4% for the six months ended March 31, 1999. This increase in selling, general and administrative expenses as a percentage of net sales was primarily attributable to the Company's investment in sales force expansion, facility consolidation and the addition of key management personnel. AMORTIZATION OF INTANGIBLES. Amortization of intangibles was $0.9 million for the six months ended March 31, 2000 and $0.9 million for the six months ended March 31, 1999. As a percentage of net sales, amortization of intangibles was 1.5% for the six months ended March 31, 2000 compared 1.6% for the six months ended March 31, 1999. INTEREST EXPENSE, NET. Net interest expense was $1.4 million for the six months ended March 31, 2000 compared to $1.2 million for the six months ended March 31, 1999. As a percentage of net sales, net interest expense was 2.5% for the six months ended March 31, 2000 compared to 2.3% for the six months ended March 31, 1999. This increase in net interest expense was primarily attributable to increased interest rates. PROVISION FOR INCOME TAXES. The Company's effective tax rate increased to 39.0% for the six months ended March 31, 2000 from 38.5% for the six months ended March 31, 1999. In each fiscal quarter, the effective tax rate is higher than statutory rates primarily due to the non-deductibility for tax purposes of goodwill amortization arising from the Solaray, Inc. acquisition and, to a lesser extent, the Woodland Publishing, Inc. acquisition. The impact of goodwill arising from the Solaray, Inc. and Woodland Publishing, Inc. acquisitions on the effective tax rate for the six months ended March 31, 2000 increased compared to the six months ended March 31, 1999 as a result of the Company's mid-year acquisition of Woodland Publishing, Inc. and the Company's lower year-to-date income before provision for taxes. 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 10 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 ENDED MARCH 31, MARCH 31, ------------------- ------------------- 1999 2000 1999 2000 -------- -------- -------- -------- Net income.................................................. $1,740 $1,735 $3,553 $3,343 Provision for income taxes.................................. 1,090 1,109 2,225 2,137 Interest expense, net(1).................................... 649 709 1,240 1,364 Depreciation and amortization............................... 1,444 1,510 2,812 3,019 ------ ------ ------ ------ EBITDA...................................................... $4,923 $5,063 $9,830 $9,863 ====== ====== ====== ======
- ------------------------ (1) Includes amortization of debt issuance costs. The Company's EBITDA increased $0.2 million to $5.1 million for the second quarter of fiscal 2000 from $4.9 million for the second quarter of fiscal 1999. EBITDA as a percentage of net sales decreased to 17.7% for the second quarter of fiscal 2000 from 18.1% for the second quarter of fiscal 1999. Increased selling, general and administrative expenses attributable to the Company's sales force expansion, facility consolidation and the addition of key management personnel contributed to this decrease in EBITDA as a percentage of net sales. The Company's EBITDA increased $0.1 million to $9.9 million for the six months ended March 31, 2000 from $9.8 million for the six months ended March 31, 1999. EBITDA as a percentage of net sales decreased to 17.5% for the six months ended March 31, 2000 from 18.1% for the six months ended March 31, 1999. Increased selling, general and administrative expenses attributable to the Company's investment in sales force expansion, facility consolidation and the addition of key management personnel contributed to this decrease in EBITDA as a percentage of net sales. SEASONALITY The Company believes that its business is characterized by minor seasonality. Furthermore, sales to some customers 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 sales volume 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. YEAR 2000 ISSUE Many existing computer programs use only two digits to identify years. These programs were designed without consideration for the effect of the recent change in century. Essentially all the Company's information technology-based systems, as well as many non-information technology-based systems, may be affected by the year 2000 issue. As of May 15, 2000, the Company is not aware of any material year 2000 problems in any of its critical and non-critical systems potentially affected by the year 2000 issue. In addition, the Company has not received any notification from any supplier of critical systems of any material year 2000 related problems in their businesses. In the event that any year 2000 related problems arise in the future, the Company formulated year 2000 remediation plans to address such issues. However, although the Company has year 2000 remediation plans, no assurance can be given that such plans will be able to solve all year 2000 problems that might still arise or that the failure to solve any such year 2000 problem will not have a material adverse effect on the Company. 11 LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $29.5 million as of March 31, 2000 compared to $29.2 million as of September 30, 1999. This increase in working capital was primarily the result of increases in accounts receivable and cash, combined with a decrease in accrued expenses, which were somewhat offset by an increase in accounts payable and decreases in prepaid expenses and other current assets and inventory. Net cash provided by operating activities for the six months ended March 31, 2000 was $7.0 million compared to $1.0 million for the comparable period in fiscal 1999. The increase in net cash provided by operating activities for the six months ended March 31, 2000 was primarily attributable to reduced inventory purchases, compared to the prior year, and changes in accounts payable related to the timing of payments. Net cash used in investing activities was $3.3 million for the six months ended March 31, 2000 and $4.4 million for the comparable period in fiscal 1999. During these periods, the Company's investing activities consisted primarily of capital expenditures related to leasehold improvements for the Company's DDO facility, as well as capital expenditures for information systems, distribution equipment and manufacturing equipment to improve overall operating efficiency. Net cash provided by (used in) financing activities was ($3.2) million for the six months ended March 31, 2000 compared to $2.6 million for the comparable period in fiscal 1999. Net cash used in financing activities increased primarily due to the repayment of borrowings under the Company's revolving credit facility. 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 facitly 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 2000. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which became effective for fiscal years beginning after December 15, 1997 and established standards for the way companies report and display comprehensive income and its components in a full set of general purpose financial statements. The Company has adopted SFAS No. 130, but the impact of SFAS No. 130 on the Company's financial statements is immaterial for disclosure in the periods presented. The American Institute of Certified Public Accountants issued SOP 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, which became effective for fiscal years beginning after December 15, 1998 and established standards for the way that public business enterprises account for the costs of internal use computer software. The Company has adopted SOP 98-1 in its financial statements for the six months ended March 31, 2000. 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 for nutritional supplement sales 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. 12 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 supplements 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. 13 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 29, 2000, at which meeting the stockholders voted to elect individuals to serve as part of Class II 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, 2000. The results of the matters voted on at the Annual Meeting are shown below. (b) The nominees for election as Class II 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 - ------- ---------- -------- -------- ---------- Michael D. Burke..................... 10,416,116 31,750 -- 1,349,852 James D. Stice, Ph.D................. 10,416,116 31,750 -- 1,349,852
(c) The names of other Directors of the Company whose term of office continued after the Annual Meeting are as follows: Frank W. Gay II Matthew S. Levin Robert C. Gay Jon Steven Young Jeffrey A. Hinrichs
(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................................. 10,437,738 10,078 50 1,349,852
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27.1 Financial Data Schedule (b) Reports on Form 8-K: None 14 SIGNATURES 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, 2000 By: /s/ LESLIE M. BROWN, JR. ----------------------------------------- Leslie M. Brown, Jr. SENIOR VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER
15 EX-27.1 2 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NUTRACEUTICAL INTERNATIONAL CORPORATION'S FINANCIAL POSITION AS OF MARCH 31, 2000 AND THE RESULTS OF ITS OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS SEP-30-2000 OCT-01-1999 MAR-31-2000 1,387 0 11,927 1,241 26,539 40,523 30,127 14,266 109,842 11,053 0 0 0 118 60,560 109,842 56,324 56,324 29,456 29,456 20,024 64 1,364 5,480 2,137 3,343 0 0 0 3,343 .28 .27
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