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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the Fiscal Year Ended September 30, 2015 |
or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from to |
Commission file number: 000-23731
NUTRACEUTICAL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation) |
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87-0515089
(I.R.S. Employer Identification Number) |
1400 Kearns Boulevard, 2nd Floor
Park City, Utah 84060
(Address of principal executive offices including zip code)
Registrant's
telephone number, including area code: (435) 655-6106
Securities registered pursuant to Section 12(b) of the Act:
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Common Stock, par value $.01 per share |
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The NASDAQ Stock Market LLC |
(Title of class) |
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(Name of exchange on which registered) |
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the
definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer o |
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Accelerated Filer ý |
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Non-accelerated Filer o (Do not check if a
smaller reporting company) |
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Smaller reporting company o |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No
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The aggregate market value of voting stock held by non-affiliates of the Registrant as of March 31, 2015 at a closing sale price of $19.70 as reported by
the NASDAQ Stock Market was approximately $165.2 million. Shares of common stock held by each officer and director and by each person who owns or may be deemed to own 10% or more of the
outstanding common stock have been excluded since such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As
of November 17, 2015, the Registrant had 9,454,257 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be used in connection with the solicitation of proxies for the Registrant's 2015 Annual Meeting of Stockholders
are incorporated by reference in Part III of this Annual Report on Form 10-K.
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Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K 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.
Important factors that may cause our results to differ from these forward-looking statements include, but are not limited to:
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- changes in or new government regulations or increased enforcement of the same including adverse determinations
by regulators,
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- unavailability of desirable acquisitions, inability to complete them or inability to integrate
them,
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- increased costs, including from increased raw material or energy
prices,
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- changes in general worldwide economic or political
conditions,
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- adverse publicity or negative consumer perception regarding nutritional
supplements,
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- issues with obtaining raw materials of adequate quality or
quantity,
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- litigation and claims, including product liability, intellectual property and other
types,
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- disruptions from or following acquisitions, including the loss of
customers,
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- increased competition,
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- slow or negative growth in the nutritional supplement industry or the healthy foods
channel,
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- the loss of key personnel or the inability to manage our operations
efficiently,
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- problems with information management systems, manufacturing efficiencies and operations, including system
interruptions and security/cybersecurity breaches,
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- insurance coverage issues,
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- the volatility of the stock market generally and of our stock
specifically,
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- increases in the cost of borrowings or unavailability of additional debt or equity capital, or both, or
fluctuations in foreign currencies,
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- interruption of business or negative impact on sales and earnings due to acts of God, acts of war, terrorism,
bio-terrorism, civil unrest and other factors outside of our control, and
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- other factors disclosed in this Report.
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. For a detailed discussion of these risks and uncertainties, see "Risk Factors" in Item 1A of this Annual Report on Form 10-K. 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 Annual Report on Form 10-K.
Industry data used throughout this report was obtained from industry publications and internal company estimates. While we believe such information to be
reliable, its accuracy has not been independently verified and cannot be guaranteed.
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NUTRACEUTICAL INTERNATIONAL CORPORATION
ANNUAL REPORT ON FORM 10-K
For The Fiscal Year Ended September 30, 2015
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Table of Contents
PART I
Item 1. Business
We were incorporated in Delaware in 1993 and maintain our principal executive offices at 1400 Kearns Boulevard,
2nd Floor, Park City, Utah 84060. For convenience in this report, the terms "Company," "Nutraceutical," "we" and "us" may be used to refer to Nutraceutical
International Corporation and/or its subsidiaries, except where indicated otherwise. Our telephone number is (435) 655-6106.
General
We are an integrated manufacturer, marketer, distributor and retailer of branded nutritional supplements and other natural products
sold primarily to and through domestic health and natural food stores. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and
natural product distributors and retailers. Our core business strategy is to acquire, integrate and operate businesses in the natural products industry that manufacture, market and distribute branded
nutritional supplements. We believe that the consolidation and integration of these acquired businesses provides ongoing financial synergies through increased scale and market penetration, as well as
strengthened customer relationships.
We
manufacture and sell nutritional supplements and other natural products under numerous brands, including Solaray®, KAL®, Nature's Life®, LifeTime®, Natural Balance®, NaturalCare®,
Health from the Sun®, Pioneer®, Nutra
BioGenesis, Life-flo®, Organix South®, Heritage Store® and
Monarch Nutraceuticals.
We
own neighborhood natural food markets, which operate under the trade names The Real Food Company, Thom's Natural Foods, Cornucopia Community Market and Granola's. We also own health food stores, which operate under various trade names, including Fresh
Vitamins and Peachtree Natural Foods®.
We
manufacture and/or distribute one of the broadest branded product lines in the industry, with approximately 7,500 individual stock keeping units ("SKUs"), including approximately 750
SKUs exclusively sold internationally. We believe that, as a result of our emphasis on innovation, quality, loyalty, education and customer service, our brands are widely recognized in health and
natural food stores and among their customers.
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 these acquisitions, internal growth and cost management, we believe that we are well positioned to continue to
capitalize on the consolidation that we believe is occurring in the VMS Industry.
Business Strategy
We target consumers searching for high quality nutritional and other natural products. We believe many of these consumers shop in sales
channels that offer meaningful education, service and support to their customers.
The
primary channel that offers this type of support to consumers in the United States has been health and natural food stores (the "Healthy Foods Channel"). Our primary focus has been
and remains on this channel. This strategy has enabled us to benefit from the growth of the Healthy Foods Channel. The Healthy Foods Channel consists of approximately 17,000 retailers, including
(i) independent health and natural food stores, (ii) health and natural food stores affiliated with local, regional and national health and natural food chains (including health and
natural food store chains, such as Whole Foods Market, and vitamin store chains, such as Vitamin Shoppe and Vitamin World)
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and
(iii) GNC stores. The Healthy Foods Channel principally caters to our primary target consumers: those who desire product education, service and high quality nutritional supplements and
other natural products. We believe there are significant differences between mass market retailers (such as supermarkets, drugstores and warehouse clubs) that typically offer a limited selection of
discounted natural products and lower-potency nutritional supplements and the Healthy Foods Channel, where natural ingredients, quality, potency, selection and customer support are emphasized. The
growth rate of the Healthy Foods Channel is not at (and may not return to) levels achieved in the mid-1990s.
We
believe we are among the largest suppliers of nutritional supplements to the Healthy Foods Channel that develop, manufacture, market and directly distribute a majority of their own
products. We manufactured approximately 75% of our branded products in fiscal 2015 and believe that the quality of our products is among the highest in the industry. We market our branded products
through one of the industry's largest sales forces dedicated to the Healthy Foods Channel. We seek to be a market leader in the development of new and innovative products, introducing approximately
175 new SKUs in fiscal 2015. We believe that we benefit from greater customer and product diversification than most of our larger competitors.
We
believe that consumers seeking high quality products are also purchasing them through other channels, such as products available through health care practitioners and direct to
consumer channels
and we continue to seek opportunities through acquisitions to explore reaching our target consumers through these and additional channels.
Industry
According to Nutrition Business Journal, the retail natural products market (the
"Natural Products Market") is comprised of the following submarkets: (i) personal care, (ii) natural and organic foods, (iii) functional foods, and (iv) vitamins, minerals
and supplements. Historically, our primary focus has been on vitamins, minerals and supplements (the "VMS Market"), but recently we have increased our effort in other areas within the Natural Products
Market.
Products
We primarily manufacture and market nutritional supplements and also sell certain other natural products. As of September 30,
2015, we sold approximately 7,500 SKUs, including approximately 750 SKUs exclusively sold internationally, under more than 60 different brands. Our products include: (i) vitamins and minerals,
(ii) herbs, (iii) specialty formulas, (iv) personal care products, (v) homeopathics, (vi) functional foods and (vii) other products. To accommodate consumer
preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, creams, sprays, powders and whole herbs.
We
currently market our products through a multiple brand strategy to offer more customer choice and to encourage retailers to allocate additional shelf space to our brands. We have
worked to enhance the strength of our brands by instituting business strategies that have included (i) consolidating or expanding our sales force in certain areas, as appropriate, to maximize
each brand's geographic coverage, (ii) performance and growth-based incentives for sales representatives, (iii) introducing more sophisticated management information systems and
(iv) periodic updating to brand packaging.
We
also act as a distributor to the Healthy Foods Channel and to certain international markets for certain third-party brands.
Research and Development; Quality Control
We have a commitment to research and development and to introducing innovative products to correspond with consumer trends and
scientific research. We believe that product quality and innovation are fundamental to our long-term growth and success. Through our research and
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development
efforts, we seek to (i) test the safety, purity and potency of products, (ii) develop more effective and efficient means of producing ingredients for use in products,
(iii) develop testing methods for ensuring and verifying the consistency of the dosage of ingredients included in our products, (iv) develop new, more effective product delivery forms
and (v) develop new products either by combining existing ingredients used in nutritional supplements or identifying new ingredients that can be used in nutritional supplements. Our efforts are
designed to lead not only to the development of new and improved products, but also to ensure effective manufacturing quality control measures. For the years ended September 30, 2015, 2014 and
2013, we incurred $3.6 million, $3.8 million and $3.4 million, respectively, in research and development expenses.
We
conduct research and development in our own facilities. We currently employ various professionals in research and development and quality control with degrees in, among other things,
chemistry, microbiology and engineering and, in many cases, these professionals have also received training in natural health food products. In addition, we retain the services of outside laboratories
from time to time to validate our product standards and manufacturing protocols.
Our
quality control program seeks to ensure the superior quality of our products and that they are manufactured in accordance with current Good Manufacturing Practices ("GMPs"). Our
processing methods are monitored closely to ensure that only quality ingredients are used and to ensure product purity.
Marketing and Sales
We believe our marketing and sales efforts help to promote demand for our products by educating retailers, who in turn educate their
customers, as to the quality and attributes of our natural nutritional supplements and other products. Our branded products are currently sold in the United States primarily in the Healthy Foods
Channel. We believe that our products are attractive to retailers in the Healthy Foods Channel due to factors such as the strength of our brand names, the breadth of our product offerings, the quality
and potency of our products and the availability of service, sales support and educational materials. We have developed various Internet sites (including http://www.nutraceutical.com) that provide
information about our branded lines and the various products within each brand. We
have included our Internet site here and elsewhere only as an inactive textual reference. The information contained on the Internet site is not incorporated by reference into this Annual Report on
Form 10-K.
We
employ a sales force dedicated to the Healthy Foods Channel. Our sales representatives regularly visit each assigned health and natural food store in their respective areas to assist
in the solicitation of orders for products and provide related product sales assistance. We monitor and periodically update our payment structure for our sales force in order to ensure that
appropriate incentives are provided for sales growth. We also sell products directly to certain retailers through our telephone customer service organization and certain products to both retailers and
distributors and others directly to consumers. We have organized the majority of our marketing and sales efforts under a subsidiary company, NutraBrands, Inc.
Our
marketing efforts are focused on product development, in-store marketing support and educating retailers to enhance their knowledge and awareness of our products and to enable them
to then educate their customers about our products. Our marketing efforts are designed to foster relationships with our customers in the Healthy Foods Channel and to increase retailer and consumer
awareness of our products.
Au
Naturel, Inc., a subsidiary of Nutraceutical, was formed in fiscal 1995 for the purpose of marketing and/or selling our branded products internationally. During fiscal 2015, Au
Naturel marketed products to distributors and other customers in approximately 70 countries. Au Naturel markets domestic branded products as well as custom-labeled versions of its domestic branded
products
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internationally;
however, many of its products must be modified to meet the specific labeling or formulation requirements of the relevant foreign country. In most foreign markets, Au Naturel sells to
local distributors. However, in certain foreign markets (including the United Kingdom, the Netherlands, Norway, Sweden and Canada), Au Naturel markets and sells its products directly to retailers.
Monarch
Nutraceuticals, Inc., a subsidiary of Nutraceutical, markets branded bulk products and custom blends. Monarch conducts marketing and sales for bulk materials domestically
through a separate sales force and internationally directly to manufacturers and through distributors.
Manufacturing
Our manufacturing process generally consists of the following operations: (i) sourcing ingredients for products,
(ii) warehousing raw ingredients, (iii) measuring ingredients for inclusion in products, (iv) blending, grinding, and chilsonating ingredients into a mixture with a homogeneous
consistency and (v) encapsulating, tableting, pouring, pouching, bagging or boxing the blended mixture into the appropriate dosage form using either automatic or semiautomatic equipment. The
next step, bottling and packaging, involves placing the product in packaging with appropriate tamper-evident features and sending the packaged product to a distribution point for delivery to
retailers. We place special emphasis on quality control, including raw material verification, homogeneity testing, weight deviation measurements and quality sampling. See "Research and Development;
Quality Control."
We
manufactured approximately 75% of our branded products in fiscal 2015, based on net sales. By manufacturing the majority of our own products, we believe that we maintain better
control over product quality and availability while also reducing production costs. Our manufacturing operations are performed primarily in our facilities located in the greater Ogden, Utah area,
although we also have a cream manufacturing operation in Phoenix, Arizona, a liquid manufacturing operation in Tulsa, Oklahoma and personal care manufacturing operations in Bowling Green and Pompano
Beach, Florida and Sebastopol, California. We have a working relationship with numerous outside manufacturers, including softgel manufacturers and packagers and utilize these outside sources from time
to time. Manufacturing backlogs, to the extent they may exist from time to time, do not have a material impact on delivery time to the customer. We have organized our manufacturing operations under
various subsidiary companies.
Management Information and Communication Systems
We use customized computer software systems, as well as commercially-packaged software, for handling order entry and invoicing,
manufacturing, inventory management, shipping, warehouse operations, customer service inquiries, accounting operations and management information. We believe that these systems have improved operating
efficiencies and customer service.
Materials and Suppliers
We employ a purchasing staff that works with marketing, product development, formulations and quality control personnel to source raw
materials for products as well as other items purchased by us. Raw materials are sourced principally from the United States, Europe and China. Raw materials used by us are available from a variety of
suppliers and no one supplier accounted for more than 6% of our total raw material purchases in fiscal 2015. We seek to mitigate the risk of a shortage of raw materials through our relationships with
our principal suppliers, including identification of alternative suppliers for the same, or similar, raw materials where available. We also manufacture bulk branded products to allow more extensive
vertical integration and to improve the quality and consistency of raw materials.
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Government Regulation
The formulation, manufacturing, packaging, labeling, advertising, distribution and sale (hereafter, "sale" or "sold" may be used to
signify all of these activities) of our products are subject to regulation by one or more federal agencies, primarily the Food and Drug Administration ("FDA") and the Federal Trade Commission ("FTC"),
and to a lesser extent the Consumer Product Safety Commission ("CPSC"), the United States Department of Agriculture and the Environmental Protection Agency. Our activities are also regulated by
various governmental agencies
for the states and localities in which our products are sold, as well as by governmental agencies in certain countries outside the United States in which our products are sold. Among other matters,
regulation by the FDA and FTC is concerned with product safety and claims made with respect to a product's ability to provide health-related benefits. Specifically, the FDA, under the Federal Food,
Drug, and Cosmetic Act ("FDCA"), regulates the formulation, manufacturing, packaging, labeling, distribution and sale of food, including dietary supplements and over-the-counter ("OTC") drugs. The FTC
regulates the advertising of these products. The National Advertising Division ("NAD") of the Council of Better Business Bureaus oversees an industry-sponsored, self-regulatory system that permits
competitors to resolve disputes over advertising claims. The NAD has no enforcement authority of its own, but may refer matters that appear to violate the FTC Act or the FDCA to the FTC or the FDA for
further action, as appropriate.
Federal
agencies, primarily the FDA and the FTC, have a variety of procedures and enforcement remedies available to them, including initiating investigations, issuing warning letters and
cease-and-desist orders, requiring corrective labeling or advertising, requiring consumer redress (for example, requiring that a company offer to repurchase products previously sold to consumers),
seeking injunctive relief or product seizures, imposing civil penalties or commencing criminal prosecution. In addition, certain state agencies have similar authority. These federal and state agencies
have in the past used these remedies in regulating participants in the food, dietary supplement and over-the-counter drug industries, including the imposition of civil penalties in the millions of
dollars against a few industry participants.
Some
of our products are regulated as conventional foods under the Nutrition Labeling and Education Act of 1990 ("NLEA"). The NLEA amended the FDCA to establish additional requirements
for ingredient and nutrition labeling and labeling claims for conventional foods. In March 2014, FDA issued a proposed rule to significantly revise the nutrition labeling requirements for conventional
foods. If finalized as proposed, we will need to revise all our conventional food product labels. Most of our products are classified as dietary supplements. FDA's proposed revision regarding
nutrition labeling also affects the nutrition labeling of certain dietary supplements. If implemented as proposed, we will have to revise the label for a significant number of our dietary supplements.
Moreover, we may need to reformulate products to maintain eligibility for certain marketing claims.
The
Dietary Supplement Health and Education Act ("DSHEA") was enacted in 1994, amending the FDCA. Among other things, DSHEA prevents the FDA from regulating dietary ingredients in
dietary supplements as "food additives" and allows the use of statements of nutritional support on product labels and in labeling. DSHEA establishes a statutory class of "dietary supplements," which
includes vitamins, minerals, herbs, amino acids and other dietary ingredients for human use to supplement the diet. Dietary ingredients marketed in the United States before October 15, 1994 may
be marketed without the submission of a "new dietary ingredient" ("NDI") premarket notification to the FDA. Dietary ingredients not marketed in the United States before October 15, 1994 may
require the submission, at least 75 days before marketing, of an NDI notification containing information establishing that the ingredient is reasonably expected to be safe for its intended use.
The FDA has issued final regulations under DSHEA and has issued draft guidance on NDI notification requirements. Although the draft NDI guidance has not been finalized, FDA has recently acted more
aggressively to remove ingredients from the market that FDA views as unlawful dietary ingredients, and this trend, if it continues, may limit the dietary supplement market. Further guidance and
regulations are expected.
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Several
bills to amend DSHEA in ways that would make this law less favorable to consumers and industry have been proposed in Congress.
The
FDA issued a Final Rule on GMPs for dietary supplements on June 22, 2007. The GMPs cover manufacturers and holders of finished dietary supplement products, including dietary
supplement products manufactured outside the United States that are imported for sale into the United States. Among other things, the new GMPs: (a) require identity testing on all incoming
dietary ingredients, (b) call for a "scientifically valid system" for ensuring finished products meet all specifications, (c) include requirements related to process controls, including
statistical sampling of finished batches for testing and requirements for written procedures and (d) require extensive recordkeeping. We have reviewed the GMPs and have taken steps to ensure
compliance. While we believe we are in compliance, there can be no assurance that our operations or those of our suppliers will be in compliance in all respects at all times. Additionally, there is a
potential risk of increased audits as the FDA and other regulators seek to ensure compliance with the GMPs.
On
December 22, 2006, Congress passed the Dietary Supplement and Nonprescription Drug Consumer Protection Act, which went into effect on December 22, 2007. The law
requires, among other things, that companies that manufacture or distribute nonprescription drugs or dietary supplements report serious adverse events allegedly associated with their products to the
FDA and institute recordkeeping requirements for all adverse events (serious and non-serious). There is a risk that consumers, the press and government regulators could misinterpret reported serious
adverse events as evidence of causation by the ingredient or product complained of, which could lead to additional regulations, banned ingredients or products, increased insurance costs and a
potential increase in product liability litigation, among other things.
The
Food and Drug Administration Amendments Act of 2007 amended the FDCA to prohibit, with certain exceptions, the marketing of foods to which a drug or biological product has been
added. The meaning of this provision remains unclear. Although the FDA has requested comments on the interpretation of this provision, it has not taken any further actions. This provision could have
an impact on the marketing of some of our products.
The
Consumer Product Safety Improvement Act of 2008 ("CPSIA") primarily addresses children's product safety but also improves the administrative process of the CPSC. Among other things,
the CPSIA requires testing and certification of certain products and enhances the CPSC's authority to order recalls.
The
FDA Food Safety Modernization Act ("FSMA"), enacted January 4, 2011, amended the FDCA to significantly enhance FDA's authority over various aspects of food regulation. The
FSMA granted FDA mandatory recall authority when the FDA determines there is a reasonable probability that a food is adulterated or misbranded and that the use of, or exposure to, the food will cause
serious adverse health consequences or death to humans or animals. Other changes include the FDA's expanded access to records; the authority to suspend food facility registrations and require high
risk imported food to be accompanied by a certification; stronger authority to administratively detain food; the authority to refuse admission of an imported food if it is from a foreign establishment
to which a U.S. inspector is refused entry for an inspection; and the requirement that importers verify that the foods they import meet domestic standards.
One
of the FSMA's more significant changes is the requirement of preventive controls for food facilities required to register with the FDA, except dietary supplement facilities in
compliance with both GMPs and the serious adverse event reporting requirements. Although dietary supplement facilities are exempt from the preventative controls requirements, dietary ingredient
facilities do not qualify for the exemption. FDA issued a final rule regarding the preventative controls and good manufacturing practice regulations on September 17, 2015. The rules require
that facilities develop and implement preventive controls (including supplier controls) to assure that identified hazards are significantly
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minimized
or prevented, monitor the effectiveness of the preventive controls, and maintain numerous records related to those controls. With some exceptions, the compliance date for our company is
September 19, 2016. The preventative controls requirements may increase the costs of dietary ingredients and affect our ability to obtain dietary ingredients. An additional significant change
related to FSMA is the requirement that importers implement a foreign supplier verification program ("FSVP"). FDA's proposed FSVP regulations, issued in July 2013 and supplemented in September 2014,
would require importers to implement supplier verification activities to ensure that the foods they import meet domestic standards, with a partial exemption that might or might not apply to certain
importers of dietary ingredients. When implemented, the FSVP requirements may affect the cost and the availability of dietary supplements and dietary ingredients.
As
required by Section 113(b) of the FSMA, the FDA published in July 2011 a draft guidance document clarifying when the FDA believes a dietary ingredient is an NDI, when a
manufacturer or distributor must submit an NDI premarket notification to the FDA, the evidence necessary to document the safety of an NDI and the methods for establishing the identity of an NDI. The
draft guidance, if implemented as proposed, could have a material impact on our operations. Although our industry has strongly objected to several aspects of the draft guidance, it is unclear whether
FDA will make any changes to the draft guidance, and if the agency does make changes, what changes FDA will make. In addition, it is possible that the FDA takes enforcement actions consistent with the
interpretations in the draft guidance before issuing a final version.
The
new FSMA requirements, as well as the FDA enforcement of the NDI guidance as written, could require us to incur additional expenses, which could be significant, and negatively impact
our business in several ways, including, but not limited to, the detention and refusal of admission of imported products, the injunction of manufacturing of any dietary ingredients or dietary
supplements until the FDA determines that such ingredients or products are in compliance and the potential imposition of fees for reinspection of noncompliant facilities. Each of these events would
increase our liability and could have a material adverse effect on our financial condition, results of operations or cash flows.
The
FTC and the FDA have pursued a coordinated effort to challenge what they consider to be unsubstantiated and unsafe weight-loss products, and have also coordinated enforcement against
dietary supplement claims in other areas, including children's products. Their efforts to date have focused on manufacturers and marketers as well as media outlets, and have resulted in a significant
number of investigations and enforcement actions, some resulting in civil penalties under the FTC Act of several million dollars. We expect that the FTC and the FDA will continue to focus on
health-related claims for dietary supplements and foods, and our products could be the subject of an FTC/FDA inquiry.
We
market various OTC homeopathic drug products. Homeopathic drugs have a unique status under the FDCA because, unlike other drugs, FDA does not evaluate homeopathic drugs for safety or
efficacy prior to marketing. Instead, homeopathic drugs must meet the standards of strength, quality, and purity set forth in the Homeopathic Pharmacopeia of the United States ("HPUS"). FDA has
established a policy addressing the lawful sale of homeopathic drugs under the FDC Act. See Compliance Policy Guide ("CPG") 7132.15, "Conditions Under
Which Homeopathic Drugs May Be Marketed," CPG Manual § 400.400 (revised March 1995). Under this compliance policy, FDA generally exempts a homeopathic drug from regulation as a new
drug if: the active ingredient is the subject of a HPUS monograph; the product does not include non-homeopathic active ingredients; the product is homeopathically prepared; the claims (indications)
are consistent with homeopathic usage for the active ingredient(s) in the product, as described in a recognized "material medica" and the OTC homeopathic drug product is intended solely for
self-limiting diseases amenable to self-diagnosis and treatment by consumers. CPG 7132.15. In 2015, homeopathic products received increased regulatory scrutiny. In March 2015, FDA solicited comments
about the current use of human drug and biological products labeled as homeopathic, and FDA's regulatory framework for such products. FDA announced that it is
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evaluating
its current enforcement policies for these homeopathic products from scientific, risk, and process perspectives. In contrast to the FDA, the FTC treats homeopathic drugs similar to other
OTC drugs. FTC also is evaluating advertising for homeopathic products and held a workshop in 2015 to address potential issues regarding FDA's and FTC's requirements for homeopathic products. The
potential impacts of the FDA and FTC efforts are unclear, but it is possible that these products may be held to a higher standard of substantiation than has traditionally been the case. Such a change
could significantly impact the ability to market these products in the United States.
In
recent years, state courts have concluded that, because homeopathic drugs are not approved or marketed pursuant to an FDA regulation, claims against a manufacturer of a homeopathic
drug are not preempted by the FDCA. Consequently, plaintiff's actions under state consumer protection laws for lack of substantiation have been allowed to proceed. Ignoring the unique character of
homeopathic drug products, plaintiff's claims in these actions have been based on the evidence standard applied to conventional drugs. Generally, these actions involve claims for significant monetary
damages.
We
market various dietary supplements and personal care products with organic claims. It is unclear whether these products and the organic claims on their labels are subject to the
requirement of the Organic Food Production Act of 1990 and the National Organic Program ("NOP") implementing regulations. The NOP has made contradictory assertions. If the NOP asserts jurisdiction in
the future, this would have a material impact on our ability to market these products.
All
states regulate foods and drugs under laws that generally parallel federal statutes. We are also subject to state consumer health and safety regulations, such as California Safe
Drinking Water and Toxic Enforcement Act of 1986 ("Proposition 65"). Violation of Proposition 65 may result in substantial monetary penalties and compliance with Proposition 65 is a major focus.
Contemplated changes in the Proposition 65 labeling requirements could potentially lead to substantial costs to us. Current legislation in Massachusetts regarding restrictions on weight loss and
sports nutrition products could also impact the marketing of dietary supplements generally. Further, state attorneys general have pressured industry to adopt DNA testing for herbal-based products to
assure plant identity, and have taken other actions relating to dietary ingredient status. It is uncertain whether these efforts will have a material impact on the dietary supplement market.
The
sale of our products in countries outside the United States is regulated by the governments of those countries. Our plans to commence or expand sales in those countries may be
prevented or delayed or even suspended by such regulations or by regulators in those countries. In countries in which we have distributors, compliance with such regulations is generally undertaken by
our distributors, but even in these cases we assist with such compliance and in many cases may be liable if a distributor fails to comply. These distributors are independent contractors over whom we
have limited control. In certain countries, we distribute our products through our own subsidiary or branch; in these countries we retain responsibility for compliance with all applicable regulations.
These countries currently include the United Kingdom, the Netherlands, Norway, Sweden, Canada and certain Caribbean Islands.
In
some countries or areas, including those in which we operate or into which we sell, there are new regulations or proposed regulations that may or will prohibit the sale of certain
products or certain combination products (such as products containing both vitamins and botanicals) or the use of certain common ingredients, or levels above certain established limits.
As
a result of our efforts to comply with applicable statutes and regulations, we have from time to time reformulated, eliminated or relabeled certain of our products and revised certain
provisions of our marketing and sales program. We have also suspended or halted sales in certain cases.
Concerns
over weather patterns have led to the threat of increased United States and international regulations being imposed on companies to limit greenhouse gas emissions. Increased
regulations regarding greenhouse gas emissions could impose increased energy, shipping and raw material costs on
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us.
Until the timing, scope and extent of such regulations becomes known, we cannot predict their effect on our results of operations.
Competition
The Natural Products Market and the VMS Market are highly competitive. Our principal competitors in the VMS Market that sell to the
Healthy Foods Channel include a number of large, nationally-known brands (such as Bluebonnet, Country Life, Garden of Life, Jarrow Formulas, Natural Factors, Nature's Plus, Nature's Way, Nordic
Naturals, Now Foods, New Chapter and Solgar) and many smaller brands, manufacturers and distributors of nutritional supplements. Within the broader Natural Products Market, there are a number of
large, nationally-known competitors, such as Hain Celestial, GNC, Nature's Bounty and Vitamin Shoppe. Because both the Natural Products Market and the VMS Market generally have low barriers to entry,
additional competitors enter the market regularly.
Private
label products of our customers also provide competition to our products. Whole Foods Market, Vitamin Shoppe, Sprouts Farmers Market, Natural Grocers and many health and natural
food stores also sell a portion of their offerings under their own private labels. Private label products are often sold at a discount to branded products. We have positioned certain of our brands to
meet the needs of our customers in this area of the VMS Market.
We
believe that health and natural food stores are increasingly likely to align themselves with those companies that offer a wide variety of high-quality products, have a loyal consumer
base, support their brands with strong marketing and education programs and provide consistently high levels of customer service. We believe that we compete favorably with other nutritional supplement
companies because of our comprehensive line of products and brands, premium brand names, commitment to quality, ability to rapidly introduce innovative products, competitive pricing, strong and
effective sales force and distribution strategy and sophisticated marketing and promotional support. The wide variety and diversity of the forms, potencies and categories of our products are important
points of differentiation between us and many of our competitors.
With
regard to the mass market retail channel of distribution, our sales are focused primarily in limited SKUs in the Body
Gold® and Natural Balance® lines. All of these lines were selling to the mass market channel when
acquired. We do not consider this channel to be an area of primary focus. It is possible that as increasing numbers of companies (or brands of companies) sell nutritional supplement products and other
natural products in the mass market channels (such as Pharmavite (Nature Made), Carlyle Group (Nature's Bounty), Reckitt Benckiser (Schiff), Hain Celestial and Church & Dwight), these product
offerings may affect sales in the Healthy Foods Channel.
We
also compete with distributors that sell products to the Healthy Foods Channel as well as the mass market retail channel (such as United Natural Foods, Select Nutrition and KeHE
Distributors). In addition, several major pharmaceutical companies continue to offer nutritional supplement lines in the mass market, including Pfizer (Centrum) and Bayer (One-A-Day). Some of these
nutritional supplements purport to use proprietary manufacturing techniques or delivery forms. Moreover, pharmaceutical companies offer prescription and over-the-counter products that are or may be
competitive with nutritional supplements, particularly with regard to certain categories of products.
Intellectual Property
We own more than 340 trademarks that have been registered with the United States Patent and Trademark Office and have filed
applications to register additional trademarks. In addition, we claim domestic trademark and service mark rights in numerous additional marks that we use. We own a number of trademark registrations in
countries outside the United States. Federally registered trademarks in the United States have a perpetual life, as long as they are maintained and renewed on a timely basis and used properly as
trademarks, subject to the rights of third parties to seek cancellation of the trademarks if they claim priority or confusion of usage. Most foreign trademark offices use similar trademark renewal
processes. We regard our trademarks and other proprietary rights as valuable assets and believe they make a significant positive contribution to the marketing of our products.
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We protect our legal rights concerning our trademarks by appropriate measures, which may include legal action. We possess a portfolio of both registered and
unregistered (i.e., common law) trademarks. In certain circumstances, we seek and obtain registrations for our trademarks, which may confer certain advantages, and the decision to register a
trademark is made on a case by case basis. We have registered and intend to register certain trademarks in certain limited jurisdictions outside the United States where our products are sold, but we
may not register all or even some of our trademarks in every country in which we conduct business or intend to conduct business.
We
own eight U.S. patents and have filed four additional patent applications but generally do not seek patent protection for our products. Our patents expire between July 2017 and
December 2026. We sell a number of products that include patented ingredients. We purchase these ingredients from parties that we believe have the right to manufacture and sell those ingredients to
us. However, there are a large number of patents that have been granted or applied for in the dietary supplement industry, and there may be an increased possibility that third parties will seek to
compel us and our competitors to purchase their patented ingredients or file infringement actions. The cost of these patented ingredients is typically higher than the cost of non-patented ingredients.
We
are currently involved in various patent and trademark cases that have arisen in the ordinary course of business. See "Legal Proceedings."
Employees
At September 30, 2015, we employed approximately 780 full-time and approximately 65 part-time employees. None of our employees
is represented by a collective bargaining unit. We believe that we have a good relationship with our employees.
Available Information
The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding us. Our Annual Report on Form 10-K filed with the SEC includes all exhibits required to be filed with the SEC. We make available, free
of charge, on our website (http://www.nutraceutical.com), our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
reports are available as soon as is reasonably practicable after we electronically file such materials with the SEC. Additionally, copies of this Annual Report on Form 10-K are available
without charge upon request. Please contact us to request copies of this Annual Report on Form 10-K at (435) 655-6106.
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Executive Officers
The following table sets forth certain information concerning our executive officers:
|
|
|
|
|
|
Name
|
|
Age |
|
Position |
Frank W. Gay II |
|
|
69 |
|
Director, Chairman of the Board and Chief Executive Officer |
Bruce R. Hough |
|
|
61 |
|
President |
Jeffrey A. Hinrichs |
|
|
58 |
|
Director, Executive Vice President, Chief Operating Officer and Secretary |
Gary M. Hume |
|
|
66 |
|
Executive Vice President |
Stanley E. Soper |
|
|
52 |
|
Vice President, Legal Affairs and Assistant Secretary |
Cory J. McQueen |
|
|
46 |
|
Vice President and Chief Financial Officer |
Christopher B. Neuberger |
|
|
48 |
|
Vice President, Marketing and Sales |
Daren P. Peterson |
|
|
53 |
|
Vice President, Operations |
Jason D. Jones |
|
|
45 |
|
Vice President, Corporate Strategy |
Matthew A. Vance |
|
|
44 |
|
Vice President and Chief Information Officer |
Andrew W. Seelos |
|
|
48 |
|
Assistant Vice President and Controller |
Frank W. Gay II has served as the Chairman of our Board of Directors since our inception and as Chief Executive Officer since 1994.
Mr. Gay received a master's degree in business administration from Harvard Business School.
Bruce R. Hough was made our President in 1994. Prior to joining Nutraceutical, Mr. Hough acted as a consultant from 1991 to 1993
and as President of Keystone Communications, a telecommunications firm, from 1987 to 1991. Mr. Hough received a bachelor of science degree from the Marriott School of Management at Brigham
Young University.
Jeffrey A. Hinrichs has served as our Executive Vice President and Chief Operating Officer since 1994 and as a member of our Board of
Directors since 1998. Prior to joining Nutraceutical, Mr. Hinrichs served as President of Solaray from 1993 to 1994 and as Chief Financial Officer, and in other management positions, with
Solaray from 1984 to 1993. Mr. Hinrichs received a bachelor of science degree from Weber State University.
Gary M. Hume has served as our Executive Vice President since September 1999. Prior to joining Nutraceutical, Mr. Hume was
President and CEO of Murdock Madaus Schwabe (Nature's Way) from 1995 to 1999. Prior to joining Nature's Way, Mr. Hume was President of Tree of Life's Southwest Division for over twenty years.
Mr. Hume received a bachelor of arts degree from Southwestern Union College.
Stanley E. Soper joined Nutraceutical in 1997 as Vice President, Legal Affairs. From September 1999 until March 2001, Mr. Soper
founded and was employed at a technology startup. He rejoined Nutraceutical in his previous position in March 2001. Mr. Soper was in private law practice from 1991 to 1997, most recently with
Holland & Hart LLP. Mr. Soper received a J.D. from Yale Law School.
Cory J. McQueen joined Nutraceutical in March 1995 as Assistant Controller. Mr. McQueen became Controller in October 1997 and was
appointed Vice President in February 2001. In April 2007, Mr. McQueen became Chief Financial Officer. Prior to joining Nutraceutical, he was employed by Price Waterhouse LLP.
Mr. McQueen received a master's degree in accounting from the University of Utah and is a Certified Public Accountant.
Christopher B. Neuberger joined Nutraceutical in August 1995 as Director of Marketing for the Premier One brand. Mr. Neuberger left
Nutraceutical from March 1997 to December 1997 while he was employed by Weider Nutrition International, Inc. Mr. Neuberger became President of NutraBrands, our marketing and sales
subsidiary in March 1999 and was appointed as our Vice President, Marketing and Sales in April 2005. Mr. Neuberger was previously employed by
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Melaleuca, Inc.
Mr. Neuberger received his master's degree in business administration from Thunderbird, The Garvin School of International Management.
Daren P. Peterson joined Nutraceutical in 1994 as Controller. Mr. Peterson served in other management positions prior to his
appointment as Vice President, Operations in March 2009. Prior to joining Nutraceutical, Mr. Peterson served in various positions with Solaray from 1985 to 1994. Mr. Peterson received a
master's degree in accounting from Weber State University.
Jason D. Jones joined Nutraceutical in July 1998 as Director of Sales and subsequently as Vice President of Sales from 2000 to 2005.
Mr. Jones left Nutraceutical from February 2005 to March 2009 to work as President of Ken Garff Sports & Entertainment. He rejoined Nutraceutical as Group Vice President of Strategic
Development and was appointed Vice President, Corporate Strategy in January 2015. Mr. Jones received his master's degree in business administration from Brigham Young University.
Matthew A. Vance joined Nutraceutical in 2007 as Chief Information Officer. In January 2015, Mr. Vance was appointed Vice President
and Chief Information Officer. Prior to joining Nutraceutical, Mr. Vance worked for Kirby Corporation and as a consultant in software development. Mr. Vance received a master's degree in
business administration from The University of Texas at Austin.
Andrew W. Seelos joined Nutraceutical in March 1997 as Assistant Controller. Mr. Seelos was appointed Assistant Vice President and
Controller in April 2007. Prior to joining Nutraceutical, he was employed by Price Waterhouse LLP. Mr. Seelos received a master's degree in accounting from Brigham Young University and
is a Certified Public Accountant.
Item 1A. Risk Factors
Our business routinely encounters and addresses risks, some of which may cause our future results to be
different than we currently anticipate. The risk factors described below represent our current view of some of the most important risks facing our businesses and are important to understanding our
business. The following information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements
and related notes included in this Annual Report on Form 10-K. This discussion includes a number of forward-looking statements. You should refer to the description of the qualifications and
limitations on forward-looking statements under "Special Note Regarding Forward-Looking Statements" above.
Regulatory, Legal and Insurance Risks
Our products are subject to government regulation, both in the United States and abroad, which could increase our costs significantly and limit or prevent the sale of our
products. The manufacture, packaging, labeling, advertising, promotion, distribution, and sale of our products are subject to regulation by numerous national and
local governmental agencies in the United States and other countries. The primary regulatory bodies in the United States are the FDA and FTC, and we are also subject to the Food Standards Agency and
the Department of Health in the United Kingdom and similar regulators in Norway. Failure to comply with these regulatory requirements may result in various types of penalties or fines. These include
injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. Individual states also regulate nutritional supplements. A state may interpret claims or products
presumptively valid under federal law as illegal under that state's regulations. In markets outside the United States, we are usually required to obtain approvals, licenses, or certifications from a
country's ministry of health or comparable agency, as well as labeling and packaging regulations, all of which vary from country to country. Approvals or licensing may be conditioned on reformulation
of products or may be unavailable with respect to certain products or product ingredients. Any of these government agencies, as well as legislative bodies, can change existing
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regulations,
or impose new ones, or could take aggressive measures, causing or contributing to a variety of negative consequences, including:
-
- requirements for the reformulation of certain or all products to meet new standards,
-
- the recall or discontinuance of certain or all products,
-
- additional record keeping,
-
- expanded documentation of the properties of certain or all products,
-
- expanded or different labeling,
-
- adverse event tracking and reporting and
-
- additional scientific substantiation.
Any
or all of these requirements could have a material adverse effect on us. There can be no assurance that the regulatory environment in which we operate will not change or that such
regulatory environment, or any specific action taken against us, will not result in a material adverse effect on us.
If we experience product recalls, we may incur significant and unexpected costs, and our business reputation could be adversely affected. We may be
exposed to product recalls and adverse public relations if our products are alleged to cause injury or illness, or if we are alleged to have violated governmental regulations. A product recall could
result in substantial and unexpected expenditures, which would reduce operating profit and cash flow. In addition, a product recall may require significant management attention. Product recalls may
hurt the value of our brands and lead to decreased demand for our products. Product recalls also may lead to increased scrutiny by federal, state or international regulatory agencies of our operations
and increased litigation and could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We may experience product liability claims and litigation to prosecute such claims, and although we maintain product liability insurance, which we believe to be adequate for our
needs,
there can be no assurance that our insurance coverage will be adequate or that we will be able to maintain adequate insurance coverage. As a manufacturer and a
distributor of products for human consumption, we experience product liability claims and litigation to prosecute such claims. Additionally, the manufacture and sale of these products involves the
risk of injury to consumers as a result of tampering by unauthorized third parties or product contamination. We carry insurance coverage in the types and amounts that we consider reasonably adequate
to cover the risks we face. If insurance coverage is inadequate or unavailable or premium costs continue to rise, we may face additional claims not covered by insurance, and claims that exceed
coverage limits or that are not covered could have a material adverse effect on us.
We are party to a number of lawsuits that arise in the ordinary course of business and may become party to others in the future. We are party to a
number of lawsuits that arise in the ordinary course of business and may become party to others in the future. The possibility of such litigation, and its timing, is in large part outside our control.
Some of these lawsuits may involve class action claims, which by virtue of involving a large number of potential class members, may require increased costs of defense and risk. While none of the
current individual lawsuits in which we are involved are reasonably estimable to be material as of the date of this filing, it is possible that future litigation could arise, or developments could
occur in existing litigation, that could have material adverse effects on us.
Market and Channel Risks
Our success is linked to the size and growth rate of the vitamin, mineral and supplement market and an adverse change in the size or growth rate of that market could have a
material
adverse effect on us. An adverse change in size or growth rate of the vitamin, mineral and supplement market could have a
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material
adverse effect on us. Underlying market conditions are subject to change based on economic conditions, consumer preferences and other factors that are beyond our control, including media
attention and scientific research, which may be positive or negative.
Because a substantial majority of our sales are to or through health food stores, we are dependent to a large degree upon the success of this channel as well as the success of
specific
retailers in the channel. Over 85% of our sales are in the United States. In this market, we sell our products primarily to or through health food stores. Because
of this, we are dependent to a large degree upon the success of that channel as well as the success of specific retailers in the channel. There are some large chains of health food stores, such as
Whole Foods Market and Vitamin Shoppe, but most health food stores are individual stores or very small chains. We rely on these health food stores to purchase, market, and sell our products. Our
success is dependent, to a large degree, on the growth and success of the Healthy Foods Channel, which is outside our control. There can be no assurance that the Healthy Foods Channel will be able to
grow or prosper as it faces price and service pressure from other channels, including the mass market. There can be no assurance that retailers in the Healthy Foods Channel, in the aggregate, will
respond or continue to respond to our stated loyalty to this channel.
We are highly dependent upon consumers' perception of the safety and quality of our products as well as similar products distributed by other companies in our industry, and
adverse
publicity and negative public perception regarding particular ingredients or products or our industry in general could limit our ability to increase revenue and grow our
business. Decisions about purchasing made by consumers of our products may be affected by adverse publicity or negative public perception regarding particular
ingredients or
products or our industry in general. This negative public perception may include publicity regarding the legality or quality of particular ingredients or products in general or of other companies or
our products or ingredients specifically. Negative public perception may also arise from regulatory investigations, regardless of whether those investigations involve us. We are highly dependent upon
consumers' perception of the safety and quality of our products as well as similar products distributed by other companies. Thus, the mere publication of reports asserting that such products may be
harmful could have a material adverse effect on us, regardless of whether these reports are scientifically supported. Publicity related to nutritional supplements may also result in increased
regulatory scrutiny of our industry and/or the healthy foods channel. Adverse publicity may have a material adverse effect on our business, financial condition, results of operations and cash flows.
There can be no assurance of future favorable scientific results and media attention or of the absence of unfavorable or inconsistent findings.
We face intense competition from competitors that are larger, more established and that possess greater resources than we do, and if we are unable to compete effectively, we may
be
unable to maintain sufficient market share to sustain profitability. Numerous manufacturers and retailers compete actively for consumers. There can be no assurance
that we will be able to compete in this intensely competitive environment. In addition, nutritional supplements can be purchased in a wide variety of channels of distribution. These channels include
mass market retail stores and the Internet. Because these markets generally have low barriers to entry, additional competitors could enter the market at any time. Private label products of our
customers also provide competition to our products. Additional national or international companies may seek in the future to enter or to increase their presence in the healthy foods channel or the
vitamin, mineral supplement market. Increased competition in either or both could have a material adverse effect on us.
The nutritional supplement industry increasingly relies on intellectual property rights and although we seek to ensure that we do not infringe the intellectual property rights of
others,
there can be no assurance that third parties will not assert intellectual property infringement claims against us, which claims may result in substantial costs and diversion of management and other
resources and could have a material adverse effect on our business, financial condition and operating results. Recently it has become more and more
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common
for suppliers and competitors to apply for patents or develop proprietary technologies and processes. We seek to ensure that we do not infringe the intellectual property rights of others, but
there can be no assurance that third parties will not assert intellectual property infringement claims against us. These developments could prevent us from offering or supplying competitive products
or ingredients in the marketplace. They could also result in litigation or threatened litigation against us related to alleged or actual infringement of third-party rights. If an infringement claim is
asserted or litigation is pursued, we may be required to obtain a license of rights, pay royalties on a retrospective
or prospective basis or terminate our manufacturing and marketing of our products that are alleged to have infringed. Litigation with respect to such matters could result in substantial costs and
diversion of management and other resources and could have a material adverse effect on our business, financial condition and operating results.
We may be affected adversely by increased utility and fuel costs. Increasing fuel costs may affect our results of operations
adversely in that
consumer traffic to health and natural food stores may be reduced and the costs of our sales may increase as we incur fuel costs in connection with our manufacturing operations and the transportation
of goods from our warehouse and distribution facilities to health and natural food stores. Also, high oil costs can affect the cost of our raw materials and components and the competitive environment
in which we operate may limit our ability to recover higher costs resulting from rising fuel prices.
Adverse economic conditions may harm our business. Inflation or other changes in economic conditions that affect demand for
nutritional supplements
could adversely affect our revenue. Uncertainty about current global economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit markets, negative
financial news and/or declines in income or asset values, each of which could have a material negative effect on the demand for our products. Other factors that could influence demand include
conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior.
These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results.
Business Strategy and Operational Risks
If we are unable to retain key personnel, our ability to manage our business effectively and continue our growth could be negatively impacted. Key
management employees include Frank W. Gay II, Bruce R. Hough, Jeffrey A. Hinrichs, Gary M. Hume, Stanley E. Soper, Cory J. McQueen, Christopher B. Neuberger, Daren P. Peterson, Jason D. Jones, Matthew
A. Vance, Andrew W. Seelos and certain other employees. These key management employees are primarily responsible for our day-to-day operations, and we believe our success depends in part on our
ability to retain them and to continue to attract additional qualified individuals to our management team. We do not have employment agreements with any of our key management employees. The loss or
limitation of the services of any of our key
management employees or the inability to attract additional qualified management personnel could have a material adverse effect on our business, financial condition and results of operations.
As a part of our business strategy, we have made and expect to continue to make acquisitions that could disrupt our operations and harm our operating
results. An element of our strategy includes expanding our product offerings, gaining shelf-space and gaining access to new skills and other resources through
strategic acquisitions when attractive opportunities arise. Acquiring additional businesses and the implementation of other elements of our business strategy are subject to various risks and
uncertainties.
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Some
of these factors are within our control and some are outside our control. These risks and uncertainties include, but are not limited to, the
following:
-
- any acquisition may result in significant expenditures of cash, stock and/or management resources,
-
- acquired businesses may not perform in accordance with expectations,
-
- we may encounter difficulties and costs with the integration of the acquired businesses,
-
- management's attention may be diverted from other aspects of our business,
-
- we may face unexpected problems entering geographic and product markets in which we have limited or no direct prior experience,
-
- we may lose key employees of acquired or existing businesses,
-
- we may incur liabilities and claims arising out of acquired businesses,
-
- we may be unable to obtain financing and
-
- we may incur indebtedness or issue additional capital stock which could be dilutive to holders of our common stock.
There
can be no assurance that attractive acquisition opportunities will be available to us, that we will be able to obtain financing for or otherwise consummate any acquisitions or that
any acquisitions which are consummated will prove to be successful. There can be no assurance that we can successfully execute all aspects of our business strategy.
Because we depend on outside suppliers with whom we do not have long-term agreements for raw materials, we may be unable to obtain adequate supplies of raw materials for our
products at
favorable prices or at all, which could result in product shortages and back orders for our products, with a resulting loss of net sales and profitability. We
acquire all of our raw materials for the manufacture of our products from third-party suppliers. We also rely on third-party co-packers for some of our products. We have few agreements for the
continued supply of these materials and products. A number of our products contain one or more ingredients that may only be available from a single source or supplier. Any of our suppliers could
discontinue selling to us at any time. Our suppliers or government regulators may
interpret new regulations (including GMP regulations) in such a way as to cause a disruption in our supply chain as these parties undertake increased scrutiny of raw materials and components of raw
materials and products, causing certain suppliers or us to discontinue, change or suspend the sale of certain ingredients or components. Although we believe that we could establish alternate sources
for most of these materials, any delay in locating and establishing relationships with other sources could result in product shortages and back orders for the products, with a resulting loss of net
sales and profitability. We are also subject to delays associated with raw materials. These can be caused by conditions not within our control, including, but not limited to, the
following:
-
- weather,
-
- crop conditions,
-
- transportation interruptions,
-
- strikes by supplier employees and
-
- natural disasters or other catastrophic events.
We
acquire many ingredients from suppliers outside the United States. Purchasing these ingredients is subject to the risks generally associated with importing raw materials from other
countries, including, among other factors, delays in shipments, changes in economic and political
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conditions,
quality assurance, tariffs, trade disputes and foreign currency fluctuations. These factors could result in a delay in or disruption of the supply of certain raw materials. Any significant
delay in or disruption of the supply of raw materials could have a material adverse effect upon us.
Our success is dependent on the accuracy, reliability, and proper use of sophisticated and dependable information processing systems and management information technology and any
interruption in these systems could have a material adverse effect on our business, financial condition and results of operations. Our success is dependent on the
accuracy, reliability and proper use of sophisticated and dependable information processing systems and management information technology. Our information technology systems are designed and selected
in order to facilitate order entry and customer billing, maintain customer records, accurately track purchases and incentive payments, manage accounting, finance and manufacturing operations, generate
reports, and provide customer service and technical support. Any interruption in these systems could have a material adverse effect on our business, financial condition and results of operations. Like
other companies, our information technology systems may be vulnerable to a variety of interruptions due to events beyond our control, including, but not limited to, natural disasters, terrorist
attacks, telecommunications failures, computer viruses, hackers, cybersecurity breaches and other security issues. We have technology security initiatives and disaster recovery plans in place or in
process to mitigate our risk to these vulnerabilities, but these measures may not be adequate.
Because we manufacture approximately 75% of our products, we are dependent upon the uninterrupted and efficient operation of our manufacturing facilities, which are subject to
power
failures, the breakdown, failure or substandard performance of equipment, the improper installation or operation of equipment, natural or other disasters and the need to comply with the requirements
or directives of government agencies, including the FDA. We are dependent upon the uninterrupted and efficient operation of our manufacturing facilities in Ogden,
Utah as well as Phoenix, Arizona, Tulsa, Oklahoma, Bowling Green and Pompano Beach, Florida and Sebastopol, California. Those operations are subject to power failures, the breakdown, failure or
substandard performance of equipment, the improper installation or operation of equipment, natural or other disasters and the need to comply with the requirements or directives of government agencies,
including the FDA. There can be no assurance that the occurrence of these or any other operational problems at our facilities would not have a material adverse effect on our business, financial
condition and results of operations.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud, which could harm our business
reputation
and cause our stock price to decline. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. Any failure to
maintain internal controls or to implement required new or improved controls, or
difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Inadequate internal controls could also cause investors to
lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
If our goodwill or intangible assets become impaired we may be required to record a significant charge to earnings. Under
generally accepted
accounting principles, we review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill and
indefinite-lived intangible assets are tested for impairment at least annually. Factors that may indicate that the carrying value of our goodwill or intangible assets may not be recoverable include a
decline in stock price and market capitalization, reduced future cash flow estimates and slower growth rates in our industry. Our results of operations may be materially impacted if we are required to
record a significant charge due to an impairment of our goodwill or intangible assets.
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We are dependent upon our lenders for financing to execute our business strategy and meet our liquidity needs, and the lack of adequate financing could negatively impact our
business. There is risk that any lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments
and obligations under existing credit commitments, including, but not limited to: extending credit up to the maximum permitted by a credit facility, allowing access to additional credit features and
otherwise accessing capital and/or honoring loan commitments. The lenders on our credit facility are Rabobank International and Wells Fargo. If our lenders failed to honor their legal commitments
under our credit facility, it is not certain we could replace our credit facility on similar terms.
Stock Market Risks
The market price for our common stock may be particularly volatile, and our stockholders may be unable to
resell their shares at a profit. The trading price of our common stock has been subject to wide fluctuations and may continue to fluctuate in the future in response to a
variety of factors, including, but not limited to, the following:
-
- quarter-to-quarter variations in operating results,
-
- material announcements by us or our competitors,
-
- governmental regulatory action,
-
- negative or positive publicity involving us or the nutritional supplement industry generally,
-
- general economic downturns,
-
- announcements by official or unofficial health and medical authorities,
-
- consumer preferences generally or
-
- other events or factors, many of which are beyond our control.
In
addition, the stock market has historically experienced significant price and volume fluctuations, which have particularly affected the market prices of many nutritional supplement
companies and which have, in certain cases, not had a strong correlation to the operating performance of these companies. Stock markets experienced unprecedented volatility in connection with the
credit crisis of 2008-2009. General economic conditions, such as recession or interest rate or currency rate fluctuations in the United States or abroad, could negatively affect the market price of
our common stock in the future. In addition, our operating results in future quarters may be below the expectations of securities analysts and investors. If that were to occur, the price of our common
stock would likely decline, perhaps substantially. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been
instituted against that company. Such litigation could result in substantial cost and a diversion of management's attention and resources.
Item 1B. Unresolved Staff Comments
We do not have any unresolved comments from the SEC staff.
18
Table of Contents
Item 2. Properties
The following table describes our principal properties as of November 17, 2015:
|
|
|
|
|
|
|
Purpose
|
|
Location |
|
Square
Footage |
|
Rapid Response Center(1)(2) |
|
Ogden, UT |
|
|
516,455 |
|
Transitional warehouse(3) |
|
Ogden, UT |
|
|
106,450 |
|
Product manufacturing(2) |
|
Tulsa, OK |
|
|
76,733 |
|
Product manufacturing(2) |
|
Ogden, UT |
|
|
31,230 |
|
Corporate Office(2) |
|
Park City, UT |
|
|
21,065 |
|
Product manufacturing |
|
Ogden, UT |
|
|
17,900 |
|
Marketing and sales offices |
|
Park City, UT |
|
|
15,905 |
|
Product manufacturing |
|
Pompano Beach, FL |
|
|
13,986 |
|
Product manufacturing(2) |
|
Bowling Green, FL |
|
|
8,210 |
|
Product manufacturing |
|
Sebastopol, CA |
|
|
7,872 |
|
Product manufacturing |
|
Phoenix, AZ |
|
|
7,248 |
|
Executive offices |
|
Park City, UT |
|
|
6,103 |
|
Product manufacturing |
|
Ogden, UT |
|
|
5,000 |
|
- (1)
- The
Rapid Response Center is the central facility where we are, and have been, consolidating operations. The Rapid Response Center currently includes raw
materials, manufacturing, packaging, distribution and offices.
- (2)
- We
own these properties. We lease all other properties identified above.
- (3)
- The
lease for this transitional warehouse expires in May 2016, although we can terminate early on 6 months' notice.
In
addition to these principal properties, we own or lease various other properties used in our operations.
Item 3. Legal Proceedings
As discussed in other filings and elsewhere in this Annual Report on Form 10-K, we are subject to regulation by a number of
federal, state and foreign agencies and are involved in various legal matters arising in the ordinary course of business.
We
carry insurance coverage in the types and amounts that we consider reasonably adequate to cover the risks we face in the industry in which we compete. See "BusinessRisk
Factors."
In
the opinion of management, the losses related to individual regulatory and legal matters in which we are presently involved are not probable and no estimate can be made of the range
of potential gains or losses. While incapable of estimation, in the opinion of management, none of the regulatory and legal matters in which we are involved are individually expected to have a
material adverse effect on our financial position, results of operations or cash flows. However, our aggregate liability arising from regulatory and legal proceedings related to these matters or
future matters could have a material effect on our financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
19
Table of Contents
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the NASDAQ Stock Market under the symbol "NUTR." The common stock commenced trading on the NASDAQ Stock
Market on February 20, 1998 upon completion of our initial public offering. The following table sets forth the high and low closing prices per share for the common stock:
|
|
|
|
|
|
|
|
|
|
High |
|
Low |
|
Fiscal 2014: |
|
|
|
|
|
|
|
First Quarter |
|
$ |
27.11 |
|
$ |
23.50 |
|
Second Quarter |
|
|
27.30 |
|
|
24.08 |
|
Third Quarter |
|
|
28.10 |
|
|
22.51 |
|
Fourth Quarter |
|
|
24.45 |
|
|
20.91 |
|
Fiscal 2015: |
|
|
|
|
|
|
|
First Quarter |
|
|
22.97 |
|
|
20.18 |
|
Second Quarter |
|
|
21.09 |
|
|
16.38 |
|
Third Quarter |
|
|
25.03 |
|
|
18.27 |
|
Fourth Quarter |
|
|
24.89 |
|
|
22.27 |
|
Fiscal 2016: |
|
|
|
|
|
|
|
First Quarter (through November 17, 2015) |
|
|
24.77 |
|
|
22.81 |
|
Holders
As of the close of business on November 17, 2015, there were approximately 180 holders of record of common stock and
approximately 2,000 beneficial holders. The closing price of our common stock on November 17, 2015, as reported by the NASDAQ Stock Market, was $24.33.
Dividends
In December 2012, our Board of Directors declared a special cash dividend of $1.00 per share for all shares of common stock. This
special cash dividend totaled $9.8 million and was paid on December 28, 2012 to stockholders of record on December 21, 2012.
Any
future determination by us to pay dividends will be at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations, financial
condition, capital requirements and contractual restrictions, including restrictions specified in our current credit agreement.
20
Table of Contents
Purchase of Equity Securities
Prior to fiscal 2015, our Board of Directors approved a share purchase program authorizing us to buy up to 4,500,000 shares of our
common stock. As of September 30, 2015, 481,261 shares may yet be purchased under this program. Purchases under this program during the fiscal 2015 fourth quarter occurred in July,
August and September as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total Number
of Shares
Purchased |
|
Average
Price Paid
Per Share |
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan |
|
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plan |
|
July 1 - 31, 2015 |
|
|
23,000 |
|
$ |
24.57 |
|
|
23,000 |
|
|
|
|
August 1 - 31, 2015 |
|
|
24,962 |
|
|
24.07 |
|
|
24,962 |
|
|
|
|
September 1 - 30, 2015 |
|
|
22,500 |
|
|
23.76 |
|
|
22,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,462 |
|
|
24.13 |
|
|
70,462 |
|
|
481,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
shares purchased during the fiscal 2015 fourth quarter, except for 2,000 shares, were retired prior to September 30, 2015.
Under
this approved share purchase program, we may purchase common stock from time to time on the open market and in individually negotiated transactions. The amount and timing of any
purchases will be dependent upon a number of factors, including the price and availability of our shares and general market conditions.
Securities Authorized for Issuance under Equity Compensation Plans
As of September 30, 2015, there were no outstanding options under any equity compensation plan.
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 our common stock for issuance under the 2013 Plan. Equity awards available under the 2013 Plan include stock options, stock appreciation rights and restricted stock awards. The 2013 Plan provides a
means through which we may attract and retain key personnel, including non-executive directors, and provides a means for directors, officers, employees, consultants and advisors to acquire and
maintain an equity interest in our Company. The 2013 Plan will be administered by the Compensation Committee of our Board of Directors, which has the authority to determine the terms of the awards,
determine the number of shares of our common stock to be covered by the awards and make such other
determinations as necessary in administering the 2013 Plan. The 2013 Plan will terminate on the tenth anniversary of its effective date. In conjunction with our fiscal 2014 and fiscal 2013 incentive
compensation (bonus) payments, 24,827 and 31,788 shares of our common stock were issued, respectively. These non-cash stock awards were granted on December 11, 2014 and December 11, 2013
at a fair value of $0.5 million and $0.8 million, respectively, with fair value being determined by the closing price of our common stock on the grant date. These stock awards were
registered, unrestricted and fully vested on the grant date. As of September 30, 2015, 743,385 shares of our common stock were available for issuance under the 2013 Plan.
21
Table of Contents
Item 6. Selected Financial Data
The selected financial data presented below were derived from our Consolidated Financial Statements. This selected financial data
should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2015 |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
|
|
(dollars in thousands, except per share data)
|
|
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
216,479 |
|
$ |
214,474 |
|
$ |
208,397 |
|
$ |
200,367 |
|
$ |
188,070 |
|
Cost of sales |
|
|
110,255 |
|
|
108,169 |
|
|
105,518 |
|
|
100,413 |
|
|
92,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
106,224 |
|
|
106,305 |
|
|
102,879 |
|
|
99,954 |
|
|
95,193 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
77,256 |
|
|
76,874 |
|
|
72,413 |
|
|
71,425 |
|
|
68,230 |
|
Amortization of intangible assets |
|
|
2,869 |
|
|
2,667 |
|
|
2,209 |
|
|
2,007 |
|
|
1,654 |
|
Impairment of intangible assets(1) |
|
|
1,810 |
|
|
267 |
|
|
124 |
|
|
850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
24,289 |
|
|
26,497 |
|
|
28,133 |
|
|
25,672 |
|
|
25,309 |
|
Interest and other expense, net |
|
|
1,051 |
|
|
1,421 |
|
|
1,360 |
|
|
1,497 |
|
|
1,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
23,238 |
|
|
25,076 |
|
|
26,773 |
|
|
24,175 |
|
|
24,169 |
|
Provision for income taxes |
|
|
7,967 |
|
|
9,187 |
|
|
9,765 |
|
|
8,408 |
|
|
8,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,271 |
|
$ |
15,889 |
|
$ |
17,008 |
|
$ |
15,767 |
|
$ |
15,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.59 |
|
$ |
1.62 |
|
$ |
1.74 |
|
$ |
1.59 |
|
$ |
1.52 |
|
Diluted |
|
$ |
1.59 |
|
$ |
1.62 |
|
$ |
1.73 |
|
$ |
1.59 |
|
$ |
1.51 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
9,588,838 |
|
|
9,792,276 |
|
|
9,783,300 |
|
|
9,916,603 |
|
|
10,322,177 |
|
Diluted |
|
|
9,592,734 |
|
|
9,801,080 |
|
|
9,807,858 |
|
|
9,933,997 |
|
|
10,385,583 |
|
Other Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2) |
|
$ |
38,864 |
|
$ |
38,232 |
|
$ |
38,048 |
|
$ |
35,299 |
|
$ |
33,361 |
|
Capital expenditures (excluding acquisitions) |
|
|
8,557 |
|
|
11,298 |
|
|
8,347 |
|
|
9,953 |
|
|
12,405 |
|
Cash flows provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
25,046 |
|
|
20,038 |
|
|
26,770 |
|
|
27,162 |
|
|
26,340 |
|
Investing activities |
|
|
(9,823 |
) |
|
(27,675 |
) |
|
(11,729 |
) |
|
(22,201 |
) |
|
(27,185 |
) |
Financing activities |
|
|
(16,603 |
) |
|
5,695 |
|
|
(11,551 |
) |
|
(2,598 |
) |
|
(495 |
) |
Balance Sheet Data (at period end): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
4,615 |
|
$ |
6,232 |
|
$ |
8,235 |
|
$ |
4,824 |
|
$ |
2,441 |
|
Working capital |
|
|
65,687 |
|
|
62,141 |
|
|
53,252 |
|
|
47,598 |
|
|
42,332 |
|
Total assets |
|
|
212,449 |
|
|
214,778 |
|
|
192,310 |
|
|
185,918 |
|
|
171,665 |
|
Total debt |
|
|
31,500 |
|
|
43,000 |
|
|
32,500 |
|
|
34,000 |
|
|
32,000 |
|
Stockholders' equity |
|
|
160,247 |
|
|
149,613 |
|
|
137,876 |
|
|
131,056 |
|
|
119,675 |
|
- (1)
- During
the year ended September 30, 2015, we recorded non-cash intangible asset impairment charges of $1,810 ($1,112 after tax, or $0.12 per diluted
share) related to certain tradenames. During the year ended September 30, 2014, we recorded a non-cash intangible asset impairment charge of $267 ($168 after tax, or $0.02 per diluted share)
related to a tradename. During the year ended September 30, 2013, we recorded non-cash intangible asset impairment charges of $124 ($78 after tax, or $0.01 per diluted share) related to
certain tradenames. During the year ended
22
Table of Contents
September 30,
2012, we recorded a non-cash intangible asset impairment charge of $850 ($551 after tax, or $0.06 per diluted share) related to the consolidation of certain tradenames.
- (2)
- "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 United States generally accepted accounting principles. Our use of an EBITDA-based metric should be considered within the following context:
-
- We acknowledge that plant and equipment (while less important in our line of business due to outsourcing alternatives) are necessary
to earn revenue based on our current business model.
-
- Our use of an EBITDA-based measure of operating performance is not based on any belief about the reasonableness of excluding
depreciation and amortization when measuring financial performance.
-
- Our use of an EBITDA-based measure is supported by its importance to the following key stakeholders:
-
- Analystswho estimate our projected Adjusted EBITDA and other
EBITDA-based metrics in their independently-developed financial models for investors;
-
- Creditorswho evaluate our operating performance based on
compliance with certain EBITDA-based debt covenants;
-
- Investment Bankerswho use EBITDA-based metrics in their
written evaluations and comparisons of companies within our industry; and
-
- Board of Directors and Executive Managementwho use
EBITDA-based metrics for evaluating management performance relative to our operating budget and bank covenant compliance, as well as our ability to service debt and raise capital for growth
opportunities, including acquisitions, which are a critical component of our stated strategy. Generally, we have recorded a monthly accrual for incentive compensation as a percentage of Adjusted
EBIDTA, which has been paid out to executive management, as well as other employees, upon completion of our annual audit.
The
following table sets forth a reconciliation of net income to Adjusted EBITDA for each period included herein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2015 |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
|
|
(dollars in thousands)
|
|
Net income |
|
$ |
15,271 |
|
$ |
15,889 |
|
$ |
17,008 |
|
$ |
15,767 |
|
$ |
15,718 |
|
Provision for income taxes |
|
|
7,967 |
|
|
9,187 |
|
|
9,765 |
|
|
8,408 |
|
|
8,451 |
|
Interest and other expense, net(1) |
|
|
1,051 |
|
|
1,421 |
|
|
1,360 |
|
|
1,497 |
|
|
1,140 |
|
Depreciation and amortization |
|
|
12,765 |
|
|
11,468 |
|
|
9,791 |
|
|
8,777 |
|
|
8,052 |
|
Impairment of intangible assets |
|
|
1,810 |
|
|
267 |
|
|
124 |
|
|
850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
38,864 |
|
$ |
38,232 |
|
$ |
38,048 |
|
$ |
35,299 |
|
$ |
33,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of net sales |
|
|
18.0 |
% |
|
17.8 |
% |
|
18.3 |
% |
|
17.6 |
% |
|
17.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Includes
amortization of deferred financing fees.
23
Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
audited Consolidated Financial Statements and accompanying notes thereto included elsewhere in this Annual Report on Form 10-K.
Overview
We are an integrated manufacturer, marketer, distributor and retailer of branded nutritional supplements and other natural products
sold primarily to and through domestic health and natural food stores. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and
natural product distributors and retailers. Our core business strategy is to acquire, integrate and operate businesses in the natural products industry that manufacture, market and distribute branded
nutritional supplements. We believe that the consolidation and integration of these acquired businesses provides ongoing financial synergies through increased scale and market penetration, as well as
strengthened customer relationships.
We
manufacture and sell nutritional supplements and other natural products under numerous brands, including Solaray®, KAL®, Nature's Life®, LifeTime®, Natural Balance®, NaturalCare®,
Health from the Sun®, Pioneer®, Nutra
BioGenesis, Life-flo®, Organix South®, Heritage Store® and
Monarch Nutraceuticals.
We
own neighborhood natural food markets, which operate under the trade names The Real Food Company, Thom's Natural Foods, Cornucopia Community Market and Granola's. We also own health food stores, which operate under various trade names, including Fresh
Vitamins and Peachtree Natural Foods®.
We
manufacture and/or distribute one of the broadest branded product lines in the industry, with approximately 7,500 SKUs, including approximately 750 SKUs exclusively sold
internationally. We believe that, as a result of our emphasis on innovation, quality, loyalty, education and customer service, our brands are widely recognized in health and natural food stores and
among their customers.
We
were formed in 1993 to effect a consolidation strategy in the fragmented VMS Industry. Since our formation, we have completed numerous acquisitions of businesses in the VMS Industry.
We believe that Nutraceutical is well positioned to continue to capitalize on the consolidation we believe is occurring in the VMS Industry.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America
required us to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements
and the reported amounts of net sales and expenses during the reported periods. Significant estimates included values and lives assigned to acquired intangible assets, reserves for customer returns
and allowances, uncollectible accounts receivable, valuation adjustments for slow-moving, obsolete and/or damaged inventory and valuation and recoverability of long-lived assets. Actual results may
differ from these estimates.
Our
critical accounting policies and estimates include the following:
Accounts ReceivableProvision is made for estimated bad debts based on a periodic analysis of individual customer balances, including an evaluation of
days sales outstanding, payment history, recent payment trends and perceived creditworthiness. If general economic conditions and/or customer financial conditions were to change, additional provisions
for bad debts may be required, which could have a material impact on the consolidated financial statements.
24
Table of Contents
InventoriesValuation adjustments are made for slow moving, obsolete and/or damaged inventory based on a periodic analysis of individual inventory
items, including an evaluation of historical usage and/or movement, age, expiration date and general condition. If market demand and/or consumer preferences are less favorable than historical trends
or future expectations, additional valuation adjustments for slow moving, obsolete and/or damaged inventory may be required, which could have a material impact on the consolidated financial
statements.
Property, Plant and EquipmentDepreciation and amortization expense is impacted by our judgments regarding the estimated useful lives of assets placed
in service. If the estimated lives of
assets are significantly less than expected, depreciation and amortization expense would be accelerated, which could have a material impact on the consolidated financial statements.
We
evaluate the recoverability of property, plant and equipment whenever events or circumstances indicate that the carrying amount of an asset group may not be recoverable. We measure
recoverability of an asset group by comparison of its carrying amount to the future undiscounted cash flows the asset group is expected to generate. If an asset group is considered to be impaired, the
difference between the carrying amount and the fair value of the impaired asset group is recognized as an impairment charge.
Goodwill and Intangible AssetsGoodwill and intangible assets require estimates and judgments in determining the initial recognition and measurement,
including factors and assumptions used in determining fair value and useful lives. Intangible assets with finite useful lives are amortized, while intangible assets with indefinite useful lives are
not amortized. Amortizable intangible assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill and indefinite-lived
intangible assets are tested annually for impairment and when events or changes in circumstances indicate the carrying value may not be recoverable. The appropriateness of the indefinite-life
classification of non-amortizable intangible assets is also reviewed as part of the annual testing or when circumstances warrant a change to a finite life. We perform our annual impairment testing as
of September 30 each year, which is the last day of our fiscal year.
A
two-step process is used to test for goodwill impairment. The first step is to determine if there is an indication of impairment by comparing the estimated fair value of each reporting
unit to its carrying value, including existing goodwill. Reporting unit fair values are estimated using market data as well as other factors. Goodwill is considered impaired if the carrying value of a
reporting unit exceeds the estimated fair value. Upon an indication of impairment, a second step is performed to measure the amount of the impairment by comparing the implied fair value of the
reporting unit's goodwill with its carrying value.
Intangible
assets with indefinite useful lives are tested for impairment at the individual asset level by comparing the fair value of the indefinite-lived intangible asset to its
carrying amount. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment charge is recognized. Fair values of indefinite-lived intangible assets are
estimated using discounted cash flow models.
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 as an impairment charge.
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 additional 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 additional brands being consolidated or
25
Table of Contents
discontinued
and could result in additional intangible asset impairment charges being recorded in future periods. Additional goodwill and/or intangible asset impairment charges could materially impact
our consolidated financial statements. The valuation of goodwill and intangible assets is subject to a high degree of judgment, uncertainty and complexity.
Revenue RecognitionRevenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the
product has been shipped and the customer takes ownership and assumes the risk of loss; (3) the selling price is fixed or determinable; and (4) collection of the resulting receivable is
reasonably assured. We believe that these criteria are satisfied upon shipment from our facilities or, in the case of our neighborhood natural food markets and health food stores, at the point of sale
within these stores. Revenue is reduced by provisions for estimated customer returns and allowances, which are based on historical averages that have not varied significantly for the periods
presented, as well as specific known claims, if any. No other significant deductions from revenue must be estimated at the point in time that revenue is recognized.
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.
For
additional information on our accounting policies, see Note 2 of the accompanying Consolidated Financial Statements.
Results of Operations
The following table sets forth certain Consolidated Statements of Comprehensive Income data as a percentage of net sales for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30, |
|
|
|
2015 |
|
2014 |
|
2013 |
|
Net sales |
|
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
Cost of sales |
|
|
50.9 |
|
|
50.4 |
|
|
50.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
49.1 |
|
|
49.6 |
|
|
49.4 |
|
Selling, general and administrative |
|
|
35.7 |
|
|
35.8 |
|
|
34.7 |
|
Amortization of intangible assets |
|
|
1.3 |
|
|
1.3 |
|
|
1.1 |
|
Impairment of intangible assets |
|
|
0.8 |
|
|
0.1 |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
11.3 |
|
|
12.4 |
|
|
13.5 |
|
Interest and other expense, net |
|
|
0.5 |
|
|
0.7 |
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
10.8 |
|
|
11.7 |
|
|
12.9 |
|
Provision for income taxes |
|
|
3.7 |
|
|
4.3 |
|
|
4.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
7.1 |
% |
|
7.4 |
% |
|
8.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
Comparison of Fiscal 2015 to Fiscal 2014
Net Sales. Net sales increased by $2.0 million, or 0.9%, to $216.5 million for fiscal 2015 from $214.5 million for
fiscal 2014.
Net sales of branded nutritional supplements and other natural products increased by $2.0 million, or 1.1%, to $195.9 million for fiscal 2015, compared to $193.9 million for
fiscal 2014. The increase in net sales of branded nutritional supplements and other natural products was primarily related to price increases of $4.5 million and the net sales contributions of
the fiscal 2014 and fiscal 2015 acquisitions, partially offset by a decrease in sales volume of branded products to certain customers. Other net sales were $20.6 million for both fiscal 2015
and fiscal 2014.
26
Table of Contents
Gross Profit. Gross profit was $106.2 million for fiscal 2015 and $106.3 million for fiscal 2014. As a percentage of net
sales, gross
profit decreased to 49.1% for fiscal 2015 from 49.6% for fiscal 2014. This decrease in gross profit as a percentage of net sales was primarily related to an increase in manufacturing overhead costs,
partially offset by a reduction in material costs as a percentage of net sales.
Selling, General and Administrative. Selling, general and administrative expenses were $77.3 million for fiscal 2015 and
$76.9 million
for fiscal 2014. This increase in selling, general and administrative expenses was primarily attributable to operational and transition costs related to the fiscal 2014 and fiscal 2015 acquisitions,
partially offset by year-over-year cost improvements in many selling, general and administrative expense areas. As a percentage of net sales, selling, general and administrative expenses were 35.7%
for fiscal 2015 and 35.8% for fiscal 2014.
Amortization of Intangible Assets. Amortization of intangible assets was $2.9 million for fiscal 2015 and $2.7 million for
fiscal 2014.
For each period, amortization expense was primarily related to intangible assets recorded in connection with acquisitions.
Impairment of Intangible Assets. In September 2015, we made a decision to expand our brand consolidation plan in an effort to simply
our brand
offerings and facilitate the customer ordering process. Based on this decision, we no longer expect that the economic benefit of any of our indefinite-lived tradenames extends beyond the foreseeable
future. As a result, as of September 30, 2015, we determined these tradenames with an aggregate carrying value of $8.7 million should be assigned finite useful lives. In accordance with
Accounting Standards Codification ("ASC") 350, "IntangiblesGoodwill and Other," these tradenames were first tested for impairment as
indefinite-lived intangible assets resulting in non-cash intangible asset impairment charges of $1.8 million ($1.1 million after tax, or $0.12 per diluted share). The remaining
$6.9 million was reclassified to amortizable intangible assets as of September 30, 2015 with a weighted-average amortization period of 10 years.
In
performing our annual impairment testing as of September 30, 2014, we determined that there had been an increase in the probability that certain of our indefinite-lived
tradenames could be consolidated with other existing tradenames in the future. As a result, we determined these tradenames with an aggregate carrying value of $1.1 million should be assigned
finite useful lives. In accordance with ASC 350, these tradenames were first tested for impairment as indefinite-lived intangible assets resulting in a non-cash intangible asset impairment charge of
$0.3 million ($0.2 million after tax, or $0.02 per diluted share). The remaining $0.8 million was reclassified to amortizable intangible assets as of September 30, 2014
with a weighted-average amortization period of 15 years.
Interest and Other Expense, Net. Net interest and other expense was $1.1 million for fiscal 2015 and $1.4 million for fiscal
2014 and
primarily consisted of interest expense on indebtedness under our revolving credit facility.
Provision for Income Taxes. Our effective tax rate was 34.3% for fiscal 2015 and 36.6% for fiscal 2014. The decrease in the effective
tax rate was
primarily related to a decrease in the valuation allowance for foreign tax credits of $0.3 million as we determined we would be able to utilize the foreign tax credits.
Comparison of Fiscal 2014 to Fiscal 2013
Net Sales. Net sales increased by $6.1 million, or 2.9%, to $214.5 million for fiscal 2014 from $208.4 million for
fiscal 2013.
Net sales of branded nutritional supplements and other natural products increased by $5.0 million, or 2.6%, to $193.9 million for fiscal 2014, compared to $188.9 million for
fiscal 2013. The increase in net sales of branded nutritional supplements and other natural products was primarily related to the net sales contributions of the fiscal 2013 and fiscal 2014
acquisitions and price increases of $1.5 million, partially offset by a decrease in sales volume of branded products to
27
Table of Contents
certain
customers. Other net sales increased by $1.1 million, or 5.7%, to $20.6 million for fiscal 2014 compared to $19.5 million for fiscal 2013. The increase in other net sales
was primarily related to the net sales contributions of the fiscal 2013 and fiscal 2014 acquisitions.
Gross Profit. Gross profit increased by $3.4 million, or 3.3%, to $106.3 million for fiscal 2014 from $102.9 million for
fiscal
2013. This increase in gross profit was primarily attributable to the increase in net sales. As a percentage of net sales, gross profit was 49.6% for fiscal 2014 and 49.4% for fiscal 2013.
Selling, General and Administrative. Selling, general and administrative expenses increased by $4.5 million, or 6.2%, to
$76.9 million
for fiscal 2014 from $72.4 million for fiscal 2013. As a percentage of net sales, selling, general and administrative expenses increased to 35.8% for fiscal 2014, compared to 34.7% for
fiscal 2013. This increase in selling, general and administrative expenses was primarily attributable to operational and transition costs related to the fiscal 2013 and fiscal 2014 acquisitions.
Amortization of Intangible Assets. Amortization of intangible assets was $2.7 million for fiscal 2014 and $2.2 million for
fiscal 2013.
For each period, amortization expense was primarily related to intangible assets recorded in connection with acquisitions.
Impairment of Intangible Assets. In performing our annual impairment testing as of September 30, 2014, we determined that there
had been an
increase in the probability that certain of our indefinite-lived tradenames could be consolidated with other existing tradenames in the future. As a result, we determined these tradenames with an
aggregate carrying value of $1.1 million should be assigned finite useful lives. In accordance with ASC 350, these tradenames were first tested for impairment as indefinite-lived intangible
assets resulting in a non-cash intangible asset impairment charge of $0.3 million ($0.2 million after tax, or $0.02 per diluted share). The remaining $0.8 million was reclassified
to amortizable intangible assets as of September 30, 2014 with a weighted-average amortization period of 15 years.
In
performing our annual impairment testing as of September 30, 2013, we determined that there had been an increase in the probability that certain of our indefinite-lived
tradenames could be consolidated with other existing tradenames in the future. As a result, we determined these tradenames with an aggregate carrying value of $0.9 million should be assigned
finite useful lives. In accordance with ASC 350, these tradenames were first tested for impairment as indefinite-lived intangible assets resulting in non-cash intangible asset impairment charges of
$0.1 million ($0.1 million after tax, or $0.01 per diluted share). The remaining $0.8 million was reclassified to amortizable intangible assets as of September 30, 2013
with a weighted-average amortization period of 13 years.
Interest and Other Expense, Net. Net interest and other expense was $1.4 million for both fiscal 2014 and fiscal 2013 and
primarily consisted
of interest expense on indebtedness under our revolving credit facility.
Provision for Income Taxes. Our effective tax rate was 36.6% for fiscal 2014 and 36.5% for fiscal 2013.
28
Table of Contents
Selected Quarterly Financial Data; Seasonality
The following table sets forth certain quarterly financial data for fiscal 2015 and fiscal 2014. This quarterly information is
unaudited, has been prepared on the same basis as the annual financial statements and, in our opinion, reflects all normally recurring adjustments necessary for fair presentation of the information
for the periods presented. Operating results for any quarter are not necessarily indicative of results for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015 |
|
Fiscal 2014 |
|
|
|
First
Quarter |
|
Second
Quarter |
|
Third
Quarter |
|
Fourth
Quarter |
|
First
Quarter |
|
Second
Quarter |
|
Third
Quarter |
|
Fourth
Quarter |
|
|
|
(dollars in thousands, except per share data: unaudited)
|
|
Net sales |
|
$ |
53,044 |
|
$ |
55,404 |
|
$ |
54,382 |
|
$ |
53,649 |
|
$ |
51,550 |
|
$ |
54,859 |
|
$ |
55,625 |
|
$ |
52,440 |
|
Gross profit |
|
|
25,855 |
|
|
27,255 |
|
|
26,427 |
|
|
26,687 |
|
|
26,062 |
|
|
27,160 |
|
|
27,152 |
|
|
25,931 |
|
Net income |
|
|
3,351 |
|
|
4,096 |
|
|
4,450 |
|
|
3,374 |
|
|
4,135 |
|
|
4,324 |
|
|
3,997 |
|
|
3,433 |
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.35 |
|
$ |
0.43 |
|
$ |
0.47 |
|
$ |
0.35 |
|
$ |
0.42 |
|
$ |
0.44 |
|
$ |
0.41 |
|
$ |
0.35 |
|
Diluted |
|
$ |
0.35 |
|
$ |
0.43 |
|
$ |
0.47 |
|
$ |
0.35 |
|
$ |
0.42 |
|
$ |
0.44 |
|
$ |
0.41 |
|
$ |
0.35 |
|
We
believe that our business is characterized by minor seasonality. However, 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. Excluding the effect of acquisitions, we have historically recorded higher
branded products sales volume during the second fiscal quarter due to increased interest in health-related products among consumers following the holiday season. The fiscal 2015 acquisitions were
completed during the first and third quarters and the fiscal 2014 acquisitions were completed during the first, second, third and fourth quarters.
Liquidity and Capital Resources
As of September 30, 2015, we had cash of $4.6 million. Net cash provided by operating activities was
$25.0 million, $20.0 million and $26.8 million for the years ended September 30, 2015, 2014 and 2013, respectively.
Net
cash used in investing activities was $9.8 million, $27.7 million and $11.7 million for the years ended September 30, 2015, 2014 and 2013, respectively.
Our investing activities during these periods consisted of acquisitions of businesses and capital expenditures.
During
the year ended September 30, 2015, we made two acquisitions of businesses. On November 18, 2014, we acquired certain operating assets of Agape Health Products. On
June 4, 2015, we acquired certain operating assets of ProClay, LLC. The aggregate purchase price of these acquisitions was $1.3 million in cash.
During
the year ended September 30, 2014, we made seven acquisitions of businesses. On October 16, 2013, we acquired certain operating assets of TCCD
International, Inc. On November 25, 2013, we acquired certain operating assets of Green Luxury Brands, Inc. On December 19, 2013, we acquired certain operating assets of
Twinlab Corporation. On January 15, 2014, we acquired certain operating assets of Peachtree Natural Foods, Inc. On April 11, 2014, we acquired certain operating assets of
Northwest Health Foods, Inc. On April 17, 2014, we acquired certain operating assets of Bio-Genesis Nutraceuticals, Inc. On August 26, 2014, we acquired certain operating
assets of Cooper Nutrition, Inc. The aggregate purchase price of these acquisitions was $16.4 million in cash.
During
the year ended September 30, 2013, we made four acquisitions of businesses. On April 1, 2013, we acquired certain operating assets of Tri Medica
International, Inc. On May 17, 2013, we acquired certain operating assets of LC Nutrition and Vitamin House. On August 7, 2013, we acquired
29
Table of Contents
certain
operating assets of Simplers Botanical Company, LLC. On August 21, 2013, we acquired certain operating assets of Jordan Naturals Company, Inc. The aggregate purchase price
of these acquisitions was $3.4 million in cash.
The
fiscal 2015, 2014 and 2013 acquisitions were financed primarily using borrowings under our revolving credit facility, as well as cash provided by operating activities. These
acquisitions are in keeping with our business strategy of consolidating the fragmented industry where we compete and acquiring nutritional brands with products we currently do not sell. The expected
long-term sales and expense synergies of acquired businesses are generally not realized immediately following acquisition as certain transition and integration matters must be completed.
Capital
expenditures during the years ended September 30, 2015, 2014 and 2013 related primarily to buildings, building improvements, distribution and manufacturing equipment and
information systems.
Net
cash provided by (used in) financing activities was ($16.6) million, $5.7 million and ($11.6) million for the years ended September 30, 2015, 2014 and 2013,
respectively. Our financing activities during these periods consisted primarily of borrowings and repayments under our revolving credit facility, purchases of common stock for treasury and proceeds
from the issuance of common stock. Also, in December 2012, our Board of Directors declared a special cash dividend of $1.00 per share for all shares of common stock. This special cash dividend totaled
$9.8 million and was paid on December 28, 2012 to stockholders of record on December 21, 2012.
In
October 2007, we registered a direct stock purchase plan with the Securities and Exchange Commission. The purpose of this direct stock purchase plan is to provide a convenient way for
existing stockholders, as well as new investors, to purchase shares of our common stock. A total of 1,500,000 shares of our common stock were registered under the plan with 4,291 and 3,770 shares
purchased during the years ended September 30, 2015 and 2014, respectively. As of September 30, 2015, there were 1,377,444 shares of common stock available for purchase under this plan.
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 which can increase the available credit borrowings to $130.0 million
subject to approval by the lenders and compliance with certain covenants and conditions. The lenders under the Credit Agreement continue to be Rabobank International and Wells Fargo. To date, we have
not experienced any difficulties in accessing the available funds under the Credit Agreement. Deferred financing fees of $0.4 million related to the Credit Agreement are being amortized over
the term of the Credit Agreement.
At
September 30, 2015, we had outstanding revolving credit borrowings of $31.5 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 September 30, 2015, the applicable weighted-average
interest rate for outstanding borrowings was 1.56%. We are also required to pay a variable quarterly fee on the unused balance under the Credit Agreement. At September 30,
2015, 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.
30
Table of Contents
The
Credit Agreement contains restrictive covenants, including restrictions on incurring other indebtedness and requirements that we maintain certain financial ratios. As of
September 30, 2015, we were in compliance with these restrictive covenants. Upon the occurrence of a default, the lenders have 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. We believe that borrowings under our current 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 fiscal 2016.
Our
significant non-cancelable contractual obligations and other commitments as of September 30, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period |
|
Contractual Obligations and Other Commitments
|
|
Total |
|
Less Than
1 Year |
|
1 - 3
Years |
|
4 - 5
Years |
|
After
5 Years |
|
|
|
(dollars in thousands)
|
|
Debt |
|
$ |
31,500 |
|
$ |
|
|
$ |
|
|
$ |
31,500 |
|
$ |
|
|
Interest on debt(a) |
|
|
2,843 |
|
|
696 |
|
|
1,387 |
|
|
760 |
|
|
|
|
Operating leases |
|
|
5,595 |
|
|
3,448 |
|
|
2,004 |
|
|
143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
39,938 |
|
$ |
4,144 |
|
$ |
3,391 |
|
$ |
32,403 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (a)
- Represents
estimated interest obligations associated with our outstanding revolving credit facility balance of $31.5 million at September 30,
2015, assuming no principal payments are made before maturity, a weighted-average interest rate of 1.56% and an underutilization fee rate of 0.25%.
New Accounting Standards
In September 2015, the Financial Accounting Standards Board ("FASB") issued authoritative guidance, which is included in ASC 808,
"Business Combinations." This guidance simplifies the accounting for measurement-period adjustments and is effective for us as of October 1,
2016. We are currently evaluating the impact this standard may have on our Consolidated Financial Statements.
In
July 2015, the FASB issued authoritative guidance, which is included in ASC 330, "Inventory." This guidance simplifies the accounting
for measuring inventory at the lower of cost and net realizable value and is effective for us as of October 1, 2017. We are currently evaluating the impact this standard may have on our
Consolidated Financial Statements.
In
May 2014, the FASB issued authoritative guidance, which is included in ASC 606, "Revenue from Contracts with Customers." This guidance
provides a single, comprehensive revenue recognition model for all contracts with customers and requires that a company recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In July 2015, the FASB delayed the effective date of this
guidance by one year. As a result, this guidance is effective for us as of October 1, 2018 and shall be applied either retrospectively to each period presented or as a cumulative-effect
adjustment as of the date of adoption. We are currently evaluating the impact this standard may have on our Consolidated Financial Statements.
We
periodically review new accounting standards that are issued. Although some of these accounting standards may be applicable to us, we have not identified any other new standards that
we
31
Table of Contents
believe
merit further discussion, and we expect that none would have a significant impact on our Consolidated Financial Statements.
Inflation
Inflation affects the cost of raw materials, goods and services we use. In recent years, inflation has been modest. The competitive
environment somewhat limits our ability to recover higher costs resulting from inflation by raising prices. We seek to mitigate the adverse effects of inflation primarily through improved productivity
and cost containment programs. We do not believe that inflation has had a material impact on our results of operations for the periods presented, except with respect to increased costs in
manufacturing, packaging and distribution resulting from increased fuel and other petrochemical costs, as well as payroll-related costs, insurance premiums, and other costs arising from or related to
government-imposed regulations.
Off-Balance Sheet Arrangements
Our operating lease commitments are disclosed in the Contractual Obligations and Other Commitments table. As of September 30,
2015, we had not entered into any off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
At our election, borrowings bear interest at the applicable Eurodollar Rate plus a variable margin or at a Base Rate plus a variable
margin. Base Rate is the higher of: (i) the Prime Lending Rate, (ii) the Federal Funds Rate plus 0.5% or (iii) the one-month Eurodollar Rate multiplied by the Statutory Reserve
Rate plus 1.0%. At September 30, 2015, the applicable weighted-average interest rate for borrowings was 1.56% and we had total borrowings outstanding of $31.5 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 in fiscal 2015, 2014 or 2013.
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 included sales to customers in Barbados, Canada, Dominica, Japan, the Netherlands, Norway, St. Kitts, St. Lucia, Sweden and the
United Kingdom. To date, we have not hedged any of our potential foreign currency exposures.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 is set forth on pages F-1 through F-23 of this Annual Report on Form 10-K. The
supplemental financial information required by Item 302 of Regulation S-K is set forth in "Management's Discussion and Analysis of Financial Condition and Results of
OperationsSelected Quarterly Financial Data; Seasonality."
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no changes in our independent registered public accounting firm, PricewaterhouseCoopers LLP, or disagreements
with our accountants on matters of accounting and financial disclosure.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that
information
required to be disclosed in our Exchange Act reports is
32
Table of Contents
recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our
principal executive and principal financial officers, as appropriate, to allow for timely decisions regarding required disclosure.
In
designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and we are required to apply our judgment in evaluating the cost-benefit relationship with respect to possible controls and procedures.
As
required by SEC Rule 13a-15(b), we carried out an evaluation under the supervision of and with the participation of our management, including our principal executive and
principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2015. Based on this evaluation, our principal
executive and financial officers have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2015.
Management's Report on Internal Control over Financial Reporting. We are responsible for establishing and maintaining adequate internal
control over
financial reporting as such term is defined in Exchange Act Rule 13a-15(f). In order to evaluate the effectiveness of internal control over financial reporting, we conducted an assessment as of
September 30, 2015, based on the criteria in Internal ControlIntegrated Framework (2013), issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). Our internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial
Officer, or persons performing similar functions, and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Based
on our assessment, we have concluded that, as of September 30, 2015, we did maintain effective internal controls over financial reporting based on the criteria in Internal ControlIntegrated Framework (2013)
issued by the COSO. The effectiveness of our internal control over financial reporting as of
September 30, 2015 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting that
occurred during the
last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
33
Table of Contents
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item with respect to our directors, our audit committee, our audit committee financial expert and
procedures by which stockholders may recommend nominees to the board of directors is set forth under the heading "The Board of Directors" in our definitive Proxy Statement for the 2016 Annual Meeting
of Stockholders (the "Proxy Statement"), to be filed with the SEC within 120 days of the end of our fiscal year, which information is incorporated herein by reference. Information required by
this item regarding our executive officers is included in Part I of this Annual Report on Form 10-K under the heading "BusinessExecutive Officers." Information required by
this item with respect to Section 16(a) beneficial ownership reporting
compliance is set forth in the Proxy Statement under the heading "Section 16(a) Beneficial Ownership Reporting Compliance," which information is incorporated herein by reference.
Code of Ethics
We have adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K under the Exchange Act. This Code of
Ethics applies to all our directors, officers and employees. The Code of Ethics is available on our website: www.nutraceutical.com. Additionally, we
will provide to any person, without charge, upon request, a copy of the Code of Ethics. A person may request a copy by writing to Nutraceutical International Corporation, Attn.: Investor Relations,
1500 Kearns Boulevard, Suite B-200, Park City, Utah 84060 or by telephoning us at (435) 655-6106.
Item 11. Executive Compensation
Information required by this item is set forth in the Proxy Statement under the heading "Executive Compensation," which information is
incorporated herein by reference (except for the Compensation Committee Report).
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item is set forth in the Proxy Statement under the heading "Principal Stockholders," which information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item is set forth in the Proxy Statement under the headings "The Board of
DirectorsCompensation Committee Interlocks and Insider Participation" and "The Board of DirectorsCertain Relationships, Related Transactions and Director Independence," which
information is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information required by this item appears in the Proxy Statement under the heading "Fees Paid to PricewaterhouseCoopers LLP" and
is incorporated herein by reference.
34
Table of Contents
PART IV
Item 15. Exhibits and Financial Statement Schedules
- (a)
- The
following documents are filed as part of this report:
- 1.
- All
Financial Statements:
35
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 19th day of November 2015.
|
|
|
|
|
|
|
NUTRACEUTICAL INTERNATIONAL CORPORATION |
|
|
By: |
|
/s/ FRANK W. GAY II
Frank W. Gay II Chairman of the Board and
Chief Executive Officer |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on
this 19th day of November 2015.
|
|
|
Signature
|
|
Capacity
|
|
|
|
/s/ FRANK W. GAY II
Frank W. Gay II |
|
Director, Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
/s/ JEFFREY A. HINRICHS
Jeffrey A. Hinrichs |
|
Director, Executive Vice President, Chief Operating Officer and Secretary |
/s/ CORY J. MCQUEEN
Cory J. McQueen |
|
Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
/s/ GREGORY M. BENSON
Gregory M. Benson |
|
Director |
/s/ MICHAEL D. BURKE
Michael D. Burke |
|
Director |
/s/ J. KIMO ESPLIN
J. Kimo Esplin |
|
Director |
/s/ JAMES D. STICE
James D. Stice |
|
Director |
36
Table of Contents
Nutraceutical International Corporation
Index to Consolidated Financial Statements
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders
of Nutraceutical International Corporation:
In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income, cash flows and stockholders' equity present fairly, in all
material respects, the financial position of Nutraceutical International Corporation and its subsidiaries at September 30, 2015 and 2014, and the results of their operations and their cash
flows for each of the three years in the
period ended September 30, 2015 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the financial statement schedule listed in the
index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2015, based on criteria established in Internal ControlIntegrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
Salt Lake City, UT
November 19, 2015
F-2
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2015 |
|
2014 |
|
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash |
|
$ |
4,615 |
|
$ |
6,232 |
|
Accounts receivable, net |
|
|
16,798 |
|
|
15,118 |
|
Inventories |
|
|
59,440 |
|
|
57,914 |
|
Prepaid expenses and other current assets |
|
|
4,195 |
|
|
3,364 |
|
Deferred income taxes |
|
|
1,167 |
|
|
1,222 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
86,215 |
|
|
83,850 |
|
Property, plant and equipment, net |
|
|
77,645 |
|
|
79,244 |
|
Goodwill |
|
|
24,384 |
|
|
23,622 |
|
Intangible assets, net |
|
|
17,605 |
|
|
21,965 |
|
Deferred income taxes |
|
|
4,932 |
|
|
4,894 |
|
Other non-current assets |
|
|
1,668 |
|
|
1,203 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
212,449 |
|
$ |
214,778 |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
$ |
14,023 |
|
$ |
14,874 |
|
Accrued expenses |
|
|
6,505 |
|
|
6,835 |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
20,528 |
|
|
21,709 |
|
Long-term debt |
|
|
31,500 |
|
|
43,000 |
|
Other non-current liabilities |
|
|
174 |
|
|
456 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
52,202 |
|
|
65,165 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 10, 15 and 17) |
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 5,000,000 shares authorized; issued and outstandingnone |
|
|
|
|
|
|
|
Common stock, $0.01 par value, 50,000,000 shares authorized; 9,489,874 shares issued and 9,487,874 shares outstanding at September 30, 2015;
9,678,019 shares issued and 9,677,019 shares outstanding at September 30, 2014 |
|
|
95 |
|
|
97 |
|
Additional paid-in capital |
|
|
6,961 |
|
|
11,112 |
|
Retained earnings |
|
|
153,618 |
|
|
138,347 |
|
Accumulated other comprehensive income |
|
|
(379 |
) |
|
79 |
|
Treasury stock |
|
|
(48 |
) |
|
(22 |
) |
|
|
|
|
|
|
|
|
Total stockholders' equity |
|
|
160,247 |
|
|
149,613 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
212,449 |
|
$ |
214,778 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
September 30, |
|
|
|
2015 |
|
2014 |
|
2013 |
|
Net sales |
|
$ |
216,479 |
|
$ |
214,474 |
|
$ |
208,397 |
|
Cost of sales |
|
|
110,255 |
|
|
108,169 |
|
|
105,518 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
106,224 |
|
|
106,305 |
|
|
102,879 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
77,256 |
|
|
76,874 |
|
|
72,413 |
|
Amortization of intangible assets |
|
|
2,869 |
|
|
2,667 |
|
|
2,209 |
|
Impairment of intangible assets |
|
|
1,810 |
|
|
267 |
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,935 |
|
|
79,808 |
|
|
74,746 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
24,289 |
|
|
26,497 |
|
|
28,133 |
|
Interest and other expense, net |
|
|
1,051 |
|
|
1,421 |
|
|
1,360 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
23,238 |
|
|
25,076 |
|
|
26,773 |
|
Provision for income taxes |
|
|
7,967 |
|
|
9,187 |
|
|
9,765 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,271 |
|
$ |
15,889 |
|
$ |
17,008 |
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax |
|
|
(458 |
) |
|
(122 |
) |
|
(137 |
) |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
14,813 |
|
$ |
15,767 |
|
$ |
16,871 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.59 |
|
$ |
1.62 |
|
$ |
1.74 |
|
Diluted |
|
|
1.59 |
|
|
1.62 |
|
|
1.73 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
9,588,838 |
|
|
9,792,276 |
|
|
9,783,300 |
|
Dilutive effect of stock options |
|
|
3,896 |
|
|
8,804 |
|
|
24,558 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
9,592,734 |
|
|
9,801,080 |
|
|
9,807,858 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
September 30, |
|
|
|
2015 |
|
2014 |
|
2013 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,271 |
|
$ |
15,889 |
|
$ |
17,008 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
12,765 |
|
|
11,468 |
|
|
9,791 |
|
Amortization of deferred financing fees |
|
|
130 |
|
|
184 |
|
|
184 |
|
Impairment of intangible assets |
|
|
1,810 |
|
|
267 |
|
|
124 |
|
Losses on disposals of property, plant and equipment |
|
|
13 |
|
|
3 |
|
|
5 |
|
Tax benefit from stock option exercises |
|
|
(84 |
) |
|
(51 |
) |
|
(453 |
) |
Deferred income taxes |
|
|
17 |
|
|
112 |
|
|
1,211 |
|
Changes in assets and liabilities, net of effects of acquisitions: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(1,648 |
) |
|
(758 |
) |
|
10 |
|
Inventories |
|
|
(1,462 |
) |
|
(6,691 |
) |
|
(2,625 |
) |
Prepaid expenses and other current assets |
|
|
(816 |
) |
|
(704 |
) |
|
401 |
|
Other non-current assets |
|
|
(101 |
) |
|
(90 |
) |
|
100 |
|
Accounts payable |
|
|
(604 |
) |
|
9 |
|
|
1,491 |
|
Accrued expenses |
|
|
(267 |
) |
|
386 |
|
|
(423 |
) |
Other non-current liabilities |
|
|
22 |
|
|
14 |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
25,046 |
|
|
20,038 |
|
|
26,770 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(8,557 |
) |
|
(11,298 |
) |
|
(8,347 |
) |
Acquisitions of businesses |
|
|
(1,266 |
) |
|
(16,377 |
) |
|
(3,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(9,823 |
) |
|
(27,675 |
) |
|
(11,729 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Proceeds from debt |
|
|
4,500 |
|
|
23,500 |
|
|
13,000 |
|
Payments on debt |
|
|
(16,000 |
) |
|
(13,000 |
) |
|
(14,500 |
) |
Payments of deferred financing fees |
|
|
(420 |
) |
|
|
|
|
|
|
Proceeds from issuances of common stock |
|
|
552 |
|
|
211 |
|
|
2,391 |
|
Purchases of common stock for treasury |
|
|
(5,319 |
) |
|
(5,067 |
) |
|
(3,110 |
) |
Dividends paid on common stock |
|
|
|
|
|
|
|
|
(9,785 |
) |
Tax benefit from stock option exercises |
|
|
84 |
|
|
51 |
|
|
453 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(16,603 |
) |
|
5,695 |
|
|
(11,551 |
) |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(237 |
) |
|
(61 |
) |
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
(1,617 |
) |
|
(2,003 |
) |
|
3,411 |
|
Cash at beginning of year |
|
|
6,232 |
|
|
8,235 |
|
|
4,824 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year |
|
$ |
4,615 |
|
$ |
6,232 |
|
$ |
8,235 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
Accumulated
Other
Comprehensive
Income |
|
|
|
|
|
|
|
Additional
Paid-In
Capital |
|
Retained
Earnings |
|
Treasury
Stock |
|
Total
Stockholders'
Equity |
|
|
|
Shares |
|
Amount |
|
Balance at October 1, 2012 |
|
|
9,840,045 |
|
|
98 |
|
|
15,400 |
|
|
115,235 |
|
|
338 |
|
|
(15 |
) |
|
131,056 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
17,008 |
|
|
|
|
|
|
|
|
17,008 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137 |
) |
|
|
|
|
(137 |
) |
Issuances of common stock |
|
|
187,177 |
|
|
2 |
|
|
2,389 |
|
|
|
|
|
|
|
|
|
|
|
2,391 |
|
Tax benefit from stock option exercises |
|
|
|
|
|
|
|
|
453 |
|
|
|
|
|
|
|
|
|
|
|
453 |
|
Dividends paid on common stock |
|
|
|
|
|
|
|
|
|
|
|
(9,785 |
) |
|
|
|
|
|
|
|
(9,785 |
) |
Purchases of common stock for treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,110 |
) |
|
(3,110 |
) |
Retirement of common stock in treasury |
|
|
(184,620 |
) |
|
(2 |
) |
|
(3,116 |
) |
|
|
|
|
|
|
|
3,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2013 |
|
|
9,842,602 |
|
|
98 |
|
|
15,126 |
|
|
122,458 |
|
|
201 |
|
|
(7 |
) |
|
137,876 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
15,889 |
|
|
|
|
|
|
|
|
15,889 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(122 |
) |
|
|
|
|
(122 |
) |
Issuances of common stock |
|
|
13,770 |
|
|
|
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
211 |
|
Equity compensation payments |
|
|
31,788 |
|
|
1 |
|
|
774 |
|
|
|
|
|
|
|
|
|
|
|
775 |
|
Tax benefit from stock option exercises |
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
51 |
|
Purchases of common stock for treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,067 |
) |
|
(5,067 |
) |
Retirement of common stock in treasury |
|
|
(210,141 |
) |
|
(2 |
) |
|
(5,050 |
) |
|
|
|
|
|
|
|
5,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2014 |
|
|
9,678,019 |
|
|
97 |
|
|
11,112 |
|
|
138,347 |
|
|
79 |
|
|
(22 |
) |
|
149,613 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
15,271 |
|
|
|
|
|
|
|
|
15,271 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(458 |
) |
|
|
|
|
(458 |
) |
Issuances of common stock |
|
|
36,791 |
|
|
|
|
|
552 |
|
|
|
|
|
|
|
|
|
|
|
552 |
|
Equity compensation payments |
|
|
24,827 |
|
|
|
|
|
504 |
|
|
|
|
|
|
|
|
|
|
|
504 |
|
Tax benefit from stock option exercises |
|
|
|
|
|
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
84 |
|
Purchases of common stock for treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,319 |
) |
|
(5,319 |
) |
Retirement of common stock in treasury |
|
|
(249,763 |
) |
|
(2 |
) |
|
(5,291 |
) |
|
|
|
|
|
|
|
5,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2015 |
|
|
9,489,874 |
|
$ |
95 |
|
$ |
6,961 |
|
$ |
153,618 |
|
$ |
(379 |
) |
$ |
(48 |
) |
$ |
160,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
1. Description of Business
Nutraceutical International Corporation and its subsidiaries (the "Company") is an integrated manufacturer, marketer, distributor and retailer of branded nutritional supplements and
other natural products sold primarily to and through domestic health and natural food stores. Internationally, the Company markets and distributes branded nutritional supplements and other natural
products to and through health and natural product distributors and retailers. The Company's core business strategy is to acquire, integrate and operate businesses in the natural products industry
that manufacture, market and distribute branded nutritional supplements. The Company believes that the consolidation and integration of these acquired businesses provide ongoing financial synergies
through increased scale and market penetration, as well as strengthened customer relationships.
The
Company manufactures and sells nutritional supplements and other natural products under numerous brands, including Solaray®, KAL®, Nature's
Life®, LifeTime®, Natural
Balance®, NaturalCare®, Health from the
Sun®, Pioneer®, Nutra BioGenesis, Life-flo®, Organix South®, Heritage
Store® and Monarch Nutraceuticals.
The
Company owns neighborhood natural food markets, which operate under the trade names The Real Food Company, Thom's Natural Foods, Cornucopia Community Market and Granola's. The Company also owns health food stores, which operate under various trade names, including Fresh
Vitamins and Peachtree Natural Foods®.
2. Summary of Significant Accounting Policies
Principles of ConsolidationThe Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant
intercompany transactions and balances were eliminated.
Use of EstimatesThe preparation of these financial statements in conformity with accounting principles generally accepted in the United States of
America required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of net sales and expenses during the reported periods. Significant estimates included values and lives assigned to acquired intangible assets, reserves
for customer returns and allowances, uncollectible accounts receivable, valuation adjustments for slow-moving, obsolete and/or damaged inventory and valuation and recoverability of long-lived assets.
Actual results may differ from these estimates.
Fair Value of Financial InstrumentsThe Company believes that the fair values of financial instruments, including cash, accounts receivable, accounts
payable and debt, approximated their respective book values at September 30, 2015 and 2014. The book values of cash, accounts receivable and accounts payable approximated their fair values
based on their short-term nature. 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 Financial Accounting Standards Board's ("FASB") fair value hierarchy.
CashThe majority of the Company's cash was held by one bank at September 30, 2015. As a result of this concentration, the Company's cash
balances frequently exceed federally insured limits. The Company does not believe it is subject to any other unusual risks as a result of this concentration other than those normally associated with
commercial banking relationships.
F-7
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (Continued)
Accounts ReceivableProvision is made for estimated bad debts based on a periodic analysis of individual customer balances, including an evaluation of
days sales outstanding, payment history, recent payment trends and perceived creditworthiness.
InventoriesBranded inventories included freight-in, materials, labor and overhead costs and were stated at the lower of cost or market, cost being
determined by a moving weighted average. Neighborhood natural food markets and health food stores inventories were accounted for using the retail method. Valuation adjustments are made for
slow-moving, obsolete and/or damaged inventory based on a periodic analysis of individual inventory items, including an evaluation of historical usage and/or movement, age, expiration date and general
condition.
Property, Plant and EquipmentProperty, plant and equipment were stated at cost, less accumulated depreciation and amortization. Depreciation and
amortization were provided using the straight-line method over the estimated useful lives of the respective assets. Expenditures for renewals and betterments were capitalized, while maintenance and
repairs were charged to operations in the periods incurred. Upon sale or disposal of an asset, the historical cost and related accumulated depreciation or amortization of such asset were removed from
their respective accounts and any gain or loss was recorded in the Consolidated Statements of Comprehensive Income.
The
Company evaluates the recoverability of property, plant and equipment whenever events or circumstances indicate that the carrying amount of an asset group may not be recoverable. The
Company measures recoverability of an asset group by comparison of its carrying amount to the future undiscounted cash flows the asset group is expected to generate. If an asset group is considered to
be impaired, the difference between the carrying amount and the fair value of the impaired asset group is recognized as an impairment charge.
Goodwill and Intangible AssetsThe excess of purchase price over fair value of assets acquired in purchase transactions was classified as goodwill.
Intangible assets with finite useful lives are amortized while intangible assets with indefinite useful lives are not amortized. Amortizable intangible assets are reviewed for impairment when events
or changes in circumstances indicate the carrying value may not be recoverable. Goodwill and indefinite-lived intangible assets are tested annually for impairment and when events or changes in
circumstances indicate the carrying value may not be recoverable. The appropriateness of the indefinite-life classification of non-amortizable intangible assets is also reviewed as part of the annual
testing or when circumstances warrant a change to a finite life. The Company performs its annual impairment testing as of September 30 each year, which is the last day of the Company's fiscal
year.
A
two-step process is used to test for goodwill impairment. The first step is to determine if there is an indication of impairment by comparing the estimated fair value of each reporting
unit to its carrying value, including existing goodwill. Reporting unit fair values are estimated using market data as well as other factors. Goodwill is considered impaired if the carrying value of a
reporting unit exceeds the estimated fair value. Upon an indication of impairment, a second step is performed to measure the amount of the impairment by comparing the implied fair value of the
reporting unit's goodwill with its carrying value.
F-8
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (Continued)
Intangible
assets with indefinite useful lives are tested for impairment at the individual asset level by comparing the fair value of the indefinite-lived intangible asset to its
carrying amount. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment charge is recognized to reduce the carrying amount to fair value. Fair values of
indefinite-lived intangible assets are estimated using discounted cash flow models.
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 as an impairment charge.
Deferred Financing FeesThe Company deferred certain debt issuance costs, including bank, legal and other fees, related to the establishment and
subsequent amendment of its credit agreement (Note 9). These costs are being amortized using the straight-line method.
Foreign Currency TranslationThe functional currency of each of the Company's foreign subsidiaries and branches is the local currency. All assets and
liabilities of foreign subsidiaries and branches were translated into U.S. Dollars at fiscal year-end exchange rates. Income and expense items were translated at exchange rates prevailing during the
year. The resulting translation adjustments, net of income taxes, were recorded in accumulated other comprehensive income, which is a component of stockholders' equity.
Revenue RecognitionRevenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the
product has been shipped and the customer takes ownership and assumes the risk of loss; (3) the selling price is fixed or determinable; and (4) collection of the resulting receivable is
reasonably assured. The Company believes that these criteria are satisfied upon shipment from its facilities or, in the case of the Company's neighborhood natural food markets and health food stores,
at the point of sale within these stores. Revenue is reduced by provisions for estimated customer returns and allowances, which are based on historical averages that have not varied significantly for
the periods presented, as well as specific known claims, if any.
Shipping and Handling CostsThe Company incurred shipping and handling costs related to third party freight charges, as well as internal warehousing
and order fulfillment costs. These costs were classified as selling, general and administrative expenses and totaled $14,863, $15,073 and $14,222 for the years ended September 30, 2015, 2014
and 2013, respectively.
Research and DevelopmentThe Company expensed research and development costs as incurred. For the years ended September 30, 2015, 2014 and
2013, the Company incurred $3,624, $3,806 and $3,388, respectively, in research and development expenditures primarily related to product development.
AdvertisingThe Company expensed advertising costs as incurred. These costs were included in selling, general and administrative expenses.
Income TaxesThe Company accounted for income taxes using the asset and liability
method which required the Company to record deferred tax assets and liabilities for the differences between the financial statement and tax bases of assets and liabilities using the expected
applicable future tax
F-9
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (Continued)
rates.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be ultimately realized.
The
Company evaluated its uncertain tax positions taken or expected to be taken in a tax return including the related financial statement recognition, measurement, reporting and
disclosure (Note 11).
Concentrations of Credit RiskIn the normal course of business, the Company provided credit terms to its customers; however, collateral was not
required. Accordingly, the Company performed credit evaluations of its customers and maintained allowances for possible losses which, when realized, were within the range of management's expectations.
From time to time, a higher concentration of credit risk existed on outstanding accounts receivable for a select number of customers due to individual buying patterns.
New Accounting StandardsIn September 2015, the FASB issued authoritative guidance, which is included in Accounting Standards Codification ("ASC")
808, "Business Combinations." This guidance simplifies the accounting for measurement-period adjustments and is effective for the Company as of
October 1, 2016. The Company is currently evaluating the impact this standard may have on its Consolidated Financial Statements.
In
July 2015, the FASB issued authoritative guidance, which is included in ASC 330, "Inventory." This guidance simplifies the accounting
for measuring inventory at the lower of cost and net realizable value and is effective for the Company as of October 1, 2017. The Company is currently evaluating the impact this standard may
have on its Consolidated Financial Statements.
In
May 2014, the FASB issued authoritative guidance, which is included in ASC 606, "Revenue from Contracts with Customers." This guidance
provides a single, comprehensive revenue recognition model for all contracts with customers and requires that a company recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or services. In July 2015, the FASB delayed the effective date of this guidance by one year. As a result, this guidance is effective for the
Company as of October 1, 2018 and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently
evaluating the impact this standard may have on its Consolidated Financial Statements.
The
Company periodically reviews new accounting standards that are issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified
any other new standards that it believes merit further discussion, and the Company expects that none would have a significant impact on its Consolidated Financial Statements.
3. Acquisitions
During the year ended September 30, 2015, the Company made two acquisitions of businesses. On November 18, 2014, the Company acquired certain operating assets of Agape
Health Products. On June 4, 2015, the Company acquired certain operating assets of ProClay, LLC. The aggregate purchase price of these acquisitions was $1,266 in cash.
F-10
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
3. Acquisitions (Continued)
During
the year ended September 30, 2014, the Company made seven acquisitions of businesses. On October 16, 2013, the Company acquired certain operating assets of TCCD
International, Inc. On November 25, 2013, the Company acquired certain operating assets of Green Luxury Brands, Inc. On December 19, 2013, the Company acquired certain
operating assets of Twinlab Corporation. On January 15, 2014, the Company acquired certain operating assets of Peachtree Natural Foods, Inc. On April 11, 2014, the Company
acquired certain operating assets of Northwest Health Foods, Inc. On
April 17, 2014, the Company acquired certain operating assets of Bio-Genesis Nutraceuticals, Inc. On August 26, 2014, the Company acquired certain operating assets of Cooper
Nutrition, Inc. The aggregate purchase price of these acquisitions was $16,377 in cash.
During
the year ended September 30, 2013, the Company made four acquisitions of businesses. On April 1, 2013, the Company acquired certain operating assets of Tri Medica
International, Inc. On May 17, 2013, the Company acquired certain operating assets of LC Nutrition and Vitamin House. On August 7, 2013, the Company acquired certain operating
assets of Simplers Botanical Company, LLC. On August 21, 2013, the Company acquired certain operating assets of Jordan Naturals Company, Inc. The aggregate purchase price of these
acquisitions was $3,382 in cash.
These
acquisitions are in keeping with the Company's business strategy of consolidating the fragmented industry where it competes. These acquisitions were accounted for using the
acquisition method of accounting. Accordingly, the aggregate purchase price was assigned to the assets acquired based on their fair values at the respective dates of acquisition. The excess of
aggregate purchase price over the fair values of the assets acquired was classified as goodwill (Note 7). The goodwill relates to expected synergies from these acquisitions. The Consolidated
Statements of Comprehensive Income and Consolidated Statements of Cash Flows presented herein include the activities of these acquired businesses from their respective dates of acquisition. The
following reflects the final allocation of the aggregate purchase prices for the fiscal 2015, 2014 and 2013 acquisitions to the aggregate assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015
Acquisitions |
|
Fiscal 2014
Acquisitions |
|
Fiscal 2013
Acquisitions |
|
Aggregate assets acquired: |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
111 |
|
$ |
2,773 |
|
$ |
794 |
|
Goodwill |
|
|
762 |
|
|
7,801 |
|
|
1,069 |
|
Intangible assets |
|
|
393 |
|
|
5,803 |
|
|
1,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,266 |
|
$ |
16,377 |
|
$ |
3,382 |
|
|
|
|
|
|
|
|
|
|
|
|
The
fiscal 2015, 2014 and 2013 acquired intangible assets totaling $393, 5,803 and $1,519, respectively, related to trademarks, tradenames, customer relationships and a non-compete
agreement, and are being amortized over periods of two to fifteen years for financial statement purposes. The fiscal 2015, 2014 and 2013 acquired intangible assets are expected to be deductible for
tax purposes over fifteen years. Goodwill, which is not subject to amortization for financial statement purposes, of $762 for fiscal 2015, $7,801 for fiscal 2014 and $1,069 for fiscal 2013, is
expected to be deductible for tax purposes over fifteen years.
F-11
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
4. Accounts Receivable
Accounts receivable, net of allowances for sales returns and doubtful accounts, consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2015 |
|
2014 |
|
Accounts receivable |
|
$ |
17,882 |
|
$ |
16,352 |
|
Less allowances |
|
|
(1,084 |
) |
|
(1,234 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
16,798 |
|
$ |
15,118 |
|
|
|
|
|
|
|
|
|
5. Inventories
Inventories were comprised of the following:
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2015 |
|
2014 |
|
Raw materials |
|
$ |
23,106 |
|
$ |
20,559 |
|
Work-in-process |
|
|
9,755 |
|
|
6,909 |
|
Finished goods |
|
|
26,579 |
|
|
30,446 |
|
|
|
|
|
|
|
|
|
|
|
$ |
59,440 |
|
$ |
57,914 |
|
|
|
|
|
|
|
|
|
6. Property, Plant and Equipment
Property, plant and equipment, net of accumulated depreciation and amortization, were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
Estimated
Useful Life
in Years |
|
|
|
2015 |
|
2014 |
|
Land |
|
|
|
$ |
8,987 |
|
$ |
8,546 |
|
Buildings |
|
30 |
|
|
74,214 |
|
|
72,283 |
|
Leasehold improvements |
|
1 - 7 |
|
|
3,326 |
|
|
3,466 |
|
Furniture, fixtures and equipment |
|
3 - 10 |
|
|
64,831 |
|
|
61,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,358 |
|
|
145,474 |
|
Less accumulated depreciation and amortization |
|
|
|
|
(73,713 |
) |
|
(66,230 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
77,645 |
|
$ |
79,244 |
|
|
|
|
|
|
|
|
|
|
|
At
September 30, 2015 and 2014, the Company had no equipment under capital leases. Substantially all property, plant and equipment of the Company collateralized its debt
obligations (Note 9).
Depreciation
and amortization of property, plant and equipment totaled $9,896, $8,801 and $7,582 for the years ended September 30, 2015, 2014 and 2013, respectively.
F-12
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
7. Goodwill and Intangible Assets
Goodwill and indefinite-lived intangible assets are tested annually for impairment and when events or changes in circumstances indicate the carrying value may not be recoverable. The
Company performs its annual impairment testing as of September 30 each year, which is the last day of the Company's fiscal year. Amortizable intangible assets are reviewed for impairment when
events or changes in circumstances indicate the carrying value may not be recoverable.
The
changes in the carrying amount of goodwill for the years ended September 30, 2014 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
Accumulated
Impairment |
|
Net |
|
Balance as of October 1, 2013 |
|
$ |
56,215 |
|
$ |
(40,394 |
) |
$ |
15,821 |
|
Goodwill attributable to fiscal 2014 acquisitions |
|
|
7,801 |
|
|
|
|
|
7,801 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2014 |
|
|
64,016 |
|
|
(40,394 |
) |
|
23,622 |
|
Goodwill attributable to fiscal 2015 acquisitions |
|
|
762 |
|
|
|
|
|
762 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2015 |
|
$ |
64,778 |
|
$ |
(40,394 |
) |
$ |
24,384 |
|
|
|
|
|
|
|
|
|
|
|
|
The
carrying amounts of intangible assets at September 30, 2015 and 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015 |
|
September 30, 2014 |
|
|
|
|
|
Weighted-
Average
Amortization
Period (Years) |
|
|
|
Gross
Carrying
Amount(1) |
|
Accumulated
Amortization(1) |
|
Net
Carrying
Amount |
|
Gross
Carrying
Amount(1) |
|
Accumulated
Amortization(1) |
|
Net
Carrying
Amount |
|
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks/trade names/patents |
|
$ |
12,470 |
|
$ |
(1,966 |
) |
$ |
10,504 |
|
$ |
5,418 |
|
$ |
(1,480 |
) |
$ |
3,938 |
|
|
11 |
|
Customer relationships/distribution rights/ non-compete agreements |
|
|
16,836 |
|
|
(9,773 |
) |
|
7,063 |
|
|
16,517 |
|
|
(7,390 |
) |
|
9,127 |
|
|
7 |
|
Developed software and technology |
|
|
772 |
|
|
(772 |
) |
|
|
|
|
772 |
|
|
(772 |
) |
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,078 |
|
|
(12,511 |
) |
|
17,567 |
|
|
22,707 |
|
|
(9,642 |
) |
|
13,065 |
|
|
|
|
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks/trade names/licenses |
|
|
38 |
|
|
|
|
|
38 |
|
|
8,900 |
|
|
|
|
|
8,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,116 |
|
$ |
(12,511 |
) |
$ |
17,605 |
|
$ |
31,607 |
|
$ |
(9,642 |
) |
$ |
21,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Amounts
include the impact of foreign currency translation adjustments.
Aggregate
amortization expense related to intangible assets subject to amortization totaled $2,869, $2,667 and $2,209 for the years ended September 30, 2015, 2014 and 2013,
respectively.
F-13
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
7. Goodwill and Intangible Assets (Continued)
Estimated
amortization expense related to intangible assets subject to amortization is as follows:
|
|
|
|
|
Year Ending September 30,
|
|
Estimated
Amortization
Expense |
|
2016 |
|
$ |
2,939 |
|
2017 |
|
|
2,564 |
|
2018 |
|
|
2,374 |
|
2019 |
|
|
1,946 |
|
2020 |
|
|
1,857 |
|
Thereafter |
|
|
5,887 |
|
|
|
|
|
|
|
|
$ |
17,567 |
|
|
|
|
|
|
In
September 2015, the Company made a decision to expand its brand consolidation plan in an effort to simply its brand offerings and facilitate the customer ordering process. Based on
this decision, the Company no longer expects that the economic benefit of any of its indefinite-lived tradenames extends beyond the foreseeable future. As a result, as of September 30, 2015,
the Company determined these tradenames with an aggregate carrying value of $8,727 should be assigned finite useful lives. In accordance with ASC 350,
"IntangiblesGoodwill and Other," these tradenames were first tested for impairment as indefinite-lived intangible assets resulting in
non-cash intangible asset impairment charges of $1,810 ($1,112 after tax, or $0.12 per diluted share). The remaining $6,917 was reclassified to amortizable intangible assets as of September 30,
2015 with a weighted-average amortization period of 10 years.
In
performing its annual impairment testing as of September 30, 2014, the Company determined that there had been an increase in the probability that certain of its
indefinite-lived tradenames could be
consolidated with other existing tradenames in the future. As a result, the Company determined these tradenames with an aggregate carrying value of $1,093 should be assigned finite useful lives. In
accordance with ASC 350, these tradenames were first tested for impairment as indefinite-lived intangible assets resulting in a non-cash intangible asset impairment charge of $267 ($168 after tax, or
$0.02 per diluted share). The remaining $826 was reclassified to amortizable intangible assets as of September 30, 2014 with a weighted-average amortization period of 15 years.
In
performing its annual impairment testing as of September 30, 2013, the Company determined that there had been an increase in the probability that certain of its
indefinite-lived tradenames could be consolidated with other existing tradenames in the future. As a result, the Company determined these tradenames with an aggregate carrying value of $907 should be
assigned finite useful lives. In accordance with ASC 350, these tradenames were first tested for impairment as indefinite lived intangible assets resulting in non-cash intangible asset impairment
charges of $124 ($78 after tax, or $0.01 per diluted share). The remaining $783 was reclassified to amortizable intangible assets as of September 30, 2013 with a weighted average amortization
period of 13 years.
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 and/or stock price and could result in additional goodwill and/or intangible asset impairment charges being recorded in future periods. Also, the Company periodically
reviews its
F-14
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
7. Goodwill and Intangible Assets (Continued)
brands
to achieve marketing, sales and operational synergies. These reviews could result in additional brands being consolidated or discontinued and could result in additional intangible asset
impairment charges being recorded in future periods. Additional goodwill and/or intangible asset impairment charges could materially impact the Company's consolidated financial statements. The
valuation of goodwill and intangible assets is subject to a high degree of judgment, uncertainty and complexity.
8. Accrued Expenses
Accrued expenses were comprised of the following:
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2015 |
|
2014 |
|
Employee payroll, taxes, benefits and performance incentives |
|
$ |
5,270 |
|
$ |
5,294 |
|
Other accrued expenses |
|
|
1,235 |
|
|
1,541 |
|
|
|
|
|
|
|
|
|
|
|
$ |
6,505 |
|
$ |
6,835 |
|
|
|
|
|
|
|
|
|
9. Debt
Debt was comprised of the following:
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2015 |
|
2014 |
|
Long-term debtrevolving credit facility |
|
$ |
31,500 |
|
$ |
43,000 |
|
|
|
|
|
|
|
|
|
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
September 30, 2015, the Company had outstanding revolving credit borrowings of $31,500 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 September 30, 2015, the applicable
weighted-average interest rate for outstanding borrowings was 1.56%. The Company is also required to pay a variable quarterly fee on the unused balance under the Credit Agreement. At
September 30, 2015, the applicable rate was
F-15
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
9. Debt (Continued)
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 restrictions on incurring other indebtedness and requirements that the Company maintain certain financial ratios. As of
September 30, 2015, 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.
10. Lease Commitments and Obligations
The Company leases retail, office, storage and warehouse space under non-cancelable operating leases, the last of which expires during fiscal 2020; however, the Company has negotiated
extension options in many cases. These operating leases require the Company to pay all taxes, insurance and maintenance.
The
following summarizes future minimum lease payments required under the Company's significant non-cancelable operating leases:
|
|
|
|
|
Year Ending September 30,
|
|
Minimum
Lease
Payments |
|
2016 |
|
$ |
3,448 |
|
2017 |
|
|
1,447 |
|
2018 |
|
|
557 |
|
2019 |
|
|
123 |
|
2020 |
|
|
20 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
$ |
5,595 |
|
|
|
|
|
|
Total
rent expense incurred by the Company under significant non-cancelable operating leases was $3,141, $2,905 and $2,236 for the years ended September 30, 2015, 2014 and 2013,
respectively.
F-16
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
11. Income Taxes
The provision for income taxes was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
September 30, |
|
|
|
2015 |
|
2014 |
|
2013 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
6,516 |
|
$ |
7,797 |
|
$ |
7,244 |
|
State |
|
|
973 |
|
|
1,084 |
|
|
973 |
|
Foreign |
|
|
210 |
|
|
213 |
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
7,699 |
|
|
9,094 |
|
|
8,517 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
220 |
|
|
69 |
|
|
1,079 |
|
State |
|
|
48 |
|
|
24 |
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
268 |
|
|
93 |
|
|
1,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,967 |
|
$ |
9,187 |
|
$ |
9,765 |
|
|
|
|
|
|
|
|
|
|
|
|
The
differences between income taxes at the statutory federal income tax rate and income taxes reported in the Consolidated Statements of Comprehensive Income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
September 30, |
|
|
|
2015 |
|
2014 |
|
2013 |
|
Federal tax at statutory rate |
|
$ |
8,133 |
|
$ |
8,777 |
|
$ |
9,371 |
|
State taxes, net of federal benefit |
|
|
664 |
|
|
721 |
|
|
743 |
|
Non-deductible expenses |
|
|
192 |
|
|
195 |
|
|
154 |
|
Manufacturing benefit |
|
|
(613 |
) |
|
(586 |
) |
|
(595 |
) |
Change in valuation allowance |
|
|
(334 |
) |
|
163 |
|
|
247 |
|
Other |
|
|
(75 |
) |
|
(83 |
) |
|
(155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,967 |
|
$ |
9,187 |
|
$ |
9,765 |
|
|
|
|
|
|
|
|
|
|
|
|
F-17
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
11. Income Taxes (Continued)
A
summary of the composition of deferred income tax assets and liabilities was as follows:
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2015 |
|
2014 |
|
Current Deferred Income Tax Assets and Liabilities |
|
|
|
|
|
|
|
Accounts receivable reserves |
|
$ |
370 |
|
$ |
357 |
|
Inventory valuation adjustments |
|
|
816 |
|
|
739 |
|
Accrued liabilities |
|
|
(19 |
) |
|
126 |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,167 |
|
$ |
1,222 |
|
|
|
|
|
|
|
|
|
Non-Current Deferred Income Tax Assets |
|
|
|
|
|
|
|
Goodwill and other intangible assets |
|
$ |
3,376 |
|
$ |
3,692 |
|
Property, plant and equipment |
|
|
1,372 |
|
|
1,095 |
|
Foreign net operating loss carryforwards |
|
|
1,881 |
|
|
1,647 |
|
Foreign tax credit carryforwards |
|
|
184 |
|
|
441 |
|
|
|
|
|
|
|
|
|
|
|
|
6,813 |
|
|
6,875 |
|
Less valuation allowance |
|
|
(1,881 |
) |
|
(1,981 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
4,932 |
|
$ |
4,894 |
|
|
|
|
|
|
|
|
|
As
of September 30, 2015 and 2014, the Company had foreign net operating loss carryforwards of $8,038 and $7,155, respectively. If not used, loss carryforwards of $3,031 will
expire between 2016 and 2025 while $5,007 do not expire. As of September 30, 2015 and 2014, full valuation allowances were recorded of $1,881 and $1,647, respectively, as the Company believed
it was not likely it would be able to utilize the loss carryforwards. The composition of the non-current deferred income tax assets as of September 30, 2014, has been revised from the prior
year's presentation to include $1,647 of foreign net operating loss carryforwards and the associated valuation allowance. The Company has concluded that this revision is immaterial to the
previously-issued financial statements.
As
of September 30, 2014, the Company recorded a valuation allowance of $334 against its non-current deferred tax asset resulting from foreign tax credit carryforwards. As of
September 30, 2015, the Company released this valuation allowance as the Company believed it would be able to utilize the credit carryforwards.
As
of September 30, 2015 and 2014, the Company had no uncertain tax positions that required recognition or disclosure in its Consolidated Statements of Comprehensive Income.
The
Company files income tax returns in the United States federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. The Company is no longer subject to
U.S. federal tax examinations for fiscal years before 2012. The Company is no longer subject to examination in any U.S. state jurisdiction or foreign jurisdiction for fiscal years prior to 2010.
12. Capital Stock
Description of Capital StockAt September 30, 2015 and 2014, the Company had two authorized classes of stock: Common stock and preferred stock,
each with a par value of $0.01 per share.
F-18
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
12. Capital Stock (Continued)
Stock Option PlansDuring the year ended September 30, 1998, the Company's Board of Directors adopted the 1998 Stock Incentive Plan. This plan
provided for granting options to purchase common stock to executives, employees and consultants of the Company and its subsidiaries. Grants under this plan vested over a period of two to four years
and expire no later than the tenth anniversary of the date of grant. In aggregate, 1,050,000 shares of common stock were reserved for issuance under this plan. As of September 30, 2015, no
options to purchase shares of common stock were issued, outstanding and exercisable under this plan.
During
the year ended September 30, 1998, the Company's Board of Directors adopted the 1998 Non-Employee Director Stock Option Plan. This plan provided for granting options to
purchase common stock to non-employee directors of the Company. Grants under this plan vested over a period of three years and expire no later than the tenth anniversary of the date of grant. In
aggregate, 150,000 shares of common stock were reserved for issuance under this plan. As of September 30, 2015, no options to purchase shares of common stock were issued, outstanding and
exercisable under this plan.
On
September 30, 2005, the Company terminated the 1998 Stock Incentive Plan and the 1998 Non-Employee Director Stock Option Plan. After September 30, 2005, no new awards of
any kind will be granted under any of these plans. However, the termination of these plans did not have any effect on outstanding options. As of September 30, 2015, there were no outstanding,
vested options under either of these plans.
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 options, stock appreciation rights and restricted stock awards. The 2013 Plan
provides a means through which the Company may attract and retain key personnel, including non-executive directors, and provides a means for directors, officers, employees, consultants and advisors to
acquire and maintain an equity interest in the Company. The 2013 Plan will be administered by the Compensation Committee of the Board of Directors of the Company, which has the authority to determine
the terms of the awards, determine the number of shares of the Company's common stock to be covered by the awards and make such other determinations as necessary in administering the 2013 Plan. The
2013 Plan will terminate on the tenth anniversary of its effective date. In conjunction with the Company's fiscal 2014 and fiscal 2013 incentive compensation (bonus) payments, 24,827 and 31,788 shares
of the Company's common stock were issued, respectively. These non-cash stock awards were granted on December 11, 2014 and December 11, 2013 at a fair value of $504 and $775,
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. As of September 30, 2015, 743,385 shares of the Company's common stock were available for issuance under the 2013 Plan.
As
of September 30, 2015, no options to purchase shares of common stock were issued, outstanding and exercisable. The following table sets forth option activity under the 1998
Stock
F-19
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
12. Capital Stock (Continued)
Incentive
Plan and the 1998 Non-Employee Director Stock Option Plan for the years ended September 30, 2013, 2014 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options |
|
Average Price
Per Share |
|
Aggregate
Option Price |
|
Outstanding at October 1, 2012 |
|
|
218,000 |
|
$ |
12.66 |
|
$ |
2,760 |
|
Exercised |
|
|
(175,500 |
) |
|
12.44 |
|
|
(2,183 |
) |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2013 |
|
|
42,500 |
|
|
13.59 |
|
|
577 |
|
Exercised |
|
|
(10,000 |
) |
|
11.53 |
|
|
(115 |
) |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2014 |
|
|
32,500 |
|
|
14.22 |
|
|
462 |
|
Exercised |
|
|
(32,500 |
) |
|
14.22 |
|
|
(462 |
) |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2015 |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted were issued at exercise prices that represented the quoted market price of common stock at the respective grant dates.
During
the years ended September 30, 2015, 2014 and 2013, the Company received proceeds of $462, $115 and $2,183, respectively, related to the exercise of stock options. During
these same periods, the Company recorded tax benefits of $84, $51 and $453, respectively, and optionees realized aggregate pre-tax gains of $219, $133 and $1,173, respectively, from these stock option
exercises.
Share Purchase ProgramPrior to fiscal 2015, the Company's Board of Directors approved a share purchase program authorizing the Company to buy up to
4,500,000 shares of common stock of the Company. During fiscal 2015, the Company purchased 250,763 shares at an aggregate price of $5,319. During fiscal 2014, the Company purchased 210,841 shares at
an aggregate price of $5,067. During fiscal 2013, the Company purchased 184,020 shares at an aggregate price of $3,110. All shares of common stock held in treasury were retired prior to
September 30 in the respective fiscal year of purchase except at September 30, 2015 and 2014 the Company held 2,000 and 1,000 shares of common stock in treasury, respectively. As of
September 30, 2015, the Company was permitted to purchase up to 481,261 additional shares under its approved share purchase program. The shares available for repurchase at September 30,
2015 have no expiration date. The Company accounts for treasury shares using the cost method.
Direct Stock Purchase PlanIn October 2007, the Company registered a direct stock purchase plan with the Securities and Exchange Commission. The
purpose of this direct stock purchase plan is to provide a convenient way for existing stockholders, as well as new investors, to purchase shares of the Company's common stock. A total of 1,500,000
shares of the Company's common stock were registered under the plan with 4,291 and 3,770 shares purchased for the years ended September 30, 2015 and 2014, respectively. As of
September 30, 2015, there were 1,377,444 shares of common stock available for purchase under this plan.
F-20
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
13. Dividends
In December 2012, the Company's Board of Directors declared a special cash dividend of $1.00 per share for all shares of common stock. This special cash dividend totaled $9,785 and was
paid on December 28, 2012 to stockholders of record on December 21, 2012.
14. Segments
Segment identification and selection is consistent with the management structure used by the Company's chief operating decision maker to evaluate performance and make decisions regarding
resource allocation, as well as the materiality of financial results consistent with that structure. Based on the Company's management structure and method of internal reporting, the Company has one
operating segment. The Company's chief operating decision maker does not review operating results on a disaggregated basis; rather, the chief operating decision maker reviews operating results on an
aggregate basis.
Net
sales attributed to customers in the United States and foreign countries for the years ended September 30, 2015, 2014 and 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2015 |
|
2014 |
|
2013 |
|
United States |
|
$ |
189,505 |
|
$ |
185,729 |
|
$ |
180,934 |
|
Foreign countries |
|
|
26,974 |
|
|
28,745 |
|
|
27,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
216,479 |
|
$ |
214,474 |
|
$ |
208,397 |
|
|
|
|
|
|
|
|
|
|
|
|
Certain
net sales attributed to customers in the United States are sold to customers who in turn may sell such products to customers in foreign countries while certain net sales
attributed to customers in
foreign countries are sold to customers who in turn may sell such products to customers in the United States.
The
Company's net sales by product group for the years ended September 30, 2015, 2014 and 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2015 |
|
2014 |
|
2013 |
|
Branded nutritional supplements and other natural products |
|
$ |
195,897 |
|
$ |
193,837 |
|
$ |
188,871 |
|
Other(1) |
|
|
20,582 |
|
|
20,637 |
|
|
19,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
216,479 |
|
$ |
214,474 |
|
$ |
208,397 |
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Net
sales for any other product or group of similar products are less than 10% of consolidated net sales.
F-21
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
15. Employee Benefit Plans
401(k) PlanThe Company has a 401(k) defined contribution profit sharing plan that covers substantially all employees. Under the plan, employees may
contribute up to 75% of their compensation subject to certain exceptions and limitations. In addition, employees who meet certain age requirements may contribute additional amounts permitted by law
under the plan. The Company makes matching contributions to the plan up to the first 4% of employee contributions and is permitted to make discretionary contributions under the plan. The amounts
contributed to the plan by the Company were $936, $890 and $911 for the years ended September 30, 2015, 2014 and 2013, respectively.
16. Supplemental Disclosure of Cash Flow Items
Cash paid by the Company for interest was $966, $1,163 and $1,178 for the years ended September 30, 2015, 2014 and 2013, respectively. Cash paid by the Company for taxes was
$7,172, $8,966 and $8,135 for the years ended September 30, 2015, 2014 and 2013, respectively.
In
conjunction with the Company's fiscal 2014 and fiscal 2013 incentive compensation (bonus) payments, non-cash stock awards of 24,827 and 31,788 shares of the Company's common stock
were issued, respectively. These non-cash stock awards were granted on December 11, 2014 and December 11, 2013 at an aggregate fair value of $504 and $775, respectively.
17. Commitments and Contingencies
The formulation, manufacturing, processing, packaging, labeling, advertising, distribution and sale of nutritional supplements (including vitamins, amino acids, minerals, herbs, other
botanicals and other dietary ingredients), such as those sold by the Company, are subject to regulation by one or more federal agencies, principally the Food and Drug Administration (the "FDA") and
the Federal Trade Commission and, to a lesser extent, the Consumer Product Safety Commission and the United States Department of Agriculture. These activities are also regulated by various
governmental agencies for the states and localities in which the Company's products are sold, as well as by governmental agencies in certain countries in which the Company's products are sold outside
the United States.
Although
management believes that the Company is in material compliance with the statutes, laws, rules and regulations of every jurisdiction in which it operates, from time to time one
or more government agencies have asserted or may assert that some particular aspect or facility is not in compliance with a specific provision or law. No assurance can be given that the Company's
compliance with applicable statutes, laws, rules and regulations will not be challenged by governing authorities or private parties or that the Company's response to any such challenge will be
successful or that such challenges will not have a material adverse effect on the Company's financial position, results of operations or cash flows.
The
Company, like any other retailer, distributor or manufacturer of products that are designed to be ingested, also faces inherent risk of exposure to product liability claims in the
event that the use of its products results in injury. With respect to product liability claims, the Company has liability insurance; however, liability policies contain deductibles and exclusions
(such as those related to specific ingredients or types of claims) and there can be no assurance that such insurance will be adequate to cover all potential liabilities. In the event that the Company
does not have adequate
F-22
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
17. Commitments and Contingencies (Continued)
insurance
(or any insurance) or contractual indemnification from parties supplying raw materials or marketing its products, product liability related to defective products could have a material
adverse effect on the Company.
The
Company is involved in various legal matters arising in the normal course of business. In the opinion of management, the losses related to individual regulatory and legal matters in
which the Company is presently involved are not probable and no estimate can be made of the range of potential gains or losses. While incapable of estimation, in the opinion of management, the
individual regulatory and legal matters in which the Company is presently involved are not expected to have a material adverse effect on the Company's financial position, results of operations or cash
flows. However, the aggregate liability of the Company arising from regulatory and legal proceedings related to these matters or future matters could have a material effect on the Company's financial
position, results of operations or cash flows.
18. Subsequent Events
On October 6, 2015, the Company acquired certain operating assets of Dynamic Health Laboratories Inc., a manufacturer of primarily organic and natural liquid nutritional
products, for approximately $19,000 in cash. The primary assets acquired included accounts receivable, inventory, prepaid expenses, property, plant and equipment, trademarks/tradenames, customer
relationships and goodwill. As of the date of these financial statements, the Company is determining the fair value of the acquired assets and the related allocation of the aggregate purchase price.
F-23
Table of Contents
NUTRACEUTICAL INTERNATIONAL CORPORATION
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
Beginning of
Period |
|
Charged to
Costs and
Expenses |
|
Charged
to Other
Accounts |
|
Deductions |
|
Balance at
End of
Period |
|
|
|
(dollars in thousands)
|
|
September 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from related asset account: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for sales returns |
|
$ |
763 |
|
$ |
4,033 |
|
$ |
|
|
$ |
4,045 |
|
$ |
751 |
|
Allowance for doubtful accounts |
|
|
471 |
|
|
45 |
|
|
|
|
|
183 |
|
|
333 |
|
Allowance for deferred tax assets |
|
|
1,981 |
|
|
(100 |
) |
|
|
|
|
|
|
|
1,881 |
|
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from related asset account: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for sales returns |
|
|
788 |
|
|
4,151 |
|
|
|
|
|
4,176 |
|
|
763 |
|
Allowance for doubtful accounts |
|
|
864 |
|
|
(250 |
) |
|
|
|
|
143 |
|
|
471 |
|
Allowance for deferred tax assets(1) |
|
|
1,653 |
|
|
328 |
|
|
|
|
|
|
|
|
1,981 |
|
September 30, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from related asset account: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for sales returns |
|
|
871 |
|
|
4,023 |
|
|
|
|
|
4,106 |
|
|
788 |
|
Allowance for doubtful accounts |
|
|
1,017 |
|
|
|
|
|
|
|
|
153 |
|
|
864 |
|
Allowance for deferred tax assets(1) |
|
|
1,056 |
|
|
597 |
|
|
|
|
|
|
|
|
1,653 |
|
- (1)
- The
beginning balances of the allowance for deferred tax assets for fiscal 2014 and fiscal 2013 have been revised from the prior year's
presentation by $1,406 and $1,056, respectively, to include the full valuation allowance related to the Company's foreign net operating loss carryforwards. The amounts charged to costs and expenses
for the allowance for deferred tax assets for fiscal 2014 and 2013 have been revised from the prior year's presentation by $241 and $350, respectively, for the change in the valuation
allowance related to the Company's foreign net operating loss carryforwards. The ending balances of the allowance for deferred tax assets for fiscal 2014 and fiscal 2013 have been
revised from the prior year's presentation by $1,647 and $1,406, respectively, to include the changes in the valuation allowance related to the Company's foreign net operating loss carryforwards. The
Company has concluded that these revisions are immaterial to the previously-issued financial statements.
Table of Contents
EXHIBIT INDEX
|
|
|
|
Number |
|
Description |
|
3.1 |
|
Form of Amended and Restated Certificate of Incorporation of Nutraceutical(1) |
|
3.2 |
|
Form of By-laws of Nutraceutical(1) |
|
4.1 |
|
Form of certificate representing Common Stock(1) |
|
4.2 |
|
Amended and Restated Registration Agreement dated as of January 31, 1995 among Nutraceutical and certain of its stockholders(1) |
|
10.1 |
|
Form of Indemnification Agreement(1) |
|
10.2 |
|
1998 Stock Incentive Plan(1) |
|
10.3 |
|
1998 Non-Employee Director Stock Option Plan(1) |
|
10.4 |
|
Form of Agreement for Stock Options granted under the 1998 Stock Incentive Plan and 1998 Non-Employee Director Stock Option Plan(2) |
|
10.5 |
|
First Amendment to Credit Agreement dated as of September 7, 2006 among Nutraceutical and its lenders(3) |
|
10.6 |
|
Amended and Restated Credit Agreement dated as of December 17, 2010 among Nutraceutical and its lenders(4) |
|
10.7 |
|
Nutraceutical International Corporation 2013 Long-Term Equity Incentive Plan(5) |
|
10.8 |
|
Form of Nonqualified Stock Option Agreement under the 2013 Long-Term Equity Incentive Plan(5) |
|
10.9 |
|
Form of Restricted Stock Award Agreement under the 2013 Long-Term Equity Incentive Plan(5) |
|
10.10 |
|
Form of Nonqualified Stock Option Agreement for Non-Employee Directors under the 2013 Long-Term Equity Incentive Plan(5) |
|
10.11 |
|
Form of Restricted Stock Award Agreement for Non-Employee Directors under the 2013 Long-Term Equity Incentive Plan(5) |
|
10.12 |
|
Second Amendment Agreement dated as of November 4, 2014 among Nutraceutical and its lenders(6) |
|
10.13 |
|
Annex I to Second Amendment Agreement dated as of November 4, 2014 among Nutraceutical and its lenders(6) |
|
11.1 |
|
Computation of earnings per share |
|
|
|
The information required by Exhibit 11.1 is set forth on page F-4 of this Form 10-K. |
|
21.1 |
|
Subsidiaries of Nutraceutical(7) |
|
23.1 |
|
Consent of PricewaterhouseCoopers LLP(7) |
|
31.1 |
|
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(7) |
|
32.1 |
|
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(7) |
|
101.INS |
|
XBRL Instance Document(7) |
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document(7) |
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document(7) |
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document(7) |
Table of Contents
|
|
|
|
Number |
|
Description |
|
101.LAB |
|
XBRL Taxonomy Extension Labels Linkbase Document(7) |
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document(7) |
- (1)
- Incorporated
herein by reference to the applicable exhibit to our Registration Statement on Form S-1/A, Registration No. 333-41909.
- (2)
- Filed
as an exhibit to our Form 8-K filed on October 3, 2005 and incorporated herein by reference.
- (3)
- Filed
as an exhibit to our Form 8-K filed on September 8, 2006 and incorporated herein by reference.
- (4)
- Filed
as an exhibit to our Form 8-K filed on December 21, 2010 and incorporated herein by reference.
- (5)
- Filed
as an exhibit to our Form 8-K filed on January 31, 2013 and incorporated herein by reference.
- (6)
- Filed
as an exhibit to our Form 8-K filed on November 5, 2014 and incorporated herein by reference.
- (7)
- Filed
herewith.
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EXHIBIT 21.1
SUBSIDIARIES OF NUTRACEUTICAL
|
|
|
3939 24th Street, Inc. (Delaware) |
|
|
All One, Inc. (Delaware) |
|
|
American Nutritional Casualty Insurance, Inc. (Hawaii) |
|
|
Au Naturel, Inc. (Delaware) |
|
|
Au Naturel (Canada), Inc. (Delaware) |
|
|
Au Naturel (Japan), Inc. (Delaware) |
|
|
Au Naturel (UK), Inc. (Delaware) |
|
|
Beehive Organics, Inc. (Delaware) |
|
|
Elephant Pharmacy, Inc. (Delaware) |
|
|
Fresh To You, Inc. (Delaware) |
|
|
Fresh Vitamins, Inc. (Delaware) |
|
|
Fresh Vitamins, S.A. (Panama) |
|
|
FunFresh Foods, Inc. (Delaware) |
|
|
Granola's Market, Inc. (Delaware) |
|
|
Healthway Corporation (Delaware) |
|
|
Honey Gardens, Inc. (Delaware) |
|
|
Mia Rose, Inc. (Delaware) |
|
|
Monarch Nutraceuticals, Inc. (Delaware) |
|
|
Natural Balance, Inc. (Delaware) |
|
|
Nature's Discount, Inc. (Delaware) |
|
|
Nature's Print, Inc. (Delaware) |
|
|
Nutra, Inc. (Delaware) |
|
|
NutraBrands, Inc. (Delaware) |
|
|
NutraComp, Inc. (Delaware) |
|
|
Nutraceutical Corporation (Delaware) |
|
|
NutraForce, Inc. (Delaware) |
|
|
NutraGarden, Inc. (Delaware) |
|
|
NutraMarks, Inc. (Delaware) |
|
|
NutraPro, Inc. (Delaware) |
|
|
NutraPack, Inc. (Delaware) |
|
|
NutraPure, Inc. (Delaware) |
|
|
NutraSource International SRL (Barbados) |
|
|
NutraSource Trading (Shanghai) Limited (China) |
|
|
NutraSourcing, Inc. (Delaware) |
|
|
OD, Inc. (Delaware) |
|
|
OD, LLC (Delaware) |
|
|
Pep Products, Inc. (Delaware) |
|
|
Pioneer Nutritional Formulas, Inc. (Delaware) |
|
|
Seychelles Organics, Inc. (Delaware) |
|
|
Sustainable Labs, Inc. (Delaware) |
|
|
VitaDollar, Inc. (Delaware) |
|
|
Wellness Team, Inc. (Delaware) |
|
|
Woodland Publishing, Inc. (Delaware) |
|
|
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SUBSIDIARIES OF NUTRACEUTICAL
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-146833) and in the
Registration Statement on Form S-8 (No. 333-186362) of Nutraceutical International Corporation of our report dated November 19, 2015 relating to the financial statements,
financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Salt Lake City, Utah
November 19, 2015
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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Exhibit 31.1
CERTIFICATIONS
I,
Frank W. Gay II, certify that:
- 1.
- I
have reviewed this report on Form 10-K of Nutraceutical International Corporation;
- 2.
- Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3.
- Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
- 4.
- The
Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and
have:
- a)
- designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual
report is being prepared;
- b)
- designed
such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
- c)
- evaluated
the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
- d)
- disclosed
in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over
financial reporting; and
- 5.
- The
Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
- a)
- all
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the Registrant's ability to record, process, summarize and report financial information; and
- b)
- any
fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over
financial reporting.
|
|
|
Date: November 19, 2015 |
|
/s/ FRANK W. GAY II
Frank W. Gay II Chairman of the Board and Chief Executive Officer
(Principal Executive Officer) |
CERTIFICATIONS
I,
Cory J. McQueen, certify that:
- 1.
- I
have reviewed this report on Form 10-K of Nutraceutical International Corporation;
- 2.
- Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3.
- Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
- 4.
- The
Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and
have:
- a)
- designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual
report is being prepared;
- b)
- designed
such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
- c)
- evaluated
the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
- d)
- disclosed
in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over
financial reporting; and
- 5.
- The
Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
- a)
- all
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the Registrant's ability to record, process, summarize and report financial information; and
- b)
- any
fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over
financial reporting.
|
|
|
Date: November 19, 2015 |
|
/s/ CORY J. MCQUEEN
Cory J. McQueen Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
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CERTIFICATIONS
CERTIFICATIONS
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Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Nutraceutical International Corporation ("Nutraceutical") for the period
ended September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frank W. Gay II, Chairman of the Board and Chief Executive Officer of
Nutraceutical, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
- (1)
- the
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
- (2)
- the
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Nutraceutical.
|
|
|
/s/ FRANK W. GAY II
Frank W. Gay II Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer) |
|
|
Date:
November 19, 2015
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Nutraceutical International Corporation ("Nutraceutical") for the period
ended September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Cory J. McQueen, Vice President and Chief Financial Officer of Nutraceutical,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
- (1)
- the
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
- (2)
- the
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Nutraceutical.
|
|
|
/s/ CORY J. MCQUEEN
Cory J. McQueen Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
|
Date:
November 19, 2015
Signed
originals of these written statements required by Section 906 have been provided to Nutraceutical and will be retained by Nutraceutical and furnished to the Securities and
Exchange Commission or its staff upon request.
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CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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