NUTRACEUTICAL INTERNATIONAL CORP - FORM 10-Q

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - NUTRACEUTICAL INTERNATIONAL CORP	nutr-ex321x123116.htm
EX-31.1 - EXHIBIT 31.1 - NUTRACEUTICAL INTERNATIONAL CORP	nutr-ex311x123116.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

for the Quarterly Period Ended December 31, 2016

Commission file number 000-23731

NUTRACEUTICAL INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)



Delaware (State of incorporation)		87-0515089 (IRS Employer Identification No.)

1400 Kearns Boulevard, 2nd Floor, Park City, Utah (Address of principal executive offices)		84060 (Zip code)

(435) 655-6106 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:



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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

At January 24, 2017, the registrant had 9,246,141 shares of common stock outstanding.

NUTRACEUTICAL INTERNATIONAL CORPORATION

INDEX



Description			Page
Part I .	Financial Information		3

	Item 1.	Financial Statements (unaudited)	3

		Condensed Consolidated Balance Sheets—December 31, 2016 and September 30, 2016	3

		Condensed Consolidated Statements of Comprehensive Income—Three Months Ended December 31, 2016 and 2015	4

		Condensed Consolidated Statements of Cash Flows—Three Months Ended December 31, 2016 and 2015	5

		Condensed Consolidated Statement of Stockholders' Equity--Three Months Ended December 31, 2016	6

		Notes to Condensed Consolidated Financial Statements	7

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

	Item 4.	Controls and Procedures	21

Part II .	Other Information		22

	Item 1.	Legal Proceedings	22

	Item 1A.	Risk Factors	22

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

	Item 6.	Exhibits	23

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

NUTRACEUTICAL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands)



	December 31, 2016			September 30, 2016 (1)
ASSETS
Current assets:
Cash	$	6,330		$	6,803
Accounts receivable, net	17,975			17,680
Inventories	65,910			63,923
Prepaid expenses and other current assets	4,273			4,217
Deferred income taxes	1,260			1,243
Total current assets	95,748			93,866

Property, plant and equipment, net	82,314			83,048
Goodwill	30,925			30,925
Intangible assets, net	21,355			22,277
Deferred income taxes	4,465			4,310
Other non-current assets	1,398			1,429
Total assets	$	236,205		$	235,855
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	15,665		$	12,696
Accrued expenses	4,720			7,469
Total current liabilities	20,385			20,165

Long-term debt	39,500			43,500
Other non-current liabilities	2			200
Total liabilities	59,887			63,865
Stockholders' equity:
Common stock	93			92
Additional paid-in capital	1,494			52
Retained earnings	175,322			172,276
Accumulated other comprehensive loss	(591		)	(430		)
Total stockholders' equity	176,318			171,990
Total liabilities and stockholders' equity	$	236,205		$	235,855

___________________


(1)	The condensed consolidated balance sheet as of September 30, 2016 has been prepared using information from the audited financial statements at that date.

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

NUTRACEUTICAL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands, except per share data)



	Three Months Ended December 31,
	2016			2015
Net sales	$	56,619		$	55,959
Cost of sales	27,679			27,851
Gross profit	28,940			28,108
Operating expenses
Selling, general and administrative	21,255			20,342
Amortization of intangible assets	918			981
Income from operations	6,767			6,785
Interest and other expense, net	330			274
Income before provision for income taxes	6,437			6,511
Provision for income taxes	2,236			2,270
Net income	$	4,201		$	4,241
Other comprehensive loss:
Foreign currency translation adjustment, net of tax	(161		)	(79		)
Comprehensive income	$	4,040		$	4,162
Net income per common share
Basic	$	0.46		$	0.45
Diluted	0.46			0.45
Weighted average common shares outstanding
Basic	9,212,331			9,459,470
Dilutive effect of equity awards	—			—
Diluted	9,212,331			9,459,470

Cash dividend declared per common share	$	0.13		$	—

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

NUTRACEUTICAL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)



	Three Months Ended December 31,
	2016			2015
Cash flows from operating activities:
Net income	$	4,201		$	4,241
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,560			3,482
Amortization of deferred financing fees	31			31
Losses on disposals of property, plant and equipment	1			—
Stock-based compensation	52			—
Deferred income taxes	(172		)	1,450
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net	(295		)	(365		)
Inventories	(1,987		)	(146		)
Prepaid expenses and other current assets	(56		)	658
Other non-current assets	4			(2		)
Accounts payable	1,202			(853		)
Accrued expenses	(1,411		)	(1,558		)
Other non-current liabilities	(258		)	4
Net cash provided by operating activities	4,872			6,942
Cash flows from investing activities:
Purchases of property, plant and equipment	(1,297		)	(2,079		)
Acquisitions of businesses	—			(19,026		)
Net cash used in investing activities	(1,297		)	(21,105		)
Cash flows from financing activities:
Proceeds from debt	2,500			20,000
Payments on debt	(6,500		)	(3,500		)
Proceeds from issuances of common stock	21			14
Purchases of common stock for treasury	—			(1,604		)
Net cash provided by (used in) financing activities	(3,979		)	14,910
Effect of exchange rate changes on cash	(69		)	(18		)
Net increase (decrease) in cash	(473		)	729
Cash at beginning of period	6,803			4,615
Cash at end of period	$	6,330		$	5,344

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

NUTRACEUTICAL INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(unaudited)

(dollars in thousands)



	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
	Shares	Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance at September 30, 2016	9,203,790	$	92	$	52		$	172,276		$	(430	)	$	171,990
Net income	—	—		—			4,201			—			4,201
Other comprehensive loss	—	—		—			—			(161		)	(161		)
Issuances of common stock	694	—		21			—			—			21
Equity compensation payments	41,449	1		1,429			—			—			1,430
Stock-based compensation expense	—	—		52			—			—			52
Other	—	—		(60		)	—			—			(60		)
Dividend declared on common stock	—	—		—			(1,155		)	—			(1,155		)
Balance at December 31, 2016	9,245,933	$	93	$	1,494		$	175,322		$	(591	)	$	176,318

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

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

1. BASIS OF PRESENTATION

Nutraceutical International Corporation and its subsidiaries (the "Company") is an integrated manufacturer, marketer, distributor and retailer of branded nutritional supplements and other natural products sold primarily to and through domestic health and natural food stores. Internationally, the Company markets and distributes branded nutritional supplements and other natural products to and through health and natural product distributors and retailers. The Company's core business strategy is to acquire, integrate and operate businesses in the natural products industry that manufacture, market and distribute branded nutritional supplements. The Company believes that the consolidation and integration of these acquired businesses provide ongoing financial synergies through increased scale and market penetration, as well as strengthened customer relationships.

The Company manufactures and sells nutritional supplements and other natural products under numerous brands, including Solaray®, KAL®, Dynamic Health®, 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®.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all necessary adjustments, consisting of normal recurring adjustments, to state fairly the consolidated financial position of the Company as of December 31, 2016, the results of its operations for the three months ended December 31, 2016 and 2015 and its cash flows for the three months ended December 31, 2016 and 2015, in conformity with accounting principles generally accepted in the United States of America ("US GAAP") for interim financial information applied on a consistent basis. Results for the three months ended December 31, 2016 are not necessarily indicative of the results to be expected for the full fiscal year.

Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with US GAAP have been omitted. Accordingly, these financial statements should be read in conjunction with the Company's Form 10-K for the fiscal year ended September 30, 2016, which was filed with the Securities and Exchange Commission on November 17, 2016.

Use of Estimates

The preparation of these financial statements in conformity with US GAAP required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the reported periods. Significant estimates included values and lives assigned to acquired intangible assets, reserves for customer returns and allowances, uncollectible accounts receivable, valuation adjustments for slow-moving, obsolete and/or damaged inventory, valuation and recoverability of long-lived assets and valuation of performance-based equity awards. Actual results may differ from these estimates.

New Accounting Standards

In January 2017, the Financial Accounting Standards Board ("FASB") issued authoritative guidance, which is included in Accounting Standards Codification ("ASC") 805, "Business Combinations." This guidance clarifies the definition of a business, which assists a company with evaluating whether a transaction should be accounted for as

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

an acquisition (or disposal) of an asset or a business. This guidance is effective for the Company as of October 1, 2018. The Company is currently evaluating the impact this standard may have on its consolidated financial statements.

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

In February 2016, the FASB issued authoritative guidance, which is included in ASC 842, "Leases." This guidance requires lessees to recognize most leases on the balance sheet by recording a right-of-use asset and a lease liability. This guidance is effective for the Company as of October 1, 2019. The Company is currently evaluating the impact this standard may have on its consolidated financial statements.

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

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

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

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

2. ACCOUNTS RECEIVABLE

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



	December 31, 2016			September 30, 2016
Accounts receivable	$	19,032		$	18,732
Less allowances	(1,057		)	(1,052		)
	$	17,975		$	17,680

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

3. INVENTORIES

Inventories were comprised of the following:



	December 31, 2016		September 30, 2016
Raw materials	$	28,488	$	25,792
Work-in-process	12,723		11,711
Finished goods	24,699		26,420
	$	65,910	$	63,923

4. ACQUISITIONS

During the three months ended December 31, 2016, the Company made no acquisitions of businesses. During the three months ended December 31, 2015, the Company made one acquisition of a business. On October 6, 2015, the Company acquired certain operating assets of Dynamic Health Laboratories, Inc. for $19,026 in cash.

The Condensed Consolidated Statements of Comprehensive Income and the Condensed Consolidated Statements of Cash Flows presented herein include the activities of this acquired business from the date of acquisition. Pro forma information was not provided for the three months ended December 31, 2015 since the acquisition was completed near the beginning of the period and the pro forma results are not materially different than actual results. The expected long-term sales and expense synergies of acquired businesses generally are not realized immediately following acquisition, as certain transition and integration matters must be completed.

This acquisition is in keeping with the Company's business strategy of consolidating the fragmented industry in which it competes. This acquisition was accounted for using the acquisition method of accounting. Accordingly, the purchase price was assigned to the assets acquired based on their fair values at the date of acquisition. The excess of purchase price over the fair values of the assets acquired was classified as goodwill. The goodwill relates to expected synergies from this acquisition. The following reflects the final allocation of the purchase price for the fiscal 2016 acquisition to the assets acquired:



	Fiscal 2016 Acquisition
Assets acquired:
Current assets	$	3,821
Property, plant and equipment	644
Goodwill	6,541
Intangible assets	8,020
	$	19,026

The fiscal 2016 acquired intangible assets totaling $8,020 related to trademarks, tradenames and customer relationships and are being amortized over periods of eight to fifteen years for financial statement purposes. The fiscal 2016 acquired intangible assets are expected to be deductible for tax purposes over fifteen years. Goodwill of $6,541 for fiscal 2016 is not subject to amortization for financial statement purposes and is expected to be deductible for tax purposes over fifteen years.

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

5. GOODWILL AND INTANGIBLE ASSETS

During the three months ended December 31, 2016, there was no change in the carrying value of goodwill.

The carrying amounts of intangible assets at December 31, 2016 and September 30, 2016 were as follows:



	December 31, 2016							September 30, 2016							Weighted- Average Amortization Period (Years)
	Gross Carrying Amount (1)		Accumulated Amortization (1)			Net Carrying Amount		Gross Carrying Amount (1)		Accumulated Amortization (1)			Net Carrying Amount		Weighted- Average Amortization Period (Years)
Intangible assets subject to amortization:
Trademarks/tradenames/licenses	$	13,896	$	(3,438	)	$	10,458	$	13,904	$	(3,137	)	$	10,767	11
Customer relationships/non-compete agreements	23,867		(12,970		)	10,897		23,867		(12,357		)	11,510		7
Developed software and technology	772		(772		)	—		772		(772		)	—		5
	$	38,535	$	(17,180	)	$	21,355	$	38,543	$	(16,266	)	$	22,277

______________________

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

Estimated future amortization expense related to the December 31, 2016 net carrying amount of $21,355 for intangible assets subject to amortization is as follows:



Year Ending September 30,	Estimated Amortization Expense
2017(1)	$	2,679
2018	3,406
2019	2,979
2020	2,890
2021	2,472
Thereafter	6,929
	$	21,355

_________________________


(1)	Estimated amortization expense for the year ending September 30, 2017 includes only amortization to be recorded after December 31, 2016.

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 goodwill and/or intangible asset impairment charges being recorded in future periods. Also, the Company periodically reviews its brands to achieve marketing, sales and operational synergies. These reviews could result in brands being consolidated or discontinued and could result in intangible asset impairment charges being recorded in future periods. Goodwill and/or intangible asset impairment charges could

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

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.

6. DEBT

Debt was comprised of the following:



	December 31, 2016		September 30, 2016
Long-term debt—revolving credit facility	$	39,500	$	43,500

The carrying value of the Company's debt approximates fair value at December 31, 2016 and September 30, 2016. Estimated fair values for debt have been determined based on borrowing rates currently available to the Company for bank loans with similar terms and maturities and are classified as Level 2 (significant observable inputs other than quoted prices) in the FASB's fair value hierarchy.

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

At December 31, 2016, the Company had outstanding revolving credit borrowings of $39,500 under the Credit Agreement. Borrowings under the Credit Agreement are collateralized by substantially all assets of the Company. At the Company's election, borrowings bear interest at the applicable Eurodollar Rate plus a variable margin or at a Base Rate plus a variable margin. Base Rate is the higher of: (i) the Prime Lending Rate, (ii) the Federal Funds Rate plus 0.5% or (iii) the one-month Eurodollar Rate multiplied by the Statutory Reserve Rate plus 1.0% (capitalized terms are defined in the Credit Agreement, a copy of which was filed with the Securities and Exchange Commission on November 5, 2014). At December 31, 2016, the applicable weighted-average interest rate for outstanding borrowings was 2.38%. The Company is also required to pay a variable quarterly fee on the unused balance under the Credit Agreement. At December 31, 2016, the applicable rate was 0.25%. Accrued interest on Eurodollar Rate borrowings is payable based on elected intervals of one, two or three months. Accrued interest on Base Rate borrowings is payable quarterly. The Credit Agreement matures on November 4, 2019, and the Company is required to repay all principal and interest outstanding under the Credit Agreement on such date.

The Credit Agreement contains restrictive covenants, including limitations on incurring other indebtedness and requirements that the Company maintain certain financial ratios. As of December 31, 2016, the Company was in compliance with the restrictive covenants. Upon the occurrence of a default, the lender has various remedies or rights, which may include proceeding against the collateral or requiring the Company to repay all amounts outstanding under the Credit Agreement.

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

7. SHARE PURCHASES

During the three months ended December 31, 2016, the Company did not purchase or retire any shares of common stock. During the three months ended December 31, 2015, the Company purchased 65,411 shares of common stock for an aggregate price of $1,604. All of these shares of common stock held in treasury were retired prior to December 31, 2015. As of December 31, 2016, the Company was permitted to purchase up to 1,171,170 additional shares under its approved purchase plan, with no expiration date or restrictions. The Company accounts for treasury shares using the cost method.

8. EQUITY AWARDS

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

On December 14, 2016, the Company’s Compensation Committee approved the grant of performance-based stock units (“PSUs”) to certain executives of the Company under the 2013 Plan. The PSUs are a new element of the Company’s executive compensation program. Generally, the PSUs vest at the end of a three-year performance period ending on September 30, 2019. Vesting is based on the achievement of two pre-set financial criteria during the performance period. The first criteria is the three-year moving average growth in net sales and the second criteria is the three-year average Adjusted EBITDA margin (prior to incentive compensation). Each of these criteria receives consideration in determining the actual number of PSUs that ultimately vest. The initial target number of PSUs is 100,000. The actual number of PSUs that are ultimately eligible to vest can range from 0% to 210% of the initial target depending on results during the performance period. Each PSU that vests after the performance period will be exchanged for one share of common stock. The Company recognizes stock-based compensation expense for the probable number of PSUs estimated to vest at the end of the performance period. The fair value of each PSU is $34.50, with fair value being determined by the closing price of the Company’s common stock on the grant date. Compensation expense related to these PSUs of $52 was included in selling, general and administrative expenses for the three months ended December 31, 2016. As of December 31, 2016, 579,272 shares of the Company's common stock were available for issuance under the 2013 Plan, assuming that the target number of 100,000 PSUs ultimately vest.

PSUs totaling 32,850 for the three months ended December 31, 2016 were excluded from the computation of diluted earnings per share because the PSUs were anti-dilutive.

9. DIVIDEND

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

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

10. SEGMENTS

Segment identification and selection is consistent with the management structure used by the Company's chief operating decision maker to evaluate performance and make decisions regarding resource allocation, as well as the materiality of financial results consistent with that structure. Based on the Company's management structure and method of internal reporting, the Company has one operating segment. The Company's chief operating decision maker does not review operating results on a disaggregated basis; rather, the chief operating decision maker reviews operating results on a consolidated basis.

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



	Three Months Ended December 31,
	2016		2015
United States	$	49,102	$	50,050
Foreign countries	7,517		5,909
	$	56,619	$	55,959

Certain net sales attributed to customers in the United States are sold to customers who in turn may sell such products to customers in foreign countries, while certain net sales attributed to customers in foreign countries are sold to customers who in turn may sell such products to customers in the United States.

The Company's net sales by product group for the three months ended December 31, 2016 and 2015 were as follows:



	Three Months Ended December 31,
	2016		2015
Branded nutritional supplements and other natural products	$	51,559	$	50,499
Other(1)	5,060		5,460
	$	56,619	$	55,959

____________________


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

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

General

The following discussion and analysis should be read in conjunction with the other sections of this report on Form 10-Q, including Part I, Item 1.

We are an integrated manufacturer, marketer, distributor and retailer of branded nutritional supplements and other natural products sold primarily to and through domestic health and natural food stores. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers. Our core business strategy is to acquire, integrate and operate businesses in the natural products industry that manufacture, market and distribute branded nutritional supplements. We believe that the consolidation and integration of these acquired businesses provide ongoing financial synergies through increased scale and market penetration, as well as strengthened customer relationships.

We manufacture and sell nutritional supplements and other natural products under numerous brands, including Solaray®, KAL®, Dynamic Health®, 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 were formed in 1993 to effect a consolidation strategy in the fragmented vitamin, mineral, herbal and other nutritional supplements industry (the "VMS Industry"). Since our formation, we have completed numerous acquisitions of businesses in the VMS Industry. As a result of acquisitions, internal growth and cost management, we believe that we are well positioned to continue to capitalize on acquisition opportunities that arise in the VMS Industry.

Critical Accounting Policies

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America required us to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the reported periods. Significant estimates included values and lives assigned to acquired intangible assets, reserves for customer returns and allowances, uncollectible accounts receivable, valuation adjustments for slow-moving, obsolete and/or damaged inventory, valuation and recoverability of long-lived assets and valuation of performance-based equity awards. Actual results may differ from these estimates. Our critical accounting policies include the following:

Accounts Receivable—Provision is made for estimated bad debts based on periodic analysis of individual customer balances, including an evaluation of days sales outstanding, payment history, recent payment trends and perceived creditworthiness. If general economic conditions and/or customer financial conditions were to change, additional provisions for bad debts may be required, which could have a material impact on the consolidated financial statements.

Inventories—Valuation adjustments are made for slow-moving, obsolete and/or damaged inventory based on a periodic analysis of individual inventory items, including an evaluation of historical usage and/or movement, age, expiration date and general condition. If market demand and/or consumer preferences are less favorable than historical trends or future expectations, additional valuation adjustments for slow-moving, obsolete and/or damaged inventory may be required, which could have a material impact on the consolidated financial statements.

Property, Plant and Equipment—Depreciation and amortization expense is impacted by our judgments regarding the estimated useful lives of assets placed in service. If the estimated lives of assets are significantly less than expected, depreciation and amortization expense would be accelerated, which could have a material impact on the consolidated financial statements.

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

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

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

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

General and economic conditions may impact retail and consumer demand, as well as the market price of our common stock, and could negatively impact our future operating performance, cash flow and/or stock price and could result in goodwill and/or intangible asset impairment charges being recorded in future periods. Also, we periodically review our brands to achieve marketing, sales and operational synergies. These reviews could result in brands being consolidated or discontinued and could result in intangible asset impairment charges being recorded in future periods. Such goodwill and/or intangible asset impairment charges could materially impact our consolidated financial statements. The valuation of goodwill and intangible assets is subject to a high degree of judgment, uncertainty and complexity.

Revenue Recognition—Revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the product has been shipped and the customer takes ownership and assumes the risk of loss; (3) the selling price is fixed or determinable; and (4) collection of the resulting receivable is reasonably assured. We believe that these criteria are satisfied upon shipment from our facilities or, in the case of our neighborhood natural food markets and health food stores, at the point of sale within these stores. Revenue is reduced by provisions for estimated customer returns and allowances, which are based on historical averages that have not varied significantly for the periods presented, as well as specific known claims, if any. No other significant deductions from revenue must be estimated at the point in time that revenue is recognized.

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

Our estimates and judgments related to our critical accounting policies, including factors and assumptions considered in making these estimates and judgments, did not vary significantly for the periods presented and had no material impact on the consolidated financial statements as reported.

New Accounting Standards

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

Results of Operations

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



	Three Months Ended December 31,
	2016		2015
Net sales	100.0	%	100.0	%
Cost of sales	48.9	%	49.8	%
Gross profit	51.1	%	50.2	%
Selling, general and administrative	37.5	%	36.4	%
Amortization of intangible assets	1.6	%	1.8	%
Income from operations	12.0	%	12.0	%
Interest and other expense, net	0.6	%	0.4	%
Income before provision for income taxes	11.4	%	11.6	%
Provision for income taxes	4.0	%	4.0	%
Net income	7.4	%	7.6	%
Adjusted EBITDA(1)	18.2	%	18.3	%

___________________

(1) See "—Adjusted EBITDA."

Comparison of the Three Months Ended December 31, 2016 to the Three Months Ended December 31, 2015

Net Sales. Net sales were $56.6 million for the three months ended December 31, 2016 (the "first quarter of fiscal 2017") and $56.0 million for the three months ended December 31, 2015 (the "first quarter of fiscal 2016"). Net sales of branded nutritional supplements and other natural products increased by $1.0 million, or 2.1%, to $51.5 million for the first quarter of fiscal 2017, compared to $50.5 million for the first quarter of fiscal 2016. The increase in net sales of branded nutritional supplements and other natural products was primarily related to price increases of $1.1 million and, to a lesser extent, the net sales contributions of the fiscal 2016 acquisitions, partially offset by a decrease in sales volume of branded products to certain customers. Other net sales were $5.1 million for the first quarter of fiscal 2017 and $5.5 million for the first quarter of fiscal 2016.

Gross Profit. Gross profit increased by $0.8 million, or 3.0%, to $28.9 million for the first quarter of fiscal 2017 from $28.1 million for the first quarter of fiscal 2016. As a percentage of net sales, gross profit increased to 51.1% for the first quarter of fiscal 2017 from 50.2% for the first quarter of fiscal 2016. This increase in gross profit was primarily related to the increase in net sales and a decrease in material costs.

Selling, General and Administrative. Selling, general and administrative expenses increased by $1.0 million, or 4.5%, to $21.3 million for the first quarter of fiscal 2017 from $20.3 million for the first quarter of fiscal 2016. As a percentage of net sales, selling, general and administrative expenses increased to 37.5% for the first quarter of fiscal 2017 from 36.4% for the first quarter of fiscal 2016. This increase in selling, general and administrative expenses was primarily attributable to operational and transition costs related to the fiscal 2016 acquisitions as well as an increase in certain administrative costs.

Amortization of Intangible Assets. Amortization of intangible assets was $0.9 million for first quarter of fiscal 2017 and $1.0 million for the first quarter of fiscal 2016. For each period, amortization expense was primarily related to intangible assets recorded in connection with acquisitions.

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

Provision for Income Taxes. Our effective tax rate was 34.7% for the first quarter of fiscal 2017 and 34.9% for the first quarter of fiscal 2016.

Adjusted EBITDA

Adjusted EBITDA (a non-GAAP measure) is defined in our performance measures as earnings before net interest and other expense, taxes, depreciation, amortization and goodwill and intangible asset impairments. Adjusted EBITDA has some inherent limitations in measuring operating performance due to the exclusion of certain financial elements such as depreciation and amortization and is not necessarily comparable to other similarly-titled captions of other companies due to potential inconsistencies in the method of calculation. Furthermore, Adjusted EBITDA is not intended to be a substitute for cash flows from operating activities, as a measure of liquidity, or an alternative to net income in determining our operating performance in accordance with generally accepted accounting principles. Our use of an EBITDA-based metric should be considered within the following context:


•	We acknowledge that plant and equipment (while less important in our line of business due to outsourcing alternatives) are necessary to earn revenue based on our current business model.


•	Our use of an EBITDA-based measure of operating performance is not based on any belief about the reasonableness of excluding depreciation and amortization when measuring financial performance.


•	Our use of an EBITDA-based measure is supported by its importance to the following key stakeholders:


▪	Analysts—who estimate our projected Adjusted EBITDA and other EBITDA-based metrics in their independently-developed financial models for investors;


▪	Creditors—who evaluate our operating performance based on compliance with certain EBITDA-based debt covenants;


▪	Investment Bankers—who use EBITDA-based metrics in their written evaluations and comparisons of companies within our industry;


▪	Investors--who use EBITDA-based metrics in their investment decisions about our common stock; and

▪

Board of Directors and Executive Management—who use EBITDA-based metrics for evaluating management performance relative to our operating budget and bank covenant compliance, as well as our ability to service debt and raise capital for growth opportunities, including acquisitions, which are a critical component of our stated strategy. Generally, we have recorded a monthly accrual for incentive compensation as a percentage of Adjusted EBITDA, which has been paid out to executive management, as well as other employees, upon completion of our annual audit. Adjusted EBITDA is also one of the primary criteria used in determining our performance-based equity awards.

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



	Three Months Ended December 31,
	2016		2015
	(dollars in thousands)
Net income	$	4,201	$	4,241
Provision for income taxes	2,236		2,270
Interest and other expense, net(1)	330		274
Depreciation and amortization	3,560		3,482
Adjusted EBITDA	$	10,327	$	10,267

_____________________


(1)	Includes amortization of deferred financing fees.

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

Seasonality

We believe that our business is characterized by minor seasonality. However, sales to any particular customer or of any particular product can vary substantially from one quarter to the next based on such factors as industry trends, timing of promotional discounts, domestic and international economic conditions and acquisition-related activities. Excluding the effect of acquisitions, we have historically recorded higher branded product sales volume during the second fiscal quarter (January through March) due to increased interest in health-related products among consumers following the holiday season.

Liquidity and Capital Resources

We had working capital of $75.4 million as of December 31, 2016, compared to $73.7 million as of September 30, 2016. The increase in working capital was primarily the result of an increase in inventories and a decrease in accrued expenses, partially offset by an increase in accounts payable.

Net cash provided by operating activities for the three months ended December 31, 2016 was $4.9 million, compared to $6.9 million for the comparable period in fiscal 2016. This decrease in net cash provided by operating activities for the three months ended December 31, 2016 was primarily attributable to changes in operating assets and liabilities.

Net cash used in investing activities was $1.3 million for the three months ended December 31, 2016, compared to $21.1 million for the comparable period in fiscal 2016. Our investing activities consisted of acquisitions of businesses and capital expenditures. The capital expenditures primarily related to buildings, building improvements, distribution and manufacturing equipment and information systems.

During the three months ended December 31, 2016, we made no acquisitions of businesses. During the three months ended December 31, 2015, we made one acquisition of a business. On October 6, 2015, we acquired certain operating assets of Dynamic Health Laboratories, Inc. for $19.0 million in cash.

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

facility were $16.5 million and primarily related to the acquisition of certain operating assets of Dynamic Health Laboratories, Inc.

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 694 shares purchased during the three months ended December 31, 2016. As of December 31, 2016, there were 1,373,407 shares of common stock available for purchase.

On November 4, 2014, we amended our revolving credit facility (the "Credit Agreement"). The Credit Agreement extends the term of the credit facility to November 2019, increases the available credit borrowings to $100.0 million with no automatic reductions and provides an accordion feature that can increase the available credit borrowings to $130.0 million, subject to approval by the lenders and compliance with certain covenants and conditions. The lenders under the Credit Agreement continue to be Rabobank International and Wells Fargo. To date, we have not experienced any difficulties in accessing the available funds under the Credit Agreement. Deferred financing fees of $0.4 million related to the Credit Agreement are being amortized over the term of the Credit Agreement.

At December 31, 2016, we had outstanding revolving credit borrowings of $39.5 million under the Credit Agreement. Borrowings under the Credit Agreement are collateralized by substantially all of our assets. At our election, borrowings bear interest at the applicable Eurodollar Rate plus a variable margin or at a Base Rate plus a variable margin. Base Rate is the higher of: (i) the Prime Lending Rate, (ii) the Federal Funds Rate plus 0.5% or (iii) the one-month Eurodollar Rate multiplied by the Statutory Reserve Rate plus 1.0% (capitalized terms are defined in the Credit Agreement, a copy of which was filed with the Securities and Exchange Commission on November 5, 2014). At December 31, 2016, the applicable weighted-average interest rate for outstanding borrowings was 2.38%. We are also required to pay a quarterly fee on the unused balance under the Credit Agreement. At December 31, 2016, the applicable rate was 0.25%. Accrued interest on Eurodollar Rate borrowings is payable based on elected intervals of one, two or three months. Accrued interest on base rate borrowings is payable quarterly. The Credit Agreement matures on November 4, 2019, and we are required to repay all principal and interest outstanding under the Credit Agreement on such date.

The Credit Agreement contains restrictive covenants, including limitations on incurring certain other indebtedness and requirements that we maintain certain financial ratios. As of December 31, 2016, we were in compliance with the restrictive covenants. Upon the occurrence of a default, the lender has various remedies or rights, which may include proceeding against the collateral or requiring us to repay all amounts outstanding under the Credit Agreement.

A key component of our business strategy is to seek to make additional acquisitions, which may require that we obtain additional financing, which could include the incurrence of substantial additional indebtedness or the issuance of additional stock. We believe that borrowings under our current revolving credit facility or a replacement credit facility, together with cash flows from operations, will be sufficient to make required payments under the current credit facility or any such replacement facility, and to make anticipated capital expenditures and fund working capital needs for the next twelve months.

Contractual Obligations and Other Commitments

Our significant non-cancelable contractual obligations and other commitments as of December 31, 2016 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)
Revolving credit facility	$	39,500	$	—	$	39,500	$	—	$	—
Interest on revolving credit facility(a)	3,192		1,122		2,070		—		—
Operating leases	6,586		3,689		2,446		451		—
Total	$	49,278	$	4,811	$	44,016	$	451	$	—

____________________


(a)	Represents estimated interest obligations associated with our outstanding revolving credit facility balance of $39.5 million at December 31, 2016, assuming no principal payments are made before maturity, a weighted-average interest rate of 2.38% and an underutilization fee rate of 0.25%.

Off-Balance Sheet Arrangements

Our operating lease commitments are disclosed in the Contractual Obligations and Other Commitments table above. As of December 31, 2016, we had no other off-balance sheet arrangements that have had, or are reasonably likely to have, a material effect on our consolidated financial statements.

Inflation

Inflation affects the cost of raw materials, goods and services we use. In recent years, inflation has been modest. The competitive environment somewhat limits our ability to recover higher costs resulting from inflation by raising prices. We seek to mitigate the adverse effects of inflation primarily through improved productivity and cost containment programs. We do not believe that inflation has had a material impact on our results of operations for the periods presented, except with respect to increased costs in manufacturing, packaging and distribution resulting from increased fuel and other petrochemical costs, as well as payroll-related costs, insurance premiums and other costs arising from or related to government imposed regulations.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business. These forward-looking statements can be identified by the use of terms such as "believe," "expects," "plan," "intend," "may," "will," "should," "can," or "anticipates," or the negative thereof, or variations thereon, or comparable terminology, or by discussions of strategy. These statements involve known and unknown risks, uncertainties and other factors that may cause industry trends or our actual results to be materially different from any future results expressed or implied by these statements. Important factors that may cause our results to differ from these forward-looking statements include, but are not limited to: (i) changes in or new government regulations or increased enforcement of the same including adverse determinations by regulators; (ii) unavailability of desirable acquisitions, inability to complete them or inability to integrate them; (iii) increased costs, including from increased raw material or energy prices; (iv) changes in general worldwide economic or political conditions; (v) adverse publicity or negative consumer perception regarding nutritional supplements; (vi) issues with obtaining raw materials of adequate quality or quantity; (vii) litigation and claims, including product liability, intellectual property and other types; (viii) disruptions from or following acquisitions including the loss of customers; (ix) increased competition; (x) slow or negative growth in the nutritional supplement industry or the healthy foods channel; (xi) the loss of key personnel or the inability to manage our operations efficiently; (xii) problems with information management systems, manufacturing efficiencies and operations, including system interruptions and security/cybersecurity breaches; (xiii) insurance coverage issues; (xiv) the volatility of the stock market generally and of our stock

specifically; (xv) increases in the cost of borrowings or unavailability of additional debt or equity capital, or both, or fluctuations in foreign currencies; and (xvi) interruption of business or negative impact on sales and earnings due to acts of God, acts of war, terrorism, bio-terrorism, civil unrest and other factors outside of our control.

We undertake no obligation to update or revise publicly any forward-looking statements to reflect new information, events or circumstances occurring after the date of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

At our election, borrowings bear interest at the applicable Eurodollar Rate plus a variable margin or at a Base Rate plus a variable margin. Base Rate is the higher of: (i) the Prime Lending Rate, (ii) the Federal Funds Rate plus 0.5% or (iii) the one-month Eurodollar Rate multiplied by the Statutory Reserve Rate plus 1.0%. At December 31, 2016, the applicable weighted-average interest rate for borrowings was 2.38% and we had total borrowings outstanding of $39.5 million. A hypothetical 100 basis point change in interest rates would not have had a material impact on our reported net income or cash flows for the three months ended December 31, 2016 and 2015.

With respect to our international operations, we are subject to currency fluctuations; however, we do not believe that these fluctuations would have a material adverse impact on our financial position or results of operations because the majority of our net sales to foreign customers are transacted in U.S. dollars. Net sales to foreign customers not transacted in U.S. dollars include sales to customers in Barbados, Dominica, the Netherlands, Norway, St. Kitts, St. Lucia, St. Vincent, Sweden and the United Kingdom. To date, we have not hedged any of our potential foreign currency exposures.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow for timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision of and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2016. Based on the foregoing, our principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2016.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

As discussed in our other filings, we are subject to regulation by a number of federal, state and foreign agencies and are involved in various legal matters arising in the ordinary course of business.

We carry insurance coverage in the types and amounts that we consider reasonably adequate to cover the risks we face in the industry in which we compete.

In the opinion of management, the losses related to individual regulatory and legal matters in which we are presently involved are not probable and no estimate can be made of the range of potential gains or losses. While incapable of estimation, in the opinion of management, none of the regulatory and legal matters in which we are involved are individually expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, our aggregate liability arising from regulatory and legal proceedings related to these matters or future matters could have a material effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in our 2016 Annual Report on Form 10-K.

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

We did not sell any unregistered equity securities during the quarterly period ended December 31, 2016.

Prior to fiscal 2017, our Board of Directors approved a share purchase program authorizing us to buy up to 5,500,000 shares of our common stock. As of December 31, 2016, there were 1,171,170 shares available for purchase under this program. The shares available for purchase under this program have no expiration date. There were no purchases under this program during the three months ended December 31, 2016.

Item 6. Exhibits



31.1		Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document(1)

101.SCH		XBRL Taxonomy Extension Schema Document(1)

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

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

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

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


(1)	Filed herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	NUTRACEUTICAL INTERNATIONAL CORPORATION (Registrant)
Date: January 26, 2017	By:	/s/ CORY J. MCQUEEN
		Cory J. McQueen Vice President and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)

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