<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15701
NATURAL ALTERNATIVES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1007839
(State of other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1185 LINDA VISTA DRIVE, SAN MARCOS, CALIFORNIA 92069
(Address of principal executive offices)
(Zip Code)
(760) 744-7340
(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 [ ]
6,002,375
(Number of shares of common stock of the registrant
outstanding as of April 30,1999)
1
<PAGE> 2
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31 June 30
1999 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $2,683,394 $4,714,212
Accounts receivable - less allowance for doubtful
accounts of $665,000 at March 31, 1999 and
$1,073,000 at June 30, 1998 5,726,961 12,558,731
Inventories 6,624,282 11,504,936
Tax refund receivable 388,260 --
Notes receivable - current portion 385,202 399,307
Prepaid expenses 719,813 594,054
Deferred income taxes 854,000 854,000
Deposits 888,336 641,573
Other current assets 313,950 229,308
----------- -----------
Total Current Assets 18,584,198 31,496,121
----------- -----------
Property and equipment, net 11,277,714 10,531,865
----------- -----------
Other Assets:
Investments 202,215 61,971
Notes receivable, less current portion 187,203 160,273
Deferred income taxes 2,667,000 --
Other noncurrent assets, net 980,840 737,049
----------- -----------
Total Other Assets 4,037,258 959,293
----------- -----------
TOTAL ASSETS $33,899,170 $42,987,279
=========== ===========
</TABLE>
2
(continued)
<PAGE> 3
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31 June 30
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $2,687,643 $12,301,859
Current installments of long-term debt 49,460 46,501
Current installments of capital lease obligation 1,954 23,542
Income taxes payable -- 378,055
Accrued compensation and employee benefits 369,977 438,242
------------ ------------
Total Current Liabilities 3,109,034 13,188,199
Deferred income taxes 500,000 500,000
Long-term debt, less current installments 939,870 977,375
Accrual for lease termination and other 2,742,000 --
Long-term pension liability 662,564 662,564
------------ ------------
Total Liabilities 7,953,468 15,328,138
------------ ------------
Stockholders' Equity:
Preferred stock; $.01 par value; 500,000 shares -- --
authorized; none issued or outstanding
Common stock; $.01 par value; 8,000,000 shares
authorized; issued and outstanding 6,002,375 at
March 31, 1999 and 5,768,209 at June 30, 1998 60,024 57,682
Additional paid-in capital 11,301,812 9,756,822
Retained earnings 15,474,416 17,892,778
Common stock in treasury, 137,500 shares at
March 31, 1999, at cost (836,562) --
Accumulated other comprehensive loss (53,988) (48,141)
------------ ------------
Total Stockholders' Equity 25,945,702 27,659,141
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $33,899,170 $42,987,279
============ ============
</TABLE>
See accompanying notes to unaudited financial statements.
3
<PAGE> 4
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
March 31 March 31
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 13,122,768 $ 18,960,255 $ 47,425,699 $ 47,290,172
Cost of goods sold 11,231,951 13,737,005 37,615,354 34,463,007
------------ ------------ ------------ ------------
GROSS PROFIT 1,890,817 5,223,250 9,810,345 12,827,165
Selling, general &
administrative expenses 9,143,478 2,246,932 13,958,347 6,638,910
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (7,252,661) 2,976,318 (4,148,002) 6,188,255
------------ ------------ ------------ ------------
Other income (expense):
Interest income 50,995 50,625 148,671 141,693
Interest expense (20,735) (26,961) (64,670) (85,347)
Other, net 17,639 7,747 17,639 (44,429)
------------ ------------ ------------ ------------
47,899 31,411 101,640 11,917
------------ ------------ ------------ ------------
EARNINGS (LOSS) BEFORE
INCOME TAXES (7,204,762) 3,007,729 (4,046,362) 6,200,172
Income tax (benefit) expense (2,884,000) 1,184,000 (1,628,000) 2,415,000
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) ($ 4,320,762) $ 1,823,729 ($ 2,418,362) $ 3,785,172
============ ============ ============ ============
NET EARNINGS (LOSS) PER COMMON SHARE:
Basic $ (0.73) $ 0.33 $ (0.41) $ 0.69
============ ============ ============ ============
Diluted $ (0.73) $ 0.31 $ (0.41) $ 0.66
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited financial statements.
4
<PAGE> 5
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ($2,418,362) $ 3,785,172
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Bad debt provision 454,089 270,000
Tax benefit on option exercise 439,314 1,240,500
Depreciation and amortization 1,214,721 1,117,273
Deferred income taxes (2,667,000) (821,000)
Gain on disposal of assets -- 52,177
Accrual for lease termination and other 2,742,000 --
Other (20,943) --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 6,377,681 (3,289,953)
Inventories 4,880,654 (3,033,985)
Tax refund receivable (388,260) 842,209
Prepaid expenses (125,759) (195,096)
Deposits (246,763) 48,898
Other assets (198,799) --
(Decrease) increase in:
Accounts payable (9,598,710) 1,325,245
Income taxes payable (378,055) 323,749
Accrued compensation and employee benefits (68,265) (4,691)
----------- -----------
Net Cash Provided by Operating Activities $ 217,285 $ 1,440,756
</TABLE>
(continued)
5
<PAGE> 6
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment $ -- $ 65,000
Capital expenditures (1,960,570) (2,819,355)
Issuance of notes receivable (334,799) (4,625)
Repayment of notes receivable 306,468 55,942
Other assets (474,524) 4,879
----------- -----------
Net Cash Used in Investing Activities (2,463,425) (2,698,159)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital leases (56,134) (248,225)
Issuance of common stock 1,108,018 1,435,249
Payments to acquire treasury stock (836,562) --
----------- -----------
Net Cash Provided by Financing Activities 215,322 1,187,024
----------- -----------
Net Decrease in Cash and Cash Equivalents (2,030,818) (70,379)
Cash and Cash Equivalents at Beginning of Period 4,714,212 3,469,739
----------- -----------
Cash and Cash Equivalents at End of Period
$ 2,683,394 $ 3,399,360
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the nine months for:
Interest 62,636 65,343
Income Taxes 1,196,000 1,194,000
</TABLE>
See accompanying notes to unaudited financial statements.
6
<PAGE> 7
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of a normal recurring
nature considered necessary for a fair presentation, have been included. It is
suggested that these consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended June 30, 1998. The results of operations
for the period ended March 31, 1999 are not necessarily indicative of the
operating results for the full year.
Certain amounts in prior period financial statements have been reclassified to
conform to the current period financial statements.
NOTE 2 - INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
March 31 June 30
1999 1998
----------- -----------
<S> <C> <C>
Raw materials $ 3,034,666 $ 7,049,954
Work in progress 2,726,625 3,971,315
Finished goods 862,991 483,667
----------- -----------
$ 6,624,282 $11,504,936
=========== ===========
</TABLE>
NOTE 3 - Comprehensive Net Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income " (SFAS 130) in the first quarter of fiscal year
1999. SFAS 130 establishes new standards for the reporting and presentation of
comprehensive income and its components. Comprehensive income presented below
includes net unrealized gains (losses) on investments.
<TABLE>
<CAPTION>
For the three months ended March 31 For the nine months ended March 31
---------------------------------- ----------------------------------
1999 1998 1999 1998
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Net Earnings (Loss) (4,320,762) 1,823,729 (2,418,362) 3,785,172
Unrealized gain (loss) on investments - - (5,847) -
-------------- --------------- --------------- --------------
Comprehensive income (4,320,762) 1,823,729 (2,424,209) 3,785,172
============== =============== =============== ==============
</TABLE>
7
<PAGE> 8
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 4 - NET EARNINGS PER SHARE
Basic earnings (loss) per share is computed using the weighted average number of
shares outstanding during the period, and diluted earnings (loss) per share is
computed using the additional dilutive effect of all dilutive securities. The
dilutive impact of stock options and warrants account for the additional
weighted average shares of common stock outstanding for the Company's diluted
earnings per share computation. Basic and diluted earnings (loss) per share have
been calculated as follows:
<TABLE>
<CAPTION>
For the three months ended March 31 For the nine months ended March 31
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
NUMERATOR:
Net earnings (loss) - Numerator for
basic and diluted earnings (loss) per share
- - income available to common
shareholders $ (4,320,762) $1,823,729 $ (2,418,362) $3,785,172
============ ========== ============ ==========
DENOMINATOR:
Denominator for basic
earnings (loss) per share - weighted
average shares 5,931,764 5,566,956 5,884,973 5,481,539
Effect of dilutive securities -
employee stock options -- 352,963 -- 270,877
------------ ---------- ------------ ----------
Denominator for diluted earnings
(loss) per share - adjusted weighted
average shares and assumed
conversions 5,931,764 5,919,919 5,884,973 5,752,416
============ ========== ============ ==========
Basic earnings (loss) per share $ (0.73) $ 0.33 $ (0.41) $ 0.69
Diluted earnings (loss) per share $ (0.73) $ 0.31 $ (0.41) $ 0.66
</TABLE>
Options and warrants totaling 364,333 and 449,038 shares were excluded from the
calculation of diluted earnings (loss) per share for the three and nine month
periods ended March 31, 1999, respectively, since the effect of their inclusion
would be anti-dilutive.
8
<PAGE> 9
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 5 - MAJOR CUSTOMERS
The Company had substantial sales to three separate customers during one or more
of the periods shown in the following table. The loss of any of these customers
could have an adverse impact on the Company's revenues and earnings in the
short-term. Sales by customer, representing 10% or more of the respective
period's total net sales, are shown below by industry segment.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 1998
--------------------------- ---------------------------
Sales Sales
Industry Segment by Customer %(a) by Customer %(a)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Multi-level Distribution:
Customer 1 $ 4,100,060 31% $ 7,667,015 40%
Customer 2 3,645,632 28% 2,575,031 14%
----------- ----------- ----------- -----------
7,745,692 59% 10,242,046 54%
Retail Distribution:
Customer 3 1,648,946 13% 2,127,283 11%
----------- ----------- ----------- -----------
$ 9,394,638 72% $12,369,329 65%
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
March 31, 1999 March 31, 1998
--------------------------- --------------------------
Sales Sales
Industry Segment by Customer %(a) by Customer %(a)
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Multi-level Distribution:
Customer 1 $15,415,893 33% $18,634,260 39%
Customer 2 9,831,994 21% 8,001,753 17%
----------- ----------- ----------- ----------
25,247,887 54% 26,636,013 56%
Retail Distribution:
Customer 3 9,226,431 19% (b)
----------- ----------- ----------- ----------
$34,474,318 73% $26,636,013 56%
=========== =========== =========== ==========
</TABLE>
(a) Percent of total net sales.
(b) Net sales for the period were less than
9
<PAGE> 10
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Information provided in this Report on Form 10-Q may contain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 that are not historical facts and information. These statements represent
the Company's expectations and beliefs concerning future events, including,
among other things, expectations and beliefs with respect to future financial
and operating results, anticipated growth in revenues and profit margins,
improvements in management personnel, the impact of European operations, and the
utilization of inventories and facilities. The Company wishes to caution and
advise readers that these statements involve risks and uncertainties that could
cause actual results and outcomes for future periods to differ materially from
any forward-looking statement or views expressed herein. The Company's financial
performance and the forward-looking statements contained herein are further
qualified by other risks including those set forth from time to time in the
documents filed by the Company with the Securities and Exchange Commission,
including the Company's most recent Form 10-K.
RESULTS OF OPERATIONS
THIRD QUARTER OF FISCAL 1999 AND 1998
Net sales decreased 30.8%, or approximately $5.8 million, to approximately $13.1
million for the quarter ended March 31, 1999, from approximately $19.0 million
for the quarter ended March 31, 1998. The majority of the decrease was
attributed to weakened market demand for products, in particular diminished
demand for herbal products.
Sales of products into international markets increased 38.6% to approximately
$3.7 million for the quarter ended March 31, 1999, from approximately $2.6
million for the quarter ended March 31, 1998. The increase reflects the
continued expansion into Asian and European markets by the Company's existing
customers.
Gross profit margins were 14.4% for the quarter ended March 31, 1999, compared
to 27.5% for the quarter ended March 31, 1998. The decrease in margins was due
primarily to the following: reduced industry demand, which resulted in depressed
market prices and profit margins; liquidation of inventories of slow moving
items at or below cost; and inventory write-downs to net realizable value.
Selling, general and administrative expenses increased as a percentage of sales
to 69.7% for the quarter ended March 31, 1999 from 11.9% for the quarter ended
March 31, 1998. The increase is due primarily to current period charges of
approximately $5.6 million, related to the following: approximately $5.0 million
for estimated costs attributed to the Company's decision to sublease, and not
occupy, its proposed new facility in Carlsbad, California; and approximately
$0.6 million for severance expenses related to management restructuring. In
addition, selling, general and administrative expenses increased for the three
months ended March 31, 1999 due to costs associated with upgrading the Company's
financial and manufacturing information systems.
The elements discussed above combined to result in an operating loss of
approximately $7.3 million for the quarter ended March 31, 1999, compared to
operating income of approximately $3.0 million for the quarter ended March 31,
1998. The Company incurred a diluted loss per share for the quarter ended March
31, 1999 of ($.73) compared to diluted earnings per share of $.31 for the
quarter ended March 31, 1998.
10
<PAGE> 11
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
Net sales remained relatively constant at approximately $47.4 million for the
nine months ended March 31, 1999, compared to approximately $47.3 million for
the nine months ended March 31, 1998. The Company experienced increased sales
due to the addition of several new customers subsequent to the first quarter of
fiscal 1998. However, increased sales to these customers was offset by weakened
market demand for products, in particular diminished demand for herbal products,
which resulted in reduced sales to certain existing customers during the quarter
ended March 31, 1999.
Sales of products into international markets increased 34.0% to approximately
$14.2 million for the nine months ended March 31, 1999, from approximately $10.6
million for the nine months ended March 31, 1998. The increase reflects the
continued expansion into Asian and European markets by the Company's existing
customers.
Gross profit margins were 20.7% for the nine months ended March 31, 1999,
compared to 27.1% for the nine months ended March 31, 1998. The decrease in
margins was due primarily to the following: reduced industry demand, which
resulted in depressed market prices and profit margins; honoring pricing
structures with materials that exceeded original cost parameters; liquidation of
excess inventories of slow moving items at or below cost; and inventory
write-downs to net realizable value.
Selling, general and administrative expenses increased as a percentage of sales
to 29.4% for the nine months ended March 31, 1999 from 14.0% for the nine months
ended March 31, 1998. The increase is due primarily to charges recognized during
the quarter ended March 31, 1999 of approximately $5.6 million, related to the
following: approximately $5.0 million for estimated costs attributed to the
Company's decision to sublease, and not occupy, its proposed new facility in
Carlsbad, California; and approximately $0.6 million for severance expenses
related to management restructuring. In addition, selling, general and
administrative expenses increased for the nine months ended March 31, 1999 due
to costs associated with upgrading the Company's financial and manufacturing
information systems.
The elements discussed above combined to result in an operating loss of
approximately $4.1 million for the nine months ended March 31, 1999, compared to
operating income of approximately $6.2 million for the nine months ended March
31, 1998. The Company incurred a diluted loss per share for the nine months
ended March 31, 1999 of ($.41) compared to diluted earnings per share of $.66
for the nine months ended March 31, 1998.
YEAR 2000 ISSUES
The year 2000 issue ("Year 2000 Issue") is the result of computer programs being
written using two digits rather than four digits to represent the year and
affects both information technology (IT) and non-IT systems. Thus, computer
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions of operations, including among others, a temporary inability to
process certain data or engage in similar normal business activities.
PLAN AND STATUS. The Company's plan to resolve the Year 2000 Issue involves four
phases: assessment, remediation, testing and implementation. The Company has
completed its assessment of its IT systems. The Company expects to implement its
new computer systems during the fourth quarter of its 1999 fiscal year which is
represented by the manufacturer as Year 2000 compliant. The Company is
11
<PAGE> 12
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
completing its assessment of non-IT systems, most of which are equipment used in
production. Systems identified as not being Year 2000 compliant will be brought
into compliance by upgrading either the software or hardware. The Company
expects to begin remediation, testing and to be fully implemented by the end of
the first quarter of its 2000 fiscal year.
While the Company has queried its significant suppliers, vendors and other
outside parties and will continue to monitor their Year 2000 compliance status,
the Company has no means of ensuring that suppliers, vendors and other outside
parties will be Year 2000 ready. The inability of suppliers, vendors and other
outside parties (including the government) to complete their Year 2000
resolution process in a timely fashion could materially impact the Company. The
effect of non-compliance by suppliers, vendors and outside parties is not
determinable.
COSTS: The Company estimates that it will have incurred approximately $1 million
in costs, of which approximately $100,000 will be charged directly to expense,
by the end of its 1999 fiscal year to replace its financial and manufacturing
software systems and to remediate or replace embedded microprocessors in its
production equipment. The Company anticipates that it will be able to fund its
costs from current funds available for operations. If, however, the costs are
higher than anticipated, this could have a material adverse effect on the
Company's business, results of operations and financial condition.
RISKS. While management of the Company believes it has an effective program in
place to resolve the Year 2000 Issue in a timely manner, as noted above, the
Company has not completed all necessary phases of the Year 2000 program for
compliance. In addition, disruptions in the economy generally resulting from
Year 2000 Issues could also materially adversely effect the Company. The Company
is unable to estimate if it has any potential liability or potential lost
revenue at this time. There can be no assurance that the Company will not
discover Year 2000 compliance issues that will have a material adverse effect on
the Company's business, results of operations and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had working capital of approximately $15.5
million and borrowings available under revolving lines of credit of $3.0
million. As of March 31, 1999, there were no borrowings under these lines.
For the nine months ended March 31, 1999, net cash provided by operating
activities was approximately $0.2 million compared to net cash provided by
operating activities of approximately $1.4 million for the nine months ended
March 31, 1998. This decrease of approximately $1.2 million was due primarily to
the net loss for the quarter and the decrease in accounts payable. This decrease
was partially offset by decreases in accounts receivable and inventories.
Current maturities of long-term debt and capital leases at March 31, 1999
amounted to approximately $51,000 which the Company expects to pay out of
working capital.
The Company has revolving line of credit agreements permitting borrowings up to
$3.0 million, which are secured by the Company's receivables, inventory,
equipment, and vehicles and bear interest at the bank's prime rate. The present
loan agreement with the bank contains financial covenants concerning limitations
on maintenance of debt, certain financial ratio's and other matters, for all of
which the Company is in full compliance as of March 31, 1999. The lines of
credit expire on January 19, 2000; management expects such lines to be renewed
in the normal course of business.
Capital expenditures for the nine months ended March 31, 1999 amounted to
approximately $2.0 million.
12
<PAGE> 13
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
These costs were charged to expense during the quarter ended March 31, 1999 as
the Company decided to sublease, and not occupy, this facility. Additional
expenditures relate to building improvements for the Company's new warehouse and
blending facility, and the purchase of encapsulation and other production
equipment to expand the Company's output capacity. The Company anticipates
capital expenditures of approximately $6.0 million during fiscal 1999. These
expenditures are expected to be paid from a combination of cash
holdings, net cash provided by operating activities in fiscal 1999, borrowings
under the Company's lines of credit with its bank, and anticipated long term
debt or equity financing. If these financing alternatives become unavailable,
the Company may be required to defer or restrict certain commercial activities
or delay or eliminate expenditures for certain of its potential products and/or
markets.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement is effective for all fiscal years beginning after
June 15, 1999. SFAS No. 133 is effective for the Company's fiscal year ending
June 30, 2000 and is not expected to have a material effect on the Company's
financial position or results of operations.
In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This Statement standardizes
the disclosure requirements for pensions and other postretirement benefits,
requires additional information on changes in the benefit obligations and fair
values of plan assets and eliminates certain disclosures. Restatement of
disclosures for earlier periods is required. The Company will adopt this
Statement in its financial statements for the year ending June 30, 1999.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the manner in which public
business enterprises report information about operating segments and also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. These statements are effective for years
beginning after December 15, 1997. The Company does not expect that the adoption
of SFAS Nos. 131 and 132 will result in disclosures that will be materially
different from those presently included in its financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to risks relating to changes in interest rates and stock
market fluctuations.
At March 31, 1999, the Company maintains a portion of its cash and cash
equivalents in financial instruments with original maturities of three months or
less. These financial instruments, principally comprised of government backed
money market funds, are subject to interest rate risk and will decline in value
if interest rates increase. The Company also maintains an investment portfolio
containing common stocks that are subject to market risk. The Company has not
used derivative financial instruments in its investment portfolio.
The Company's only long-term debt at March 31, 1999 is comprised of a note
payable to a bank, secured by the Company's corporate office building, with a
total balance of approximately $1.0 million. Due to the fixed rate nature of
this note, an immediate 10% change in interest rates would not have a material
impact on the Company's financial position or the results of its operations.
13
<PAGE> 14
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, based in part on the
advice of counsel, the ultimate disposition of these matters will not have a
material adverse impact on the Company's consolidated financial position,
operations or cash flows.
ITEM 2. CHANGES IN SECURITIES
During the quarter ending March 31, 1999, 100,000 common shares were issued
pursuant to stock option exercises by an outside third party and 124,500 shares
were repurchased by the Company as Treasury Stock.
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits are filed herewith:
27.0. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this report
is filed.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NATURAL ALTERNATIVES INTERNATIONAL, INC.
MARK A. LE DOUX Date: May 13 , 1999
- -----------------
Mark A. Le Doux
Chief Executive Officer
Assistant Treasurer
15
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