NATURAL ALTERNATIVES INTERNATIONAL INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2004

000-15701

(Commission file number)

NATURAL ALTERNATIVES INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


Delaware		84-1007839
(State of incorporation)		(IRS Employer Identification No.)

1185 Linda Vista Drive San Marcos, California 92078		(760) 744-7340
(Address of principal executive offices)		(Registrant’s telephone number)

Indicate by check mark whether Natural Alternatives International, Inc. (NAI) (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 NAI was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether NAI is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

As of February 14, 2005, 5,956,387 shares of NAI’s common stock were outstanding, net of 61,000 treasury shares.

TABLE OF CONTENTS


		Page
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS		1

PART I	FINANCIAL INFORMATION	2

Item 1.	Financial Statements	2

	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Income and Comprehensive Income	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.	Controls and Procedures	16

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	17

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3.	Defaults Upon Senior Securities	17

Item 4.	Submission of Matters to a Vote of Security Holders	17

Item 5.	Other Information	18

Item 6.	Exhibits	18

SIGNATURES		20

(i)

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

Certain statements in this report, including information incorporated by reference, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect current views about future events and financial performance based on certain assumptions. They include opinions, forecasts, projections, guidance, expectations, beliefs or other statements that are not statements of historical fact. Words such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “believes,” “anticipates,” “intends,” “estimates,” “approximates,” “predicts,” or “projects,” or the negative or other variation of such words, and similar expressions may identify a statement as a forward-looking statement. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results, are forward-looking statements. Forward-looking statements in this report may include statements about:

•

future financial and operating results, including projections of net sales, revenues, income, net income per share, profit margins, expenditures, liquidity and other financial items;

•

inventories and the adequacy and intended use of our facilities;

•

sources and availability of raw materials;

•

personnel;

•

operations outside the United States;

•

overall industry and market performance;

•

competition;

•

current and future economic and political conditions;

•

development of new products, brands and marketing strategies;

•

distribution channels and product sales and performance;

•

growth, expansion and acquisition strategies;

•

the outcome of regulatory and litigation matters;

•

our ability to develop relationships with new customers and maintain or improve existing customer relationships;

•

the impact of accounting pronouncements;

•

management’s goals and plans for future operations; and

•

other assumptions described in this report underlying or relating to any forward-looking statements.

The forward-looking statements in this report speak only as of the date of this report and caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements are subject to certain events, risks, and uncertainties that may be outside of our control. When considering forward-looking statements, you should carefully review the risks, uncertainties and other cautionary statements in this report as they identify certain important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These factors include, among others, the risks described under Items 2 and 3 and elsewhere in this report, as well as in other reports and documents we file with the SEC.

Unless the context requires otherwise, all references in this report to the “Company,” “NAI,” “we,” “our,” and “us” refer to Natural Alternatives International, Inc. and, as applicable, Natural Alternatives International Europe S.A. (NAIE) and our other wholly owned subsidiaries.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATURAL ALTERNATIVES INTERNATIONAL, INC.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share and per share data)


	December 31, 2004			June 30, 2004
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	4,638		$	7,495
Accounts receivable - less allowance for doubtful accounts of $187 at December 31, 2004 and $132 at June 30, 2004		7,562			8,889
Inventories, net		13,185			12,863
Deferred income taxes		951			1,010
Other current assets		1,168			633

Total current assets		27,504			30,890

Property and equipment, net		15,423			11,380
Other assets, net		185			198

Total assets	$	43,112		$	42,468

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	7,138		$	7,567
Accrued liabilities		3,485			2,078
Accrued compensation and employee benefits		1,094			2,626
Income taxes payable		51			320
Current portion of long-term debt		846			831

Total current liabilities		12,614			13,422

Long-term debt, less current portion		3,424			3,841
Deferred income taxes		717			717
Deferred rent		292			220
Long-term pension liability		161			140

Total liabilities		17,208			18,340

Stockholders’ equity:
Preferred stock; $.01 par value; 500,000 shares authorized; none issued or outstanding		—			—
Common stock; $.01 par value; 20,000,000 shares authorized at December 31, 2004 and 8,000,000 at June 30, 2004; issued and outstanding 6,009,387 at December 31, 2004 and 5,970,992 at June 30, 2004		60			60
Additional paid-in capital		11,128			10,864
Accumulated other comprehensive loss		(221	)		(96	)
Retained earnings		15,230			13,593
Treasury stock, at cost, 61,000 shares at December 31, 2004 and June 30, 2004		(293	)		(293	)

Total stockholders’ equity		25,904			24,128

Total liabilities and stockholders’ equity	$	43,112		$	42,468

See accompanying notes to condensed consolidated financial statements.

NATURAL ALTERNATIVES INTERNATIONAL, INC.

Condensed Consolidated Statements Of Income And Comprehensive Income

(Dollars in thousands, except share and per share data)

(Unaudited)


	Three months ended December 31,						Six months ended December 31,
	2004			2003			2004			2003
Net sales	$	21,545		$	17,195		$	44,272		$	33,916
Cost of goods sold		16,953			13,300			34,362			25,875

Gross profit		4,592			3,895			9,910			8,041

Selling, general & administrative expenses		3,710			3,346			7,634			6,862

Income from operations		882			549			2,276			1,179

Other income (expense):
Interest income		6			9			10			18
Interest expense		(54	)		(51	)		(105	)		(94	)
Foreign exchange gain		168			130			166			145
Other, net		25			(25	)		24			(47	)

		145			63			95			22

Income before income taxes		1,027			612			2,371			1,201
Provision for income taxes		242			36			734			58

Net income	$	785		$	576		$	1,637		$	1,143

Unrealized loss resulting from change in fair value of derivative instruments, net of tax		(75	)		—			(125	)		—

Comprehensive income	$	710		$	576		$	1,512		$	1,143

Net income per common share:
Basic	$	0.13		$	0.10		$	0.28		$	0.20

Diluted	$	0.12		$	0.09		$	0.25		$	0.19

Weighted average common shares outstanding:
Basic		5,928,766			5,821,973			5,928,521			5,821,341
Diluted		6,571,995			6,161,851			6,512,099			6,134,798

See accompanying notes to condensed consolidated financial statements.

NATURAL ALTERNATIVES INTERNATIONAL, INC.

Condensed Consolidated Statements Of Cash Flows

(Dollars in thousands)

(Unaudited)


	Six Months Ended December 31,
	2004			2003
Cash flows from operating activities
Net income	$	1,637		$	1,143
Adjustments to reconcile net income to net cash used in (provided by) operating activities:
Provision for uncollectible accounts receivable		55			28
Depreciation and amortization		1,178			1,338
Deferred income taxes		59			—
Stock based compensation		40			15
Pension expense, net of contributions		21			70
Loss on disposal of asset		17			15
Changes in operating assets and liabilities:
Accounts receivable		1,272			622
Inventories, net		(322	)		(4,462	)
Other assets		(597	)		(659	)
Accounts payable and accrued liabilities		718			744
Accrued compensation and employee benefits		(1,532	)		168

Net cash used in (provided by) operating activities		2,546			(978	)

Cash flows from investing activities
Capital expenditures		(5,238	)		(1,443	)
Repayment of notes receivable		13			—

Net cash used in investing activities		(5,225	)