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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

for the Quarterly Period Ended March 31, 2011

Commission file number 000-23731

LOGO

NUTRACEUTICAL INTERNATIONAL CORPORATION(Exact name of registrant as specified in its charter)

Delaware

87-0515089(State of incorporation)

(IRS Employer Identification No.)1400 Kearns Boulevard, 2nd Floor, Park City, Utah

84060(Address of principal executive office)

(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 ý    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 o    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 ý

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 ý

At April 28, 2011, the registrant had 10,301,734 shares of common stock outstanding.



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Table of Contents

NUTRACEUTICAL INTERNATIONAL CORPORATION

INDEX



Description





Page No.Part I.

Financial Information


3Item 1.

Financial Statements (unaudited)


3Condensed Consolidated Balance SheetsSeptember 30, 2010 and March 31, 2011


3Condensed Consolidated Statements of Operations and Comprehensive IncomeThree Months And Six Months
Ended March 31, 2010 and 2011


4Condensed Consolidated Statements of Cash FlowsSix Months Ended March 31, 2010 and
2011


5Notes to Condensed Consolidated Financial Statements


6Item 2.

Management's Discussion and Analysis of Financial Condition and
Results of Operations


13Item 3.

Quantitative and Qualitative Disclosures about Market
Risk


21Item 4.

Controls and Procedures


21Part II.

Other Information


22Item 1.

Legal Proceedings


22Item 1A.

Risk Factors


22Item 2.

Unregistered Sales of Equity Securities and Use of
Proceeds


22Item 6.

Exhibits


22


2

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PART IFINANCIAL INFORMATION

Item 1.    Financial Statements



NUTRACEUTICAL INTERNATIONAL CORPORATION        CONDENSED CONSOLIDATED BALANCE SHEETS        (unaudited)        (dollars in thousands)

September 30,
2010(1)

March 31,
2011ASSETSCurrent assetsCash and cash equivalents

$
3,740

$
5,850Accounts receivable, net


10,668


12,935Inventories, net


40,273


38,528Prepaid expenses and other current assets


2,107


1,865Deferred income taxes


1,506


1,475Total current assets


58,294


60,653Property, plant and equipment, net


61,733


66,233Goodwill


5,338


6,161Intangible assets, net


19,671


20,143Other non-current assets


2,115


2,633Deferred income taxes, net


9,180


8,288Total assets

$
156,331

$
164,111LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesShort-term debt

$
28,000

$
Accounts payable


10,621


13,393Accrued expenses


7,052


5,660Total current liabilities


45,673


19,053Long-term debt





27,000Other non-current liabilities


1,739


1,499Total liabilities


47,412


47,552Stockholders' equityCommon stock


104


103Additional paid-in capital


23,408


22,386Retained earnings


85,134


93,633Accumulated other comprehensive income


273


437Total stockholders' equity


108,919


116,559Total liabilities and stockholders' equity

$
156,331

$
164,111


(1)The
condensed consolidated balance sheet as of September 30, 2010 has been prepared using information from the audited financial statements at that
date.


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

3

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NUTRACEUTICAL INTERNATIONAL CORPORATION        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  AND COMPREHENSIVE INCOME        (unaudited)    
(dollars in thousands, except per share data)

Three months ended March 31,

Six months ended March 31,2010

2011

2010

2011Net sales

$
47,896

$
49,549

$
92,735

$
94,792Cost of sales


22,553


24,135


43,918


45,916Gross profit


25,343


25,414


48,817


48,876Operating expensesSelling, general and administrative


16,679


17,512


33,428


34,247Amortization of intangible assets


314


404


612


794Income from operations


8,350


7,498


14,777


13,835Interest and other (income) expense, net


147


338


256


509Income before provision for income taxes


8,203


7,160


14,521


13,326Provision for income taxes


3,102


2,608


5,476


4,827Net income

$
5,101

$
4,552

$
9,045

$
8,499Other comprehensive income (loss)Foreign currency translation adjustment, net of tax


(77
)

125


(75
)

164Comprehensive income

$
5,024

$
4,677

$
8,970

$
8,663Net income per common shareBasic

$
0.49

$
0.44

$
0.87

$
0.82Diluted


0.49


0.44


0.86


0.81Weighted average common shares outstandingBasic


10,385,927


10,371,037


10,437,342


10,374,816Dilutive effect of stock options


92,759


54,527


87,265


69,051Diluted


10,478,686


10,425,564


10,524,607


10,443,867


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

4

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NUTRACEUTICAL INTERNATIONAL CORPORATION        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (unaudited)        (dollars in thousands)

Six months ended
March 31,2010

2011Cash flows from operating activitiesNet income

$
9,045

$
8,499Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


3,527


3,975Amortization of deferred financing fees


28


65Losses on disposals of property and equipment





15Deferred income taxes


1,014


923Changes in assets and liabilities, net of effects of acquisitionsAccounts receivable, net


(566
)

(2,135
)Inventories, net


(5,654
)

2,611Prepaid expenses and other current assets


713


336Other non-current assets


(1,508
)

185Accounts payable


3,869


2,772Accrued expenses


(9
)

(1,303
)Other non-current liabilities


514


(240
)Net cash provided by operating activities


10,973


15,703Cash flows from investing activitiesAcquisitions of businesses


(11,608
)

(7,403
)Purchases of property and equipment


(8,206
)

(3,364
)Net cash used in investing activities


(19,814
)

(10,767
)Cash flows from financing activitiesProceeds from debt


17,500


8,000Payments on debt


(5,500
)

(9,000
)Payments of deferred financing fees





(878
)Proceeds from issuances of common stock


421


660Purchases of common stock for treasury


(2,830
)

(1,933
)Tax benefit from stock option exercises


43


250Net cash provided by (used in) financing activities


9,634


(2,901
)Effect of exchange rate changes on cash and cash equivalents


(42
)

75Net increase in cash and cash equivalents


751


2,110Cash and cash equivalents at beginning of period


5,858


3,740Cash and cash equivalents at end of period

$
6,609

$
5,850


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

5

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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®,Nature's
Life®,LifeTime®,Natural
Balance®, bioAllers®,Herbs for Kids, NaturalCare®,Health from the Sun®, Life-flo®,Organix South®, Pioneer®
andMonarch Nutraceuticals.

The
Company owns neighborhood natural food markets, which operate under the trade namesThe Real Food Company, Thom's Natural Foods andCornucopia Community Market. The Company also owns
health food stores, which operate under the trade namesFresh Vitamins and Granola's.

In
the opinion of management, the accompanying unaudited condensed consolidated financial statements include all necessary adjustments to present fairly the consolidated financial
position of the Company as of March 31, 2011, the results of its operations for the three and six months ended March 31, 2010 and 2011 and its cash flows for the six months ended
March 31, 2010 and 2011, in conformity with accounting principles generally accepted in the United States of America for interim
financial information applied on a consistent basis. Results for the three and six months ended March 31, 2011 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 accounting principles generally accepted in the United
States of America 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, 2010, which was filed with the Securities and Exchange Commission on November 23, 2010.

Use of Estimates

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

6

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

1. BASIS OF PRESENTATION (Continued)

New Accounting Standards

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

2. ACCOUNTS RECEIVABLE, NET

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

September 30,
2010

March 31,
2011Accounts receivable

$
12,769

$
15,028Less allowances


(2,101
)

(2,093
)$
10,668

$
12,935


3. INVENTORIES, NET

Inventories, net of reserves for slow moving, obsolete and/or damaged inventory, were comprised of the following:

September 30,
2010

March 31,
2011Raw materials

$
15,369

$
16,399Work-in-process


5,117


5,385Finished goods


21,382


18,33541,868


40,119Less reserves


(1,595
)

(1,591
)$
40,273

$
38,528


4. ACQUISITIONS

During the six months ended March 31, 2011, the Company made three acquisitions of businesses. On October 7, 2010, the Company acquired certain operating assets of TRC
Nutritional Labs, Inc. On October 14, 2010, the Company acquired certain operating assets of The Heritage Store, Inc. On February 24, 2011, the Company acquired certain
operating assets of SunFeather Natural Soap Company, Inc.

The
aggregate purchase price of these acquisitions was $7,403 in cash. The Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Cash Flows
presented herein include the activities of these acquired businesses from their respective dates of acquisition. The expected long-term sales and expense synergies of acquired businesses
generally are

7

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

4. ACQUISITIONS (Continued)

not
realized immediately following acquisition as certain transition and integration matters must be completed.

These
acquisitions are in keeping with the Company's business strategy of consolidating the fragmented industry in which it competes and were accounted for using the acquisition method
of accounting. Accordingly, the aggregate purchase price was assigned to the assets acquired based on their fair market values at their respective dates of acquisition. The excess of aggregate
purchase price over the fair market values of the assets acquired was classified as goodwill. The following reflects the final allocation of the aggregate purchase price for these acquisitions to the
aggregate assets acquired:

Current assets

$
1,092Property, plant and equipment


4,332Goodwill


823Intangible assets


1,156$
7,403


The
acquired intangible assets include trademarks and tradenames totaling $449 that have indefinite lives and are not subject to amortization, as well as customer relationships totaling
$707, which are being amortized for financial statement purposes over three to six years. The acquired intangible assets of $1,156, as well as goodwill of $823, which is not subject to amortization
for financial statement purposes, are expected to be deductible for tax purposes over 15 years.

5. GOODWILL AND INTANGIBLE ASSETS

The change in the carrying amount of goodwill from September 30, 2010 to March 31, 2011 was as follows:

GoodwillBalance as of September 30, 2010Goodwill

$
45,732Accumulated impairment losses


(40,394
)5,338Goodwill attributable to fiscal 2011 acquisitions


823Balance as of March 31, 2011Goodwill


46,555Accumulated impairment losses


(40,394
)$
6,161


8

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Table of Contents

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

5. GOODWILL AND INTANGIBLE ASSETS (Continued)

The
carrying amounts of intangible assets at September 30, 2010 and March 31, 2011 were as follows:

September 30, 2010

March 31, 2011Weighted-
Average
Amortization
Period (Years)Gross
Carrying
Amount(1)

Accumulated
Amortization(1)

Net
Carrying
Amount

Gross
Carrying
Amount(1)

Accumulated
Amortization(1)

Net
Carrying
AmountIntangible assets subject to amortization:Trademarks/trade names/patents

$
686

$
(466
)
$
220

$
705

$
(501
)
$
204


6Customer relationships/distribution rights


7,689


(2,300
)

5,389


8,534


(3,070
)

5,464


6Developed software and technology


772


(605
)

167


772


(682
)

90


59,147


(3,371
)

5,776


10,011


(4,253
)

5,758Intangible assets not subject to amortization:Trademarks/trade names/licenses


13,895





13,895


14,385





14,385$
23,042

$
(3,371
)
$
19,671

$
24,396

$
(4,253
)
$
20,143


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


Estimated future amortization expense related to the March 31, 2011 net carrying amount of $5,758 for intangible assets subject to
amortization is as follows:

Year Ending September 30,

Estimated
Amortization
Expense2011(1)

$
8112012


1,4602013


1,2522014


9942015


888Thereafter


353$
5,758


(1)Estimated
amortization expense for the year ending September 30, 2011 includes only amortization to be recorded after March 31, 2011.


9

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

6. DEBT

Debt was comprised of the following:

September 30,
2010

March 31,
2011Short-term debtrevolving credit facility

$
28,000

$
Long-term debtrevolving credit facility





27,000$
28,000

$
27,000


The
Company's debt is stated at book value which approximated its fair value at September 30, 2010 and March 31, 2011.

On
December 17, 2010, the Company amended and restated its revolving credit facility (the "Restated Credit Agreement"). The Restated Credit Agreement extends the term of the
credit facility to December 2015, resets the available credit borrowings to $90,000 with no automatic reductions and provides an accordion feature which can increase the available credit borrowings to
$120,000 subject to approval by the lenders and compliance with certain covenants and conditions. The lenders under the Restated Credit Agreement are Rabobank International and Wells Fargo. To date,
the Company has not experienced any difficulties in accessing the available funds under the Restated Credit Agreement. Deferred financing fees of $878 related to the Restated Credit Agreement were
deferred and are being amortized over the term of the Restated Credit Agreement. The Company's previous revolving credit facility would have matured on September 7, 2011. Therefore, the balance
outstanding at September 30, 2010 was classified in current liabilities.

At
March 31, 2011, the Company had outstanding revolving credit borrowings of $27,000 under the Restated Credit Agreement. Borrowings under the Restated 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, which is the
higher of the Federal Funds Rate plus 0.5% or the Prime Lending Rate, plus a variable margin. At March 31, 2011, the applicable weighted-average interest rate for outstanding borrowings was
2.31%. The Company is also required to pay a quarterly fee of 0.50% on the unused balance under the Restated Credit Agreement. 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 Restated Credit Agreement matures on December 15, 2015, and the Company is
required to repay all principal and interest outstanding under the Restated Credit Agreement on such date.

The
Restated Credit Agreement contains restrictive covenants, including limitations on incurring other indebtedness and requirements that the Company maintain certain financial ratios.
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
Restated Credit Agreement.

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Table of Contents

NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

7. SHARE REPURCHASES

During the three and six months ended March 31, 2011, the Company purchased and retired 135,771 shares of common stock for an aggregate price of $1,933. During the three months
ended March 31, 2010, the Company purchased and retired 50,100 shares of common stock for an aggregate price of $605. During the six months ended March 31, 2010, the Company purchased
and retired 239,409 shares of common stock for an aggregate price of $2,830. As of March 31, 2011, the Company was permitted to purchase up to 744,021 additional shares under its approved
purchase plan. The Company accounts for treasury shares using the cost method.

8. STOCK OPTIONS

The following table summarizes stock option activity during the six months ended March 31, 2011:

Number of
Options

Weighted-Average
Exercise PriceOptions outstanding and exercisable at September 30, 2010


391,688

$
9.64Exercised


(67,888
)

6.12Options outstanding and exercisable at March 31, 2011


323,800

$
10.38


Options
to purchase 52,500 and 142,650 shares of common stock for the three and six months ended March 31, 2010, respectively, were excluded from the computation of diluted
earnings per share because the exercise prices of these stock options were greater than the average share price of the Company's common stock and, therefore, the effect would have been antidilutive.

During
the six months ended March 31, 2011, the Company received proceeds of $416 related to the exercise of stock options. During this same period, the Company recorded a tax
benefit of $250 and optionees realized an aggregate pre-tax gain of $648 from these stock option exercises. During the six months ended March 31, 2010, the Company received proceeds
of $55 related to the exercise of stock options. During this same period, the Company recorded a tax benefit of $43 and optionees realized an aggregate pre-tax gain of $112 from these
stock option exercises.

9. SEGMENTS

Segment identification and selection is consistent with the management structure used by the Company 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
does not review operating results on a disaggregated basis; rather, management reviews operating results on an aggregate basis.

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

9. SEGMENTS (Continued)

Net
sales attributed to customers in the United States and foreign countries for the three and six months ended March 31, 2010 and 2011 were as follows:

Three months ended
March 31,

Six months ended
March 31,2010

2011

2010

2011United States

$
41,933

$
44,422

$
81,958

$
85,094Foreign countries


5,963


5,127


10,777


9,698$
47,896

$
49,549

$
92,735

$
94,792


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 and six months ended March 31, 2010 and 2011 were as follows:

Three months ended
March 31,

Six months ended
March 31,2010

2011

2010

2011Branded nutritional supplements and other natural products

$
43,963

$
45,653

$
84,908

$
87,140Other(1)


3,933


3,896


7,827


7,652$
47,896

$
49,549

$
92,735

$
94,792


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


12

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Table of Contents

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 includingSolaray®, KAL®,Nature's Life®, LifeTime®,Natural Balance®,
bioAllers®,Herbs for Kids,NaturalCare®, Health from the Sun®,Life-flo®,Organix
South®,Pioneer® andMonarch
Nutraceuticals.

We
own neighborhood natural food markets, which operate under the trade namesThe Real Food Company, Thom's Natural Foods andCornucopia Community Market. We also own health food
stores, which operate under the trade namesFresh Vitamins andGranola's.

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 thirty-three acquisitions of assets or stock. 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, slow moving, obsolete and/or damaged inventory and valuation and recoverability of long-lived assets. Actual results may differ from
these estimates. Our critical accounting policies 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 credit worthiness. If general economic conditions and/or
customer financial condition were to change, additional provisions for bad debts may be required, which could have a material impact on the consolidated financial statements.

InventoriesProvision is made for slow moving, obsolete and/or damaged inventory based on 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 provisions for slow moving, obsolete and/or damaged inventory may be required, which could have a material impact on the consolidated financial statements.

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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 actual 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 our property, plant and equipment which are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of an
asset may not be recoverable. We measure recoverability of the asset by comparison of its carrying amount to the future undiscounted cash flows we expect the asset to generate. If we consider the
asset to be impaired, we measure the amount of any impairment as the difference between the carrying amount and the fair value of the impaired asset.

Goodwill and Intangible AssetsGoodwill and intangible assets require estimates and a high degree of judgment in determining the initial recognition
and measurement of goodwill and intangible assets, including factors and assumptions used in determining fair values and useful lives. Intangible assets with finite useful lives are amortized, while
intangible assets with indefinite useful lives are not amortized. Amortizable intangible assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not
be recoverable. Goodwill and non-amortizable intangible assets are tested annually for impairment and are tested for impairment between annual tests if an event occurs that would cause us
to believe that value is impaired. Events that could trigger an impairment include changes in general and economic conditions
that impact retail and consumer demand, as well as the market price of our common stock. Such events could negatively impact our future operating performance, cash flow and/or stock price and could
result in goodwill and/or intangible asset impairment charges which could materially impact our consolidated financial statements. We perform our annual impairment testing as of September 30
each year, which is the last day of our fiscal year.

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 returns and allowances, which are based on historical averages that have not varied significantly for the periods presented, as well
as specific known claims, if any. No other significant deductions from revenue must be estimated at the point in time that revenue is recognized.

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

New Accounting Standards

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

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Table of Contents

Results of Operations

The following table sets forth certain consolidated statements of operations data as a percentage of net sales for the periods
indicated:

Three Months
Ended
March 31,

Six Months
Ended
March 31,2010

2011

2010

2011Net sales


100.0
%

100.0
%

100.0
%

100.0
%Cost of sales


47.1
%

48.7
%

47.4
%

48.4
%Gross profit


52.9
%

51.3
%

52.6
%

51.6
%Selling, general and administrative


34.8
%

35.3
%

36.0
%

36.1
%Amortization of intangible assets


0.7
%

0.8
%

0.7
%

0.8
%Income from operations


17.4
%

15.2
%

15.9
%

14.7
%Interest and other (income) expense, net


0.3
%

0.7
%

0.2
%

0.6
%Income before provision for income taxes


17.1
%

14.5
%

15.7
%

14.1
%Provision for income taxes


6.5
%

5.3
%

5.9
%

5.1
%Net income


10.6
%

9.2
%

9.8
%

9.0
%EBITDA(1)


21.1
%

19.2
%

19.7
%

18.8
%


(1)See
"EBITDA."


Comparison of the Three Months Ended March 31, 2011 to the Three Months Ended March 31, 2010

Net Sales.Net sales increased by $1.6 million, or 3.5%, to $49.5 million for the three months ended March 31, 2011
("second
quarter of fiscal 2011") from $47.9 million for the three months ended March 31, 2010 ("second quarter of fiscal 2010"). Net sales of branded nutritional supplements and other natural
products increased by $1.6 million, or 3.8%, to $45.6 million for the second quarter of fiscal 2011 compared to $44.0 million for the second quarter of fiscal 2010. The increase
in net sales of branded nutritional supplements and other natural products was primarily related to the net sales contributions of the fiscal 2010 and fiscal 2011 acquisitions, partially offset by a
decrease in sales volume of branded products to certain customers. The impact on net sales of branded products attributable to price changes was not material. Other net sales were $3.9 million
for both the second quarter of fiscal 2011 and the second quarter of fiscal 2010.

Gross Profit.Gross profit was $25.4 million for the second quarter of fiscal 2011 and $25.3 million for the second quarter
of fiscal
2010. As a percentage of net sales, gross profit decreased to 51.3% for the second quarter of fiscal 2011 from 52.9% for the second quarter of fiscal 2010. This decrease in gross profit percentage was
primarily attributable to increased manufacturing overhead costs related to the expansion of our liquid manufacturing operations, partially offset by a decrease in material costs due to vendor price
decreases and changes in sales mix.

Selling, General and Administrative.Selling, general and administrative expenses increased by $0.8 million, or 5.0%, to
$17.5 million
for the second quarter of fiscal 2011 from $16.7 million for the second quarter of fiscal 2010. As a percentage of net sales, selling, general and administrative expenses increased to 35.3% for
the second quarter of fiscal 2011 compared to 34.8% for the second quarter of fiscal 2010. This increase in selling, general and administrative expenses was primarily attributable to operational and
transition costs related to the fiscal 2011 acquisitions.

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Table of Contents

Amortization of Intangible Assets.Amortization of intangible assets was $0.4 million for the second quarter of fiscal 2011 and
$0.3 million for the second quarter of fiscal 2010. For each period, amortization expense was primarily related to intangible assets recorded in connection with acquisitions.

Interest and Other (Income) Expense, Net.Net interest and other (income) expense was $0.3 million for the second quarter of
fiscal 2011 and
$0.1 million for the second quarter of fiscal 2010 and primarily consisted of interest expense on indebtedness under our revolving credit facility with the increase being primarily related to
an increase in interest rates.

Provision for Income Taxes.Our effective tax rate was 36.4% for the second quarter of fiscal 2011 and 37.8% for the second quarter of
fiscal 2010.
The decrease in the effective tax rate was primarily due to an increase in the domestic production deduction rate. In each period, our effective tax rate was higher than the federal statutory rate
primarily due to state taxes.

Comparison of the Six Months Ended March 31, 2011 to the Six Months Ended March 31, 2010

Net Sales.Net sales increased by $2.1 million, or 2.2%, to $94.8 million for the six months ended March 31, 2011 from
$92.7 million for the six months ended March 31, 2010. Net sales of branded nutritional supplements and other natural products increased by $2.2 million, or 2.6%, to
$87.1 million for the six months ended March 31, 2011 compared to $84.9 million for the six months ended March 31, 2010. The increase in net sales of branded nutritional
supplements and other natural products was primarily related to the net sales contributions of the fiscal 2010 and fiscal 2011 acquisitions, partially offset by a decrease in sales volume of branded
products to certain customers. The impact on net sales
of branded products attributable to price changes was not material. Other net sales were $7.7 million for the six months ended March 31, 2011 compared to $7.8 million for the six
months ended March 31, 2010.

Gross Profit.Gross profit was $48.9 million for the six months ended March 31, 2011 and $48.8 million for the six
months ended
March 31, 2010. As a percentage of net sales, gross profit decreased to 51.6% for the six months ended March 31, 2011 from 52.6% for the six months ended March 31, 2010. This
decrease in gross profit percentage was primarily attributable to increased manufacturing overhead costs related to the expansion of our liquid manufacturing operations, partially offset by a decrease
in material costs due to vendor price decreases and changes in sales mix.

Selling, General and Administrative.Selling, general and administrative expenses increased by $0.8 million, or 2.5%, to
$34.2 million
for the six months ended March 31, 2011 from $33.4 million for the six months ended March 31, 2010. This increase in selling, general and administrative expenses was primarily
attributable to operational and transition costs related to the fiscal 2011 acquisitions. As a percentage of net sales, selling, general and administrative expenses were 36.1% for the six months ended
March 31, 2011 compared to 36.0% for the six months ended March 31, 2010.

Amortization of Intangible Assets.Amortization of intangibles was $0.8 million for the six months ended March 31, 2011 and
$0.6 million for the six months ended March 31, 2010. For each period, amortization expense was primarily related to intangible assets recorded in connection with acquisitions.

Interest and Other (Income) Expense, Net.Net interest and other (income) expense was $0.5 million for the six months ended
March 31,
2011 and $0.3 million for the six months ended March 31, 2010 and primarily consisted of interest expense on indebtedness under our revolving credit facility with the increase being
primarily related to an increase in interest rates.

Provision (Benefit) for Income Taxes.Our effective tax rate was 36.2% for the six months ended March 31, 2011 and 37.7% for the
six months
ended March 31, 2010. The decrease in the effective tax rate was primarily due to an increase in the domestic production deduction rate. In each period, our effective tax rate was higher than
the federal statutory rate primarily due to state taxes.

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Table of Contents

EBITDA

EBITDA (a non-GAAP measure) is defined in our debt covenants and performance measures as earnings before net interest and
other (income) expense, taxes, depreciation and amortization. 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, 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:



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

Three Months Ended
March 31,

Six Months Ended
March 31,2010

2011

2010

2011(dollars in thousands)Net income

$
5,101

$
4,552

$
9,045

$
8,499Provision for income taxes


3,102


2,608


5,476


4,827Interest and other (income) expense, net(1)


147


338


256


509Depreciation and amortization


1,767


2,033


3,527


3,975EBITDA

$
10,117

$
9,531

$
18,304

$
17,810


(1)Includes
amortization of deferred financing fees.


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Table of Contents




Our
EBITDA decreased to $9.5 million for the second quarter of fiscal 2011 from $10.1 million for the second quarter of fiscal 2010. EBITDA as a percentage of net sales
decreased to 19.2% for the second quarter of fiscal 2011 from 21.1% for the second quarter of fiscal 2010.

Our
EBITDA decreased to $17.8 million for the six months ended March 31, 2011 from $18.3 million for the six months ended March 31, 2010. EBITDA as a
percentage of net sales decreased to 18.8% for the six months ended March 31, 2011 from 19.7% for the six months ended March 31, 2010.

Seasonality

We believe that our business is characterized by minor seasonality. However, sales to any particular customer or sales 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 products 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 $41.6 million as of March 31, 2011 compared to $12.6 million as of September 30,
2010. This increase in working capital was primarily the result of debt related to our revolving credit facility being classified as a non-current liability at March 31, 2011 as
compared to a current liability at September 30, 2010 based on the amendment and restatement of our revolving credit facility on December 17, 2010. The increase in working capital was
also the result of increases in cash and accounts receivable and a decrease in accrued expenses partially offset by a decrease in inventories and an increase in accounts payable.

Net
cash provided by operating activities for the six months ended March 31, 2011 was $15.7 million compared to $11.0 million for the comparable period in fiscal
2010. This increase in net cash provided by operating activities for the six months ended March 31, 2011 was primarily attributable to changes in assets and liabilities, net of effects of
acquisitions.

Net
cash used in investing activities was $10.8 million for the six months ended March 31, 2011 compared to $19.8 million for the comparable period in fiscal 2010.
Our investing activities during these periods consisted of acquisitions of businesses and capital expenditures. Capital expenditures primarily related to building improvements related to facility
consolidation efforts, distribution and manufacturing equipment and information systems.

During
the six months ended March 31, 2011, we acquired three businesses for $7.4 million in cash. On October 7, 2010, we acquired certain operating assets of TRC
Nutritional Labs, Inc. On October 14, 2010, we acquired certain operating assets of The Heritage Store, Inc. On February 24, 2011, we acquired certain operating assets of
SunFeather Natural Soap Company, Inc. During the six months ended March 31, 2010, we acquired two businesses for $11.6 million in cash. On October 9, 2009, we acquired
selected assets of Nutritional Specialties, Inc. On December 18, 2009, we acquired selected assets of Organix-South, Inc.

Net
cash used in financing activities was $2.9 million for the six months ended March 31, 2011 compared to net cash provided by financing activities of $9.6 million
for the comparable period in fiscal 2010. During these periods, financing activities primarily related to borrowings and repayments under our revolving credit facility, payments of deferred financing
fees, purchases of common stock for treasury
and proceeds from the issuance of common stock related to stock option exercises and the direct stock purchase plan.

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Table of Contents

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 17,537 shares purchased during the six months ended March 31, 2011. As of March 31, 2011, there were 1,414,364 shares of common stock available for purchase.

On
December 17, 2010, we amended and restated our revolving credit facility (the "Restated Credit Agreement"). The Restated Credit Agreement extends the term of the credit
facility to December 2015, resets the available credit borrowings to $90 million with no automatic reductions and provides an accordion feature which can increase the available credit
borrowings to $120 million subject to approval by the lenders and compliance with certain covenants and conditions. The lenders under the Restated Credit Agreement are Rabobank International
and Wells Fargo. To date, we have not experienced any difficulties in accessing the available funds under the Restated Credit Agreement. Deferred financing fees of $0.9 million related to the
Restated Credit Agreement were deferred and are being amortized over the term of the Restated Credit Agreement.

At
March 31, 2011, we had outstanding revolving credit borrowings of $27.0 million under the Restated Credit Agreement. Borrowings under the Restated 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, which is the higher of the
Federal Funds Rate plus 0.5% or the Prime Lending Rate, plus a variable margin. At March 31, 2011, the applicable weighted-average
interest rate for outstanding borrowings was 2.31%. We are also required to pay a quarterly fee of 0.50% on the unused balance under the Restated Credit Agreement. 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 Restated Credit Agreement matures on
December 15, 2015, and we are required to repay all principal and interest outstanding under the Restated Credit Agreement on such date.

The
Restated Credit Agreement contains restrictive covenants, including limitations on incurring certain other indebtedness and requirements that we maintain certain financial ratios. As
of March 31, 2011, 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 Restated 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.

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Table of Contents

Contractual Obligations and Other Commitments

Our significant non-cancelable contractual obligations and other commitments as of March 31, 2011 were as follows:

Payments Due By PeriodContractual Obligations and Other Commitments

Total

Less Than
1 Year

1 - 3
Years

4 - 5
Years

After
5 Years(dollars in thousands)Revolving credit facility

$
27,000

$


$


$
27,000

$
Interest on revolving credit facility(a)


4,603


977


1,954


1,672


Operating leases


5,122


2,752


2,007


332


31Total

$
36,725

$
3,729

$
3,961

$
29,004

$
31


(a)Represents
estimated interest obligations associated with our outstanding revolving credit facility balance of $27.0 million at March 31,
2011, assuming no principal payments are made before maturity, a weighted-average interest rate of 2.31% and an underutilization fee rate of 0.50%.


Inflation

Inflation affects the cost of raw materials, goods and services used by us. 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, (ii) unavailability of desirable acquisitions or inability to complete 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,
(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

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Table of Contents

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 under the Restated Credit Agreement bear interest at the applicable Eurodollar Rate plus a variable margin
or at a base rate, which is the higher of the Federal Funds Rate plus 0.5% or the Prime Lending Rate, plus a variable margin. At March 31,
2011, the applicable weighted-average interest rate for borrowings was 2.31% and we had total borrowings outstanding of $27.0 million.

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 because the majority of our net sales to foreign countries are transacted in U.S. dollars. Net sales to foreign countries not transacted in U.S. dollars include sales to customers
in Norway, Sweden, the U.K., the Netherlands and Japan. 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 the end of the period covered by this report. Based on the
foregoing, our principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective.

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.

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Table of Contents

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 normal 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
our opinion, the outcomes of 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, the individual regulatory and legal matters in which we are involved are not expected to have a material adverse effect on our
consolidated 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 2010 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 March 31, 2011.

Prior
to fiscal 2010, our Board of Directors approved a share purchase program authorizing us to buy up to 3,500,000 shares of our common stock. As of March 31, 2011, there were
744,021 shares available for purchase under this program. The shares available for purchase under this program have no expiration date. Purchases under this program during the three months ended
March 31, 2011 occurred in January, February and March as follows:

Period

Total
Number
of Shares
Purchased

Average
Price
Paid Per
Share

Total
Number
of Shares
Purchased
as Part of
Publicly
Announced
Plan

Maximum
Number of
Shares that
May Yet Be
Purchased
Under
the PlanJanuary 1 - 31, 2011


3,725

$
14.07


3,725February 1 - 28, 2011


89,550


14.16


89,550March 1 - 31, 2011


42,496


14.42


42,496135,771

$
14.24


135,771


744,021


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.


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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: April 28, 2011

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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