-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NbH/mmkjJ/+HTxewYzRw1u6R9Xm8rJsfFiZ/o6arhWScBXgZf9H/Vf5ZtVgj3/aw gyCJaL9t2fq/x3waHxxHQQ== 0000890566-99-001225.txt : 19990831 0000890566-99-001225.hdr.sgml : 19990831 ACCESSION NUMBER: 0000890566-99-001225 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990830 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEIDER NUTRITION INTERNATIONAL INC CENTRAL INDEX KEY: 0001022368 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 870563574 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14608 FILM NUMBER: 99702911 BUSINESS ADDRESS: STREET 1: 2002 SOUTH 5070 WEST CITY: SALT LAKE CITY STATE: UT ZIP: 84104-4726 BUSINESS PHONE: 8019755000 MAIL ADDRESS: STREET 1: 2002 SOUTH 5070 WEST CITY: SALT LAKE CITY STATE: UT ZIP: 84104-4726 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _______. COMMISSION FILE NUMBER: 1-14608 WEIDER NUTRITION INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 87-0563574 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2002 SOUTH 5070 WEST SALT LAKE CITY, UTAH 84104-4726 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (801) 975-5000 Securities registered pursuant to Section 12(b) of the Act: Class A Common Stock, par value $.01 per share (Title of Class) Securities registered pursuant to Section 12(g) of the Act: None 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The number of shares outstanding of the Registrant's common stock is 25,021,468 (as of August 2, 1999). The aggregate market value of the voting stock held by non-affiliates of the Registrant is approximately $44,300,000 (as of August 2, 1999). DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for its 1999 Annual Meeting of Shareholders, which will be filed with the SEC, are incorporated by reference into Part III. PART I NOTE ON FORWARD LOOKING STATEMENTS CERTAIN STATEMENTS MADE IN THIS ANNUAL REPORT ON FORM 10-K UNDER THE CAPTIONS "BUSINESS," "FACTORS AFFECTING FUTURE PERFORMANCE," "LEGAL PROCEEDINGS," AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND ELSEWHERE HEREIN ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT ARE BASED ON MANAGEMENT'S BELIEFS AND ASSUMPTIONS, CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS. STATEMENTS THAT ARE NOT HISTORICAL FACTS, INCLUDING WITHOUT LIMITATION STATEMENTS WHICH ARE PRECEDED BY, FOLLOWED BY OR INCLUDE THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS," "ESTIMATES," "MAY," "SHOULD," OR SIMILAR EXPRESSIONS, ARE FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANY'S CONTROL, AND THEREFORE ACTUAL RESULTS MAY DIFFER MATERIALLY. IMPORTANT FACTORS WHICH MAY AFFECT FUTURE RESULTS INCLUDE, WITHOUT LIMITATION, CHANGES IN GENERAL ECONOMIC AND BUSINESS CONDITIONS (INCLUDING IN THE NUTRITIONAL SUPPLEMENT INDUSTRY), ACTIONS OF COMPETITORS, CHANGES IN THE COMPANY'S BUSINESS STRATEGIES, THE COMPANY'S ABILITY TO IMPLEMENT MORE SOPHISTICATED OPERATING SYSTEMS AND INVENTORY MANAGEMENT PROGRAMS, CHANGES IN LAWS AND REGULATIONS, DEPENDENCE UPON INDIVIDUAL PRODUCTS, THE SUCCESS OF PRODUCT DEVELOPMENT, NEW PRODUCT INTRODUCTION INTO THE MARKETPLACE, LITIGATION AND OTHER REGULATORY ACTION AND OTHER FACTORS DISCUSSED UNDER "FACTORS AFFECTING FUTURE PERFORMANCE" IN ITEM 1 OF THIS ANNUAL REPORT. THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. ITEM 1. BUSINESS GENERAL Weider Nutrition International, Inc. (the "Company") develops, manufactures, markets, distributes and sells branded and private label vitamins, nutritional supplements and sports nutrition products in the United States and throughout the world. The Company offers a broad range of capsules and tablets, powdered drink mixes, bottled beverages and nutrition bars consisting of approximately 1,000 stock keeping units ("SKUs") domestically and internationally. The Company has a portfolio of recognized brands, including Schiff(R), Weider Sports Nutrition, MetaForm(R) and American Body Building(TM) that are primarily marketed through mass market, health food store and/or health club and gym distribution channels. The Company markets its branded products in four principal categories: sports nutrition; vitamins, minerals and herbs; weight management; and healthy snacks. As a result of the Company's July 1998 acquisition of Haleko Hanseatisches Lebensmittel Kontor GmbH ("Haleko"), the Company has significantly expanded its operations outside the United States. The Company's principal executive offices are located at 2002 South 5070 West, Salt Lake City, Utah 84104 and its telephone number is (801) 975-5000. As used herein, the "Company" means Weider Nutrition International, Inc. and its subsidiaries, except where indicated otherwise. 2 INDUSTRY OVERVIEW According to PACKAGED FACTS, the principal domestic retail markets in which the Company's products compete totaled approximately $7.8 billion in 1997 and grew at a compound annual growth rate of approximately 15% from 1992 through 1997. The Company believes several factors account for the steady growth of the nutritional supplement market, including increased public awareness of the health benefits of nutritional supplements and favorable demographic trends toward older Americans who are more likely to consume nutritional supplements. Over the past several years, public awareness of the positive effects of nutritional supplements on health has been heightened by widely publicized reports and medical research findings indicating a correlation between the consumption of nutrients and the reduced incidence of certain diseases. Reports have indicated that the United States government and universities generally have increased sponsorship of research relating to nutritional supplements. In addition, Congress has established the Office of Alternative Medicine within the National Institutes of Health to foster research into alternative medical treatment modalities, which may include natural remedies. Congress has also recently established the Office of Dietary Supplements in the National Institutes of Health to conduct and coordinate research into the role of dietary supplements in maintaining health and preventing disease. The Company believes that the aging of the United States population, together with a corresponding increased focus on preventative health care measures, will continue to result in increased demand for certain nutritional supplement products. According to the United States Bureau of the Census, the 35-and-older age group of consumers, which represents a large majority of the regular users of vitamin and mineral supplements, is projected to grow significantly faster than the general United States population through 2010. The Company believes these events and trends together with product introductions have supplied the growth of the domestic nutritional supplement market. The international nutritional supplement market is more fragmented than the domestic market. As a result, industry data is not readily available. However, many of the demographic and other trends and events present in the domestic market, are also present in the international market. The primary distribution channels in the vitamin and nutritional supplements industry consist of mass market retailers (including mass merchandisers, drug stores, supermarkets and discount stores), health and natural food stores and direct sales and mail order organizations. According to PACKAGED FACTS, in 1998 the mass market channel accounted for approximately 49% of the sales of vitamin, mineral and supplement products, health and natural food stores accounted for approximately 39% of sales and direct selling, mail order and the Internet accounted for approximately 12% of sales. 3 SALES AND DISTRIBUTION The Company believes that its continued growth and success in the nutritional supplements industry, in part, is dependent on the consumers' recognition of, satisfaction with and allegiance to the Company's branded products. Accordingly, during fiscal 1999, the Company implemented a more focused marketing initiative that provided incremental investment in support of four of its most recognized brands: Schiff(R), Weider Sports Nutrition, MetaForm(R) and American Body Building(TM). The Company believes that this focused marketing strategy will be beneficial to nutritional supplement consumers. The incremental investment in these brands enhances the Company's ability to introduce innovative products that are of premium quality, better tasting and more consumer application friendly, supported by current science and technology. The Company's products are currently sold domestically in over 48,000 retail outlets in all 50 states. The Company's mass market (mass volume) customers include: mass merchandisers such as Wal-Mart, Target and Kmart; drug stores such as Walgreens, CVS, Rite Aid and Eckerd; warehouse clubs such as Costco, Sam's Club and BJ's; and supermarkets such as Albertson's, Giant, Safeway and Fred Meyer. The Company services the health food market by distributing its products to General Nutrition Center ("GNC") and leading health food distributors. The Company also sells through other distribution channels, including its own network of distributors to health clubs and gyms (such as Bally's Health and Fitness and Gold's Gym), international markets, and private label manufacturing for certain retail customers where the Company also distributes its branded products. The Company pursues a multi-channel distribution strategy in order to participate in the growth being experienced in each of these channels. Internationally, the Company sells or distributes its products to over 50 countries around the world, all of which are at different levels of development and are affected by different factors. In Europe, where the Company has a substantial majority of its international sales, nutritional supplement distribution varies by country, but in general, product is mainly distributed through gyms and fitness studios, health food and specialty stores and pharmacies. Some product is distributed through the mass market channel, but this channel is not as developed internationally as it is in the U.S. Additionally, significant differences exist between the regulatory environment in the U.S. and the regulatory environment in Europe. As a result, many nutritional supplements sold in the U.S. are not able to be sold in Europe due to regulatory restrictions. BRANDS AND DISTRIBUTION CHANNELS. The Company has created a portfolio of recognized brands designed for specific distribution channels. The positioning of the Company's brand names is supported by significant advertising and marketing expenditures as well as the Company's historical association with the Weider name. As a result, the Company believes that it has many of the leading brands in the nutritional supplement industry. 4 The following table identifies the Company's leading domestic brands and illustrates the Company's multi-brand, multi-channel strategy: BRAND PRIMARY CHANNEL ----- --------------- Schiff(R)................... Food, Drug, Mass volume retailers & health food stores Metaform(R)................. Health food stores Weider Sports Nutrition..... Food, Drug, Mass volume retailers American Body Building(TM).. Health clubs and gyms The Company markets its branded products in four principal categories of nutritional supplements: sports nutrition; vitamins, minerals and herbs; weight management; and healthy snacks. The Company believes that offering its customers a wide variety of products also provides the Company a competitive advantage in capturing an increasing share of the growing nutritional supplement market. The Company continues to expand its product innovation and branding opportunities through the pursuit of innovative ingredients and proprietary formulas from internal research, as well as outside scientists, experts, formulators and inventors. SPORTS NUTRITION. The Company's sports nutrition category includes a wide variety of products designed to enhance athletic performance, support the results derived from exercise programs and replenish the body's vital nutrients used up during exercise and training. The Company's sports nutrition products deliver nutritional supplements through a variety of forms, including powdered drink mixes, tablets, capsules, nutrition bars and beverages. These products target consumers for the Company's sports nutrition business. Customer focus includes athletes, bodybuilders, fitness enthusiasts and other "on-the-go" consumers. While each of the Company's products offers distinct benefits to the consumer, the Company's sports nutrition products are intended to generally enhance the consumer's ability to control weight, support muscle growth, lose fat and increase energy levels and stamina. The following table summarizes the major brands and representative products of the Company's sports nutrition category: MAJOR BRANDS REPRESENTATIVE PRODUCTS - ------------ ----------------------- American Body Building(TM)............ Blue Thunder(TM) protein beverages, Ripped Force(R) energy beverages and powdered drink mixes, and Steel Bar(R) nurtrition bars Weider Sports Nutrition................ Creatine ATP(TM), Androstene, and Ultra Ripped(TM) powdered drink mixes Metaform(R)........................... Metaform(R), HyperDrive(TM) and Diet Stack(TM) powdered drink mixes and nutrition supplements Science Foods(R)...................... White Lightning(TM) protein beverages and nutrition bars, and Ripped to the Max(TM) energizing beverages Tiger's Milk(R)....................... Tiger's Milk(R) nutrition bars 5 The American Body Building(TM) and Science Foods(R) brands, which are intended to help the consumer increase energy levels and stamina, control weight and lose fat, are primarily distributed to health clubs and gyms through the Company's network of independent distributors. The Metaform(R) and Weider Sports Nutrition brands, which are intended to support consumers' efforts to control weight, support muscle mass and lose fat, are primarily distributed through food, drug and mass volume retailers and health food stores such as GNC. The Tiger's Milk(R) product line, which has been marketed for over 30 years, includes several nutrition bars that supply significant amounts of protein, vitamins and other essential nutrients with less fat than a traditional candy bar. VITAMINS, MINERALS AND HERBS. The Company markets a complete line of vitamins and minerals, including multivitamins, multiminerals, antioxidants and digestive enzymes through the Schiff(R) brand. These products are offered in various forms (including liquids, tablets, capsules, softgels and powdered drink mixes). According to IRI data, joint health products represent the fastest growing subcategory within the vitamin, mineral and herb category. Schiff's Pain Free(TM) product realized significant growth in fiscal 1999 and is currently the number two joint health product in the mass market channel. In addition, herbs and phytonutrients, which are a growing category in the nutritional supplement industry, are alternatives or complements to over-the-counter pharmaceutical products for consumers who seek a more natural and preventative approach to their health care. The following table summarizes the major brands and representative products of the Company's Schiff brand of vitamins, minerals and herbs: MAJOR BRANDS REPRESENTATIVE PRODUCTS Schiff(R) joint products.................. Pain Free(TM), chondroitin sulfate and glucosamine compounds Schiff(R) vitamins........................ Multivitamins, multiminerals, antioxidants and digestive enzymes Schiff(R) herbs........................... St. John's wort, garlic and echinacea The Company markets certain joint products including Pain Free(TM) and certain chondroitin sulfate and/or glucosamine compounds under two brands, Schiff(R) and Metaform(R). The Schiff(R) brand is primarily distributed through food, drug, mass and club retailers. The Metaform(R) brand is primarily distributed through GNC. The Company's Schiff(R) brand vitamin products are designed to provide consumers with essential vitamins and minerals as supplements to their diet. Schiff vitamins and minerals include multivitamins such as Single Day, individual vitamins and minerals such as Vitamins C, E, and Calcium, specialty formulae for women such as Menopause and soy, and other specialty formulae including melatonin, DHEA, beta carotene and B-complex. Schiff(R) vitamins are marketed through health food stores as well as supermarkets and drug stores within the mass volume retail channel. The Company markets various herbs (such as garlic and echinacea) under the Schiff(R) brand to food, drug and mass volume retailers and health food stores. Through its phytocharged supplement line distributed primarily to health food stores, Schiff(R) is a leader in the development and introduction of 6 phytonutrients. Phytonutrients are naturally-occurring compounds in plants that are believed to promote health. These phytonutrients include lycopene (the beta carotene relative that has been recently linked in the popular media to lowering prostate cancer risk) and beta glucan (an extract from oats that is the soluble fiber believed to be responsible for lowering blood cholesterol levels). WEIGHT MANAGEMENT. The Company is one of the leading suppliers to food, drug mass and club retailers of natural products that utilize vitamins, herbs and other nutritional supplements designed to promote weight management. The Company's products are intended to support consumers' efforts in a number of weight management functions. The products are specifically formulated, packaged and priced to appeal to a wide variety of consumers with different demographic characteristics and physiological needs. The following table summarizes the major brands and representative products of the Company's weight management category: MAJOR BRANDS REPRESENTATIVE PRODUCTS - ------------ ----------------------- American Body Building(TM)........... Ripped Force(R) energy beverages Science Foods(R)..................... Ripped to the Max(TM) and other energy beverages Weider Sports Nutrition............... Fat Burner, Ultra AC(TM) and Ultra AP(TM) supplements Metaform(R).......................... Metaform Heat(TM) and Diet Stack(TM) powdered drink mixes The American Body Building(TM) and Science Foods(R) brands, which are intended to support consumers' efforts to reduce fat and provide a low calorie source of energy, are primarily distributed through the Company's independent distributors to health clubs and gyms. The Weider Sports Nutrition brand is intended to aid in weight management and to support comsumers' efforts to reduce fat. This brand is primarily distributed through food, drug, mass, club, convenience and health food retailers. Metaform(R) brand products, which are intended to enhance the consumers' efforts to manage weight, support muscle mass and lose fat, are primarily distributed to health food stores such as GNC. HEALTHY SNACKS. The Company's healthy snacks category includes its Fi-Bar(R) and Tiger's Milk(R) product lines. The Fi-Bar(R) product line is comprised of fat-free granola bars and fruit and nut bars coated with yogurt, chocolate or carob made without hydrogenated fats. The Tiger's Milk(R) product line, which has been marketed for over 30 years, includes several nutrition bars that supply significant amounts of protein, vitamins and other essential nutrients with less fat than a traditional candy bar. The Tiger's Milk(R) and Fi-Bar(R) brands, which are intended to provide consumers with a healthy alternative to traditional snack foods and candy bars, are primarily distributed through mass volume retailers and health food stores. INTERNATIONAL MARKETS. The Company believes significant opportunities exist for nutritional supplement products in international markets. The Company has positioned itself to take advantage of such opportunities through 7 acquisitions of businesses in Europe and Canada. These acquisitions provide the Company with the rights to manufacture and market, under the "Weider" name, nutritional supplements worldwide, excluding Australia, New Zealand, Japan and South Africa. The July 1998 acquisition of Haleko provides the Company with several of the premium nutritional supplement brands in Europe as well as significant nutritional supplement manufacturing capabilities in Germany. Haleko's leading sports nutrition brand is Multipower(R) which includes a wide variety of products primarily marketed to health clubs and gyms. Haleko's weight management brand is Multaben, which includes a variety of beverages, soups and other meal replacement products, as well as nutrition bars, sold primarily to health food stores. Haleko also markets a line of sportswear under the Venice Beach brand. Sportswear is primarily sold to health clubs and gyms, as well as specialty sportswear retail stores. Sales of sportswear represented approximately 34% of Haleko's revenues for fiscal 1999. The Company also markets nutritional supplements to South America, eastern Europe, the Middle East and the Pacific Rim through distributors. PRIVATE LABEL. Historically, the Company manufactured capsules, tablets, beverages, nutrition bars and powdered drink mixes for other marketers of nutritional supplements and certain retail customers. These independent marketers, or contract manufacturing customers, market the Company's products under their own brand name. During fiscal 1999, the Company made the decision to limit contract manufacturing (private label) business to only those customers who have, or may in the future have, other business relationships with the Company. MARKETING The Company believes its promotional and advertising programs, in combination with its sales force and customer service standards, have been integral to the Company's growth. A key part of the Company's strategy is to help educate consumers about innovative, safe and beneficial nutritional supplement products. The Company's marketing and advertising expenditures were approximately $35.9 million in fiscal 1999, $16.9 million in fiscal 1998, and $16.8 million in fiscal 1997. During fiscal 1999 the Company developed its first national broadcast for Schiff(R) Pain Free(TM) joint health products. Television and radio commercials featuring Pain Free(TM) appeared on syndicated radio and television programs, cable television stations and broadcast television programs. The Company promotes its products in various consumer magazines, such as LADIES HOME JOURNAL, ARTHRITIS TODAY, MAXIM, ESPN MAGAZINE; target publications, such as FITNESS RUNNER; and trade magazines, such as WHOLE FOODS, VITAMIN RETAILER and MASS MARKET RETAILER. In addition to these publications, the Company advertises in several magazines published by Weider Publications Inc. ("Weider Publications"), an affiliate of the Company, including MUSCLE AND FITNESS, FLEX, SHAPE, MEN'S FITNESS, NATURAL HEALTH and JUMP. The Company is also developing internet sites to provide additional information to consumers, customers and investors. 8 The Company participates in consumer education by sponsoring and attending various sporting events, including leading professional body building competitions such as The Mr. Olympia, The Arnold Schwarzenegger Classic and numerous local National Physique Committee bodybuilding competitions. The Company also promotes its products at numerous trade and consumer shows representing all current distribution channels. Market research will continue to play a vital role in securing retail space for the Company's branded products in the mass market channel and other relevant distribution channels. The Company is expanding its use of research data, including Gallup, IRI InfoScan, Spectra Data and other information sources to identify key consumer demographics, market trends and category potential to maximize new and existing opportunities with current and potential retail partners. The Company is also taking a more active role in professional trade organizations and lobbying groups. The Company is a founding member of the Corporate Alliance for Integrative Medicine, an industry-based research organization that works with public and private universities to conduct scientifically valid studies on natural health products. COMPANY GROWTH STRATEGY The Company intends to broaden its leadership position in the nutritional supplements and sports nutrition categories. Specifically, the Company's strategy is to: (i) leverage its portfolio of established brands to increase its share of the nutritional supplement market; (ii) develop new brands and product line extensions through its commitment to research and development; (iii) continue the growth of its balanced distribution network; (iv) build its execution skills through new operations processes and decision support systems; (v) achieve cost superiority through formal productivity benchmarking and continuous improvement programs; (vi) grow international profitability through integration of European operations and through expanded export operations outside Europe; and (vii) implementing a comprehensive e-commerce plan. The Company believes that its multiple distribution channels, broad portfolio of leading brands and state-of-the-art manufacturing and distribution capabilities position it to be a long-term competitive leader in the nutritional supplements industry. PRODUCT RESEARCH AND DEVELOPMENT The Company strives to be a leader in nutritional supplement product development and intends to continue its commitment to research and development to create new products and existing product line extensions. The nutritional supplement industry is influenced by products that become popular due to changing consumer interests in health, appearance and longevity along with media attention to these same interests. The Company believes it is important to develop new products in the nutritional supplement industry in order to capitalize on new market opportunities, to strengthen relationships with customers by meeting demand and to increase market share. In addition, the Company believes that continually introducing new products is important to preserving and enhancing gross margins due to the relatively short life cycle of some products. 9 As a result of the Company's product development history, the Company believes that it has built a reputation in the nutritional supplement industry for innovation in both branded and private label products. The Company has pioneered a number of innovations in the nutritional supplement industry, including: the development of the first domestic source of melatonin with consistent quality, supply and cost; the introduction of garcinia cambogia, a popular weight loss ingredient; through acquisition, the producer of the first high-protein, low carbohydrate beverage; and the retail introduction of the first carotenoid complex product from natural sources. The Company is in various stages of development with respect to new product concepts that the Company anticipates will augment both its existing domestic and international product lines. In order to support its commitment to research and development, the Company hires requisite technical personnel and invests in formulation, processing and packaging development and the testing of efficacy and shelf life stability as well as market research with consumers. The Company's product research and development expenditures were approximately $4.6 million in fiscal 1999, $4.0 million in fiscal 1998, and $2.3 million in fiscal 1997. MANUFACTURING AND PRODUCT QUALITY The Company has invested in manufacturing to meet the growing demand for nutritional supplement products, to ensure continued operating efficiencies and to maintain high product quality standards. The Company manufactures approximately 90% of its domestic branded products and approximately 45% of its international branded products. The Company has significant internal manufacturing competencies in the distinct areas of: sterile liquid beverage processing, bottling and packaging; powder blending, filling and packaging in jug, canisters, bottles and pouches; processing, extrusion, coating and packaging of nutritionally fortified energy bars; and capsule and tablet manufacturing, filling and packaging. The Company has invested in production line flexibility to accommodate various filling sizes, weight or count of product and final shipped unit configuration as to fulfill customer and ultimate consumer needs. Consistent with the Company's commitment to capturing an increasing share of the growing nutritional supplement market, in June 1997 the Company completed construction of a state-of-the-art facility that more than tripled the Company's previous capacity for manufacturing capsules and tablets. The facility, located in Salt Lake City, Utah, includes the Company's main distribution center and primary administrative offices. The distribution center features a high-rise racked warehouse and a fully automated "order-pick" system using optical readers that interpret bar coded labels on each shipping container. The Company also currently manufactures its products in three other U.S. facilities. The powders production facility is located in Salt Lake City, Utah and beverage facilities are located in Walterboro, South Carolina and Las Vegas, Nevada. The Company is continuously upgrading its facilities and enhancing its manufacturing capabilities through new equipment purchases and technological improvements. In order to improve overall capsule and tablet manufacturing efficiencies, during fiscal 1999, the Company closed its NION manufacturing facility in southern California and transitioned the operations to the Company's Utah facility. 10 The Company is committed to providing the highest quality products. The Company's domestic manufacturing facilities are in the initial evaluation and implementation phases of ISO 9002 certification. As part of this process, generally all testing and inspection procedures performed by quality control professionals are standardized and periodically evaluated for compliance. Each of the Company's manufacturing sites is equipped with analytical tools for in-process and finished product evaluation for compliance to specification. The Company's products are also subject to shelf life stability testing through which the Company determines the effects of aging on its products. The Company's product retention program allows the Company the ability to maintain samples from each product batch shipped and, when appropriate, to analyze such samples to insure product quality. Certified outside laboratories are used routinely to evaluate the Company's laboratory performance and to supplement its internal testing procedures and capabilities. During the past two years the Company has developed a Strategic Sourcing department which has focused on maximizing buying power through volume leverage with a smaller select supplier base. As a result of this effort, material savings have been achieved. In addition, key supply relationships have been established with raw material and packaging suppliers who bring significant financial, technical, quality and service resources to the Company. The Strategic Sourcing department expects to continue its efforts to identify and realize further efficiencies. Internationally, the Company has two primary manufacturing facilities. The Company has a capsules, tablets and powders facility in Bleckede, Germany that produces products distributed throughout Europe. This facility has received ISO 9002 certification. The Company also has a facility located in Madred, Spain that primarily produces powders for distribution in Spain, France and Italy. Each of these facilities are continuously upgraded with equipment purchases and technological improvements. COMPETITION The market for the sale of nutritional supplements is highly competitive. Competition is based principally upon price, quality of products, customer service and marketing support. Numerous companies compete with the Company in development, manufacture and marketing of nutritional supplements. In addition, large pharmaceutical companies and packaged food and beverage companies are increasingly competing with the Company in the nutritional supplement market. The majority of competitors in the nutritional supplement industry are privately held and the Company is unable to precisely assess the size of such competitors. However, the Company believes that no competitor controls more than ten percent of this market. The Company believes that by reacting quickly to market changes, scientific discoveries and competitive challenges, the Company will continue to compete effectively in the nutritional supplement industry. As the nutritional supplement industry grows and evolves, the Company believes retailers will rely heavily on suppliers of nutritional supplements, such as the Company, that can respond quickly to new opportunities, support retailers with production capacity and flexibility, and provide innovative and high 11 margin products. In addition, retailers have begun to align themselves with suppliers, such as the Company, who are financially stable, market a broad portfolio of products and offer superior customer service. The Company believes that it competes favorably with other nutritional supplement companies and major pharmaceutical companies because of its competitive pricing, marketing strategies, sales support and the quality and breadth of its product line. GOVERNMENT REGULATION The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of the Company's products are subject to regulation by one or more governmental agencies, including the Food and Drug Administration ("FDA"), the Federal Trade Commission (the "FTC"), the Consumer Product Safety Commission, the United States Department of Agriculture and the Environmental Protection Agency. The Company's activities are also regulated by various agencies of the states, localities and foreign countries in which the Company distributes and sells its products. The FDA regulates dietary supplements under the Federal Food, Drug and Cosmetic Act (the "FDCA") and the regulations promulgated thereunder. In October 1994, the FDCA was amended by the Dietary Supplement Health and Education Act of 1994 ("DSHEA"). DSHEA establishes a statutory class of dietary supplements, including vitamins, minerals, herbs, amino acids and other dietary substances for human use to supplement the diet, as well as concentrates, metabolites, extracts or combinations of such dietary ingredients. DSHEA also provides a regulatory framework that ensures consumer access to safe, quality dietary supplements, recognizes the need for the dissemination of useful, balanced information regarding dietary supplements, supports continuing scientific research into the health effects of dietary supplements and permits the establishment of good manufacturing practices to improve uniform quality of dietary supplements. Under DSHEA statements of "nutritional support" may describe how particular dietary ingredients, or the mechanism of action by which dietary ingredients, affect the structure, function or general well-being of the body. These statements of nutritional support are permitted in dietary supplement labeling, provided that, among other requirements, the company has scientific substantiation that the statements are truthful and not misleading, discloses that the statements have not been reviewed by the FDA and notifies the FDA within 30 days that the statements are being used in dietary supplement labeling. Statements of nutritional support may not make claims that the dietary supplement is intended to cure, prevent or mitigate a disease or illness, which claims would cause the FDA to consider the dietary supplement as an unapproved new drug. The Company labels its products in a manner that is intended to comply with the provisions of DSHEA; however, no assurance can be given that the FDA will not take the position that a statement of nutritional used by the Company is considered by the FDA to be a disease or illness claim. Certain of the Company's products are classified as foods, which are subject to the Nutrition Labeling and Education Act of 1990 (the "NLEA"). The NLEA prohibits the use of any health claim for foods unless the health claim is supported by significant scientific agreement and is either pre-approved by the FDA or the subject of substantial government scientific publications with notification sent to the FDA. A substantial majority of the Company's products are classified as dietary supplements under DSHEA. 12 The Company anticipates that FDA will promulgate Good Manufacturing Practices ("GMPs"), as authorized under DSHEA and specific to dietary supplements. Preparation, packaging and compliance with these regulations may demand quality control provisions similar to the drug industry. Such regulations could, among other things, require the recall, reformulation or discontinuance of certain products, additional record keeping, warnings, notification procedures and expanded documentation of the properties and manufacturing processes of certain products and scientific substantiation regarding ingredients, product claims, safety or efficacy. Failure to comply with applicable FDA requirements can result in sanctions being imposed on the Company or the manufacturers of its products, including warning letter, fines, product recalls and seizures. The FTC exercises jurisdiction over the advertising of nutritional and dietary supplements under the Federal Trade Commission Act. In November 1998, the FTC published an advertising guideline for the dietary supplement industry entitled "Dietary Supplements: An Advertising Guide for Industry." These guidelines reiterate many of the policies regarding dietary supplements the FTC has periodically announced over the years, particularly with respect to the substantiation of claims made in advertising of dietary supplement products. In the past several years, the FTC has instituted enforcement actions against several dietary supplement companies alleging false and misleading advertising of certain products. These enforcement actions have resulted in the agreement to consent decrees and/or the payment of fines by certain of the companies involved. The FTC continues to monitor advertising with respect to dietary supplements and, accordingly, the Company from time to time receives inquiries from the FTC with respect to the Company's advertising. In September 1997, the Company received an access letter from the FTC regarding the Company's advertising with respect to the Company's PhenCal products. After discussions and negotiations between the Company and the FTC, the Company accepted, without admitting liability, a proposed consent decree in June 1999. The proposed consent decree provides, among other things, that the Company will not make certain diet and weight loss claims for its products without adequate scientific substantiation, but does not include any provision for fees or penalties. The proposed consent decree is currently before the FTC pending final review and approval. The Company is also a party to a consent order which was signed by Weider Health and Fitness in 1985. Pursuant to the order, the Company is prohibited from making certain advertising claims relating to the muscle building capabilities of Anabolic Mega Paks(R) and Dynamic Life Essence and any other product of substantially similar composition. In connection with the Company's other food products, the Company is similarly prohibited from making these claims unless the Company is able to substantiate such claims. The Company's international operations are also subject to governmental regulations in each of the countries in which the Company has operations or sales or distributes products. These regulations may differ materially from country to country and from those regulations of the United States, which may result in additional costs and expenses to the Company due to the reformulation or repackaging of certain products to meet different standards 13 or regulations, the imposition of additional record keeping requirements and expanded or different labeling and scientific substantiation regulations. In addition, governmental regulations in foreign countries where the Company plans to commence or expand sales may prevent or delay entry into the market or prevent or delay the introduction, or require the reformulation of certain of the Company's products. The Company's distributors for those countries in which the Company does not have direct operations generally control compliance with such foreign governmental regulations. These distributors are independent contractors over whom the Company has limited control. As a result of the Company's efforts to comply with applicable statutes and regulations, the Company has from time to time reformulated, eliminated or relabeled certain of its products and revised certain aspects of its sales, marketing and advertising programs. The Company may be subject to additional laws or regulations administered by the federal, state or foreign regulatory authorities, the repeal or amendment of laws or regulations which the Company considers favorable, such as DSHEA, or more stringent interpretations of current laws or regulations. The Company is unable to predict the nature of such future laws, regulations, interpretations or applications, nor can it predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on its business in the future. They could, however, require reformulation of certain products to meet new standards, recall or discontinuance of certain products not able to be reformulated, imposition of additional recordkeeping requirements, expanded documentation of the properties of certain products, expanded or different labeling and scientific substantiation. Any or all such requirements could have a material adverse effect on the Company's results of operations and financial condition. PRODUCT LIABILITY INSURANCE Because the Company manufactures products designed to be ingested, it faces the risk that materials used for the final products may be contaminated with substances that may cause sickness or other injury to persons who have used the products. Although the Company maintains production and operating standards designed to prevent such events, certain portions of the process of product development, including the production, harvesting, storage and transportation of raw materials, along with the handling, transportation and storage of finished products delivered to consumers, are not within the control of the Company. See "Manufacturing and Product Quality." Also, sickness or injury to persons may occur if the Company's products are ingested in dosages which exceed the dosage recommended on the product label. The Company cannot control misuse of its products by consumers or the marketing, distribution and resale of its products by its customers. With respect to product liability claims in the United States and internationally, the Company has $2.0 million per occurrence domestically ($1.0 million internationally) and $2.0 million ($1.0 million internationally) in aggregate liability insurance subject to self-insurance retention of $10,000. In addition, if claims should exceed $2.0 million, the Company has excess umbrella liability insurance of up to $90.0 million. However, there can be no assurance that such insurance will continue to be available, or if available, will be adequate to cover potential liabilities. The Company generally does not obtain contractual indemnification from parties supplying raw materials or marketing its products; however, any such indemnification is limited by its terms and, as a practical matter, to the creditworthiness of the 14 indemnification party. The Company's product liability insurance does not cover non-safety claims relating to the Company's products, such as noncompliance with label claims or similar matters. TRADEMARKS AND PATENTS The Company owns trademarks registered with the United States Patent and Trademark Office or similar regulatory agencies in certain other countries for its Schiff(R), Metaform(R), American Body Building(TM), Science Foods(R) and Tiger's Milk(R) brands of products. The Company also has obtained trademarks for certain of its products, processes and slogans and has rights to use other names material to its business. The Company vigorously protects its trademark and other intellectual property right. The Company currently has two patents pending. The Company relies on common law trademark rights to protect its unregistered trademarks. Common law trademark rights do not provide the Company with the same level of protection as afforded by a United States federal registration of a trademark. In addition, common law trademark rights are limited to the geographic area in which the trademark is actually used. The Company registers certain of its trademarks in certain foreign jurisdictions where the Company's products are sold or distributed. However, the protection available in such jurisdictions may not be as extensive as the protection available to the Company in the United States. EMPLOYEES At August 1, 1999, the Company employed approximately 860 persons, of whom approximately 475 were in management, sales, purchasing, logistics and administration and approximately 385 were in manufacturing. Additionally, the Company utilizes temporary employees in some of its manufacturing processes. The Company is not party to any collective bargaining arrangements and believes that its relationship with its employees is good. EXECUTIVE OFFICERS The following table set forth certain information concerning the executive officers of the Company. NAME AGE POSITION ---- --- -------- Bruce J.Wood 49 Chief Executive Officer, President and Director Jerome J. Bock 59 Executive Vice President - Operations Stephen D. Young 45 Executive Vice President - International Joseph W. Baty 42 Senior Vice President - Finance James P. Lacey 39 Senior Vice President - Sales Daniel A. Thomson 34 Senior Vice President - Legal Affairs, General Counsel and Secretary 15 Mr. Wood has served as Chief Executive Officer, President and a Director of the Company since June 1999. From January 1998 to December 1998, Mr. Wood was the President and a founder of All Stick Label LLC. From 1973 to December 1997, Mr. Wood held various management positions with divisions of Nabisco, Inc., including President and Chief Executive Officer of Nabisco, Ltd., President of Planters Lifesavers Company, and Senior Vice President, Marketing of Nabisco Biscuit Company and Del Monte USA. Mr. Bock has served as Executive Vice President - Operations of the Company since July 1999. Prior to joining the Company, Mr. Bock served as Vice President of Operations for the Hunt-Wesson Division of ConAgra, Inc. from 1993 to February 1999. From 1990 to 1993, Mr. Bock was the President of the Rolling Pin Business Unit of Shato Holdings, Inc. Prior to joining Shato Holdings, Mr. Bock held various operations and management positions with The Pillsbury Company from 1962 to 1989. Mr. Young has served as an Executive Vice President of the Company since January 1997. From January 1994 to July 1999, Mr. Young served as the Chief Financial Officer of the Company. Prior to joining the Company in 1993, Mr. Young served as Vice President Finance at First Health Strategies, which he joined in 1983. Mr. Young is a certified public accountant. Mr. Baty has served as Senior Vice President - Finance of the Company since January 1997. Prior to joining the Company, Mr. Baty was a partner at KPMG LLP, which he joined in 1984. Mr. Baty is a certified public accountant. Mr. Lacey has served as Senior Vice President - Sales of the Company since July 1999. From January 1998 to July 1999, Mr. Lacey served as Chief Operating Officer of Everlast Nutritional Products. From July 1996 to December 1997, Mr. Lacey was Vice President of Sales at Powerbar, Inc. Prior to joining Powerbar, Mr. Lacey held various sales, marketing and management positions from 1982 to 1996 with Oral B Laboratories, Nestle Food Corporation, Carnation Company and Smith Kline-Beecham. Mr. Thomson has served as Senior Vice President - Legal Affairs and General Counsel of the Company since July 1998 and Secretary since July 1999. Prior to joining the Company, Mr. Thomson was in private law practice from 1993 to July 1998 in the corporate and securities departments of Latham & Watkins and LeBoeuf, Lamb, Greene & MacRae. Mr. Thomson, a certified public accountant, was an accountant and consultant with the firm of Price Waterhouse LLP from 1988 to 1990. FACTORS AFFECTING FUTURE PERFORMANCE DEPENDENCE ON SIGNIFICANT CUSTOMERS. The Company's largest customers are GNC, Wal-Mart and Costco. These three customers accounted for approximately 43% and 41% respectively, of the Company's net sales for the fiscal years ended May 31, 1999 and 1998. The loss of either GNC, Wal-Mart or Costco as a customer, or a significant reduction in purchase volume by GNC, Wal-Mart or Costco, could have a material adverse effect on the Company's results of operations or financial condition. The Company cannot assure you that GNC, Wal-Mart and/or Costco will continue as major customers of the Company. 16 DEPENDENCE ON NEW AND INDIVIDUAL PRODUCTS. The Company believes its ability to grow in its existing market is partially dependent upon its ability to introduce new and innovative products into these markets. Although the Company seeks to introduce additional products each year in its existing markets, the success of new products is subject to a number of variables, including developing products that will appeal to customers and obtaining necessary regulatory approvals. The Company cannot assure you that its efforts to develop and introduce innovative new products will be successful, that customers will accept new products or that the Company will obtain required regulatory approvals of such new products. In addition, the Company cannot assure you that individual or groups of similar products currently experiencing strong popularity and rapid growth will maintain sales levels over time. During fiscal year 1999, net sales for the Company's Pain Free(TM) product were approximately 21% of the Company's total net sales. ABILITY TO IMPLEMENT BUSINESS STRATEGY. The Company's business and operations have experienced significant growth and increased complexity in recent years. The Company has recently refined its growth and business strategies, designed to focus on and support the Company's core brands, products and customers. The Company's future success depends upon its ability to successfully implement these growth and business strategies. The Company cannot assure you that it will be able to successfully implement these strategies or, if implemented, that the strategies will achieve the anticipated results. The failure to successfully implement these strategies could have a material adverse effect on the Company's results of operations and financial condition. AVAILABILITY OF FUTURE FINANCING. The Company's current credit facility matures in February 2000. The Company is evaluating its financing requirements and is discussing a new credit facility and other financing alternatives with its current lender and other financial institutions. Although the Company believes that a new credit facility will be finalized prior to February 2000, the Company cannot assure that it will be able to obtain a new facility by that date or, if obtained, that the new facility or the failure to enter into a new credit facility on terms favorable to the Company could have a material adverse effect on the Company's results of operations and financial condition. COMPETITION. The nutritional supplement industry is highly competitive. Numerous companies compete with the Company in the development, manufacture and marketing of nutritional supplements. In addition, large pharmaceutical companies and packaged food and beverage companies compete with the Company in the nutritional supplement market. These companies have greater financial and other resources available to them and possess extensive manufacturing, distribution and marketing capabilities far greater than those the Company has available or possess. Increased competition from such companies could have a material adverse effect on the Company's financial results and business. IMPACT OF GOVERNMENT REGULATION ON THE COMPANY'S OPERATIONS. The Company's operations, properties and products are subject to regulation by various foreign, federal, state and local government entities and agencies, particularly the FDA and FTC. See "Government Regulation." Among other matters, such regulation is concerned with statements and claims made in 17 connection with the packaging, labeling, marketing and advertising of the Company's products. The governmental agencies have a variety of processes and remedies available to them, including initiating investigations, issuing warning letters and cease and desist orders, requiring corrective labeling or advertising, requiring consumer redress, seeking injunctive relief or product seizure, imposing civil penalties and commencing criminal prosecution. As a result of the Company's efforts to comply with applicable statutes and regulations, the Company has from time to time reformulated, eliminated or relabeled certain of its products and revised certain aspects of its sales, marketing and advertising programs. The Company may be subject in the future to additional laws or regulations administered by federal, state or foreign regulatory authorities, the repeal or amendment of laws or regulations which the Company considers favorable, such as DSHEA, or more stringent interpretations of current laws or regulations. The Company is unable to predict the nature of such future laws, regulations, interpretations or applications, nor can the Company predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on the Company's business in the future. Such future laws and regulations could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products that cannot be reformulated, the imposition of additional recordkeeping requirements, expanded documentation of product efficacy, and expanded or modified labeling and scientific substantiation. Any or all of such requirements could have a material adverse effect on the Company's results of operations and financial condition. See "Government Regulation." ABILITY TO ATTRACT AND RETAIN KEY MANAGEMENT PERSONNEL. The Company's operations have experienced significant growth in recent years. The Company's ability to manage that growth and added business complexity and to implement its business strategies is largely dependent upon the efforts, performance, abilities and continued service of the Company's management personnel. The competition for such personnel is intense, and the Company cannot assure you it will be able to retain key management personnel or attract and retain additional experienced management personnel. The Company's failure to attract and retain such personnel could have a material adverse effect on the Company's results of operations and financial condition. EFFECT OF UNFAVORABLE PUBLICITY. The Company believes that the nutritional supplement market is affected by national media attention regarding the consumption of nutritional supplements. The Company cannot assure you that future scientific research or publicity will not be unfavorable to the nutritional supplement market or any particular product, or inconsistent with previous favorable research or publicity. Future reports of research that are perceived as less favorable or that question such earlier research could have a material adverse effect on the Company's business or financial results. The Company also depends upon consumer perceptions of the safety, quality and efficacy of its products as well as similar products sold or distributed by other companies (which may not adhere to the same quality standards as the Company). Accordingly, negative publicity associated with illness or other adverse effects resulting from the consumption of the Company's products or any similar products distributed by other companies could have a material adverse impact on the Company's business or financial results. Such adverse publicity could arise even if the adverse effects associated with such products resulted from consumers' failure to consume such products as directed. 18 YEAR 2000 COMPLIANCE. Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. Beginning in the year 2000, these date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in normal business activities. The Company has implemented a year 2000 compliance plan; however, there can be no assurance until the year 2000 that the Company's systems will be year 2000 compliant. In addition, the ability of third parties with whom the Company transacts business to address adequately their Year 2000 issues is outside of the Company's control. Any Year 2000 compliance problem of either the Company or third parties with whom the Company transacts business could result in a material adverse effect on the Company's business or financial results. RISKS ASSOCIATED WITH INTERNATIONAL MARKETS. The Company's continued growth is dependent in significant part upon its ability to expand its operations into new markets, including international markets. The Company may experience difficulty entering new international markets due to greater regulatory barriers, the necessity of adapting to new regulatory systems and problems related to entering new markets with different cultural bases and political systems. As a result of the Company's acquisition of Haleko in July 1998, the Company's international sales have increased substantially over historical levels. Approximately 27% of the Company's net sales for fiscal 1999 were generated outside the United States. Operating in international markets exposes the Company to certain risks, including, among other things, changes in or interpretations of foreign regulations that may limit the Company's ability to sell certain products or repatriate products to the United States, foreign currency fluctuations, the potential imposition of trade or foreign exchange restrictions or increased tariffs, and political instability. As the Company continues to expand its international operations, these and other risks associated with international operations are likely to increase. AVAILABILITY OF RAW MATERIALS. The Company obtains all of its raw materials for the manufacture of its products from third parties. The Company cannot assure you that suppliers will provide the raw materials the Company needs in the quantities requested, at a price the Company is willing to pay or that meet the Company's quality standards. Any significant delay in or disruption of the supply of raw materials could, among other things, substantially increase the cost of such materials, require reformulation or repackaging of products, require the qualification of new suppliers; or result in the Company's inability to meet customer demands for certain products. The occurrence of any of the foregoing could have a material adverse effect on the Company's results of operations or financial condition. INTELLECTUAL PROPERTY PROTECTION. The Company believes that trademarks and other proprietary rights are important to its success and its competitive position. The Company's policy is to pursue registrations for all of the trademarks associated with its key products. The Company protects its legal rights concerning its trademarks and the Company is currently enforcing various trademarks against infringement, both in the United States and in 19 foreign countries. The Company relies on common law trademark rights to protect its unregistered trademarks. Common law trademark rights do not provide the Company with the same level of protection as afforded by a United States federal registration of a trademark. In addition, common law trademark rights are limited to the geographic area in which the trademark is actually used. POTENTIAL SALES AND EARNINGS VOLATILITY. The Company's sales and earnings continue to be subject to potential volatility based upon, among other things, the Company's inability to implement its business strategies; changes in regulations that may limit or restrict the sale of certain of the Company's products, the expansion of the Company's operations into new markets, or the introduction of the Company's products into new markets; the Company's failure, or its distributors' failure (and allegations of the Company's or their failure), to comply with applicable regulations; the Company's inability to introduce new products; lack of market acceptance of the Company's new products; the introduction of new products by the Company's competitors; consumer perceptions of the Company's products and operations; and general conditions in the nutritional supplement industry. The Company's business is, to some extent, seasonal, with lower sales typically realized during the first and second fiscal quarters and higher sales typically realized during the third and fourth fiscal quarters. The Company believes such fluctuations in sales are the result of greater marketing and promotional activities toward the end of each fiscal year, customer buying patterns and consumer spending patterns related primarily to consumers' interest in achieving personal health and fitness goals after the beginning of each new calendar year and before the summer fashion season. CONTROL BY PRINCIPAL STOCKHOLDER. Weider Health and Fitness owns all of the outstanding shares of Class B Common Stock representing approximately 94% of the aggregate voting power of all outstanding shares of the Company's common stock. Weider Health and Fitness is in a position to exercise control over the Company and to determine the outcome of all matters required to be submitted to stockholders for approval (except as otherwise provided by law or by the Company's amended and restated certificate of incorporation or amended and restated bylaws) and otherwise to direct and control the operations of the Company. Accordingly, the Company cannot engage in any strategic transactions without the approval of Weider Health and Fitness. 20 ITEM 2. PROPERTIES At May 31, 1999, the Company owned or leased the following facilities:
APPROXIMATE EXPIRATION LOCATION FUNCTION SQUARE FEET LEASE/OWN DATE OF LEASE - -------- -------- ----------- --------- ------------- Salt Lake City, UT Company Headquarters, 418,000 Lease March 2013 Manufacturing & Pro- duction, Warehouse & Distribution Salt Lake City, UT Manufacturing & Pro- 152,000 Own N/A duction, Warehouse Walterboro, S.C. Manufacturing & Pro- 55,000 Own N/A duction Las Vegas, NV Manufacturing & Pro- 27,500 Lease November 1999 duction Montreal, Quebec Administrative Offices 24,600 Lease Month to month & Warehouse Madrid, Spain Administrative Offices, 20,000 Lease September 2006 Manufacturing & Pro- duction Hamburg, Germany Administrative Offices 25,400 Lease September 2003 Bleckede, Germany Manufacturing & Produc- 100,000 Own N/A tion, Warehouse Various, Germany(1) Sales & Administrative Various Leases Various Offices
(1) The Company has several small sales and administrative offices primarily located in Germany. ITEM 3. LEGAL PROCEEDINGS THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE STATEMENTS RELATE TO THE COMPANY'S LEGAL PROCEEDINGS DESCRIBED BELOW. THE COMPANY IS INVOLVED IN VARIOUS LEGAL PROCEEDINGS WHICH ARISE IN THE ORDINARY COURSE OF ITS BUSINESS. LITIGATION IS INHERENTLY UNCERTAIN AND MAY RESULT IN ADVERSE RULINGS OR DECISIONS AND THE COMPANY IS UNABLE TO PREDICT THE OUTCOME OF THESE PROCEEDINGS. ADDITIONALLY, THE COMPANY MAY ENTER INTO SETTLEMENTS OR BE SUBJECT TO JUDGMENTS WHICH MAY, INDIVIDUALLY OR IN THE AGGREGATE, HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S RESULTS OF OPERATIONS. ACCORDINGLY, ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. The Company and a former subsidiary, Schiff(R) Products, Inc. ("Schiff(R) Products"), together with other distributors, manufacturers and retailers of L-Tryptophan, are defendants in actions in federal and state courts seeking compensatory and, in some cases, punitive damages for alleged personal injuries resulting from the ingestion of products containing allegedly contaminated L-Tryptophan. The Company acquired Schiff(R) Products pursuant to an asset acquisition transaction in 1989. Schiff(R) Products was a distributor of L-Tryptophan, but neither the Company nor Schiff(R) Products ever distributed products that are the subject of the lawsuits. In each lawsuit, the L-Tryptophan products were shipped by the entity from whom the Company purchased the trademark Schiff(R) and other assets in 1989. The Company and Schiff(R) Products have entered into an indemnification agreement (the "Indemnification Agreement") with Showa Denko America ("SDA"), a U.S. subsidiary of a Japanese Corporation, Showa Denko, K.K. ("SDK"). Under the 21 Indemnification Agreement, SDA agreed to assume the defense of all claims arising out of the ingestion of L-Tryptophan products, pay all legal fees and indemnify the Company and its affiliates against liability in any action if it is determined that a proximate cause of the injury sustained by the plaintiff in the action was a constituent of the raw material sold by SDA to Schiff(R) Products, or was a factor for which SDA or any of its affiliates was responsible, except to the extent that action by the Company or Schiff(R) Products proximately contributed to the injury, and except for certain claims relating to punitive damages. SDK has posted a revolving irrevocable letter of credit for the benefit of the indemnified group if SDA is unable or unwilling to satisfy any claims or judgments. SDK has unconditionally guaranteed the payment obligations of SDA under the Indemnification Agreement. In management's judgment, the outcome of this matter will not have a material adverse effect on the Company's financial position or results of operation. In March 1999, the plaintiff's attorney involved in a previously settled California matter regarding certain of the Company's bar products filed a lawsuit on behalf of Michael Morelli and an alleged class in the Supreme Court of the State of New York (New York County) alleging similar unfair competition and false advertising claims under New York law. In May 1999, the plaintiff's attorney also filed a lawsuit on behalf of Lisa Fasig and an alleged class in the Circuit Court of Lee County, Florida alleging similar claims under Florida law. The Company disputes the allegations and will vigorously oppose the lawsuits. In April 1997, the Company filed a lawsuit in the United States District Court for the District of Utah (Central Division) for a declaratory judgment that Pain Free(TM), a joint care product, did not infringe two U.S. patents held by Nutramax Laboratories, Inc. ("Nutramax") or, in the alternative, declaring such patents invalid. In June 1997, Nutramax filed a counterclaim against the Company alleging that the Company was infringing on one or more of Nutramax's patents. The litigation was transferred to the United States District Court for the District of Maryland, where Nutramax had previously commenced litigation alleging that over twenty other entities had also infringed those patents. Nutramax also filed a lawsuit in Maryland State Court in August 1998 against the Company and one of its employees alleging breaches of certain claimed confidentiality obligations. In August 1999, the Company, Nutramax and the other entities entered into a settlement agreement resolving the litigations. Pursuant to the terms of the settlement agreement, the defendants made a one-time cash payment to Nutramax and the defendants are authorized to sell all of the allegedly infringing products. As previously disclosed, the Company was named as a defendant in a lawsuit in the United States District Court for the Southern District of Florida alleging that the Company's Pain Free(TM) product infringed upon an alleged "Pain-Free HP" trademark used by the plaintiff. In April 1999, the parties entered into a settlement agreement resolving the matter. Pursuant to the terms of the settlement agreement, the plaintiff and another party received a cash payment in exchange for an assignment to the Company of all of their rights relating to Pain Free(TM) and related trademarks. The Company has been in discussions with the FTC regarding the Company's advertising with the Company's PhenCal products. See "Government Regulation" under Item 1. above for further information. 22 The Company is involved in other claims, legal actions and governmental proceedings that arise from the Company business operations. Although ultimate liability cannot be determined at the present time, the Company believes that any liability resulting from these matters, if any, after taking into consideration the Company's insurance coverage, will not have a material adverse effect on the Company's financial position or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to the vote of security holders during the fourth quarter of fiscal 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS In May 1997, the Company completed its initial public equity offering of 6,440,000 shares (includes over-allotment of 840,000 shares) of Class A common stock, $.01 par value per share, which were issued at $11.00 per share (the "IPO"). The Company's Class A common stock is traded on the New York Stock Exchange under the symbol "WNI." The high and low closing prices of the Company's Class A common stock for each quarter of fiscal 1999 and 1998, respectively, are set forth below: FISCAL YEAR ENDED MAY 31, 1999: HIGH LOW ------ ------ First Quarter............................ $17.38 $ 8.81 Second Quarter........................... 10.75 4.25 Third Quarter............................ 7.50 5.25 Fourth Quarter........................... 6.50 4.50 FISCAL YEAR ENDED MAY 31, 1998: First Quarter............................ $19.75 $12.25 Second Quarter........................... 15.25 10.38 Third Quarter............................ 15.13 10.75 Fourth Quarter........................... 16.13 11.00 The high and low closing prices of the Company's common stock subsequent to the IPO through May 31, 1997, were $12.75 and $11.13, respectively. The Company paid a quarterly dividend of $0.0375 per share (annual dividend of $0.15 per share) for fiscal 1999 and 1998, respectively. In addition, the Company paid a quarterly dividend of $0.0375 per share subsequent to year end. The dividend was declared to be payable on June 28, 1999 to holders of all classes of common stock of record at the close of business on June 21, 1999. The Company's Board of Directors will determine dividend policy in the future based upon, among other things, the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant at the time. In addition, the Company's credit agreement with General Electric Capital Corporation contains certain customary financial covenants that may limit the Company's ability to pay dividends on its common stock (See Note 7 to the Consolidated Financial Statements). Accordingly, there can be no assurance that the Company will be able to sustain the payment of dividends in the future. 23 The closing price of the Company's Class A common stock on August 2, 1999 was $4.75. The approximate number of stockholders of record on August 2, 1999 was 355. On July 24, 1998, the Company acquired 100% of the outstanding shares of Haleko, a corporation organized under the laws of Germany (see Note 2 to Consolidated Financial Statements). The initial purchase price was comprised of $25.6 million in cash, 200,000 shares of Class A common stock and up to an $8.4 million contingent earnout agreement tied to future financial performance for the subsequent three-year period. The securities were not registered under the Securities Act of 1933, as amended, in reliance under the exemption set forth under Regulation S. The securities were sold to foreign persons and no offers or sales were made within the United States. 24 ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The following selected consolidated financial data as of, and for the fiscal years ended May 31, 1995 through May 31, 1999 have been derived from the Company's consolidated financial statements, which have been audited by Deloitte & Touche LLP, independent auditors. The financial data should be read in conjunction with the consolidated financial statements and notes thereto, included elsewhere in this Annual Report on Form 10-K. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
(Dollars in thousands) FISCAL YEAR ENDED MAY 31, ------------------------------------------------------------- 1995 1996 1997 1998 1999 --------- --------- --------- --------- --------- INCOME STATEMENT DATA: Net sales ......................... $ 90,927 $ 186,405 $ 218,566 $ 250,542 $ 335,488 Cost of goods sold ................ 55,411 116,177 136,875 161,334 221,062 --------- --------- --------- --------- --------- Gross profit ...................... 35,516 70,228 81,691 89,208 114,426 --------- --------- --------- --------- --------- Operating expenses ................ 24,226 41,068 51,745 60,903 104,834 Plant consolidation & transition .. -- -- -- -- 5,113 Other inventory related charges ... -- -- -- -- 4,115 Severance & recruiting charges .... -- -- -- -- 3,062 Impairment of intangible assets ... -- -- 2,095 -- 535 Management and employee compensa- tion charges ..................... -- -- 14,495 401 804 --------- --------- --------- --------- --------- Total operating expenses .......... 24,226 41,068 68,335 61,304 118,463 --------- --------- --------- --------- --------- Income (loss) from operations ..... 11,290 29,160 13,356 27,904 (4,037) Other income (expense): Interest, net .................... (1,079) (3,736) (5,791) (4,219) (9,550) Other ............................ 147 (253) (557) (671) (430) --------- --------- --------- --------- --------- Total ........................ (932) (3,989) (6,348) (4,890) (9,980) --------- --------- --------- --------- --------- Income (loss) before income taxes . 10,358 25,171 7,008 23,014 (14,017) Provision for income taxes (benefit) 4,266 10,207 2,708 9,010 (5,239) --------- --------- --------- --------- --------- Net income (loss) ................. $ 6,092 $ 14,964 $ 4,300 $ 14,004 $ (8,778) ========= ========= ========= ========= ========= Weighted average shares outstanding, in thousands (1): Basic ............................. 17,245 17,866 24,702 24,930 ========= ========= ========= ========= Diluted ........................... 17,245 17,866 25,001 24,930 ========= ========= ========= ========= Net income (loss) per share (1): Basic ............................. $ 0.87 $ 0.24 $ 0.57 $ (0.35) ========= ========= ========= ========= Diluted ........................... $ 0.87 $ 0.24 $ 0.56 $ (0.35) ========= ========= ========= ========= AT MAY 31, ------------------------------------------------------------- (In Thousands) 1995 1996 1997 1998 1999 --------- --------- --------- --------- --------- BALANCE SHEET DATA: Cash and cash equivalents ....... $ 2,272 $ 1,592 $ 1,259 $ 684 $ 1,926 Working capital (2) ............. 25,044 42,605 62,016 85,688 79,001 Total assets .................... 70,048 133,147 168,756 209,740 256,029 Total debt ...................... 28,616 68,054 45,094 70,346 115,439 Total stockholders' equity ...... 28,100 39,332 92,424 103,136 91,780
(1) During fiscal 1998, the Company adopted SFAS No. 128, "Earnings Per Share." Earnings per share amounts for fiscal 1996 and 1997 have been restated to conform to the requirements of SFAS No. 128. (2) Working capital at May 31, 1999 excludes $98,654 due GECC in February 2000 under the Company's credit facility (See Note 1 to the Consolidated Financial Statements). Including such amount, working capital (deficit) amounts to $(19,653) at May 31, 1999. 25 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K. EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN THIS ANNUAL REPORT CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT ARE BASED ON MANAGEMENT'S BELIEFS AND ASSUMPTIONS, CURRENT EXPECTATIONS, ESTIMATES, AND PROJECTIONS. STATEMENTS THAT ARE NOT HISTORICAL FACTS, INCLUDING WITHOUT LIMITATION STATEMENTS WHICH ARE PRECEDED BY, FOLLOWED BY OR INCLUDE THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS," "MAY," "SHOULD" OR SIMILAR EXPRESSIONS ARE FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANY'S CONTROL, AND, THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY. THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. IMPORTANT FACTORS THAT MAY AFFECT FUTURE RESULTS INCLUDE, BUT ARE NOT LIMITED TO: COMPLETION OF THE SKU REDUCTION PROGRAM AS ANTICIPATED BY THE COMPANY, THE COMPANY'S ABILITY TO IMPLEMENT MORE SOPHISTICATED OPERATING SYSTEMS AND INVENTORY MANAGEMENT PROGRAMS, THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING, DEPENDENCE ON INDIVIDUAL PRODUCTS, THE REALIZABLE VALUE OF DISCONTINUED SKUS, MARKET CONDITIONS INCLUDING PRICING, DEMAND FOR PRODUCTS AND THE LEVEL OF TRADE INVENTORIES, THE SUCCESS OF PRODUCT DEVELOPMENT AND NEW PRODUCT INTRODUCTIONS INTO THE MARKETPLACE, CHANGES IN LAWS AND REGULATIONS, THE COMPANY'S ABILITY TO IDENTIFY, RECRUIT AND INTEGRATE KEY MANAGEMENT PERSONNEL, INCLUDING THE COST AND TIMING THEREOF, LITIGATION AND GOVERNMENT REGULATORY ACTION, AVAILABILITY OF FUTURE FINANCING, UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS, RESULTS OF MANAGEMENT'S EVALUATION OF ITS BUSINESS OPERATIONS AND STRATEGIES, AND OTHER FACTORS DISCUSSED UNDER "FACTORS AFFECTING FUTURE PERFORMANCE" IN ITEM 1 OF THIS ANNUAL REPORT. OVERVIEW The Company develops, manufactures, markets, distributes and sells branded and private label vitamins, nutritional supplements and sports nutrition products in the United States and throughout the world. Net income (loss) for the years ended May 31, 1999, 1998 and 1997 amounted to $(8.8) million, $14.0 million and $4.3 million, respectively. The Company's fiscal 1999 results were affected by several strategic initiatives that were initially and/or primarily implemented during the year. These initiatives included, among others, the closing of the Company's capsule and tablet manufacturing facility in California, the refinement of the Company's growth and business strategies designed to focus on its primary brands and customers, the decision to reduce active domestic SKUs by over two-thirds, organizational changes and upgrading management systems (including senior management changes), the elimination of contract manufacturing where the company does not now have, or does not believe in the future will have, other business relationships with such contract manufacturing customers, the expansion of the company's international operations primarily from the acquisition of Haleko, the introduction of an enhanced marketing plan resulting in significant increases in selling, marketing and advertising costs, and certain other initiatives. 26 The implementation of these initiatives and the refinement of the Company's growth and business strategies is an ongoing process. While the focus of this process is to improve future profitability, no assurance can be given that decisions made by the Company relating to these initiatives will not adversely effect the Company's financial condition and results of operations. The Company experienced growth in sales over the past three fiscal years. Net sales were $335.5 million, $250.5 million and $218.6 million for fiscal 1999, 1998 and 1997, respectively. The Company's growth has been a result of increased demand for the Company's products, including the introduction of new products, the Company's increased penetration of the growing mass volume retail distribution channel and the Company's acquisition strategy. In July 1998, the Company acquired 100% of the outstanding shares of Haleko Hanseatisches Lebensmittle Kontor GmbH, corporation organized under the laws of Germany ("Haleko"). Haleko is the largest sports nutrition company in Europe. The Company's acquisition of Haleko resulted in incremental net sales of approximately $73.4 million (ten months) in fiscal 1999. Haleko had sales of approximately $69 million for the twelve months ending May 31, 1998. Net sales increased 33.9% in fiscal 1999 compared to an increase of 14.6% in fiscal 1998. The Company's higher growth rate in fiscal 1999, in comparison to fiscal 1998, resulted primarily from the impact of the Haleko acquisition and the continued growth in the mass market distribution channel. Overall sales growth was offset by certain of the strategic initiatives described above, including, among other decisions, the elimination of approximately two-thirds of the Company's domestic SKUs during the course of the fiscal year, and the significant reduction of certain contract manufacturing projects. The following table shows selected items as reported and as a percentage of net sales for the years indicated:
1999 1998 1997 ------------------ ----------------- ----------------- (dollars in thousands) Net sales ................ $ 335,488 100.0% $ 250,542 100.0% $ 218,566 100.0% Cost of goods sold ................... 221,062 65.9 161,334 64.4 136,875 62.6 --------- ----- --------- ----- --------- ----- Gross profit ............. 114,426 34.1 89,208 35.6 81,691 37.4 --------- ----- --------- ----- --------- ----- Operating expenses ............... 104,834 31.3 60,903 24.3 51,745 23.7 Plant consolidation & transition ............. 5,113 1.5 -- -- -- -- Other inventory related charges ................ 4,115 1.2 -- -- -- -- Severance & recruiting charges ................ 3,062 .9 -- -- -- -- Management & employee compensation charges ................ 804 .2 401 .2 14,495 6.6 Impairment of intangible assets ................. 535 .2 -- -- 2,095 1.0 --------- ----- --------- ----- --------- ----- Total operating expenses ............... 118,463 35.3 61,304 24.5 68,335 31.3 --------- ----- --------- ----- --------- ----- Income (loss) from operations ............. (4,037) (1.2) 27,904 11.1 13,356 6.1 Other expense, net ....... 9,980 3.0 4,890 2.0 6,348 2.9 Provision for income taxes (benefit) . (5,239) (1.6) 9,010 3.5 2,708 1.2 --------- ----- --------- ----- --------- ----- Net income (loss) ........ $ (8,778) (2.6)% $ 14,004 5.6% $ 4,300 2.0% ========= ===== ========= ===== ========= =====
27 RESULTS OF OPERATIONS (FISCAL 1999 COMPARED TO FISCAL 1998) NET SALES. Net sales for the year ended May 31, 1999 increased $85.0 million, or 33.9%, to $335.5 million from $250.5 million for the year ended May 31, 1998. The following table shows comparative net sales results categorized by distribution channel as reported and as a percentage of net sales for the years indicated (dollars in thousands): 1999 1998 --------------- --------------- Mass volume retailers ............... $152,046 45.4% $110,388 44.4% Health food retailers & distributors. 56,178 16.7 61,742 24.6 Health club and gym distributors .... 24,960 7.4 25,853 10.3 International markets ............... 89,189 26.6 17,295 6.6 Contract manufacturing .............. 8,474 2.5 30,341 12.1 Other ............................... 4,641 1.4 4,923 2.0 -------- ----- -------- ----- Total ......................... $335,488 100.0% $250,542 100.0% ======== ===== ======== ===== Sales to mass volume retailers (including food, drug, mass, club, and convenience stores) and international markets increased during 1999 compared to 1998. Sales to mass volume retailers increased approximately 37.7% to $152.0 million in 1999 from $110.4 million 1998. The increase in sales to mass volume retailers resulted primarily from increased penetration of the market and the sale of new products offset by the effects of the Company's fiscal 1999 strategic initiatives. Sales of Pain Free(TM) amounted to approximately $71 million for the year ended May 31, 1999 compared to $17.9 million for the year ended May 31, 1998. Sales to international markets increased $71.9 million to $89.2 million for the year ended May 31, 1999 from $17.3 million for the year ended May 31, 1998. The increase in sales to international markets resulted primarily from the Company's acquisition of Haleko offset by a relatively small decrease in other international sales volume (resulting primarily from a change in year end for international operations). Haleko's sales for fiscal 1999 (ten months) amounted to approximately $73.4 million. Overall sales to health food retailers and distributors decreased approximately 9.0% to $56.2 million for fiscal 1999 compared to $61.7 million for fiscal 1998. The decrease in sales resulted primarily from the Company's increased focus on the mass market distribution channel together with certain individual retailers in the health food distribution channel. Sales to GNC, the Company's most significant health food retailer, remained relatively constant in fiscal 1999 compared to fiscal 1998, whereas sales to health food distributors decreased in fiscal 1999 compared to fiscal 1998. Contract manufacturing (private label) sales volume decreased approximately 72.1% to $8.5 million for the year ended May 31, 1999 from $30.3 million for the year ended May 31, 1998. This reduction is primarily the result of the Company's decision to limit contract manufacturing business to only those customers who have, or may in the future have, other business relationships with the Company. Private label business for customers with whom other business relationships exist are included in the net sales amounts for the distribution channel applicable to the customer. Sales to health club and gym distributors decreased approximately 3.5% to $25.0 million for fiscal 1999 compared to $25.9 million for fiscal 1998. The decrease resulted primarily from reduced volumes with certain distributors. The Company's three largest customers accounted for approximately 43% of the Company's aggregate net sales for the year ended May 31, 1999 and 41% for the year ended May 31, 1998. 28 GROSS PROFIT. Gross profit increased approximately 28.3% to $114.4 million in the year ended May 31, 1999 from $89.2 million in the year ended May 31, 1998. Gross profit, as a percentage of net sales, was 34.1% for the year ended May 31, 1999 compared to 35.6% for the year ended May 31, 1998. The decrease in the gross profit percentage resulted primarily from inventory charges recognized due to the Company's SKU reduction program together with associated credits for returned goods. OPERATING EXPENSES. Operating expenses increased approximately 93.2% to $118.5 million in the year ended May 31, 1999 from $61.3 million in the year ended May 31, 1998. As discussed previously, the Company initiated several strategic decisions during fiscal 1999, including, among others, the closing of its California-based capsule and tablet manufacturing facility, the implementation of a domestic SKU reduction program, organizational changes and upgrading management systems, the introduction of a significantly enhanced selling, marketing and advertising plan, and the expansion of the Company's international operations. These initiatives, together with the acquisition of Haleko, general sales growth and increased legal costs, resulted in a significant increase in total operating expenses. Selling and marketing expenses increased approximately 78.6% to $70.1 million in the year ended May 31, 1999 from $39.2 million in the year ended May 31, 1998. Selling and marketing expenses as a percentage of net sales were 20.9% for the year ended May 31, 1999 compared to 15.7% for the year ended May 31, 1998. The increase in selling and marketing expense resulted primarily from the Company's acquisition of Haleko and incremental advertising and promotional costs in support of the Company's brand building strategies. Total selling, marketing and advertising costs amounted to $49.8 million in fiscal 1999 compared to $24.2 million in fiscal 1998. Incremental selling and marketing costs resulting from the Haleko acquisition amounted to $18.1 million in fiscal 1999. General and administrative expenses, as a percentage of net sales, were 8.0% for the year ended May 31, 1999 compared to 6.2% for the year ended May 31, 1998. The increase resulted primarily from increased legal costs, "Year 2000" implementation and compliance costs, as well as other costs associated with information system capabilities and the incremental costs associated with the acquisition of Haleko. OTHER EXPENSE. Other expense, net, amounted to $10.0 million for the year ended May 31, 1999 compared to $4.9 million for the year ended May 31, 1998. The net increase of approximately $5.1 million consists primarily of increased interest costs associated with additional indebtedness incurred in connection with the acquisition of Haleko as well as a higher overall effective borrowing rate for fiscal 1999 in comparison to fiscal 1998. PROVISION FOR INCOME TAXES. The Company recognized an income tax benefit for the fiscal year ended May 31, 1999 as a result of its pretax loss. The Company's overall effective tax rate is higher in fiscal 1999, in comparison to 1998, primarily as a result of a higher effective tax rate associated with Haleko's operating results. Income taxes (benefit)as a percentage of pre-tax income, amounted to approximately 37.4% for the year ended May 31, 1999 compared to 39.2% for the year enced May 31, 1998. RESULTS OF OPERATIONS (FISCAL 1998 COMPARED TO FISCAL 1997) NET SALES. Net sales increased approximately 14.6% to $250.5 million in fiscal 1998 from $218.6 million in fiscal 1997. The increase in net sales in fiscal 1998 resulted primarily from increased sales to mass volume and health food store retailers and distributors resulting from introduction of new products, together with smaller sales volume increases in other distribution channels. 29 The following table shows comparative net sales results categorized by distribution channel as reported and as a percentage of net sales for the fiscal years indicated (dollars in thousands): 1998 1997 ---------------- ---------------- Mass volume retailers ............ $110,388 44.4% $ 83,420 38.1% Health food retailers & distributors ................... 61,742 24.6 48,194 22.1 Health club and gym distributors ..................... 25,853 10.3 23,721 10.9 International markets ............ 17,295 6.6 18,790 8.6 Contract manufacturing ........... 30,341 12.1 38,430 17.6 Other ............................ 4,923 2.0 6,011 2.7 -------- ----- -------- ----- Total ............................ $250,542 100.0% $218,566 100.0% ======== ===== ======== ===== Sales to mass volume retailers increased approximately 32.3% to $110.4 million in fiscal 1998 from $83.4 million in fiscal 1997. The increase in sales to mass volume retailers in fiscal 1998 resulted primarily from expanding distribution to existing accounts through the introduction of new branded products such as Pain Free(TM) and PhenCal(R). Sales to health food retailers and distributors increased approximately 28.1% to $61.7 million in fiscal 1998 from $48.2 million in fiscal 1997. The increase in sales to health food retailers was primarily the result of the introduction of new products under the Metaform(R) line. Contract manufacturing sales volume decreased 21.0% to $30.3 million in fiscal 1998 from $38.4 million in fiscal 1997. The decrease in sales resulted primarily from reduced contract manufacturing projects for certain customers. Sales to international markets decreased approximately 8.0% to $17.3 million in fiscal 1998 from $18.8 million in fiscal 1997. The decrease in sales to international markets resulted primarily from lower sales volume in Canada and the United Kingdom. Sales to other customers decreased approximately 18.1% to $4.9 million in fiscal 1998 from $6.0 million in fiscal 1997. The decrease in sales to other customers was primarily attributable to reduced volume with the military. The Company's three largest customers accounted for approximately 41% of net sales for the year ended May 31, 1998 and 28% for the year ended May 31, 1997. GROSS PROFIT. Gross profit increased approximately 9.2% to $89.2 million in fiscal 1998 from $81.7 million in fiscal 1997. The increase in gross profit in fiscal 1998 resulted primarily from the increase in sales in fiscal 1998 from fiscal 1997. Gross margin decreased to 35.6% for fiscal 1998 from 37.4% for fiscal 1997, primarily as a result of changes in the sales mix and unexpected delays and start-up costs associated with the opening of the Company's new manufacturing and distribution facility, which also resulted in higher than expected levels of outsourced manufacturing. OPERATING EXPENSES. Operating expenses, including selling and marketing, general and administrative and amortization expenses, increased approximately 17.7% to $60.9 million in the year ended May 31, 1998 from $51.7 million in the year ended May 31, 1997, excluding certain unusual charges in fiscal 1997. In connection with the Company's initial public offering in May 1997, the Company recognized a compensation charge totaling approximately $14.5 million ($.4 million in 1998). In addition, the Company recognized an asset impairment charge of $2.1 million in fiscal 1997 in connection with the adoption of SFAS No. 121. Including these charges, operating expenses amounted to $68.3 million in fiscal 1997. 30 Selling and marketing expenses, including sales, marketing, advertising and freight costs, increased approximately 19.7% to $39.2 million in fiscal 1998 from $32.8 million in fiscal 1997. The increase in selling and marketing expenses in fiscal 1998 resulted primarily from increased advertising costs and personnel required to handle higher volumes of products associated with increased sales. Selling and marketing expenses as a percentage of net sales were 15.7% in fiscal 1998 compared to 15.0% in fiscal 1997. General and administrative expenses increased approximately 6.3% to $15.5 million in fiscal 1998 from $14.6 million in fiscal 1997. The increase in general and administrative expenses in fiscal 1998 resulted primarily from additional personnel and overhead costs associated with increased sales volume, and increased legal costs, offset in part by reduced provisions for employee bonuses. General and administrative expenses as a percentage of net sales were 6.2% in fiscal 1998 compared to 6.7% in fiscal 1997. The expense for amortization of intangible assets increased approximately 4.4% to $2.2 million for fiscal 1998 from $2.1 million for fiscal 1997. The increase in amortization of intangible assets resulted primarily from the acquisition of Science Foods during fiscal 1997. Amortization of intangible assets expense as a percentage of net sales remained relatively constant. OTHER EXPENSE. Other expense decreased approximately 23.0% to $4.9 million in fiscal 1998 from $6.3 million in fiscal 1997. The decrease in other expense resulted primarily from a decrease in interest expense of 19.4% to $4.8 million in fiscal 1998 from $6.0 million in fiscal 1997. Interest expense decreased in fiscal 1998 primarily as a result of a reduction in the Company's overall effective interest rate. In addition, other expense, net, decreased as a result of an increase in interest income in fiscal 1998 resulting from the increase in interest bearing notes due from officers. PROVISION FOR INCOME TAXES. Provision for income taxes increased approximately 232.7% to $9.0 million in fiscal 1998 from $2.7 million in fiscal 1997. The dollar increase in provision for income taxes resulted primarily from increased taxable income in fiscal 1998 compared to fiscal 1997. As noted above, pre-tax earnings in fiscal 1997 were impacted by the one-time compensation charge of $14.5 million and the adoption of SFAS No. 121 ($2.1 million). Provision for income taxes as a percentage of pre-tax earnings was 39.2% in fiscal 1998 compared to 38.6% in fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES Concurrent with the Company's IPO in May 1997, the Company entered into an amended credit agreement (the "Credit Agreement") with GECC. The Credit Agreement is a $115.0 million (as amended) senior secured, credit facility that contains customary terms and conditions, including, subject to permitted amounts, a limitation on the ability of the Company to pay dividends on its common stock and minimum net worth requirements. The obligations of the Company under the Credit Agreement are secured by a first priority lien on all owned or acquired tangible and intangible assets of the Company and a pledge to GECC of the capital stock of the U.S. subsidiaries of the Company (including the subsidiary that owns the Company's foreign subsidiaries). Borrowings available under the Credit Agreement are used for general working capital, to support capital expenditures and, if necessary, to effect acquisitions. Borrowings under the Credit Agreement bear interest at floating rates and mature in February 2000. Accordingly, amounts outstanding under the Credit Agreement at May 31, 1999, are included in the current portion of long-term debt. At May 31, 1999, the Company had $16.3 million of available credit under the Credit Agreement. 31 The Company is presently evaluating its financing requirements and has commenced discussions with its current lender and other banking institutions regarding a new credit facility and/or other financing alternatives. Management believes that a new credit facility will be finalized by the end of the Company's fiscal quarter ending November 30, 1999. Management expects that the credit facility will be refinanced on a long-term basis. The Company's wholly-owned subsidiary, Haleko, consummated a new credit facility in July 1999. The credit facility essentially eliminated several smaller lines of credit, and coupled with one other existing line of credit, provides Haleko with approximately $16.2 million of aggregate borrowing availability. The credit facilities renew annually. At May 31, 1999, Haleko's aggregate borrowings amounted to approximately $7.6 million. Excluding amounts outstanding under the Credit Agreement with GECC ($98.7 million), the Company had working capital of approximately $79.0 million at May 31, 1999 compared to $85.7 million at May 31, 1998. This decrease resulted primarily from the assumption of short term debt obligations in connection with the acquisition of Haleko. Inventories increased primarily as a result of the acquisition of Haleko (approximately $8.9 million), partially offset by results of the Company's SKU reduction program and other Company strategic initiatives. Other current assets and other current liabilities increased primarily due to the acquisition of Haleko. During fiscal 1999, the Company's aggregate current and long-term debt increased approximately $45.1 million to $115.4 million at May 31, 1999 primarily as a result of increased borrowings for the acquisition of Haleko and the assumption of approximately $14.8 million in Haleko indebtedness. The Company expects to fund its long-term capital requirements for the next twelve months through the use of operating cash flow supplemented as necessary by borrowings under the Credit Agreement or alternative financing (see Note 1 to the Consolidated Financial Statements). The Company also from time to time may evaluate strategic acquisitions as the nutritional supplements industry continues to consolidate. The funding of future acquisitions, if any, may also require borrowings under the Credit Agreement and/or other debt financing or the issuance of additional equity. The Company paid a quarterly dividend of $0.0375 per share (annual dividend of $0.15 per share) for fiscal 1999. In addition, the Company paid a quarterly dividend of $0.0375 per share subsequent to year end. The dividend was declared to be payable on June 28, 1999 to holders of all classes of common stock of record at the close of business on June 21, 1999. The Company's Board of Directors will determine dividend policy in the future based upon, among other things, the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant at the time. In addition, the Credit Agreement contains certain customary financial covenants that may limit the Company's ability to pay dividends on its common stock. Accordingly, there can be no assurance that the Company will be able to sustain the payment of dividends in the future. IMPACT OF INFLATION The Company has historically been able to pass inflationary increases for raw materials and other costs onto its customers through price increases and anticipates that it will be able to continue to do so in the future. 32 SEASONALITY The Company's business is seasonal, with lower sales typically realized during the first and second fiscal quarters and higher sales typically realized during the third and fourth fiscal quarters. The Company believes such fluctuations in sales are the result of greater marketing and promotional activities toward the end of each fiscal year, customer buying patterns, and consumer spending patterns related primarily to the consumers' interest in achieving personal health and fitness goals after the beginning of each new calendar year and before the summer fashion season. Furthermore, as a result of changes in product sales mix and other factors, as discussed above, the Company experiences fluctuations in gross profit and operating margins on a quarter-to-quarter basis. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which supersedes SFAS No. 80, "Accounting for Futures Contracts," SFAS No. 105, "Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit Risk," and SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments," and also amends certain aspects of other SFAS's previously issued. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133, as amended by SFAS No. 137, is effective for the Company's financial statements for the year ending May 31, 2001. The Company does not expect the impact of SFAS No. 133 to be material in relation to its financial statements. YEAR 2000 In fiscal 1998 the Company initiated a year 2000 compliance project (the "Year 2000 Project"). The Company identified the Year 2000 Project as a priority and has allocated resources to it in an effort to minimize the impact of year 2000 date related problems. The Company assigned a senior level manager to oversee the Year 2000 Project and retained the services of an outside year 2000 consulting firm. The scope of the Year 2000 Project encompasses the Company's traditional mainframe based application software, its midrange and personal computing platforms, and its embedded microporocessor systems. Furthermore, the Company is conducting a year 2000 compliance assessment of those of its suppliers, distributors and customers, whose relationship, in the Company's business judgment, is material. The Company's assessment of its year 2000 issues is substantially complete and the Company made a determination of its critical and non-critical items. The Company's critical items include its JD Edwards accounting and manufacturing support software and its IBM AS/400 operating system. Each of these items has been certified by the vendor as year 2000 compliant. The Company has conducted tests to support these claims. Approximately $600,000 has been spent on the substantially completed Year 2000 Project as of May 31, 1999. The Company is also in the process of evaluating year 2000 compliance by its major business partners, and is in the process of evaluating and formulating its contingency plans. Included in these contingency plans are backup power supply systems for computers, facilities and manufacturing. The Company continues to formulate these contingency plans for critical issues involving business partners, information processing and its manufacturing process. Although the Company is undertaking the Year 2000 Project, no assurance can be given that such a program will be able to solve the year 2000 issues applicable to the Company or that the failure to solve such issues will not have a material adverse effect on the Company. 33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data for the Company are on the following pages F-1 through F-24. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 34 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See "Item 1 - Executive Officers" for certain information relating to the Company's executive officers. See also the Company's Proxy Statement, incorporated by reference in Part III of this Form 10-K, under the heading "Directors and Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION See the Company's Proxy Statement, incorporated by references in Part III of this Form 10-K, under the headings "Executive Compensation" and "Certain Relationships and Related Party Transactions." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the Company's Proxy Statement, incorporated by reference in Part III of this Form 10-K, under the heading "Security Ownership of Certain Beneficial Owners and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS See the Company's Proxy Statement, incorporated by reference in Part III of this Form 10-K, under the heading "Certain Relationships and Related Party Transactions." 35 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report (1) Financial Statements See "Item 8. Financial Statements and Supplementary Data" for Financial Statements included with this Annual Report on Form 10-K. (2) Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts All other schedules have been omitted because they are not required, not applicable, or the information is otherwise set forth in the financial statements or notes thereto. (3) Exhibits 2.1 Stock Purchase Agreement, dated July 9, 1998, by and among Weider Nutrition Group, Inc. and Wolfgang Brandt and Eberhardt Schluter. (2) 2.2 Amendment Deed to Stock Purchase Agreement, dated July 24, 1998. (2) 2.3 Share Transfer Deed, dated July 24, 1998 1998. (2) 3.1 Amended and Restated Certificate of Incorporation of Weider Nutrition International, Inc. (1) 3.2 Amended and Restated Bylaws of Weider Nutrition International, Inc. (1) 4.1 Amended and Restated Credit Agreement dated as of May 6, 1997 among Weider Nutrition International, Inc., certain subsidiaries, certain lenders and General Electric Capital Corporation. (3) 4.2 First Amendment to Amended and Restated Credit Agreement dated as of August 27, 1997 among Weider Nutrition International, Inc.and certain of its affiliates and General Electric Capital Corporation and certain other lenders. (3) 4.3 Second Amendment to Amended and Restated Credit Agreement dated as of February 1998 among Weider Nutrition Internaitonal, Inc. and certain of its affiliates and General Electric Capital Corporation and certain other lenders.(3) 4.4 Third Amendment to Amended and Restated Credit Agreement dated as of July 28, 1998 among Weider Nutrition International, Inc. and certain of its affiliates and General Electric Capital Corporation and certain other lenders. (4) 4.5 Fourth Amendment to Amended and Restated Credit Agreement dated as of December 2, 1998 among Weider Nutrition International, Inc. and certain of its affiliates and General Electric Capital Corporation and certain other lenders. (4) 4.6 Fifth Amendment to Amended and Restated Credit Agreement dated as of December 15, 1998 among Weider Nutrition International, Inc. and certain of its affiliates and General Electric Capital Corporation and certain other lenders. (4) 4.7 Sixth Amendment to Amended and Restated Credit Agreement dated as of March 4, 1999 among Weider Nutrition International, Inc. and certain of its affiliates and General Electric Capital Corporation and certain other lenders. (5) 4.8 Seventh Amendment to Amended and Restated Credit Agreement date as of June 24, 1999 among Weider Nutrition International, Inc. and certain of its affiliates and General Electric Capital Corporation and certain other lenders.(6) 10.1 Build-To-Suit Lease Agreement, dated March 20, 1996, between SCI Development Services Incorporated and Weider Nutrition Group, Inc. (1) 10.2 Agreement by and between Joseph Weider and Weider Health and Fitness (1) 10.3 1997 Equity Participation Plan of Weider Nutrition International, Inc. (1) 10.4 Form of Tax Sharing Agreement by and among Weider Nutrition International, Inc. and its subsidiaries and Weider Health and Fitness and its subsidiaries (1) 10.5 Form of Employment Agreement between Weider Nutrition International, Inc. and Richard B. Bizzaro (1) 10.6 Form of Employment Agreement between Weider Nutrition International, Inc. and Robert K. Reynolds (1) 10.7 Form of Senior Executive Employment Agreement between Weider Nutrition International, Inc. and certain senior executives of the Company (1) 10.8 Advertising Agreement between Weider Nutrition International, Inc. and Weider Publications, Inc.(1) 36 10.9 Amended and Restated Shareholders Agreement between Weider Health and Fitness and Hornchurch Investments Limited (1) 10.10 Amended and Restated Shareholders Agreement between Weider Health and Fitness, Bayonne Settlement and Ronald Corey(1) 10.11 Indemnification Agreement between Weider Nutrition Group, Inc. And Showa Denko America (1) 10.12 License Agreement between Mariz Gestao E Investmentos Limitada and Weider Nutrition Group Limited (1) 10.13 Form of Employment Agreement between Weider Nutrition International, Inc. and Bruce J. Wood. (6) 21 Subsidiaries of Weider Nutrition International, Inc.(6) 23.1 Independent Auditors' Consent (6) 27.1 FINANCIAL DATA SCHEDULE SUMMARY (6) - ---- ------------------------------------- (1) Filed as an Exhibit to the Company's Registration Statement on Form S-1 (File No.333-12929)and incorporated herein by reference. (2) Previously filed in the Company's Current Report on Form 8-K dated as of July 24, 1998 and incorporated herein by reference. (3) Previously filed in the Company's Current Report on Form 10-Q dated as of October 14, 1998 and incorporated herein by reference. (4) Previously filed in the Company's Current Report on Form 10-Q dated as of January 14, 1999 and incorporated herein by reference. (5) Previously filed in the Company's Current Report on Form 10-Q dated as of April 6, 1999 and incorporated herein by reference. (6) FILED HEREWITH. - ---- ------------------------------------- (b) Reports on Form 8-K No report on Form 8-K was filed during the fourth quarter of fiscal 1999. (c) Item 601 Exhibits The exhibits required by Item 601 of Regulation S-K are set forth in (a) (3) above. (d) Financial Statement Schedules The financial statement schedules required by Regulation S-K are set forth in (a) (2) above. 37 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Weider Nutrition International, Inc. Dated: August 30, 1999 By: /S/ BRUCE J. WOOD Bruce J. Wood Chief Executive Officer and President Pursuant to the requirements of the Securities Act, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. NAME TITLE DATE /S/ ERIC WEIDER Chairman of the Board August 30, 1999 and Director /S/ BRUCE J. WOOD Chief Executive Officer, August 30, 1999 President and Director (Principal Executive Officer) /S/ JOSEPH W. BATY Senior Vice President, August 30, 1999 Finance (Principal Financial Accounting Officer) /S/ RONALD L. COREY Director August 30, 1999 /S/ ROGER H. KIMMEL Director August 30, 1999 /S/ GEORGE F. LENGVARI Director August 30, 1999 /S/ DONALD G. DRAPKIN Director August 30, 1999 /S/ GLENN W. SCHAEFFER Director August 30, 1999 /S/ DAVID J. GUSTIN Director August 30, 1999 38 WEIDER NUTRITION INTERNATIONAL, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report................................................ F-2 Consolidated Balance Sheets at May 31, 1999 and 1998........................ F-3 Consolidated Statements of Operations, Years Ended May 31, 1999, 1998 and 1997................................................. F-4 Consolidated Statements of Stockholders' Equity, Years Ended May 31, 1999, 1998 and 1997..................................... F-5 Consolidated Statements of Cash Flows, Years Ended May 31, 1999, 1998 and 1997........................................... F-6 Notes to Consolidated Financial Statements.................................. F-8 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors Weider Nutrition International, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Weider Nutrition International, Inc. and subsidiaries (collectively, the "Company") as of May 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended May 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Weider Nutrition International, Inc. and subsidiaries at May 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Salt Lake City, Utah August 13, 1999 F-2 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MAY 31, 1999 AND 1998 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS 1999 1998 --------- --------- Current assets: Cash and cash equivalents ............................... $ 1,926 $ 684 Receivables (Note 3) .................................... 60,524 55,204 Inventories (Note 4) .................................... 63,658 60,523 Prepaid expenses and other .............................. 4,712 3,193 Deferred taxes (Note 8) ................................. 7,387 3,896 --------- --------- Total current assets ................................ 138,207 123,500 --------- --------- Property and equipment, net (Note 5) ...................... 48,872 41,962 --------- --------- Other assets: Intangible assets, net (Note 6) ......................... 51,980 24,392 Deposits and other assets ............................... 12,806 14,668 Notes receivable related to stock performance units (Note 9) ...................... 4,164 3,987 Deferred taxes (Note 8) ................................. -- 1,231 --------- --------- Total other assets .................................. 68,950 44,278 --------- --------- Total assets .................................. $ 256,029 $ 209,740 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ........................................ $ 25,492 $ 26,359 Accrued expenses ........................................ 18,406 6,432 Earnout amounts payable (Note 2) ........................ 3,246 -- Current portion of long-term debt (Note 7) .............. 110,716 1,554 Income taxes payable .................................... -- 3,467 --------- --------- Total current liabilities ........................... 157,860 37,812 --------- --------- Long-term debt (Note 7) ................................... 4,723 68,792 --------- --------- Deferred taxes (Note 8) ................................... 1,666 -- --------- --------- Commitments and contingencies (Notes 2, 9, 10 and 11) Stockholders' equity: Preferred stock, par value $.01 per share; shares authorized-10,000,000; no shares issued and outstanding -- -- Class A common stock, par value $.01 per share; shares authorized-50,000,000; shares issued and outstanding-9,334,036 (1999) and 9,048,349 (1998) ..... 93 91 Class B common stock, par value $.01 per share; shares authorized-25,000,000; shares issued and outstanding-15,687,432 (1999 and 1998) ................ 157 157 Additional paid-in capital .............................. 82,985 79,671 Other accumulated comprehensive loss .................... (2,331) (165) Retained earnings ....................................... 10,876 23,382 Total stockholders' equity .......................... 91,780 103,136 --------- --------- Total liabilities and stockholders' equity .... $ 256,029 $ 209,740 ========= =========
See notes to consolidated financial statements. F-3 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MAY 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1999 1998 1997 ------------ ------------ ------------ Net sales .......................... $ 335,488 $ 250,542 $ 218,566 Cost of goods sold ................. 221,062 161,334 136,875 ------------ ------------ ------------ Gross profit ....................... 114,426 89,208 81,691 ------------ ------------ ------------ Operating expenses: Selling and marketing ............ 70,072 39,230 32,776 General and administrative ....... 26,895 15,515 14,594 Research and development ......... 4,629 3,983 2,291 Amortization of intangible assets 3,238 2,175 2,084 Plant consolidation and transition 5,113 -- -- Other inventory related charges .. 4,115 -- -- Severance and recruiting charges . 3,062 -- -- Asset impairment costs ........... 535 -- 2,095 Management and employee compensation charges ........... 804 401 14,495 ------------ ------------ ------------ Total operating expenses 118,463 61,304 68,335 ------------ ------------ ------------ Income (loss) from operations ...... (4,037) 27,904 13,356 ------------ ------------ ------------ Other income (expense): Interest income .................. 629 599 187 Interest expense ................. (10,179) (4,818) (5,978) Other ............................ (430) (671) (557) ------------ ------------ ------------ Total other expense, net (9,980) (4,890) (6,348) ------------ ------------ ------------ Income (loss) before income taxes .. (14,017) 23,014 7,008 Provision for income taxes (benefit) (5,239) 9,010 2,708 ------------ ------------ ------------ Net income (loss) .................. $ (8,778) $ 14,004 $ 4,300 ============ ============ ============ Weighted average shares outstanding: Basic ............................ 24,930,272 24,702,283 17,866,157 Diluted .......................... 24,930,272 25,000,616 17,866,157 Net income (loss) per share: Basic ............................ $ (0.35) $ 0.57 $ 0.24 ============ ============ ============ Diluted .......................... $ (0.35) $ 0.56 $ 0.24 ============ ============ ============
See notes to consolidated financial statements. F-4 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED MAY 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS)
OTHER CLASS A CLASS B ADDITIONAL ACCUMULATED COMMON COMMON PAID-IN COMPREHENSIVE RETAINED STOCK STOCK CAPITAL LOSS EARNINGS TOTAL ------- ------- ---------- ------------- -------- --------- Balance at June 1, 1996 ....... $ 16 $ 157 $ 4,308 $ -- $ 34,851 $ 39,332 Comprehensive income: Net income .................. -- -- -- -- 4,300 4,300 Foreign currency translation adjustments ............... -- -- -- (177) -- (177) --------- Total comprehensive income 4,123 Distributions to WHF ........ -- -- -- -- (26,068) (26,068) Initial public offering of common stock .............. 64 -- 63,817 -- -- 63,881 Issuance of stock in connection with performance units and in connection with equity plan (Note 9) ............. 10 -- 11,146 -- -- 11,156 ------- ------- ---------- ------------- -------- --------- Balance at May 31, 1997 ....... 90 157 79,271 (177) 13,083 92,424 Comprehensive income: Net income .................. -- -- -- -- 14,004 14,004 Foreign currency translation adjustments ............... -- -- -- 12 -- 12 --------- Total comprehensive income 14,016 Issuance of stock in connection with performance units (Note 9) 1 -- 400 -- -- 401 Dividends paid on common stock ..................... -- -- -- -- (3,705) (3,705) ------- ------- ---------- ------------- -------- --------- Balance at May 31, 1998 ....... 91 157 79,671 (165) 23,382 103,136 Comprehensive loss: Net loss .................... -- -- -- -- (8,778) (8,778) Available-for-sale securities valuation adjustment ...... -- -- -- (1,691) -- (1,691) Foreign currency translation adjustments ............... -- -- -- (475) -- (475) --------- Total comprehensive loss (10,944) Issuance of stock in connection with acquisition (Note 2) ...... 1 -- 2,599 -- -- 2,600 Issuance of stock in connection with performance units (Note 9) 1 -- 803 -- -- 804 Tax loss from performance units ..................... -- -- (226) -- -- (226) Stock options exercised ..... -- -- 138 -- -- 138 Dividends paid on common stock ..................... -- -- -- -- (3,728) (3,728) ------- ------- ---------- ------------- -------- --------- Balance at May 31, 1999 ....... $ 93 $ 157 $ 82,985 $ (2,331) $ 10,876 $ 91,780 ======= ======= ========== ============= ======== =========
See notes to consolidated financial statements. F-5 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MAY 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS)
1999 1998 1997 -------- -------- -------- Cash flows from operating activities: Net income (loss) ........................... $ (8,778) $ 14,004 $ 4,300 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for bad debts ................. 1,094 273 151 Deferred taxes .......................... (2,916) (57) (1,862) Depreciation, amortization, and asset impairment ...................... 14,135 7,996 8,050 Management and employee stock compensation charges .................. 804 401 11,156 Tax loss from performance units ......... (226) -- -- Changes in operating assets and liabilities-net of assets acquired: Receivables ...................... 5,362 (8,805) (11,341) Inventories ...................... 6,531 (19,741) (2,509) Prepaid expenses and other ....... (694) (564) 2,180 Deposits and other assets ........ 6,878 (4,804) (3,187) Accounts payable ................. (3,971) 3,632 2,812 Other current liabilities ........ (3,386) 1,388 (71) -------- -------- -------- Net cash provided by (used in) operating activities .................. 14,833 (6,277) 9,679 -------- -------- -------- Cash flows from investing activities: Purchase of available-for-sale securities ... (4,998) -- -- Purchase of property and equipment .......... (11,409) (11,870) (17,400) Proceeds from disposition of property and equipment ............................. 1,040 -- -- Increase in notes receivable ................ (177) (3,987) -- Purchase of intangible assets ............... (1,050) -- (1,699) Purchase of companies, net of cash acquired . (24,326) -- (5,082) -------- -------- -------- Net cash used in investing activities ... (40,920) (15,857) (24,181) -------- -------- -------- Cash flows from financing activities: Issuance of common stock .................... 138 -- 63,881 Dividends paid .............................. (3,728) (3,705) -- Proceeds from long-term debt ................ 33,757 27,438 40,647 Payments on long-term debt .................. (3,174) (2,186) (60,367) Distributions to WHF ........................ -- -- (26,068) Net change in payable to WHF ................ -- -- (3,747) -------- -------- -------- Net cash provided by financing activities 26,993 21,547 14,346 -------- -------- -------- Effect of exchange rate changes on cash ....... 336 12 (177) -------- -------- -------- Increase (decrease) in cash and cash equivalents ................................. 1,242 (575) (333) Cash and cash equivalents, beginning of year .. 684 1,259 1,592 -------- -------- -------- Cash and cash equivalents, end of year ........ $ 1,926 $ 684 $ 1,259 ======== ======== ========
See notes to consolidated financial statements. F-6 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MAY 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS) SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: 1999 1998 1997 ------- ------- ------- Cash paid during the year for: Interest ............................ $8,238 $4,930 $5,721 Income taxes (net of refunds) ....... 276 4,792 5,185 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: In connection with the acquisitions of net assets from other companies (see Note 2), the Company assumed liabilities as follows: 1999 1998 1997 -------- ----- ------- Fair value of assets acquired ........ $ 39,378 $ -- $ 4,471 Cost in excess of fair value of net assets acquired ................ 20,440 -- 4,017 Cash paid, net of cash acquired ...... (24,311) -- (5,082) Stock issued ......................... (2,600) -- -- Debt and liabilities issued .......... (4,900) -- (1,837) -------- ----- ------- Liabilities assumed .................. $ 28,007 $ -- $ 1,569 ======== ===== ======= Note: There were no acquisitions consummated during fiscal 1998. Intangible assets (goodwill) increased by a net amount of $2,472 for fiscal 1999 due to acquisition related adjustments. (Concluded) See notes to consolidated financial statements. F-7 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the accounts of Weider Nutrition International, Inc. and its wholly-owned subsidiaries (collectively, the "Company"). The Company is a majority-owned subsidiary of Weider Health and Fitness ("WHF"). All significant intercompany accounts and transactions have been eliminated. INITIAL PUBLIC OFFERING--Effective May 1, 1997, the Company consummated an initial public offering of its Class A common stock (the "IPO"). A total of 6,440,000 shares were sold to the public at $11 per share. The net proceeds to the Company from the IPO amounted to approximately $63.9 million (after underwriters' discounts of $5.0 million and offering costs of $2.0 million). The net proceeds were used to pay a one-time distribution of $18.3 million to WHF and to pay down long-term debt. Prior to the IPO, the Board of Directors (the "Board") authorized a stock split of all issued and outstanding common shares at the rate of 14,428.9 for 1, which increased the number of issued and outstanding Class A common shares from 1,195.17 to 17,245,036. The Board authorized the Company to issue shares of Class B common stock to WHF in exchange for its Class A holdings. A total of 15,687,432 shares of Class B common stock were issued to WHF. Each holder of Class B common stock is entitled to ten votes per share on all matters presented to a vote of stockholders, including the election of directors. DESCRIPTION OF BUSINESS--The Company develops, manufactures, markets, distributes and sells branded and private label vitamins, nutritional supplements and sports nutrition products. The Company offers a broad range of capsules and tablets, powdered drink mixes, bottled beverages and nutrition bars. The Company markets its branded products through several distribution channels, including mass volume retailers, health foods stores, health clubs and gyms, and international markets. CREDIT FACILITY-The Company's credit facility with General Electric Capital Corporation ("GECC") matures in February 2000. Accordingly, the amounts outstanding under the credit facility at May 31, 1999 ($98.7 million) are included in the current portion of long-term debt (Note 7). The Company is presently evaluating its financing requirements and has commenced discussions with its current lender and other banking institutions regarding a new credit facility and/or other financing alternatives. Management believes that a new credit facility will be finalized by the end of the Company's fiscal quarter ending November 30, 1999. Management expects that the credit facility will be refinanced on a long-term basis. F-8 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) USE OF ESTIMATES AND ASSUMPTIONS IN PREPARING FINANCIAL STATEMENTS--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Such estimates include, among others, the allowance for doubtful accounts, the allowance for sales returns, and the accrual for pending litigation costs. Actual results could differ from the estimates. CASH EQUIVALENTS--Cash equivalents include highly liquid investments with an original maturity of three months or less. INVENTORIES--Inventories are stated at the lower of cost (on a first-in, first-out basis) or market. BARTER TRANSACTIONS-The Company enters into barter transactions and accounts for such transactions at the lower of the net realizable value of the inventory or the barter credits. During the fourth quarter of fiscal 1998, the Company entered into a barter transaction whereby inventories in the amount of $4.5 million, at cost, were exchanged for cash of $0.4 million and advertising credits of $4.1 million. The Company expects to utilize the capitalized barter credits over a three-year period. Capitalized barter credits amounted to $2,742 at May 31, 1999. The advertising credits do not have an expiration date. INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES--During fiscal 1999, the Company invested in certain "available-for-sale" equity securities with an original cost of $4,998. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, these securities are recorded at fair value with the accompanying unrealized holding gains (losses), net of income tax effects, included as a separate component of stockholders' equity. At May 31, 1999, unrealized losses of $2,818, net of income tax benefits of $1,127, were included in other accumulated comprehensive loss in the accompanying financial statements. PROPERTY AND EQUIPMENT--Property and equipment are stated at cost less accumulated depreciation. Depreciation and amortization expense was $7,708 (1999), $5,667 (1998) and $3,871 (1997), computed primarily using the straight-line method over the estimated useful lives of 31 to 50 years for buildings, 2 to 10 years for furniture and equipment and 3 to 16 years for leasehold improvements. INTANGIBLE ASSETS--Intangible assets are stated at cost and amortized using the straight-line method over the estimated useful lives of the assets as follows: Cost in excess of fair value of net assets acquired 10-35 years Patents and trademarks 10-20 years Noncompete agreements 5 years F-9 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The Company evaluates the economic factors for determining requisite recovery periods for certain intangible assets on a case-by-case basis. LONG-LIVED ASSETS--Impairment of long-lived assets is determined in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and of Long-Lived Assets to be Disposed Of." The Company evaluates the carrying value of long-term assets based upon current and anticipated undiscounted cash flows, and recognizes an impairment when such estimated cash flows will be less than the carrying value of the asset. Measurement of the amount of impairment, if any, is based upon the difference between carrying value and fair value. The Company recognized asset impairments in the amount of $535 and $2,095 in fiscal 1999 and 1997, respectively. INCOME TAXES--Prior to the Company's IPO, the Company filed consolidated returns with WHF for Federal and, where appropriate, state income tax purposes. For financial statement purposes, the Company provided for income taxes as if it was filing separate tax returns. Effective May 1, 1997, the Company files separate Federal income tax returns. Accordingly, the Company records in its balance sheet deferred income tax liabilities and assets for temporary differences in the basis of assets and liabilities as reported for financial statement purposes and income tax purposes. NET SALES--The Company recognizes sales upon shipment of a product to a customer. Allowances are made for uncollectible accounts and future credits. The Company's three largest customers accounted for approximately 43%, 41% and 28%, respectively, of net sales in fiscal 1999, 1998 and 1997. At May 31, 1999 and 1998, amounts due from these customers represented approximately 42% and 45%, respectively, of total trade accounts receivable. OTHER OPERATING EXPENSES-The Company's fiscal 1999 results were affected by several strategic initiatives that were initially and/or primarily implemented during the year. These initiatives included, among others, the closing of the Company's capsule and tablet manufacturing facility in California, the decision to reduce active domestic SKUs by over two-thirds, organizational changes and upgrading management systems (including senior management changes) and certain other initiatives. The Company recognized certain charges associated with these initiatives that are included in the accompanying statement of operations for fiscal 1999. STOCK-BASED COMPENSATION--In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation", which became effective for the Company beginning June 1, 1997. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees. The Company decided to disclose the effect of SFAS No. 123 on a pro forma basis and to continue to follow Accounting Principles Board ("APB") Opinion No. 25 (as permitted by SFAS No. 123) as it relates to stock based compensation. Accordingly, the appropriate required disclosure of the effects of SFAS No. 123 are included in Note 9. F-10 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) OTHER COMPREHENSIVE INCOME (LOSS)--During fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income (loss) and its components (revenues, expenses, gains, and losses) in a full set of general purpose financial statements. SFAS No. 130 requires that an enterprise (a) classify items of other comprehensive income (loss) by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income (loss) separately from retained earnings and additional paid-in-capital in the equity section of the balance sheet. NET INCOME (LOSS) PER SHARE--During fiscal 1998, the Company adopted SFAS No. 128, "Earnings Per Share." SFAS No. 128 establishes new standards for computing and presenting net income (loss) per share. Net income (loss) per share is computed by both the basic and diluted methods. Basic income (loss) per share is computed using the weighted average number of common shares outstanding. Diluted income (loss) per share is computed using the weighted average number of common shares and potentially diluted common shares outstanding during the period. Potentially dilutive common shares consist of common stock options and performance units (Note 9). Common stock options and performance units were antidilutive during fiscal 1999 and, accordingly, were not included in the computation of diluted net loss per share. FINANCIAL INSTRUMENTS--The Company's financial instruments, when valued using market interest rates, would not be materially different from the amounts presented in the consolidated financial statements. FOREIGN CURRENCY TRANSLATION-The Company considers local currency as the functional currency for its foreign operations. All assets and liabilities are translated at period-end exchange rates and all income statement amounts are translated at an average of month-end rates. RECENTLY ISSUED ACCOUNTING STANDARDS--In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which supersedes SFAS No. 80, "Accounting for Futures Contracts," SFAS No. 105, "Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit Risk," and SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments," and also amends certain aspects of other SFAS's previously issued. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133, as amended by SFAS No. 137, is effective for the Company's financial statements for the year ending May 31, 2001. The Company does not expect the impact of SFAS No. 133 to be material in relation to its financial statements. RECLASSIFICATIONS--Certain amounts in prior year financial statements have been reclassified to conform with the current year presentation. F-11 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 2. ACQUISITIONS In July 1998, the Company acquired 100% of the outstanding shares of Haleko Hanseatisches Lebensmittel Kontor GmbH, a corporation organized under the laws of Germany ("Haleko"). The initial purchase price was comprised of $25.6 million in cash, 200,000 shares of Class A common stock, and up to an $8.4 million contingent earnout agreement tied to future financial performance for the subsequent three-year period. In addition, $14.8 million in debt was assumed and $4.9 million in acquisition-related capital costs were recognized. The cash portion of the purchase price, together with the other acquisition related costs, were financed with funds available under the Company's credit facility. The acquisition was accounted for as a purchase transaction. The initial excess of the purchase price over the estimated fair value of the acquired net assets (approximately $20.4 million) was recorded as goodwill which is being amortized over 35 years. At May 31, 1999, the Company recognized approximately $3,246 of the earnout agreement based on Haleko's financial performance for fiscal 1999. This amount was recorded as additional goodwill and will be amortized over approximately 34 years. The approximate $3,246 earnout payment is included as a current liability in the accompanying consolidated balance sheets at May 31, 1999. The following unaudited pro forma results of operations of the Company give the approximate effect to the acquisition of Haleko as though the transaction has occurred on June 1, 1997. YEAR ENDED MAY 31, -------------------------- 1999 1998 ---------- -------- Net sales .................................... $ 347,529 $319,683 Income (loss) from operations ................ (3,464) 31,264 Net income (loss) ............................ (8,704) 14,329 Diluted income (loss) per share .............. (0.35) 0.57 In January 1997, the Company acquired the net assets of Science Foods, Inc., a competing sports nutrition beverage manufacturer, for $3,900 in cash plus the assumption of $700 in debt. The Company accounted for this acquisition as a purchase and recognized goodwill of $3,165 which is being amortized over 35 years. Results of operations have been included since January 1, 1997. In September 1996, the Company acquired certain assets and international distribution rights from a related party in Canada for $4,000. The purchase of these assets was accounted for at their historical cost of $25 and the results of operations have been included since September 1, 1996. Included in distributions to WHF is an amount of $3,975 representing the difference between the purchase price and historical cost. In September 1996, the Company acquired trademarks and nutritional supplement operations providing distribution capabilities in primarily Spain and Portugal for $3,427. Of the $3,427, $2,650 was paid to an affiliate of which $1,350 represents an amount in excess of historical cost that is accounted for as a distribution to WHF. Results of operations have been included since September 1, 1996. F-12 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 3. RECEIVABLES Receivables consist of the following at May 31: 1999 1998 --------- --------- Trade accounts........................ $ 59,389 $ 54,164 Income taxes.......................... 2,195 -- Other................................. 1,168 1,331 --------- --------- 62,752 55,495 Less allowance for doubtful accounts.. (2,228) (291) --------- --------- Total.......................... $ 60,524 $ 55,204 ========= ========= 4. INVENTORIES Inventories consist of the following at May 31: 1999 1998 --------- --------- Raw materials......................... $ 24,364 $ 23,226 Work in process....................... 3,364 3,613 Finished goods........................ 35,930 33,684 --------- --------- Total..................... $ 63,658 $ 60,523 ========= ========= Inventory totaling $4,000 ($5,900 in 1998), primarily consisting of two raw materials, is included as a long-term asset in deposits and other assets in the accompanying balance sheets. The Company expects to consume these raw materials subsequent to fiscal 2000. 5. PROPERTY AND EQUIPMENT Property and equipment consists of the following at May 31: 1999 1998 ------- ------- Land.................................. $ 1,679 $ 1,679 Buildings............................. 12,343 7,245 Furniture and equipment............... 40,528 32,501 Leasehold improvements................ 11,005 12,607 Construction in progress.............. 1,087 3,126 ------- -------- 66,642 57,158 Less accumulated depreciation and amortization.................... (17,770) (15,196) ------- ------- Total..................... $48,872 $41,962 ======= ======= F-13 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 6. INTANGIBLE ASSETS Intangible assets consist of the following at May 31: 1999 1998 ------- ------- Cost in excess of fair value of net assets acquired..................... $53,706 $28,685 Patents and trademarks....................... 10,452 4,933 Noncompete agreements........................ 209 214 ------- ------- 64,367 33,832 Less accumulated amortization................ (12,387) (9,440) ------- ------- Total............................ $51,980 $24,392 ======= ======= 7. LONG-TERM DEBT Long-term debt consists of the following at May 31: 1999 1998 ------- ------- Advances under a $115,000 (see below) revolving line of credit bearing interest at floating rates (8.21% to 9.50% at May 31, 1999), due February 2000.......................... $ 98,654 $65,250 Advances under multiple secured revolving lines of credit totaling approximately $13,100 (see below) bearing interest at various rates ranging from 4.00% to 7.25%.. 7,604 -- Short term notes payable to original Haleko stockholders bearing interest at 6.75%, subsequently paid in full in July 1999..... 2,705 -- Notes payable arising from the acquisition of Haleko bearing interest at various rates ranging from 5.50% to 7.00%, due 2001 and 2002.......................... 2,556 -- Mortgage loan, due in monthly installments, bearing interest at 7-5/8%, due February 2009.............................. 2,755 2,871 Notes payable arising from other previous acquisitions............................... 707 1,122 Other........................................ 458 1,103 -------- ------- Total.................................. 115,439 70,346 Less current portion................... (110,716) (1,554) -------- ------- Long-term portion...................... $ 4,723 $68,792 ======== ======= F-14 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) As of May 31, 1999, future payments of long-term debt are presently due as follows (see Note 1): $110,716 (2000), $1,313 (2001), $810 (2002), $188 (2003), $204 (2004), and $2,208 thereafter. Subsequent to May 31, 1999, Haleko consolidated its revolving lines of credit into two credit facilities with aggregate borrowing availability of approximately $16.2 million. The credit facilities mature in July 2000. Concurrent with the Company's IPO, the Company entered into a credit agreement (the "Credit Agreement") with GECC. The Credit Agreement is a senior secured credit facility that contains limitation on the ability of the Company to pay dividends on the common stock and minimum net worth requirements. The obligations of the Company under the Credit Agreement are secured by a first priority lien on all owned or acquired capital stock of the U.S. subsidiaries of the Company (including the subsidiary that owns the Company's foreign subsidiaries). Borrowings available under the Credit Agreement are used for general working capital needs and to support capital expenditures and, if necessary, to effect acquisitions. Subsequent to, but effective at May 31, 1999, the Credit Agreement was amended whereby the size of the credit facility was reduced to $115,000 (from $130,000). At May 31, 1999, the Company has approximately $16.3 million of available credit under the Credit Agreement. 8. INCOME TAXES The components of income tax expense (benefit) consist of the following for the years ended May 31: 1999 1998 1997 ------- ------- ------- Federal: Current............................ $(3,400) $ 7,238 $ 3,402 Deferred........................... (1,220) 248 (1,863) Foreign: Current............................ (1,037) 38 267 Deferred........................... 1,422 -- -- State and local: Current............................ (591) 874 531 Deferred........................... (413) 612 371 ------- ------- ------- Total.................... $(5,239) $ 9,010 $ 2,708 ======= ======= ======= F-15 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The provision for income taxes differs from a calculated income tax at the Federal statutory rate as follows: 1999 1998 1997 ------- ------- ------- Computed Federal income tax expense (benefit) at the statutory rate of 35%........................ $(4,906) $ 8,055 $ 2,453 Amortization of cost in excess of fair value of net assets acquired.. 151 153 151 Meals and entertainment.............. 39 34 32 FSC benefit.......................... (98) (220) -- Charitable contributions............. (499) (10) -- Foreign income taxes, other.......... 370 4 33 State income tax expense (benefit)... (653) 966 169 Other................................ 357 28 (130) ------- ------- ------- Total.......................... $(5,239) $ 9,010 $ 2,708 ======= ======= ======= Net deferred tax assets (liabilities) consist of the following at May 31: 1999 1998 ---------------- --------------- LONG- LONG- CURRENT TERM CURRENT TERM ------ ------- ------ ------ Assets: Accounts receivable allowances...... $2,021 $ -- $ 734 $ -- Inventory adjustments............... 2,528 -- 719 -- Deferred compensation............... -- 1,362 -- 512 Accrued vacation and bonuses........ 327 -- 236 -- Accrued other....................... 508 421 435 -- Amortization of intangibles......... -- 592 -- 544 Capitalized inventory costs......... 1,195 -- 1,123 -- State and other taxes............... -- 1,158 492 -- Basis difference in acquired companies......................... -- 95 -- 98 Charitable and net operating loss carryovers................... -- 1,782 -- -- Basis difference in securities...... 1,127 -- -- -- Depreciation........................ -- -- -- 185 Options and performance units....... -- -- 157 -- Noncompete agreement................ -- -- -- 141 ------ ------- ------ ------ Total..................... 7,706 5,410 3,896 1,480 ------ ------- ------ ------ Liabilities: Basis differences in fixed assets...................... -- 2,853 -- -- Basis differences in acquired companies................ -- 1,615 -- -- Inventory valuation adjustment........................ -- 1,306 -- -- Amortization of intangibles......... -- 110 -- 104 State taxes......................... 319 -- -- -- Other............................... -- 1,192 -- 145 ------ ------- ------ ------ Total..................... 319 7,076 -- 249 ------ ------- ------ ------ Net deferred tax assets (liabilities)..................... $7,387 $(1,666) $3,896 $1,231 ====== ======= ====== ====== F-16 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 9. MANAGEMENT INCENTIVE AND STOCK PLANS MANAGEMENT INCENTIVE PLAN--Prior to the Company's IPO, certain employees (the "Recipients") had management incentive agreements (the "Agreements") pursuant to which the employees were granted performance units ("Performance Units") as incentive compensation. Simultaneously with the IPO, which triggered a conversion under the Agreements, the Company paid in cash and shares of Class A Common stock the vested portion of the Performance Units. In aggregate, the Company paid $2,960 in cash and issued 972,247 shares of Class A Common stock (valued at the IPO price). The Company recognized compensation expense of $13.6 million (included in management and employee compensation charges in the accompanying consolidated statements of operations) in 1997 as a result of the conversion of Performance Units into Class A common stock. The unvested portion of the performance units (represented by 182,716 restricted shares of Class A common stock as of the IPO date) originally vested (contingent upon continued employment and/or other factors) over a five-year period at 20% per year through May 2002. During fiscal 1999, certain adjustments to the vesting provisions were approved for certain Recipients. During fiscal 1999 and 1998, 73,087 shares and 36,543 shares, respectively, of Class A common stock vested and became issued and outstanding. The Company recognized compensation charges of $804 and $401 in fiscal 1999 and 1998, respectively, in connection with the additional vested Class A common shares. In order to facilitate the payment of individual income taxes, the Company makes available to each Recipient a loan in principal amount up to 30% of the conversion value of the vested Performance Units held by each Recipient. Such loans to the Recipients bear interest at 8.0% per annum, are repayable five years from the borrowing date and are secured by the Recipients' stock. At May 31, 1999 and 1998, aggregate loans outstanding amounted to $4,164 and $3,987, respectively (see Note 11). EQUITY PLAN--The 1997 Equity Participation Plan (the "Equity Plan") provides for the granting of stock options, stock appreciation rights, restricted or deferred stock and other awards ("Awards") to officers, directors, and key employees responsible for the direction and management of the Company and to nonemployee consultants. The Equity Plan was adopted concurrent with the Company's IPO and 1,604,000 shares of Class A common stock (or the equivalent in other equity securities) were initially reserved for issuance. An additional 850,000 shares of Class A common stock were reserved for issuance during fiscal 1999. Stock options granted per the Equity Plan primarily become exercisable after three to five years from the date of grant in equal, ratable amounts per each successive anniversary date. Stock options expire no later than eight years after the date of grant. F-17 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Information relating to stock options issued per the Equity Plan is as follows: WEIGHTED NUMBER AVERAGE PER OF SHARE OPTION TOTAL SHARES PRICE PRICE --------- -------------- ------- Options outstanding, June 1, 1996...... -- $ -- $ -- Granted............................. 1,208,000 11.00 13,288 Exercised........................... -- -- -- Cancelled........................... -- -- -- --------- -------------- ------- Options outstanding, May 31, 1997...... 1,208,000 11.00 13,288 Granted............................. 167,000 12.46 2,082 Exercised........................... -- -- -- Cancelled........................... (92,000) 11.00 (1,012) --------- -------------- ------- Options outstanding, May 31, 1998...... 1,283,000 11.19 14,358 Granted............................. 1,366,500 6.19 8,464 Exercised........................... (12,600) (11.00) (138) Cancelled........................... (518,067) (10.78) (5,584) ---------- -------------- ------- Options outstanding, May 31, 1999...... 2,118,833 $ 8.07 $17,100 ========= ============== ======= Exercisable options: May 31, 1999........................ 206,333 $ 10.65 $ 2,198 ========= ============== ======= The weighted average fair market value of options granted during fiscal 1999, 1998 and 1997 amounted to $2.57, $4.92 and $3.28, respectively. The Company applied APB Opinion No. 25 in accounting for its stock options and, accordingly, no compensation expense has been recognized for stock options in the accompanying financial statements. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options including the unvested performance units under the fair value method of SFAS No. 123. The fair value for these options was estimated at the date of grant using a Binomial Option pricing model with the following weighted average assumptions for 1999, 1998 and 1997, respectively. 1999 1998 1997 ---------- ---------- --------- Risk-free interest rate .......... 4.64% 5.20% 6.49% Dividend yield ................... 2.48% 1.19% 1.36% Volatility factor ................ 69.21% 50.43% 29.76% Weighted average expected life ... 2.68 years 3.5 years 3.9 years F-18 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) For the purposes of pro forma disclosure, the estimated fair value of the stock options is amortized to expense over the options vesting period. The Company's pro forma income (loss) and income (loss) per share were as follows: 1999 1998 1997 ------- ------- ------- Net income (loss), as reported.... $(8,778) $14,004 $4,300 Net income (loss), pro forma...... (9,194) 13,513 4,260 Diluted income (loss) per share, as reported..................... (.35) .56 .24 Basic income (loss) per share, pro forma....................... (.37) .55 .24 Diluted income (loss) per share, pro forma....................... (.37) .54 .24 It is likely that the pro forma expense will increase in future years as new option grants become subject to the pricing model. The following table summarizes information about stock options outstanding at May 31, 1999: OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ----------------------------------------------------- --------------------- WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED RANGE OF CONTRACTUAL AVERAGE AVERAGE EXERCISE NUMBER LIFE EXERCISE NUMBER EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE - ---------------- ----------- ----------- -------- ----------- -------- $4.81 to $6.38 1,271,333 7.6 $ 6.00 19,333 $ 4.94 $11.00 to $13.00 847,500 6.0 11.18 187,000 11.24 In fiscal 1997, the Company also, upon consummation of the IPO, made stock payment awards to certain employees based upon years of service. An aggregate total of 41,955 shares of Class A common stock were issued to such employees. Furthermore, the Company paid, in cash, estimated Federal and State income taxes on behalf of the same employees. The Company recognized compensation expense in the amount of $.9 million (included in management and employee compensation charges in the accompanying consolidated statements of operations) for fiscal 1997. 10. COMITMENTS AND CONTINGENCIES LEASES--The Company leases warehouse and office facilities, manufacturing and production facilities, transportation equipment and other equipment under several operating lease agreements expiring through 2013. As of May 31, 1999, future minimum payments of $34,687 under the noncancelable operating leases are due as follows: $3,754 (2000), $3,106 (2001), 2,739 (2002), 2,830 (2003), $2,369 (2004) and $19,889 thereafter. Rental expense charges to operations amounted to $4,762 (1999), $4,064 (1998) and $2,197 (1997). F-19 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) LITIGATION--In March 1999, the plaintiff's attorney involved in a previously settled California matter regarding certain of the Company's bar products filed a lawsuit on behalf of Michael Morelli and an alleged class in the Supreme Court of the State of New York (New York County) alleging similar unfair competition and false claims under New York law. In May 1999, the plaintiffs' attorney also filed a lawsuit on behalf of Lisa Fasig and an alleged class in the Circuit Court of Lee County, Florida alleging similar claims under Florida law. The Company disputes the allegations and will vigorously oppose the lawsuits. In April 1997, the Company filed a lawsuit in the United States District Court for the district of Utah (Central Division) for a declaratory judgement that Pain Free(TM), a joint care product, did not infringe two U.S. patents held by Nutramax Laboratories, Inc. ("Nutramax") or, in the alternative, declaring such patents invalid. In June 1997, Nutramax filed a counterclaim against the Company alleging that the Company was infringing on one or more of Nutramax's patents. The litigation was transferred to the United States District Court for the District of Maryland, where Nutramax had previously commenced litigation alleging that twenty other entities had also infringed those patents. Nutramax also filed a lawsuit in Maryland State Court in August 1998 against the Company and one of its employees alleging breaches of certain claimed confidentiality obligations. In August 1999, the Company, Nutramax and the other entities entered into a settlement agreement resolving the litigations. Pursuant to the terms of the settlement agreement, the defendants made a one-time cash payment to Nutramax and the defendants are authorized to sell all of the allegedly infringing products. As previously disclosed, the Company was named as a defendant in a lawsuit in the United States District Court for the Southern District of Florida alleging that the Company's Pain Free(TM) product infringed upon an alleged "Pain-Free HP" trademark used by the plaintiff. In April 1999, the parties entered into a settlement agreement resolving the matter. Pursuant to the terms of the settlement agreement, the plaintiff and another party received a cash payment in exchange for an assignment to the Company of all of their rights relating to Pain Free(TM) and related trademarks. The Company is involved in other claims, legal actions and governmental proceedings that arise from the Company business operations. Although ultimate liability cannot be determined at the present time, the Company believes that any liability resulting from these matters, if any, after taking into consideration the Company's insurance coverage, will not have a material adverse effect on the Company's financial position or cash flows. ROYALTIES--The Company obtained the exclusive right to use the Weider name and trademarks outside of specified royalty-free territories (most notably North America) throughout the world, with the exceptions of Australia, New Zealand, Japan and South America, pursuant to a sublicense agreement dated December 1, 1996 with Mariz Gestao E Investimentos Limitada ("Mariz"). Mariz is a company incorporated under the laws of Portugal and F-20 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) owned by a trust of which the family members of a director of the Company are included among the beneficiaries. Mariz obtained its exclusive international rights to use the Weider name and trademarks pursuant to a license agreement, effective June 1, 1994, between Mariz and certain affiliates, including WHF (the "Licensors"). Pursuant to the license agreement with Mariz, the Company is required to make annual royalty payments to Mariz commencing on December 1, 1998 on sales of the Company's brands in existence on December 1, 1996 in countries covered by the agreement. The royalty payments are to be equal to (i) 4% of sales up to $33.0 million; (ii) 3.5% of sales greater than $33.0 million and less than $66.0 million; (iii) 3.0% of sales from $66.0 million to $100.0 million; and (iv) 2.5% of sales over $100.0 million. In addition, the sublicense agreement with Mariz includes an irrevocable buy-out option exercisable by the Company after May 31, 2002 for a purchase price equal to the greater of $7.0 million or 6.5 times the aggregate royalties paid by the Company in the fiscal year immediately preceding the date of the exercise of the option. The Company incurred royalty expense of $196 relating to the Mariz licensing agreement in fiscal 1999. RETIREMENT PLAN--The Company sponsors a contributory 401(k) savings plan covering all employees who have met minimum age and service requirements. Contributions to this plan were approximately $334, $271 and $241 for fiscal 1999, 1998 and 1997, respectively, and were included in general and administrative expenses. 11. RELATED PARTY TRANSACTIONS Significant related party transactions, not otherwise disclosed, are summarized below. Payments to reimburse WHF for Company expenses (including primarily advertising, insurance, endorsements, retirement benefits, interest and royalties) consist of the following for the years ended May 31: 1999 1998 1997 -------- -------- -------- Operating expenses............. $ 3,053 $ 2,193 $ 1,910 Interest, net.................. -- -- 3,327 Other.......................... 400 489 384 -------- -------- -------- Total..................... $ 3,453 $ 2,682 $ 5,621 ======== ======== ======== In connection with the terms of a previous employee's severance agreement, and at such person's option, the Company may be required to repurchase approximately 330,400 shares of common stock at market value. The Company also agreed to adjust such person's obligations to the Company (relating to Performance Units; see Note 9) in the event that the Company's common stock does not achieve a minimum per share price level. In the event that the Company's common stock does not achieve such level by fiscal 2002, amounts due the Company ($1,584 at May 31, 1999) will be reduced by 50%. F-21 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Included in other receivables is an amount due from an affiliated entity in the amount of $988 at May 31, 1997, which was subsequently paid in fiscal 1998. Prior to entering into the Credit Agreement (see Note 7), the Company was the principal borrower under a credit agreement with GECC that was administered and guaranteed by WHF. The Company paid a service charge to WHF in excess of the interest paid to GECC in the amount of $485 for fiscal 1997. 12. OPERATING SEGMENTS In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", which changes the way the Company reports information about its operating segments. The Company has two primary reportable segments. These segments include the Company's U.S. based or domestic operations, and the Company's international operations (primarily Europe). The Company has three primary divisions within its domestic operations: Mass Market Division; Health Food Store Division; and the Health Club and Gym Division. The Company manufactures and markets nutritional products, including a full line of vitamins, joint-related and other nutraceuticals, and sports nutrition supplements through its Mass Market Division; a full line of vitamins, nutraceuticals and sports nutrition products primarily through independent distributors and a significant retailer in its Health Food Store Division; and a full line of sports nutrition products in its Health Club and Gym Division. The Company also manufactures and markets nutritional and other products, including a full line of sports nutrition supplements and sportswear, together with certain other nutraceuticals within its international operations. The accounting policies of these segments are the same as those described in Note 1 to the consolidated financial statements. The Company evaluates the performance of its operating segments based on actual and expected operating results of the respective segments and/or divisions. Certain noncash and other expenses, and domestic assets, are not allocated to the divisions within the domestic operating segment. It is not practical for the Company to provide comparable information for fiscal 1997. Segment information for fiscal 1999 and 1998, respectively, are summarized as follows: INCOME (LOSS) NET FROM INTEREST 1999: SALES OPERATIONS EXPENSE -------- ---------- -------- Domestic Operations: Mass market................... $152,046 $ 12,074 $ 3,512 Health food stores............ 56,178 (3,490) 1,691 Health clubs and gyms......... 24,960 711 862 Other......................... 13,115 (4,333) 331 Unallocated................... -- (12,825) -- -------- ---------- -------- 246,299 (7,863) 6,396 International Operations:....... 89,189 3,826 3,783 -------- ---------- -------- $335,488 $ (4,037) $ 10,179 ======== ========== ======== F-22 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) INCOME NET FROM INTEREST 1998: SALES OPERATIONS EXPENSE -------- ---------- -------- Domestic Operations: Mass market................... $110,388 $ 16,995 $ 1,839 Health food stores............ 61,742 6,077 1,400 Health clubs and gyms......... 25,853 1,242 600 Other......................... 35,264 2,973 330 -------- ---------- -------- 233,247 27,287 4,169 International Operations:....... 17,295 617 649 -------- ---------- -------- $250,542 $ 27,904 $ 4,818 ======== ========== ======== Reconciliation of assets for the reportable segments is as follows at May 31, 1999: Total domestic assets....... $ 226,984 Total international assets.. 74,574 Eliminations................ (45,529) --------- Total.................. $ 256,029 ========= Capital expenditures for domestic and international operations amounted to $10.1 million and $1.3 million, respectively, for fiscal 1999, and $11.8 million and $.1 million, respectively, for fiscal 1998. The majority of international related long-lived assets are located in Germany. 13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Quarterly data (unaudited) for 1999, 1998 and 1997 is as follows: QUARTER ENDED ---------------------------------- AUG. 31 NOV. 30 FEB. 28 MAY 31 ------- ------- ------- ------- 1999: Net sales.......................... $67,946 $83,274 $89,030 $95,238 Gross profit....................... 23,528 28,503 33,350 29,045 Income (loss) from operations...... 4,538 (6,496) 3,506 (5,585) Income taxes (benefit)............. 1,115 (3,740) 307 (2,921) Net income (loss).................. 1,707 (5,440) 407 (5,452) Basic and diluted income (loss) per share................. .07 (.22) .02 (.22) F-23 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) QUARTER ENDED ---------------------------------- AUG. 31 NOV. 30 FEB. 28 MAY 31 ------- ------- ------- ------- 1998: Net sales.......................... $53,515 $60,811 $62,368 $73,848 Gross profit....................... 17,873 20,629 23,003 27,703 Income from operations............. 3,996 5,406 7,752 10,750 Income taxes....................... 1,127 1,574 2,538 3,771 Net income......................... 1,692 2,532 3,971 5,809 Basic income per share............. .07 .10 .16 .24 Diluted income per share........... .07 .10 .16 .23 QUARTER ENDED ----------------------------------- AUG. 31 NOV. 30 FEB. 28 MAY 31 ------- ------- ------- -------- 1997: Net sales.......................... $46,927 $48,992 $55,487 $67,160 Gross profit....................... 17,188 17,318 22,892 24,293 Income (loss) from operations...... 3,619 5,786 9,150 (5,199) Income taxes (benefit)............. 882 1,552 2,949 (2,675) Net income (loss).................. 1,291 2,360 4,424 (3,775) Basic and diluted income........... (loss) per share................. .08 .14 .25 (.19) F-24 EX-4.8 2 EXHIBIT 4.8 SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT This SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this "AMENDMENT") dated as of June 24, 1999 and effective as of May 31, 1999 (the "EFFECTIVE DATE") is made among WEIDER NUTRITION INTERNATIONAL, INC., a Delaware corporation ("HOLDINGS"), WEIDER NUTRITION GROUP, INC., a Utah corporation ("NUTRITION"), WNG HOLDINGS (INTERNATIONAL) LTD., a Nevada corporation ("INTERNATIONAL"; Holdings, Nutrition and International, individually, each an "OBLIGOR" and, collectively, "OBLIGORS"), GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, for itself, as Lender, and as Agent for Lenders (in such capacity, "AGENT"), and the other Lenders signatory to the hereinafter defined Credit Agreement. RECITALS A. Agent, Lenders and Obligors are party to that certain Third Amended and Restated Credit Agreement dated as of May 6, 1997 (as previously amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"). B. On and subject to the terms and conditions hereof, Obligors have requested, and Agent and Lenders are willing to grant, certain amendments and waivers under the Credit Agreement. C. This Amendment shall constitute a Loan Document and these Recitals shall be construed as part of this Amendment; capitalized terms used herein without definition are so used as defined in Annex A to the Credit Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: 1. WAIVER. Subject to the conditions precedent set forth in Section 4 hereof, Agent and Lenders hereby waive the Event of Default arising under Section 8.1(c) of the Credit Agreement solely resulting from Holdings' failure to comply with paragraph (c) of Annex G of the Credit Agreement at the end of the Fiscal Quarter ending May 31, 1999. 2. AMENDMENT. Subject to the conditions precedent set forth in Section 4 hereof, the Credit Agreement is hereby amended as follows: (a) The text of Section 1.5(a) of the Credit Agreement is replaced with the following text: "(a) Borrowers shall pay interest to Agent, for the ratable benefit of Lenders, in arrears on (i) the first day of each month with respect to Index Rate Loans and (ii) on the last day of each applicable LIBOR Period with respect to LIBOR Loans, at a per annum rate equal to (A) with respect to Index Rate Loans, the Index Rate plus a margin of (1) 1.75%, from June 24, 1999 through September 23, 1999, (2) 2.25%, from September 24, 1999 through November 23, 1999, (3) 3.25%, from November 24, 1999 through December 23, 1999 and (4) for each period of thirty consecutive days thereafter, the margin in effect immediately prior to such period PLUS an additional .25% (such that, for example, the margin determined pursuant to this clause (4) will be 3.50% as of December 24, 1999 and 3.75% as of January 24, 2000) and (B) with respect to LIBOR Loans, the LIBOR Rate plus a margin of (1) 3.25%, from June 24, 1999 through September 23, 1999, (2) 3.75%, from September 24, 1999 through November 23, 1999, (3) 4.75%, from November 24, 1999 through December 23, 1999 and (4) for each period of thirty consecutive days thereafter, the margin in effect immediately prior to such period PLUS an additional .25% (such that, for example, the margin determined pursuant to this clause (4) will be 5.00% as of December 24, 1999 and 5.25% as of January 24, 2000)." (b) The text of Section 1.6 of the Credit Agreement is replaced with the following text: "Section 1.6 FEES. As additional compensation for Lenders' costs and risks in making the Revolving Credit Loan available to Borrowers, Borrowers agree to pay to Agent, for the ratable benefit of Lenders, in arrears, on the first Business Day of each month prior to the Revolving Commitment Termination Date or such earlier date as the Lenders' obligations to make Revolving Credit Advances terminate or the Revolving Credit Loan becomes due and payable, and on the Revolving Commitment Termination Date or such earlier date as the Lenders' obligations to make Revolving Credit Advances terminate or the Revolving Credit Loan becomes due and payable, a fee for Borrowers' non-use of available funds (the "NON-USE FEE") in an amount equal to (i) a rate of .50% per annum (calculated on the basis of a 360 day year and actual days elapsed) (the "NON-USE FEE MARGIN") multiplied by (ii) the difference between the respective daily averages of (A) the Maximum Revolving Credit Loan (as it may be adjusted from time to time hereunder) and (B) the amount of the Revolving Credit Loan outstanding during the period for which the Non-Use Fee is due." (c) The text of Article 6 of the Credit Agreement is replaced with the following text: "6. NEGATIVE COVENANTS Obligors, jointly and severally, covenant and agree that, without the prior written consent of Agent and the Requisite Lenders from and after the Closing Date until the Termination Date: -2- 6.1 MERGERS, SUBSIDIARIES, ETC. No Obligor shall, or shall cause or permit any Subsidiary thereof to, directly or indirectly, by operation of law or otherwise, merge with, consolidate with, acquire all or any substantial part of the assets or capital stock of, or otherwise combine with, any Person or form any Subsidiary; PROVIDED that (1) in a series of related transactions consummated substantially concurrently (i) Haleko may acquire all of the Stock of Sy-Fra not owned by Haleko immediately prior to such acquisition, (ii) Sy-Fra may acquire all of the Stock of Haleko Italia s.r.l., (iii) Haleko Italia s.r.l. may be merged with and into Sy-Fra and (iv) Sy-Fra may change its name to Haleko Italia s.r.l. (the transactions described in this clause (1), collectively, the "HALEKO ACQUISITION") and (2) Weider Nutrition Group (Canada) Ltd. may acquire all of the Stock of Custom Nutritional Inc. ("CNI") (the transaction described in this clause (2), the "CNI ACQUISITION;" the Haleko Acquisition and the CNI Acquisition, each, a "PERMITTED Acquisition"), subject to the following conditions precedent: (a) Agent shall receive at least twenty (20) Business Days' prior written notice of such Permitted Acquisition, which notice shall include a reasonably detailed description of such Permitted Acquisition; (b) such Permitted Acquisition shall only be of a Person engaged in, or involve assets dedicated to, the same or a substantially similar business to the businesses engaged in by one or more of Borrowers as of the Closing Date; (c) such Permitted Acquisition shall not be with respect to Persons or assets located in jurisdictions against which the United States has imposed economic sanctions; (d) such Permitted Acquisition will not subject Agent or any Lender to regulatory or third party approvals in connection with the exercise of its rights and remedies under this Agreement or any other Loan Documents other than approvals applicable to the exercise of such rights and remedies with respect to Obligors prior to such Permitted Acquisition; (e) each such Permitted Acquisition of a Person shall be consensual and shall have been approved by such Person's board of directors and, as applicable, shareholders; (f) no additional Indebtedness, contingent obligations or other liabilities shall be incurred, assumed or otherwise be reflected on a consolidated balance sheet of Holdings and its Subsidiaries after giving effect to such Permitted Acquisition, except (i) obligations to trade creditors incurred in the ordinary course of business, (ii) existing Indebtedness of the Persons acquired pursuant to the Haleko Acquisition not exceeding $850,000 in the aggregate and (iii) existing Indebtedness of -3- CNI not exceeding $150,000 in the aggregate; PROVIDED that neither Holdings, International nor any Wholly-Owned Domestic Obligor shall at any time be directly or indirectly liable for or otherwise obligated with respect to any such Indebtedness; (g) at the time of such Permitted Acquisition and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing; (h) Concurrently with delivery of the notice referred to in CLAUSE (A) above, Holdings shall have delivered to Agent, in form and substance satisfactory to Agent a pro forma consolidated balance sheet of Holdings and its Subsidiaries, based on recent financial data, which shall be complete and shall accurately and fairly represent the assets, liabilities, financial position and results of operations of Holdings and its Subsidiaries in accordance with GAAP consistently applied, but taking into account such Permitted Acquisition, together with a certificate of Holdings' Chief Financial Officer stating that, based on such pro forma balance sheet, Borrowing Availability shall be at least $15,000,000 (on a pro forma basis after giving effect to such Permitted Acquisition, with trade payables being paid currently and expenses and liabilities being paid in the ordinary course of business, and without acceleration of sales) after giving effect to such Permitted Acquisition; (i) the Haleko Acquisition shall be funded solely with proceeds of contributions by Obligors to the capital of Haleko permitted by clause (d) of SECTION 6.2 and proceeds of Indebtedness of Haleko permitted by clause (vii) of SECTION 6.3; and the CNI Acquisition shall be funded solely with proceeds of Indebtedness of Weider Nutrition Group (Canada) Ltd. permitted by clause (viii) of SECTION 6.3; (j) reasonably prior to the date of such Permitted Acquisition, Agent shall have received, in form and substance satisfactory to Agent, all opinions, certificates, lien search results and other documents, including acquisition agreements, reasonably requested by Agent, including proof of regulatory compliance. 6.2 INVESTMENTS; LOANS AND ADVANCES. Except (I) as otherwise permitted by SECTION 6.1, 6.3, or 6.4, and (II) for advances to suppliers on an arm's length basis in connection with purchases in the ordinary course of business, no Obligor shall, or shall cause or permit any Subsidiary thereof to, make any investment in, or make or accrue loans or advances of money to any Person, through the direct or indirect lending of money (including, without limitation, the guarantee of any letters of credit issued for the benefit of such Person), holding of securities or otherwise, other than (a) Accounts, (b) investments in Domestic Wholly-Owned Obligors, (c) investments by Nutrition in (i) marketable direct obligations -4- issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., (iii) certificates of deposit, maturing no more than one year from the date of creation thereof, issued by commercial banks incorporated under the laws of the United States of America, each having combined capital, surplus and undivided profits of not less than $300,000,000 and having a senior secured rating of "A" or better by a nationally recognized rating agency, provided that the aggregate amount invested in such certificates of deposit shall not at any time exceed $100,000 for any one such certificate of deposit and $200,000 for any one such bank, (iv) time deposits, maturing no more than 30 days from the date of creation thereof with commercial banks or savings banks or savings and loan associations each having membership either in the Federal Deposit Insurance Corporation or in the Federal Savings and Loan Insurance Corporation and in amounts not exceeding the maximum amounts of insurance thereunder, (v) money market funds and (vi) in accordance with paragraph (d) of ANNEX C, (d) contributions by Obligors to the capital of Haleko that shall not at any time exceed $3,000,000 in aggregate at any time outstanding, (e) Specified Margin Shares acquired by Holdings during the period from June 26, 1998 to October 1, 1998 and (f) capital contributions to Domestic Wholly-Owned Obligors, to the extent deemed necessary and appropriate by Holdings in its reasonable discretion. Nothing herein shall be deemed to permit the disposition of any Stock constituting Collateral except in accordance with the express terms of this Agreement and the other Loan Documents. 6.3 INDEBTEDNESS. No Obligor shall, or shall cause or permit any Subsidiary thereof to, create, incur, assume or permit to exist any Indebtedness, except (i) obligations of Borrowers in connection with Letter of Credit Obligations, (ii) the Revolving Credit Loan and the other Obligations, (iii) deferred taxes, (iv) unfunded pension fund and other employee benefit plan obligations and liabilities to the extent they are permitted to remain unfunded under applicable law, (v) Indebtedness (including intercompany loans and obligations under Capital Leases) existing and set forth on SCHEDULE 6.3 as of June 24, 1999 (all of which shall have been incurred in accordance with the terms of this Agreement as in effect as of the date of such incurrence, and none of which shall be amended, refinanced, replaced, restated, supplemented or otherwise modified), (vi) lease payment obligations under existing leases permitted under SECTION 6.14, (vii) Indebtedness of Haleko which shall not exceed the amount of the Indebtedness of Haleko outstanding on November 30, 1998 (as indicated on the most recent balance sheet delivered pursuant to Annex G which includes such date) by DM20,000,000 in the aggregate from time to time outstanding (inclusive of the Indebtedness of Haleko -5- permitted in accordance with clause (x) below), (viii) Indebtedness of Weider Nutrition Group (Canada) Ltd. incurred in connection with the CNI Acquisition which shall not exceed the $114,000 in the aggregate from time to time outstanding, (ix) Indebtedness of CNI which shall not exceed $250,000 in the aggregate from time to time outstanding (inclusive of the Indebtedness of CNI permitted in accordance with clause (x) below) and (x) Indebtedness permitted in accordance with clause (f) of SECTION 6.1. 6.4 EMPLOYEE LOANS AND AFFILIATE TRANSACTIONS. (a) No Obligor shall, or shall cause or permit any Subsidiary thereof to, enter into or be a party to any transaction with any Affiliate of any such Person, other than (i) as permitted by SECTIONS 6.2, 6.4(B), or 6.13, (ii) in the ordinary course of and pursuant to the reasonable requirements of such Person's business and upon fair and reasonable terms that are fully disclosed to Agent in advance and are no less favorable to such Person than would be obtained in a comparable arm's length transaction with a third party not an Affiliate of such Person, (iii) loans to employees or other transactions between or among Obligors providing goods and services described on SCHEDULE 6.4 as of the Closing Date in the ordinary course of business consistent with past practices, (iv) payments made pursuant to the tax sharing agreement described on SCHEDULE 3.13 as of the Closing Date, to the extent permitted by, and made in accordance with, clause (i) of SECTION 6.13, and (v) cash payments to Holdings to enable Holdings (contemporaneously with, and in the same amount of, such payments) to (1) fund its obligations under "Executive Retirement Plans" described on SCHEDULE 6.4 as of the Closing Date in an aggregate amount not to exceed $300,000 in any Fiscal Year (except, $1,100,000 in Fiscal Year 2000, $845,000 of which shall be paid by Parent to Holdings' former chief executive officer pursuant to Holding's existing severance arrangements with such Person) and (2) pay the general corporate, operating and administrative expenses of Holdings allocated to such Obligor or Subsidiary PROVIDED THAT payments made pursuant to this subclause (2) to Holdings by any Obligor or Subsidiary thereof shall not exceed such Obligor's or Subsidiary's fair allocable share of the expenses incurred by Holdings for the benefit of Obligors and their Subsidiaries. Payments made in accordance with clauses (iv) and (v) above may be accounted for by the applicable Obligor or Subsidiary as a cash dividend to Holdings or as an expense for the reimbursement of Holdings' expenses in the income statement of such Obligor or Subsidiary. (b) No Obligor shall, or shall cause or permit any Subsidiary thereof to, enter into any lending, borrowing or other commercial transaction with any of its employees, directors, Subsidiaries, Affiliates, any other Obligor or related parties without the prior written consent of Agent, including, without limitation, payment of any management consulting, advisory or similar fee based on or related to any such -6- Person's operating performance or income or any percentage thereof, other than (i) as permitted by SECTIONS 6.2, 6.4(A), or 6.13, (ii) employment agreements and incentive compensation programs with full-time employees on commercially reasonable terms substantially similar to the agreements in effect on the Closing Date and described on SCHEDULE 6.4 as of the Closing Date, (iii) loans to their respective employees consisting of travel advances in the ordinary course of business consistent with past practice up to a maximum of $150,000 in the aggregate at any one time outstanding, (v) loans of up to $500,000 during each Fiscal Year to their respective employees for the payment of taxes incurred in connection with the conversion after the Closing Date of "Phantom Stock" of Nutrition issued prior to the Closing Date into Stock of Holdings, and (vi) outstanding intercompany loans among the Obligors as set forth on SCHEDULE 6.3 in accordance with SECTION 6.3. 6.5 CAPITAL STRUCTURE AND BUSINESS. No Obligor shall, or shall cause or permit any Subsidiary thereof to (i) make any changes in any of its business objectives, purposes or operations in each case which is reasonably likely to adversely affect the repayment of the Revolving Credit Loan or any of the other Obligations or could have or result in a Material Adverse Effect, (ii) except as described on SCHEDULE 3.10 as of the Closing Date, issue any shares of Stock, warrants or other securities convertible into Stock or revise the terms of its outstanding Stock, or (iii) amend its certificate or articles of incorporation or bylaws in a manner which is reasonably likely to have a Material Adverse Effect. No Obligor shall, or shall cause or permit any Subsidiary thereof to, engage in any business substantially different than the lines of businesses currently engaged in by such Person or any lines of business reasonably related thereto. Notwithstanding any other provision of this Agreement or any other Loan Document, Holdings shall not incur any Indebtedness or engage in any business activities other than (a) the performance of its obligations under the Loan Documents to which it is a party and (b) those activities incidental to (i) its ownership of the capital stock of the other Obligors, (ii) the Restricted Payments permitted to be made by it in accordance with SECTION 6.13 and (iii) the maintenance of its corporate existence in compliance with applicable law and this Agreement. 6.6 GUARANTEED INDEBTEDNESS. No Obligor shall, or shall cause or permit any Subsidiary thereof to, incur any Guaranteed Indebtedness except (i) by endorsement of instruments or items of payment for deposit to the general account of any Domestic Wholly-Owned Obligor (to the extent the transaction to which the foregoing relates is otherwise permitted by this Agreement), (ii) for Guaranteed Indebtedness incurred for the benefit of any Domestic Wholly-Owned Obligor if the primary obligation is permitted by this Agreement and (iii) Guaranteed Indebtedness existing and described on SCHEDULE 6.3 as of June 24,1999 (all of which shall have been incurred in accordance with the -7- terms of this Agreement as in effect as of the date of such incurrence, and none of which shall be amended, refinanced, replaced, restated, supplemented or otherwise modified). 6.7 LIENS. No Obligor shall, or shall cause or permit any Subsidiary thereof to, create, incur, assume or permit to exist any Lien on or with respect to any properties or assets (including any document or instrument with respect to Inventory or Accounts) of any such Person, whether now owned or hereafter acquired, or any income or profits therefrom, except (i) Liens existing and set forth on SCHEDULE 6.7 as of June 24, 1999 (all of which shall have been incurred in accordance with the terms of this Agreement as in effect as of the date of such incurrence, and none of which shall be amended, replaced, restated, supplemented or otherwise modified), (ii) Permitted Encumbrances and Liens on property or assets of Haleko securing Indebtedness of Haleko permitted under clause (vii) of SECTION 6.3, and (iii) presently existing or hereafter created Liens in favor of Agent, on behalf of Lenders. 6.8 SALE OF ASSETS. No Obligor shall, or shall cause or permit any Subsidiary thereof to, sell, transfer, convey, assign or otherwise dispose of any of its properties or other assets, including the capital stock of any such Person or any of their Accounts, other than Excluded Asset Sales. 6.9 ERISA. No Obligor shall, or shall cause or permit any Subsidiary or ERISA Affiliate thereof (without Agent's prior written consent) to (i) acquire any new ERISA Affiliate that maintains or has an obligation to contribute to a Pension Plan that has either an "accumulated funding deficiency", as defined in Section 302 of ERISA, or any "unfunded vested benefits", as defined in Section 4006(a)(3)(e)(iii) of ERISA, in the case of any plan other than a Multiemployer Plan, and in Section 4211 of ERISA in the case of a Multiemployer Plan, (ii) permit or suffer any condition set forth on SCHEDULE 3.14 as of the Closing Date to cease to be met and satisfied at any time, (iii) terminate any Pension Plan that is subject to Title IV of ERISA where such termination could reasonably be anticipated to result in a material liability to such Person, (iv) permit any accumulated funding deficiency, as defined in Section 302(a)(2) of ERISA, to be incurred with respect to any Pension Plan, (v) fail to make any contributions or fail to pay any amounts due and owing as required by the terms of any Plan before such contributions or amounts become delinquent, (vi) make a complete or partial withdrawal (within the meaning of Section 4201 of ERISA) from any Multiemployer Plan, or (vii) fail to promptly provide Agent with copies of any Plan documents or governmental reports or filings requested by Agent. 6.10 HAZARDOUS MATERIALS. Except as set forth on SCHEDULE 3.20 as of the Closing Date, no Obligor shall, or shall cause or -8- permit any Subsidiary thereof or any other Person within its control, to cause or permit a Release or the presence, use, generation, manufacture, installation, Release, discharge, storage or disposal of any Hazardous Materials on, under, in, above or about any of its real estate or the transportation of any Hazardous Materials to or from any real estate where such Release or such presence, use, generation, manufacture, installation, Release, discharge, storage or disposal would violate or form the basis for liability under any Environmental Laws. 6.11 SALE-LEASEBACKS. No Obligor shall cause or permit any Subsidiary thereof to, engage in any sale-leaseback or similar transaction involving its assets, including the resale of assets in any transaction or series of related transactions pursuant to which the subject assets are sold or transferred in connection with the leasing or the resale against installment payments, or as part of an arrangement involving the leasing or the resale against installment payments, of such assets to the seller or transferor thereof, other than such transactions which are existing and described on SCHEDULE 6.11 as of June 24, 1999 (all of which shall have been consummated in accordance with the terms of this Agreement as in effect as of the date of such consummation, and none of which shall be amended, refinanced, replaced, restated, supplemented or otherwise modified). 6.12 CANCELLATION OF INDEBTEDNESS. No Obligor shall, or shall cause or permit any Subsidiary thereof to, cancel any claim or debt owing to it, except on an arm's-length basis and in the ordinary course of its business consistent with past practices. 6.13 RESTRICTED PAYMENTS. No Obligor shall, or shall cause or permit any Subsidiary thereof to, make or pay any Restricted Payment, other than (i) Restricted Payments to Holdings to permit Holdings (contemporaneously with, and in the same amount of, such payments) to (A) make Restricted Payments to Parent pursuant to, and not in excess of the amounts required under, the tax sharing agreements described on SCHEDULE 3.13 as of the Closing Date in respect of taxes payable for periods (or portions thereof) ending on or prior to the closing on the Closing Date and (B) pay Federal, state and local income tax obligations actually due and payable in cash by Holdings for periods (or portions thereof) commencing after the closing on the Closing Date, to the extent such obligations are the result of the net income or loss of Obligors and their Subsidiaries being attributed to Holdings for tax purposes, (ii) Restricted Payments to Holdings to permit Holdings (contemporaneously with, and in the same amount of, such payments) to pay fees and expenses necessary to maintain Holdings' corporate existence and good standing, (iii) Restricted Payments to Holdings to permit Holdings (contemporaneously with, and in the same amount of, such payments) to pay quarterly cash dividends in respect of its common stock, PROVIDED that -9- (A) only one such set of Restricted Payments may be made during any Fiscal Quarter, (B) all such Restricted Payments made during any Fiscal Quarter shall be made during the fifteenth (15th) through the twentieth (20th) (except, the thirty- fifth (35th) day, in the case of such a Restricted Payment to be made during the first Fiscal Quarter of Fiscal Year 2000) consecutive day immediately following the end of the immediately preceding Fiscal Quarter, (C) at least five (5) days prior to such Restricted Payment (except, one (1) day, in the case of such a Restricted Payment made during the third Fiscal Quarter of Fiscal Year 1999), Agent shall have received preliminary versions of the Financial Statements to be delivered to Agent pursuant to ANNEX E for the immediately preceding Fiscal Quarter, together with an attached certificate of the Chief Financial Officer of Holdings (on behalf of itself and each Borrower) to the effect that (1) the final Financial Statements to be delivered to Agent for such immediately preceding Fiscal Quarter will not differ in any material respect from such preliminary Financial Statements and (2) no Default or Event of Default had occurred or been continuing as of the end of the period covered by such Financial Statements (other than as of the end of the second Fiscal Quarter of Fiscal Year 1999), has occurred or is continuing as of the date of such certificate or would result from the making of such Restricted Payment, (D) the aggregate amount of all such Restricted Payments made during any Fiscal Quarter shall not exceed $0.0375 per each share of Holdings' common stock and (E) concurrently with each delivery of the Financial Statements described in clause (C) above, Holdings shall have delivered to Agent, in form and substance satisfactory to Agent and based on recent financial data, a pro forma consolidated balance sheet of Holdings and its Subsidiaries indicating that Borrowing Availability shall be at least $5,500,000 (after giving effect to such Restricted Payment and all Revolving Credit Advances to be made in connection therewith, and with trade payables being paid currently, expenses and liabilities being paid in the ordinary course of business and without acceleration of sales); (iv) Restricted Payments not in excess of $700,000 in the aggregate used to fund the purchase by Nutrition of its Stock pursuant to any "Phantom Stock" agreement separately identified in SCHEDULE 3.10 as of the Closing Date from the other agreements described therein; (v) transactions permitted under SECTION 6.4 and (vi) Restricted Payments to one or more Borrowers; PROVIDED THAT, in the case of Restricted Payments described in the foregoing clauses (iii) through (vi), no Default or Event of Default shall have occurred and be continuing or would result after giving effect to such Restricted Payment. 6.14 LEASES. No Obligor shall, or shall cause or permit any Subsidiary thereof to, enter into any operating lease or similar agreement or arrangement with respect to real property or Equipment, other than such leases, agreements or arrangements which are existing and described on SCHEDULE 6.14 as of June 24, 1999 (all of which shall have been consummated in accordance with the terms of this Agreement as in -10- effect as of the date of such consummation); PROVIDED that Obligors may enter into, or cause or permit any Subsidiary thereof to enter into, extensions or renewals of such leases and new leases so long as aggregate annual lease payment obligations under all leases shall at no time exceed by more than $300,000 aggregate annual lease payment obligations for all leases initially described on SCHEDULE 6.14). 6.15 FISCAL YEAR. No Obligor shall, or shall cause or permit any Subsidiary thereof to, change its Fiscal Year. 6.16 CHANGE OF CORPORATE NAME. No Obligor shall, or shall cause or permit any Subsidiary thereof to, change its corporate name except upon sixty (60) days advance written notice to Agent and after taking any reasonable action requested by Agent in connection therewith, including, without limitation, to continue the perfection of any Liens in favor of Agent, on behalf of Lenders, in any Collateral. 6.17 SALE OF STOCK. No Obligor shall, or shall cause or permit any Subsidiary thereof to, issue or sell (whether in a public or private offering or otherwise) any of its Stock except pursuant to agreements or arrangements existing as of the Closing Date and described on SCHEDULE 3.10 as of the Closing Date. 6.18 CASH MANAGEMENT. No Obligor shall, or shall cause or permit any Subsidiary thereof to, accumulate or maintain cash in accounts (other than the Disbursement Account) as of any date of determination more than $200,000 in the aggregate in excess of checks outstanding against such accounts as of that date and amounts necessary to meet minimum balance requirements. 6.19 NO IMPAIRMENT OF CROSS-STREAMING, UPSTREAMING, DOWNSTREAMING OR LIENS. No Obligor shall, or shall cause or permit any Subsidiary thereof to, directly or indirectly, enter into or become bound by any agreement, instrument, indenture or other obligation (other than this Agreement) which could directly or indirectly restrict, prohibit or require the consent of any Person with respect to (a) the payment of dividends or distributions or the making of intercompany loans or investments by, between or among any of such Persons or (b) the creation of a Lien in favor of Agent, on behalf of itself and Lenders, as additional collateral for the Obligations, on the properties or other assets of such Obligor or Subsidiary. 6.20 FINANCIAL COVENANTS. Obligors shall not breach or fail to comply with any of the Financial Covenants set forth on ANNEX G. -11- 6.21 NEW YORK STOCK EXCHANGE LISTING. Holdings shall not at any time fail to be, or fail to be qualified to be, listed on the New York Stock Exchange. 6.22 SPECIFIED MARGIN SHARES. Notwithstanding anything to the contrary, no Obligor (other than Holdings) or any Subsidiary thereof may own, legally or beneficially, any Specified Margin Shares and, upon the sale or other disposition of any Specified Margin Shares by Holdings, no Obligor (including Holdings) or any Subsidiary thereof may at any time thereafter own, legally or beneficially, any of those Specified Margin Shares which have been so sold or transferred. Nothing contained herein shall be deemed to permit the acquisition or disposition of any Stock." (d) The proviso contained in clause (c) of Section 8.1 of the Credit Agreement is deleted. (e) Each reference to "$1,000,000" contained in clause (f) of Section 8.1 of the Credit Agreement is replaced with a reference to "$250,000". (f) Each reference to "$500,000" contained in clause (i) of Section 8.1 of the Credit Agreement is replaced with a reference to "$250,000". (g) Each reference to "forty-five (45)" contained in clause (i) of Section 8.1 of the Credit Agreement is replaced with a reference to "thirty (30)". (h) Each reference to "forty-five (45)" contained in clause (j) of Section 8.1 of the Credit Agreement is replaced with a reference to "thirty (30)". (i) Each reference to "$500,000" contained in clause (l) of Section 8.1 of the Credit Agreement is replaced with a reference to "$250,000". (j) The reference to "60" contained in clause (m) of Section 8.1 of the Credit Agreement is replaced with a reference to "30". (k) The defined terms "Acceptable Haleko Credit Funding", "Funded Debt", "Index Margin", "L/C Margin", "LIBOR Margin" and "Margin" are deleted from Annex A of the Credit Agreement. (l) The following defined term is inserted into Annex A of the Credit Agreement in alphabetical order among the defined terms contained therein: ""DOMESTIC WHOLLY-OWNED OBLIGOR" shall mean any Obligor (other than International) formed under the laws of a jurisdiction located within the continental United States, all of the outstanding Stock of which is owned and controlled directly or indirectly by Holdings, beneficially and as of record, with full voting and dispositive power, and none of the outstanding Stock of which is owned or controlled directly or indirectly by -12- a Person formed under the laws of a jurisdiction located outside of the continental United States." (m) The defined term "Excluded Asset Sales" contained in Annex A of the Credit Agreement is replaced with the following text: ""EXCLUDED ASSET SALES" shall mean the sale, transfer, conveyance or other disposition of any assets or properties (i) to any Domestic Wholly-Owned Obligor other than Holdings, (ii) consisting of sales of Inventory in the ordinary course of business, (iii) consisting of licensing of items of intellectual property in the ordinary course of business, (iv) consisting of the sale and leaseback of assets or properties, if permitted by the terms of the Agreement, (v) consisting of sales of obsolete or redundant Equipment or Fixtures not to exceed $500,000 in the aggregate in any Fiscal Year, and (vi) consisting of the assignment for collection of up to $250,000 of uncollectible Accounts each Fiscal Year." (n) The last sentence of paragraph (a) of Annex B of the Credit Agreement is replaced with the following sentence: "It is further understood that Letter of Credit Obligations may be incurred only by a Borrower on its own behalf and that all Letter of Credit Obligations shall be guaranteed by Holdings pursuant to the Guaranty." (o) The text of subparagraph (d)(1) of Annex B of the Credit Agreement is replaced with the following text: "(1) Agent for the benefit of the Lenders, as compensation to the Lenders for such Letter of Credit Obligation, (i) all costs and expenses incurred by Agent or any Lender on account of such Letter of Credit Obligation, (ii) commencing with the month in which such Letter of Credit Obligation is incurred by the Lenders and monthly thereafter for each month during which such Letter of Credit Obligation shall remain outstanding, a fee in an amount equal to (A) the maximum amount available from time to time to be drawn under the applicable Letter of Credit multiplied by (B) a per annum rate of (1) 3.50%, from June 24, 1999 through September 23, 1999, (2) 4.00%, from September 24, 1999 through November 23, 1999, (3) 5.00%, from November 24, 1999 through December 23, 1999 and (4) for each period of thirty consecutive days thereafter, the margin in effect immediately prior to such period PLUS an additional .25% (such that, for example, the margin determined pursuant to this clause (4) will be 5.25% as of December 24, 1999 and 5.50% as of January 24, 2000)." (p) The text of paragraph (d) of Annex C of the Credit Agreement is replaced with the following text: "(d) So long as no Event of Default has occurred and is continuing (i) Holdings may amend SCHEDULE 1.7 to add or replace a Lock Box or -13- Obligor Account or replace the Concentration Account; PROVIDED, HOWEVER, THAT (A) Agent shall have consented in writing to the opening of such account with the relevant bank and (B) prior to the time of the opening of such account or Lock Box, such bank and the applicable Obligor and/or Subsidiary thereof shall have executed and delivered to Agent a triparty blocked account agreement, in form and substance satisfactory to Agent and (ii) Nutrition may invest amounts maintained overnight in the Disbursement Account in accordance with this Agreement in overnight deposits offered by the financial institution at which the Disbursement Account is maintained." (q) The following text is inserted into paragraph (c) of Annex E of the Credit Agreement immediately after the reference to "Fiscal Year" contained therein: "(except, ninety (90) days after the end of Fiscal Year 1999)" (R) Annexes G and J to the Credit Agreement are respectively replaced with Annexes G and J respectively attached as ANNEXES A and B hereto. (s) Schedules 3.10, 6.3 and 6.7 to the Credit Agreement are respectively replaced with Schedules 3.10, 6.3 and 6.7 attached to ANNEX C hereto. (t) Schedules 6.11 and 6.14 attached to ANNEX C hereto are inserted into the Credit Agreement in appropriate order among the Schedules thereto. 3. REPRESENTATIONS AND WARRANTIES. As of the date hereof, Obligors hereby jointly and severally represent and warrant to Agent and Lenders as follows: (a) After giving effect to this Amendment and the transactions contemplated hereby (i) no Default or Event of Default shall have occurred or be continuing and (ii) the representations and warranties of Obligors contained in the Loan Documents shall be true, accurate and complete in all respects on and as of the date hereof to the same extent as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date. (b) The execution, delivery and performance, as the case may be, by each Obligor of this Amendment and the other documents and transactions contemplated hereby are within each Obligor's corporate powers, have been duly authorized by all necessary corporate action (including, without limitation, all necessary shareholder approval) of each Obligor, have received all necessary governmental approvals, and do not and will not contravene or conflict with any provision of law applicable to any Obligor, the certificate or articles of incorporation or bylaws of any Obligor, or any order, judgment or decree of any court or other agency of government or any contractual obligation binding upon any Obligor. (c) This Amendment, the Credit Agreement and each other Loan Document is the legal, valid and binding obligation of each Obligor enforceable against each Obligor in accordance with its respective terms, except to the extent enforceability is limited by -14- bankruptcy, insolvency or similar laws affecting the rights of creditors generally or by application of general principles of equity. 4. CONDITIONS PRECEDENT. This Amendment shall become effective as of the Effective Date, PROVIDED that as of the Effective Date each of the following items shall have been received by Agent or satisfied, as the case may be, all in form and substance satisfactory to Agent: (a) AMENDMENT. This Amendment, duly executed by each Obligor, Agent and Requisite Lenders. (b) REVOLVING CREDIT NOTES. Revolving Credit Notes reflecting each Revolving Credit Loan Commitment set forth on ANNEX A attached hereto, duly executed by each Borrower. (c) SCHEDULES. Schedules 3.10 (after giving effect to the Restructuring), 6.3, 6.7, 6.11 and 6.14 to the Credit Agreement attached to ANNEX C hereto. (d) NO DEFAULT. After giving effect to this Amendment and the transactions contemplated hereby, no Default or Event of Default shall have occurred and be continuing. (e) WARRANTIES AND REPRESENTATIONS. After giving effect to this Amendment and the transactions contemplated hereby, the warranties and representations of each Obligor contained in this Amendment shall be true and correct in all respects. (f) FEES, COSTS AND EXPENSES. Agent shall have received (at Agent's option, by payment or as a charge against the Revolving Loan) (i) for the ratable benefit of each Lender signatory to this Amendment, an amendment fee of $287,500, which fee shall be fully earned as of the date hereof and shall be non-refundable when paid, and (ii) all other fees, costs and expenses, including reasonable attorneys' fees, due pursuant to the Loan Documents, including as incurred by Agent in connection herewith. 5. EFFECT ON LOAN DOCUMENTS. This Amendment is limited to the specific purpose for which it is granted and, except as specifically set forth above (a) shall not be construed as a consent, waiver, amendment or other modification with respect to any term, condition or other provision of any Loan Document and (b) each of the Loan Documents shall remain in full force and effect and are each hereby ratified and confirmed. 6. SUCCESSORS AND ASSIGNS. This Amendment shall be binding on and shall inure to the benefit of Obligors, Agent, Lenders and their respective successors and assigns; PROVIDED that no Obligor may assign its rights, obligations, duties or other interests hereunder without the prior written consent of Agent and Lenders. The terms and provisions of this Amendment are for the purpose of defining the relative rights and obligations of Obligors, Agent and Lenders with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Amendment. -15- 7. ENTIRE AGREEMENT. This Amendment, including all documents attached hereto, incorporated by reference herein or delivered in connection herewith, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other understandings, oral or written, with respect to the subject matter hereof. 8. FEES AND EXPENSES. Obligors shall pay to Agent on demand all fees, costs and expenses owing by Obligors pursuant to Section 11.3 of the Credit Agreement, including those incurred by Agent or otherwise payable in connection with the preparation, execution and delivery of this Amendment. 9. INCORPORATION OF CREDIT AGREEMENT. The provisions contained in Sections 11.9 and 11.14 of the Credit Agreement are incorporated herein by reference to the same extent as if reproduced herein in their entirety with respect to this Amendment. 10. ACKNOWLEDGMENT. Each Obligor hereby represents and warrants that there are no liabilities, claims, suits, debts, liens, losses, causes of action, demands, rights, damages or costs, or expenses of any kind, character or nature whatsoever, known or unknown, fixed or contingent (collectively, the "CLAIMS"), which any Obligor may have or claim to have against Agent or any Lender, or any of their respective affiliates, agents, employees, officers, directors, representatives, attorneys, successors and assigns (collectively, the "LENDER RELEASED PARTIES"), which might arise out of or be connected with any act of commission or omission of the Lender Released Parties existing or occurring on or prior to the date of this Amendment, including, without limitation, any Claims arising with respect to the Obligations or any Loan Documents. In furtherance of the foregoing, each Obligor hereby releases, acquits and forever discharges the Lender Released Parties from any and all Claims that any Obligor may have or claim to have, relating to or arising out of or in connection with the Obligations or any Loan Documents or any other agreement or transaction contemplated thereby or any action taken in connection therewith from the beginning of time up to and including the date of the execution and delivery of this Amendment. Each Obligor further agrees forever to refrain from commencing, instituting or prosecuting any lawsuit, action or other proceeding against any Lender Released Parties with respect to any and all Claims which might arise out of or be connected with any act of commission or omission of the Lender Released Parties existing or occurring on or prior to the date of this Amendment, including, without limitation, any Claims arising with respect to the Obligations or any Loan Documents. 11. CAPTIONS. Section captions used in this Amendment are for convenience only, and shall not affect the construction of this Amendment. 12. SEVERABILITY. Whenever possible each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Amendment shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment. 13. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same -16 instrument. Delivery of an executed counterpart of a signature page to this Amendment by telecopy shall be effective as delivery of a manually executed counterpart of this Amendment. [signature pages follow] -17- IN WITNESS WHEREOF, this Seventh Amendment to Third Amended and Restated Credit Agreement has been duly executed and delivered as of the day and year first above written. WEIDER NUTRITION INTERNATIONAL, INC. WEIDER NUTRITION GROUP, INC. WNG HOLDINGS (INTERNATIONAL) LTD. For each of the foregoing: By: ______________________________ Title: ______________________________ -18- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender By: ______________________________ Title: Duly Authorized Signatory -19- FIRST UNION NATIONAL BANK, successor by merger to Corestates Bank, N.A. By: ______________________________ Title: ______________________________ -20- LASALLE BANK, NATIONAL ASSOCIATION, successor to LaSalle National Bank By: ______________________________ Title: ______________________________ -21- THE BANK OF NOVA SCOTIA By: ______________________________ Title: ______________________________ -22- BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By: ______________________________ Title: ______________________________ By: ______________________________ Title: ______________________________ -23- DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: ______________________________ Title: ______________________________ By: ______________________________ Title: ______________________________ -24- ZIONS FIRST NATIONAL BANK By: ______________________________ Title: ______________________________ -25- Annex A ANNEX G (SECTION 6.20) TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT FINANCIAL COVENANTS Holdings shall not breach or fail to comply with any of the following financial covenants, each of which shall be calculated in accordance with GAAP, consistently applied: (a) MAXIMUM CAPITAL EXPENDITURES. Holdings, on a consolidated basis, shall not make Capital Expenditures during any fiscal period described below that exceed the amount set forth opposite such fiscal period: FISCAL PERIOD AMOUNT ------------- ------ Fiscal Year 1999 $ 11,900,000 Three month period ended August 31, 1999 $ 2,000,000 Six month period ended November 30, 1999 $ 4,000,000 Nine month period ended February 29, 2000 $ 5,500,000 (b) MINIMUM NET WORTH. Holdings, on a consolidated basis, shall maintain at all times Net Worth equal to or greater than $90,000,000. (c) MINIMUM INTEREST COVERAGE RATIO. Holdings, on a consolidated basis, shall have at the end of each Fiscal Quarter described below a ratio of (i) the sum of (A) EBITDA LESS (B) Capital Expenditures LESS (C) taxes paid in cash to (ii) Gross Interest Charges, in the case of (i) the Fiscal Quarter ending August 31, 1999, for the three month period then ended, (ii) the Fiscal Quarter ending November 30, 1999, for the six month period then ended and (iii) the Fiscal Quarter ending February 29, 2000, for the nine month period then ended, equal to or greater than the ratio set forth opposite such Fiscal Quarter: FISCAL QUARTER RATIO -------------- ----- Fiscal Quarter ending August 31, 1999 1.15 to 1.00 Fiscal Quarter ending November 30, 1999 1.45 to 1.00 Fiscal Quarter ending February 29, 2000 1.70 to 1.00 (d) MINIMUM EBITDA. Holdings, on a consolidated basis, shall have at the end of each Fiscal Quarter described below EBITDA, in the case of (i) the Fiscal Quarter ending May 31, 1999, for the 12 month period then ended, (ii) the Fiscal Quarter ending August 31, 1999, for the three month period then ended, (iii) the Fiscal Quarter ending November 30, 1999, for the six month period then ended and (iv) the Fiscal Quarter -26- ending February 29, 2000, for the nine month period then ended, equal to or greater than the amount set forth opposite such Fiscal Quarter: FISCAL QUARTER AMOUNT Fiscal Quarter ending May 31, 1999 $12,400,000 Fiscal Quarter ending August 31, 1999 $ 5,600,000 Fiscal Quarter ending November 30, 1999 $12,900,000 Fiscal Quarter ending February 29, 2000 $22,000,000 Solely for purposes of determining compliance with this Annex G, EBITDA as of (A) the Fiscal Quarter ending May 31, 1999 shall be increased by an amount equal to the amount of actual write-offs taken by Holdings as a result of what is commonly referred to by Holdings as its "SKU reduction program" (the "Program") during the 12 month period then ended in excess of the amount of projected write-offs to be taken by Holdings as a result of the Program reflected in the most recent Projections received by Agent for such period, which excess amount is identified in a writing acceptable and delivered to Agent along with the Financial Statements for such Fiscal Quarter, (B) the Fiscal Quarter ending August 31, 1999 shall be increased by an amount equal to the lesser of $700,000 and the amount of actual write-offs taken by Holdings as a result of the Program during the three month period then ended in excess of the amount of projected write-offs to be taken by Holdings as a result of the Program reflected in the most recent Projections received by Agent for such period, which excess amount is identified in a writing acceptable and delivered to Agent along with the Financial Statements for such Fiscal Quarter, (C) the period of two consecutive Fiscal Quarters ending November 30, 1999 shall be increased by an amount equal to the lesser of $1,400,000 and the amount of actual write-offs taken by Holdings as a result of the Program during the six month period then ended in excess of the amount of projected write-offs to be taken by Holdings as a result of the Program reflected in the most recent Projections received by Agent for such period, which excess amount is identified in a writing acceptable and delivered to Agent along with the Financial Statements for such Fiscal Quarter and (D) the period of three consecutive Fiscal Quarters ending February 29, 2000 shall be increased by an amount equal to the lesser of $2,100,000 and the amount of actual write-offs taken by Holdings as a result of the Program during the nine month period then ended in excess of the amount of projected write-offs to be taken by Holdings as a result of the Program reflected in the most recent Projections received by Agent for such period, which excess amount is identified in a writing acceptable and delivered to Agent along with the Financial Statements for such Fiscal Quarter; PROVIDED that, in any event, (a) all write-offs projected to be taken by Holdings as a result of the Program shall be reflected separately from all other losses and write-offs in all Projections, Financial Statements and other relevant information delivered to Agent and/or Lenders and (b) EBITDA shall not be increased pursuant to this paragraph by more than $2,500,000 in the aggregate. In addition to the foregoing and as an additional covenant of this Annex G, the amount of actual write-offs taken by Holdings as a result of the Program during Fiscal Year 1999 and the first three Fiscal Quarters of Fiscal Year 2000 shall not exceed $5,500,000 in the aggregate. -27- Annex B ANNEX J TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT COMMITMENTS Revolving Credit LENDER LOAN COMMITMENT PERCENTAGE - ------ --------------- ----------- General Electric Capital Corporation ......... $ 38,525,000.00 33.50% First Union National Bank .................... $ 19,837,500.00 17.25% LaSalle Bank, N.A ............................ $ 19,837,500.00 17.25% The Bank of Nova Scotia ...................... $ 9,200,000.00 8.00% Bank Austria Creditanstalt ................... $ 9,200,000.00 8.00% Corporate Finance, Inc. Dresdner Bank AG, New York and ............... $ 9,200,000.00 8.00% Grand Cayman Branches Zions First National Bank .................... $ 9,200,000.00 8.00% --------------- ----------- Total: ....................................... $115,000,000.00 100.00% =============== =========== -28- Annex C Schedules 3.10, 6.3, 6.7, 6.11 and 6.14 to the Third Amended and Restated Credit Agreement [to be attached by Obligors] -29- EX-10.13 3 EXHIBIT 10.13 EMPLOYMENT AGREEMENT BRUCE J. WOOD PARTIES This Employment Agreement (this "Agreement") effective as of June ___, 1999, (the "Effective Date") is entered into by and between Weider Nutrition Group, Inc., a Utah corporation with offices at 2002 South 5070 West, Salt Lake City, Utah 84104-4836 (the "Company") and Bruce J. Wood residing at 501 Stonegate Lane, Winston-Salem, NC 27104 ("Executive"). TERMS OF AGREEMENT In consideration of the mutual covenants in this Agreement, the parties agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the terms listed below shall be defined as indicated. AFFILIATE: A domestic or foreign business entity controlled by, controlling, under common control with, or in joint venture with, the applicable person or entity. ANNUAL BONUS: See Sectionn 3.2. BASE SALARY: The salary described in Section 3.1 for a 12 month period. BOARD: The Board of Directors of the Company. CHANGE IN CONTROL: The occurrence of both (a) and (b) below. (a) CHANGE IN THE BOARD. There is a change in the composition of the Board over a period of twelve consecutive months (or less) such that a majority of the Board members (rounded up to the nearest whole number) ceases to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board; and (b) One of: (i) SALE OF ASSETS. The sale of all or substantially all of the assets and business of the Company in substantially a single transaction; (ii) MERGER. The merger or consolidation of the Company with and into another corporation if, following such merger or consolidation, persons who were not direct or indirect shareholders of the Company immediately prior to such event (other than persons in which such original shareholders themselves have an interest) ("New Shareholders"), will collectively own stock in the surviving corporation representing both (A) more than 30% of the surviving corporation's total equity value and (B) more than that percentage of the surviving corporation's total equity value owned by the Weider Group, PROVIDED, HOWEVER, that such merger or consolidation shall not be covered by this paragraph (ii) if the Weider Group owns 30% or more of the surviving corporation's total equity value and no New Shareholders who constitute a "group" within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 own more than that percentage of the surviving corporation's total equity value owned by the Weider Group; or (iii) SALE OF STOCK. Acquisition of 50% or more of the fair market value of the outstanding capital stock of the Company by one or more other persons if, following such acquisition, persons who were not direct or indirect shareholders of the Company immediately prior to such event (other than persons in which such original shareholders themselves have an interest), will collectively own stock of the Company representing more than 50% of the Company's total equity value. COMPETITION DATE: See Section 7.4. CONFIDENTIAL INFORMATION: All secret proprietary information of the Company and its Affiliates, not otherwise publicly disclosed, whether or not discovered or developed by Executive, known by Executive as a consequence of Executive's employment with the Company at any time as an employee or agent. Without limiting the generality of the foregoing, such proprietary information shall include (a) customer lists; (b) acquisition, expansion, marketing, financial and other business information and plans; (c) research and development; (d) computer programs; (e) sources of supply; (f) identity of specialized consultants and contractors and confidential information developed by them for the Company and its Affiliates; (g) purchasing, operating and other cost data; (h) special customer needs, cost and pricing data; (i) manufacturing methods; (j) quality control information; (k) inventory techniques; (l) employee information; any of which information is not generally known in the industries in which the Company and its Affiliates are conducting business or shall at any time during Executive's employment conduct business including (without limitation) the Nutraceutical Industry. Confidential Information also includes the overall business, financial, expansion and acquisition plans of the Company and its Affiliates, and includes information contained in manuals, memoranda, projections, minutes, plans, drawings, designs, formula books, specifications, computer programs and records, whether or not legended or otherwise identified by the Company and its Affiliates as Confidential Information, as well as information which is the subject of meetings and discussions and not so recorded. Notwithstanding the foregoing, Confidential Information shall not include (i) information, from a source other than the Company, which is in Executive's possession on the date hereof or subsequently becomes available to Executive so long as such information was lawfully obtained and is not, to the knowledge of Executive, subject to another confidentiality agreement or obligation of secrecy to 2 the Company or another person, or (ii) information which becomes generally available to the public other than directly or indirectly as a result of disclosure by Executive. CLOSING PRICE: The closing price, as reported in the Wall Street Journal, of a share of Common Stock (or any successor Company's equivalent shares) on the principal exchange on which such shares are traded (currently the New York Stock Exchange), subject to equitable adjustment for stock splits, recapitalizations or similar transactions including stock received or exchanged on any merger, consolidation or similar event. COMMON STOCK: Class A common stock of Company. DEVELOPMENTS: Those discoveries, inventions, improvements, advances, methods, practices and techniques, concepts and ideas, whether or not patentable, relating to or arising out of Executive's employment activities with the Company and/or the Products. EFFECTIVE DATE: See preamble. EMPLOYMENT PERIOD: The period from the Effective Date through the Expiration Date, except as terminated earlier or extended as provided in this Agreement. EXPIRATION DATE: May 31, 2002. INVENTIONS: Those discoveries, developments, concepts and ideas, whether or not patentable, relating to the present, future and prospective activities and Products and Services of the Company and its Affiliates, which such activities and Products and Services are known to Executive by virtue of Executive's employment with the Company and its Affiliates. OPTION PLAN: The Company's 1997 Equity Plan. OPTIONS: See Section 3.3. NUTRACEUTICAL INDUSTRY: The manufacture and sale of nutritional products whether in the form of drinks, bars, herbs, minerals, supplements, powders, vitamins or pills or otherwise but not the food and beverage industry generally. PRODUCTS AND SERVICES: All products or services sold, rented, leased, rendered or otherwise made available to its customers by the Company and its Affiliates, or otherwise the subject of the business of the Company and its Affiliates. WEIDER GROUP: Weider Health and Fitness (or its successor) and its Affiliates. 2. EMPLOYMENT. Subject to the terms and conditions of this Agreement, Executive hereby accepts employment as the Chief Executive Officer of the Company reporting to the Board and agrees to perform to the best of Executive's ability, experience and talent those acts and duties and to furnish those services to the Company and its Affiliates in connection with and related to such position as the Board shall from time to time direct, provided such acts and 3 directives are consistent with the duties of a chief executive officer. Executive shall use Executive's best and most diligent efforts to promote the interests of the Company and its Affiliates. Executive shall devote his full business time to his duties to the Company. Executive shall be provided with secretarial services, an office and similar support services and facilitates as appropriate to Executive's position and responsibilities. The Board shall also nominate Executive for a seat on the Board 3. Compensation and Benefits; Disability. 3.1. SALARY. During the Employment Period, the Company shall pay Executive a Base Salary at an annual rate of $400,000, payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions. Executive's Base Salary shall be subject to review and increase in the sole discretion of the Compensation Committee of the Board. 3.2. ANNUAL BONUS. In addition to Executive's Base Salary, during the Employment Period Executive shall be eligible to participate in a Bonus Plan established by the Board or the Board's Compensation Committee for senior executives. The Bonus Plan will correspond to the Company's fiscal year and payments under the Bonus Plan shall be paid to Executive within 120 days after the end of the Company's fiscal year. Executive's target bonus under the Bonus Plan shall be not less than 150% of his Base Salary actually paid for the applicable period. For the period ending on the last day of the Company's fiscal year ending in 2000, Executive's actual Annual Bonus shall not be less than 100% of his Base Salary actually paid in such fiscal year. If, for any future Company fiscal year, the Company achieves the targets of its financial plan approved by the Board, Executive's Annual Bonus shall not be less than 100% of his Base Salary actually paid for such fiscal year. Subject to the foregoing, 80% of the amount of Executive's Annual Bonus under the Bonus Plan shall be determined on the basis of reasonable quantitative factors and 20% of the amount of Executive's Annual Bonus under the Bonus Plan shall be determined on the basis of reasonable qualitative factors. 3.3. STOCK OPTIONS. As of the Effective Date Executive shall be granted options to purchase shares of Common Stock (the "Options") subject to the following conditions: (a) (i) 500,000 Options shall become exercisable in equal installments on the first three anniversaries of the date of grant and all shall become exercisable upon a Change in Control; (ii) 100,000 Options shall become exercisable in equal installments upon the second and third anniversaries of the date of grant, and all shall become exercisable upon the happening of any Change in Control which is consummated on or after the first anniversary of the date of grant. (b) The Options shall be exercisable at the Closing Price on the Effective Date. 4 (c) The Options shall be subject to the terms and conditions of the Option Plan and the Company's form of Option Agreement pursuant thereto. 5 3.4. RELOCATION. (a) Executive shall promptly sell his principal residence in North Carolina (the "Residence") in a commercially reasonable manner. Upon Executive's furnishing to Company adequate documentation of the amount of his tax basis in the Residence and the proceeds realized upon its sale the Company shall reimburse (the "Loss Reimbursement") Executive for the first $100,000 of any excess of the tax basis over the proceeds and 50% of any remaining excess. Upon furnishing of adequate documentation, the Company shall also reimburse Executive for any income taxes he is required to pay by reason of the Loss Reimbursement. (b) Upon furnishing of adequate documentation, the Company shall reimburse Executive for up to $25,000 in reasonable relocation expenses in connection with relocating his household to the Salt Lake City area. 3.6. OTHER BENEFITS. Executive shall be entitled, during the Employment Period, to participate, in any life insurance, disability insurance, health insurance or hospital plans or other fringe benefits or benefit plans presently in effect and hereafter maintained by the Company for executives generally. Executive shall also be entitled to an automobile allowance in the amount of $800 per month. 3.7. VACATION. Executive shall be entitled to such amount of vacation time as is the current Company policy for senior executives, but in no event less than four weeks per year. 3.8. EXPENSES. Pursuant to the Company's customary policies in force at the time of payment, Executive shall be promptly reimbursed, against presentation of vouchers or receipts therefor, for all authorized expenses properly incurred by Executive on the Company's behalf in the performance of Executive's duties hereunder. 4. EMPLOYMENT PERIOD. 4.1. TERMINATION OF EMPLOYMENT PERIOD. The Employment Period shall continue through the Expiration Date unless terminated prior to such date by the earliest of (a) Executive's discharge for cause pursuant to Section 5.1, (b) Executive's discharge without cause pursuant to Section 5.3, (c) Executive's death, (d) Executive's termination because of disability, pursuant to Section 5.4(b) or (e) termination of this Agreement by Executive pursuant to Section 5.2. In all events, the post employment provisions of Section 7 shall survive termination of the Employment Period. 5. TERMINATION OF EMPLOYMENT. 5.1. BY COMPANY FOR CAUSE. The Company may discharge Executive and terminate this Agreement for cause. As used in this Section, "cause" shall mean any one or more than one of the following: 6 (a) Gross or willful misconduct of Executive during (i) the Employment Period or (ii) any prior period of employment of Executive in an executive capacity by any person or entity if not disclosed to the Company prior to the execution hereof; (b) Executive's conviction of a fraud or felony during the Employment Period; (c) Failure to follow substantive written directions or resolutions of the Board; (d) drug or alcohol abuse; or (e) any material breach of any of the terms of this Agreement which is not corrected after notice and a reasonable cure period not to exceed 15 days. Upon discharge of Executive for cause, the Company shall be relieved and discharged of all obligations to make payments to Executive which would otherwise be due under this Agreement, except as to Base Salary earned for actual services rendered prior to the date of discharge. 5.2. BY EXECUTIVE. Executive may terminate this Agreement for cause. As used in this Section 5.2, "cause" shall mean the Company's material breach of any of the terms of this Agreement. It shall also constitute "cause" hereunder if a business entity not affiliated with the Weider Group acquires 50% or more of the fair market value of the outstanding capital stock of the Company and Executive does not become the chief executive officer of the principal operating business of such entity. 5.3. BY COMPANY WITHOUT CAUSE. The Company may, on 30 days written notice to Executive, terminate this Agreement without cause at any time during the Employment Period. 5.4. TERMINATION ON EXECUTIVE'S DEATH OR DISABILITY. (a) This Agreement and the Employment Period shall terminate, and the Company shall be relieved and discharged of all obligations to make further payment to Executive after the date of the death of Executive, except as described in subsection (c). (b) If, during the Employment Period, Executive shall become ill, disabled, or otherwise incapacitated so as to be unable regularly to perform Executive's usual duties for a period in excess of 180 total days during any consecutive 12 months, then the Company shall have the right to terminate this Agreement on 10 days' notice to Executive. (c) In case of terminations of employment described in subsections (a) and (b), the Company shall pay to Executive, or his estate, all salary earned for actual services rendered prior to the date of termination and, in addition, a pro-rated bonus at the level of 100% of his Base Salary (calculated as the product of his then rate of Annual Base Salary and the fraction of the fiscal year elapsed through the date of termination of Executive's employment). 7 6. PAYMENTS ON CERTAIN TERMINATIONS. 6.1. SEVERANCE PAYMENTS. Upon a termination of Executive's employment pursuant to Sections 5.2 or 5.3, (a) the Company shall make payments to Executive, as liquidated damages in lieu of all other claims, of an amount equal to the sum of (i) Executive's Base Salary and (ii) the greater of Executive's Annual Bonus for the prior year or Executive's Base Salary. Such amount shall be paid in 12 equal monthly installments. The Company shall have no obligation to make such payments in the event of a breach by Executive of Executive's covenants in Section 7, and (b) (i) all Options that would have become exercisable on the next following anniversary of the date of grant shall thereupon become exercisable and, (ii) all otherwise exercisable Options shall remain exercisable until at least the 90th day following such termination of employment. 6.2. TREATMENT OF STOCK OPTIONS UPON DEATH OR DISABILITY. Upon a termination of Executive's employment pursuant to Sections 5.4(a) or (b), all Options that would have become exercisable on the next following anniversary of the date of grant shall thereupon become exercisable. 7. INVENTIONS, CONFIDENTIAL INFORMATION AND RELATED MATTERS. 7.1. ASSIGNMENT OF INVENTIONS. All Inventions which are at any time made by Executive, acting alone or in conjunction with others, including those made (a) during Executive's employment under this Agreement, or (b) any extensions or modifications hereof, or (c) if based on or related to any Confidential Information, made by Executive within one year after the termination of such employment or retention, whichever shall occur later, shall be the property of the Company and its Affiliates. Executive agrees that Executive shall, at the cost and expense of the Company and its Affiliates, execute formal application for U.S. and other patents, and also do all other acts and things (including, among others, the execution and delivery of instruments of further assurance or confirmation) deemed by the Company and its Affiliates to be necessary or desirable at any time to perfect the full assignment to the Company and its Affiliates of Executive's right and title (if any) to such Inventions. 7.2. RESTRICTIONS ON USE AND DISCLOSURE. Except as required by Executive's duties hereunder, Executive shall never, directly or indirectly, use, publish, disseminate or otherwise disclose any Confidential Information or Inventions without the prior written consent of the Board. Nothing in this Section shall prevent disclosure of information which has been completely disclosed in a published patent or other integrated publication of general circulation, nor shall this Section govern the right to use Inventions for which a patent may have issued. 7.3. RETURN OF DOCUMENTS AND MATERIALS. Upon termination of Executive's employment, Executive shall forthwith deliver to the Company all Confidential 8 Information and Inventions embodied in any form, including all copies, then in Executive's possession or control, whether prepared by Executive or others, as well as all other Company property in Executive's possession or control. 7.4. COMPETITIVE ACTIVITIES. From the date hereof and (a) during the term of this Agreement and (b) thereafter until the "Competition Date" which shall be (i) in the case of terminations of Executive's employment pursuant to Sections 5.2 or 5.3, the six month anniversary of the date of such termination, or (ii) in the case of any other termination of Executive's employment, the twelve month anniversary of the date of such termination, Executive shall not, directly or indirectly, within the territorial United States, become an employee or consultant or otherwise render services to, lend funds to, serve on the board of, invest in (other than as a 1% or less shareholder of a publicly-traded corporation) or guarantee the debts of, any of: TwinLabs, Rexall Sundown, Leiner Health Products, Perrigo, Nature's Bounty, General Nutrition Corporation, the Solgar division of American Home Products, NuSkin, Balance Bar and Warner Lambert-Quanterra, or any newly created, successor or acquired businesses of same which competes with the Company in the Nutraceutical Industry or any business newly created by Executive following termination of employment which competes with the Company in the Nutraceutical Industry. The Board may in its sole discretion give Executive written approval to engage in such activities or render such services after termination of this Agreement if Executive and such prospective firm or business organization gives the Company written assurances, satisfactory to the Board in its sole discretion, that the integrity of the Confidential Information, the Inventions and the good will of the Company and its majority owned Affiliates will not be jeopardized by such employment. Executive shall, for a period of 12 months after the Competition Date notify the Company of any change in address and identify each subsequent employment or business activity in which Executive shall engage during such 12 months, stating the name and address of the employer or business organization and the nature of Executive's position. 7.5. SOLICITATION OF EXECUTIVES. From the date hereof until 24 months after the termination of Executive's employment with the Company, Executive shall not, without the prior written approval of the Board of the Company, directly or indirectly, solicit, raid, entice or induce any person who presently is or at any time during the term hereof shall be an employee of the Company or its majority owned Affiliates and who was or is eligible for a grant under the Option Plan or any successor plan, to become employed by any other person, firm or corporation in any business in competition with the Company. 8. NO OTHER CONTRACTS. Executive represents and warrants that neither the execution and delivery of this Agreement by Executive nor the performance by Executive of Executive's obligations hereunder, shall constitute a default under or a breach of the terms of any other agreement, indenture or contract to which Executive is a party or by which Executive is bound, nor shall the execution and delivery of this Agreement by Executive or the performance of Executive's duties and obligations hereunder give rise to any claim or charge against either 9 Executive or the Company based upon any other contract, indenture or agreement to which Executive is a party or by which Executive is bound. 9. NOTICES. Any notices or communication given by any party hereto to the other party shall be in writing and personally delivered or mailed by registered or certified mail, return receipt requested, postage prepaid. Notices shall be addressed to the parties at the addresses set forth above. Mailed notices shall be deemed given when received. Any person entitled to receive notice may designate in writing, by notice to the others, such other address to which notices to such party shall thereafter be sent. 10. MISCELLANEOUS. 10.1. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties in respect of its subject matter and supersedes all prior oral and written agreements and understandings between the parties with respect to such subject matter. 10.2. AMENDMENT; WAIVER. This Agreement may not be amended, supplemented, canceled or discharged, except by written instrument executed by the party affected thereby. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any preceding or succeeding breach of this Agreement. 10.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations of this Agreement shall bind and inure to the benefit of any successor or successors of the Company by reorganization, merger or consolidation, or any assignee of all or substantially all of the Company's business and properties; Executive's rights or obligations under this Agreement may not be assigned by Executive. 10.4. HEADINGS. The headings contained in this Agreement (except those in Section 1) are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 10.5. GOVERNING LAW; INTERPRETATION. This Agreement shall be construed in accordance with and governed for all purposes by the laws and public policy of the State of Utah applicable to contracts executed and to be wholly performed within such State. Service of process in any dispute shall be effective (a) upon the Company, if served on any senior officer of the Company; (b) upon Executive, if served at Executive's residence last known to the Company. Executive acknowledges that breach of Sections 7.1 through 7.5 would entail irreparable injury and that, in addition to the Company's other express and implied remedies, the Company shall be entitled to injunctive and other equitable relief to prevent any actual, intended or likely such breach. 10.6. FURTHER ASSURANCES. Each party agrees at any time, and from time-to-time, to execute, acknowledge, deliver and perform, and/or cause to be executed, acknowledged, delivered and performed, all such further acts, deeds assignments, transfers, 10 conveyances, powers of attorney and/or assurances as may be necessary, and/or proper to carry out the provisions and/or intent of this Agreement. 10.7. GENDER; SINGULAR/PLURAL. In this Agreement, the use of one gender (e.g., "he", "she" and "it") shall mean each other gender; and the singular shall mean the plural, and vice versa, all as the context may require. 10.8. SEVERABILITY. The parties acknowledge that the terms of this Agreement are fair and reasonable at the date signed by them. However, in light of the possibility of a change of conditions or differing interpretations by a court of what is fair and reasonable, the parties stipulate as follows: if any one or more of the terms, provisions, covenants and restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; further, if any one or more of the provisions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed, by limiting or reducing it, so as to be enforceable to the extent compatible with then applicable law. 10.9. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which will be deemed an original. 10.10. INDEMNIFICATION. The Company indemnifies Executive to the full extent available under the Company's Articles of Incorporation and Bylaws. EXECUTION The parties, intending to be legally bound, executed this Agreement as of the date first above written, whereupon it became effective in accordance with its terms. Attest: - ------------------------------------- By: Witness ----------------------------------- - ------------------------------------- -------------------------------------- 11 EX-21 4 EXHIBIT 21 SUBSIDIARIES OF WEIDER NUTRITION INTERNATIONAL, INC.
ENTITY NAME STATE OF INCORPORATION PARENT CORPORATION ----------- ---------------------- ------------------ Weider Nutrition Group, Inc. Utah Weider Nutrition International, Inc. WNG Holdings (International) Ltd. Nevada Weider Nutrition Group, Inc. Weider Nutrition Group (Canada) Ltd. Canada (Nova Scotia) WNG Holdings (International) Ltd. Weider Nutrition (WNI) Ltd. United Kingdom (England) WNG Holdings (International) Ltd. Weider Nutrition Group Limited United Kingdom (England) Weider Nutrition (WNI) Ltd. Weider Nutrition BV Netherlands Weider Nutrition (WNI) Ltd. Weider Nutrition Limited United Kingdom (England) Weider Nutrition BV Weider Fitness SARL France Weider Nutrition BV Weider Nutrition SL Spain Weider Nutrition BV Weider Nutrition Italia SrL Italy Weider Nutrition BV Weider Nutrition GmbH Germany Weider Nutrition BV Aktivkost GmbH Germany Weider Nutrition GmbH Food-Tech Handelsgesellschaft mbH Germany Weider Nutrition GmbH HPH Hamburger Pharma Handelsgesellschaft mbH Germany Weider Nutrition GmbH Haleko Management GmbH Germany Weider Nutrition GmbH Haleko Hanseatisches Lebensmittelkontor OHG Germany Weider Nutrition GmbH (99%) & Haleko Management GmbH (1%) Power Gym Ltd. United Kingdom (England) Haleko Hanseatisches Lebensmittelkontor OHG Haleko Italia SrL Italy Haleko Hanseatisches Lebensmittelkontor OHG (50%) Sy-Fra Sportalimenti di Frank Sambo & Co. SAS Italy Haleko Hanseatisches Lebensmittelkontor OHG (50%) Sports Direct Ltd. United Kingdom (England) Power Gym Ltd. (50%)
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MAY 31, 1999, 1998 AND 1997 (IN THOUSANDS)
ADDITIONS BALANCE AT CHARGED TO ADDITIONS BEGINNING COSTS/ VIA BALANCE AT DESCRIPTION OF YEAR EXPENSES ACQUISITION DEDUCTIONS END OF YEAR ----------- ----------- ----------- ----------- ----------- ALLOWANCE FOR DOUBTFUL ACCOUNTS: 1997 ....................... $ 137 $ 151 $ -- $ (76) $ 212 ----------- ----------- ----------- ----------- ----------- 1998 ....................... $ 212 $ 273 $ -- $ (194) $ 291 ----------- ----------- ----------- ----------- ----------- 1999 ....................... $ 291 $ 1,094 $ 977 $ (134) $ 2,228 ----------- ----------- ----------- ----------- ----------- SALES RETURNS AND ALLOWANCES: 1997 ....................... $ 1,218 $ 10,126 $ -- $ (10,356) $ 988 ----------- ----------- ----------- ----------- ----------- 1998 ....................... $ 988 $ 15,396 $ -- $ (14,734) $ 1,650 ----------- ----------- ----------- ----------- ----------- 1999 ....................... $ 1,650 $ 23,048 $ 196 $ (21,068) $ 3,826 ----------- ----------- ----------- ----------- -----------
EX-23.1 5 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-27973 of Weider Nutrition International, Inc. on Form S-8 of our report dated August 13, 1999, appearing in this Annual Report on Form 10-K of Weider Nutrition International, Inc. for the year ended May 31, 1999. Our audits of the consolidated financial statements referred to in our aforementioned report also included the financial statement schedule of Weider Nutrition International, Inc., listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Salt Lake City, Utah August 27, 1999 EX-27.1 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF WEIDER NUTRITION INTERNATIONAL, INC. AS OF, AND FOR THE YEAR ENDING MAY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL REPORT ON FORM 10-K OF WEIDER NUTRITION INTERNATIONAL, INC. 1000 12-MOS MAY-31-1999 MAY-31-1999 1,926 0 61,752 2,228 63,658 138,207 66,642 17,770 256,029 157,860 4,723 0 0 250 91,530 256,029 335,488 335,488 221,062 221,062 118,463 0 10,179 (14,017) (5,239) (8,778) 0 0 0 (8,778) (.35) (.35)
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