-----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, G7XUtC0xyimDa+nRfuHwKdBva0bWZG2j1BOi5gdbvWty6Fhw2x/3WdLF7paIU2AF g5fDJVOdBd/DKA0YRDs+iQ== 0000912057-01-530718.txt : 20010830 0000912057-01-530718.hdr.sgml : 20010830 ACCESSION NUMBER: 0000912057-01-530718 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010531 FILED AS OF DATE: 20010829 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: 1934 Act SEC FILE NUMBER: 001-14608 FILM NUMBER: 1727086 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 a2058234z10-k.txt FORM 10-K 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, 2001 / / 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 26,249,436 (as of August 3, 2001). The aggregate market value of the voting stock held by non-affiliates of the Registrant is approximately $ 21,600,000 (as of August 3, 2001). DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for its 2001 Annual Meeting of Shareholders, which will subsequently 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 THAT MAY AFFECT FUTURE RESULTS INCLUDE, BUT ARE NOT LIMITED TO: DEPENDENCE ON INDIVIDUAL PRODUCTS, DEPENDENCE ON INDIVIDUAL CUSTOMERS, THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING, THE IMPACT OF NEW FOOD AND DRUG ADMINISTRATION ("FDA") DIETARY SUPPLEMENT REGULATIONS ON THE COMPANY'S PRODUCTS AND MARKETING PLANS, MARKET AND INDUSTRY CONDITIONS INCLUDING PRICING, DEMAND FOR PRODUCTS, LEVEL OF TRADE INVENTORIES AND RAW MATERIALS AVAILABILITY AND PRICING, THE SUCCESS OF PRODUCT DEVELOPMENT AND NEW PRODUCT INTRODUCTIONS INTO THE MARKETPLACE, CHANGES IN LAWS AND REGULATIONS, LITIGATION AND GOVERNMENT REGULATORY ACTION, LACK OF AVAILABLE PRODUCT LIABILITY INSURANCE FOR PRODUCTS CONTAINING EPHEDRA, UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS, ADVERSE PUBLICITY REGARDING THE CONSUMPTION OF NUTRITIONAL SUPPLEMENTS, 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 875 stock keeping units ("SKUs") domestically and internationally. The Company has a portfolio of recognized brands, including Schiff(R), Weider(R), American Body Building(TM), Tiger's Milk(R), Multipower(R) and Multaben that are primarilY marketed through mass market, health food store and health club and gym distribution channels. The Company markets its branded nutritional supplement products, both domestically and internationally, in four principal categories: o vitamins, minerals and specialty; o sports nutrition; o weight management; and o nutrition bars. The Company also markets a line of sportswear in Europe, primarily in Germany, under the Venice Beach brand. 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 The Company believes several factors account for the historical growth of the nutritional supplement market, including increased public awareness of the health benefits of nutritional supplements, favorable demographic trends toward older Americans who are more likely to consume nutritional supplements, the rise of alternative medicine and the holistic health movement and successful product introductions. 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. 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 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 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 trends present in the domestic market are also present in the international market. 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, marketing and promotional expenditures as well as the brand names' long-standing consumer relationships. The Company believes that the promotional support and investment in these brands enhances the Company's ability to address heightened competitive pressures as well as introduce innovative new products. The following table identifies the Company's leading nutritional supplement brands:
BRAND PRIMARY CHANNEL ----- --------------- Schiff(R)........................... Food, drug, mass market & health food stores Weider(R)........................... Food, drug, mass market & health food stores American Body Building(TM).......... Health clubs and gyms Tiger's Milk(R)..................... Food, drug, mass market Multipower(R)....................... Health clubs and gyms Multaben............................ Food, mass market
The Company markets its branded nutritional supplement products both domestically and internationally in four principal categories: o vitamins, minerals and specialty; o sports nutrition; o weight management; and o nutrition bars. 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 also markets a line of sportswear in Europe, primarily in Germany, under the Venice Beach brand. 3 VITAMINS, MINERALS AND SPECIALTY. The Company markets a complete line of vitamins, minerals and specialty supplements through the Schiff(R) brand. These products are offered in various forms, including primarily tablets, capsules and softgels. The Schiff(R) brand is distributed primarily though the mass market and health food stores. The Company's specialty supplements include certain joint health products marketed under the Schiff(R) brand, including Move Free(TM) and certain chondroitin and glucosamine compounds. The Company's Schiff(R) vitamin products are designed to provide consumers with essential vitamins and minerals as supplements to their diet. Schiff(R) 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. 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 expended during exercise and training. 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 support muscle growth, increase energy levels and stamina, control weight and lose fat. Consumer focus includes athletes, bodybuilders, fitness enthusiasts, "weekend warriors" and other "on-the-go" individuals. The Company's sports nutrition products deliver nutritional supplements through a variety of forms, including powdered drink mixes, tablets, capsules, nutrition bars and beverages. The Company markets its sports nutrition products domestically under the American Body Building(TM) and Weider(R) brands. The American Body Building(TM) brand is primarily distributed to health clubs and gyms through the Company's network of independent distributors. American Body Building(TM) products are primarily bottled and powdered drinks for energy, recovery and weight control. The Weider(R) brand is primarily distributed through food, drug and mass market retailers as well as health food stores. Weider(R) products are primarily powdered drinks and supplements to support muscle growth, maintain stamina and control weight. WEIGHT MANAGEMENT. The Company manufactures, markets and distributes 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. Weight management products under the American Body Building(TM) brand, 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 Company markets certain other products through mass market intended to aid in weight management, support muscle mass and support consumers' efforts to reduce fat. NUTRITION BARS. The Company's nutrition bars category includes its Tiger's Milk(R) and Fi-Bar(R) product lines. The Tiger's Milk(R) product line, which has been marketed for over 30 years, includes nutrition bars that supply significant amounts of protein, vitamins and other essential nutrients with less fat than a traditional candy bar. 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) and Fi-Bar(R) brands are primarily distributed through mass market retailers, convenience and health food stores. The Company also markets nutrition bars under its Schiff(R), American Body Building(TM) and Weider(R) brands. 4 INTERNATIONAL MARKETS. As a result of the July 1998 acquisition of Haleko, the Company now markets the Multipower(R) and Multaben nutritional and health food supplement brands in Europe in addition to the Weider(R) brand. Haleko's leading sports nutrition brand is Multipower(R), which includes a wide variety of products primarily marketed to health clubs and gyms. Haleko also markets nutrition products under the Multaben brand primarily to health food stores, which includes a variety of beverages, soups and other meal replacement products as well as nutrition bars. Haleko also markets a line of sportswear under the Venice Beach brand. The sportswear products are sold primarily in Germany to department stores, health clubs, gyms and specialty sportswear retail stores. Sales of sportswear represented approximately 39%, 35% and 34% of Haleko's revenues for fiscal 2001, 2000 and 1999, respectively. The Company also markets its brands such as Weider(R) and Schiff(R) on an export basis to South America, eastern Europe, the Middle East and the Pacific Rim through a network of distributors managed from the Company's Salt Lake City headquarters. PRIVATE LABEL. The Company manufactures capsules, tablets and powdered drink mixes for other marketers of nutritional supplements and certain retail customers. These independent marketers and retail customers market the products manufactured by the Company under their own (private) brand names or labels. Effective May 1, 2001, the Company discontinued manufacture of private label powders in connection with the sale of its powders facility. SALES AND DISTRIBUTION The Company's products are currently sold domestically in over 48,000 retail outlets in all 50 states. The Company's mass market customers include: o mass merchandisers such as Wal-Mart, Target and Kmart; o drug stores such as Walgreens, CVS, Rite Aid and Eckerd; o warehouse clubs such as Costco, Sam's Club and BJ's; and o 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 international markets and its own network of distributors to health clubs and gyms (such as Bally's Health and Fitness and Gold's Gym). In addition, the Company provides private label manufacturing for certain retail customers where the Company also distributes its branded products. Internationally, the Company sells or distributes its products in approximately 75 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 primarily distributed through gyms and fitness studios, health food and specialty stores and pharmacies. Some products are 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. MARKETING The Company markets its products using a mix of trade and consumer promotions, television, radio and print media advertising and consumer education. The Company's marketing and advertising expenditures were approximately $47.6 million in fiscal 2001, $44.0 million in fiscal 2000, and $35.9 million in fiscal 1999. 5 During fiscal 2001, the Company continued to execute its brand building support for its core brands, particularly relating to its Schiff(R) Move Free(TM) joint health products. National television and radio commercials featuring Schiff(R) Move Free(TM) appeared on syndicated radio and television programs, and national and cable television stations. During fiscal 2001, the Company also implemented the transition of the name of its Schiff(R) Pain Free(TM) product line to Schiff(R) Move Free(TM) to comply with new regulations published by the FDA. The Company promotes its products in various print media sources, including: o consumer magazines such as LADIES HOME JOURNAL, ARTHRITIS TODAY, MAXIM, ESPN MAGAZINE; o target publications such as FITNESS RUNNER; o trade magazines such as WHOLE FOODS, VITAMIN RETAILER and MASS MARKET RETAILER; and o several magazines published by Weider Publications Inc. ("Weider Publications"), an affiliate of the Company, including MUSCLE AND FITNESS, FLEX, SHAPE, MEN'S FITNESS AND NATURAL HEALTH. A key part of the Company's marketing strategy is to help educate consumers about innovative, safe and beneficial nutritional supplement products. The Company participates in consumer education at conferences and at numerous trade and consumer shows representing all current distribution channels. The Company also sponsors and attends 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 is also developing websites to provide additional information to consumers, customers and investors. PRODUCT RESEARCH AND DEVELOPMENT The Company intends to continue its commitment to research and development to create safe and efficacious 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. Product development is important in the nutritional supplement industry in order to capitalize on new market opportunities, strengthen relationships with customers by meeting demand and increase market share. The Company conducts research and development in Company-owned facilities and, from time to time, utilizes strategic third-parties to further research and development initiatives. To support its commitment to research and development, the Company hires scientific and technical personnel and invests in formulation, processing and packaging development, testing of efficacy and shelf life stability and market research with consumers. The Company's product research and development expenditures were approximately $5.7 million in fiscal 2001, $4.9 million in fiscal 2000, and $4.6 million in fiscal 1999. MANUFACTURING AND PRODUCT QUALITY The Company manufactures approximately 85% 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: o capsule and tablet manufacturing, filling and packaging; o sterile liquid beverage processing, bottling and packaging; and o processing, extrusion, coating and packaging of nutritionally fortified nutrition bars. 6 The Company has invested in production line flexibility to accommodate various filling sizes, weights or counts of product and final shipped unit configurations to fulfill customer and ultimate consumer needs. The Company currently manufactures its domestic products in two U.S. facilities. The Company's state-of-the-art capsules and tablets manufacturing facility located in Salt Lake City, Utah, includes the Company's main distribution center and primary administrative offices. The Company's packaging, counting and filling operations are fully computerized to ensure accuracy and compliance with weights and measures regulations. 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 maintains and operates an MRP System fully integrated with distribution, warehousing and quality control, that provides real time lot and quality tracking of raw materials, work in progress and finished goods. The Company also currently operates a beverage facility located in Walterboro, South Carolina. In order to enhance overall beverage manufacturing efficiencies at the Walterboro facility, the Company closed its Las Vegas, Nevada facility in fiscal 2001 and integrated the operations to the Company's South Carolina facility. The Company also sold its powders production facility during the fourth quarter of fiscal 2001. 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's facility located in Madrid, Spain primarily produces powders for distribution in Spain, France and Italy. The Company is continuously upgrading its facilities and enhancing its manufacturing capabilities through new equipment purchases and technological improvements. The Company is committed to providing the highest quality products. The Company's Salt Lake City capsule and tablet facility is designed and operated to meet USP compliance standards. The Company was awarded an "A" rating by the National Nutritional Foods Association. The Company's quality management systems are detailed and rigorous, and include a supplier certification selection process and other analytical processes and procedures. The quality management systems also include professionally equipped and staffed analytical laboratories to assure raw material acceptance as well as in-process and finished product evaluation for compliance to specification. The Company's products are also subject to extensive shelf life stability testing through which the Company determines the effects of aging on its products. Certified outside laboratories are used routinely to evaluate the Company's laboratory performance and to supplement its internal testing procedures and capabilities. Sourcing specialists within the Company's purchasing department focus on maximizing buying power through volume leverage with a select supplier base. 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. COMPETITION The market for the sale of nutritional supplements is highly competitive. The Company believes that competition is based principally upon price, quality of products, customer service and marketing support. The Company believes that it competes favorably with other industry companies in these areas. The Company's competition includes numerous nutritional companies that are highly fragmented in terms of both geographic market coverage and product categories. The majority of these companies are privately held and the Company is unable to precisely assess the size of such competitors. In 7 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. Increased competition from such companies could have a material adverse effect on the Company's financial results and operations. As the nutritional supplement industry grows and evolves, the Company believes retailers will 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 quality of its product lines. 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"), which was amended in October 1994, 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. Under DSHEA, as amended, 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. Failure to comply with applicable FDA requirements can result in sanctions being imposed on the Company or the manufacturers of its products, including warning letters, fines, product recalls and seizures. In February 1997, the FDA issued a proposed rule entitled "CGMP in Manufacturing, Packing, or Holding Dietary Supplements," which proposes good manufacturing practices specific to dietary supplements and dietary supplement ingredients. This proposed rule, if finalized, would require at least some of the quality control provisions contained in the GMPs for drugs. Such regulations could, among other things, require the 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. 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 8 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. 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. The Company is a party to a consent order which was signed by Weider Health and Fitness in 1985, which governs certain advertising claims relating to muscle building products. In addition, the Company entered into a consent decree with the FTC effective November 2000 governing diet and weight loss claims and certain disease, safety and comparative health benefit 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 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. See "Impact of Government Regulation on the Company's Operations" and "Effect of Unfavorable Publicity" under "Factors Affecting Future Performance" for additional information regarding government regulation. INTELLECTUAL PROPERTY 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), Weider(R), American Body Building(TM), Tiger's Milk(R), Multipower(R), Multaben and Venice Beach brands and certain of its products, processes and slogans. The Company also has license rights for other names material to its business and for the use of the Schiff(R), Weider(R), American Body Building(TM), Tiger's Milk(R)these brand names in certain countries outside of North America. The Company vigorously protects its trademark and other intellectual property rights. The Company currently has two patents and is pursuing patents for additional products or processes as appropriate. 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, 9 the protection available in such jurisdictions may not be as extensive as the protection available to the Company in the United States. FACTORS AFFECTING FUTURE PERFORMANCE DEPENDENCE ON SIGNIFICANT CUSTOMERS. The Company's largest customers are Costco and Wal-Mart. These two customers accounted for approximately 39% and 38% respectively, of the Company's net sales for the fiscal years ended May 31, 2001 and 2000. The loss of either Costco or Wal-Mart as a customer, or a significant reduction in purchase volume by Costco or Wal-Mart, could have a material adverse effect on the Company's results of operations or financial condition. The Company cannot assure you that Costco and/or Wal-Mart will continue as major customers of the Company. DEPENDENCE ON INDIVIDUAL PRODUCTS. Certain products and product lines account for a significant amount of the Company's total revenues. During fiscal year 2001, net sales for the Company's Schiff(R) Move Free(TM) product line were approximately 26% of the Company's total net sales. The Company cannot assure you that individual or groups of similar products currently experiencing strong popularity and growth will maintain sales levels over time. DEPENDENCE ON NEW 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 comply with applicable regulations. The Company cannot assure you that its efforts to develop and introduce innovative new products will be successful or that customers will accept new products. 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 believes its sales depend on consumer perceptions of the safety, quality and efficacy of its products. Consumer perceptions are influenced by national media attention regarding the Company's products and other nutritional supplements that contain similar ingredients and/or make similar nutritional claims. Future scientific research and publicity may be unfavorable and may negatively impact our sales and results of operations. See "Item 3--Legal Procedures" and "Product Liability and Availability of Related Insurance" below. Ma Huang, also known as ephedra, has been the subject of certain adverse publicity relating to alleged harmful or adverse effects. See "Item 3--Legal Proceedings." The FDA has proposed regulations relating to the sale of dietary supplements containing ephedra which, if adopted as proposed, would require the Company to reformulate certain of its ephedra products, prohibit certain ingredient combination products and preclude certain claims relating to ephedra products. Comments from industry participants and associations and inquiries from Committees of the United States Congress have been filed with the FDA challenging the scientific and legal basis for the proposed regulations. Additionally, the General Accounting Office reviewed the FDA's proposed regulations and concluded that the FDA should obtain better support for its proposed regulations. A number of state and local governments also have proposed or passed legislation regulating or prohibiting the sale of 10 ephedra products. The Company is not able to predict whether the FDA's proposed regulations will become final or whether ephedra products will be subject to further federal, state, local or foreign laws or regulations. Net sales of the Company's ephedra products were approximately $9.7 million during fiscal 2001. No assurance can be given that any future regulation and any resulting reformulation, relabeling or change in the marketing of the Company's ephedra products would not have a material adverse effect of the sale of the Company's ephedra products or the Company's results of operations or financial condition. See also "Product Liability and Availability of Related Insurance" below. PRODUCT LIABILITY AND AVAILABILITY OF RELATED INSURANCE. As a manufacturer and distributor of products designed to be ingested, the Company faces an inherent risk of exposure to product liability claims. Similar to many of our competitors, the Company has been and is currently named as a defendant in product liability lawsuits regarding certain of its ephedra products. See "Item 3--Legal Proceedings." The Company maintains product liability insurance regarding its ephedra products that it believes is customary in the industry. However, insurance carriers have significantly increased costs for, and in many instances have discontinued, product liability insurance for products containing ephedra. The Company's current product liability coverage for ephedra products expires on August 31, 2001, and the Company has received initial indication that such coverage will not be renewed. Although the Company is investigating other insurance coverage options, including self-insurance, no assurance can be given that the Company will be able to obtain product liability insurance coverage for its ephedra products or, if available, that such coverage will be available at a reasonable cost or adequate to cover liabilities. The absence of product liability insurance may have an adverse impact on the Company's financial condition or operating results. 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 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 from time to time has reformulated, eliminated or relabeled certain of its products and revised certain aspects of its sales, marketing and advertising programs. For example, the Company was required to transition the name of its Schiff(R) Pain Free(TM) product line to Schiff(R) Move Free(TM) during fiscal 2001 to comply with new regulations published by the FDA in January 2000. 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. See "Effect of Unfavorable Publicity" above. 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. 11 RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS. The Company's borrowing arrangements impose upon the Company certain financial and operating covenants, including, among others, requirements that the Company maintain certain financial ratios and satisfy certain financial tests, limitations on capital expenditures and restrictions or limitations on the Company's ability to incur debt, pay dividends or take certain other corporate actions, all of which may restrict the Company's ability to expand or to pursue its business strategies. Changes in economic or business conditions, results of operations or other factors could in the future cause a violation of one or more covenants in the Company's debt instruments. RISKS ASSOCIATED WITH INTERNATIONAL MARKETS. 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 36% of the Company's net sales for fiscal 2001 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's international operations continue to grow, 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. CONTROL BY PRINCIPAL STOCKHOLDER. Weider Health and Fitness owns all of the outstanding shares of Class B Common Stock of the Company 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. GOODWILL AND INTANGIBLE ASSETS. The Company's acquisitions have resulted in significant goodwill and other intangible assets. At May 31, 2001, goodwill and intangible assets, net, amounted to approximately $43.6 million. In the event of any sale or liquidation of a portion of the Company's assets, there can be no assurance that the value of the intangible assets will be realized. 12 ITEM 2. PROPERTIES At May 31, 2001, 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 Walterboro, S.C. Manufacturing & Pro- 55,000 Own N/A duction Montreal, Quebec Administrative Offices 24,600 Lease Month to month & Warehouse Madrid, Spain Administrative Offices, 20,000 Lease September 2006 Manufacturing & Pro- duction Neumarkt, Italy Administrative Offices & Warehouse 23,200 Own N/A Hamburg, Germany Administrative Offices 35,200 Lease July 2009 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 In December 2000, the Company was named as a defendant in Long v. Weider Nutrition Group, Inc. et. al. filed in Delaware state court. The lawsuit alleges that consumption of a product of the Company containing ephedrine caused a heart attack resulting in the death of Mr. Long. The Company disputes the allegations and is opposing the lawsuits. The Company has tendered the matter to its insurance carrier which has assumed defense of the matter. In April 2001, the Company was named as a defendant in Garcia, Speeter, Marotti, et. al. v. Metabolife International, Weider Nutrition International, et. al. filed in Nevada state court. The lawsuit alleges that the various plaintiffs were each separately caused injuries and damages after consuming products containing ephedrine manufactured or sold by the various respective defendants. The Company disputes the allegations and is opposing the lawsuits. The Company has tendered the matter to its insurance carrier which has assumed defense of the matter. The Company believes that, after taking into consideration the Company's insurance coverage, such lawsuits, if successful, would not have a material adverse effect on the Company's financial condition. However, one or more large punitive damage awards, which are generally not covered by insurance, could have a material adverse effect on the Company's financial condition. The Company cannot assure you that it will not be subject to further private civil actions with respect to its ephedrine products or that product liability insurance will continue to be available at a reasonable cost, or if available, will be adequate to cover liabilities. See "Factors Affecting Future Performance--Ephedra Products/Availability of Product Liability Insurance Coverage" under Item 1 for additional information. From time to time, 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. 13 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 2001. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 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 2001, 2000 and 1999, respectively, are set forth below:
HIGH LOW ---- --- FISCAL YEAR ENDED MAY 31, 2001: First Quarter............................ $ 4.06 $ 2.75 Second Quarter........................... 5.06 2.50 Third Quarter............................ 3.05 2.06 Fourth Quarter........................... 2.84 1.98 FISCAL YEAR ENDED MAY 31, 2000: First Quarter............................ $ 5.31 $ 3.56 Second Quarter........................... 4.19 3.06 Third Quarter............................ 4.88 3.19 Fourth Quarter........................... 4.06 3.25 FISCAL YEAR ENDED MAY 31, 1999: First Quarter............................ $17.38 $ 8.81 Second Quarter........................... 10.75 4.25 Third Quarter............................ 7.50 5.25 Fourth Quarter........................... 6.50 4.50
The Company paid an annual dividend of $0.15 per share (quarterly dividend of $0.0375 per share) for fiscal 2001, 2000 and 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 20, 2001 to holders of all classes of common stock of record at the close of business on June 12, 2001. 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 entered into with Bankers Trust Company, effective June 30, 2000, 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. The closing price of the Company's Class A common stock on August 3, 2001 was $2.05. The approximate number of stockholders of record on August 3, 2001 was 344. In connection with entering into the Company's domestic senior credit facility, on June 30, 2000 the Company entered into a $10.0 million senior subordinated loan agreement (the "Subordinated Loan") with Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada, L.P. (collectively, "Wynnchurch"). As part of the Subordinated Loan transaction, the Company issued to Wynnchurch warrants to purchase up to 1,174,955 shares of the Company's Class A common stock at an exercise price of $0.01 per share, subject to certain customary antidilution provisions. Wynnchurch exercised the warrants in July 2000. The securities were not registered under the 14 Securities Act of 1933, as amended (the "Act"), in reliance under the exemption set forth in Section 4(2) of the Act. ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The following selected consolidated financial data as of, and for the fiscal years ended May 31, 1997 through May 31, 2001 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, ------------------------------------------------------------- 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- INCOME STATEMENT DATA: Net sales...................................... $218,566 $250,542 $335,488 $364,668 $352,759 Cost of goods sold............................. 136,875 161,334 221,062 227,373 216,851 -------- -------- -------- -------- -------- Gross profit................................... 81,691 89,208 114,426 137,295 135,908 -------- -------- -------- -------- -------- Operating expenses............................. 68,335 61,304 106,173 119,514 126,434 Litigation settlement.......................... -- -- -- -- (3,571) Severance, recruiting and reorganization costs.......................... -- -- 3,062 4,300 -- Plant consolidation and transition............. -- -- 5,113 -- 648 Other inventory related charges................ -- -- 4,115 -- -- -------- -------- -------- -------- -------- Total operating expenses................... 68,335 61,304 118,463 123,814 123,511 -------- -------- -------- -------- -------- Income(loss) from operations................... 13,356 27,904 (4,037) 13,481 12,397 Other income (expense): Interest, net................................. (5,791) (4,219) (9,550) (11,086) (9,967) Securities impairment loss.................... -- -- -- -- (2,177) Other......................................... (557) (671) (430) (177) (874) -------- -------- -------- -------- -------- Total other expense, net.................. (6,348) (4,890) (9,980) (11,263) (13,018) -------- -------- -------- -------- -------- Income (loss) before income taxes.............. 7,008 23,014 (14,017) 2,218 (621) Income tax expense (benefit)................... 2,708 9,010 (5,239) 1,145 (832) -------- -------- -------- -------- -------- Net income (loss).............................. $ 4,300 $ 14,004 $ (8,778) $ 1,073 $ 211 ======== ======== ======== ======== ======== Weighted average shares Outstanding, in thousands (1): Basic.......................................... 17,866 24,702 24,930 25,042 26,244 ====== ====== ====== ====== ======= Diluted........................................ 17,866 25,001 24,930 25,048 26,245 ====== ====== ====== ====== ====== Net income (loss) per share (1): Basic.......................................... $0.24 $0.57 $(0.35) $0.04 $0.01 ===== ===== ====== ===== ===== Diluted........................................ $0.24 $0.56 $(0.35) $0.04 $0.01 ===== ===== ====== ===== =====
At May 31, ------------------------------------------------------------- (In Thousands) 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- BALANCE SHEET DATA: Cash and cash equivalents...................... $ 1,259 $ 684 $ 1,926 $ 3,011 $ 2,293 Working capital (2)............................ 62,015 85,688 79,001 41,048 45,307 Total assets................................... 168,756 209,740 256,029 227,268 209,072 Total debt..................................... 45,094 70,346 115,439 82,880 73,428 Total stockholders' equity..................... 92,424 103,136 91,780 86,658 85,800
(1) During fiscal 1998, the Company adopted SFAS No. 128, "Earnings Per Share." Earnings per share amounts for fiscal 1997 have been restated to conform to the requirements of SFAS No. 128. (2) Working capital at May 31, 1999 excludes $98,654 of debt extended and refinanced in June 2000 under the Company's credit facility (See Note 7 to the Consolidated Financial Statements). Including such amount, working capital (deficit) amounts to $(19,653) at May 31, 1999. 15 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. 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 fiscal years ended May 31, 2001, 2000 and 1999 amounted to $.2 million, $1.1 million and $(8.8) million, respectively. The Company's operating results for fiscal 2001 were negatively affected by an industry slow down, increased competitive pressures and a significant increase in selling and marketing related costs. The Company's operating results for fiscal 2000 and 1999 were negatively affected by several strategic initiatives that were initially and/or primarily implemented during this two-year period. These initiatives included, among others, organizational changes and upgrading management systems (including senior management changes), the decision to reduce domestic SKUs by over two-thirds, the refinement of the Company's growth and business strategies designed to focus on its primary brands and customers, including the introduction of an enhanced marketing plan resulting in increased selling, promotion and marketing costs, the expansion of the Company's international operations primarily from the acquisition of Haleko, the closing of the Company's capsule and tablet manufacturing facility in California and the limitation of contract manufacturing (private label) business to select customers that otherwise carry the Company's brands and certain other initiatives. Certain factors affecting fiscal 2001 results as well as the previous implementation of strategic initiatives and the refinement of the Company's growth and business strategies are ongoing considerations and processes. While the focus of these considerations is to improve future profitability, no assurance can be given that decisions made by the Company relating to these initiatives will not adversely affect the Company's financial condition and results of operations. The Company experienced a decrease in net sales in fiscal 2001 while recognizing an increase in fiscal years 2000 and 1999. Net sales were $352.8 million, $364.7 million and $335.5 million for fiscal years 2001, 2000 and 1999, respectively. The decline in fiscal year 2001 sales resulted primarily from domestic industry slowdown, lower than expected new product sales and private label and other competitive factors. The Company's growth in the prior two fiscal years was a result of increased demand for the Company's products, including the growth in Schiff(R) Move Free(TM) sales and the Company's increased penetration of the mass market distribution channel. 16 The following table shows selected items as reported and as a percentage of net sales for the years indicated:
2001 2000 1999 ----------------------- ---------------------- --------------------- (dollars in thousands) Net sales ................ $ 352,759 100.0% $ 364,668 100.0% $ 335,488 100.0% Cost of goods sold ................... 216,851 61.5 227,373 62.4 221,062 65.9 --------- ----- --------- ----- --------- ----- Gross profit ............. 135,908 38.5 137,295 37.6 114,426 34.1 --------- ----- --------- ----- --------- ----- Operating expenses ............... 126,434 35.8 119,514 32.8 106,173 31.7 Severance, recruiting and reorganizational costs . -- -- 4,300 1.1 3,062 .9 Litigation settlement .... (3,571) (1.0) -- -- -- -- Plant consolidation and transition ............. 648 .2 -- -- 5,113 1.5 Other inventory related charges ................ -- -- -- -- 4,115 1.2 --------- ----- --------- ----- --------- ----- Total operating expenses ............... 123,511 35.0 123,814 33.9 118,463 35.3 --------- ----- --------- ----- --------- ----- Income (loss)from operations ............. 12,397 3.5 13,481 3.7 (4,037) (1.2) Other expense, net ....... 13,018 3.7 11,263 3.1 9,980 3.0 Income tax expense (benefit) .............. (832) (.2) 1,145 .3 (5,239) (1.6) --------- ----- --------- ----- --------- ----- Net income (loss) ........ $ 211 -- % $ 1,073 .3% $ (8,778) (2.6)% ========= ===== ========= ===== ========= =====
RESULTS OF OPERATIONS FISCAL 2001 COMPARED TO FISCAL 2000 NET SALES. Net sales for the fiscal year ended May 31, 2001 decreased $11.9 million, or 3.3%, to $352.8 million from $364.7 million for the fiscal year ended May 31, 2000. The following table shows comparative net sales results categorized by distribution channel as reported and as a percentage of net sales (dollars in thousands):
2001 2000 ------------------ ------------------- Mass market......................... $177,650 50.4% $180,927 49.7% Health food stores.................. 22,097 6.3 34,642 9.5 Health clubs and gyms............... 21,836 6.2 22,326 6.1 International markets............... 128,157 36.3 122,605 33.6 Contract manufacturing.............. -- -- 378 .1 Other............................... 3,019 .8 3,790 1.0 -------- ----- -------- ----- Total...................... $352,759 100.0% $364,668 100.0% ======== ===== ======== =====
Sales to mass market customers (including food, drug, mass, club and convenience stores) decreased approximately 1.8% to $177.7 million in fiscal 2001 from $180.9 million in fiscal 2000. The decrease in sales to mass market customers was primarily the result of decreased sales to existing accounts of certain leading branded products, including Schiff(R) Move Free(TM). Gross sales of the Company's Schiff(R) Move Free(TM) products amounted to $96.0 million for fiscal 2001 compared to $111.3 million for fiscal 2000. The decrease in Schiff(R) Move Free(TM) sales resulted primarily from an industry slowdown and promotional timing considerations as well as private label and other competitive factors. Sales to health food stores decreased approximately 36.2% to $22.1 million for fiscal 2001 from $34.6 million for fiscal 2000. The decrease in sales to health food stores resulted primarily from reduced branded and private label sales volume with GNC, the Company's most significant health food retailer. Sales to health clubs and gyms remained relatively constant for fiscal 2001 and 2000. 17 Sales to international markets increased 4.5% to $128.2 million for the year ended May 31, 2001 from $122.6 million for the year ended May 31, 2000. The increased sales volume was primarily due to sportswear sales growth in the Company's European operations. The Company's two largest customers accounted for approximately 39% of the Company's aggregate net sales for the year ended May 31, 2001 and 38% for the year ended May 31, 2000. GROSS PROFIT. Gross profit decreased approximately $1.4 million, or 1.0%, to $135.9 million for the year ended May 31, 2001 from $137.3 million for the year ended May 31, 2000. Gross profit, as a percentage of net sales, was 38.5% for the year ended May 31, 2001 compared to 37.6% for the year ended May 31, 2000. The increase in the gross profit percentage resulted primarily from operating efficiencies, improved net raw material costing and reduced credits for returned products, partially offset by a significant decrease in gross margins on European sportswear sales and lower gross margins on private label sales. The lower gross margins on sportswear sales were primarily attributable to continued growth in department stores where pricing is much more competitive than the typical health club and gym channel. OPERATING EXPENSES. Total operating expenses, including litigation settlement income and certain severance, recruiting, reorganization and plant consolidation costs, remained relatively constant at $123.5 million for fiscal 2001 compared to $123.8 million for fiscal 2000. During fiscal 2001, the Company completed the consolidation of beverage manufacturing to its South Carolina facility. In conjunction with the closing of the Company's Las Vegas, Nevada beverage facility, the Company recognized approximately $0.6 million in net consolidation and transition related costs. Also, during fiscal 2001, the Company received $3.6 million from the settlement of litigation. During fiscal 2000 the Company continued its initiative for organizational changes and upgrading of management systems (including senior management changes) that resulted in approximately $4.3 million of costs incurred during the year. Excluding these charges for the respective periods, operating expenses increased $6.9 million, or 5.8%, during fiscal 2001 compared to fiscal 2000 primarily due to increased selling and marketing expenses. Selling and marketing expenses, including sales, marketing, advertising, freight and other costs, increased approximately 6.6% to $88.7 million for fiscal 2001 from $83.1 million for fiscal 2000. The increase in selling and marketing expenses is primarily attributable to incremental marketing and promotional costs for retail sell-through and to support the Company's brand building initiatives, and counter private label and other competitive pressures. The Company expects the trend for increased selling and marketing expenses, as a percentage of sales, to continue in future years. General and administrative expenses increased approximately 2.3% to $28.8 million for the year ended May 31, 2001, compared to $28.2 million for the year ended May 31, 2000. The increase resulted primarily from an increase in certain international information systems and personnel related costs. OTHER EXPENSE. Other expense, net, amounted to $13.0 million for the year ended May 31, 2001, compared to $11.3 million for the year ended May 31, 2000. The net increase of approximately $1.7 million resulted primarily from the recognition of a securities impairment loss of approximately $2.2 million which was partially offset by a decrease in interest costs associated with a lower overall effective borrowing rate. INCOME TAXES. Provision for income taxes amounted to a $0.8 million benefit for the year ended May 31, 2001 compared to a tax expense of $1.1 million for the year ended May 31, 2000. The decrease resulted primarily from a pre-tax loss for fiscal 2001 in comparison to pre-tax earnings for fiscal 2000 and the net effect of tax rate difference for the Company's domestic and international operations. 18 FISCAL 2000 COMPARED TO FISCAL 1999 NET SALES. Net sales for the fiscal year ended May 31, 2000 increased $29.2 million, or 8.7%, to $364.7 million from $335.5 million for the fiscal year ended May 31, 1999. 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):
2000 1999 ------------------- ------------------- Mass market......................... $180,927 49.7% $152,046 45.4% Health food stores.................. 34,642 9.5 56,178 16.7 Health clubs and gyms............... 22,326 6.1 24,960 7.4 International markets............... 122,605 33.6 89,189 26.6 Contract manufacturing.............. 378 .1 8,474 2.5 Other............................... 3,790 1.0 4,641 1.4 -------- ----- -------- ----- Total...................... $364,668 100.0% $335,488 100.0% ======== ===== ======== =====
Sales to mass market customers increased approximately 19.0% to $180.9 million in fiscal 2000 from $152.0 million in fiscal 1999. The increase in sales to mass market customers was primarily the result of increased sales to existing accounts of certain leading branded products, including Schiff(R) Pain Free(TM)/Move Free(TM), offset by reduced volumes of certain other branded products primarily due to the Company's SKU reduction program and a temporary delay in the expected introduction of new products (primarily during the first nine months of fiscal 2000). Gross sales of the Company's Schiff(R) Pain Free(TM)/Move Free(TM) products amounted to $111.3 million for fiscal 2000, compared to $71.1 million for fiscal 1999. Sales to health food stores decreased approximately 38.3% to $34.6 million for fiscal 2000 from $56.2 million for fiscal 1999. Sales to health clubs and gyms decreased approximately 10.6% to $22.3 million for fiscal 2000 from $25.0 million for fiscal 1999. The decrease in sales resulted primarily from the Company's increased focus on the mass market distribution channel as well as a temporary delay in the introduction of new products into the health food, and health club and gym distribution channels. Gross sales of new products, including line extensions, amounted to approximately $10.4 million for fiscal 2000, compared to approximately $29.8 million for fiscal 1999. Sales to international markets increased 37.5% to $122.6 million for the year ended May 31, 2000 from $89.2 million for the year ended May 31, 1999. The increase in sales to international markets resulted primarily from the Company's acquisition of Haleko in July 1998 and the growth in Haleko's sportswear business. Haleko's net sales amounted to $105.1 million and $73.4 million, respectively, for the years ended May 31, 2000 and May 31, 1999. The Company's financial results for fiscal 2000 included Haleko's operating results for an entire year (compared to ten months included in fiscal 1999). Contract manufacturing (private label) sales volume decreased approximately 95.5% to $0.4 million for fiscal 2000 from $8.5 million for fiscal 1999. The decrease in contract manufacturing sales is consistent with the Company's decision to limit contract manufacturing business to select customers that otherwise carry the Company's brands. Private label business for customers that otherwise carry the Company's brands are included in the net sales amounts for the distribution channel applicable to such customer. The Company's two largest customers accounted for approximately 38% of the Company's aggregate net sales for the year ended May 31, 2000 and 31% for the year ended May 31, 1999. GROSS PROFIT. Gross profit increased approximately 20.0% to $137.3 million for the year ended May 31, 2000 from $114.4 million for the year ended May 31, 1999. Gross profit, as a percentage of net sales, was 37.6% for the year ended May 31, 2000, compared to 34.1% for the year ended May 31, 1999. The increase in the gross profit percentage resulted primarily from a change in domestic sales mix, efficiencies from consolidation of the Company's capsule and tablet 19 manufacturing facilities, increased higher margin international sales, reduced credits for returned products and decreased inventory related costs. OPERATING EXPENSES. Total operating expenses, including certain severance, recruiting and reorganization costs, increased approximately 4.5% to $123.8 million for fiscal 2000 from $118.5 million for fiscal 1999. During fiscal 2000, the Company continued its initiative for organizational changes and upgrading of management systems (including senior management changes) that resulted in approximately $4.3 million of costs incurred during the year. During fiscal 1999, the Company recognized, in aggregate, approximately $12.3 million in charges, relating to the consolidation of capsule and tablet manufacturing to its Utah facility, severance costs related to the departure of a former CEO and the termination of approximately twenty employees and other inventory charges resulting from charitable contributions and excess labels, packaging and discontinuation of certain SKUs to comply with DSHEA product labeling requirements effective March 1999. Excluding these charges for the respective periods, operating expenses increased $13.3 million, or 12.6%, during fiscal 2000 in comparison to fiscal 1999 primarily due to increased selling and marketing expenses. Selling and marketing expenses, including sales, marketing, advertising, freight and other costs, increased approximately 18.6% to $83.1 million for fiscal 2000 from $70.1 million for fiscal 1999. The increase in selling and marketing expenses resulted primarily from the acquisition of Haleko, increased advertising and promotion costs associated with the Company's brand building initiatives and personnel costs required to handle higher sales volumes. General and administrative expenses remained constant at $28.2 million for the years ended May 31, 2000 and 1999. OTHER EXPENSE. Other expense, net, amounted to $11.3 million for the year ended May 31, 2000, compared to $10.0 million for the year ended May 31, 1999. The net increase of approximately $1.3 million resulted primarily from increased fees and interest costs associated with extending the maturity date of the previous credit facility, together with a higher overall effective borrowing rate. INCOME TAXES. Provision for income taxes amounted to $1.1 million for the year ended May 31, 2000, compared to a tax benefit of $5.2 million for the year ended May 31, 1999. The income tax expense resulted primarily from realization of pre-tax earnings for fiscal 2000 in comparison to a pre-tax loss for fiscal 1999. Effective tax rate changes result primarily from tax rate differences for the Company's domestic and international operations. LIQUIDITY AND CAPITAL RESOURCES Effective June 30, 2000, the Company and its domestic subsidiaries entered into a new $90.0 million senior credit facility (the "New Credit Facility") with Bankers Trust Company. The New Credit Facility replaced the Company's previous credit facility, which consisted of a revolving line of credit that expired on June 30, 2000. The New Credit Facility is comprised of an amortizing $30.0 million term loan and a $60.0 million revolving loan. Under the revolving loan, the Company may borrow up to the lesser of $60.0 million or the sum of (i) 85% of eligible accounts receivable and (ii) the lesser of $30.0 million or 65% of the eligible inventory. The New Credit Facility contains customary terms and conditions, including, among others, financial covenants regarding minimum cash flows and limitations on indebtedness and the Company's ability to pay dividends under certain circumstances. The obligations of the Company under the New Credit Facility are secured by a first priority lien on all owned or acquired tangible and intangible assets of the Company and its domestic subsidiaries. The New Credit Facility is being used to fund the normal working capital and capital expenditure requirements of the Company. At the inception of the New Credit Facility, the Company borrowed approximately $64.8 million (together with the proceeds from the subordinated loan discussed below) to repay 20 in full its outstanding obligation under the previous credit facility and related financing costs of the New Credit Facility. Concurrently with the New Credit Facility, on June 30, 2000, the Company entered into a $10.0 million senior subordinated loan agreement (the "Subordinated Loan"). The Subordinated Loan contains customary terms and conditions, including, among others, financial covenants regarding minimum cash flows and limitations on indebtedness and the Company's ability to pay dividends under certain circumstances. The Company had working capital of approximately $45.3 million at May 31, 2001, compared to $41.0 million at May 31, 2000. The increase in working capital resulted primarily from increased inventories partially offset by a decrease in receivables. Current inventories increased $8.9 million during the year ended May 31, 2001. The increase in inventories was primarily attributable to the timing of a shipment to a significant customer, an increase in private label inventories and higher raw material amounts. The decrease in receivables was primarily attributable to lower sales in the fourth quarter of fiscal 2001 as compared to the fourth quarter of fiscal 2000. During fiscal 2001, the Company's aggregate current and long-term debt decreased approximately $6.5 million (excluding $3.0 million in unamortized original issue discount costs) to $76.4 million at May 31, 2001, primarily as a result of the sale of the Company's powders manufacturing facility. Aggregate borrowings under the Company's U.S. based and Germany based revolving credit facilities (See Note 7 to the Consolidated Financial Statements) amounted to $21.7 million and $14.6 million, respectively, at May 31, 2001. 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 both the New Credit Agreement and Haleko's approximate $18.2 million secured credit facility. 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 require other debt financing or the issuance of additional equity. There can be no assurance such financing will be available on beneficial terms, if at all. The Company paid an annual dividend of $0.15 per share (quarterly dividend of $0.0375 per share) for fiscal 2001. 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 20, 2001 to holders of all classes of common stock of record at the close of business on June 12, 2001. 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 New 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. However, there can be no assurance that the Company will be able to pass inflationary increases onto its customers. 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 21 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 May 2000, the Financial Accounting Standards Board ("FASB") issued Emerging Issues Task Force No.00-14 ("EITF 00-14"), "Accounting for Certain Sales Incentives." EITF 00-14 addresses the recognition, measurement and income statement classification for certain sales incentives. The types of sales incentives included in this issue are offers by the Company to retailers, distributors or end consumers that are exercisable after a single exchange transaction in the form of price reductions, coupons, rebate offers, or free products delivered on the same date as the underlying exchange transaction. Effective June 1, 2001, the Company adopted those provisions of EITF 00-14 where consensus was reached by the FASB. Accordingly, the "cost" of certain sales incentives previously recognized in the Company's financial statements as operating expenses will be reclassified as reductions in net sales and/or increases in cost of goods sold. The adoption of EITF 00-14 will not materially impact the Company's overall results of operations. In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. Management does not believe that SFAS No. 141 will have a material impact on the Company's consolidated financial statements. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which supercedes APB No. 17, "Intangible Assets." SFAS No. 142 establishes accounting and reporting standards for goodwill and other intangible assets. SFAS No. 142, which includes the requirements to test goodwill and intangible assets with indefinite lives for impairment rather than amortize them, is effective for the Company's financial statements as of June 1, 2002. The Company has not determined the impact of adopting SFAS No. 142 on the consolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion involves forward-looking statements of market risk which assume for analytical purposes that certain adverse market conditions may occur. Actual future market conditions may differ materially from such assumptions. Accordingly, the forward-looking statements should not be considered projections by the Company of future events or losses. The Company's cash flows and net earnings are subject to fluctuations resulting from changes in interest rates and foreign exchange rates. The Company currently is not party to any significant derivative instruments and its current policy does not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposure. The Company does not use financial instruments for trading purposes. The Company measures its market risk, related to its holdings of financial instruments, based on changes in interest rates utilizing a sensitivity analysis. The Company does not believe that a hypothetical 10% change in interest rates would nave a material effect on the Company's pretax earnings or cash flows. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data for the Company are on the following pages F-1 through F-26. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 23 WEIDER NUTRITION INTERNATIONAL, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report....................................... F-2 Consolidated Balance Sheets at May 31, 2001 and 2000............... F-3 Consolidated Statements of Operations, Years Ended May 31, 2001, 2000 and 1999........................................ F-4 Consolidated Statements of Stockholders' Equity, Years Ended May 31, 2001, 2000 and 1999............................ F-5 Consolidated Statements of Cash Flows, Years Ended May 31, 2001, 2000 and 1999.................................. 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, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended May 31, 2001. 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 auditing standards generally accepted in the United States of America. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2001 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Salt Lake City, Utah August 20, 2001 F-2 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MAY 31, 2001 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS 2001 2000 --------- --------- Current assets: Cash and cash equivalents $ 2,293 $ 3,011 Receivables, net (Note 3) 46,710 53,522 Inventories (Note 4) 56,028 47,113 Prepaid expenses and other 3,171 4,982 Deferred taxes (Note 8) 6,486 5,281 --------- --------- Total current assets 114,688 113,909 --------- --------- Property and equipment, net (Note 5) 37,658 47,198 --------- --------- Other assets: Intangible assets, net (Note 6) 43,561 49,412 Deposits and other assets 5,946 6,745 Notes receivable related to stock performance units (Note 9) 4,227 4,188 Deferred taxes (Note 8) 2,992 5,816 --------- --------- Total other assets 56,726 66,161 --------- --------- Total assets $ 209,072 $ 227,268 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 34,181 $ 32,650 Accrued expenses 14,029 21,735 Earnout amounts payable (Note 2) 1,298 2,796 Current portion of long-term debt (Note 7) 19,537 15,131 Income taxes payable 336 549 --------- --------- Total current liabilities 69,381 72,861 --------- --------- Long-term debt (Note 7) 53,891 67,749 --------- --------- Commitments and contingencies (Notes 7, 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- 10,562,004 (2001) and 9,363,778 (2000) 105 94 Class B common stock, par value $.01 per share; shares authorized-25,000,000; shares issued and outstanding-15,687,432 (2001 and 2000) 157 157 Additional paid-in capital 86,897 83,225 Other accumulated comprehensive loss (5,864) (5,003) Retained earnings 4,505 8,185 --------- --------- Total stockholders' equity 85,800 86,658 --------- --------- Total liabilities and stockholders' equity $ 209,072 $ 227,268 ========= =========
See notes to consolidated financial statements. F-3 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MAY 31, 2001, 2000 AND 1999 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
2001 2000 1999 ------------ ------------ ------------ Net sales $ 352,759 $ 364,668 $ 335,488 Cost of goods sold 216,851 227,373 221,062 ------------ ------------ ------------ Gross profit 135,908 137,295 114,426 ------------ ------------ ------------ Operating expenses: Selling and marketing 88,659 83,132 70,072 General and administrative 28,835 28,182 28,234 Research and development 5,712 4,874 4,629 Amortization of intangible assets 3,228 3,326 3,238 Severance, recruiting and reorganization costs -- 4,300 3,062 Litigation settlement (3,571) -- -- Plant consolidation and transition 648 -- 5,113 Other inventory related charges -- -- 4,115 ------------ ------------ ------------ Total operating expenses 123,511 123,814 118,463 ------------ ------------ ------------ Income (loss) from operations 12,397 13,481 (4,037) ------------ ------------ ------------ Other income (expense): Interest income 146 697 629 Interest expense (10,113) (11,783) (10,179) Securities impairment loss (2,177) -- -- Other (874) (177) (430) ------------ ------------ ------------ Total other expense, net (13,018) (11,263) (9,980) ------------ ------------ ------------ Income (loss) before income taxes (621) 2,218 (14,017) Income tax expense (benefit) (832) 1,145 (5,239) ------------ ------------ ------------ Net income (loss) $ 211 $ 1,073 $ (8,778) ============ ============ ============ Weighted average shares outstanding: Basic 26,243,618 25,042,073 24,930,272 ============ ============ ============ Diluted 26,244,782 25,048,106 24,930,272 ============ ============ ============ Net income (loss) per share: Basic $ 0.01 $ 0.04 $ (0.35) ============ ============ ============ Diluted $ 0.01 $ 0.04 $ (0.35) ============ ============ ============
See notes to consolidated financial statements. F-4 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED MAY 31, 2001, 2000 AND 1999 (DOLLARS IN THOUSANDS)
OTHER CLASS A CLASS B ADDITIONAL ACCUMULATED COMMON COMMON PAID-IN COMPREHENSIVE RETAINED STOCK STOCK CAPITAL LOSS EARNINGS TOTAL --------- --------- ---------- ------------- --------- --------- 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 (Note 2) 1 -- 2,599 -- -- 2,600 Issuance of stock (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 Comprehensive loss: Net income -- -- -- -- 1,073 1,073 Available-for-sale securities valuation adjustment -- -- -- (200) -- (200) Foreign currency translation adjustments -- -- -- (2,472) -- (2,472) --------- Total comprehensive loss (1,599) Issuance of stock (Note 9) 1 -- 300 -- -- 301 Tax loss from performance units -- -- (72) -- -- (72) Stock options exercised -- -- 12 -- -- 12 Dividends paid on common stock -- -- -- -- (3,764) (3,764) --------- --------- --------- --------- --------- --------- Balance at May 31, 2000 94 157 83,225 (5,003) 8,185 86,658 Comprehensive loss: Net income -- -- -- -- 211 211 Available-for-sale securities valuation adjustment -- -- -- 1,122 -- 1,122 Foreign currency translation adjustments -- -- -- (1,983) -- (1,983) --------- Total comprehensive loss (650) Issuance of stock (Note 9) -- -- 201 -- -- 201 Tax loss from performance units -- -- (59) -- -- (59) Stock warrants granted and exercised (Note 7) 11 -- 3,513 -- -- 3,524 Stock options exercised -- -- 17 -- -- 17 Dividends paid on common stock -- -- -- -- (3,891) (3,891) --------- --------- --------- --------- --------- --------- Balance at May 31, 2001 $ 105 $ 157 $ 86,897 $ (5,864) $ 4,505 $ 85,800 ========= ========= ========= ========= ========= =========
See notes to consolidated financial statements. F-5 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MAY 31, 2001, 2000 AND 1999 (DOLLARS IN THOUSANDS)
2001 2000 1999 -------- -------- -------- Cash flows from operating activities: Net income (loss) $ 211 $ 1,073 $ (8,778) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for bad debts 1,455 2,074 1,094 Deferred taxes (744) (1,289) (211) Depreciation and amortization 10,882 10,992 14,135 Securities impairment loss 2,177 -- -- Amortization of original issue discount 539 -- -- Other non-cash items 142 229 578 Changes in operating assets and liabilities-net of assets acquired: Receivables 6,150 6,512 5,362 Inventories (8,523) 17,683 6,531 Prepaid expenses and other 1,811 (254) (694) Deposits and other assets (25) 5,330 6,701 Accounts payable 1,531 3,325 (3,971) Other current liabilities (6,487) (111) (2,459) -------- -------- -------- Net cash provided by operating activities 9,119 45,564 18,288 -------- -------- -------- Cash flows from investing activities: Purchase of property and equipment (4,080) (5,877) (11,409) Proceeds from disposition of property and equipment 5,207 115 1,040 Purchase of intangible assets (1,553) (3,063) (4,296) Purchase of companies, net of cash acquired -- (1,164) (24,326) Purchase of available-for-sale securities -- -- (4,998) -------- -------- -------- Net cash used in investing activities (426) (9,989) (43,989) -------- -------- -------- Cash flows from financing activities: Issuance of warrants/common stock 3,541 12 138 Dividends paid (3,891) (3,764) (3,728) Net change in revolving line-of-credit (43,337) (33,648) 33,404 Proceeds from long-term debt 41,164 4,143 353 Payments on long-term debt (6,771) (980) (3,174) -------- -------- -------- Net cash provided by (used in) financing activities (9,294) (34,237) 26,993 -------- -------- -------- Effect of exchange rate changes on cash (117) (253) (50) -------- -------- -------- Increase (decrease) in cash and cash equivalents (718) 1,085 1,242 Cash and cash equivalents, beginning of year 3,011 1,926 684 -------- -------- -------- Cash and cash equivalents, end of year $ 2,293 $ 3,011 $ 1,926 ======== ======== ========
F-6 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MAY 31, 2001, 2000 AND 1999 (DOLLARS IN THOUSANDS) SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
2001 2000 1999 ------- ------- -------- Cash paid during the year for: Interest $12,879 $12,741 $ 8,238 Income taxes (net of refunds) 184 (597) 276
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: In connection with the acquisitions summarized in Note 2, the Company assumed liabilities as follows:
2000 1999 -------- -------- Fair value of assets acquired $ 4,573 $39,393 Cost in excess of fair value of net assets acquired 1,113 20,440 Cash paid, net of cash acquired (1,164) (24,326) Stock issued -- (2,600) Debt and liabilities issued (54) (4,900) ------- ------- Liabilities assumed $ 4,468 $28,007 ======= =======
(Concluded) See notes to consolidated financial statements. F-7 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2001, 2000 AND 1999 (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. WHF is the owner of the 15,687,432 shares of Class B common stock. 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 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. The Company markets its branded nutritional supplement products, both domestically and internationally, through mass market, health foods store and health club and gym distribution channels. The Company also markets a line of sportswear in Europe, primarily in Germany. USE OF ESTIMATES AND ASSUMPTIONS IN PREPARING FINANCIAL STATEMENTS--The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect 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, valuation of inventories, allowances for doubtful accounts and sales returns, valuation of deferred tax assets and recoverability of long-lived assets. 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. 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. The Company accounts for these equity securities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, whereby the 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. During fiscal 2001, the Company determined that an "other-than-temporary" valuation impairment of the equity securities had occurred. Accordingly, the Company adjusted its basis in the F-8 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) equity securities to $2,821 and recognized a pre-tax impairment loss of $2,177 in the accompanying financial statements. At May 31, 2001, unrealized losses of $769, net of income tax benefits of $513, 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 $7,391 (2001), $7,633 (2000) and $7,708 (1999), 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
The Company evaluates the economic factors for determining requisite recovery periods for intangible assets on a case-by-case basis. LONG-LIVED ASSETS--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. During fiscal 1999, the Company recognized an impairment of certain intangible assets in the amount of $535. INCOME TAXES--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. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Provision for federal income taxes is not provided on the unremitted earnings of foreign subsidiaries since it has been the practice and is the intention of the Company to continue to reinvest these earnings in the businesses outside the United States. REVENUE RECOGNITION--Sales are recognized in accordance with Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements," which the Company adopted March 1, 2001. SAB 101 did not change previous revenue recognition rules, but rather, addresses and clarifies existing rules and their application. SAB 101 states that revenue generally is realized or realizable and earned when all of the following criteria are F-9 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller's price to the buyer is fixed or determinable; and, (4) collectibility is reasonably assured. The adoption of SAB 101 did not have a material impact on the Company's financial statements. Net sales represent products at gross sales price, less estimated returns and allowances for which provisions are made at the time of sale and less certain other discounts, rebates, allowances, etc. that are accounted for as a reduction from gross sales. The Company's two largest customers accounted for approximately 39%, 38% and 31%, respectively, of net sales in fiscal 2001, 2000 and 1999. At May 31, 2001 and 2000, amounts due from these customers represented approximately 23% and 35%, respectively, of total trade accounts receivable. The Company's Schiff(R) Move Free(TM) product line accounted for 26%, 29% and 20% of net sales for fiscal 2001, 2000 and 1999, respectively. STOCK-BASED COMPENSATION--SFAS No. 123, "Accounting for Stock-Based Compensation", requires expanded disclosures of stock-based compensation arrangements with employees. The Company discloses the effect of SFAS No. 123 on a proforma basis and continues to follow Accounting Principles Board ("APB") Opinion No. 25 (as permitted by SFAS No. 123) as it relates to stock based compensation. The required disclosure of the effects of SFAS No. 123 are included in Note 9. NET INCOME (LOSS) PER SHARE--Net income (loss) per share is computed by both the basic and diluted methods. Basic net income (loss) per share is computed using the weighted average number of common shares outstanding. Diluted net 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 statement of operations amounts are translated using average monthly rates. At May 31, 2001, unrealized foreign currency translation losses of $5,095, net of income tax benefits of $2,699, were included in other accumulated comprehensive loss in the accompanying financial statements. HEDGING ACTIVITIES--During fiscal 2001, the Company adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires the Company to recognize all derivatives as F-10 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) either assets or liabilities in the balance sheet and measure those instruments at fair value. The adoption of SFAS No. 133 did not have a material impact on the Company's consolidated financial statements. RECENTLY ISSUED ACCOUNTING STANDARDS--In May 2000, the Financial Accounting Standards Board ("FASB") issued Emerging Issues Task Force No.00-14 ("EITF 00-14"), "Accounting for Certain Sales Incentives." EITF 00-14 addresses the recognition, measurement and income statement classification for certain sales incentives. The types of sales incentives included in this issue are offers by the Company to retailers, distributors or end consumers that are exercisable after a single exchange transaction in the form of price reductions, coupons, rebate offers, or free products delivered on the same date as the underlying exchange transaction. Effective June 1, 2001, the Company adopted those provisions of EITF 00-14 where consensus was reached by the FASB. Accordingly, the "cost" of certain sales incentives previously recognized in the Company's financial statements as operating expenses will be reclassified as reductions in net sales and/or increases in cost of goods sold. The adoption of EITF 00-14 will not materially impact the Company's overall results of operations. In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. Management does not believe that SFAS No. 141 will have a material impact on the Company's consolidated financial statements. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which supercedes APB No. 17, "Intangible Assets." SFAS No. 142 establishes accounting and reporting standards for goodwill and other intangible assets. SFAS No. 142, which includes the requirements to test goodwill and intangible assets with indefinite lives for impairment rather than amortize them, is effective for the Company's financial statements as of June 1, 2002. The Company has not determined the impact of adopting SFAS No. 142 on the consolidated financial statements. RECLASSIFICATIONS--Certain amounts in prior year financial statements have been reclassified to conform with the current year presentation. 2. ACQUISITIONS In August 1999, the Company acquired the remaining 50% of the outstanding shares of Sy-Fra Sportalimenti di Frank Sambo & Company SrL and Haleko Italia SrL, previously 50% owned corporations, organized under the laws of Italy. The Company accounted for this acquisition as a purchase. The purchase price, net of cash acquired, consisted of $1.2 million in cash and the recognition of $1.1 million in goodwill. The goodwill is being amortized over 35 years. Proforma information is not provided as the effects are not material. F-11 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 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 a $7.3 million (per subsequent currency translation) contingent earnout agreement tied to future 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 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 that is being amortized over 35 years. At May 31, 2001, the Company recognized the remaining earnout payment of approximately $1.3 million and is amortizing the cumulative amount of $7.3 million over 32 to 34 years. The accrued earnout payments for fiscal 2001 and 2000 are included as current liabilities in the accompanying balance sheets at May 31, 2001 and 2000. 3. RECEIVABLES, NET Receivables, net, consist of the following at May 31:
2001 2000 --------- --------- Trade accounts $ 53,485 $ 61,184 Other 1,066 929 --------- --------- 54,551 62,113 Less allowances for doubtful accounts and sales returns (7,841) (8,591) --------- --------- Total $ 46,710 $ 53,522 ========= =========
4. INVENTORIES Inventories consist of the following at May 31:
2001 2000 --------- --------- Raw materials $ 21,159 $ 12,493 Work in process 1,273 2,210 Finished goods 33,596 32,410 --------- --------- Total $ 56,028 $ 47,113 ========= =========
F-12 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 5. PROPERTY AND EQUIPMENT Property and equipment consists of the following at May 31:
2001 2000 --------- --------- Land $ 1,296 $ 1,959 Buildings 8,025 12,990 Furniture and equipment 41,923 43,898 Leasehold improvements 11,409 11,306 Construction in progress 83 596 --------- ---------- 62,736 70,749 Less accumulated depreciation and amortization (25,078) (23,551) --------- --------- Total $ 37,658 $ 47,198 ========= =========
6. INTANGIBLE ASSETS Intangible assets consist of the following at May 31:
2001 2000 ------- ------- Cost in excess of fair value of net assets acquired (goodwill) $51,381 $54,134 Patents and trademarks 10,679 10,601 Noncompete agreements 184 187 ------- ------- 62,244 64,922 Less accumulated amortization (18,683) (15,510) ------- ------- Total $43,561 $49,412 ======= =======
F-13 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 7. LONG-TERM DEBT Long-term debt consists of the following at May 31:
2001 2000 ------- -------- Advances under a U.S. based $60,000 secured revolving line of credit bearing interest at floating rates (7.15% to 8.50% at May 31, 2001); see below $21,669 $65,006 Advances under a Germany based $18,200 secured revolving line of credit bearing interest at various rates ranging from 4.00% to 7.25% 14,594 13,044 Term loan, secured, payable in quarterly installments, bearing interest at floating rates (8.06% at May 31, 2001) due March, 2005; see below 27,000 -- Subordinated term loan (net of unamortized original issue discount of $2,986) bearing interest at 13% and payable in quarterly installments, principal due in June 2006; see below 7,014 -- Mortgage loan, payable in monthly installments, bearing interest at 7.63%, paid in full May 2001 -- 2,631 Notes payable arising from acquisitions bearing interest at various rates ranging from 5.50% to 7.00%, due 2002 through 2006 2,303 1,247 Other 848 952 ------- ------- Total 73,428 82,880 Less current portion (19,537) (15,131) ------- ------- Long-term portion $53,891 $67,749 ======= =======
F-14 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Effective June 30, 2000, the Company and its domestic subsidiaries entered into a new $90.0 million senior credit facility (the "New Credit Facility") with Bankers Trust Company. The New Credit Facility replaced the Company's previous credit facility, which consisted of a revolving line of credit that expired on June 30, 2000. The New Credit Facility is comprised of an amortizing $30.0 million term loan and a $60.0 million revolving loan. Under the revolving loan, the Company may borrow up to the lesser of $60.0 million or the sum of (i) 85% of eligible accounts receivable and (ii) the lesser of $30.0 million or 65% of the eligible inventory. The New Credit Facility contains customary terms and conditions, including, among others, financial covenants regarding minimum cash flows and limitations on indebtedness and the Company's ability to pay dividends under certain circumstances. The obligations of the Company under the New Credit Facility are secured by a first priority lien on all owned or acquired tangible and intangible assets of the Company and its domestic subsidiaries. The New Credit Facility is being used to fund the normal working capital and capital expenditure requirements of the Company. At the inception of the New Credit Facility, the Company borrowed approximately $64.8 million (together with the proceeds from the subordinated loan discussed below) to repay in full its outstanding obligation under the previous credit facility and related financing costs of the New Credit Facility. Concurrently with the New Credit Facility, on June 30, 2000, the Company entered into a $10.0 million senior subordinated loan agreement (the "Subordinated Loan"). The Subordinated Loan contains customary terms and conditions, including, among others, financial covenants regarding minimum cash flows and limitations on indebtedness and the Company's ability to pay dividends under certain circumstances. The Subordinated Loan bears interest at 13% per annum and matures on June 30, 2006. As part of the Subordinated Loan transaction, the Company issued detachable warrants to purchase up to 1,174,955 shares of the Company's Class A common stock at an exercise price of $0.01 per share, subject to certain customary antidilution provisions. The issuance of the warrants, exercised effective August 3, 2000, resulted in the recognition of approximately $3.5 million in "original issue discount" costs which are being recognized as an adjustment to the effective interest rate over the life of the Subordinated Loan. The Company also granted certain registration rights with respect to the common stock issuable under the warrants pursuant to a Registration Rights Agreement dated as of June 30, 2000. As of May 31, 2001, future payments of long-term debt are presently due as follows: $19,537 (2002), $6,531 (2003), $6,625 (2004), $33,466 (2005), $135 (2006), and $10,120 thereafter. F-15 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 8. INCOME TAXES The components of income tax expense (benefit) consist of the following for the years ended May 31:
2001 2000 1999 ------- ------- ------- Federal: Current $ (198) $ 227 $(3,400) Deferred (1,045) (86) (1,220) Change in valuation allowance 511 327 -- Foreign: Current (119) 2,235 (1,037) Deferred (1,070) (1,931) 1,422 Change in valuation allowance 799 279 -- State and local: Current 229 (28) (591) Deferred (86) 122 (413) Change in valuation allowance 147 -- -- ------- ------- ------- Total $ (832) $ 1,145 $(5,239) ======= ======= =======
Income tax expense (benefit) differs from a calculated income tax at the Federal statutory rate as follows:
2001 2000 1999 ------- ------- ------- Computed Federal income tax expense (benefit) at the statutory rate of 34% for fiscal 2001 and 2000 and 35% for fiscal 1999 $ (212) $ 754 $(4,906) Amortization of cost in excess of fair value of net assets acquired 10 178 151 Meals and entertainment 31 79 39 Foreign Sales Corporation benefit (55) (279) (98) Charitable contributions (12) (287) (499) Foreign tax rate differential (1,920) 367 370 Miscellaneous credits (325) -- -- Change in valuation allowance 1,457 606 -- State income tax expense (benefit) 192 97 (653) Other 2 (370) 357 ------- ------- ------- $ (832) $ 1,145 $(5,239) ======= ======= =======
F-16 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Net deferred income taxes consist of the following at May 31:
2001 2000 ---------------------- ----------------------- Long- Long- Current Term Current Term ------- -------- -------- -------- Assets: Accounts receivable allowances $ 2,312 $ -- $ 2,507 $ -- Inventories adjustment 2,950 -- 1,136 -- Deferred compensation -- 458 -- 1,242 Accrued vacation and bonuses 374 -- 345 -- Accrued other 411 28 635 256 Amortization of intangibles -- 449 -- 482 Capitalized inventory costs 652 -- 530 -- State and other taxes -- -- -- 126 Basis difference in acquired companies -- 73 -- 844 Charitable contributions carryforward -- 1,454 -- 1,879 Net operating loss carryforward -- 4,326 -- 1,524 Basis difference in securities -- 1,384 -- 1,279 Foreign currency adjustment -- 2,699 -- 4,096 Research and development, and other credits 155 -- 487 -- -------- -------- -------- -------- Total 6,854 10,871 5,640 11,728 -------- -------- -------- -------- Liabilities: Basis differences in fixed assets -- 4,651 -- 3,853 Inventories adjustment -- -- -- 247 Amortization of intangibles -- 106 -- 107 State taxes 339 116 359 -- Other 29 944 -- 1,100 -------- -------- -------- -------- Total 368 5,817 359 5,307 -------- -------- -------- -------- Deferred income taxes before valuation allowances 6,486 5,054 5,281 6,421 Valuation allowances -- (2,062) -- (605) -------- -------- -------- -------- Deferred income taxes, net $ 6,486 $ 2,992 $ 5,281 $ 5,816 ======== ======== ======== ========
The Company has tax loss and charitable contribution carryforwards in various jurisdictions, which result in deferred tax assets. The utilization of these tax loss and charitable contribution carryforwards is limited to future operations of the Company in the tax jurisdictions in which such deductions arose. As a result, management is uncertain as to whether these operations will generate sufficient profit to realize the deferred tax asset benefit in the foreseeable future. The valuation allowance provides a reserve against deferred tax assets that may expire or go unutilized by the Company. F-17 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) However, management has determined that it is more likely than not that the Company will realize certain of these benefits. The amount of the deferred tax assets considered realizable, however, could be reduced or increased in the near-term if facts, including the amount of taxable income or the mix of taxable income between subsidiaries, differ from management's estimates. 9. MANAGEMENT INCENTIVE AND STOCK PLANS MANAGEMENT INCENTIVE PLAN--Prior to the Company's initial public offering ("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. 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. During fiscal 2001, 2000, and 1999, 18,272 shares, 27,409 shares and 73,087 shares, respectively, of Class A common stock vested and became issued and outstanding. Accordingly, the Company recognized compensation charges of $201, $301 and $804 in fiscal 2001, 2000 and 1999, respectively. At May 31, 2001, there are no remaining unvested shares available. 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, 2001 and 2000, aggregate loans outstanding amounted to $4,227 and $4,188, 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. Under the Equity Plan, a total of 3,500,000 shares of Class A common stock (or the equivalent in other equity securities) are reserved for issuance. Stock options granted per the Equity Plan primarily become exercisable after one 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-18 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Information relating to stock options issued under the Equity Plan is as follows:
Weighted Number Average Per Of Share Option Total Shares Price Price -------- ------------ ------- 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) Forfeited and/or expired (518,067) (10.78) (5,584) ---------- -------- ------- Options outstanding, May 31, 1999 2,118,833 8.07 17,100 Granted 1,038,000 4.52 4,692 Exercised (2,333) (5.06) (12) Forfeited and/or expired (1,176,200) (7.64) (8,986) --------- -------- ------- Options outstanding, May 31, 2000 1,978,300 6.47 12,794 Granted 1,351,167 2.99 4,038 Exercised (5,000) 3.50 (18) Forfeited and/or expired (339,500) 8.19 (2,779) --------- -------- ------- Options outstanding, May 31, 2001 2,984,967 $ 4.70 $14,035 ========= ======== ======= Exercisable options, May 31, 2001 761,534 $ 6.12 $ 4,657 ========= ======== =======
The weighted average fair market value of options granted during fiscal 2001, 2000 and 1999 amounted to $0.94, $1.64, and $2.57, 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. Proforma information regarding net income (loss) and net income (loss) per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options including previously 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 fiscal 2001, 2000 and 1999, respectively.
2001 2000 1999 ------- ------- ------- Risk-free interest rate 5.35% 6.18% 4.64% Dividend yield 5.15% 3.32% 2.48% Volatility factor 59.84% 60.95% 69.21% Weighted average expected life 2.06 years 2.58 years 2.68 years
F-19 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) For the purposes of proforma disclosure, the estimated fair value of the stock options is amortized to expense over the options vesting period. The Company's proforma net income (loss) and net income (loss) per share were as follows:
2001 2000 1999 ------- ------- ------- Net income (loss), as reported $ 211 $ 1,073 $(8,778) Net income (loss), proforma (151) 857 (9,194) Basic net income (loss) per share, as reported .01 .04 (.35) Diluted net income (loss) per share, as reported .01 .04 (.35) Basic net income (loss) per share, proforma (.01) .03 (.37) Diluted net income (loss) per share, proforma (.01) .03 (.37)
The following table summarizes information about stock options outstanding at May 31, 2001:
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 -------- ----------- ----------- -------- ----------- -------- $2.81 to $3.56 1,452,167 7.6 $ 3.01 198,267 $ 3.04 $4.00 to $5.75 1,184,000 5.9 4.89 359,867 4.99 $11.00 to $13.00 348,800 4.0 11.11 203,400 11.11
10. COMMITMENTS AND CONTINGENCIES LEASES--The Company leases warehouse and office facilities, manufacturing and production facilities, transportation equipment and other equipment under operating lease agreements expiring through 2013. As of May 31, 2001, future minimum payments of $32,777 under the noncancelable operating leases are due as follows: $4,348 (2002), $3,544 (2003), $2,810 (2004), $2,611 (2005), $2,619 (2006) and $16,845 thereafter. Rental expense amounted to $4,697 (2001), $4,499 (2000) and $4,762 (1999). LITIGATION--The Company has been named as a defendant in two pending lawsuits alleging that consumption of certain of its products containing ephedra caused injuries, death and/or damages. The Company disputes the allegations and is opposing the lawsuits. The Company believes that, after taking into consideration the Company's insurance coverage, such lawsuits, if successful, would not have a material adverse effect on the Company's financial condition. However, one or more large punitive damage awards, which are generally not covered by insurance, could have a material adverse effect F-20 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) on the Company's financial condition. The Company may be subject to further private civil actions with respect to its ephedra products. The Company's current product liability coverage for ephedra products expires on August 31, 2001, and the Company has received initial indication that such coverage will not be renewed. Although the Company is investigating other insurance coverage options, including self-insurance, no assurance can be given that the Company will be able to obtain product liability insurance coverage for its ephedra products. During the first quarter of fiscal 2001, the Company received proceeds of approximately $3.6 million relating to the settlement of certain antitrust litigation brought by the Company and several other parties. From time to time, the Company is involved in other claims, legal actions and governmental proceedings that arise from the Company's 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 Africa, 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 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 $389, $390 and $203 for fiscal 2001, 2000 and 1999, respectively, relating to the Mariz licensing agreement. 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 $449, $301 and $334 for fiscal 2001, 2000 and 1999, respectively. F-21 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 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 and royalties) consist of the following for the years ended May 31:
2001 2000 1999 -------- -------- -------- Operating expenses $ 2,028 $ 2,230 $ 3,053 Other 250 250 400 -------- -------- ------- Total $ 2,278 $ 2,480 $ 3,453 ======== ======== =======
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 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 ($1,724 at May 31, 2001) will be reduced by 50%. 12. OPERATING SEGMENTS The Company has two primary reportable segments. These segments are the Company's U.S. based or domestic operations, and the Company's international operations (primarily Germany). 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. F-22 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Segment information for fiscal 2001, 2000 and 1999, respectively, are summarized as follows:
Income (Loss) Net From Interest 2001: Sales Operations Expense -------- ---------- -------- Domestic Operations: Mass market $177,530 $ 16,715 $ 3,223 Health food stores 21,949 (3,884) 465 Health clubs and gyms 21,834 (2,352) 439 Other 3,289 (1,764) 64 Unallocated -- 2,923 -- -------- -------- -------- 224,602 11,638 4,191 International Operations 128,157 759 5,922 -------- -------- -------- $352,759 $ 12,397 $ 10,113 ======== ======== ======== Income (Loss) Net From Interest 2000: Sales Operations Expense -------- ---------- -------- Domestic Operations: Mass market $180,927 $ 20,327 $ 3,616 Health food stores 34,642 (6,446) 2,025 Health clubs and gyms 22,326 (662) 1,302 Other 4,168 (1,546) 288 Unallocated -- (4,300) -- -------- -------- -------- 242,063 7,373 7,231 International Operations 122,605 6,108 4,552 -------- -------- -------- $364,668 $ 13,481 $ 11,783 ======== ======== ========
F-23 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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 ======== ======== ========
Reconciliation of assets for the reportable segments is as follows at May 31:
2001 2000 --------- --------- Total domestic assets $ 191,040 $ 199,829 Total international assets 79,127 79,003 Eliminations (61,095) (51,564) --------- -------- Total $ 209,072 $ 227,268 ========= =========
Capital expenditures for domestic and international operations amounted to $1.6 million and $2.5 million, respectively, for 2001, $4.1 million and $1.8 million, respectively, for fiscal 2000, and $10.1 million and $1.3 million, respectively, for fiscal 1999. F-24 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Quarterly data (unaudited) for the years ended May 31, 2001, 2000 and 1999 is as follows:
Quarter Ended ----------------------------------------------- Aug. 31 Nov. 30 Feb. 28 May 31 ------- ------- ------- -------- 2001: Net sales $91,210 $78,538 $91,475 $91,536 Gross profit 37,955 30,295 33,686 33,972 Income from operations 4,848 2,875 647 4,027 Income tax expense (benefit) 398 399 (1,334) (295) Net income (loss) 1,964 (257) (652) (844) Basic and diluted net income (loss) per share .07 (.01) (.02) (.03) Quarter Ended ----------------------------------------------- Aug. 31 Nov. 30 Feb. 29 May 31 ------- ------- ------- -------- 2000: Net sales $89,967 $87,376 $90,449 $96,876 Gross profit 33,835 33,161 34,099 36,200 Income from operations 2,959 4,395 4,138 1,989 Income tax expense (benefit) (19) 662 733 (231) Net income (loss) 246 1,043 854 (1,070) Basic and diluted net income (loss) per share .01 .04 .03 (.04) 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 tax expense (benefit) 1,115 (3,740) 307 (2,921) Net income (loss) 1,707 (5,440) 407 (5,452) Basic and diluted net income (loss) per share .07 (.22) .02 (.22)
The Company's operating results for the fourth quarter of fiscal 2001 were affected by an impairment loss recognized due to the determination that an "other-than-temporary" decline in valuation of available-for-sale equity securities had occurred. The pre-tax impairment loss amounted to approximately $2.2 million. F-25 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The Company's operating results for the fourth quarters of fiscal 2000 and 1999 were affected by the recognition of approximately $2.3 million and $11.0 million, respectively, in aggregate pre-tax charges associated with decisions made by management to implement, continue and/or substantially finalize certain strategic initiatives. These initiatives included, among others, organizational changes and upgrading management systems, the decision to reduce domestic SKUs by over two-thirds (resulting in realization of excess returns and credits and inventory related charges) and the refinement of the Company's growth and business strategies as well as settlement of certain litigation matters. F-26 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See 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 reference 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." 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. (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 Credit Agreement dated as of June 30, 2000 among Weider Nutrition International, Inc. and Bankers Trust Company. (4) 4.2 Senior Subordinated Loan Agreement dated as of June 30, 2000 among Weider Nutrition International, Inc., Wynnchurch Capital Partners, L.P., and Wynnchurch Capital Partners Canada, L.P. (4) 4.3 Warrants to Purchase Shares of Class A Common Stock of Weider Nutrition International, Inc. (4) 4.4 Registration Rights Agreement dated as of June 30, 2000 among Weider Nutrition International, Inc., Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada, L.P. (4) 4.5 First Amendment to Credit Agreement dated as of June 30, 2000 among Weider Nutrition International, Inc. and Bankers Trust Company. (5) 24 4.6 First Amendment to Senior Subordinated Loan Agreement dated as of June 30, 2000 among Weider Nutrition International, Inc., Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada, L.P. (7) 4.7 Second Amendment to Credit Agreement dated as of June 30, 2000 among Weider Nutrition International, Inc. and Bankers Trust Company. (8) 4.8 Second Amendment to Senior Subordinated Loan Agreement dated as of June 30, 2000 among Weider Nutrition International, Inc., Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada, L.P.(8) 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) 10.6 Form of Employment Agreement between Weider Nutrition International, Inc. and Robert K. Reynolds, as amended. (5) 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) 10.9 License Agreement between Mariz Gestao E Investmentos Limitada and Weider Nutrition Group Limited. (1) 10.10 Form of Employment Agreement between Weider Nutrition International, Inc. and Bruce J. Wood. (3) 10.11 Agreement between the Company and Bruce J. Wood. (6) 10.12 Form Agreement between the Company and certain executives of the Company. (6) 21 Subsidiaries of Weider Nutrition International, Inc. (8) 23.1 Independent Auditors' Consent (8) - --------------- (1) Filed as an Exhibit to the Company's Registration Statement on From 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 From 10-K dated as of August 30, 1999 and incorporated herein by reference. (4) Previously filed in the Company's Current Report on Form 8-K dated as of June 30, 2000 and incorporated herein by reference. (5) Previously filed in the Company's Current Report on Form 10-K as of August 29, 2000 and incorporated herein by reference. (6) Previously filed in the Company's Current Report on Form 10-K/A as of September 28, 2000 and incorporated herein by reference. (7) Previously filed in the Company's Current Report on Form 10-Q as of January 15, 2001 and incorporated herein by reference. (8) Filed Herewith. - --------------- (b) Reports on Form 8-K None 25 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 29, 2001 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 29, 2001 - ---------------------- and Director /s/ BRUCE J. WOOD Chief Executive Officer, August 29, 2001 - ---------------------- President and Director (Principal Executive Officer) /s/ JOSEPH W. BATY Executive Vice President, August 29, 2001 - ---------------------- Chief Financial Officer /s/ RONALD L. COREY Director August 29, 2001 - ---------------------- /s/ DONALD G. DRAPKIN Director August 29, 2001 - ---------------------- /s/ DAVID J. GUSTIN Director August 29, 2001 - ---------------------- /s/ ROGER H. KIMMEL Director August 29, 2001 - ---------------------- /s/ GEORGE F. LENGVARI Vice Chairman of the Board - ---------------------- and Director August 29, 2001 /s/ BRIAN P. McDERMOTT Director August 29, 2001 - ---------------------- /s/ H. F. POWELL Director August 29, 2001 - ----------------------
26 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MAY 31, 2001, 2000 AND 1999 (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: 1999................... $ 291 $ 1,094 $ 977 $ (134) $2,228 ------ ------- -------- -------- ------ 2000................... $2,228 $ 2,074 $ 32 $ (1,412) $2,922 ------ ------- -------- -------- ------ 2001................... $2,922 $ 1,455 $ -- $ (1,289) $3,088 ------ ------- -------- -------- ------ ALLOWANCE FOR SALES RETURNS: 1999................... $1,650 $23,048 $ 196 $(21,068) $3,826 ------ ------- -------- -------- ------ 2000................... $3,826 $19,310 $ -- $(17,467) $5,669 ------ ------- -------- -------- ------ 2001................... $5,669 $10,533 $ -- $(11,449) $4,753 ------ ------- -------- -------- ------
27 EX-4.7 3 a2058234zex-4_7.txt EXHIBIT 4.7 AMENDMENT NO. 2 TO CREDIT AGREEMENT THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT ("AMENDMENT") is dated as of August __, 2001, by and among WEIDER NUTRITION GROUP, INC., a Utah corporation ("BORROWER"); BANKERS TRUST COMPANY, a New York banking corporation (in its individual capacity, hereinafter referred to as "BTCO") and the other financial institutions signatories hereto; and BTCo, acting in its capacity as agent (in such capacity, hereinafter referred to as "AGENT") for itself and the other financial institutions from time to time parties to the Credit Agreement referred to herein below (each a "LENDER" and, collectively, the "LENDERS"). Capitalized terms used herein but not otherwise defined herein shall have the respective meanings assigned to such terms in the Credit Agreement. WITNESSETH: WHEREAS, Borrower, Agent and Lenders have entered into that certain Credit Agreement dated as of June 30, 2000, as amended (the "CREDIT AGREEMENT"), pursuant to which Lenders have agreed to make certain loans and other financial accommodations to or for the account of Borrower; and WHEREAS, Borrower, Agent and Lenders have agreed to further amend the Credit Agreement, on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the respective parties hereto hereby agree as follows: 1. AMENDMENT TO CREDIT AGREEMENT. Effective upon satisfaction of the conditions precedent set forth in SECTION 2 below, and in reliance upon the representations and warranties of Borrower set forth herein and in the other Credit Documents, the Credit Agreement is hereby amended as follows: 1.1 SECTIONS 8.1 and 8.2, respectively, of the Credit Agreement are hereby deleted in their entirety and the following language is hereby substituted therefor: 8.1 CERTAIN FINANCIAL COVENANTS. (a) FIXED CHARGE COVERAGE RATIO. Borrower shall not permit the Fixed Charge Coverage Ratio, as determined as of each date set forth below, for the twelve month period ending on such date, to be less than the ratio set forth below opposite such date:
DATE MINIMUM RATIO ---- ------------- August 31, 2001 1.15 to 1.00 November 30, 2001 1.15 to 1.00 February 28, 2002 1.15 to 1.00 May 31, 2002 1.15 to 1.00 August 31, 2002 1.15 to 1.00 November 30, 2002 1.05 to 1.00 February 28, 2003 1.05 to 1.00 May 31, 2003 1.05 to 1.00 August 31, 2003 1.05 to 1.00 November 30, 2003 and the last day of each fiscal quarter of Borrower ending thereafter 1.10 to 1.00
(b) LEVERAGE RATIOS. (i) Borrower shall not permit the Total Leverage Ratio, as determined as of each date set forth below, for the twelve-month period ending on such date, to be greater than the ratio set forth below opposite date:
DATE MAXIMUM RATIO ---- ------------- August 31, 2001 4.00 to 1.00 November 30, 2001 3.40 to 1.00 February 28, 2002 3.40 to 1.00 May 31, 2002 3.45 to 1.00 August 31, 2002 3.00 to 1.00 November 30, 2002 2.85 to 1.00 February 28, 2003 2.90 to 1.00 May 31, 2003 2.90 to 1.00 August 31, 2003 2.90 to 1.00 November 30, 2003 2.90 to 1.00 February 29, 2004 and the last day of each fiscal quarter of Borrower ending thereafter 2.80 to 1.00
2 (ii) Borrower shall not permit the Senior Leverage Ratio, as determined as of each date set forth below, to be greater than the ratio set forth below opposite date:
DATE MAXIMUM RATIO ---- ------------- August 31, 2001 3.30 to 1.00 November 30, 2001 3.00 to 1.00 February 28, 2002 2.80 to 1.00 May 31, 2002 2.80 to 1.00 August 31, 2002 2.80 to 1.00 November 30, 2002 2.40 to 1.00 February 28, 2003 2.40 to 1.00 May 31, 2003 2.30 to 1.00 August 31, 2003 2.30 to 1.00 November 30, 2003 2.30 to 1.00 February 29, 2004 and the last day of each fiscal quarter of Borrower ending thereafter 2.10 to 1.00
(c) INTEREST COVERAGE RATIO. Borrower shall not permit the Interest Coverage Ratio, as determined as of each date set forth below for the twelve-month period ending on such date to be the less than the ratio set forth below opposite such date:
DATE MINIMUM RATIO ---- ------------- August 31, 2001 2.15 to 1.00 November 30, 2001 2.70 to 1.00 February 28, 2002 2.75 to 1.00 May 31, 2002 2.85 to 1.00 August 31, 2002 3.10 to 1.00 November 30, 2002 3.20 to 1.00 February 28, 2003 3.25 to 1.00 May 31, 2003 3.40 to 1.00 August 31, 2003 3.80 to 1.00 November 30, 2003 3.80 to 1.00 3 February 28, 2004 4.20 to 1.00 May 31, 2004 4.20 to 1.00 August 31, 2004 4.20 to 1.00 November 30, 2004 and the last day of each fiscal quarter of Borrower ending thereafter 4.70 to 1.00
8.2 CAPITAL EXPENDITURES. Borrower shall not and shall not permit any of its Subsidiaries to, directly or indirectly, make payments for Capital Expenditures in any fiscal year of Borrower, in the aggregate for Borrower and its Subsidiaries combined, in excess of (a) in the case of the fiscal year of Borrower ending as of May 31, 2002, $3,000,000, and (b) in the case of each fiscal year of Borrower ending thereafter, $2,000,000 (the foregoing permitted amounts, with respect to any fiscal year of Borrower, being herein referred to as the "CAPEX BASE AMOUNT" for such fiscal year); PROVIDED that if, in any fiscal year, the aggregate amount of actual Capital Expenditures made by Borrower and its Subsidiaries is less than the Capex Base Amount for such fiscal year (the amount by which the Capex Base Amount for any fiscal year exceeds the actual Capital Expenditures made by Borrower and its Subsidiaries in such fiscal year being herein referred to as the "AVAILABLE CAPEX CARRY-OVER AMOUNT" for such fiscal year), then Borrower and its Subsidiaries may make Capital Expenditures in the immediately succeeding fiscal year in an aggregate amount up to the sum of (i) the Capex Base Amount for such immediately succeeding fiscal year and (ii) fifty percent (50%) of the Available Capex Carry-Over Amount for the immediately preceding fiscal year; PROVIDED, FURTHER, that Capital Expenditures made by Borrower or any of its Subsidiaries in such immediately succeeding fiscal year shall first be charged against the Capex Base Amount for such fiscal year and shall only thereafter be charged against the portion of the Available Capex Carry-Over Amount, if any, from the immediately preceding fiscal year. 2. CONDITIONS PRECEDENT. This Amendment shall become effective as of the date hereof upon satisfaction in full of each of the following conditions: (a) Agent shall have received a copy of this Amendment, duly executed and delivered by each of the Credit Parties and the Majority Lenders, together with all other acknowledgments and/or consents, if any, requested by it, each of which shall be in form and substance satisfactory to Agent; (b) Borrower shall have (i) requested a Borrowing in the amount of $3,000,000, and (ii) authorized and directed Agent to repay the Term Loans in the full amount of the proceeds thereof and to apply such repayment to reduce the then remaining scheduled installments of principal on the Term Loans in the inverse order of 4 their maturity; and (c) Agent shall have received in immediately available Dollars for the ratable account of the Lenders an amendment fee in the amount of $83,375.00. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. 3.1 Borrower hereby represents and warrants to Agent and each of the Lenders that, after giving effect to this Amendment: (a) All representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on and as of the date of this Amendment, in each case as if then made, other than representations and warranties that expressly relate solely to an earlier date (in which case such representations and warranties remain true and correct in all material respects on and as of such earlier date, except for changes permitted by the Credit Agreement); (b) No Default or Event of Default has occurred which is continuing; (c) This Amendment and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their respective terms, except as such enforceability may be limited by (i) the effect of any applicable bankruptcy, insolvency reorganization, moratorium or similar laws affecting creditors' rights generally and (ii) general principles of equity; and (d) The execution and delivery of this Amendment does not require the consent or approval of any Person. 3.2 Notwithstanding anything to the contrary contained in the Credit Agreement and any of the other Credit Documents, Borrower hereby covenants and agrees with the Agent and each of the Lenders that, (a) in addition to any other mandatory repayments of the Loans required pursuant to the terms and provisions of the Credit Agreement and the other Credit Documents, on the date upon which Borrower or any Subsidiary of Borrower (including, without limitation, any such Subsidiary incorporated or otherwise organized outside of the United States or any territory thereof) receives any cash proceeds of the sale or other disposition (net of costs and expenses, and repayments of Indebtedness, in each case resulting therefrom or required in connection therewith) of all or substantially all of the assets and/or Capital Securities of any direct or indirect Subsidiary of Borrower (including, without limitation, any such Subsidiary incorporated or otherwise organized outside of the United States or any territory thereof), Borrower shall immediately deposit or cause such net cash proceeds to be immediately deposited into the BT Account for application to the Loans as follows: FIRST, in repayment of the aggregate then outstanding principal balance of the Term Loans, in an amount up to $10,000,000 (such repayment of the Term Loans to be applied to reduce the then remaining scheduled installments of principal on the Term Loans in the inverse order of their maturity), and, SECOND, with respect to any such net cash proceeds remaining after such application, (i) in repayment of the aggregate then outstanding principal balance of 5 the Term Loans in the amount of 50% of such remaining net cash proceeds (such repayment of the Term Loans to be applied to reduce the then remaining scheduled installments of principal on the Term Loans in the inverse order of their maturity), and (ii) in repayment of the aggregate then outstanding principal balance of the Revolving Loans, in the amount of 50% of such remaining net cash proceeds. 4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS. 4.1 Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in each of the other Credit Documents to the "Credit Agreement" shall in each case mean and be a reference to the Credit Agreement as amended hereby. 4.2 Except as expressly set forth herein, (i) the execution and delivery of this Amendment shall in no way affect any of the respective rights, powers or remedies of Agent or any of the Lenders with respect to any Default or Event of Default nor constitute a waiver of any provision of the Credit Agreement or any of the other Credit Documents and (ii) all of the respective terms and provisions of the Credit Agreement, the other Credit Documents and all other documents, instruments, amendments and agreements executed and/or delivered by Borrower pursuant thereto or in connection therewith shall remain in full force and effect and are hereby ratified and confirmed in all respects. The execution and delivery of this Amendment by Agent and the respective Lenders shall in no way obligate Agent or any of the Lenders, at any time hereafter, to consent to any other amendment or modification of any term or provision of the Credit Agreement or any of the other Credit Documents, whether of a similar or different nature. 5. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AMENDMENT SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. 6. HEADINGS. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Any such counterpart which may be delivered by facsimile transmission shall be deemed the equivalent of an originally signed counterpart and shall be fully admissible in any enforcement proceedings regarding this Amendment. - REMAINDER OF PAGE INTENTIONALLY LEFT BLANK - [SIGNATURE PAGES FOLLOW] 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date first set forth above. BORROWER: WEIDER NUTRITION GROUP, INC., a Utah corporation By: ---------------------------- Name: ---------------------------- Title: ---------------------------- AGENT: BANKERS TRUST COMPANY, in its capacity as Agent By: ---------------------------- Name: ---------------------------- Title: ---------------------------- LENDERS: BANKERS TRUST COMPANY By: ---------------------------- Name: ---------------------------- Title: ---------------------------- DIME COMMERCIAL CORP. By: ---------------------------- Name: ---------------------------- Title: ---------------------------- KEY BANK NATIONAL ASSOCIATION By: ---------------------------- Name: ---------------------------- Title: ---------------------------- LASALLE BANK NATIONAL ASSOCIATION By: ---------------------------- Name: ---------------------------- Title: ---------------------------- US BANK NATIONAL ASSOCIATION By: ---------------------------- Name: ---------------------------- Title: ---------------------------- ZIONS FIRST NATIONAL BANK By: ---------------------------- Name: ---------------------------- Title: ---------------------------- ACKNOWLEDGMENT Reference is hereby made to that certain Subordination Agreement dated as of June 30, 2000 (the "SUBORDINATION AGREEMENT"), executed by the undersigned, WYNNCHURCH CAPITAL PARTNERS, L.P., a Delaware limited partnership, and WYNNCHURCH CAPITAL PARTNERS CANADA, L.P., an Alberta limited partnership (collectively, the "SUBORDINATED HOLDERS"), in favor of BANKERS TRUST COMPANY, a New York banking corporation, acting in its capacity as Agent for the Lenders from time to time under the Credit Agreement referred to in the foregoing Amendment No. 2 to Credit Agreement (the "AMENDMENT"). Each Subordinated Holder hereby acknowledges (i) receipt of a copy of the Amendment and (ii) that the terms and provisions thereof do not affect in any way the obligations and liabilities of such Subordinated Holder under the Subordination Agreement or any of the other Credit Documents, all of which obligations and liabilities remain in full force and effect and each of which is hereby reaffirmed. WYNNCHURCH CAPITAL PARTNERS, L.P. By: Wynnchurch Partners, L.P. Its: General Partner By: Wynnchurch Management, Inc. By: ---------------------------- Name: ---------------------------- Title: ---------------------------- WYNNCHURCH CAPITAL PARTNERS CANADA, L.P. By: Wynnchurch Partners Canada, L.P. Its: General Partner By: Wynnchurch Canada, GP, Inc. By: ---------------------------- Name: ---------------------------- Title: ---------------------------- Dated as of August __, 2001 ACKNOWLEDGMENT Reference is hereby made to that certain Guaranty dated as of June 30, 2000 (the "GUARANTY"), executed by the undersigned, WEIDER NUTRITION INTERNATIONAL, INC., a Delaware corporation ("WNI"), in favor of BANKERS TRUST COMPANY, a New York banking corporation, acting in its capacity as Agent for the Lenders from time to time under the Credit Agreement referred to in the foregoing Amendment No. 2 to Credit Agreement (the "AMENDMENT"). WNI hereby acknowledges (i) receipt of a copy of the Amendment and (ii) that the terms and provisions thereof do not affect in any way the obligations and liabilities of WNI under the Guaranty or any of the other Credit Documents, all of which obligations and liabilities remain in full force and effect and each of which is hereby reaffirmed. WEIDER NUTRITION INTERNATIONAL, INC. By: ---------------------------- Name: ---------------------------- Title: ---------------------------- Dated as of August __, 2001 ACKNOWLEDGMENT Reference is hereby made to that certain Guaranty dated as of June 30, 2000 (the "GUARANTY"), executed by the undersigned, WEIDER HOLDINGS (INTERNATIONAL), INC., a Delaware corporation ("WHI"), in favor of BANKERS TRUST COMPANY, a New York banking corporation, acting in its capacity as Agent for the Lenders from time to time under the Credit Agreement referred to in the foregoing Amendment No. 2 to Credit Agreement (the "AMENDMENT"). WHI hereby acknowledges (i) receipt of a copy of the Amendment and (ii) that the terms and provisions thereof do not affect in any way the obligations and liabilities of WHI under the Guaranty or any of the other Credit Documents, all of which obligations and liabilities remain in full force and effect and each of which is hereby reaffirmed. WEIDER HOLDINGS (INTERNATIONAL), INC. By: ---------------------------- Name: ---------------------------- Title: ---------------------------- Dated as of August __, 2001 EX-4.8 4 a2058234zex-4_8.txt EXHIBIT 4.8 CONSENT AND SECOND AMENDMENT AGREEMENT This CONSENT AND SECOND AMENDMENT AGREEMENT ("Agreement") is made and entered into as of August ___, 2001, by and between WEIDER NUTRITION GROUP, INC., a Utah corporation ("Borrower"), and WYNNCHURCH CAPITAL PARTNERS, L.P., a Delaware limited partnership, and WYNNCHURCH CAPITAL PARTNERS CANADA, L.P., an Alberta limited partnership (collectively, "Lenders"). R E C I T A L S A. Pursuant to that certain Senior Subordinated Loan Agreement dated as of June 30, 2000, as amended by that certain Consent and First Amendment Agreement dated as of June 30, 2000 (the "Loan Agreement"), between Borrower and Lenders, Lenders purchased promissory notes of Borrower having an aggregate principal amount of $10,000,000 (the "Notes"). B. Borrower and Lenders have agreed to amend the Loan Agreement, on the terms and subject to the conditions set forth herein. A G R E E M E N T S NOW, THEREFORE, in consideration of the agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. INCORPORATION OF RECITALS. The foregoing recitals are incorporated herein by reference and made a part of this Agreement. 2. DEFINITIONS. All capitalized terms used herein without definition shall have the meanings given to them in the Loan Agreement. 3. AMENDMENT OF THE LOAN AGREEMENT. The parties hereto agree to amend the terms of the Loan Agreement as follows: 3.1. SECTION 6.13(b). Section 6.13(b) of the Loan Agreement is hereby deleted in its entirety and the following language is hereby substituted therefor. "(b) LEVERAGE RATIOS. (i) Borrower shall not permit the Total Leverage Ratio, as determined as of each date set forth below, for the twelve-month period ending on such date, to be greater than the ratio set forth below opposite date:
DATE MAXIMUM RATIO --------------------- ------------- August 31, 2001 4.60 to 1.00 November 30, 2001 4.25 to 1.00 February 28, 2002 4.00 to 1.00 May 31, 2002 4.00 to 1.00
August 31, 2002 3.75 to 1.00 November 30, 2002 3.50 to 1.00 February 28, 2003 3.50 to 1.00 May 31, 2003 3.30 to 1.00 August 31, 2003 3.30 to 1.00 November 30, 2003 3.30 to 1.00 February 29, 2004 and 3.20 to 1.00 the last day of each fiscal quarter of Borrower thereafter
(ii) Borrower shall not permit the Senior Leverage Ratio, as determined as of each date set forth below, for the twelve-month period ending on such date, to be greater than the ratio set forth opposite such date:
DATE MAXIMUM RATIO --------------------- ------------- August 31, 2001 3.90 to 1.00 November 30, 2001 3.75 to 1.00 February 28, 2002 3.75 to 1.00 May 31, 2002 3.50 to 1.00 August 31, 2002 3.50 to 1.00 November 30, 2002 3.50 to 1.00 February 28, 2003 3.00 to 1.00 May 31, 2003 3.00 to 1.00 August 31, 2003 2.75 to 1.00 November 30, 2003 2.75 to 1.00 February 29, 2004 2.75 to 1.00 May 31, 2004 and the last 2.50 to 1.00 day of each fiscal quarter of Borrower thereafter
3.2 SECTION 6.13(c). Section 6.13(c) of the Loan Agreement is hereby deleted in its entirety and the following language is hereby substituted therefor. "(c) INTEREST COVERAGE RATIO. Borrower shall not permit the Interest Coverage Ratio, as determined as of each date set forth below, for the twelve-month period ending on such date, to be less than the ratio set forth below opposite such date:
DATE MAXIMUM RATIO --------------------- ------------- August 31, 2002 1.85 to 1.00 November 30, 2002 2.25 to 1.00 February 28, 2003 2.30 to 1.00
2 May 31, 2003 2.40 to 1.00 August 31, 2003 2.50 to 1.00 November 30, 2003 2.65 to 1.00 February 29, 2004 2.80 to 1.00 May 31, 2004 2.90 to 1.00 August 31, 2004 3.25 to 1.00 November 30, 2004 3.25 to 1.00 February 28, 2005 3.50 to 1.00 May 31, 2005 3.50 to 1.00 August 31, 2005 3.50 to 1.00 November 30, 2005 and 4.00 to 1.00" the last day of each fiscal quarter of Borrower ending thereafter
4. REPRESENTATIONS AND WARRANTIES OF BORROWER. As a further inducement for Lenders to consent to the transactions contemplated by this Agreement, Borrower hereby represents and warrants to Lenders that: (a) Borrower has the requisite corporate power and authority to execute, deliver and carry out this Agreement and the transactions contemplated hereby. (b) The execution and delivery of this Agreement and the consummation by Borrower of the transactions contemplated hereby have been duly authorized by all necessary corporate action and other consents, approvals and the like required on the part of Borrower. (c) Neither the execution and delivery by Borrower of this Agreement nor the consummation of the transactions contemplated hereby, nor compliance by Borrower with the terms, conditions and provisions hereof, shall (i) conflict with or result in a breach of the terms, conditions or provisions of; (ii) constitute a default under, (iii) result in the creation of any lien, security interest, charge or encumbrance upon its capital stock or assets pursuant to; (iv) give any third party the right to accelerate any obligation under; (v) result in a violation of; or (vi) require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to the Articles of Incorporation or by-laws of Borrower or any law, statute, rule or regulation to which Borrower is subject, or any agreement, instrument, order, judgment or decree to which Borrower is subject. (d) This Agreement has been duly and validly executed and delivered by Borrower and constitutes legal, valid and binding obligations, and all such obligations of Borrower are enforceable in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. 3 (e) No event has occurred and is continuing and no condition exists which would constitute an Event of Default or a Potential Event of Default. (f) All representations and warranties of Borrower in the Loan Agreement remain true and correct in all material respects as of the date hereof, except (i) to the extent such representations and warranties specifically relate to an earlier date; (ii) to the extent such representations and warranties are specifically amended by this Agreement; or (iii) to extent disclosed on SCHEDULE 1 attached hereto and incorporated herein by reference. 5. MISCELLANEOUS. (a) FURTHER ASSURANCES. Borrower shall, from time to time at the request of Lenders, do all further acts and things as may in the opinion of Lenders be necessary or advisable to effectuate the transaction and other matters contemplated hereby, including, without limitation, the modification of or amendment to any other agreements, certificates or instruments to which Borrower is a party. (b) NOTICES. All notices and other communications given to or made upon any party hereto in connection with this Agreement shall be in accordance with Section 8.5 of the Loan Agreement. (c) COSTS AND EXPENSES. Borrower agrees to pay all costs and expenses, including, without limitation, attorney's fees and expenses, expended or incurred by Lenders in connection with (i) the preparation and structuring of this Agreement; (ii) the enforcement of this Agreement; and (iii) any actions for declaratory relief in any way related to this Agreement or the agreements, certificates and instruments described herein or contemplated hereby, or the protection or preservation of any rights of Lenders hereunder. (d) NO WAIVER. The execution and delivery of this Amendment shall not, except as expressly provided herein, operate as a waiver of, limit in any way any right, power or remedy under, or act as a consent to any departure from any provision of the Loan Agreement or any Senior Subordinated Loan Document. This consent shall not operate as a waiver of any Event of Default occurring prior to or, except as expressly provided herein, on or after the date hereof. (e) GOVERNING LAW. This Amendment shall in all respects be governed by the laws and judicial decisions of the State of Illinois. (f) ENTIRE AGREEMENT. This Agreement and the instruments to be delivered by the parties pursuant to the provisions hereof constitute the entire agreement between the parties hereto with respect to the subject matter hereof. Any amendments or alternative or supplementary provisions to this Agreement must be made in writing and duly executed by an authorized representative of each of the parties hereto. (g) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by any party hereto on separate counterparts, each of which, when so 4 executed and delivered, shall be an original, but all such counterparts shall together constitute one and the same instrument. (h) CAPTIONS. Section captions used in this Agreement are for convenience only, and shall not affect the construction of this Agreement. (i) ENFORCEABILITY. Should any one or more of the provisions of this Amendment be determined to be illegal or unenforceable as to one or more of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto. (j) NO FURTHER AMENDMENTS. Except as specifically amended hereby, the terms and provisions of the Loan Agreement shall remain in full force and effect. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the day and year first above written. WEIDER NUTRITION GROUP, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- WYNNCHURCH CAPITAL PARTNERS, L.P. By: Wynnchurch Partners, L.P., its general partner By: Wynnchurch Management, Inc., its general partner By: --------------------------- Name: ------------------------- Title: ------------------------ WYNNCHURCH CAPITAL PARTNERS CANADA, L.P. By: Wynnchurch Partners Canada, L.P., its general partner By: Wynnchurch GP Canada, Inc., its general partner By: --------------------------- Name: ------------------------- Title: ------------------------ 6 SCHEDULE 1 7 EX-21 5 a2058234zex-21.txt EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF WEIDER NUTRITION INTERNATIONAL, INC.
STATE OR COUNTRY ENTITY NAME OF INCORPORATION PARENT CORPORATION - ----------- ----------------- ------------------- Weider Nutrition Group, Inc. Utah Weider Nutrition International, Inc. WNG Holdings (International) Ltd. Nevada Weider Nutrition Group, Inc. Weider International GP, Inc. Utah WNG Holdings (International) Ltd. Weider Nutrition Group (Canada) Ltd. Canada (Nova Scotia) WNG Holdings (International) Ltd. Weider Nutrition CV The Netherlands WNG Holdings (International) Ltd (99%) & Weider Nutrition Group, Inc. (1%) Weider Nutrition (WNI) Ltd. United Kingdom (England) Weider Nutrition CV Weider Nutrition Group Limited United Kingdom (England) WNG International CV WNG International CV The Netherlands Weider Nutrition (WNI) Ltd. (99%) & Weider International GP, Inc. (1%) Weider Nutrition BV The 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 Sy-Fra Sportalimenti di Frank Sambo Italy Haleko Hanseatisches & Co. SAS Lebensmittelkontor OHG Haleko Italia SrL Italy Haleko Hanseatisches Lebensmittelkontor OHG (50%) & Sy-Fra Sportalimenti di Frank Sambo & Co. SAS (50%) Sports Direct Ltd. United Kingdom (England) Power Gym Ltd. (50%)
EX-23.1 6 a2058234zex-23_1.txt EXHIBIT 23.1 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 20, 2001, appearing in this Annual Report on Form 10-K of Weider Nutrition International, Inc. for the year ended May 31, 2001. 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 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----