-----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, Wd5OwlYloJwO+MsZ9hjWV/cktpgmC4EeaYAFJEmJdxdNyZAQ4o0HgPewWspLtTrQ j/hcNoEIrumgL+M9bgWdBQ== 0000950149-01-500501.txt : 20010417 0000950149-01-500501.hdr.sgml : 20010417 ACCESSION NUMBER: 0000950149-01-500501 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010228 FILED AS OF DATE: 20010416 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-Q SEC ACT: SEC FILE NUMBER: 001-14608 FILM NUMBER: 1603042 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-Q 1 f71572e10-q.txt WEIDER NUTRITION INTERNATIONAL, INC. FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____. COMMISSION FILE NUMBER: 333-12929 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 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 [ ] The number of shares outstanding of the Registrant's common stock is 26,249,436 (as of March 9, 2001). 1 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
February 28, May 31, ASSETS 2001 2000 ----------- --------- (unaudited) Current assets: Cash and cash equivalents $ 2,498 $ 3,011 Receivables 53,088 53,522 Inventories 54,008 47,113 Prepaid expenses and other 4,126 4,982 Deferred taxes 6,808 6,560 --------- --------- Total current assets 120,528 115,188 --------- --------- Property and equipment, net 44,374 47,198 --------- --------- Other assets: Intangible assets, net 48,030 49,412 Deposits and other assets 6,029 6,745 Notes receivable related to stock performance units 4,227 4,188 Deferred taxes 3,658 4,537 --------- --------- Total other assets 61,944 64,882 --------- --------- Total assets $ 226,846 $ 227,268 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 34,925 $ 32,650 Accrued expenses 16,492 21,735 Earnout amounts payable -- 2,796 Current portion of long-term debt 26,699 15,131 Income taxes payable -- 549 --------- --------- Total current liabilities 78,116 72,861 --------- --------- Long-term debt 60,084 67,749 --------- --------- Commitments and contingencies 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 and 9,363,778 105 94 Class B common stock, par value $.01 per share; shares Authorized-25,000,000; shares issued and outstanding-15,687,432 157 157 Additional paid-in capital 86,956 83,225 Other accumulated comprehensive loss (4,906) (5,003) Retained earnings 6,334 8,185 --------- --------- Total stockholders' equity 88,646 86,658 --------- --------- Total liabilities and stockholders' equity $ 226,846 $ 227,268 ========= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 2 3 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
Three Months Ended ------------------------------- Feb. 28, Feb. 29, 2001 2000 ------------ ------------ Net sales $ 91,475 $ 90,449 Cost of goods sold 57,789 56,350 ------------ ------------ Gross profit 33,686 34,099 ------------ ------------ Operating expenses: Selling and marketing 23,821 20,532 General and administrative 7,021 6,532 Research and development 1,344 1,260 Amortization of intangible assets 853 815 Severance, recruiting and reorganization costs -- 822 ------------ ------------ Total operating expenses 33,039 29,961 ------------ ------------ Income from operations 647 4,138 ------------ ------------ Other income (expense): Interest income 14 286 Interest expense (2,597) (2,774) Other (50) (63) ------------ ------------ Total other expense, net (2,633) (2,551) ------------ ------------ Income (loss) before income taxes (1,986) 1,587 Provision for income taxes (benefit) (1,334) 733 ------------ ------------ Net income (loss) $ (652) $ 854 ============ ============ Weighted average shares outstanding: Basic 26,249,436 25,042,073 ============ ============ Diluted 26,249,436 25,049,726 ============ ============ Net income (loss) per share: Basic $ (0.02) $ 0.03 ============ ============ Diluted $ (0.02) $ 0.03 ============ ============ Comprehensive income (loss) $ 1,121 $ (668) ============ ============
See notes to condensed consolidated financial statements. 3 4 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
Nine Months Ended ------------------------------- Feb. 28, Feb. 29, 2001 2000 ------------ ------------ Net sales $ 261,223 $ 267,792 Cost of goods sold 159,287 166,697 ------------ ------------ Gross profit 101,936 101,095 ------------ ------------ Operating expenses: Selling and marketing 68,474 58,622 General and administrative 21,395 21,382 Research and development 4,270 3,540 Amortization of intangible assets 2,350 2,536 Litigation settlement (3,571) -- Plant consolidation and transition 648 -- Severance, recruiting and reorganization costs -- 3,523 ------------ ------------ Total operating expenses 93,566 89,603 ------------ ------------ Income from operations 8,370 11,492 ------------ ------------ Other income (expense): Interest income 98 570 Interest expense (7,722) (8,412) Other (228) (131) ------------ ------------ Total other expense, net (7,852) (7,973) ------------ ------------ Income before income taxes 518 3,519 Provision for income taxes (benefit) (537) 1,376 ------------ ------------ Net income $ 1,055 $ 2,143 ============ ============ Weighted average shares outstanding: Basic 26,241,679 25,039,028 ============ ============ Diluted 26,243,231 25,047,072 ============ ============ Net income per share: Basic $ 0.04 $ 0.09 ============ ============ Diluted $ 0.04 $ 0.09 ============ ============ Comprehensive income $ 1,152 $ 757 ============ ============
See notes to condensed consolidated financial statements. 4 5 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
Nine Months Ended ----------------------- Feb. 28, Feb. 29, 2001 2000 -------- -------- Cash flows from operating activities: Net income $ 1,055 $ 2,143 Adjustments to reconcile net income to net cash provided by (used in)operating activities: Provision for bad debts 962 1,732 Deferred taxes 631 Depreciation, amortization and asset impairment 8,489 8,240 Management and employee stock compensation charges 201 201 Loss (gain) on disposition of equipment (9) 17 Changes in operating assets and liabilities -- net of assets acquired: Receivables (528) 14,668 Inventories (6,895) 12,313 Prepaid expenses and other 856 775 Deposits and other assets 344 5,270 Accounts payable 2,275 (2,934) Accrued expenses (8,588) (1,133) -------- -------- Net cash provided by (used in) operating activities (1,207) 40,132 -------- -------- Cash flows from investing activities: Acquisitions, net of cash acquired -- (1,164) Purchase of property and equipment (2,638) (4,090) Purchase of intangibles (136) (216) Proceeds from disposition of equipment 39 85 Change in notes receivable (39) 17 -------- -------- Net cash used in investing activities (2,774) (5,368) -------- -------- Cash flows from financing activities: Issuance of common stock 3,541 12 Dividends paid (2,906) (2,820) Proceeds from debt 47,632 5,543 Payments on debt (44,360) (35,523) -------- -------- Net cash provided by (used in) financing activities 3,907 (32,788) -------- -------- Effect of exchange rate changes on cash (439) (1,194) -------- -------- Increase (decrease) in cash and cash equivalents (513) 782 Cash and cash equivalents, beginning of period 3,011 1,926 -------- -------- Cash and cash equivalents, end of period $ 2,498 $ 2,708 ======== ========
See notes to condensed consolidated financial statements. 5 6 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 1. BASIS OF PRESENTATION AND OTHER MATTERS The accompanying unaudited interim consolidated financial statements ("interim financial statements") do not include all disclosures provided in the annual consolidated financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and the footnotes thereto contained in the Weider Nutrition International, Inc. (the "Company") Annual Report on Form 10-K for the fiscal year ended May 31, 2000 as filed with the Securities and Exchange Commission. The May 31, 2000 consolidated balance sheet was derived from audited financial statements, but all disclosures required by generally accepted accounting principles are not provided in the accompanying footnotes. The Company is a majority-owned subsidiary of Weider Health and Fitness ("WHF"). In the opinion of the Company, the accompanying interim financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the Company's financial position and results of operations. Certain prior period amounts have been reclassified to conform with the current interim period presentation. 2. DOMESTIC CREDIT FACILITY AND SUBORDINATED LOAN Effective June 30, 2000, the Company and its domestic subsidiaries entered into a new $90.0 million senior credit facility (the "Credit Facility") with Bankers Trust Company. The Credit Facility replaced the Company's previous credit facility, which consisted of a revolving line of credit that expired on June 30, 2000. The Credit Facility is comprised of a $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 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 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. Borrowings under the Credit Facility bear interest at floating rates and the Credit Facility matures on March 31, 2005. The Credit Facility is being used to fund the normal working capital and capital expenditure requirements of the Company. At the inception of the 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 Credit Facility. Concurrently with the Credit Facility, on June 30, 2000, the Company entered into a $10.0 million senior subordinated loan agreement (the "Subordinated Loan"). The proceeds from the Subordinated Loan were used to repay outstanding obligations under the Company's previous credit facility. The Subordinated Loan contains customary terms and conditions, including, 6 7 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 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 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 (reflected as a reduction of long-term debt) that is 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 issued under the warrants pursuant to a Registration Rights Agreement dated as of June 30, 2000. Amounts outstanding under the previous credit facility have been reclassified as a long-term obligation at May 31, 2000. 3. RECEIVABLES Receivables consist of the following:
February 28, May 31, 2001 2000 ----------- -------- Trade accounts $ 59,259 $ 61,184 Income taxes 819 -- Other 1,096 929 -------- -------- 61,174 62,113 Less allowances for doubtful accounts and sales returns (8,086) (8,591) -------- -------- Total $ 53,088 $ 53,522 ======== ========
4. INVENTORIES Inventories consist of the following:
February 28, May 31, 2001 2000 ------- ------- Raw materials $19,107 $12,493 Work in process 3,624 2,210 Finished goods 31,277 32,410 ------- ------- Total $54,008 $47,113 ======= =======
Inventory totaling approximately $1.8, primarily consisting of a certain raw material, is included as a long-term asset in deposits and other assets in the accompanying balance sheet at May 31, 2000. 7 8 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (UNAUDITED) 5. INTANGIBLE ASSETS Intangible assets consist of the following:
February 28, May 31, 2001 2000 ----------- -------- Cost in excess of fair value of net assets acquired (goodwill) $ 54,882 $ 54,134 Patents and trademarks 10,881 10,601 Noncompete agreements 191 187 -------- -------- 65,954 64,922 Less accumulated amortization (17,924) (15,510) -------- -------- Total $ 48,030 $ 49,412 ======== ========
6. OPERATING SEGMENTS The Company has two primary reportable segments. These segments include the Company's U.S. based or domestic operations and the Company's interna- tional operations. The Company has three primary areas within its domestic operations: mass market; health food stores; and health clubs and gyms. The Company manufactures and/or markets nutritional products, including a broad line of vitamins, joint-related and other nutraceuticals, and sports nutrition supplements in mass market; a broad line of vitamins, nutraceuticals and sports nutrition products primarily through independent distributors and a significant retailer in health food stores; and a broad line of sports nutrition products primarily through distributors in health clubs and gyms. The Company also manufactures and/or markets nutritional and other products, including a broad line of sports nutrition supplements and sportswear, together with certain other nutraceuticals in its international operations. The accounting policies of these segments are consistent with those described in Note 1 to the consolidated financial statements in the Company's Annual Report on Form 10-K. The Company evaluates the performance of its operating segments based on actual and expected operating results of the respective segments. Certain noncash and other expenses, and domestic assets, are not allocated to the areas within the domestic operating segment. 8 9 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (UNAUDITED) Segment information for the nine months ended February 28, 2001 and February 29, 2000, respectively, are summarized as follows:
Income (Loss) Net From Interest 2001: Sales Operations Expense -------- ---------- --------- Domestic Operations: Mass market $133,590 $ 9,639 $ 2,544 Health food stores 17,627 (2,220) 394 Health clubs and gyms 16,069 (262) 354 Other 2,674 (922) 55 Unallocated -- 2,923 -- -------- -------- -------- 169,960 9,158 3,347 International Operations 91,263 (788) 4,375 -------- -------- -------- $261,223 $ 8,370 $ 7,722 ======== ======== ========
Income (Loss) Net From Interest 2000: Sales Operations Expense -------- ---------- --------- Domestic Operations: Mass market $134,080 $ 15,730 $ 2,537 Health food stores 28,616 (2,224) 1,421 Health clubs and gyms 15,714 (518) 914 Other 2,940 (1,348) 203 Unallocated -- (3,523) -- -------- -------- -------- 181,350 8,117 5,075 International Operations 86,442 3,375 3,337 -------- -------- -------- $267,792 $ 11,492 $ 8,412 ======== ======== ========
Reconciliation of total assets for the reportable segments is as follows at February 28, 2001: Total domestic assets $ 194,962 Total international assets 92,357 Eliminations (60,473) --------- Total $ 226,846 =========
Capital expenditures for domestic and international operations amounted to $1.3 million and $1.3 million, respectively, for the nine months ended February 28, 2001, and $2.7 million and $1.4 million, respectively, for the nine months ended February 29, 2000. The majority of international related long-lived assets are located in Germany. 9 10 WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (UNAUDITED) 7. SALES TO MAJOR CUSTOMERS The Company's three largest customers accounted for approximately 44% and 45%, respectively, of net sales for the nine months ended February 28, 2001 and February 29, 2000. At February 29, 2001 and May 31, 2000, amounts due from these customers represented approximately 40% and 42%, respectively, of total trade accounts receivable. 8. CONTINGENCIES The Company has been named as a defendant in three pending lawsuits alleging that consumption of certain of its products containing ephedrine 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 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. 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. 9. RECENTLY ISSUED ACCOUNTING STANDARDS During the quarter ended August 31, 2000, 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 that an entity recognize all derivatives as 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 financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements." SAB 101 establishes accounting and reporting standards for the recognition of revenue. It states that revenue generally is realized or realizable and earned when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or 10 11 services have been rendered; (3) the seller's price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured. SAB 101 is effective for the Company's financial statements in the fiscal quarter beginning March 1, 2001. The Company has determined that the impact of adopting SAB 101 on the Company's annual financial statements is not material. 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 March 1, 2001, the Company will adopt 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. While these reclassifications may be material, the adoption of EITF 00-14 will not materially impact the Company's overall financial statements. ITEM 2. 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 Quarterly Report on Form 10-Q. Except for the historical information contained herein, the matters discussed in this Quarterly Report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on management's beliefs and assumptions, current expectations, estimates, and projections. Statements that are not historical facts, including without limitation statements which are preceded by, followed by or include the words "believes," "anticipates," "plans," "expects," "may," "should" or similar expressions are forward-looking statements. These statements are subject to risks and uncertainties, certain of which are beyond the Company's control, and, therefore, actual results may differ materially. Important factors that may effect future results include, but are not limited to: the impact of competitive products and pricing, the impact of new FDA dietary supplement regulations on the Company's products and marketing plans, transition of the Company's joint support product brand name from Schiff(R) Pain Free(TM) to Schiff(R) Move Free(TM), dependence on individual products, dependence on individuals customers, 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, uncertainty of market acceptance of new products, and other risks indicated from time to time in the Company's SEC reports, copies of which are available upon request from the Company's investor relations department. The Company disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. 11 12 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 850 nutritional supplement 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/or health club and gym distribution channels. The Company markets its branded nutritional supplement products, both domestically and internationally, in four principal categories: sports nutrition; specialty, vitamins, minerals and herbs; weight management; and nutrition bars. The Company also markets a line of sportswear in Europe, primarily in Germany, under the Venice Beach(R) 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. RESULTS OF OPERATIONS (UNAUDITED) Three Months Ended February 28, 2001 Compared to Three Months Ended February 29, 2000 The following table shows selected items expressed on an actual basis and as a percentage of net sales for the respective interim periods:
Three Months Ended -------------------------------------------------- Feb. 28, 2001 Feb. 29, 2000 ---------------------- ---------------------- (dollars in thousands) Net sales ................... $ 91,475 100.0% $ 90,449 100.0% Cost of goods sold .......... 57,789 63.2 56,350 62.3 -------- ----- -------- ----- Gross profit ................ 33,686 36.8 34,099 37.7 -------- ----- -------- ----- Operating expenses .......... 33,039 36.1 29,139 32.2 Severance, recruiting and reorganization costs ...... -- -- 822 0.9 -------- ----- -------- ----- Total operating expenses .... 33,039 36.1 29,961 33.1 -------- ----- -------- ----- Income from operations ...... 647 0.7 4,138 4.6 Other expense, net .......... 2,633 2.9 2,551 2.8 Income taxes(benefit) ....... (1,334) (1.5) 733 0.8 -------- ----- -------- ----- Net income(loss) ............ $ (652) (0.7)% $ 854 1.0% ======== ===== ======== =====
NET SALES. Net sales for the three months ended February 28, 2001 increased $1.0 million, or 1.1%, to $91.5 million from $90.4 million for the three months ended February 29, 2000. Sales to domestic mass market retailers (including food, drug, mass, club and convenience stores) increased during the three months ended February 28, 2001 compared to the three months ended February 29, 2000. Sales to domestic health food distributors and retailers decreased during the third quarter of fiscal 2001 compared to the third quarter of fiscal 2000. Sales to health club and gym distributors and international markets were relatively constant for the third quarter of fiscal 2001 compared to the third quarter of fiscal 2000. 12 13 Third quarter fiscal 2001 sales to mass market retailers increased approximately 6.3% to $51.4 million from third quarter fiscal 2000 sales of $48.3 million. The increase in sales to mass market retailers was primarily the result of increased sales of private label products to existing accounts offset by reduced volumes of certain branded products. Sales of private label products to existing mass volume retailers increased approximately 112.6% to $11.8 million for the quarter ended February 28, 2001 compared to $5.5 million for the quarter ended February 29, 2000. The decrease in branded sales volume was primarily attributable to industry slow down and competitive pressures, including private label. Sales to health food distributors and retailers decreased approximately 35.7% to $4.8 million for the fiscal 2001 third quarter from $7.4 million for the fiscal 2000 third quarter. The decrease in sales in the health food distribution channel resulted primarily from reduced sales volume with the Company's most significant health food retailer due to discontinuance of a certain brand and reduced private label sales to such account. Sales of Schiff(R) Move Free(TM) amounted to $28.2 million for the third quarter of fiscal 2001 compared to $29.6 million for the third quarter of fiscal 2000. The decrease in sales resulted primarily from the impact of increased private label sales volume. GROSS PROFIT. Gross profit remained relatively constant at $33.7 million for the third quarter of fiscal 2001 compared to $34.1 million for the third quarter of fiscal 2000. Gross profit, as a percentage of net sales, decreased to 36.8% for the quarter ended February 28, 2001 compared to 37.7% for the quarter ended February 29, 2000. The decrease resulted from substantially lower margins on European sportswear sales and lower margins on private label sales. The lower margins on sportswear sales are primarily attributable to continued growth in department stores where pricing is much more competitive than the typical health club and gym channel. OPERATING EXPENSES. Operating expenses, including certain severance, recruiting and reorganization costs for the third quarter of fiscal 2000, increased approximately 10.3% to $33.0 million for the fiscal 2001 third quarter from $30.0 million for the fiscal 2000 third quarter. Excluding the effects of severance, recruiting and reorganization costs, operating expenses increased $3.9 million, or 13.4% during the third quarter of fiscal 2001 in comparison to the third quarter of fiscal 2000. The increase is primarily attributable to incremental selling and marketing costs. Selling and marketing expenses, including sales, promotion, marketing, advertising, freight and other costs, increased approximately 16.0% to $23.8 million for the fiscal 2001 third quarter from $20.5 million for the fiscal 2000 third quarter. 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. General and administrative expenses increased approximately 7.5% to $7.0 million for the quarter ended February 28, 2001 compared to $6.5 million for the quarter ended February 29, 2000. The increase resulted primarily from an increase in certain international information systems and personnel related costs. OTHER EXPENSE. Other expense, net, consisting primarily of interest expense, remained relatively constant at $2.6 million for the quarters ended February 28, 2001 and February 29, 2000. 13 14 PROVISION FOR INCOME TAXES. Provision for income taxes amounted to a $1.3 million benefit for the quarter ended February 28, 2001 compared to a $0.7 million expense for the quarter ended February 29, 2000. The decrease resulted primarily from a pre-tax loss for the fiscal 2001 third quarter in comparison to pre-tax earnings for the fiscal 2000 third quarter and the net effect of tax rate differences for the Company's domestic and international operations. Nine Months Ended February 28, 2001 Compared to Nine Months Ended February 29, 2000 NET SALES. Net sales for the nine months ended February 28, 2001 decreased $6.6 million, or 2.5%, to $261.2 million from $267.8 million for the nine months ended February 29, 2000. Sales to domestic mass market retailers and health club and gym distributors remained relatively constant during the nine months ended February 28, 2001 compared to the nine months ended February 29, 2000. Sales to domestic health food distributors and retailers decreased while sales to international markets increased during the first nine months of fiscal 2001 compared to the first nine months of fiscal 2000. Although sales to mass volume retailers remained relatively constant for the nine months ended February 28, 2001 and February 29, 2000, sales of private label products increased while branded product sales decreased. Sales of private label products increased 66.2% to $25.7 million from $15.5 million, while branded product sales decreased 9.0% to $107.9 million from $118.6 million for the first nine months of fiscal 2001 and 2000, respectively. Net sales of the Company's Schiff(R) Move Free(TM) products amounted to $71.5 million for the first nine months of fiscal 2001 compared to $75.7 million for the first nine months of fiscal 2000. The decrease in Schiff(R) Move Free(TM) sales resulted primarily from industry slowdown and promotional timing considerations as well as private label and other competitive factors. Sales to health food distributors and retailers decreased approximately 38.4% to $17.6 million for the first nine months of fiscal 2001 from $28.6 million for fiscal 2000. The decrease in sales in the health food channel resulted primarily from reduced sales volume with the Company's most significant health food retailer due to discontinuation of a certain brand and reduced private label sales to such account. Sales to international markets increased 5.6% to $91.3 million for the nine months ended February 28, 2001 compared to $86.4 million for the nine months ended February 29, 2000. The increased sales volume is primarily due to sportswear sales growth in the Company's European operations. GROSS PROFIT. Gross profit increased approximately 0.8% to $101.9 million for the nine months ended February 28, 2001 from $101.1 million for the nine months ended February 29, 2000. Gross profit, as a percentage of net sales, was 39.0% for the nine months ended February 28, 2001 compared to 37.8% for the nine months ended February 29, 2000. The increase in the gross profit percentage resulted primarily from operating efficiencies, improved net raw material costing and reduced credits for returned products, somewhat offset by substantial decreases in margins on European sportswear sales and lower margins on private label sales. The lower margins on sportswear sales are primarily attributable to continued growth in department stores where pricing is much more competitive than the typical health club and gym channel. 14 15 OPERATING EXPENSES. Operating expenses, including litigation settlement income and plant consolidation and transition costs for the nine months ended February 28, 2001 and severance, recruiting and reorganization costs for the nine months ended February 29, 2000, increased approximately 4.4% to $93.6 million for the first nine months of fiscal 2001 from $89.6 million for the first nine months of fiscal 2000. During the second quarter of 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 the first quarter of fiscal 2001, the Company received $3.6 million from the settlement of litigation. Excluding the effects of these events in the respective fiscal 2001 and 2000 periods, operating expenses increased $10.4 million, or 12.1% during the first nine months of fiscal 2001 in comparison to the first nine months of fiscal 2000. The increase resulted primarily from significant increases in selling, marketing and promotional costs. Selling and marketing expenses increased approximately 16.8% to $68.5 million for the first nine months of fiscal 2001 from $58.6 million for the first nine months of fiscal 2000. The increase in selling and marketing expenses is primarily attributable to increased promotional spending in support of the Schiff(R) Pain Free(TM) to Schiff(R) Move Free(TM) product name transition as well as other promotional programs to counter private label and other competitive pressures and to expand distribution. The Company expects the increase in selling and marketing expenses as a percentage of net sales, in comparison to prior fiscal periods, to continue in future periods. General and administrative expenses remained constant at approximately $21.4 million for the first nine months of fiscal 2001 and 2000. OTHER EXPENSE. Other expense, net, consisting primarily of interest expense, remained constant at approximately $7.9 million for the nine months ended February 28, 2001 and February 29, 2000. PROVISION FOR INCOME TAXES. Provision for income taxes amounted to a $0.5 million benefit for the nine months ended February 28, 2001 compared to a $1.4 million expense for the nine months ended February 29, 2000. The decrease resulted primarily from a decrease of pre-tax earnings and the net effect of 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 "Credit Facility") with Bankers Trust Company. The Credit Facility replaced the Company's previous credit facility, which consisted of a revolving line of credit that expired on June 30, 2000. Concurrently with the Credit Facility, on June 30, 2000 the Company entered into a $10.0 million senior subordinated loan agreement (the "Subordinated Loan"). Refer to Note 2 to the Condensed Consolidated Financial Statements for further discussion. The Company's working capital remained relatively constant, amounting to approximately $42.4 million and $42.3 million, respectively, at February 28, 2001 and May 31, 2000. The Company expects to fund its long-term capital requirements for the next twelve months through the use of operating cash flow supplemented as 15 16 necessary by borrowings under both the Credit Facility and Haleko's approximate $18.7 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. The Company paid a quarterly dividend of $0.0375 per share subsequent to February 28, 2001. The dividend was declared to be payable on March 20, 2001 to holders of all classes of common stock of record at the close of business on March 9, 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 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 through to its customers and anticipates that it will be able to continue to do so in the future. SEASONALITY. The Company's business is somewhat seasonal, with lower sales typically realized during the first and second fiscal quarters and higher sales typically realized during the third and fourth fiscal quarters. The Company believes such fluctuations in sales are the result of greater marketing and promotional activities toward the end of each fiscal year, customer buying patterns, including seasonal sportswear considerations, 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. ITEM 3. 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% 16 17 change in interest rates would have material effect on the Company's pretax earnings or cash flow. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The information set forth in Note 8 to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES. Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 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) 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) 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) 17 18 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. (5) - ---------------- (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. (b) Reports on Form 8-K None 18 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WEIDER NUTRITION INTERNATIONAL, INC. Date: April 16, 2001 By: /s/ Bruce J. Wood ------------------------------------- Bruce J. Wood President, Chief Executive Officer and Director Date: April 16, 2001 By: /s/ Joseph W. Baty ------------------------------------- Joseph W. Baty, Executive Vice President and Chief Financial Officer 19 -----END PRIVACY-ENHANCED MESSAGE-----