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, 1998
|_| 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 24,699,238
(as of April 6, 1998).
<PAGE>
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 1998 1997
--------- ------
(unaudited)
Current assets:
Cash and cash equivalents $ 648 $ 1,259
Accounts receivable, net of allowance for doubtful
accounts of $579 and $212 46,227 43,634
Other receivables 1,385 3,038
Inventories 58,361 40,782
Prepaid expenses and other 4,234 2,629
Deferred taxes 2,805 4,093
--------- --------
Total current assets 113,660 95,435
--------- --------
Property and equipment, net 39,806 35,930
--------- --------
Other assets:
Intangible assets, net 24,919 26,550
Deposits and other assets 9,195 9,864
Notes receivable - officers 3,498 --
Deferred taxes 963 977
--------- --------
Total other assets 38,575 37,391
--------- --------
Total assets $ 192,041 $168,756
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,137 $ 22,727
Accrued expenses 6,821 8,511
Current portion of long-term debt 1,732 2,181
--------- --------
Total current liabilities 32,690 33,419
--------- --------
Long-term debt 61,545 42,913
--------- --------
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-9,011,806 90 90
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 79,271 79,271
Foreign currency translation (212) (177)
Retained earnings 18,500 13,083
--------- --------
Total stockholders' equity 97,806 92,424
--------- --------
Total liabilities and stockholders' equity $ 192,041 $168,756
========= ========
See notes to condensed consolidated financial statements.
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WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Three Months Ended
February 28,
---------------------
1998 1997
--------- ---------
Net sales $ 62,368 $ 55,487
Cost of goods sold 39,366 32,595
--------- ---------
Gross profit 23,002 22,892
--------- ---------
Operating expenses:
Selling and marketing 9,819 8,880
General and administrative 3,771 3,773
Research and development 1,092 554
Amortization of intangible assets 568 535
--------- ---------
Total operating expenses 15,250 13,742
--------- ---------
Income from operations 7,752 9,150
--------- ---------
Other income (expense):
Interest income 82 --
Interest expense (1,181) (1,501)
Other (144) (276)
--------- ---------
Total (1,243) (1,777)
--------- ---------
Income before income taxes 6,509 7,373
Provision for income taxes 2,538 2,949
--------- ---------
Net income $ 3,971 $ 4,424
========= =========
Pro forma weighted average common shares and
common equivalent shares outstanding 25,082,954 24,881,954
========== ==========
Pro forma net income per common share and
common equivalent share outstanding $0.16 $0.18
===== =====
See notes to condensed consolidated financial statements.
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<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except share data)
(unaudited)
Nine Months Ended
February 28,
---------------------
1998 1997
--------- ---------
Net sales $ 176,694 $ 151,407
Cost of goods sold 115,189 94,008
--------- ---------
Gross profit 61,505 57,399
--------- ---------
Operating expenses:
Selling and marketing 28,625 23,415
General and administrative 11,416 10,296
Research and development 2,674 1,539
Amortization of intangible assets 1,637 1,500
Impairment of intangible assets -- 2,095
--------- ---------
Total operating expenses 44,352 38,845
--------- ---------
Income from operations 17,153 18,554
--------- ---------
Other income (expense):
Interest income 287 10
Interest expense (3,466) (4,683)
Other (541) (423)
--------- ---------
Total (3,720) (5,096)
--------- ---------
Income before income taxes 13,433 13,458
Provision for income taxes 5,239 5,383
--------- ---------
Net income $ 8,194 $ 8,075
========= =========
Pro forma weighted average common shares and
common equivalent shares outstanding 25,075,621 24,881,954
========== ==========
Pro forma net income per common share and
common equivalent share outstanding $0.33 $0.32
===== =====
See notes to condensed consolidated financial statements.
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<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
February 28,
---------------------
1998 1997
------- -------
Cash flows from operating activities:
Net income $ 8,194 $ 8,075
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Provision for bad debts 538 131
Loss on disposition of equipment 131 --
Deferred taxes 1,302 (378)
Depreciation, amortization and
asset impairment 5,722 6,520
Changes in operating assets and liabilities-
net of assets acquired:
Accounts receivable (3,130) (623)
Other receivables 1,654 (732)
Inventories (17,579) 1,396
Prepaid expenses and other (1,605) 2,035
Deposits and other assets 670 (8,358)
Accounts payable 1,410 (6,683)
Accrued expenses (1,690) (1,248)
------- -------
Net cash provided by (used in)
operating activities (4,383) 135
------- -------
Cash flows from financing activities:
Dividends paid (2,779) --
Distributions to WHF -- (6,973)
Net change in payable to WHF -- (2,823)
Proceeds from long-term debt 20,081 35,030
Payments on long-term debt (1,897) (12,481)
------- -------
Net cash provided by financing activities 15,405 12,753
------- -------
Cash flows from investing activities:
Purchase of property and equipment (8,118) (6,344)
Proceeds from disposition of equipment 17 --
Increase in officers' notes receivable (3,498) --
Acquisition of businesses, net of cash acquired -- (5,082)
Purchase of intangible assets -- (1,761)
------- -------
Net cash used in investing activities (11,599) (13,187)
------- -------
Effect of exchange rate changes on cash (34) (228)
------- -------
Decrease in cash and cash equivalents (611) (527)
Cash and cash equivalents, beginning of period 1,259 1,592
------- -------
Cash and cash equivalents, end of period $ 648 $ 1,065
======= =======
See notes to condensed consolidated financial statements.
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<PAGE>
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 condensed 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 year
ended May 31, 1997 as filed with the Securities and Exchange Commission.
In the Company's judgment, 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. PRO FORMA COMMON SHARES OUTSTANDING AND EARNINGS PER SHARE
Pro forma net income per common share and common equivalent share
outstanding for the interim periods presented has been computed by dividing net
income by the number of weighted average shares outstanding and assumes as
outstanding, as of June 1, 1996, the 1,557,604 shares of Class A common stock
issued and outstanding prior to consummation of the Company's initial public
offering (the "IPO"), the 15,687,432 Class B common shares, the 6,440,000 shares
of Class A common stock issued in connection with the IPO, the 1,014,202 shares
of Class A common stock issued pursuant to management incentive agreements and
tenure with the Company at the time of the IPO, and dilutive common stock
equivalents.
3. INVENTORIES
Inventories consist of the following:
February 28, May 31,
1998 1997
------- -------
Raw materials $25,044 $17,569
Work in process 3,379 2,629
Finished goods 29,938 20,584
------- -------
Total $58,361 $40,782
======= =======
Inventory totaling approximately $4.5 million, primarily consisting of a
raw material, is included as a long-term asset in deposits and other assets in
the accompanying balance sheets.
4. SALES TO MAJOR CUSTOMERS
The Company's largest customers, General Nutrition Center ("GNC"),
Wal-Mart, and Costco accounted for approximately 14%, 10%, and 10%,
respectively, of net sales for the nine months ended February 28, 1998, and 12%,
10%, and 6%, respectively, for the nine months ended February 28, 1997.
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<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. RELATED PARTY TRANSACTIONS
During the nine months ended February 28, 1998, in accordance with
provisions of their respective Management Incentive Agreements, certain company
officers borrowed a portion, or the entire amount, of funds available to them
(from the Company) for the payment of individual income taxes. At February 28,
1998, total officer loans outstanding, excluding accrued interest, amounted to
$3,498. Such loans bear interest at 8.0% per annum, are secured by the
respective employees' Class A common stock and are due in full in May 2002.
6. CONTINGENCIES
On April 24, 1997, the Company filed a lawsuit in the United States
District Court for the District of Utah (Central Division) for a declaratory
judgement that Pain Free(Trademark), a pain relief product, did not infringe two
U.S. patents held by Nutramax Laboratories, Inc. ("Nutramax") or, in the
alternative, declaring such patents invalid. On June 30, 1997, Nutramax filed a
counterclaim against the Company alleging that, through the manufacture and sale
of a Company product, the Company was willfully infringing on one or more U.S.
patents of Nutramax and also had contributorily and actively induced
infringements on such patents. The counterclaim seeks treble damages as a result
of the claimed willful and intentional nature of the alleged infringement. The
litigation is in the process of being transferred to the United States District
Court for the District of Maryland, where Nutramax had previously commenced
litigation alleging that twenty-two other entities had also infringed those
patents, and thereafter will proceed with preliminary discovery. To the extent
the Company does not prevail in the lawsuit, the Company could be enjoined from
the future manufacture and marketing of Pain Free(Trademark), which has recently
become one of its best selling products, and could be required by the court to
pay damages to Nutramax, which could under certain circumstances be trebled. The
imposition by the court of any of the foregoing could have a material adverse
effect on the Company's results of operations, financial condition and
liquidity.
In addition, the Company is involved in other claims, potential
unasserted claims and legal actions arising in the ordinary course of business.
In management's judgment, the outcome of these other matters will not have a
material adverse effect on the Company's financial position or results of
operations.
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<PAGE>
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 IN
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS QUARTERLY REPORT ON FORM 10-Q ARE FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THE TIMELY DEVELOPMENT AND
ACCEPTANCE OF NEW PRODUCTS, THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING AND
THE OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S SEC REPORTS, COPIES
OF WHICH ARE AVAILABLE UPON REQUEST FROM THE COMPANY'S INVESTOR RELATIONS
DEPARTMENT. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED. THESE
FORWARD-LOOKING STATEMENTS REPRESENT THE COMPANY'S JUDGMENT AS OF THE DATE OF
THIS REPORT. THE COMPANY DISCLAIMS, HOWEVER, ANY INTENT OR OBLIGATION TO UPDATE
THESE FORWARD-LOOKING STATEMENTS.
GENERAL
Weider Nutrition International, Inc. is a manufacturer of branded and
private label nutritional supplements. The Company manufactures a broad range of
capsules and tablets, powdered drink mixes, bottled beverages and nutrition
bars. The Company markets its branded products in four principal categories:
sports nutrition; vitamins, minerals and herbs; diet; and healthy snacks. The
Company manufactures and markets approximately 1,400 products consisting of
approximately 1,800 stock keeping units ("SKUs"). 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, 1998 COMPARED TO THREE MONTHS ENDED
FEBRUARY 28, 1997)
The following table shows selected items expressed on an actual basis and
as a percentage of net sales for the respective interim periods (dollars in
thousands):
THREE MONTHS ENDED FEBRUARY 28,
------------------------------
1998 1997
-------------- --------------
Net sales..............................$ 62,368 100.0% $ 55,487 100.0%
Cost of goods sold..................... 39,366 63.1 32,595 58.7
-------- ----- -------- -----
Gross profit........................... 23,002 36.9 22,892 41.3
Operating expenses..................... 15,250 24.5 13,742 24.8
-------- ----- -------- -----
Income from operations................. 7,752 12.4 9,150 16.5
Interest and other expense, net........ 1,243 2.0 1,777 3.2
Provision for income taxes............. 2,538 4.0 2,949 5.3
-------- ----- -------- -----
Net income.............................$ 3,971 6.4% $ 4,424 8.0%
======== ===== ======== =====
NET SALES. Net sales for the three months ended February 28, 1998 ("third
quarter of fiscal 1998") increased $6.9 million, or 12.4% to $62.4 million from
$55.5 million for the three months ended February 28, 1997 ("third quarter of
fiscal 1997"). Sales to mass volume retailers, health food distributors and
retailers, and beverage distributors together with private label sales volume
increased, whereas international sales volume decreased, during the three months
ended February 28, 1998 compared to the three months ended February 28, 1997.
Sales to mass volume retailers increased approximately 6.2% in the third quarter
of fiscal 1998 compared to the third quarter of fiscal 1997 primarily due to
sales of new products. Sales to health food distributors and retailers increased
28.0% to $12.8 million for the quarter ended February 28, 1998 compared to the
quarter ended February 28, 1997. The increase resulted from incremental
"branded" volume with GNC and certain other health food retailers primarily due
to the introduction of new products. The Company recently introduced new
products under its METAFORM line. METAFORM sales amounted to $3.1 million for
the third quarter of fiscal 1998 compared to $1.1 million for the third quarter
of fiscal 1997.
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<PAGE>
Third quarter of fiscal 1998 sales to private label customers increased
approximately 27.8% to $13.1 million from $10.2 million for the third quarter of
fiscal 1997. The increase in sales was primarily a result of increased volume
with GNC. Private label sales volume with GNC was $6.0 million for the third
quarter of fiscal 1998 compared to $2.3 million for the third quarter of fiscal
1997. Sales to beverage distributors (health clubs and gyms) increased
approximately 9.5% to $6.5 million during the quarter ended February 28, 1998,
compared to $6.0 million for the prior year's comparable quarter, primarily as a
result of the acquisition of Science Foods in January 1997. International sales
volume decreased approximately 19.2% to $3.8 million during the quarter ended
February 28, 1998, from $4.5 million for the quarter ended February 28, 1997,
primarily as a result of reduced growth in Canada.
The following table shows comparative net sales results categorized by
distribution channel on an actual basis and as a percentage of net sales for the
respective interim periods indicated (dollars in thousands):
THREE MONTHS ENDED FEBRUARY 28,
----------------------------------
1998 1997
--------------- ---------------
Mass volume retailers........ $ 24,965 40.0% $ 23,498 42.3%
Health food.................. 12,770 20.5 9,973 18.0
Private label................ 13,084 21.0 10,234 18.4
Beverage distributors........ 6,516 10.4 5,950 10.7
International markets........ 3,790 6.1 4,517 8.1
Other........................ 1,243 2.0 1,315 2.5
-------- ----- -------- -----
Total.................. $ 62,368 100.0% $ 55,487 100.0%
======== ===== ======== =====
GROSS PROFIT. Gross profit increased slightly to $23.0 million for the
quarter ended February 28, 1998 in comparison to the quarter ended February 28,
1997. Gross profit as a percentage of net sales was 36.9% for the quarter ended
February 28, 1998 compared to 41.3% for the quarter ended February 28, 1997. The
decline in the gross profit percentage resulted primarily from changes in the
sales mix. Specifically, sales of DHEA and melatonin generated higher gross
margins in prior comparable period(s) than the product mix in the Company's
third quarter of fiscal 1998. Furthermore, the gross profit was impacted by
higher than expected levels of outsourced manufacturing required as a result of
the delays encountered in opening the Company's new capsule and tablet
manufacturing facility.
OPERATING EXPENSES. Operating expenses increased approximately 11.0% to
$15.3 million during the quarter ended February 28, 1998 from $13.7 million for
the quarter ended February 28, 1997. Operating expenses increased primarily as a
result of the increase in net sales. Operating expenses, as a percentage of net
sales, were 24.5% for the quarter ended February 28, 1998 compared to 24.8% for
the quarter ended February 28, 1997.
General and administrative expenses, as a percentage of net sales, were
6.0% for the quarter ended February 28, 1998 compared to 6.8% for the quarter
ended February 28, 1997. General and administrative expenses include a
significant amount of "fixed-type" costs. Therefore, general and administrative
expenses, as a percent of net sales, generally decline as sales increase.
Furthermore, the decrease was impacted by reduced provisions for employee
bonuses.
OTHER EXPENSE. Other expense amounted to $1.2 million for the quarter
ended February 28, 1998 compared to $1.8 million for the quarter ended February
28, 1997. The net decrease of approximately $.6 million resulted primarily from
decreased interest costs associated with reduced indebtedness and a reduction in
the Company's overall effective interest rate.
PROVISION FOR INCOME TAXES. Provision for income taxes amounted to $2.5
million for the quarter ended February 28, 1998 compared to $2.9 million for the
quarter ended February 28, 1997. The decrease resulted primarily from a
reduction in pre-tax earnings.
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<PAGE>
(NINE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO NINE MONTHS ENDED
FEBRUARY 28, 1997)
NET SALES. Net sales for the nine months ended February 28, 1998 increased
$25.3 million, or 16.7% to $176.7 million compared to $151.4 million for the
nine months ended February 28, 1997. Sales to mass volume retailers, beverage
distributors and international markets together with private label sales volume
increased during the nine months ended February 28, 1998 compared to the nine
months ended February 28, 1997. Sales to mass volume retailers increased
approximately 33.5% to $72.5 million in the first nine months of fiscal 1998
compared to the first nine months of fiscal 1997. The increase in sales to mass
volume retailers resulted primarily from sales of new products. Sales of PHENCAL
106, introduced in May 1997, were approximately $15.5 million for the first nine
months of fiscal 1998 compared to no sales of this product during the first nine
months of fiscal 1997.
Sales to private label customers increased approximately 19.3% to $41.0
million for the nine months ended February 28, 1998 compared to $34.3 million
for the nine months ended February 28, 1997. The increase in sales was primarily
a result of increased volume with existing customers. Private label sales volume
with GNC were $13.3 million for the nine months ended February 28, 1998 compared
to $7.1 million for the nine months ended February 28, 1997. Sales to beverage
distributors increased approximately 17.4% to $18.2 million during the nine
months ended February 28, 1998 compared to $15.5 million for the comparable
prior year period. The increase is due primarily to the acquisition of Science
Foods in January of 1997. Sales to international markets increased to $12.4
million for the first nine months of fiscal 1998 from $11.4 million for the
first nine months of fiscal 1997, primarily as a result of the acquisition of
businesses in Canada and Spain in September 1996.
Sales to health food distributors and retailers decreased approximately
7.2% to $28.8 million for the first nine months of fiscal 1998 compared to $31.0
million for the first nine months of fiscal 1997. The decrease in sales resulted
primarily from reduced "branded" product volumes with certain customers due to
the allocation of resources to, and the growth in volume with mass market
customers.
GROSS PROFIT. Gross profit increased approximately 7.2% to $61.5 million
for the nine months ended February 28, 1998 in comparison to the nine months
ended February 28, 1997. Gross profit, as a percentage of net sales, was 34.8%
for the nine months ended February 28, 1998 compared to 37.9% for the nine
months ended February 28, 1997. The decrease in gross profit percentage resulted
primarily from changes in the sales mix. Certain products sold in prior
comparable period(s) generated higher gross profit margins. Furthermore, the
unexpected delays and start-up costs associated with the opening of the
Company's new manufacturing and distribution facility, which also resulted in
higher than expected levels of outsourced manufacturing, effected the gross
profit margin and overall operating costs.
OPERATING EXPENSES. Operating expenses increased approximately 14.2% to
$44.4 million during the nine months ended February 28, 1998 from $38.8 million
for the nine months ended February 28, 1997. Effective June 1, 1996, the Company
adopted SFAS No. 121 and recognized an asset impairment loss of approximately
$2.1 million during the first quarter of fiscal 1997. Excluding this loss,
operating expenses increased approximately $7.6 million, or 20.7%, during the
first nine months of fiscal 1998. Operating expenses, as a percentage of net
sales, were 25.1% for the nine months ended February 28, 1998 compared to 24.3%
(excluding the $2.1 million asset impairment loss) for the nine months ended
February 28, 1997. Operating expenses increased primarily as a result of
increased selling and marketing expenses, excess manufacturing capacity costs
and additional investment in research and development, offset somewhat by
reduced provisions for employee bonuses.
OTHER EXPENSE. Other expense amounted to $3.7 million for the nine months
ended February 28, 1998 compared to $5.1 million for the nine months ended
February 28, 1997. The net decrease of approximately $1.4 million resulted
primarily from decreased interest costs associated with reduced indebtedness and
a reduction in the Company's overall effective interest rate.
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<PAGE>
PROVISION FOR INCOME TAXES. Provision for income taxes amounted to $5.2
million for the nine months ended February 28, 1998 compared to $5.4 million for
the nine months ended February 28, 1997. The decrease in the Company's provision
for income taxes resulted primarily from the decrease in pre-tax earnings in the
first nine months of fiscal 1998 in comparison to the first nine months of
fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of approximately $81.0 million at February
28, 1998 compared to $62.0 million at May 31, 1997. This increase resulted
primarily from increased inventories financed by borrowings, classified as
long-term, under the Company's Credit Agreement with General Electric Capital
Corporation. Current inventories increased $17.6 million to $58.4 million as of
February 28, 1998. All categories of inventory increased, primarily as a result
of the net sales growth, the recent and/or planned introduction of new products
and the advanced purchases of a certain raw material based on sales forecasts
that have not been realized at the forecasted rate. The Company believes that
such raw material will be utilized in the ordinary course of business. Net
long-term borrowings increased approximately $18.6 million to $61.5 million
primarily as a result of the growth in inventories together with added capital
expenditures.
The Credit Agreement is a $130.0 million senior secured, long-term credit
facility that contains standard terms and conditions, including subject to
permitted amounts, a limitation on the ability of the Company to pay dividends
on its common stock and minimum net worth requirements. Borrowings under the
Credit Agreement bear interest at floating rates and mature in February 2000. At
February 28, 1998, the Company had approximately $72.0 million of available
credit under the Credit Agreement.
The Company expects to fund its long-term capital requirements, including
capital expenditures for the next twelve months through the use of operating
cash flow supplemented as necessary by borrowings under the Credit Agreement
and, if necessary, through debt financing or the issuance of additional equity.
The Company may also make strategic acquisitions as the nutritional supplements
industry continues to consolidate. The funding of future acquisitions may also
require borrowings under the Credit Agreement and/or other debt financing or the
issuance of additional equity.
The Company paid a quarterly dividend of $0.0375 per share subsequent to
February 28, 1998. The dividend was declared to be payable on March 16, 1998 to
holders of all classes of common stock of record at the close of business March
1, 1998. 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 contains certain
customary financial covenants that may limit the Company's ability to pay
dividends on its common stock.
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 seasonal, with lower sales typically realized
during the first and second fiscal quarters and higher sales typically realized
during the third and fourth fiscal quarters. The Company believes such
fluctuations in sales are the result of greater marketing and promotional
activities toward the end of each fiscal year, customer buying patterns, and
consumer spending patterns related primarily to the consumers' interest in
achieving personal health and fitness goals after the beginning of each new
calendar year and before the summer fashion season.
Furthermore, as a result of changes in product sales mix and other
factors, as discussed above, the Company experiences fluctuations in gross
profit and operating margins on a quarter-to-quarter basis.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On April 24, 1997, the Company filed a lawsuit in the United States
District Court for the District of Utah (Central Division) for a declaratory
judgement that Pain Free(Trademark), a pain relief product, did not infringe two
U.S. patents held by Nutramax Laboratories, Inc. ("Nutramax") or, in the
alternative, declaring such patents invalid. On June 30, 1997, Nutramax filed a
counterclaim against the Company alleging that, through the manufacture and sale
of a Company product, the Company was willfully infringing on one or more U.S.
patents of Nutramax and also had contributorily and actively induced
infringements on such patents. The counterclaim seeks treble damages as a result
of the claimed willful and intentional nature of the alleged infringement. The
litigation is in the process of being transferred to the United States District
Court for the District of Maryland, where Nutramax had previously commenced
litigation alleging that twenty-two other entities had also infringed those
patents, and thereafter will proceed with preliminary discovery. To the extent
the Company does not prevail in the lawsuit, the Company could be enjoined from
the future manufacture and marketing of Pain Free(Trademark), which has recently
become one of its best selling products, and could be required by the court to
pay damages to Nutramax, which could under certain circumstances be trebled. The
imposition by the court of any of the foregoing could have a material adverse
effect on the Company's results of operations, financial condition and
liquidity.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit: Financial Data Schedule
(b) Reports on Form 8-K: None
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 13, 1998 BY: /s/ RICHARD B. BIZZARO
--------------------------
Richard B. Bizzaro, Chief Executive
Officer, President and Director
Date: April 13, 1998 BY: /s/ ROBERT K. REYNOLDS
--------------------------
Robert K. Reynolds, Chief Operating
Officer, Executive Vice President
and Director
-12-
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF WEIDER NUTRITION INTERNATIONAL, INC. AS OF,
AND FOR THE NINE MONTHS ENDING FEBRUARY 28, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 648
<SECURITIES> 0
<RECEIVABLES> 46,806
<ALLOWANCES> 579
<INVENTORY> 58,361
<CURRENT-ASSETS> 113,660
<PP&E> 53,416
<DEPRECIATION> 13,610
<TOTAL-ASSETS> 192,041
<CURRENT-LIABILITIES> 32,690
<BONDS> 61,545
0
0
<COMMON> 247
<OTHER-SE> 97,559
<TOTAL-LIABILITY-AND-EQUITY> 192,041
<SALES> 176,694
<TOTAL-REVENUES> 176,694
<CGS> 115,189
<TOTAL-COSTS> 115,189
<OTHER-EXPENSES> 44,352
<LOSS-PROVISION> 450
<INTEREST-EXPENSE> 3,466
<INCOME-PRETAX> 13,433
<INCOME-TAX> 5,239
<INCOME-CONTINUING> 8,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,194
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
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