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 NOVEMBER 30, 1997
| | 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 January 9, 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)
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
ASSETS 1997 1997
--------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 1,176 $ 1,259
Accounts receivable, net of allowance for doubtful
accounts of $472 and $212 ............................. 44,142 43,634
Other receivables ....................................... 1,159 3,038
Inventories ............................................. 51,108 40,782
Prepaid expenses and other .............................. 2,527 2,629
Deferred taxes .......................................... 2,805 4,093
--------- ---------
Total current assets ................................ 102,917 95,435
--------- ---------
Property and equipment, net ............................... 38,670 35,930
--------- ---------
Other assets:
Intangible assets, net .................................. 25,537 26,550
Deposits and other assets ............................... 9,489 9,864
Notes receivable - officers ............................. 3,388 --
Deferred taxes .......................................... 884 977
--------- ---------
Total other assets .................................. 39,298 37,391
--------- ---------
Total assets .................................. $ 180,885 $ 168,756
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 20,476 $ 22,727
Accrued expenses ........................................ 6,249 8,511
Current portion of long-term debt ....................... 1,980 2,181
--------- ---------
Total current liabilities ........................... 28,705 33,419
--------- ---------
Long-term debt ............................................ 57,232 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 ............................ (25) (177)
Retained earnings ....................................... 15,455 13,083
--------- ---------
Total stockholders' equity .......................... 94,948 92,424
--------- ---------
Total liabilities and stockholders' equity .... $ 180,885 $ 168,756
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30,
-------------------------------
1997 1996
------------ ------------
Net sales ...................................... $ 60,811 $ 48,993
Cost of goods sold ............................. 40,182 31,674
------------ ------------
Gross profit ................................... 20,629 17,319
------------ ------------
Operating expenses:
Selling and marketing ........................ 10,033 6,972
General and administrative ................... 3,770 3,495
Research and development ..................... 853 568
Amortization of intangible assets ............ 568 498
------------ ------------
Total operating expenses ................. 15,224 11,533
------------ ------------
Income from operations ......................... 5,405 5,786
------------ ------------
Other income (expense):
Interest income .............................. 83 22
Interest expense ............................. (1,135) (1,745)
Other ........................................ (248) (152)
------------ ------------
Total .................................... (1,300) (1,875)
------------ ------------
Income before income taxes ..................... 4,105 3,911
Provision for income taxes ..................... 1,573 1,552
------------ ------------
Net income ..................................... $ 2,532 $ 2,359
============ ============
Pro forma weighted average common shares and
common equivalent shares outstanding ......... 24,881,954 24,881,954
============ ============
Pro forma net income per common share and
common equivalent share outstanding .......... $ 0.10 $ 0.09
============ ============
See notes to condensed consolidated financial statements.
-3-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
SIX MONTHS ENDED NOVEMBER 30,
-----------------------------
1997 1996
------------ ------------
Net sales ...................................... $ 114,326 $ 95,919
Cost of goods sold ............................. 75,823 61,413
------------ ------------
Gross profit ................................... 38,503 34,506
------------ ------------
Operating expenses:
Selling and marketing ........................ 18,806 14,535
General and administrative ................... 7,644 6,524
Research and development ..................... 1,582 984
Amortization of intangible assets ............ 1,069 965
Impairment of intangible assets .............. -- 2,095
------------ ------------
Total operating expenses ................. 29,101 25,103
------------ ------------
Income from operations ......................... 9,402 9,403
------------ ------------
Other income (expense):
Interest income .............................. 204 25
Interest expense ............................. (2,284) (3,197)
Other ........................................ (397) (147)
------------ ------------
Total .................................... (2,477) (3,319)
------------ ------------
Income before income taxes ..................... 6,925 6,084
Provision for income taxes ..................... 2,701 2,434
------------ ------------
Net income ..................................... $ 4,224 $ 3,650
============ ============
Pro forma weighted average common shares and
common equivalent shares outstanding ......... 25,071,954 24,881,954
============ ============
Pro forma net income per common share and
common equivalent share outstanding .......... $ 0.17 $ 0.15
============ ============
See notes to condensed consolidated financial statements.
-4-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
NOVEMBER 30,
---------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net income ......................................... $ 4,224 $ 3,650
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Provision for bad debts ........................ 451 93
Deferred taxes ................................. 1,381 (378)
Depreciation, amortization and
asset impairment ............................. 3,656 4,955
Changes in operating assets and liabilities-
net of assets acquired:
Accounts receivable ............................ (958) (2,057)
Other receivables .............................. 1,880 48
Inventories .................................... (10,326) 3,636
Prepaid expenses and other ..................... 102 2,687
Deposits and other assets ...................... 375 (5,520)
Accounts payable ............................... (2,251) (4,601)
Accrued expenses ............................... (2,262) (2,208)
-------- --------
Net cash provided by (used in)
operating activities ......................... (3,728) 305
-------- --------
Cash flows from financing activities:
Dividends paid ..................................... (1,853) --
Distributions to WHF ............................... -- (3,915)
Net change in payable to WHF ....................... -- (2,956)
Proceeds from long-term debt ....................... 15,582 18,307
Payments on long-term debt ......................... (1,463) (6,789)
-------- --------
Net cash provided by financing activities ..... 12,266 4,647
-------- --------
Cash flows from investing activities:
Purchase of property and equipment ................. (5,518) (2,934)
Increase in officers' notes receivable ............. (3,388) --
Acquisition of businesses, net of cash acquired .... -- (705)
Purchase of intangible assets ...................... -- (1,836)
-------- --------
Net cash used in investing activities ......... (8,906) (5,475)
-------- --------
Effect of exchange rate changes on cash .............. 285 46
-------- --------
Decrease in cash and cash equivalents ................ (83) (477)
Cash and cash equivalents, beginning of period ....... 1,259 1,592
-------- --------
Cash and cash equivalents, end of period ............. $ 1,176 $ 1,115
======== ========
See notes to condensed consolidated financial statements.
-5-
<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:
NOVEMBER 30, MAY 31,
1997 1997
------- -------
Raw materials ........... $20,775 $17,569
Work in process ......... 3,902 2,629
Finished goods .......... 26,431 20,584
------- -------
Total ............. $51,108 $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") and
Wal-Mart, accounted for approximately 11% and 10%, respectively, of net sales
for the six months ended November 30, 1997, and 13% and 10%, respectively, for
the six months ended November 30, 1996.
-6-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. RELATED PARTY TRANSACTIONS
During the six months ended November 30, 1997, 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 November 30,
1997, total officer loans outstanding amounted to $3,388. 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
The Company is involved in claims, potential unasserted claims and legal
actions arising in the ordinary course of business. In management's judgment,
the outcome of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
-7-
<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 NOVEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
NOVEMBER 30, 1996)
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 NOVEMBER 30,
-------------------------------------
1997 1996
---------------- ----------------
(dollars in thousands)
Net sales ............................ $60,811 100.0% $48,993 100.0%
Cost of goods sold ................... 40,182 66.1 31,674 64.7
------- ----- ------- -----
Gross profit ......................... 20,629 33.9 17,319 35.3
Operating expenses ................... 15,224 25.0 11,533 23.5
------- ----- ------- -----
Income from operations ............... 5,405 8.9 5,786 11.8
Interest and other expense, net ...... 1,300 2.1 1,875 3.8
Provision for income taxes ........... 1,573 2.6 1,552 3.2
------- ----- ------- -----
Net income ........................... $ 2,532 4.2% $ 2,359 4.8%
======= ===== ======= =====
NET SALES. Net sales for the three months ended November 30, 1997 ("second
quarter of fiscal 1998") increased $11.8 million, or 24.1% to $60.8 million from
$49.0 million for the three months ended November 30, 1996 ("second quarter of
fiscal 1997"). Sales to mass volume retailers and beverage distributors together
with private label sales volume increased during the three months ended November
30, 1997 compared to the three months ended November 30, 1996. Sales to mass
volume retailers increased approximately 70.6% in the second quarter of fiscal
1998 compared to the second quarter of fiscal 1997. The increase in sales to
mass volume retailers resulted primarily from sales of new products. In May 1997
the Company introduced PHENCAL 106. Second quarter of fiscal 1998 sales of
PHENCAL 106, sold under the Great American Nutrition and Schiff brand names, was
approximately $5.0 million. In addition, sales of COLD FREE, introduced in
December 1996, amounted to approximately $4.8 million during the Company's
second quarter of fiscal 1998.
-8-
<PAGE>
Second quarter of fiscal 1998 sales to private label customers increased
approximately 21.1% to $13.9 million from $11.5 million for the second quarter
of fiscal 1997. The increase in sales was primarily a result of increased volume
with GNC. Private label sales volume with GNC was $3.6 million for the second
quarter of fiscal 1998 compared to $2.0 million for the second quarter of fiscal
1997. Sales to beverage distributors (health clubs and gyms) increased
approximately 52.4% to $7.1 million during the quarter ended November 30, 1997,
compared to $4.7 million for the prior year's comparable quarter, primarily as a
result of the acquisition of Science Foods in January 1997.
Sales to health food distributors and retailers decreased 20.5% to $8.6
million for the quarter ended November 30, 1997 compared to the quarter ended
November 30, 1996. The decrease resulted primarily from reduced "branded"
product volume with GNC and certain other health food retailers due to the
allocation of additional resources to the mass market distribution channel.
International sales volume decreased slightly 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 NOVEMBER 30,
-------------------------------------------
1997 1996
------------------ ------------------
Mass volume retailers ... $26,378 43.4% $15,462 31.6%
Health food ............. 8,642 14.2 10,876 22.2
Private label ........... 13,917 22.9 11,494 23.5
Beverage distributors ... 7,127 11.7 4,677 9.6
International markets ... 4,059 6.7 4,396 9.0
Other ................... 688 1.1 2,088 4.1
------- ----- ------- -----
Total ............. $60,811 100.0% $48,993 100.0%
======= ===== ======= =====
GROSS PROFIT. Gross profit increased approximately 19.1% to $20.6 million
for the quarter ended November 30, 1997 in comparison to the quarter ended
November 30, 1996. Gross profit as a percentage of net sales was 33.9% for the
quarter ended November 30, 1997 compared to 35.3% for the quarter ended November
30, 1996. The decline in the gross profit percentage resulted primarily from
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. Furthermore, the gross profit margin was impacted by
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 second quarter of fiscal 1998. Finally, continuing start-up costs
associated with opening the Company's new manufacturing facility impacted the
gross profit percentage as well as overall operating costs.
OPERATING EXPENSES. Operating expenses increased approximately 32.0% to
$15.2 million during the quarter ended November 30, 1997 from $11.5 million for
the quarter ended November 30, 1996. Operating expenses as a percentage of net
sales were 25.0% for the quarter ended November 30, 1997 compared to 23.5% for
the quarter ended November 30, 1996. Operating expenses increased primarily as a
result of a proportionately higher percent of net sales subject to payment of
royalties and/or provisions for certain sales rebates, included in selling and
marketing expenses. Selling and marketing expenses, as a percentage of net
sales, were 16.5% for the quarter ended November 30, 1997 compared to 14.2% for
the quarter ended November 30, 1996.
General and administrative expenses, as a percentage of net sales, were
6.2% for the quarter ended November 30, 1997 compared to 7.1% for the quarter
ended November 30, 1996. General 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.
-9-
<PAGE>
OTHER EXPENSE. Other expense amounted to $1.3 million for the quarter
ended November 30, 1997 compared to $1.9 million for the quarter ended November
30, 1996. The net decrease of approximately $.6 million resulted 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 $1.6
million for the quarters ended November 30, 1997 and 1996. The Company's pre-tax
earnings for the second quarter of fiscal 1998 remained relatively constant with
the second quarter of fiscal 1997.
(SIX MONTHS ENDED NOVEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED
NOVEMBER 30, 1996)
NET SALES. Net sales for the six months ended November 30, 1997 increased
$18.4 million, or 19.2% to $114.3 million compared to $95.9 million for the six
months ended November 30, 1996. Sales to mass volume retailers, beverage
distributors and international markets together with private label sales volume
increased during the six months ended November 30, 1997 compared to the six
months ended November 30, 1996. Sales to mass volume retailers increased
approximately 54.2% to $47.9 million in the first six months of fiscal 1998
compared to the first six months of fiscal 1997. The increase in sales to mass
volume retailers resulted primarily from sales of new products. Sales of PHENCAL
106 and COLD-FREE amounted to approximately $13.0 million and $5.8 million,
respectively, for the first six months of fiscal 1998 compared to no sales of
these products during the first six months of fiscal 1997.
Sales to private label customers increased approximately 15.7% to $27.9
million for the six months ended November 30, 1997 compared to $24.1 million for
the six months ended November 30, 1996. The increase in sales was primarily a
result of increased volume with existing customers. Private label sales volume
with GNC amounted to $7.2 million for the six months ended November 30, 1998
compared to $4.7 million for the six months ended November 30, 1997. Sales to
beverage distributors increased approximately 22.4% to $11.7 million during the
six months ended November 30, 1997 compared to $9.6 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 $8.6
million for the first six months of fiscal 1998 from $6.9 million for the first
six 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
24.0% to $16.0 million for the first six months of fiscal 1998 compared to $21.0
million for the first six 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. Comparable WNI-branded sales to GNC (excluding private label),
amounted to approximately $5.3 million and $7.5 million, respectively, for the
six month periods ended November 30, 1997 and 1996.
GROSS PROFIT. Gross profit increased approximately 11.6% to $38.5 million
for the six months ended November 30, 1997 in comparison to the six months ended
November 30, 1996. Gross profit as a percentage of net sales was 33.7% for the
six months ended November 30, 1997 compared to 36.0% for the six months ended
November 30, 1996. The decrease in gross profit percentage resulted primarily
from higher than expected levels of outsourced manufacturing. The delays
encountered in opening the Company's new capsule and tablet manufacturing
facility resulted in increased levels of production outsourcing. Furthermore,
the gross profit margin was impacted by changes in the sales mix. Certain
products sold in prior comparable period(s) generated higher gross profit
margins. Finally, the unexpected delays and start-up costs associated with the
opening of the Company's new manufacturing and distribution facility effected
the gross profit margin and overall operating costs.
-10-
<PAGE>
OPERATING EXPENSES. Operating expenses increased approximately 15.9% to
$29.1 million during the six months ended November 30, 1997 from $25.1 million
for the six months ended November 30, 1996. Effective June 1, 1996, the Company
adopted SFAS No. 121 and recognized an asset impairment loss of approximately
$2.1 million during the first six months of fiscal 1997. Excluding this loss,
operating expenses increased approximately $6.1 million, or 26.5%, during the
first six months of fiscal 1998. Operating expenses as a percentage of net sales
were 25.5% for the six months ended November 30, 1997 compared to 24.0%
(excluding the $2.1 million asset impairment loss) for the six months ended
November 30, 1996. 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 $2.5 million for the six months
ended November 30, 1997 compared to $3.3 million for the six months ended
November 30, 1996. The net decrease of approximately $0.8 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 $2.7
million for the six months ended November 30, 1997 compared to $2.4 million for
the six months ended November 30, 1996. The increase in the Company's provision
for income taxes resulted primarily from the increase in pre-tax earnings in the
first six months of fiscal 1998 in comparison to the first six months of fiscal
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of approximately $74.2 million at November
30, 1997 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 $10.3 million to $51.1 million as of
November 30, 1997. All categories of inventory increased, primarily as a result
of the net sales growth and the recent and/or planned introduction of several
new products. Net long-term borrowings increased approximately $14.3 million to
$57.2 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 the common stock and minimum net worth requirements. On November 30, 1997,
the Company was not in compliance with one of the financial covenants under the
Credit Agreement. However, the Company received a waiver of compliance as of
such date and expects if necessary, to enter into negotiations to amend the
Credit Agreement. Borrowings under the Credit Agreement bear interest at
floating rates and mature in February 2000. At November 30, 1997, the Company
had approximately $75.0 million of available credit under the Credit Agreement.
The Company expects to fund its long-term capital requirements, including
construction of capital projects 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
November 30, 1997. The dividend was declared to be payable on December 15, 1997
to holders of all classes of common stock of record at the close of business
December 1, 1997. 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.
-11-
<PAGE>
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
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.
The Company's Annual Meeting of Shareholders was held on October 29,
1997. The holders of 9,011,806 shares of Class A Common Stock and
15,687,432 shares of Class B Common Stock were entitled to vote at
the Annual Meeting. There were present, in person or by proxy,
aggregate holders of 20,927,294 shares of Common Stock (84.73% of
the shares entitled to vote). The following individuals were elected
as Directors of the Company to serve until the 1998 Annual Meeting
by the following votes:
FOR WITHHELD AUTHORITY
---------- ------------------
Eric Weider 20,870,294 57,000
Richard B. Bizzaro 20,870,294 57,000
Robert K. Reynolds 20,870,294 57,000
Ronald L. Corey 20,870,294 57,000
Donald G. Drapkin 20,908,294 19,000
Roger H. Kimmel 20,870,294 57,000
George F. Lengvari 20,855,294 72,000
Glenn W. Schaeffer 20,908,294 19,000
The proposal to transact such other business as may properly come
before the 1997 Annual Meeting was approved as follows (percentages
are in relation to total shares entitled to vote): 18,819,646
(76.20%) shares were cast for the proposal; 1,158,998 (4.69%) shares
were cast against the proposal; and 948,650 (3.84%) shares
abstained.
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
-12-
<PAGE>
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: January 14, 1998 By: /s/ RICHARD B. BIZZARO
Richard B. Bizzaro, Chief Executive
Officer, President and Director
Date: January 14, 1998 By: /s/ ROBERT K. REYNOLDS
Robert K. Reynolds, Chief Operating
Officer, Executive Vice President
and Director
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF WEIDER NUTRITION INTERNATIONAL, INC. AS
OF, AND FOR THE SIX MONTHS ENDING NOVEMBVER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 1,176
<SECURITIES> 0
<RECEIVABLES> 44,614
<ALLOWANCES> 472
<INVENTORY> 55,561
<CURRENT-ASSETS> 102,917
<PP&E> 50,830
<DEPRECIATION> 12,160
<TOTAL-ASSETS> 180,885
<CURRENT-LIABILITIES> 28,705
<BONDS> 57,232
0
0
<COMMON> 247
<OTHER-SE> 94,701
<TOTAL-LIABILITY-AND-EQUITY> 180,885
<SALES> 114,326
<TOTAL-REVENUES> 114,326
<CGS> 75,823
<TOTAL-COSTS> 75,823
<OTHER-EXPENSES> 29,101
<LOSS-PROVISION> 375
<INTEREST-EXPENSE> 2,284
<INCOME-PRETAX> 6,925
<INCOME-TAX> 2,701
<INCOME-CONTINUING> 4,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,224
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
