<PAGE> 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
AUGUST 31, 2000
[ ] 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 26,231,165
(as of October 2, 2000.)
<PAGE> 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)
<TABLE>
<CAPTION>
August 31, May 31,
2000 2000
----------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,534 $ 3,011
Receivables 50,638 53,522
Inventories 50,768 47,113
Prepaid expenses and other 5,494 4,982
Deferred taxes 6,744 6,560
--------- ---------
Total current assets 116,178 115,188
--------- ---------
Property and equipment, net 46,246 47,198
--------- ---------
Other assets:
Intangible assets, net 49,191 49,412
Deposits and other assets 8,689 6,745
Notes receivable related to
stock performance units 4,188 4,188
Deferred taxes 4,009 4,537
--------- ---------
Total other assets 66,077 64,882
--------- ---------
Total assets $ 228,501 $ 227,268
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,862 $ 32,650
Accrued expenses 18,306 21,735
Earnout amounts payable 2,759 2,796
Current portion of long-term debt 19,533 15,131
Income taxes payable 850 549
--------- ---------
Total current liabilities 73,310 72,861
--------- ---------
Long-term debt (Note 2) 64,011 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-10,538,733 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 86,738 83,225
Other accumulated comprehensive loss (5,031) (5,003)
Retained earnings 9,211 8,185
--------- ---------
Total stockholders' equity 91,180 86,658
--------- ---------
Total liabilities and stockholders' equity $ 228,501 $ 227,268
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 3
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 91,210 $ 89,967
Cost of goods sold 53,255 56,132
------------ ------------
Gross profit 37,955 33,835
------------ ------------
Operating expenses:
Selling and marketing 25,889 19,730
General and administrative 7,837 7,416
Research and development 1,547 1,002
Amortization of intangible assets 757 878
Litigation settlement (3,571) --
Plant consolidation and transition 648 --
Severance, recruiting and
reorganization costs -- 1,850
------------ ------------
Total operating expenses 33,107 30,876
------------ ------------
Income from operations 4,848 2,959
------------ ------------
Other income (expense):
Interest income 40 163
Interest expense (2,498) (2,880)
Other (28) (15)
------------ ------------
Total other expense, net (2,486) (2,732)
------------ ------------
Income before income taxes (benefit) 2,362 227
Provision for income taxes (benefit) 398 (19)
------------ ------------
Net income $ 1,964 $ 246
============ ============
Weighted average shares outstanding:
Basic 26,226,165 25,032,937
============ ============
Diluted 26,230,821 25,044,207
============ ============
Net income per share:
Basic $ 0.07 $ 0.01
============ ============
Diluted $ 0.07 $ 0.01
============ ============
Comprehensive income $ 1,936 $ 587
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
--------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,964 $ 246
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for bad debts 231 307
Deferred taxes 344 1,715
Depreciation and amortization 3,141 2,983
Amortization of original issue discount cost 98 --
Management and employee stock
compensation charges -- 201
Changes in operating assets and liabilities-
net of assets acquired:
Receivables 2,653 7,242
Inventories (3,655) 2,963
Prepaid expenses and other (512) (487)
Deposits and other assets (2,221) 333
Accounts payable (788) (3,999)
Accrued expenses (3,165) 1,166
-------- --------
Net cash provided by (used in)
operating activities (1,910) 12,670
-------- --------
Cash flows from investing activities:
Purchase of intangibles (30) --
Purchase of property and equipment (1,277) (1,400)
Change in notes receivable -- 7
-------- --------
Net cash used in investing activities (1,307) (1,393)
-------- --------
Cash flows from financing activities:
Issuance of common stock 3,524 12
Dividends paid (938) (939)
Proceeds from debt 66,768 2,012
Payments on debt (66,413) (12,264)
-------- --------
Net cash provided by (used in)
financing activities 2,941 (11,179)
-------- --------
Effect of exchange rate changes on cash (201) 226
-------- --------
Increase (decrease) in cash and cash equivalents (477) 324
Cash and cash equivalents, beginning of period 3,011 1,926
-------- --------
Cash and cash equivalents, end of period $ 2,534 $ 2,250
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
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 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. CREDIT FACILITY
Effective June 30, 2000, the Company and its domestic subsidiaries
entered into a new $90.0 million senior credit facility (the "New Credit
Facility") with Bankers Trust Company. The New Credit Facility replaced the
Company's previous credit facility, which consisted of a revolving line of
credit that expired on June 30, 2000.
The New Credit Facility is comprised of 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 New Credit Facility contains customary terms and conditions,
including, among others, financial covenants regarding minimum cash flows and
limitations on indebtedness and the Company's ability to pay dividends under
certain circumstances. The obligations of the Company under the New Credit
Facility are secured by a first priority lien on all owned or acquired tangible
and intangible assets of the Company and its domestic subsidiaries. Borrowings
under the New Credit Facility bear interest at floating rates and the New Credit
Facility matures on March 31, 2005.
The New Credit Facility is being used to fund the normal working capital
and capital expenditure requirements of the Company. At the inception of the New
Credit Facility, the Company borrowed approximately $64.8 million (together with
the proceeds from the subordinated loan discussed below) to repay in full its
outstanding obligation under the previous credit facility and related financing
costs of the New Credit Facility.
5
<PAGE> 6
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Concurrently with the New Credit Facility, on June 30, 2000, the Company
entered into a $10.0 million senior subordinated loan agreement (the
"Subordinated Loan"). The 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, 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 will be recognized as an adjustment to the effective
interest rate over the life of the Subordinated Loan. The Company also granted
certain registration rights with respect to the common stock issuable under the
warrants pursuant to a Registration Rights Agreement dated as of June 30, 2000.
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:
<TABLE>
<CAPTION>
August 31, May 31,
2000 2000
--------- --------
<S> <C> <C>
Trade accounts $ 58,417 $ 61,184
Other 1,066 929
-------- --------
59,483 62,113
Less allowance for doubtful accounts
and sales returns (8,845) (8,591)
-------- --------
Total $ 50,638 $ 53,522
======== ========
</TABLE>
6
<PAGE> 7
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
August 31, May 31,
2000 2000
--------- -------
<S> <C> <C>
Raw materials $16,083 $12,493
Work in process 1,320 2,210
Finished goods 33,365 32,410
------- -------
Total $50,768 $47,113
======= =======
</TABLE>
Inventory totaling approximately $1,800, primarily consisting of a
certain raw material, is included as a long-term asset in deposits and other
assets in the accompanying balance sheets. The Company expects to consume this
raw material subsequent to fiscal 2001.
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
August 31, May 31,
2000 2000
--------- --------
<S> <C> <C>
Cost in excess of fair value
of net assets acquired (goodwill) $ 54,585 $ 54,134
Patents and trademarks 10,704 10,601
Noncompete agreements 189 187
-------- --------
65,478 64,922
Less accumulated amortization (16,287) (15,510)
-------- --------
Total $ 49,191 $ 49,412
======== ========
</TABLE>
6. OPERATING SEGMENTS
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information", which changes the way the
Company reports information about its operating segments.
The Company has two primary reportable segments. These segments include
the Company's U.S. based or domestic operations, and the Company's international
operations. The Company has three primary areas within its domestic operations:
mass market; health food stores; and health clubs and gyms. The Company
manufactures and 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, nutraceuti- cals and
sports nutrition products 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 markets nutritional and other products, including a broad line
of sports nutrition supplements and sportswear,
7
<PAGE> 8
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
together with certain other nutraceuticals within its international operations.
The accounting policies of these segments are the same as those
described in Note 1 to the consolidated financial statements (See 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.
Segment information for the three months ended August 31, 2000 and 1999,
respectively, are summarized as follows:
<TABLE>
<CAPTION>
Income
(Loss)
Net From Interest
2000: Sales Operations Expense
------- ---------- --------
<S> <C> <C> <C>
Domestic Operations:
Mass market $51,256 $ 4,482 $ 803
Health food stores 6,406 (510) 157
Health clubs and gyms 6,228 29 153
Other 1,139 (385) 21
Unallocated -- 2,923 --
------- ------- -------
65,029 6,539 1,134
International Operations 26,181 (1,691) 1,364
------- ------- -------
$91,210 $ 4,848 $ 2,498
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Income
(Loss)
Net From Interest
1999: Sales Operations Expense
------- ---------- --------
<S> <C> <C> <C>
Domestic Operations:
Mass market $45,757 $ 5,226 $ 890
Health food stores 10,733 (1,185) 498
Health clubs and gyms 5,839 281 321
Other 1,295 (203) 72
Unallocated -- (1,850) --
------- ------- -------
63,624 2,269 1,781
International Operations 26,343 690 1,099
------- ------- -------
$89,967 $ 2,959 $ 2,880
======= ======= =======
</TABLE>
Reconciliation of total assets for the reportable segments is as follows
at August 31, 2000:
<TABLE>
<S> <C>
Total domestic assets $ 196,941
Total international assets 86,449
Eliminations (54,889)
---------
Total $ 228,501
=========
</TABLE>
8
<PAGE> 9
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Capital expenditures for domestic and international operations amounted
to $0.8 million and $0.5 million, respectively, for the three months ended
August 31, 2000, and $1.1 million and $.3 million, respectively, for the three
months ended August 31, 1999. The majority of international related long-lived
assets are located in Germany.
7. SALES TO MAJOR CUSTOMERS
The Company's three largest customers accounted for approximately 50%
and 47%, respectively, of net sales for the three months ended August 31, 2000
and 1999, respectively. At August 31, 2000 and May 31, 2000, amounts due from
these customers represented approximately 50% and 43%, respectively, of total
trade accounts receivable.
8. CONTINGENCIES
In March 1999, the plaintiff's attorney involved in a previously settled
California matter regarding certain of the Company's bar products filed a
lawsuit on behalf of Michael Morelli and an alleged class in the Supreme Court
of the State of New York (New York County) alleging similar unfair competition
and false advertising claims under New York law. In May 1999, the plaintiff's
attorney also filed a lawsuit on behalf of Lisa Fasig and an alleged class in
the Circuit Court of Lee County, Florida alleging similar claims under Florida
law. The Company disputes the allegations and is vigorously opposing the
lawsuits.
The Company has been named as a defendant in two lawsuits alleging that
consumption of certain of its products containing ephedrine caused injuries and
damages to two individuals. 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. 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.
During the three months ended August 31, 2000, 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.
The Company is involved in other claims, legal actions and governmental
proceedings that arise from the Company business operations. Although ultimate
liability cannot be determined at the present time, the Company believes that
any liability resulting from these matters, if any, after taking into
consideration the Company's insurance coverage, will not have a material adverse
effect on the Company's financial position or cash flows.
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.
9
<PAGE> 10
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 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 not determined the impact of adopting SAB 101 on the Company's 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,"
"estimates," "may," "should" or similar expressions are forward-looking
statements. These statements are subject to risks and uncertainties, certain of
which are beyond the Company's control, and, therefore, actual results may
differ materially.
Important factors that may effect future results include, but are not
limited to: the company's ability to implement more sophisticated operating
systems and inventory management programs, the impact of competitive products
and pricing, the impact of new FDA dietary supplement regulations on the
Company's products and marketing plans, including, without limitation, product
labeling, product names and product structure/function claims, 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, the company's ability to identify, recruit and integrate key
management personnel, including the cost and timing thereof, litigation and
government regulatory action, uncertainty of market acceptance of new products,
results of management's evaluation of its business operations and strategies,
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.
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
10
<PAGE> 11
consisting of approximately 875 stock keeping units ("SKUs") domestically and
internationally. The Company has a portfolio of recognized brands, including
Schiff(R), Weider(TM), American Body Building(TM), Tiger's Milk(R) Multipower(R)
and Multaben that are primarily marketed through mass market, health food store
and health club and gym distribution channels. The Company markets its branded
nutritional supplement products, both domestically and internationally, in four
principal categories: sports nutrition; 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 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 August 31, 2000 Compared to Three Months Ended
August 31, 1999)
The following table shows selected items expressed on an actual basis
and as a percentage of net sales for the respective interim periods:
<TABLE>
<CAPTION>
Three Months Ended August 31,
---------------------------------------------------------
2000 1999
----------------------- -----------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net sales .................... $ 91,210 100.0% $ 89,967 100.0%
Cost of goods sold ........... 53,255 58.4 56,132 62.4
-------- ----- -------- -----
Gross profit ................. 37,955 41.6 33,835 37.6
-------- ----- -------- -----
Operating expenses ........... 36,030 39.5 29,026 32.2
Litigation settlement ........ (3,571) (3.9) -- --
Plant consolidation and
transition ................. 648 .7 -- --
Severance, recruiting and
reorganization costs ....... -- -- 1,850 2.1
-------- ----- -------- -----
Total operating expenses ..... 33,107 36.3 30,876 34.3
-------- ----- -------- -----
Income from operations ....... 4,848 5.3 2,959 3.3
Other expense, net ........... 2,486 2.7 2,732 3.0
Income taxes (benefit) ....... 398 .4 (19) --
-------- ----- -------- -----
Net income ................... $ 1,964 2.2% $ 246 .3%
======== ===== ======== =====
</TABLE>
Net Sales. Net sales for the three months ended August 31, 2000
increased $1.2 million, or 1.4%, to $91.2 million from $90.0 million for the
three months ended August 31, 1999. During the three months ended August 31,
2000, sales to mass volume retailers (including food, drug, mass, club and
convenience stores) increased compared to the three months ended August 31, 1999
while sales to health food distributors and retailers decreased. Sales to health
club and gym distributors and international markets were relatively constant for
the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999.
First quarter fiscal 2001 sales to mass volume retailers increased
approximately 12.0% to $51.3 million from first quarter fiscal 2000 sales of
$45.8 million. The increase in sales to mass volume retailers was primarily the
result of increased sales to existing accounts of certain leading branded
products. Net sales of Schiff(R) Move Free(TM) amounted to $31.7 million for the
first quarter of fiscal 2001 compared to $26.3 million for the first quarter of
fiscal 2000. Sales to health food distributors and retailers decreased
approximately 40.3% to $6.4 million for the fiscal 2001 first quarter from
11
<PAGE> 12
$10.7 million for the fiscal 2000 first quarter. The decrease in sales in the
health food distribution channel resulted primarily from the Company's increased
focus on the mass market distribution channel, delays in the introduction of new
products, including line extensions, and reduced sales volume with GNC, the
Company's most significant health food retailer. The overall decrease was
partially offset as sales to health food distributors increased in the first
quarter of fiscal 2001 compared to the first quarter of fiscal 2000.
GROSS PROFIT. Gross profit increased approximately 12.2% to $38.0
million for the quarter ended August 31, 2000 compared to $33.8 million for the
quarter ended August 31, 1999. Gross profit, as a percentage of net sales, was
41.6% for the quarter ended August 31, 2000 compared to 37.6% for the quarter
ended August 31, 1999. The increase in the gross profit percentage resulted
primarily from operating efficiencies, change in sales mix and reduced credits
for returned products.
OPERATING EXPENSES. Operating expenses, including litigation settlement
income and plant consolidation and transition costs for the first quarter of
fiscal 2001 and severance, recruiting and reorganization costs for the first
quarter of fiscal 2000, increased approximately 7.2% to $33.1 million for the
fiscal 2001 first quarter from $30.9 million for the fiscal 2000 first quarter.
During the fiscal 2001 first quarter 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, operating expenses increased $7.0 million, or 24.1% during the
first quarter of fiscal 2001 in comparison to the first quarter of fiscal 2000.
The increase resulted primarily from the continued implementation of an expanded
marketing plan resulting in significant increases in selling, marketing,
promotional and advertising costs.
Selling and marketing expenses, including sales, marketing, adver-
tising, freight and other costs, increased approximately 31.2% to $25.9 million
for the fiscal 2001 first quarter from $19.7 million for the fiscal 2000 first
quarter. The increase in selling and marketing expenses resulted primarily from
increased advertising, promotion and personnel costs associated with the
Company's brand building initiatives as well as increased promotional spending
in support of the Schiff(R) Pain Free(TM) to Move Free(TM) product name
transition as well as other promotional programs. The Company expects the
increase in selling and marketing expenses, as a percentage of net sales, to
continue in future periods.
General and administrative expenses increased approximately 5.7% to $7.8
million for the quarter ended August 31, 2000 compared to $7.4 million for the
quarter ended August 31, 1999. The increase in general and administrative
expenses for the first quarter of fiscal 2001 resulted primarily from an
increase in outside professional and personnel related costs.
OTHER EXPENSE. Other expense, net, amounted to $2.5 million for the
quarter ended August 31, 2000 compared to $2.7 million for the quarter ended
August 31, 1999. The net decrease of approximately $0.2 million resulted
primarily from decreased interest costs associated with an overall reduction in
indebtedness.
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PROVISION FOR INCOME TAXES. Provision for income taxes amounted to $0.4
million for the quarter ended August 31, 2000 compared to a nominal benefit for
the quarter ended August 31, 1999. The increase resulted primarily from the
increase in 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 "New Credit Facility") with Bankers Trust Company. The New Credit
Facility replaced the Company's previous credit facility, which consisted of a
revolving line of credit that expired on June 30, 2000.
The New Credit Facility is comprised of 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 New Credit Facility contains customary terms and conditions,
including, among others, financial covenants regarding minimum cash flows and
limitations on indebtedness and the Company's ability to pay dividends under
certain circumstances. The obligations of the Company under the New Credit
Facility are secured by a first priority lien on all owned or acquired tangible
and intangible assets of the Company and its domestic subsidiaries. The New
Credit Facility is being used to fund the normal working capital and capital
expenditure requirements of the Company. At the inception of the New Credit
Facility, the Company borrowed approximately $64.8 million (together with the
proceeds from the subordinated loan discussed below) to repay in full its
outstanding obligation under the previous credit facility and related financing
costs of the New Credit Facility. At August 31, 2000, the Company had
approximately $18.8 million in available revolving loan funds.
Concurrently with the New Credit Facility, on June 30, 2000 the Company
entered into a $10.0 million senior subordinated loan agreement (the
"Subordinated Loan"). The 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, among
others, financial covenants regarding minimum cash flows and limita- tions on
indebtedness and the Company's ability to pay dividends under certain
circumstances.
The Company's working capital remained relatively constant, amounting to
approximately $42.9 million and $42.3 million, respectively, at August 31, 2000
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
necessary by borrowings under both the New Credit Facility and Haleko's
approximate $18.6 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
August 31, 2000. The dividend was declared to be payable on September 20, 2000
to holders of all classes of common stock of record at the close of business on
September 11, 2000. The Company's Board of Directors will determine dividend
policy in the future based upon, among other things, the Company's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant at the time. In addition, the New Credit
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<PAGE> 14
Facility 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 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%
change in interest rates would have a material effect on the Company's pretax
earnings or cash flows.
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.
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<PAGE> 15
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 Schlhter.(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)
10.1 Build-To-Suit Lease Agreement, dated March 20, 1996, between SCI
Development Services Incorporated and Weider Nutrition Group, Inc.(1)
10.2 Agreement by and between Joseph Weider and Weider Health and Fitness.(1)
10.3 1997 Equity Participation Plan of Weider Nutrition International,
Inc.(1)
10.4 Form of Tax Sharing Agreement by and among Weider Nutrition
International, Inc. and its subsidiaries and Weider Health and Fitness
and its subsidiaries.(1)
10.6 Form of Employment Agreement between Weider Nutrition International,
Inc. and Robert K. Reynolds, as amended.(5)
10.7 Form of Senior Executive Employment Agreement between Weider Nutrition
International, Inc. and certain senior executives of the Company.(1)
10.8 Advertising Agreement between Weider Nutrition International, Inc. and
Weider Publications, Inc.(1)
10.9 License Agreement between Mariz Gestao E Investmentos Limitada and
Weider Nutrition Group Limited.(1)
10.10 Form of Employment Agreement between Weider Nutrition International,
Inc. and Bruce J. Wood.(3)
10.11 Agreement between the Company and Bruce J. Wood.(6)
10.12 Form Agreement between the Company and certain executives of the
Company.(6)
21 Subsidiaries of Weider Nutrition International, Inc.(5)
27.1 Financial Data Schedule Summary.(7)
-------------
(1) Filed as an Exhibit to the Company's Registration Statement on From S-1
(File
15
<PAGE> 16
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) Filed herewith.
------------------
(b) Reports on Form 8-K
None
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<PAGE> 17
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: October 16, 2000 By: /s/ Bruce J. Wood
-------------------------------------
Bruce J. Wood
President, Chief Executive Officer
and Director
Date: October 16, 2000 By: /s/ Joseph W. Baty
-------------------------------------
Joseph W. Baty
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Stock Purchase Agreement, dated July 9, 1998, by and among
Weider Nutrition Group, Inc. and Wolfgang Brandt and Eberhardt
Schlhter.(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)
10.1 Build-To-Suit Lease Agreement, dated March 20, 1996, between SCI
Development Services Incorporated and Weider Nutrition Group,
Inc.(1)
10.2 Agreement by and between Joseph Weider and Weider Health and
Fitness.(1)
10.3 1997 Equity Participation Plan of Weider Nutrition
International, Inc.(1)
10.4 Form of Tax Sharing Agreement by and among Weider Nutrition
International, Inc. and its subsidiaries and Weider Health and
Fitness and its subsidiaries.(1)
10.6 Form of Employment Agreement between Weider Nutrition
International, Inc. and Robert K. Reynolds, as amended.(5)
10.7 Form of Senior Executive Employment Agreement between Weider
Nutrition International, Inc. and certain senior executives of
the Company.(1)
10.8 Advertising Agreement between Weider Nutrition International,
Inc. and Weider Publications, Inc.(1)
10.9 License Agreement between Mariz Gestao E Investmentos Limitada
and Weider Nutrition Group Limited.(1)
10.10 Form of Employment Agreement between Weider Nutrition
International, Inc. and Bruce J. Wood.(3)
10.11 Agreement between the Company and Bruce J. Wood.(6)
10.12 Form Agreement between the Company and certain executives of the
Company.(6)
21 Subsidiaries of Weider Nutrition International, Inc.(5)
27.1 Financial Data Schedule Summary.(7)
-----------------------------
(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) Filed herewith.
</TABLE>
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