1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____.
COMMISSION FILE NUMBER:
333-12929
WEIDER NUTRITION INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 87-0563574
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2002 SOUTH 5070 WEST
SALT LAKE CITY, UTAH 84104-4726
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(801) 975-5000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's common stock is 26,249,436
(as of March 9, 2001).
1
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
February 28, May 31,
ASSETS 2001 2000
----------- ---------
(unaudited)
Current assets:
Cash and cash equivalents $ 2,498 $ 3,011
Receivables 53,088 53,522
Inventories 54,008 47,113
Prepaid expenses and other 4,126 4,982
Deferred taxes 6,808 6,560
--------- ---------
Total current assets 120,528 115,188
--------- ---------
Property and equipment, net 44,374 47,198
--------- ---------
Other assets:
Intangible assets, net 48,030 49,412
Deposits and other assets 6,029 6,745
Notes receivable related to
stock performance units 4,227 4,188
Deferred taxes 3,658 4,537
--------- ---------
Total other assets 61,944 64,882
--------- ---------
Total assets $ 226,846 $ 227,268
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 34,925 $ 32,650
Accrued expenses 16,492 21,735
Earnout amounts payable -- 2,796
Current portion of long-term debt 26,699 15,131
Income taxes payable -- 549
--------- ---------
Total current liabilities 78,116 72,861
--------- ---------
Long-term debt 60,084 67,749
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share; shares
authorized-10,000,000; no shares issued and outstanding -- --
Class A common stock, par value $.01 per share; shares
authorized-50,000,000; shares issued and
outstanding-10,562,004 and 9,363,778 105 94
Class B common stock, par value $.01 per share; shares
Authorized-25,000,000; shares issued and
outstanding-15,687,432 157 157
Additional paid-in capital 86,956 83,225
Other accumulated comprehensive loss (4,906) (5,003)
Retained earnings 6,334 8,185
--------- ---------
Total stockholders' equity 88,646 86,658
--------- ---------
Total liabilities and stockholders' equity $ 226,846 $ 227,268
========= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
3
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Three Months Ended
-------------------------------
Feb. 28, Feb. 29,
2001 2000
------------ ------------
Net sales $ 91,475 $ 90,449
Cost of goods sold 57,789 56,350
------------ ------------
Gross profit 33,686 34,099
------------ ------------
Operating expenses:
Selling and marketing 23,821 20,532
General and administrative 7,021 6,532
Research and development 1,344 1,260
Amortization of intangible assets 853 815
Severance, recruiting and reorganization
costs -- 822
------------ ------------
Total operating expenses 33,039 29,961
------------ ------------
Income from operations 647 4,138
------------ ------------
Other income (expense):
Interest income 14 286
Interest expense (2,597) (2,774)
Other (50) (63)
------------ ------------
Total other expense, net (2,633) (2,551)
------------ ------------
Income (loss) before income taxes (1,986) 1,587
Provision for income taxes (benefit) (1,334) 733
------------ ------------
Net income (loss) $ (652) $ 854
============ ============
Weighted average shares outstanding:
Basic 26,249,436 25,042,073
============ ============
Diluted 26,249,436 25,049,726
============ ============
Net income (loss) per share:
Basic $ (0.02) $ 0.03
============ ============
Diluted $ (0.02) $ 0.03
============ ============
Comprehensive income (loss) $ 1,121 $ (668)
============ ============
See notes to condensed consolidated financial statements.
3
4
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Nine Months Ended
-------------------------------
Feb. 28, Feb. 29,
2001 2000
------------ ------------
Net sales $ 261,223 $ 267,792
Cost of goods sold 159,287 166,697
------------ ------------
Gross profit 101,936 101,095
------------ ------------
Operating expenses:
Selling and marketing 68,474 58,622
General and administrative 21,395 21,382
Research and development 4,270 3,540
Amortization of intangible assets 2,350 2,536
Litigation settlement (3,571) --
Plant consolidation and transition 648 --
Severance, recruiting and reorganization
costs -- 3,523
------------ ------------
Total operating expenses 93,566 89,603
------------ ------------
Income from operations 8,370 11,492
------------ ------------
Other income (expense):
Interest income 98 570
Interest expense (7,722) (8,412)
Other (228) (131)
------------ ------------
Total other expense, net (7,852) (7,973)
------------ ------------
Income before income taxes 518 3,519
Provision for income taxes (benefit) (537) 1,376
------------ ------------
Net income $ 1,055 $ 2,143
============ ============
Weighted average shares outstanding:
Basic 26,241,679 25,039,028
============ ============
Diluted 26,243,231 25,047,072
============ ============
Net income per share:
Basic $ 0.04 $ 0.09
============ ============
Diluted $ 0.04 $ 0.09
============ ============
Comprehensive income $ 1,152 $ 757
============ ============
See notes to condensed consolidated financial statements.
4
5
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
-----------------------
Feb. 28, Feb. 29,
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 1,055 $ 2,143
Adjustments to reconcile net income to net
cash provided by (used in)operating activities:
Provision for bad debts 962 1,732
Deferred taxes 631
Depreciation, amortization and
asset impairment 8,489 8,240
Management and employee stock compensation
charges 201 201
Loss (gain) on disposition of equipment (9) 17
Changes in operating assets and liabilities --
net of assets acquired:
Receivables (528) 14,668
Inventories (6,895) 12,313
Prepaid expenses and other 856 775
Deposits and other assets 344 5,270
Accounts payable 2,275 (2,934)
Accrued expenses (8,588) (1,133)
-------- --------
Net cash provided by (used in) operating
activities (1,207) 40,132
-------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired -- (1,164)
Purchase of property and equipment (2,638) (4,090)
Purchase of intangibles (136) (216)
Proceeds from disposition of equipment 39 85
Change in notes receivable (39) 17
-------- --------
Net cash used in investing activities (2,774) (5,368)
-------- --------
Cash flows from financing activities:
Issuance of common stock 3,541 12
Dividends paid (2,906) (2,820)
Proceeds from debt 47,632 5,543
Payments on debt (44,360) (35,523)
-------- --------
Net cash provided by (used in) financing
activities 3,907 (32,788)
-------- --------
Effect of exchange rate changes on cash (439) (1,194)
-------- --------
Increase (decrease) in cash and cash equivalents (513) 782
Cash and cash equivalents, beginning of period 3,011 1,926
-------- --------
Cash and cash equivalents, end of period $ 2,498 $ 2,708
======== ========
See notes to condensed consolidated financial statements.
5
6
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION AND OTHER MATTERS
The accompanying unaudited interim consolidated financial statements
("interim financial statements") do not include all disclosures provided in the
annual consolidated financial statements. These interim financial statements
should be read in conjunction with the consolidated financial statements and the
footnotes thereto contained in the Weider Nutrition International, Inc. (the
"Company") Annual Report on Form 10-K for the fiscal year ended May 31, 2000 as
filed with the Securities and Exchange Commission. The May 31, 2000 consolidated
balance sheet was derived from audited financial statements, but all disclosures
required by generally accepted accounting principles are not provided in the
accompanying footnotes. The Company is a majority-owned subsidiary of Weider
Health and Fitness ("WHF").
In the opinion of the Company, the accompanying interim financial
statements contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the Company's financial position and
results of operations. Certain prior period amounts have been reclassified to
conform with the current interim period presentation.
2. DOMESTIC CREDIT FACILITY AND SUBORDINATED LOAN
Effective June 30, 2000, the Company and its domestic subsidiaries
entered into a new $90.0 million senior credit facility (the "Credit Facility")
with Bankers Trust Company. The Credit Facility replaced the Company's previous
credit facility, which consisted of a revolving line of credit that expired on
June 30, 2000.
The Credit Facility is comprised of a $30.0 million term loan and a
$60.0 million revolving loan. Under the revolving loan, the Company may borrow
up to the lesser of $60.0 million or the sum of (i) 85% of eligible accounts
receivable and (ii) the lesser of $30.0 million or 65% of the eligible
inventory. The Credit Facility contains customary terms and conditions,
including, among others, financial covenants regarding minimum cash flows and
limitations on indebtedness and the Company's ability to pay dividends under
certain circumstances. The obligations of the Company under the Credit Facility
are secured by a first priority lien on all owned or acquired tangible and
intangible assets of the Company and its domestic subsidiaries. Borrowings under
the Credit Facility bear interest at floating rates and the Credit Facility
matures on March 31, 2005.
The Credit Facility is being used to fund the normal working capital and
capital expenditure requirements of the Company. At the inception of the Credit
Facility, the Company borrowed approximately $64.8 million (together with the
proceeds from the subordinated loan discussed below) to repay in full its
outstanding obligation under the previous credit facility and related financing
costs of the Credit Facility.
Concurrently with the Credit Facility, on June 30, 2000, the Company
entered into a $10.0 million senior subordinated loan agreement (the
"Subordinated Loan"). The proceeds from the Subordinated Loan were used to repay
outstanding obligations under the Company's previous credit facility. The
Subordinated Loan contains customary terms and conditions, including,
6
7
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
among others, financial covenants regarding minimum cash flows and limitations
on indebtedness and the Company's ability to pay dividends under certain
circumstances. The Subordinated Loan bears interest at 13% per annum and matures
on June 30, 2006. As part of the Subordinated Loan transaction, the Company
issued warrants to purchase up to 1,174,955 shares of the Company's Class A
common stock at an exercise price of $0.01 per share, subject to certain
customary antidilution provisions. The issuance of the warrants, exercised
effective August 3, 2000, resulted in the recognition of approximately $3.5
million in "original issue discount" costs (reflected as a reduction of
long-term debt) that is being recognized as an adjustment to the effective
interest rate over the life of the Subordinated Loan. The Company also granted
certain registration rights with respect to the common stock issued under the
warrants pursuant to a Registration Rights Agreement dated as of June 30, 2000.
Amounts outstanding under the previous credit facility have been
reclassified as a long-term obligation at May 31, 2000.
3. RECEIVABLES
Receivables consist of the following:
February 28, May 31,
2001 2000
----------- --------
Trade accounts $ 59,259 $ 61,184
Income taxes 819 --
Other 1,096 929
-------- --------
61,174 62,113
Less allowances for doubtful accounts
and sales returns (8,086) (8,591)
-------- --------
Total $ 53,088 $ 53,522
======== ========
4. INVENTORIES
Inventories consist of the following:
February 28, May 31,
2001 2000
------- -------
Raw materials $19,107 $12,493
Work in process 3,624 2,210
Finished goods 31,277 32,410
------- -------
Total $54,008 $47,113
======= =======
Inventory totaling approximately $1.8, primarily consisting of a certain
raw material, is included as a long-term asset in deposits and other assets in
the accompanying balance sheet at May 31, 2000.
7
8
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
February 28, May 31,
2001 2000
----------- --------
Cost in excess of fair value
of net assets acquired (goodwill) $ 54,882 $ 54,134
Patents and trademarks 10,881 10,601
Noncompete agreements 191 187
-------- --------
65,954 64,922
Less accumulated amortization (17,924) (15,510)
-------- --------
Total $ 48,030 $ 49,412
======== ========
6. OPERATING SEGMENTS
The Company has two primary reportable segments. These segments include
the Company's U.S. based or domestic operations and the Company's interna-
tional operations. The Company has three primary areas within its domestic
operations: mass market; health food stores; and health clubs and gyms. The
Company manufactures and/or markets nutritional products, including a broad line
of vitamins, joint-related and other nutraceuticals, and sports nutrition
supplements in mass market; a broad line of vitamins, nutraceuticals and sports
nutrition products primarily through independent distributors and a significant
retailer in health food stores; and a broad line of sports nutrition products
primarily through distributors in health clubs and gyms. The Company also
manufactures and/or markets nutritional and other products, including a broad
line of sports nutrition supplements and sportswear, together with certain other
nutraceuticals in its international operations.
The accounting policies of these segments are consistent with those
described in Note 1 to the consolidated financial statements in the Company's
Annual Report on Form 10-K. The Company evaluates the performance of its
operating segments based on actual and expected operating results of the
respective segments. Certain noncash and other expenses, and domestic assets,
are not allocated to the areas within the domestic operating segment.
8
9
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Segment information for the nine months ended February 28, 2001 and
February 29, 2000, respectively, are summarized as follows:
Income
(Loss)
Net From Interest
2001: Sales Operations Expense
-------- ---------- ---------
Domestic Operations:
Mass market $133,590 $ 9,639 $ 2,544
Health food stores 17,627 (2,220) 394
Health clubs and gyms 16,069 (262) 354
Other 2,674 (922) 55
Unallocated -- 2,923 --
-------- -------- --------
169,960 9,158 3,347
International Operations 91,263 (788) 4,375
-------- -------- --------
$261,223 $ 8,370 $ 7,722
======== ======== ========
Income
(Loss)
Net From Interest
2000: Sales Operations Expense
-------- ---------- ---------
Domestic Operations:
Mass market $134,080 $ 15,730 $ 2,537
Health food stores 28,616 (2,224) 1,421
Health clubs and gyms 15,714 (518) 914
Other 2,940 (1,348) 203
Unallocated -- (3,523) --
-------- -------- --------
181,350 8,117 5,075
International Operations 86,442 3,375 3,337
-------- -------- --------
$267,792 $ 11,492 $ 8,412
======== ======== ========
Reconciliation of total assets for the reportable segments is as follows
at February 28, 2001:
Total domestic assets $ 194,962
Total international assets 92,357
Eliminations (60,473)
---------
Total $ 226,846
=========
Capital expenditures for domestic and international operations amounted
to $1.3 million and $1.3 million, respectively, for the nine months ended
February 28, 2001, and $2.7 million and $1.4 million, respectively, for the nine
months ended February 29, 2000. The majority of international related long-lived
assets are located in Germany.
9
10
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
7. SALES TO MAJOR CUSTOMERS
The Company's three largest customers accounted for approximately 44%
and 45%, respectively, of net sales for the nine months ended February 28, 2001
and February 29, 2000. At February 29, 2001 and May 31, 2000, amounts due from
these customers represented approximately 40% and 42%, respectively, of total
trade accounts receivable.
8. CONTINGENCIES
The Company has been named as a defendant in three pending lawsuits
alleging that consumption of certain of its products containing ephedrine caused
injuries, death and/or damages. The Company disputes the allegations and is
opposing the lawsuits. The Company believes that, after taking into
consideration the Company's insurance coverage, such lawsuits, if successful,
would not have a material adverse effect on the Company's financial condition.
However, one or more large punitive damage awards, which are generally not
covered by insurance, could have a material adverse effect on the Company's
financial condition. The Company cannot assure you that it will not be subject
to further private civil actions with respect to its ephedrine products or that
product liability insurance will continue to be available at a reasonable cost,
or if available, will be adequate to cover liabilities.
During the first quarter of fiscal 2001, the Company received proceeds
of approximately $3.6 million relating to the settlement of certain antitrust
litigation brought by the Company and several other parties.
From time to time, the Company is involved in other claims, legal
actions and governmental proceedings that arise from the Company's business
operations. Although ultimate liability cannot be determined at the present
time, the Company believes that any liability resulting from these matters, if
any, after taking into consideration the Company's insurance coverage, will not
have a material adverse effect on the Company's financial position or cash
flows.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
During the quarter ended August 31, 2000, the Company adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The adoption of SFAS No. 133 did not have a material impact on
the Company's financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements."
SAB 101 establishes accounting and reporting standards for the recognition of
revenue. It states that revenue generally is realized or realizable and earned
when all of the following criteria are met: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or
10
11
services have been rendered; (3) the seller's price to the buyer is fixed or
determinable; and (4) collectibility is reasonably assured. SAB 101 is effective
for the Company's financial statements in the fiscal quarter beginning March 1,
2001. The Company has determined that the impact of adopting SAB 101 on the
Company's annual financial statements is not material.
In May 2000, the Financial Accounting Standards Board ("FASB") issued
Emerging Issues Task Force No.00-14 ("EITF 00-14"), "Accounting for Certain
Sales Incentives." EITF 00-14 addresses the recognition, measurement and income
statement classification for certain sales incentives. The types of sales
incentives included in this issue are offers by the Company to retailers,
distributors or end consumers that are exercisable after a single exchange
transaction in the form of price reductions, coupons, rebate offers, or free
products delivered on the same date as the underlying exchange transaction.
Effective March 1, 2001, the Company will adopt those provisions of EITF 00-14
where consensus was reached by the FASB. Accordingly, the "cost" of certain
sales incentives previously recognized in the Company's financial statements as
operating expenses will be reclassified as reductions in net sales and/or
increases in cost of goods sold. While these reclassifications may be material,
the adoption of EITF 00-14 will not materially impact the Company's overall
financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements, including the notes thereto, appearing
elsewhere in this Quarterly Report on Form 10-Q. Except for the historical
information contained herein, the matters discussed in this Quarterly Report
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, that are based on management's beliefs and assumptions,
current expectations, estimates, and projections. Statements that are not
historical facts, including without limitation statements which are preceded by,
followed by or include the words "believes," "anticipates," "plans," "expects,"
"may," "should" or similar expressions are forward-looking statements. These
statements are subject to risks and uncertainties, certain of which are beyond
the Company's control, and, therefore, actual results may differ materially.
Important factors that may effect future results include, but are not
limited to: the impact of competitive products and pricing, the impact of new
FDA dietary supplement regulations on the Company's products and marketing
plans, transition of the Company's joint support product brand name from
Schiff(R) Pain Free(TM) to Schiff(R) Move Free(TM), dependence on individual
products, dependence on individuals customers, market and industry conditions
including pricing, demand for products, level of trade inventories and raw
materials availability and pricing, the success of product development and new
product introductions into the marketplace, changes in laws and regulations,
litigation and government regulatory action, uncertainty of market acceptance of
new products, and other risks indicated from time to time in the Company's SEC
reports, copies of which are available upon request from the Company's investor
relations department. The Company disclaims any obligation to update any
forward-looking statements whether as a result of new information, future events
or otherwise.
11
12
GENERAL
Weider Nutrition International, Inc. (the "Company") develops,
manufactures, markets, distributes and sells branded and private label vitamins,
nutritional supplements and sports nutrition products in the United States and
throughout the world. The Company offers a broad range of capsules and tablets,
powdered drink mixes, bottled beverages and nutrition bars, consisting of
approximately 850 nutritional supplement stock keeping units ("SKUs")
domestically and internationally. The Company has a portfolio of recognized
brands, including Schiff(R), Weider(R), American Body Building(TM), Tiger's
Milk(R), Multipower(R) and Multaben that are primarily marketed through mass
market, health food store and/or health club and gym distribution channels. The
Company markets its branded nutritional supplement products, both domestically
and internationally, in four principal categories: sports nutrition; specialty,
vitamins, minerals and herbs; weight management; and nutrition bars. The Company
also markets a line of sportswear in Europe, primarily in Germany, under the
Venice Beach(R) brand.
The Company's principal executive offices are located at 2002 South 5070
West, Salt Lake City, Utah 84104 and its telephone number is (801) 975-5000. As
used herein, the "Company" means Weider Nutrition International, Inc. and its
subsidiaries, except where indicated otherwise.
RESULTS OF OPERATIONS (UNAUDITED)
Three Months Ended February 28, 2001 Compared to Three Months Ended February 29,
2000
The following table shows selected items expressed on an actual basis
and as a percentage of net sales for the respective interim periods:
Three Months Ended
--------------------------------------------------
Feb. 28, 2001 Feb. 29, 2000
---------------------- ----------------------
(dollars in thousands)
Net sales ................... $ 91,475 100.0% $ 90,449 100.0%
Cost of goods sold .......... 57,789 63.2 56,350 62.3
-------- ----- -------- -----
Gross profit ................ 33,686 36.8 34,099 37.7
-------- ----- -------- -----
Operating expenses .......... 33,039 36.1 29,139 32.2
Severance, recruiting and
reorganization costs ...... -- -- 822 0.9
-------- ----- -------- -----
Total operating expenses .... 33,039 36.1 29,961 33.1
-------- ----- -------- -----
Income from operations ...... 647 0.7 4,138 4.6
Other expense, net .......... 2,633 2.9 2,551 2.8
Income taxes(benefit) ....... (1,334) (1.5) 733 0.8
-------- ----- -------- -----
Net income(loss) ............ $ (652) (0.7)% $ 854 1.0%
======== ===== ======== =====
NET SALES. Net sales for the three months ended February 28, 2001
increased $1.0 million, or 1.1%, to $91.5 million from $90.4 million for the
three months ended February 29, 2000. Sales to domestic mass market retailers
(including food, drug, mass, club and convenience stores) increased during the
three months ended February 28, 2001 compared to the three months ended February
29, 2000. Sales to domestic health food distributors and retailers decreased
during the third quarter of fiscal 2001 compared to the third quarter of fiscal
2000. Sales to health club and gym distributors and international markets were
relatively constant for the third quarter of fiscal 2001 compared to the third
quarter of fiscal 2000.
12
13
Third quarter fiscal 2001 sales to mass market retailers increased
approximately 6.3% to $51.4 million from third quarter fiscal 2000 sales of
$48.3 million. The increase in sales to mass market retailers was primarily the
result of increased sales of private label products to existing accounts offset
by reduced volumes of certain branded products. Sales of private label products
to existing mass volume retailers increased approximately 112.6% to $11.8
million for the quarter ended February 28, 2001 compared to $5.5 million for the
quarter ended February 29, 2000. The decrease in branded sales volume was
primarily attributable to industry slow down and competitive pressures,
including private label.
Sales to health food distributors and retailers decreased approximately
35.7% to $4.8 million for the fiscal 2001 third quarter from $7.4 million for
the fiscal 2000 third quarter. The decrease in sales in the health food
distribution channel resulted primarily from reduced sales volume with the
Company's most significant health food retailer due to discontinuance of a
certain brand and reduced private label sales to such account.
Sales of Schiff(R) Move Free(TM) amounted to $28.2 million for the third
quarter of fiscal 2001 compared to $29.6 million for the third quarter of fiscal
2000. The decrease in sales resulted primarily from the impact of increased
private label sales volume.
GROSS PROFIT. Gross profit remained relatively constant at $33.7 million
for the third quarter of fiscal 2001 compared to $34.1 million for the third
quarter of fiscal 2000. Gross profit, as a percentage of net sales, decreased to
36.8% for the quarter ended February 28, 2001 compared to 37.7% for the quarter
ended February 29, 2000. The decrease resulted from substantially lower margins
on European sportswear sales and lower margins on private label sales. The lower
margins on sportswear sales are primarily attributable to continued growth in
department stores where pricing is much more competitive than the typical health
club and gym channel.
OPERATING EXPENSES. Operating expenses, including certain severance,
recruiting and reorganization costs for the third quarter of fiscal 2000,
increased approximately 10.3% to $33.0 million for the fiscal 2001 third quarter
from $30.0 million for the fiscal 2000 third quarter. Excluding the effects of
severance, recruiting and reorganization costs, operating expenses increased
$3.9 million, or 13.4% during the third quarter of fiscal 2001 in comparison to
the third quarter of fiscal 2000. The increase is primarily attributable to
incremental selling and marketing costs.
Selling and marketing expenses, including sales, promotion, marketing,
advertising, freight and other costs, increased approximately 16.0% to $23.8
million for the fiscal 2001 third quarter from $20.5 million for the fiscal 2000
third quarter. The increase in selling and marketing expenses is primarily
attributable to incremental marketing and promotional costs for retail
sell-through and to support the Company's brand building initiatives, and
counter private label and other competitive pressures.
General and administrative expenses increased approximately 7.5% to $7.0
million for the quarter ended February 28, 2001 compared to $6.5 million for the
quarter ended February 29, 2000. The increase resulted primarily from an
increase in certain international information systems and personnel related
costs.
OTHER EXPENSE. Other expense, net, consisting primarily of interest
expense, remained relatively constant at $2.6 million for the quarters ended
February 28, 2001 and February 29, 2000.
13
14
PROVISION FOR INCOME TAXES. Provision for income taxes amounted to a
$1.3 million benefit for the quarter ended February 28, 2001 compared to a $0.7
million expense for the quarter ended February 29, 2000. The decrease resulted
primarily from a pre-tax loss for the fiscal 2001 third quarter in comparison to
pre-tax earnings for the fiscal 2000 third quarter and the net effect of tax
rate differences for the Company's domestic and international operations.
Nine Months Ended February 28, 2001 Compared to Nine Months Ended February 29,
2000
NET SALES. Net sales for the nine months ended February 28, 2001
decreased $6.6 million, or 2.5%, to $261.2 million from $267.8 million for the
nine months ended February 29, 2000. Sales to domestic mass market retailers and
health club and gym distributors remained relatively constant during the nine
months ended February 28, 2001 compared to the nine months ended February 29,
2000. Sales to domestic health food distributors and retailers decreased while
sales to international markets increased during the first nine months of fiscal
2001 compared to the first nine months of fiscal 2000.
Although sales to mass volume retailers remained relatively constant for
the nine months ended February 28, 2001 and February 29, 2000, sales of private
label products increased while branded product sales decreased. Sales of private
label products increased 66.2% to $25.7 million from $15.5 million, while
branded product sales decreased 9.0% to $107.9 million from $118.6 million for
the first nine months of fiscal 2001 and 2000, respectively. Net sales of the
Company's Schiff(R) Move Free(TM) products amounted to $71.5 million for the
first nine months of fiscal 2001 compared to $75.7 million for the first nine
months of fiscal 2000. The decrease in Schiff(R) Move Free(TM) sales resulted
primarily from industry slowdown and promotional timing considerations as well
as private label and other competitive factors.
Sales to health food distributors and retailers decreased approximately
38.4% to $17.6 million for the first nine months of fiscal 2001 from $28.6
million for fiscal 2000. The decrease in sales in the health food channel
resulted primarily from reduced sales volume with the Company's most significant
health food retailer due to discontinuation of a certain brand and reduced
private label sales to such account.
Sales to international markets increased 5.6% to $91.3 million for the
nine months ended February 28, 2001 compared to $86.4 million for the nine
months ended February 29, 2000. The increased sales volume is primarily due to
sportswear sales growth in the Company's European operations.
GROSS PROFIT. Gross profit increased approximately 0.8% to $101.9
million for the nine months ended February 28, 2001 from $101.1 million for the
nine months ended February 29, 2000. Gross profit, as a percentage of net sales,
was 39.0% for the nine months ended February 28, 2001 compared to 37.8% for the
nine months ended February 29, 2000. The increase in the gross profit percentage
resulted primarily from operating efficiencies, improved net raw material
costing and reduced credits for returned products, somewhat offset by
substantial decreases in margins on European sportswear sales and lower margins
on private label sales. The lower margins on sportswear sales are primarily
attributable to continued growth in department stores where pricing is much more
competitive than the typical health club and gym channel.
14
15
OPERATING EXPENSES. Operating expenses, including litigation settlement
income and plant consolidation and transition costs for the nine months ended
February 28, 2001 and severance, recruiting and reorganization costs for the
nine months ended February 29, 2000, increased approximately 4.4% to $93.6
million for the first nine months of fiscal 2001 from $89.6 million for the
first nine months of fiscal 2000. During the second quarter of fiscal 2001 the
Company completed the consolidation of beverage manufacturing to its South
Carolina facility. In conjunction with the closing of the Company's Las Vegas,
Nevada beverage facility, the Company recognized approximately $0.6 million in
net consolidation and transition related costs. Also, during the first quarter
of fiscal 2001, the Company received $3.6 million from the settlement of
litigation. Excluding the effects of these events in the respective fiscal 2001
and 2000 periods, operating expenses increased $10.4 million, or 12.1% during
the first nine months of fiscal 2001 in comparison to the first nine months of
fiscal 2000. The increase resulted primarily from significant increases in
selling, marketing and promotional costs.
Selling and marketing expenses increased approximately 16.8% to $68.5
million for the first nine months of fiscal 2001 from $58.6 million for the
first nine months of fiscal 2000. The increase in selling and marketing expenses
is primarily attributable to increased promotional spending in support of the
Schiff(R) Pain Free(TM) to Schiff(R) Move Free(TM) product name transition as
well as other promotional programs to counter private label and other
competitive pressures and to expand distribution. The Company expects the
increase in selling and marketing expenses as a percentage of net sales, in
comparison to prior fiscal periods, to continue in future periods.
General and administrative expenses remained constant at approximately
$21.4 million for the first nine months of fiscal 2001 and 2000.
OTHER EXPENSE. Other expense, net, consisting primarily of interest
expense, remained constant at approximately $7.9 million for the nine months
ended February 28, 2001 and February 29, 2000.
PROVISION FOR INCOME TAXES. Provision for income taxes amounted to a
$0.5 million benefit for the nine months ended February 28, 2001 compared to a
$1.4 million expense for the nine months ended February 29, 2000. The decrease
resulted primarily from a decrease of pre-tax earnings and the net effect of tax
rate differences for the Company's domestic and international operations.
LIQUIDITY AND CAPITAL RESOURCES. Effective June 30, 2000, the Company
and its domestic subsidiaries entered into a new $90.0 million senior credit
facility (the "Credit Facility") with Bankers Trust Company. The Credit Facility
replaced the Company's previous credit facility, which consisted of a revolving
line of credit that expired on June 30, 2000. Concurrently with the Credit
Facility, on June 30, 2000 the Company entered into a $10.0 million senior
subordinated loan agreement (the "Subordinated Loan"). Refer to Note 2 to the
Condensed Consolidated Financial Statements for further discussion.
The Company's working capital remained relatively constant, amounting to
approximately $42.4 million and $42.3 million, respectively, at February 28,
2001 and May 31, 2000.
The Company expects to fund its long-term capital requirements for the
next twelve months through the use of operating cash flow supplemented as
15
16
necessary by borrowings under both the Credit Facility and Haleko's approximate
$18.7 million secured credit facility. The Company also from time to time may
evaluate strategic acquisitions as the nutritional supplements industry
continues to consolidate. The funding of future acquisitions, if any, may
require other debt financing or the issuance of additional equity.
The Company paid a quarterly dividend of $0.0375 per share subsequent to
February 28, 2001. The dividend was declared to be payable on March 20, 2001 to
holders of all classes of common stock of record at the close of business on
March 9, 2001. The Company's Board of Directors will determine dividend policy
in the future based upon, among other things, the Company's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant at the time. In addition, the Credit Agreement contains certain
customary financial covenants that may limit the Company's ability to pay
dividends on its common stock. Accordingly, there can be no assurance that the
Company will be able to sustain the payment of dividends in the future.
IMPACT OF INFLATION. The Company has historically been able to pass
inflationary increases for raw materials and other costs through to its
customers and anticipates that it will be able to continue to do so in the
future.
SEASONALITY. The Company's business is somewhat seasonal, with lower
sales typically realized during the first and second fiscal quarters and higher
sales typically realized during the third and fourth fiscal quarters. The
Company believes such fluctuations in sales are the result of greater marketing
and promotional activities toward the end of each fiscal year, customer buying
patterns, including seasonal sportswear considerations, and consumer spending
patterns related primarily to the consumers' interest in achieving personal
health and fitness goals after the beginning of each new calendar year and
before the summer fashion season.
Furthermore, as a result of changes in product sales mix and other
factors, as discussed above, the Company experiences fluctuations in gross
profit and operating margins on a quarter-to-quarter basis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion involves forward-looking statements of market
risk which assume for analytical purposes that certain adverse market conditions
may occur. Actual future market conditions may differ materially from such
assumptions. Accordingly, the forward-looking statements should not be
considered projections by the Company of future events or losses.
The Company's cash flows and net earnings are subject to fluctuations
resulting from changes in interest rates and foreign exchange rates. The Company
currently is not party to any significant derivative instruments and its current
policy does not allow speculation in derivative instruments for profit or
execution of derivative instrument contracts for which there are no underlying
exposure. The Company does not use financial instruments for trading purposes.
The Company measures its market risk, related to its holdings of
financial instruments, based on changes in interest rates utilizing a
sensitivity analysis. The Company does not believe that a hypothetical 10%
16
17
change in interest rates would have material effect on the Company's pretax
earnings or cash flow.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The information set forth in Note 8 to Condensed Consolidated
Financial Statements in Item 1 of this Quarterly Report on Form 10-Q is
incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1 Stock Purchase Agreement, dated July 9, 1998, by and among Weider
Nutrition Group, Inc. and Wolfgang Brandt and Eberhardt Schluter. (2)
2.2 Amendment Deed to Stock Purchase Agreement, dated July 24, 1998. (2)
2.3 Share Transfer Deed, dated July 24, 1998. (2)
3.1 Amended and Restated Certificate of Incorporation of Weider Nutrition
International, Inc. (1)
3.2 Amended and Restated Bylaws of Weider Nutrition International, Inc. (1)
4.1 Credit Agreement dated as of June 30, 2000 among Weider Nutrition
International, Inc. and Bankers Trust Company. (4)
4.2 Senior Subordinated Loan Agreement dated as of June 30, 2000 among
Weider Nutrition International, Inc., Wynnchurch Capital Partners, L.P.,
and Wynnchurch Capital Partners Canada, L.P. (4)
4.3 Warrants to Purchase Shares of Class A Common Stock of Weider Nutrition
International, Inc. (4)
4.4 Registration Rights Agreement dated as of June 30, 2000 among Weider
Nutrition International, Inc., Wynnchurch Capital Partners, L.P. and
Wynnchurch Capital Partners Canada, L.P. (4)
4.5 First Amendment to Credit Agreement dated as of June 30, 2000 among
Weider Nutrition International, Inc. and Bankers Trust Company. (5)
4.6 First Amendment to Senior Subordinated Loan Agreement dated as of June
30, 2000 among Weider Nutrition International, Inc., Wynnchurch Capital
Partners, L.P. and Wynnchurch Capital Partners Canada, L.P. (7)
10.1 Build-To-Suit Lease Agreement, dated March 20, 1996, between SCI
Development Services Incorporated and Weider Nutrition Group, Inc. (1)
10.2 Agreement by and between Joseph Weider and Weider Health and Fitness.
(1)
10.3 1997 Equity Participation Plan of Weider Nutrition International, Inc.
(1)
10.4 Form of Tax Sharing Agreement by and among Weider Nutrition
International, Inc. and its subsidiaries and Weider Health and Fitness
and its subsidiaries. (1)
10.6 Form of Employment Agreement between Weider Nutrition International,
Inc. and Robert K. Reynolds, as amended. (5)
17
18
10.7 Form of Senior Executive Employment Agreement between Weider Nutrition
International, Inc. and certain senior executives of the Company. (1)
10.8 Advertising Agreement between Weider Nutrition International, Inc. and
Weider Publications, Inc. (1)
10.9 License Agreement between Mariz Gestao E Investmentos Limitada and
Weider Nutrition Group Limited. (1)
10.10 Form of Employment Agreement between Weider Nutrition International,
Inc. and Bruce J. Wood. (3)
10.11 Agreement between the Company and Bruce J. Wood. (6)
10.12 Form Agreement between the Company and certain executives of the
Company. (6)
21 Subsidiaries of Weider Nutrition International, Inc. (5)
- ----------------
(1) Filed as an Exhibit to the Company's Registration Statement on From S-1
(File No. 333-12929) and incorporated herein by reference.
(2) Previously filed in the Company's Current Report on Form 8-K dated as of
July 24, 1998 and incorporated herein by reference.
(3) Previously filed in the Company's Current Report on From 10-K dated as
of August 30, 1999 and incorporated herein by reference.
(4) Previously filed in the Company's Current Report on Form 8-K dated as of
June 30, 2000 and incorporated herein by reference.
(5) Previously filed in the Company's Current Report on Form 10-K as of
August 29, 2000 and incorporated herein by reference.
(6) Previously filed in the Company's Current Report on Form 10-K/A as of
September 28, 2000 and incorporated herein by reference.
(7) Previously filed in the Company's Current Report on Form 10-Q as of
January 15, 2001 and incorporated herein by reference.
(b) Reports on Form 8-K
None
18
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEIDER NUTRITION INTERNATIONAL, INC.
Date: April 16, 2001 By: /s/ Bruce J. Wood
-------------------------------------
Bruce J. Wood
President, Chief Executive Officer
and Director
Date: April 16, 2001 By: /s/ Joseph W. Baty
-------------------------------------
Joseph W. Baty, Executive
Vice President and Chief
Financial Officer
19