FORM-10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
For the quarter ended: 09/30/96 Commission File No.: 0-22818
THE HAIN FOOD GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-3240619
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Charles Lindbergh Boulevard, Uniondale, New York 11553
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 237-6200
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 requirement for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
8,866,899 shares of Common Stock $.01 par value, as of November 12, 1996.
<PAGE>
THE HAIN FOOD GROUP, INC.
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996
(unaudited) and June 30, 1996
Consolidated Statements of Income - Three
months ended September 30, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows - Three
months ended September 30, 1996 and 1995 (unaudited)
Notes to Consolidated Financial Statements
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II Other Information
Items 1 to 5 are not applicable
Item 6 - Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
PART I - ITEM 1. - FINANCIAL INFORMATION
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Sept. 30 June 30
1996 1996
(Unaudited) (Note)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 320,000 $ 306,000
Trade accounts receivable - net 7,051,000 8,069,000
Inventories 8,894,000 7,346,000
Receivables from sale of
equipment - current portion 423,000 632,000
Other current assets 1,007,000 639,000
---------- ----------
Total current assets 17,695,000 16,992,000
Property and equipment, net
of accumulated depreciation
of $440,000 and $399,000 709,000 685,000
Receivables from sale of
equipment - non-current portion 315,000 310,000
Goodwill and other intangible
assets, net of accumulated amortization
of $1,519,000 and $1,334,000 26,955,000 27,140,000
Deferred financing costs, net of accumulated
amortization of $791,000 and $706,000 1,227,000 1,312,000
Other assets 1,044,000 1,003,000
---------- ----------
Total assets $47,945,000 $47,442,000
========== ==========
<FN>
</TABLE>
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<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 5,733,000 $ 5,560,000
Current portion of long-term debt 4,872,000 4,619,000
Income taxes payable 226,000 273,000
---------- ----------
Total current liabilities 10,831,000 10,452,000
Long-term debt, less current portion 11,893,000 12,105,000
Deferred income taxes 461,000 461,000
---------- ----------
Total liabilities 23,185,000 23,018,000
---------- ----------
Stockholders' equity:
Preferred stock - $.01 par value; authorized
5,000,000 shares, no shares issued
Common stock - $.01 par value, authorized
40,000,000 shares, issued and outstanding
8,866,899 shares 89,000 89,000
Additional paid-in capital 20,413,000 20,413,000
Retained earnings 4,258,000 3,922,000
---------- ----------
Total stockholders' equity 24,760,000 24,424,000
---------- ----------
Total liabilities and
stockholders' equity $47,945,000 $47,442,000
========== ==========
<FN>
Note - The Balance sheet at June 30, 1996 has been derived from
the audited financial statements at that date.
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended
September 30,
1996 1995
---------- ----------
<S> <C> <C>
Net sales $15,437,000 $13,527,000
Cost of sales 9,708,000 8,163,000
--------- ---------
Gross profit 5,729,000 5,364,000
--------- ---------
Selling, general and administrative expenses 4,333,000 4,105,000
Depreciation of property and equipment 41,000 44,000
Amortization of goodwill and other
intangible assets 185,000 121,000
--------- ---------
4,559,000 4,270,000
--------- ---------
Operating income 1,170,000 1,094,000
--------- ---------
Interest expense, net 457,000 247,000
Amortization of deferred financing costs 124,000 111,000
------- -------
581,000 358,000
------- -------
Income before income taxes 589,000 736,000
Provision for income taxes 253,000 310,000
------- -------
Net income $336,000 $426,000
======= =======
Net income per common share and
common share equivalents $0.04 $0.05
==== ====
Weighted average number of common shares
and common share equivalents 8,939,000 9,045,000
========= =========
<FN>
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
September 30
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 336,000 $ 426,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation of property and equipment 41,000 44,000
Amortization of goodwill and
other intangible assets 185,000 121,000
Amortization of deferred financing costs 123,000 111,000
Provision for doubtful accounts 30,000 (60,000)
Increase (decrease) in cash attributable
to changes in assets and liabilities,
Accounts receivable 988,000 427,000
Inventories (1,548,000) (822,000)
Other current assets (368,000) (146,000)
Other assets (41,000) (137,000)
Accounts payable and accrued expenses 173,000 895,000
Income taxes payable (47,000) (971,000)
------- -------
Net cash provided by (used in)
operating activities (128,000) (112,000)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (65,000) (64,000)
------ ------
Net cash used in investing activities (65,000) (64,000)
------ ------
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank revolving credit facility 250,000
Payment of senior term loan (218,000)
Collections of receivables from equipment sales 204,000 157,000
Payment of other long-term debt (29,000) (32,000)
------- -------
Net cash provided by financing activities 207,000 115,000
------- -------
Net increase (decrease) in cash 14,000 (61,000)
Cash at beginning of year 306,000 187,000
------- -------
Cash at end of year $320,000 $126,000
======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL:
The Company was incorporated in the State of Delaware on May 19, 1993.
The Company and its subsidiaries operate as one business segment: the sale
of specialty food products which are manufactured by various co-packers.
The Company's principal product lines consist of Hain Pure Foods (natural
foods), Estee (sugar-free products), Hollywood Foods (principally healthy
cooking oils), Kineret Foods (frozen kosher foods)and Farm Foods (frozen
natural foods).
2. BASIS OF PRESENTATION:
All amounts in the financial statements have been rounded to the nearest
thousand dollars, except shares and per share amounts.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles. In the opinion of management, all adjustments (including
normal recurring accruals) considered necessary for a fair presentation
have been included. Reference is made to the footnotes to the audited
consolidated financial statements of the Company and subsidiaries as at
June 30, 1996 and for the year then ended included in the Company's
Annual Report on Form 10-KSB for information not included in these
condensed footnotes.
3. INVENTORIES:
Sept. 30 June 30
1996 1996
--------- ---------
Finished goods $8,056,000 $6,641,000
Raw materials and packaging 838,000 705,000
--------- ----------
$8,894,000 $7,346,000
========= =========
<PAGE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG-TERM DEBT:
Long-term debt consists of the following:
Sept. 30 June 30
1996 1996
--------- ---------
Senior Term Loan $ 5,863,000 $ 6,081,000
Revolving Credit 1,650,000 1,400,000
12.5% Subordinated Debentures,
net of unamortized original
issue discount of $1,323,000
and $1,361,000 7,177,000 7,139,000
10% Junior Subordinated Note 1,750,000 1,750,000
Notes payable to sellers in
connection with acquisition
of companies and other
long-term debt 325,000 354,000
---------- ----------
16,765,000 16,724,000
Current portion 4,872,000 4,619,000
---------- ----------
$11,893,000 $12,105,000
========== ==========
Reference is made to the footnotes to the audited consolidated financial
statements of the Company and subsidiaries as at June 30, 1996 and for
the year then ended included in the Company's Annual Report on Form 10-KSB
for additional information on the aforementioned long-term debt, including
interest rates, eligible borrowings under the revolving credit facility,
required payments of principal, maturities, and restrictive covenants
contained therein.
5. EARNINGS PER SHARE:
Earnings per common and common equivalent share for the quarters ended
September 30, 1996 and 1995 are computed on the basis of the weighted
average shares of common stock outstanding plus common equivalent shares
arising from the effect of dilutive stock options and warrants using the
treasury stock method.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
A summary and comparison of the results of operations for the quarter ended
September 30, 1996 and 1995 is set forth below (in thousands).
Quarter Ended September 30
1996 1995
----------------------------------
Net sales $15,437 100.0% $13,527 100.0%
Gross profit 5,729 37.1% 5,364 39.7%
Selling, general and
administrative expenses,
depreciation and amortization 4,559 29.5% 4,270 31.6%
Operating income 1,170 7.6% 1,094 8.1%
Interest and financing costs 581 3.8% 358 2.6%
Income before income taxes 589 3.8% 736 5.4%
Income taxes 253 1.6% 310 2.3%
Net income $ 336 2.2% $ 426 3.1%
Sales for the current quarter increased by approximately $2 million as
compared to the comparable quarter of the prior year. The sales increase
was principally attributable to the Estee division, which was acquired in
November 1995, offset, in part, by a decrease in sales of rice cake products.
The rice cake category has been under pressure from other snack products.
Other sellers of rice cakes have been similarly impacted. The Company is
reacting by continuing to introduce new products in a variety of categories,
with a goal of reducing reliance on rice cakes and generating a more
diversified sales mix.
Gross margin percentage decreased by 2.6% in the current quarter principally
because of the change in product mix referred to above and an increase in
warehousing and delivery costs. The impact of the reduced gross margin was
largely offset by reduced promotional spending because of reduced sales of
rice cake products.
Selling, general and administrative expenses, as a percentage of net sales,
decreased by 2.1% in the current quarter as compared to the 1995 quarter.
Rice cake products traditionally carry larger promotional costs than the
Company's other product lines. Although, the Company did not lower
promotional levels for rice cake products, the reduced sales of this category
had the impact of reducing overall promotional costs. In addition, Estee
sales have lower associated promotional costs. General and administrative
expenses, as a percentage of net sales, were at the same level during the
current quarter as the 1995 quarter.
<PAGE>
In November 1995, the Company acquired substantially all of the business of
The Estee Corporation. The increase in interest and financing costs was
principally attributable to interest on debt incurred in connection with the
Estee acquisition.
Income before income taxes, as a percentage of net sales for the current
quarter, decreased by approximately 1.6% as compared to the 1995 quarter as a
result of the aforementioned decrease in gross margin, decrease in operating
expenses, as a percentage of sales, and increase in interest and financing
costs.
Income taxes as a percentage of pre-tax income amounted to approximately 43%
in the current quarter as compared to 42% for the prior 1995 quarter. This
current percentage is deemed representative of the Company's ongoing
effective income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
In November 1995, the Company purchased substantially all of the business of
The Estee Corporation. In connection with the acquisition, the Company and
its bank entered into a $18 million Restated Credit Facility ("Facility")
providing for a $9 million senior term loan and a $9 million revolving credit
line. The Facility replaced the Company's existing $6 million revolving
credit line with the same bank. Borrowings under the facility bear interest
at 1/2% to 1% over the bank's base rate. The senior term loan is repayable
in quarterly principal installments, commencing March 31, 1996 through
maturity of the Facility on June 30, 2000. Pursuant to the revolving credit
line, the Company may borrow up to 85% of eligible trade receivables and 60%
of eligible inventories. Amounts outstanding under the Facility are
collateralized by principally all of the Company's assets. The Facility
also contains certain financial and other restrictive covenants.
The Company borrowed the full $9 million senior term loan and $2 million
under the revolving credit line to fund the cash purchase price of the
acquisition. Subsequent thereto, the Company repaid approximately $4 million
of such borrowings, principally from the proceeds of sale of equipment
acquired in the Estee acquisition and operating cash flow.
Of the $9 million available under the Company's revolving credit line,
$1.65 million was outstanding at September 30, 1996. From time to time,
principally because of inventory requirements, the Company may utilize a
portion of the revolving credit line.
The Company's 12.5% Subordinated Debentures mature on April 14, 2004 and
require principal payments of $1,943,000 on October 14, 2000, and of
$2,307,000, $2,125,000, and $2,125,000, respectively on April 14 of 2002,
2003 and 2004.
Working capital at September 30, 1996 amounted to approximately $6.9 million,
which is adequate to meet the Company's operational needs. The Company
purchases its products from independent co-packers and does not intend to
invest in plant or equipment relating to the manufacture of products for
sale. Consequently, additions to property and equipment are not expected to
be material in future periods. The Company's restated revolving credit
facility and Debentures impose limitations on the incurrance of additional
indebtedness and require that the Company comply with certain financial
tests and restrictive covenants.
<PAGE>
The aggregate long-term debt service requirements for the 12 month period
ending September 30, 1997 are approximately $4.9 million, which includes the
optional redemption of a $1.75 million subordinated note issued to the seller
(the "Estee Note") in connection with the acquisition of Estee and proceeds
from collections of certain receivables from the sale of equipment, which are
required to be utilized for pre-payments of the senior term loan. The
Company presently intends to redeem the Estee Note on April 30, 1997. The
Company anticipates that cash flow from operations will be sufficient to meet
all of its debt service and operating requirements.
INFLATION
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented.
<PAGE>
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
Financial Data Schedule (Exhibit 27)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1996.
<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.
THE HAIN FOOD GROUP, INC.
Date: November 12, 1996 /s/Irwin D. Simon
Irwin D. Simon,
President and Chief
Executive Officer
Date: November 12, 1996 /s/Jack Kaufman
Jack Kaufman,
Vice President-Finance and
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Jul-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 320
<SECURITIES> 0
<RECEIVABLES> 7139
<ALLOWANCES> 88
<INVENTORY> 8894
<CURRENT-ASSETS> 17695
<PP&E> 1149
<DEPRECIATION> 440
<TOTAL-ASSETS> 47945
<CURRENT-LIABILITIES> 10831
<BONDS> 11893
<COMMON> 89
0
0
<OTHER-SE> 24760
<TOTAL-LIABILITY-AND-EQUITY> 47945
<SALES> 15437
<TOTAL-REVENUES> 15437
<CGS> 9708
<TOTAL-COSTS> 9708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 458
<INCOME-PRETAX> 589
<INCOME-TAX> 253
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 336
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
