FORM 10-QSB
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: 03/31/96 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 123 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 May 10, 1996.
<PAGE>
THE HAIN FOOD GROUP, INC.
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996
(unaudited) and June 30, 1995
Consolidated Statements of Operations - Three
months and Nine months ended March 31, 1996
and 1995 (unaudited)
Consolidated Statements of Cash Flows - Nine
months ended March 31, 1996 and 1995 (unaudited)
Notes to Consolidated Financial Statements
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
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THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31 June 30
1996 1995
(Unaudited)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $92,000 $187,000
Trade accounts receivable - net 8,230,000 6,763,000
Inventories 7,879,000 6,029,000
Receivables from sale of equipment
- current portion 629,000 521,000
Other current assets, including
amounts due from seller of The
Estee Company 2,775,000 312,000
---------- ----------
Total current assets 19,605,000 13,812,000
Property and equipment, net of
accumulated depreciation of
$355,000 and $215,000 693,000 654,000
Receivables from sale of equipment
- non-current portion 406,000 357,000
Goodwill and other intangible assets,
net of accumulated amortization of
$1,143,000 and $683,000 26,411,000 17,626,000
Deferred financing costs, net of
accumulated amortization of
$621,000 and $374,000 1,390,000 1,388,000
Other assets 1,289,000 1,084,000
---------- ----------
Total assets $49,794,000 $34,921,000
========== ==========
<FN>
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March 31 June 30
1996 1995
(Unaudited)
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $7,109,000 $3,206,000
Current portion of long-term debt 2,981,000 427,000
Income taxes payable 277,000 1,296,000
---------- ---------
Total current liabilities 10,367,000 4,929,000
Long-term debt, less current portion 15,081,000 7,277,000
Deferred income taxes 425,000 425,000
---------- ----------
Total liabilities 25,873,000 12,631,000
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 3,419,000 1,788,000
---------- ----------
Total stockholders' equity 23,921,000 22,290,000
---------- ----------
Total liabilities and stockholders'
equity $49,794,000 $34,921,000
========== ==========
Note - The balance sheet at June 30, 1995 has been derived from
the audited financial statements at that date.
See notes to condensed consolidated financial statements.
<FN>
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THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
March 31 March 31
1996 1995 1996 1995
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net sales $17,218,000 $14,281,000 $48,867,000 $42,646,000
Cost of sales 10,406,000 8,889,000 29,336,000 26,530,000
Gross profit 6,812,000 5,392,000 19,531,000 16,116,000
Selling, general
and administrative
expenses 5,090,000 3,998,000 14,552,000 10,867,000
Depreciation of
property and
equipment 49,000 29,000 140,000 116,000
Amortization of
goodwill and other
intangible assets 184,000 117,000 460,000 356,000
--------- -------- ---------- ----------
5,323,000 4,144,000 15,152,000 11,339,000
--------- --------- ---------- ----------
Operating income 1,489,000 1,248,000 4,379,000 4,777,000
Interest expense-net 514,000 256,000 1,231,000 1,086,000
Amortization of
deferred
financing costs 120,000 89,000 347,000 326,000
-------- --------- --------- ---------
634,000 345,000 1,578,000 1,412,000
-------- -------- --------- ---------
Income before
income taxes 855,000 903,000 2,801,000 3,365,000
Provision for
income taxes 351,000 374,000 1,170,000 1,430,000
------- -------- --------- ---------
Net income $504,000 $529,000 $1,631,000 $1,935,000
======= ======= ========= =========
Net income per
common share and
common share
equivalents $0.06 $0.06 $0.18 $0.23
Weighted average
number of common
shares and common
share equivalents 8,889,000 9,278,000 8,943,000 8,457,000
See notes to condensed consolidated financial statements.
<FN>
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THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
March 31
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,631,000 $1,935,000
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation of property and equipment 140,000 116,000
Amortization of goodwill and other
intangible assets 460,000 356,000
Amortization of deferred financing costs 347,000 326,000
Provision for doubtful accounts (83,000) 59,000
Increase (decrease) in cash attributable
to changes in assets and liabilities,
excluding amounts applicable to acquisition:
Accounts receivable (235,000) 2,642,000)
Inventories 392,000 (1,553,000)
Other current assets (2,302,000) (101,000)
Other assets (205,000) (185,000)
Accounts payable and accrued expenses 173,000 (1,324,000)
Income taxes payable (1,019,000) 1,006,000
--------- ---------
Net cash used in operating activities (701,000) (2,007,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of long-term
debt issued to seller (9,338,000)
Acquisition of property and equipment (179,000) (398,000)
Other - net (206,000)
--------- -------
Net cash used in investing activities (9,517,000) (604,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from senior term loan 9,000,000
Proceeds from bank revolving credit 1,250,000 1,100,000
Payment of senior bank term loan (1,700,000) (7,915,000)
Collections of receivables from
equipment sales 1,918,000 606,000
Proceeds from exercise of warrants,
net of related expenses 8,474,000
Payment of other long-term debt (99,000) (93,000)
Costs in connection with bank financing (246,000)
---------- ---------
Net cash provided by financing activities 10,123,000 2,172,000
---------- ---------
Net (decrease) in cash (95,000) (439,000)
Cash at beginning of period 187,000 672,000
------- -------
Cash at end of period $92,000 $233,000
====== =======
See notes to condensed consolidated financial statements.
<FN>
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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 (naturalfoods), Estee (sugar-free products), Hollywood
Foods (principally healthy cooking oils), Kineret Foods
(frozen kosher foods) and Farm Foods (frozen natural foods).
See Note 3 regarding the acquisition of Estee on November
3, 1995.
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-QSB 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, 1995 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. ACQUISITION:
On November 3, 1995, the Company purchased substantially all
of the assets and business, subject to certain liabilities
of The Estee Corporation. Estee is a manufacturer and
marketer of sugar-free and low sodium products targeted
towards diabetic and health-conscious consumers.
(Continued)
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THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. ACQUISITION (continued):
The purchase price (which is subject to adjustment as
defined in the Agreement) amounted to approximately $11.75
million of which $10 million was paid in cash and $1.75
million by the issuance of a junior subordinated note, with
a maturity date in 2005.
The acquisition of Estee has been accounted for as a
purchase and, therefore operating results of Estee have been
included in the consolidated results of operations from date
of acquisition. Unaudited pro forma results of operations
assuming that the acquisition had occurred on July 1, 1994
are as follows:
Nine Months Ended
March 31
1996 1995
--------- ----------
Net sales $56,010,000 $61,011,000
Net income 1,813,000 2,420,000
Net income per share $ .20 $ .29
The pro forma operating results shown above are not
necessarily indicative of operations in the period following
acquisition.
In connection with the acquisition of Estee, the Company
acquired certain food manufacturing equipment. In January
and February 1996, the Company sold such equipment to
co-packers for selling prices equal to the fair value
recorded at date of acquisition. A portion of the selling
prices was received in January and February 1996, and the
balance is receivable over various periods through June
2001. Accordingly, such equipment has been classified as
"Receivables from sale of equipment," with the portion
receivable within one year classified as a current asset.
The proceeds of sale are to be utilized to pay the bank
debt referred to in Note 5.
(Continued)
<PAGE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. INVENTORIES:
March 31 June 30
1996 1995
--------- ---------
Finished goods $6,865,000 $5,772,000
Raw materials and packaging 1,014,000 257,000
--------- ---------
$7,879,000 $6,029,000
========= =========
5. LONG-TERM DEBT:
Long-term debt consists of the following:
March 31 June 30
1996 1995
--------- --------
Senior Term Loan $ 7,300,000
Revolving Credit 1,550,000 $ 300,000
12.5% Subordinated Debentures,
net of unamortized original
issue discount of $1,399,000
and $1,502,000 7,101,000 6,998,000
10% Junior Subordinated Note 1,750,000
Notes payable to sellers in
connection with acquisition
of companies 361,000 406,000
---------- ---------
18,062,000 7,704,000
Current portion 2,981,000 427,000
---------- ---------
$15,081,000 $7,277,000
========== =========
In connection with the acquisition of Estee, the Company and
its bank entered into a $18 million Amended and 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% 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
(Continued)
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THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. LONG-TERM DEBT (continued):
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 and related closing costs of the
acquisition.
The 10% junior subordinated note provides for the payment
ofinterest semi-annually in arrears and matures in November
2005.
See "management's discussion and analysis of financial
condition and results of operations" for additional
information with respect to the Company's $18 million
Restated Credit Facility.
6. EARNINGS PER SHARE:
Earnings per common and common equivalent share for the
quarter and nine months ended March 31, 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 and nine months ended March 31, 1996 and 1995 is set
forth below (in thousands).
Quarter Ended March 31
1996 1995
Net sales $17,218 100.0% $14,281 100.0%
Gross profit 6,812 39.6% 5,392 37.8%
Selling, general and
administrative expenses,
depreciation and
amortization 5,323 30.9% 4,144 29.0%
Operating income 1,489 8.6% 1,248 8.7%
Interest and financing
costs 634 3.7% 345 2.4%
Income before income taxes 855 5.0% 903 6.3%
Income taxes 351 2.0% 374 2.6%
Net income $ 504 2.9% $ 529 3.7%
Nine Months Ended March 31
1996 1995
Net sales $48,867 100.0% $42,646 100.0%
Gross profit 19,531 40.0% 16,116 37.8%
Selling, general and
administrative expenses,
depreciation and
amortization 15,152 31.0% 11,339 26.6%
Operating income 4,379 9.0% 4,777 11.2%
Interest and financing
costs 1,578 3.2% 1,412 3.3%
Income before income taxes 2,801 5.7% 3,365 7.9%
Income taxes 1,170 2.4% 1,430 3.4%
Net income $1,631 3.3% $1,935 4.5%
The increase in the net sales for the current quarter and nine
months were essentially all attributable to the acquisition of
Estee. Gross margin percentage increased by approximately 2.2%
in the current quarter and nine months compared with the 1995
quarter and nine months, principally because of sales price
increases in July 1995 and more efficient production by
co-packers.
Operating expenses (as a percentage of net sales) during the
current quarter and nine months were approximately 2% and 4%
higher, respectively, than the 1995 quarter and nine months,
<PAGE>
principally due to increased promotional activity in connection
with the introduction of new products, offset, in part, by the
integration of Estee without any significant increases in the
Company's general and administrative expenses.
Interest and financing costs for the current quarter and nine
months were $289 and $166 higher, respectively, than the 1995
quarter and nine months, principally because of debt incurred in
connection with the acquisition of Estee in November 1995. The
increase for the nine months was offset, in part, by the early
retirement of a term loan in November 1994 and lower interest rates.
Income before income taxes, as a percentage of net sales for the
current quarter and nine months decreased by approximately 1.3%
and 2.2%, respectively, as compared to the 1995 quarter and nine
months as a result of the aforementioned increases in operating
expenses and interest and financing costs, offset to some extent
by increases in gross margin.
Income taxes as a percentage of pre-tax income amounted to
approximately 41% in the current quarter and 42% in nine months
as compared to 42% for the prior 1995 quarter and nine months.
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
Amended and 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% 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.
The Company's 12.5% Subordinated Debentures ("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 March 31, 1996 amounted to approximately $9.2
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 Facility and Debentures impose
limitations on the incurrance of additional indebtedness and require
that the Company comply with certain financial tests and restrictive
covenants.
As a result of the acquisition of Estee referred to above, the
aggregate long-term debt service requirements for the 12 month
period ending March 31, 1997 are approximately $3.0 million. The
Company anticipates that cash flow from operations, including
that attributable to the acquired business, 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
In November 1995, the Company filed its Report on Form 8-K
reporting on the acquisition of substantially all of the assets
of The Estee Corporation and the related financing thereof. In
January 1996, the Company filed a Report on Form 8-K/A which
included the requisite financial statements and pro forma
financial information relating to the acquisition.
<PAGE>
PART II - OTHER INFORMATION
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: May 10, 1996 /s/Irwin D. Simon
Irwin D. Simon,
President and Chief
Executive Officer
Date: May 10, 1996 /s/Jack Kaufman
Jack Kaufman,
Vice President-Finance and
Chief Financial Officer
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