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: 03/31/97 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.
8,556,899 shares of Common Stock $.01 par value, as of May 14, 1997.
<PAGE>
THE HAIN FOOD GROUP, INC.
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1997
(unaudited) and June 30, 1996
Consolidated Statements of Income - Three months and
Nine months ended March 31, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - Nine
months ended March 31, 1997 and 1996 (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
<PAGE>
<TABLE>
PART I - ITEM 1. - FINANCIAL INFORMATION
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31 June 30
1997 1996
--------- ---------
(Unaudited) (Note)
<C> <C>
<S>
ASSETS
Current assets:
Cash $ 305,000 $ 306,000
Trade accounts receivable - net 7,099,000 8,069,000
Inventories 7,344,000 7,346,000
Receivables from sale of
equipment - current portion 271,000 632,000
Other current assets 809,000 639,000
---------- ----------
Total current assets 15,828,000 16,992,000
Property and equipment, net
of accumulated depreciation
of $530,000 and $399,000 737,000 685,000
Receivables from sale of
equipment - non-current portion 220,000 310,000
Goodwill and other intangible
assets, net of accumulated amortization
of $1,892,000 and $1,334,000 26,757,000 27,140,000
Deferred financing costs, net of accumulated
amortization of $962,000 and $706,000 1,056,000 1,312,000
Other assets 1,128,000 1,003,000
---------- ----------
Total assets $45,726,000 $47,442,000
========== ==========
<FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and
accrued expenses $ 4,435,000 $ 5,560,000
Current portion of long-term debt 5,209,000 4,619,000
Income taxes payable 226,000 273,000
---------- ----------
Total current liabilities 9,870,000 10,452,000
Long-term debt, less current portion 11,016,000 12,105,000
Deferred income taxes 461,000 461,000
---------- ----------
Total liabilities 21,347,000 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 8,881,899 shares 89,000 89,000
Additional paid-in capital 20,465,000 20,413,000
Retained earnings 4,719,000 3,922,000
---------- ----------
25,273,000 24,424,000
Less: 325,000 shares of treasury stock,
at cost 894,000
---------- ----------
Total stockholders' equity 24,379,000 24,424,000
---------- ----------
Total liabilities and
stockholders' equity $45,726,000 $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>
<PAGE>
<TABLE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $13,623,000 $17,218,000 $46,177,000 $48,867,000
Cost of sales 8,593,000 10,406,000 28,840,000 29,336,000
---------- ---------- ---------- ----------
Gross profit 5,030,000 6,812,000 17,337,000 19,531,000
---------- --------- ---------- ----------
Selling, general
and administrative
expenses 4,196,000 5,090,000 13,632,000 14,552,000
Depreciation of
property and
equipment 48,000 49,000 131,000 140,000
Amortization of
goodwill and other
intangible assets 186,000 184,000 558,000 460,000
--------- --------- ---------- ----------
4,430,000 5,323,000 14,321,000 15,152,000
--------- --------- ---------- ----------
Operating income 600,000 1,489,000 3,016.000 4,379,000
--------- --------- --------- ---------
Interest expense,
net 415,000 513,000 1,240,000 1,230,000
Amortization of
deferred financing
costs 128,000 121,000 378,000 348,000
------- ------- --------- ---------
543,000 634,000 1,618,000 1,578,000
------- ------- --------- ---------
Income before income
taxes 57,000 855,000 1,398,000 2,801,000
Provision for income
taxes 24,000 351,000 601,000 1,170,000
------ ------- ------- ---------
Net income $ 33,000 $504,000 $797,000 $1,631,000
====== ======= ======= =========
Net income per common
share and common
share equivalents $0.00 $0.06 $0.09 $0.l8
==== ==== ==== ====
Weighted average number
of common shares and
common share
equivalents 9,061,000 8,897,000 8,961,000 8,943,000
========= ========= ========= =========
<FN>
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 31
1997 1996
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 797,000 $1,631,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation of property and equipment 131,000 140,000
Amortization of goodwill and
other intangible assets 558,000 460,000
Amortization of deferred financing costs 378,000 347,000
Provision for doubtful accounts 107,000 (83,000)
Increase (decrease) in cash attributable
to changes in assets and liabilities,
Accounts receivable 863,000 (235,000)
Inventories 2,000 392,000
Other current assets (345,000) (2,302,000)
Other assets (125,000) (205,000)
Accounts payable and accrued expenses (1,125,000) 173,000
Income taxes payable (47,000) (1,019,000)
--------- ---------
Net cash provided by (used in)
operating activities 1,194,000 (701,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of long-term
debt issued to seller (9,338,000)
Acquisition of property and equipment (93,000) (179,000)
------ ---------
Net cash used in investing activities (93,000) (9,517,000)
------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from senior term loan 9,000,000
Proceeds from bank revolving credit facility 300,000 1,250,000
Payment of senior term loan (905,000) (1,700,000)
Purchase of treasury stock (894,000)
Proceeds from exercise of options 52,000
Collections of receivables from equipment sales 451,000 1,918,000
Payment of other long-term debt (106,000) (99,000)
Costs in connection with bank financing (246,000)
--------- ----------
Net cash provided by financing activities (1,102,000) 10,123,000
--------- ----------
Net (decrease) in cash (1,000) (95,000)
Cash at beginning of year 306,000 187,000
------- -------
Cash at end of year $305,000 $ 92,000
======= =======
<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), Farm Foods (frozen
natural foods) and Weight Watchers (refrigerated products - grated cheese,
mayonnaise and margarine and dry products - cookies, snacks, canned soups).
Estee was acquired on November 3, 1995 and an agreement was entered into
with Weight Watchers on March 31, 1997 (see Note 3).
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. ACQUISITION:
On March 31, 1997, the Company entered into a license agreement with Weight
Watchers Gourmet Food Company ("WWGF" - a wholly owned subsidiary of H. J.
Heinz Company). Under the agreement, the Company will manufacture, market
and sell approximately 60 Weight Watcher dry and refrigerated products.
Sales of these products were approximately $17 million for the 12 months
ended March 31, 1997. The agreement is for five years, and is renewable
under certain circumstances. The agreement provides, among other matters,
for a royalty payment to WWGF based on sales of Weight Watchers products and
payment of a share of the pre-tax profits (as defined) from sale of the
such products. In connection with the license agreement, the Company
purchased approximately $600,000 of inventory, using borrowings under the
Company's revolving credit facility.
<PAGE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. INVENTORIES:
March 31 June 30
1997 1996
--------- ---------
Finished goods $6,356,000 $6,641,000
Raw materials and packaging 988,000 705,000
--------- ---------
$7,344,000 $7,346,000
========= =========
5. LONG-TERM DEBT:
Long-term debt consists of the following:
March 31 June 30
1997 1996
--------- ---------
Senior Term Loan $ 5,176,000 $ 6,081,000
Revolving Credit 1,700,000 1,400,000
12.5% Subordinated Debentures,
net of unamortized original
issue discount of $1,240,000
and $1,361,000 7,260,000 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 339,000 354,000
---------- ----------
16,225,000 16,724,000
Current portion 5,209,000 4,619,000
---------- ----------
$11,016,000 $12,105,000
========== ==========
The 10% Junior Subordinated Note (which was issued to the seller in
connection with the acquisition of Estee in 1995) contains a provision
for the optional redemption of such Note on April 30, 1997 at a 25%
discount. The Company elected to prepay the Note on April 28, 1997.
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.
<PAGE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. EARNINGS PER SHARE:
Earnings per common and common equivalent share for the quarter and nine
months ended March 31, 1997 and 1996 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.
7. STOCKHOLDERS' EQUITY:
On November 29, 1996, the Company repurchased 325,000 shares of its Common
Stock to be held in treasury for $894,000.
In March 1997, the Company issued 15,000 shares of Common Stock in
connection with the exercise of a stock option.
In connection with the WWGF agreement referred to in Note 3, the Company
has issued warrants to acquire 250,000 shares of the Company's Common
Stock at prices ranging from $7.00 to $9.00 per share.
8. POTENTIAL ACQUISITION:
In February 1997, the Company executed a Letter of Intent to acquire a
regional snack food business that has annual sales of approximately
$7 million. The Company would acquire substantially all of the assets
and business, subject to substantially all of the liabilities for a cash
purchase price of $485,000. In addition, the acquisition would require
approximately $1 million to be funded by the Company for working capital
purposes. The Company intends to use its revolving credit line to fund the
purchase price and working capital requirements. As of May 12, 1997,
documentation with respect to this transaction is substantially completed.
The closing of this transaction is subject to the Seller's ability to meet
certain conditions.
<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, 1997 and 1996 is set forth below (in thousands).
Quarter Ended March 31
1997 1996
------------- -------------
Net sales $13,623 100.0% $17,218 100.0%
Gross profit 5,030 36.9% 6,812 39.6%
Selling, general and
administrative expenses,
depreciation and amortization 4,430 32.5% 5,323 30.9%
Operating income 600 4.4% 1,489 8.6%
Interest and financing costs 543 4.0% 634 3.7%
Income before income taxes 57 .4% 855 5.0%
Income taxes 24 .2% 351 2.0%
Net income $ 33 .2% $ 504 2.9%
Nine Months Ended March 31
1997 1996
-------------- -------------
Net sales $46,177 100.0% $48,867 100.0%
Gross profit 17,337 37.5% 19,531 40.0%
Selling, general and
administrative expenses,
depreciation and amortization 14,321 31.0% 15,152 31.0%
Operating income 3,016 6.5% 4,379 9.0%
Interest and financing costs 1,618 3.5% 1,578 3.2%
Income before income taxes 1,398 3.0% 2,801 5.7%
Income taxes 601 1.3% 1,170 2.4%
Net income $ 797 1.7% $ 1,631 3.3%
<PAGE>
Sales for the current quarter decreased by approximately $3.6 million as
compared to the 1996 quarter. Sales for the nine months decreased by
approximately $2.7 million as compared to the prior year. The sales decreases
were principally attributable to a decrease in sales of rice cake products,
offset in part for the nine months by sales of the Estee division, which was
acquired in November 1995. The rice cake product category for the Company,
as well as other sellers of the product, has been under recent pressure from
the growing market acceptance of other snack products and from increased
competition. 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 product sales mix. In addition, the Company
believes that its recent acquisition of the Weight Watchers dry and
refrigerated product line (see note 3 of the Notes to Consolidated Financial
Statements) will ultimately more than offset reduced rice cake sales.
Sales (including sales from the Weight Watchers product line) for the month
of April 1997 (the first month of the fourth quarter) exceeded sales for
January 1997 (the first month of the third quarter) by approximately
$2.1 million.
Gross margin percentage decreased by 2.7% in the current quarter and by 2.5%
for the nine months, as compared to the 1996 quarter and nine months. The
decreases were principally due to the change in product mix referred to
above and an increase in warehousing and delivery costs.
Selling, general and administrative expenses decreased by approximately
$900,000 and $800,000, respectively for the three month and nine month
periods, principally as a result of lower sales promotion costs on lower
sales levels. Such expenses, as a percentage of net sales, increased by
1.8% for the current quarter as compared to the 1996 quarter and was at the
same level, as a percentage of sales, for the nine months as compared to the
1996 nine months.
The Company's level of debt was not significantly different during the
quarter and nine month periods, compared to the prior year. Consequently,
interest and financing costs were not significantly different during such
periods.
Income before income taxes, as a percentage of net sales for the current
quarter and nine months as compared to the 1996 quarter and nine months,
decreased by approximately 4.6% and 2.7%, respectively, principally as a
result of the aforementioned decrease in gross margin in the current quarter
and nine months and the increase in selling, general and administrative
expenses in the current quarter.
Income taxes as a percentage of pre-tax income amounted to approximately 43%
in the current quarter and nine months as compared to 42% for the prior 1996
quarter and nine months. This current percentage is deemed representative of
the Company's ongoing effective income tax rate.
<PAGE>
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.
As at March 31, 1997, the Company had reduced its borrowing under the Facility
to approximately $6.9 million, principally from the proceeds of sales of
equipment acquired in the Estee acquisition and operating cash flow, offset by
a borrowing of $900,000 to fund its acquisition of Treasury Stock and $600,000
to fund the purchase of the inventory in the Weight Watchers transaction.
Of the $9 million available under the Company's revolving credit line, $1.7
million was outstanding at March 31, 1997. 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 March 31, 1997 amounted to approximately $6.0 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 the Debentures impose limitations on the incurrance
of additional indebtedness and require that the Company comply with certain
financial tests and restrictive covenants.
The aggregate long-term debt service requirements for the 12 month period
ending March 31, 1997 are approximately $5.2 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
redeemed the Estee Note on April 28, 1997 for $1,269,000. The Company
anticipates that cash flow from operations will be sufficient to meet all of
its debt service and operating requirements. See Note 8 of the Notes to
Consolidated Financial Statements with respect to potential acquisition of a
snack food business.
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
In March 1997, the Company filed its Report on Form 8-K reporting on
the agreement between the Company and Weight Watchers Gourmet Food
Company, a wholly owned subsidiary of H.J. Heinz Company, pursuant
to which the Company will manufacture, market, distribute and sell
certain Weight Watcher dry and refrigerated food products.
<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 14, 1997 /s/Irwin D. Simon
Irwin D. Simon,
President and Chief
Executive Officer
Date: May 14, 1997 /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> 9-MOS
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Jul-01-1996
<PERIOD-END> Mar-31-1997
<CASH> 305
<SECURITIES> 0
<RECEIVABLES> 7264
<ALLOWANCES> 165
<INVENTORY> 7344
<CURRENT-ASSETS> 15828
<PP&E> 1267
<DEPRECIATION> 530
<TOTAL-ASSETS> 45726
<CURRENT-LIABILITIES> 9870
<BONDS> 11016
<COMMON> 89
0
0
<OTHER-SE> 24379
<TOTAL-LIABILITY-AND-EQUITY> 45726
<SALES> 46177
<TOTAL-REVENUES> 46177
<CGS> 28840
<TOTAL-COSTS> 28840
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1240
<INCOME-PRETAX> 1398
<INCOME-TAX> 601
<INCOME-CONTINUING> 797
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<CHANGES> 0
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<EPS-PRIMARY> .09
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</TABLE>
