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: 09/30/97 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.
8,781,899 shares of Common Stock $.01 par value, as of October 24, 1997.
<PAGE>
THE HAIN FOOD GROUP, INC.
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997
(unaudited) and June 30, 1997
Consolidated Statements of Income - Three months ended
September 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - Three
months ended September 30, 1997 and 1996 (unaudited)
Consolidated Statement of Stockholders' Equity - Three
months ended September 30, 1997 (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>
Sept. 30 June 30
1997 1997
(Unaudited) (Note)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 184,000 $ 219,000
Trade accounts receivable - net 8,151,000 8,447,000
Inventories 7,425,000 6,635,000
Receivables from sale of
equipment - current portion 379,000 408,000
Other current assets 990,000 818,000
---------- ----------
Total current assets 17,129,000 16,527,000
Property and equipment, net
of accumulated depreciation
of $625,000 and $577,000 732,000 743,000
Receivables from sale of
equipment - non-current portion 150,000 150,000
Goodwill and other intangible assets,
net of accumulated amortization
of $2,284,000 and $2,074,000 28,998,000 29,188,000
Deferred financing costs, net of
accumulated amortization
of $1,135,000 and $1,049,000 1,140,000 975,000
Other assets 1,282,000 1,312,000
---------- ----------
Total assets $49,431,000 $48,895,000
========== ==========
<FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and
accrued expenses $ 6,097,000 $ 7,568,000
Current portion of long-term debt 5,354,000 4,178,000
Income taxes payable 592,000 299,000
---------- ----------
Total current liabilities 12,043,000 12,045,000
Long-term debt, less current portion 9,605,000 10,756,000
Other liabilities 403,000 483,000
Deferred income taxes 552,000 552,000
---------- ----------
Total liabilities 22,603,000 23,836,000
---------- ----------
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 21,547,000 20,804,000
Retained earnings 5,467,000 4,991,000
---------- ----------
Total stockholders' equity 27,103,000 25,884,000
Less: 100,000 and 300,000 shares
of treasury stock, at cost 275,000 825,000
---------- ----------
26,828,000 25,059,000
---------- ----------
Total liabilities and
stockholders' equity $49,431,000 $48,895,000
========== ==========
<FN>
Note - The Balance sheet at June 30, 1997 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
September 30,
1997 1996
---------- ----------
<S> <C> <C>
Net sales $16,336,000 $15,437,000
Cost of sales 9,862,000 9,708,000
--------- ---------
Gross profit 6,474,000 5,729,000
--------- ---------
Selling, general and
administrative expenses 4,837,000 4,333,000
Depreciation of property and equipment 48,000 41,000
Amortization of goodwill and other
intangible assets 210,000 185,000
--------- ---------
5,095,000 4,559,000
--------- ---------
Operating income 1,379,000 1,170,000
--------- ---------
Interest expense, net 420,000 458,000
Amortization of deferred financing costs 131,000 123,000
------- -------
551,000 581,000
------- -------
Income before income taxes 828,000 589,000
Provision for income taxes 352,000 253,000
------- -------
Net income $476,000 $336,000
======= =======
Net income per common share and
common share equivalents $0.05 $0.04
==== ====
Weighted average number of common shares
and common share equivalents 9,965,000 8,939,000
========= =========
<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
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 476,000 $ 336,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation of property and equipment 48,000 41,000
Amortization of goodwill and
other intangible assets 210,000 185,000
Amortization of deferred financing costs 131,000 123,000
Provision for doubtful accounts 30,000
Increase (decrease) in cash attributable
to changes in assets and liabilities,
Accounts receivable 296,000 988,000
Inventories (790,000) (1,548,000)
Other current assets (172,000) (368,000)
Other assets 30,000 (41,000)
Accounts payable and accrued expenses (1,471,000) 173,000
Income taxes payable 293,000 (47,000)
------- -------
Net cash provided by (used in)
operating activities (949,000) (128,000)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (37,000) (65,000)
Other (20,000)
------ ------
Net cash used in investing activities (57,000) (65,000)
------ ------
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank revolving credit facility 1,550,000 250,000
Payment of senior term loan (1,509,000 (218,000)
Costs in connection with bank financing (251,000)
Proceeds from exercise of warrant, net
of related expenses 1,293,000
Collections of receivables from equipment sales 29,000 204,000
Payment of other long-term debt (61,000) (29,000)
Other - net (80,000)
--------- -------
Net cash provided by financing activities 971,000 207,000
--------- -------
Net increase (decrease) in cash (35,000) 14,000
Cash at beginning of year 219,000 306,000
------- -------
Cash at end of year $184,000 $320,000
======= =======
<PAGE>
</TABLE>
<TABLE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
<CAPTION>
Common Stock Additional Retained
Amount Paid-in Earnings Treasury Stock
Shares at $.01 Capital (Deficit) Shares Amount Total
--------- ------ ---------- -------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 8,881,899 $89,000 $20,804,000 $4,991,000 300,000 $(825,000) $25,059,000
Proceeds from exercise of
Common Stock warrants
net of related expenses 743,000 (200,000) 550,000 1,293,000
Net income for the period 476,000 2,365,000
--------- ------ ---------- --------- ------- -------- ----------
Balance at
September 30, 1997 8,881,899 $89,000 $21,547,000 $5,467,000 $100,000 $(275,000) $26,828,000
========= ====== ========== ========= ======= ======= ==========
<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 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), Hollywood Foods (principally healthy cooking oils), Estee
(sugar-free, medically directed snacks), Featherweight (low sodium food
products), Kineret Foods (frozen kosher foods), Weight Watchers (dry and
refrigerated products), and Boston Popcorn (snacks).
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, 1997 and for the year then ended included in the Company's
Annual Report on Form 10-K for information not included in these
condensed footnotes.
3. ACQUISITION:
On October 14, 1997, the Company completed a tender offer for all of the
shares of Westbrae Natural, Inc. ("Westbrae), a publicly-owned company,
for $3.625 per share of common stock in cash. The aggregate purchase
price for all of the outstanding shares of Westbrae and shares under
option was approximately $23.5 million. In connection therewith, the
Company and a bank entered into a $40 million Amended and Restated Credit
Facility ("Facility") providing for a $30 million senior term loan and a
$10 million revolving credit line. See Note 5 below.
Westbrae (formerly known as Vestro Natural Foods, Inc.), headquartered in
Carson, California, is a leading formulator and marketer of high quality
natural and organic foods sold under the brand names Westbrae Natural,
Westsoy, Little Bear and Bearitos, encompassing 300 food items such as
non-dairy beverages, chips, snacks, beans and soups. For its fiscal year
ended December 31, 1996, Westbrae reported net sales of $32,583,000 and
net income of $1,203,000. For the three months ended September 30, 1997,
Westbrae reported net sales of $9,728,000 (unaudited) and net income of
$519,000 (unaudited).
Unaudited pro forma results of operations for the three months ended
September 30, 1997, assuming that the acquisition had occurred as of
July 1, 1997 are as follows:
Net sales $26,064,000
Net income 696,000
Net income per share $ .07
The pro forma operating results shown above are not necessarily indicative
of operations in the period following acquisition.
<PAGE>
4. INVENTORIES:
Sept. 30 June 30
1997 1997
--------- ---------
Finished goods $5,713,000 $5,418,000
Raw materials and packaging 1,712,000 1,217,000
--------- ---------
$7,425,000 $6,635,000
========= =========
5. LONG-TERM DEBT:
Long-term debt consists of the following:
Sept. 30 June 30
1997 1997
-------- ---------
Senior Term Loan $ 3,338,000 $ 4,847,000
Revolving Credit 3,800,000 2,250,000
12.5% Subordinated Debentures,
net of unamortized original
issue discount of $1,240,000
and $1,361,000 7,350,000 7,305,000
Notes payable to sellers in
connection with acquisition
of companies and other
long-term debt 471,000 532,000
---------- ----------
14,959,000 14,934,000
Current portion 5,354,000 4,178,000
--------- ----------
$ 9,605,000 $10,756,000
========= ==========
In October 1997, in connection with the acquisition of Westbrae, the Company
and its bank entered into a $40 million Amended and Restated Credit Facility
("Facility") providing for a $30 million senior term loan and a $10 million
revolving credit line.
The Facility replaced the Company's existing $18 million facility with the
same bank which provided for a $9 million senior term loan and a $9 million
revolving credit line. Borrowings under the facility bear interest at rates
equal to, at the Company's option, either (i) 0.75% over the bank's base rate
or (ii) 2.75% over the Eurodollar Rate. The senior term loan is repayable
in quarterly principal installments, commencing December 31, 1997 through
maturity of the Facility on September 30, 2003. 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 Company
borrowed the full $30 million senior term loan to fund the cash purchase
price and related closing costs of the acquisition and to repay certain
existing debt of the Company and Westbrae.
<PAGE>
The Facility contains certain financial and other restrictive covenants
which, among other matters, restrict the payment of dividends and the
incurrence of additional indebtedness. The Company is also required to
maintain various financial ratios, including minimum working capital ratios,
the achievement of certain earnings levels, and interest and fixed charge
coverage ratios.
Reference is made to the footnotes to the audited consolidated financial
statements of the Company and subsidiaries as at June 30, 1997 and for the
year then ended included in the Company's Annual Report on Form 10-K 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.
6. EARNINGS PER COMMON SHARE:
Net income per share is based on the weighted average number of common
shares and dilutive common equivalent shares.
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share"
("FAS 128"), which is effective for both interim and annual financial
statements for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and restate all periods. Under the new requirements
for calculating basic earnings per share, the dilutive effect of stock
options and warrants will be excluded. The impact of adopting FAS 128 is
not expected to be material.
7. STOCKHOLDERS' EQUITY:
In connection with the acquisition of Estee, the Company issued a warrant
to the seller to purchase 200,000 shares of the Company's common stock at
an exercise price of $6.50 per share. In August and September 1997, the
seller exercised all of the warrants and the Company issued 200,000 shares
of Common Stock out of treasury for aggregate proceeds of $1,300,000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the current quarter increased by $.9 million as compared to the
prior year quarter. The sales increase was largely attributable to sales of
the Company's Weight Watchers and Boston Popcorn product lines, offset by a
decrease in rice cakes sales, as discussed below. The Weight Watchers line of
dry and refrigerated products is operated pursuant to a license obtained from
HJ Heinz Company in March 1997. The Boston Popcorn Company was acquired in
May 1997. During the current quarter, the Company continued to experience
softness in its rice cake product line. Sales of rice cake products amounted
to $2.4 million (14.6% of total sales) in the current quarter compared with
$3.8 million (24.6% of total sales) in the comparable quarter of the prior
year. The Company believes that the acquisition of such product lines as
Weight Watchers and Boston Popcorn, and the acquisition of Westbrae in
October 1997, reduces its reliance on rice cakes, and provides for a more
stable and diversified sales mix.
Gross margin percentage increased by 2.5% compared to the prior year. The
increase was attributable to a change in product mix and a reduction in
warehousing and delivery expenses as a percentage of sales. The Company has
recently adopted F.O.B. pricing for substantially all sales, thereby reducing
delivery expenses. This pricing policy also reduced net sales to a minor
degree because F.O.B. sales prices are lower than those for delivered items.
Selling, general and administrative expenses, as a percentage of sales,
increased by 1.5% compared to the prior year. A portion of the increase was
attributable to license fees associated with the Weight Watchers license
referred to above, which are included in selling expenses. The balance was
attributable to other increased selling expenses and a relatively minor
increase in general and administrative expenses.
Depreciation expense and amortization of intangible as a percentage of sales
increased to 1.6% from 1.5% as a result of amortization of goodwill associated
with the acquisition of Boston Popcorn in May 1997.
Interest costs were approximately the same in both periods. The modest
decrease in interest costs, as a percentage of sales was attributable to the
higher sales volume in the current quarter.
Income tax expense as a percentage of pretax income was 42.5%, compared with
43.0% in the prior year. A large portion of the Company's goodwill
amortization is not deductible for financial and tax reporting book purposes.
Consequently, as pretax income increases, the effective income tax rate
declines because goodwill amortization becomes a proportionately less
significant element of expense.
Net income for the quarter increased by $140,000 as compared to the prior year
quarter, principally as a result of the aforementioned increase in sales and
gross margin, offset by the increase in selling, general and administrative
expenses.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In October 1997, in connection with the acquisition of Westbrae, the Company
and its bank entered into the New Credit Facility ("New Facility") providing
for a $30 million senior term loan and a $10 million revolving credit line.
The New Facility replaced the Company's existing $18 million facility with the
same bank which provided for a $9 million senior term loan and a $9 million
revolving credit line. Borrowings under the New Facility bear interest at
rates equal to, at the Company's option, either (I) 0.75% over the bank's base
rate or (ii) 2.75% over the Eurodollar Rate. The senior term loan is repayable
in quarterly principal installments, commencing December 31, 1997 through
maturity of the New Credit Facility on September 30, 2003. 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
New Facility are collateralized by principally all of the Company's assets.
The Facility also contains certain financial and other restrictive covenants.
Of the $10 million available under the Companies revolving credit line,
$2 million was outstanding as of October 24, 1997. From time to time,
principally because of inventory requirements, the Company may utilize a
portion of the revolving credit line. The proceeds of the $30 million term
loan were used to fund the cash purchase price and related closing costs of
the acquisition and to repay certain existing debt of the Company and Westbrae.
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.
The aggregate long-term debt service requirements for the 12 month period
September 30, 1998 (restated for the New Credit Facility) are approximately
$7.2 million, which includes the 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.
Working capital at September 30, 1997 amounted to approximately $5.1 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 New 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.
The financial covenants were restructured in October 1997 upon closing of the
New Credit Facility in connection with the acquisition of Westbrae.
Notwithstanding the significant cash demands created by the acquisition of
Westbrae, the Company believes that cash provided by operations and amounts
available under the New Credit Facility will be sufficient for the foreseeable
future to finance its operations, service interest payments on its debt and
fund capital expenditures.
SEASONALITY
Sales of food products consumed in the home generally decline to some degree
during the summer vacation months. However, the Company believes that such
seasonality has a limited effect on operations.
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 its Report on 8-K dated September 8, 1997 (earliest event
reported) the Company reported that it had executed a non-binding
letter of intent to acquire Westbrae Natural, Inc. for cash in a
tender offer and merger transaction.
In its Report on 8-K dated September 12, 1997 (earliest event
reported) the Company reported on the following matters.
(a) Executing a definitive merger agreement with Westbrae on
September 12, 1997.
(b) Receiving a formal financing commitment for the acquisition
from its lender.
(c) Commencing a tender offer for all of Westbrae's shares.
<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: October 28, 1997 /s/ Irwin D. Simon
Irwin D. Simon,
President and Chief
Executive Officer
Date: October 28, 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> 3-MOS
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-START> Jul-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 184
<SECURITIES> 0
<RECEIVABLES> 8788
<ALLOWANCES> 258
<INVENTORY> 7425
<CURRENT-ASSETS> 17129
<PP&E> 1357
<DEPRECIATION> 625
<TOTAL-ASSETS> 49431
<CURRENT-LIABILITIES> 12043
<BONDS> 9605
<COMMON> 89
0
0
<OTHER-SE> 26739
<TOTAL-LIABILITY-AND-EQUITY> 49431
<SALES> 16336
<TOTAL-REVENUES> 16336
<CGS> 9862
<TOTAL-COSTS> 14957
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 551
<INCOME-PRETAX> 828
<INCOME-TAX> 352
<INCOME-CONTINUING> 476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 476
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
