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 quarterly period ended: 03/31/98 Commission file number: 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.
11,622,499 shares of Common Stock $.01 par value, as of May 12, 1998.
<PAGE>
THE HAIN FOOD GROUP, INC.
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998
(unaudited) and June 30, 1997
Consolidated Statements of Income - Three months and
nine months ended March 31, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows - Nine months
ended March 31, 1998 and 1997 (unaudited)
Consolidated Statement of Stockholders' Equity - Nine
months ended March 31, 1998 (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
1998 1997
(Unaudited) (Note)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $295,000 $219,000
Trade accounts receivable - net 12,926,000 8,447,000
Inventories 12,291,000 6,635,000
Receivables from sale of
equipment - current portion 175,000 408,000
Other current assets 1,750,000 818,000
---------- ----------
Total current assets 27,437,000 16,527,000
Property and equipment, net
of accumulated depreciation
of $760,000 and $577,000 873,000 743,000
Receivables from sale of
equipment - non-current portion 80,000 150,000
Goodwill and other intangible assets,
net of accumulated amortization of
$3,001,000 and $2,074,000 52,697,000 29,188,000
Deferred financing costs, net of
accumulated amortization
of $1,302,000 and $1,049,000 1,883,000 975,000
Other assets 1,846,000 1,312,000
---------- ----------
Total assets $84,816,000 $48,895,000
========== ==========
<FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $8,460,000 $7,568,000
Current portion of long-term debt 5,005,000 4,178,000
Income taxes payable 1,753,000 299,000
---------- ----------
Total current liabilities 15,218,000 12,045,000
Long-term debt, less current portion 15,814,000 10,756,000
Other liabilities 1,442,000 483,000
Deferred income taxes 552,000 552,000
---------- ----------
Total liabilities 33,026,000 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 11,612,499 and 8,881,899 shares 116,000 89,000
Additional paid-in capital 44,032,000 20,804,000
Retained earnings 7,917,000 4,991,000
---------- ----------
Total stockholders' equity 52,065,000 25,884,000
Less: 100,000 and 300,000 shares
of treasury stock, at 275,000 825,000
---------- ----------
51,790,000 25,059,000
---------- ----------
Total liabilities and
stockholders' equity $84,816,000 $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 condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $28,212,000 $13,623,000 $73,224,000 $46,177,000
Cost of sales 16,692,000 8,593,000 43,604,000 28,840,000
---------- ---------- ---------- ----------
Gross profit 11,520,000 5,030,000 29,620,000 17,337,000
---------- ---------- ---------- ----------
Selling, general
and administrative
expenses 8,039,000 4,196,000 21,364,000 13,632,000
Depreciation of
property and
equipment 69,000 48,000 183,000 131,000
Amortization of
goodwill and other
intangible assets 392,000 186,000 927,000 558,000
--------- --------- ---------- ----------
8,500,000 4,430,000 22,474,000 14,321,000
--------- --------- ---------- ----------
Operating income 3,020,000 600,000 7,146,000 3,016,000
--------- ------- --------- ---------
Interest expense - net 527,000 415,000 1,706,000 1,240,000
Amortization of
deferred financing
costs 122,000 128,000 396,000 378,000
--------- ------- --------- ---------
649,000 543,000 2,102,000 1,618,000
--------- ------- --------- ---------
Income before income
taxes 2,371,000 57,000 5,044,000 1,398,000
Provision for income
taxes 982,000 24,000 2,118,000 601,000
--------- ------ --------- -------
Net income $1,389,000 $33,000 $2,926,000 $797,000
========= ====== ========= =======
Net income per
common share:
Diluted $0.11 $0.00 $0.26 $0.09
==== ==== ==== ====
Basic $0.12 $0.00 $0.30 $0.09
==== ==== ==== ====
Common equivalent
shares:
Diluted 13,167,000 9,061,000 11,352,000 8,961,000
========== ========= ========== =========
Basic 11,482,000 8,547,000 9,862,000 8,725,000
========== ========= ========= =========
<FN>
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Nine Months Ended
March 31
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,926,000 $797,000
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation of property and equipment 183,000 131,000
Amortization of goodwill
and other intangible assets 927,000 558,000
Amortization of deferred financing costs 396,000 378,000
Provision for doubtful accounts 76,000 107,000
Increase (decrease) in cash attributable
to changes in assets and liabilities,
net of amounts applicable to acquired
businesses:
Accounts receivable (1,856,000) 863,000
Inventories (1,267,000) 2,000
Other current assets (450,000) (345,000)
Other assets (534,000) (125,000)
Accounts payable and accrued expenses (3,626,000) (1,125,000)
Income taxes payable 1,454,000 (47,000)
--------- ---------
Net cash (used in) provided by
operating activities (1,771,000) 1,194,000
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses (23,837,000)
Acquisition of property and equipment (205,000) (93,000)
---------- -------
Net cash used in investing activities (24,042,000) (93,000)
---------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank revolving credit 1,250,000 300,000
Proceeds from senior bank term loan 30,000,000
Payment of senior bank term loan (25,342,000) (905,000)
Payment of debt of acquired company (2,103,000)
Costs in connection with bank financing (785,000)
Proceeds from public stock offering,
net of related expenses 20,852,000
Proceeds from exercise of warrants and
options, net of related expenses 2,070,000 52,000
Purchase of treasury stock (894,000)
Collections of receivables from
equipment sales 303,000 451,000
Payment of other long-term debt (165,000) (106,000)
Other - net (191,000)
---------- ---------
Net cash provided by (used in)
financing activities 25,889,000 (1,102,000)
---------- ---------
Net increase (decrease) in cash 76,000 (1,000)
Cash at beginning of period 219,000 306,000
------- -------
Cash at end of period $295,000 $305,000
======= =======
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1998
<CAPTION>
Common Stock Additional
Amount Paid-in Retained Treasury Stock
Shares at $.01 Capital Earnings 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 issuance of
2,500,000 shares
in public stock offering,
net of related expenses 2,500,000 25,000 20,827,000 20,852,000
Proceeds from exercise of
Common Stock warrants,
net of related expenses 743,000 (200,000) 550,000 1,293,000
Exercise of stock options 230,600 2,000 760,000 762,000
Value ascribed to warrants 883,000 883,000
Other 15,000 15,000
Net income for the period 2,926,000 2,926,000
---------- ------- ---------- --------- ------- -------- ----------
Balance at March 31, 1998 11,612,499 $116,000 $44,032,000 $7,917,000 100,000 ($275,000) $51,790,000
========== ======= ========== ========= ======= ======== ==========
<FN>
See notes to condensed 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 and
Westbrae Natural (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 Better Snacks (popcorn
and other 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. The aggregate cash purchase price,
including acquisition costs, amounted to approximately $24 million. In
addition, the Company repaid approximately $2.1 million of outstanding
Westbrae debt. To finance the acquisition, the Company entered into a
$40 million credit facility with its bank providing for a $30 million
Senior Term Loan and a $10 million revolving credit line. See Note 5 below.
<PAGE>
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.
The above acquisition has been accounted for as a purchase and, therefore,
operating results of Westbrae have been included in the accompanying
financial statements from the date of acquisition.
Unaudited pro forma results of operations for the nine months ended
March 31, 1998 and 1997, assuming that the acquisition had occurred as of
July 1, 1996 are as follows:
1998 1997
---------- ----------
Net sales $83,863,000 $69,668,000
Net income 3,166,000 1,002,000
Net income per share (diluted) $ .28 $ .11
The pro forma operating results shown above are not necessarily
indicative of operations in the period following acquisition.
4. INVENTORIES:
March 31 June 30
1998 1997
--------- ---------
Finished goods $ 9,002,000 $5,418,000
Raw materials and packaging 3,289,000 1,217,000
---------- ---------
$12,291,000 $6,635,000
========== =========
5. LONG-TERM DEBT:
Long-term debt consists of the following:
March 31 June 30
1998 1997
-------- ---------
Senior Term Loan $ 9,505,000 $ 4,847,000
Revolving Credit 3,500,000 2,250,000
12.5% Subordinated Debentures,
net of unamortized original
issue discount of $1,053,000
and $1,195,000 7,447,000 7,305,000
Notes payable to sellers in
connection with acquisition
of companies and other
long-term debt 367,000 532,000
---------- ----------
20,819,000 14,934,000
Current portion 5,005,000 4,178,000
---------- ----------
$15,814,000 $10,756,000
========== ==========
<PAGE>
On October 14, 1997, in connection with the acquisition of Westbrae, the
Company and its bank entered into a $40 million Amended and Restated 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. Presently,
borrowings under the facility bear interest at rates equal to, at the
Company's option, either (i) 0.25% under the bank's base rate or (ii) 2.00%
over the Eurodollar rate. The senior term loan is repayable in quarterly
principal installments, commencing December 31, 1998 through maturity of
the New Facility on December 31, 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 substantially 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. On December 8, 1997, the
Company repaid approximately $21 million of such debt from the proceeds of
a public offering of its common stock.
The New Facility contains certain financial and other restrictive covenants
which, among other matters, restrict the payment of dividends and the
incurrence of significant 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.
In April 1998, the Company prepaid all of the $8.5 million of Subordinated
Debentures (see Note 8). The Company borrowed approximately $9.1 million
from its bank under its senior term loan to fund the prepayment. The
current portion of long-term debt at March 31, 1998 gives effect to the
foregoing.
See Liquidity and Capital Resources in Management's Discussion and Analysis
of Financial Condition and Results of Operations 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:
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. The Company has
changed the method used to compute earnings per share and has restated all
periods shown. Under the new requirements for calculating basic earnings per
share, the dilutive effect of stock options and warrants has been excluded.
The following table sets forth the computation of basic and diluted earnings
per share pursuant to FAS 128.
<PAGE>
Three Months Ended Nine Months Ended
March 31 March 31
1998 1997 1998 1997
--------- --------- --------- ---------
Numerator:
Net income for numerator
for basic and diluted
earnings per share $1,389,000 $33,000 $2,926,000 $797,000
Denominator:
Denominator for basic
earnings per - weighted
average shares outstanding
during the period (a) 11,482,000 8,547,000 9,862,000 8,725,000
---------- --------- --------- ---------
Effect of dilutive securities:
Stock options 1,002,000 327,000 928,000 162,000
Warrants 683,000 187,000 562,000 74,000
--------- ------- --------- -------
Dilutive potential common
Shares (b) 1,685,000 514,000 1,490,000 236,000
--------- ------- --------- -------
Denominator for diluted
earnings per share -
adjusted weighted average
shares and assumed
conversions 13,167,000 9,061,000 11,352,000 8,961,000
========== ========= ========== =========
Basic earnings per share $ .12 $ .00 $ .30 $ .09
=== === === ===
Diluted earnings per share $ .11 $ .00 $ .26 $ .09
=== === === ===
(a) On December 8, 1997, the Company issued 2,500,000 shares of common
stock in connection with a public offering.
(b) The increase in the amount of dilutive potential shares in the 1998
periods was attributable substantially to an increase in the market price
of the Company's common stock over the year earlier periods.
<PAGE>
7. STOCKHOLDERS' EQUITY:
In connection with the acquisition of Estee in November 1995, 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. The proceeds were used to pay down bank debt.
In connection with the New Facility with its bank (see Note 5), the Company
issued a warrant to the bank to purchase 114,294 shares of the Company's
common stock at an exercise price of $12.294. The warrant expires on
December 31, 2003. The value ascribed to this warrant of approximately
$377,000 is being amortized over 6 years.
In connection with the acquisition of Westbrae (see Note 3), the Company
issued a warrant to its investment banker to purchase 100,000 shares of the
Company's common stock at an exercise price of $12.688. The warrant expires
on October 14, 2004. The value ascribed to this warrant of approximately
$426,000 has been included in the cost of the acquisition of Westbrae.
On December 8, 1997, the Company completed a public offering of 2,500,000
shares of its common stock at $9 per share. Proceeds to the Company, net
of expenses of the offering, amounted to approximately $20.9 million, which
was utilized to pay down the New Facility with the bank. In connection
therewith, certain officers of the Company exercised options for an
aggregate of 105,000 shares of common stock which were sold in the public
offering. The Company received aggregate net proceeds of approximately
$340,000 from exercise of such options.
On December 9, 1997, the stockholders of the Company approved an amendment
to increase the number of shares issuable under the 1994 Long Term Incentive
and Stock Award Plan by 354,000 to 1,200,000 shares. As a result, the
Company's chief executive officer received 125,000 stock options that had
been conditionally granted to him at $4.8125 per share on the date of grant
(June 30, 1997). The Company will incur a straight line non-cash compensation
charge over the 10-year vesting period based on the excess (approximately
$461,000) of the market value of the stock options ($8.50 per share) on
December 9, 1997 compared to $4.8125 per share on the date of grant.
<PAGE>
8. SUBSEQUENT EVENTS:
ACQUISTION OF BUSINESSES:
On April 23, 1998, the Company signed a purchase agreement to acquire four
natural food companies from the Shansby Group and other owners. The
companies to be acquired are Arrowhead Mills, Inc. ("Arrowhead"), DeBoles
Nutritional Foods, Inc. ("DeBoles"), Dana Alexander, Inc., and Garden of
Eatin', Inc. Arrowhead is a manufacturer and marketer of natural and
organic cereals, flour, baking mixes, nut butters and other natural food
products. DeBoles is a manufacturer and marketer of natural pasta products.
Dana Alexander, Inc. is the manufacturer and marketer of gourmet vegetable
chips sold under the "Terra Chips" name. Garden of Eatin' markets tortilla
chips, corn chips and other natural snack foods. The aggregate purchase
price for all of the brands is $80 million, including the assumption of not
more than $20 million of debt. The purchase price is payable in either all
cash, or a combination of cash and common stock. The Company intends to
fund the cash portion of the purchase price with bank financing. The
transaction is expected to close in June 1998.
PREPAYMENT OF 12.5% SUBORDINATED DEBENTURES:
On April 15, 1998, the Company prepaid all $8.5 million of its 12.5%
Subordinated Debentures ("Debentures"), constituting the entire outstanding
principal amount.. The prepayment was funded by an increase in the
Company's term loan with its bank, which term loan bears interest at a lower
interest rate than the Debentures. In connection with the prepayment, the
Company will write off the prepayment fee of $612,000, as well as
unamortized original issue discounts and financing fees for the Debentures.
This will result in an extraordinary charge (net of income tax effect) of
approximately $1.3 million in the quarter ending June 30, 1998. The
prepayment of the Debentures is expected to result in reduced continuing
interest costs and the elimination of the amortization of the financing
costs with respect to the Debentures commencing in the quarter ending
June 30, 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1998
On October 14, 1997, the Company acquired Westbrae Natural, Inc. ("Westbrae")
in a transaction accounted for as a purchase. Accordingly, the operating
results of Westbrae are included in the accompanying financial statements from
date of acquisition.
Net sales for the current quarter increased by approximately $14.6 million as
compared to the 1997 quarter. The increase was substantially attributable to
the sales of Westbrae.
Gross margin percentage increased by 3.9% in the current quarter compared to
the 1997 quarter, principally because of improved margins obtained on several
of the Company's product lines, the effect of higher gross margins of products
from the Company's new Westbrae division, and a slight reduction in warehousing
and delivery costs as a percentage of sales.
Selling, general and administrative expenses, as a percentage of net sales,
decreased by 2.3% during the current quarter compared to the 1997 quarter
principally because of the higher absorption of selling, general and
administrative expenses through higher sales levels.
Operating income, as a percentage of net sales, increased by 6.3% principally
because of the aforementioned increase in gross margin percentage and decrease
in selling, general and administrative expenses, as a percentage of net sales.
Interest and financing costs were not significantly different in either period.
Income taxes, as a percentage of pre-tax income, amounted to 41.4% compared to
42.1% in the 1997 quarter. The income tax rate utilized for the current quarter
is based on the Company's estimate of the effective income tax rate for the
fiscal year ending June 30, 1998.
Net income in the current quarter increased by approximately $1.4 million,
principally because of higher sales levels, improved gross margin percentage,
reduced selling, general and administrative expenses (as a percentage of sales)
and a slightly lower effective income tax rate.
Nine Months Ended March 31, 1998
Net sales for the nine months increased by approximately $27.0 million as
compared to the 1997 period. Such increase was principally attributable to the
sales of Westbrae and increased sales of other product lines.
<PAGE>
Gross margin percentage increased by 2.9% in the nine-month period, principally
because of improved margins obtained on several of the Company's product lines,
the effect of higher gross margins of the products from the Company's new
Westbrae division and a slight reduction in warehousing and delivery costs as a
percentage of sales.
Selling, general and administrative expenses, as a percentage of net sales,
were .3% lower during the current nine month period compared to the 1997
period, principally because of lower selling expenses as a percentage of net
sales during the Company's third fiscal quarter.
Operating income, as a percentage of net sales, for the nine-month period
increased by 3.3% principally because of the aforementioned increase in gross
margin percentage and the lower selling, general and administrative expenses,
as a percentage of net sales.
Interest and financing costs in the nine-month period increased by
approximately $.5 million due to the debt incurred in October 1997 in
connection with the acquisition of Westbrae. On December 8, 1997, the Company
repaid approximately $21 million of such debt from the proceeds of a public
offering of its stock.
Income taxes, as a percentage of pre-tax income, amounted to 42.0% for the
nine-month period compared to 43.0% in the 1997 period. The income tax rate
utilized on an interim basis is based on the Company's estimate of the
effective income tax rate for the fiscal year ending June 30, 1998.
Net income in the nine-month period increased by approximately $2.1 million,
principally because of higher sales levels, an improved gross margin
percentage, a slightly lower selling, general and administrative expense level,
as a percentage of sales, and a slightly lower effective income tax rate,
offset in part by higher interest and amortization costs.
<PAGE>
Liquidity and Capital Resources
Debt
On October 14, 1997, the Company acquired Westbrae for a cash purchase price of
approximately $24 million, including acquisition costs. In addition, the
Company repaid approximately $2.1 million of Westbrae debt to third parties.
To finance the acquisition, the Company entered into a $40 million credit
facility ("New Facility") with its bank providing for a $30 million Senior Term
Loan and a $10 million revolving credit line. Approximately $32 million of the
New Facility was borrowed on October 14, 1997 to acquire Westbrae and repay
existing indebtedness to the bank. On December 8, 1997, the Company repaid
approximately $21 million of the New Facility (see below). As a result,
principal repayments due on the Senior Term Loan were restructured. Principal
payments due through September 30, 1998 were eliminated and quarterly principal
payments due on December 31, 1998 and thereafter were significantly reduced.
Of the $10 million available under the Company's revolving credit facility,
$3.5 million was outstanding at March 31, 1998. From time to time, because of
inventory requirements, the Company may utilize a portion of the revolving
credit line. Borrowings under the New Facility currently bear interest at
rates equal to, at the Company's option, either (i) 0.25% under the bank's base
rate, or (ii) 2.00% over the Eurodollar rate.
On April 15, 1998, the Company prepaid all $8.5 million of its 12.5%
Subordinated Debentures ("Debentures"), constituting the entire aggregate
outstanding principal amount. The prepayment was funded by an increase in the
Company's term loan with its bank, which term loan currently bears interest at
a lower rate than the Debentures.
Public Offering Completed on December 8, 1997
On December 8, 1997, the Company completed a public offering of 2,500,000
shares of its common stock at a public offering price of $9 per share.
Proceeds to the Company, net of expenses of the offering, amounted to
approximately $21 million, which was utilized to pay down the New Facility.
This infusion of additional equity into the Company significantly reduced the
Company's debt level and substantially improved the Company's debt to equity
ratio.
Working Capital and Debt Service Requirements
Working capital at March 31, 1998 amounted to approximately $12.2 million, and
the Company's working capital ratio was approximately 1.8 to 1. The Company
views its working capital adequate to meet its operational needs.
The Company's products are purchased from independent co-packers and the
Company does not intend to invest in plant or equipment relating to the
manufacture of its products. Consequently, no significant capital expenditures
are currently contemplated.
Principal payments due on the Company's long-term debt (excluding amounts
outstanding under the revolving credit facility) for the twelve-month period
ending March 31, 1999 are approximately $1.5 million. The Company believes
that cash provided by operations will be sufficient to finance its operations,
fund debt service requirements and fund capital expenditures for the
foreseeable future.
Seasonality
Sales of food products consumed in the home generally decline to some degree
during the summer vacation months. 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
The Company did not file any reports on Form 8-K during the
three months ended March 31, 1998.
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, 1998 /s/ Irwin D. Simon
Irwin D. Simon,
President and Chief
Executive Officer
Date: May 14, 1998 /s/ Jack Kaufman
Jack Kaufman,
Vice President-Finance and
Chief Financial Officer
<PAGE>
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