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: 12/31/96 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 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.
8,566,899 shares of Common Stock $.01 par value, as of February 14, 1997.
THE HAIN FOOD GROUP, INC.
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1996
(unaudited) and June 30, 1996
Consolidated Statements of Income - Three months and
Six months ended December 31, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows - Six
months ended December 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, 2, 3, and 5 are not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K
Signatures
PART I - ITEM 1. - FINANCIAL INFORMATION
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dec. 31 June 30
1996 1996
--------- ---------
(Unaudited) (Note)
ASSETS
Current assets:
Cash $ 334,000 $ 306,000
Trade accounts receivable - net 8,238,000 8,069,000
Inventories 6,770,000 7,346,000
Receivables from sale of
equipment - current portion 313,000 632,000
Other current assets 902,000 639,000
---------- ----------
Total current assets 16,557,000 16,992,000
Property and equipment, net
of accumulated depreciation
of $482,000 and $399,000 772,000 685,000
Receivables from sale of
equipment - non-current portion 220,000 310,000
Goodwill and other intangible
assets, net of accumulated amortization
of $1,706,000 and $1,334,000 26,943,000 27,140,000
Deferred financing costs, net of accumulated
amortization of $877,000 and $706,000 1,141,000 1,312,000
Other assets 1,057,000 1,003,000
---------- ----------
Total assets $46,690,000 $47,442,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses $ 4,439,000 $ 5,560,000
Current portion of long-term debt 5,721,000 4,619,000
Income taxes payable 228,000 273,000
---------- ----------
Total current liabilities 10,388,000 10,452,000
Long-term debt, less current portion 11,478,000 12,105,000
Deferred income taxes 461,000 461,000
---------- ----------
Total liabilities 22,327,000 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 8,866,899 shares 89,000 89,000
Additional paid-in capital 20,413,000 20,413,000
Retained earnings 4,686,000 3,922,000
---------- ----------
25,188,000 24,424,000
Less: 300 shares of treasury stock, at cost 825,000
---------- ----------
Total stockholders' equity 24,363,000 24,424,000
---------- ----------
Total liabilities and
stockholders' equity $46,690,000 $47,442,000
========== ==========
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.
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
December 31 December 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Net sales $17,117,000 $18,122,000 $32,554,000 $31,649,000
Cost of sales 10,539,000 10,767,000 20,247,000 18,930,000
---------- ---------- ---------- ----------
Gross profit 6,578,000 7,355,000 12,307,000 12,719,000
Selling, general
and administrative
expenses 5,103,000 5,357,000 9,436,000 9,462,000
Depreciation of
property and
equipment 42,000 47,000 83,000 91,000
Amortization of
goodwill and other
intangible assets 187,000 155,000 372,000 276,000
--------- --------- --------- ---------
5,332,000 5,559,000 9,891,000 9,829,000
--------- --------- --------- ---------
Operating income 1,246,000 1,796,000 2,416.000 2,890,000
--------- --------- --------- ---------
Interest expense,
net 367,000 470,000 825,000 717,000
Amortization of
deferred financing
costs 127,000 116,000 250,000 227,000
------- ------- --------- -------
494,000 586,000 1,075,000 944,000
------- ------- --------- -------
Income before income
taxes 752,000 1,210,000 1,341,000 1,946,000
Provision for income
taxes 324,000 509,000 577,000 819,000
------- ------- ------- ---------
Net income $428,000 $701,000 $764,000 $1,127,000
======= ======= ======= =========
Net income per common
share and common
share equivalents $0.05 $0.08 $0.09 $0.l3
==== ==== ==== ====
Weighted average number
of common shares and
common share
equivalents 8,831,000 8,897,000 8,885,000 8,971,000
========= ========= ========= =========
See notes to consolidated financial statements.
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
December 31
1996 1995
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 764,000 $1,127,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation of property and equipment 83,000 91,000
Amortization of goodwill and
other intangible assets 372,000 276,000
Amortization of deferred financing costs 250,000 227,000
Provision for doubtful accounts 78,000 (56,000)
Increase (decrease) in cash attributable
to changes in assets and liabilities,
Accounts receivable (247,000) (1,432,000)
Inventories 576,000 (3,018,000)
Other current assets (438,000) (251,000)
Other assets (54,000) (43,000)
Accounts payable and accrued expenses (1,121,000) 2,532,000
Income taxes payable (45,000) (995,000)
--------- ---------
Net cash provided by (used in)
operating activities 218,000 (1,542,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of long-term
debt issued to seller (10,001,000)
Acquisition of property and equipment (80,000) (126,000)
------ ----------
Net cash used in investing activities (80,000) (10,127,000)
------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank revolving credit facility 950,000 2,500,000
Payment of senior term loan (577,000) 9,000,000
Purchase of treasury stock (825,000)
Collections of receivables from equipment sales 409,000 271,000
Payment of other long-term debt (67,000) (60,000)
Costs in connection with bank financing (228,000)
------- ----------
Net cash provided by financing activities (110,000) 11,483,000
------- ----------
Net increase (decrease) in cash 28,000 (186,000)
Cash at beginning of year 306,000 187,000
------- -------
Cash at end of year $334,000 $ 1,000
======= =======
See notes to consolidated financial statements.
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL:
The Company was incorporated in the State of Delaware on May 19, 1993.
The Company and its subsidiaries operate as one business segment: the
sale of specialty food products which are manufactured by various
co-packers.
The Company's principal product lines consist of Hain Pure Foods (natural
foods), Estee (sugar-free products), Hollywood Foods (principally healthy
cooking oils), Kineret Foods (frozen kosher foods) and Farm Foods (frozen
natural foods). Estee was acquired 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-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles. In the opinion of management, all adjustments (including
normal recurring accruals) considered necessary for a fair presentation
have been included. Reference is made to the footnotes to the audited
consolidated financial statements of the Company and subsidiaries as at
June 30, 1996 and for the year then ended included in the Company's
Annual Report on Form 10-KSB for information not included in these
condensed footnotes.
3. INVENTORIES:
Dec. 31 June 30
1996 1996
--------- ---------
Finished goods $5,539,000 $6,641,000
Raw materials and packaging 1,231,000 705,000
--------- ---------
$6,770,000 $7,346,000
========= =========
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG-TERM DEBT:
Long-term debt consists of the following:
Dec. 31 June 30
1996 1996
--------- ---------
Senior Term Loan $ 5,504,000 $ 6,081,000
Revolving Credit 2,350,000 1,400,000
12.5% Subordinated Debentures,
net of unamortized original
issue discount of $1,282,000
and $1,361,000 7,218,000 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 377,000 354,000
---------- ----------
17,199,000 16,724,000
Current portion 5,721,000 4,619,000
---------- ----------
$11,478,000 $12,105,000
========== ==========
Reference is made to the footnotes to the audited consolidated financial
statements of the Company and subsidiaries as at June 30, 1996 and for
the year then ended included in the Company's Annual Report on Form 10-KSB
for additional information on the aforementioned long-term debt, including
interest rates, eligible borrowings under the revolving credit facility,
required payments of principal, maturities, and restrictive covenants
contained therein.
5. EARNINGS PER SHARE:
Earnings per common and common equivalent share for the quarter and six
months ended December 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.
6. STOCKHOLDERS' EQUITY:
On November 29, 1996, the Company repurchased 300,000 shares of its Common
Stock to be held in treasury for $825,000.
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
six months ended December 31, 1996 and 1995 is set forth below (in thousands).
Quarter Ended December 31
1996 1995
------------- -------------
Net sales $17,117 100.0% $18,122 100.0%
Gross profit 6,578 38.4% 7,355 40.6%
Selling, general and
administrative expenses,
depreciation and amortization 5,332 31.1% 5,559 30.7%
Operating income 1,246 7.3% 1,796 9.9%
Interest and financing costs 494 2.9% 586 3.2%
Income before income taxes 752 4.4% 1,210 6.7%
Income taxes 324 1.9% 509 2.8%
Net income $ 428 2.5% $ 701 3.9%
Six Months Ended December 31
1996 1995
------------- -------------
Net sales $32,554 100.0% $31,649 100.0%
Gross profit 12,307 37.8% 12,719 40.2%
Selling, general and
administrative expenses,
depreciation and amortization 9,891 30.4% 9,829 31.1%
Operating income 2,416 7.4% 2,890 9.1%
Interest and financing costs 1,075 3.3% 944 3.0%
Income before income taxes 1,341 4.1% 1,946 6.1%
Income taxes 577 1.8% 819 2.6%
Net income $ 764 2.3% $1,127 3.6%
Sales for the current quarter decreased by approximately $1 million as
compared to the 1995 quarter. The sales decrease was principally attributable
to a decrease in sales of rice cake products, offset in part by sales of the
Estee division, which was acquired in November 1995. Sales for the six months
increased by $.9 million as compared to the prior year. 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. 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.
Gross margin percentage decreased by 2.2% in the current quarter and 2.4% for
the six months, as compared to the 1995 quarter and six months, principally
because of the change in product mix referred to above and an increase in
warehousing and delivery costs.
Selling, general and administrative expenses, as a percentage of net sales,
were at approximately the same levels, as a percentage of sales, for the
current quarter and six months as compared to the 1995 quarter and six months.
The increase in interest and financing costs for the six months, as compared
to 1995 six months, was principally attributable to interest on debt incurred
in connection with the Estee acquisition.
Income before income taxes, as a percentage of net sales for the current
quarter and six months as compared to the 1995 quarter and six months,
decreased by approximately 2% principally as a result of the aforementioned
decrease in gross margin.
Income taxes as a percentage of pre-tax income amounted to approximately 43%
in the current quarter and six months as compared to 42% for the prior 1995
quarter and six 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 Restated Credit Facility ("Facility")
providing for a $9 million senior term loan and a $9 million revolving credit
line. The Facility replaced the Company's existing $6 million revolving
credit line with the same bank. Borrowings under the facility bear interest
at 1/2% to 1% over the bank's base rate. The senior term loan is repayable
in quarterly principal installments, commencing March 31, 1996 through maturity
of the Facility on June 30, 2000. Pursuant to the revolving credit line, the
Company may borrow up to 85% of eligible trade receivables and 60% of eligible
inventories. Amounts outstanding under the Facility are collateralized by
principally all of the Company's assets. The Facility also contains certain
financial and other restrictive covenants.
The Company borrowed the full $9 million senior term loan and $2 million
under the revolving credit line to fund the cash purchase price of the
acquisition. Subsequent thereto, the Company repaid approximately $4.5
million of such borrowings from the proceeds of sales of equipment acquired
in the Estee acquisition and operating cash flow.
Of the $9 million available under the Company's revolving credit line, $2.35
million was outstanding at December 31, 1996. From time to time, principally
because of inventory requirements, the Company may utilize a portion of the
revolving credit line. In addition, in November 1996, the Company used
$825,000 under the revolving credit line to repurchase 300,000 shares of its
common stock.
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 December 31, 1996 amounted to approximately $6.2 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 Company's restated revolving credit
facility and Debentures impose limitations on the incurrance of additional
indebtedness and require that the Company comply with certain financial tests
and restrictive covenants.
The aggregate long-term debt service requirements for the 12 month period
ending December 31, 1997 are approximately $5.7 million, which includes the
optional redemption of a $1.75 million subordinated note issued to the seller
(the "Estee Note") in connection with the acquisition of Estee and proceeds
from collections of certain receivables from the sale of equipment, which are
required to be utilized for pre-payments of the senior term loan. The Company
presently intends to redeem the Estee Note on April 30, 1997 at 75% of the
principal amount in accordance with its terms. The Company anticipates that
cash flow from operations will be sufficient to meet all of its debt service
and operating requirements.
INFLATION
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented.
PART II - OTHER INFORMATION
Item 4. - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on December 3, 1996. The Company
submitted the following matters to a vote of security holders:
(i) To elect a Board of nine directors to serve until the next Annual
Meeting of Stockholders; and
(ii) To approve the 1996 Directors Stock Option Plan; and
(iii) To ratify the appointment of Ernst & Young LLP as independent
auditors for the fiscal year ending June 30, 1997 (Ernst & Young LLP
were the independent auditors for the fiscal year ended June 30, 1996).
The stockholders elected the persons named below, the Company's nominees for
directors, as directors of the Company, casting approximately 7,143,000 votes
in favor of each nominee and withholding approximately 4,000 votes for each
nominee:
Andrew R. Heyer
Irwin D. Simon
Beth L. Bronner
Barry Gordon
Steven S. Schwartzreich
John Gildea
William P. Carmichael
William J. Fox
Jack Futterman
The stockholders approved the 1996 Directors Stock Option Plan casting
approximately 6,961,000 votes in favor, 14,000 against and withholding or
not voting 171,000.
The stockholders ratified the appointment of Ernst & Young LLP casting
approximately 7,130,000 votes in favor, 1,000 against and withholding 15,000.
On December 9, 1996, John Gildea resigned as a director of the Company after
the sale of substantially all of his direct equity interest and the equity
interest owned by Network Company II Limited, one of his affiliates. To
date, the vacancy has not been filled.
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 December 31, 1996.
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: February 14, 1997 /s/Irwin D. Simon
Irwin D. Simon,
President and Chief
Executive Officer
Date: February 14, 1997 /s/Jack Kaufman
Jack Kaufman,
Vice President-Finance and
Chief Financial Officer
5
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Jun-30-1997
Jul-01-1996
Dec-31-1996
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