SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 8-K
CURRENT REPORT
------------
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
October 14, 1997
THE HAIN FOOD GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-22818 22-3240619
- ---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
50 Charles Lindbergh Boulevard
Uniondale, New York 11553
- --------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 237-6200
Item 2. Acquisition or Disposition of Assets.
On October 14, 1997, Hain Acquisition Corp., a Delaware corporation (the
"Purchaser") and wholly owned subsidiary of The Hain Food Group, Inc., a
Delaware corporation ("Parent"), pursuant to its Offer to Purchase dated
September 12, 1997 and the related Letter of Transmittal (the "Offer"),
purchased 5,731,904 shares of common stock, par value $.01 per share (the
"Shares"), of Westbrae Natural, Inc., a Delaware corporation (the "Company")
for $3.625, net in cash, per Share. The Shares so purchased represented
approximately 96.3% of the Shares outstanding on such date.
Pursuant to the Agreement and Plan of Merger (the "Merger Agreement")
dated September 11, 1997, as amended, by and among Parent, the Purchaser and
the Company, on October 14, 1997, pursuant to Section 253 of the Delaware
General Corporation Law, the Purchaser merged with and into the Company. As a
result of the Merger, each outstanding share of Common Stock (other than
acquired by the Purchaser in the Offer and Shares as to which appraisal rights
are perfected, if any) were converted into the right to receive $3.625 in cash.
Parent funded the acquisition with funds obtained through its credit
facilities.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of business acquired.
The consolidated financial statements of Vestro Natural Foods Inc. (the
prior name of the Company) ("Vestro") for each of the years in the three year
period ended December 31, 1996, the balance sheets of Vestro for each of the
years in the two year period ended December 31, 1996 and the related report of
independent accountants and the unaudited financial statements of the Company
for the nine months ended September 30, 1996 and September 30, 1997 are
included in pages 3 through 23.
(b) Pro forma financial information.
The unaudited pro forma condensed combined balance sheet of Parent as of
September 30, 1997 and the unaudited pro forma condensed combined statements of
operations for the year ended June 30, 1997 and the three months ended
September 30, 1997 are included in pages 24 through 28.
(c) Exhibits.
2.1 Agreement and Plan of Merger dated as of September 11, 1997, among
Parent, the Purchaser and the Company (Incorporated by reference from Exhibit
(c)(1) to the Schedule 14D-1 filed by Parent and the Purchaser with the
Securities and Exchange Commission (the "SEC") dated September 12, 1997 (the
"Schedule 14D-1")).
2.2 Shareholders Agreement dated as of September 11, 1997, among the
Company, the shareholders named therein, the Parent and the Purchaser
(Incorporated by reference from Exhibit (c)(2) to the Schedule 14D-1).
2.3 First Amendment to the Agreement and Plan of Merger dated as of
October 9, 1997, among Parent, the Purchaser and the Company (Incorporated by
reference from Exhibit (c)(5) to Amendment No. 1 to the Schedule 14D-1 filed by
Parent and the Purchaser with the SEC dated October 9, 1997).
2.4 Press release of Parent dated October 15, 1997 (Incorporated by
reference from Exhibit (a)(9) to Amendment No. 2 to the Schedule 14D-1 filed by
Parent and Purchaser with the SEC dated October 15, 1997).
1
INDEX TO FINANCIAL STATEMENTS
Consolidated financial statements of Vestro Natural
Foods Inc. (the prior name of Westbrae Natural, Inc.) for the fiscal year ended December
31, 1996
Report of Independent Accountants ...................................................... 3
Consolidated Balance Sheet ............................................................... 4
Consolidated Income Statement ............................................................ 5
Consolidated Statement of Shareholders' Equity .......................................... 6
Consolidated Statements of Cash Flows ................................................... 7
Notes to Financial Statements ............................................................ 8
Consolidated financial statements of Westbrae Natural,
Inc. for the nine months ended September 30, 1997
(unaudited)
Consolidated Condensed Balance Sheet ................................................... 16
Consolidated Income Statement ............................................................ 18
Consolidated Statements of Cash Flows ................................................... 20
Notes to Consolidated Financial Statements ............................................. 21
Pro Forma Condensed Combined Financial
Information (unaudited)
Pro Forma Condensed Combined Financial Information ....................................... 24
Pro Forma Condensed Balance Sheet as of September 30, 1997 .............................. 25
Pro Forma Condensed Statement of Income For the Year Ended June 30, 1997 ............... 26
Pro Forma Condensed Statement of Income For the Three Months Ended September
30, 1997 .............................................................................. 27
Notes to Pro Forma Condensed Combined Financial Statements .............................. 28
2
VESTRO NATURAL FOODS, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Vestro Natural Foods Inc.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of Vestro Natural
Foods Inc. and its subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Costa Mesa, California
March 25, 1997
3
VESTRO NATURAL FOODS INC.
CONSOLIDATED BALANCE SHEET
December 31,
1996 1995
-------------- ----------------
Assets
Current assets:
Cash and cash equivalents ....................................... $ 1,000 $ 192,000
Accounts receivable, trade - net of allowance for doubtful accounts
of $52,000 and $49,000 .......................................... 2,105,000 2,084,000
Inventories (Note 1) ............................................. 3,779,000 2,910,000
Prepaid expenses ................................................ 632,000 973,000
------------ ------------
Total current assets .......................................... 6,517,000 6,159,000
------------ ------------
Properties (Note 1):
Machinery and equipment .......................................... 667,000 566,000
Leasehold improvements .......................................... 16,000 15,000
------------ ------------
683,000 581,000
Less accumulated depreciation and amortization .................. 514,000 425,000
------------ ------------
169,000 156,000
------------ ------------
Excess of cost over net assets of businesses acquired - net of
accumulated amortization of $1,583,000 and $1,370,000 (Note 1) . 6,694,000 6,907,000
Other assets ...................................................... 395,000 545,000
------------ ------------
Total assets ................................................... $ 13,775,000 $ 13,767,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ................................................ $ 1,713,000 $ 2,409,000
Accrued liabilities (Note 10) .................................... 786,000 507,000
Current portion of long-term debt (Note 3) ..................... 849,000 775,000
------------ ------------
Total current liabilities .................................... 3,348,000 3,691,000
Long-term debt, net of current portion (Note 3) .................. 1,913,000 2,765,000
------------ ------------
Total liabilities ............................................. 5,261,000 6,456,000
------------ ------------
Commitments and contingencies (Notes 3 and 9)
Shareholders' equity (Notes 5 and 6):
Common stock, $.01 par value, 30,000,000 shares authorized;
5,950,588 shares issued and outstanding ........................ 60,000 60,000
Additional paid-in capital ....................................... 17,202,000 17,202,000
Note receivable under stock purchase plan ........................ (444,000) (444,000)
Accumulated deficit ............................................. (8,304,000) (9,507,000)
------------ ------------
Total shareholders' equity .................................... 8,514,000 7,311,000
------------ ------------
Total liabilities and shareholders' equity ..................... $ 13,775,000 $ 13,767,000
============ ============
See accompanying notes to consolidated financial statements.
4
VESTRO NATURAL FOODS INC.
CONSOLIDATED INCOME STATEMENT
For the years ended December 31,
1996 1995 1994
-------------- -------------- ----------------
Net sales .......................................... $32,583,000 $ 28,836,000 $ 24,892,000
Cost of goods sold .............................. 20,143,000 18,374,000 16,059,000
----------- ------------ ------------
Gross profit .................................... 12,440,000 10,462,000 8,833,000
Selling, general and administrative expenses ...... 10,822,000 9,676,000 8,168,000
----------- ------------ ------------
Income from operations ........................ 1,618,000 786,000 665,000
Interest expense ................................. (266,000) (259,000) (257,000)
Other income, net ................................. 9,000 89,000 148,000
----------- ------------ ------------
Income before provision for income taxes ...... 1,361,000 616,000 556,000
Provision for income taxes (Note 4) ............... 158,000 14,000 18,000
----------- ------------ ------------
Net income ....................................... $ 1,203,000 $ 602,000 $ 538,000
=========== ============ ============
Earnings per common share (Note 1) ............... $ .19 $ .10 $ .09
=========== ============ ============
Weighted average common shares outstanding ...... 6,275,125 6,067,376 6,260,130
=========== ============ ============
See accompanying notes to consolidated financial statements.
5
VESTRO NATURAL FOODS INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
10%
Series A Convertible
Convertible Exchangeable
Preferred Preferred Common
Stock Stock Stock
--------------- --------------- ----------
Balance at December 31, 1993 . $ 1,140,000 $ 8,768,000 $17,000
Exchange of 3,899,570 shares of
common stock for preferred
stock (Note 5) ............... (1,140,000) (8,768,000) 39,000
Issuance of 659,750 shares of
common stock under stock
purchase plan (Note 6) ...... 7,000
Repurchase of 263,900 shares
under stock purchase plan ... (3,000)
Net income for the year ......
Balance at December 31, 1994 . 60,000
Net income for the year .........
Balance at December 31, 1995 . 60,000
Net income for the year .........
Balance at December 31, 1996 . $ $ $60,000
============= ============= ========
Note
Receivable
Under
Additional Stock
Paid-In Accumulated Purchase
Capital Deficit Plan
-------------- ------------------ ---------------
Balance at December 31, 1993 . $11,096,000 $ (10,647,000)
Exchange of 3,899,570 shares of
common stock for preferred
stock (Note 5) ............... 5,403,000
Issuance of 659,750 shares of
common stock under stock
purchase plan (Note 6) ...... 1,228,000 $ (784,000)
Repurchase of 263,900 shares
under stock purchase plan ... (525,000) 340,000
Net income for the year ...... 538,000
--------------
Balance at December 31, 1994 . 17,202,000 (10,109,000) (444,000)
Net income for the year ......... 602,000
--------------
Balance at December 31, 1995 . 17,202,000 (9,507,000) (444,000)
Net income for the year ......... 1,203,000
--------------
Balance at December 31, 1996 . $17,202,000 $ (8,304,000) $ (444,000)
============ ============== ===========
See accompanying notes to consolidated financial statements.
6
VESTRO NATURAL FOODS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended December 31,
1996 1995 1994
------------- --------------- -------------
Cash flows from operating activities:
Net income ................................................... $ 1,203,000 $ 602,000 $ 538,000
----------- ------------ -----------
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation ............................................. 90,000 76,000 71,000
Amortization of intangibles .............................. 213,000 213,000 213,000
Compensation expense under stock purchase and
stock option plans ....................................... 52,000 52,000 238,000
Provision (reversal) for doubtful accounts and note ...... 3,000 (59,000) (220,000)
Provision for slow-moving inventory and discontinued
products ................................................ 60,000 77,000 237,000
Changes in operating assets and liabilities, net of
effect of business disposition:
(Increase) decrease in accounts receivable ............... (24,000) (333,000) 105,000
Increase in inventories ................................. (929,000) (440,000) (664,000)
Decrease (increase) in prepaid expenses .................. 341,000 (530,000) 80,000
(Decrease) increase in accounts payable .................. (696,000) (563,000) 813,000
Increase (decrease) in accrued liabilities ............... 227,000 (189,000) (225,000)
----------- ------------ -----------
Total adjustments ....................................... (663,000) (1,696,000) 648,000
----------- ------------ -----------
Net cash provided by (used in) operating activities . 540,000 (1,094,000) 1,186,000
----------- ------------ -----------
Cash flows from investing activities:
Capital expenditures ....................................... (103,000) (66,000) (65,000)
Proceeds from note receivable .............................. 167,000 379,000
Decrease (increase) in other assets ........................ 150,000 107,000 (322,000)
----------- ------------ -----------
Net cash provided by (used in) investing activities ....... 47,000 208,000 (8,000)
----------- ------------ -----------
Cash flows from financing activities:
Proceeds from borrowings on bank note payable ............... 36,000 38,000
(Repayment of) proceeds from borrowings on revolving
line of credit ............................................. (100,000) 100,000
Repayments under long-term debt .............................. (714,000) (549,000) (422,000)
Payment in connection with recapitalization (Note 5) ...... (94,000)
Proceeds from stock purchase plan ........................... 66,000
-----------
Net cash used in financing activities ..................... (778,000) (411,000) (450,000)
----------- ------------ -----------
Increase (decrease) in cash and cash equivalents ............ (191,000) (1,297,000) 728,000
Cash and cash equivalents, beginning of year .................. 192,000 1,489,000 761,000
----------- ------------ -----------
Cash and cash equivalents, end of year ........................ $ 1,000 $ 192,000 $ 1,489,000
=========== ============ ===========
See accompanying notes to consolidated financial statements.
7
VESTRO NATURAL FOODS INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Description of business
Vestro Natural Foods Inc., a Delaware corporation, is engaged in the
ownership and operation of specialty food businesses. Its products are sold
under the tradenames Westbrae, Westsoy, Little Bear and Bearitos.
Basis of presentation
The consolidated financial statements include the accounts of Vestro
Natural Foods Inc. and its subsidiaries (the Company), all of which are
wholly-owned. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of estimates in preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
respective reporting periods. Actual results could differ from those estimates.
Fair value of financial instruments
The Company values financial instruments as required by Statement of
Financial Accounting Standards No. 107, "Disclosure about Fair Values of
Financial Instruments" (SFAS 107). The carrying amounts of cash and cash
equivalents, accounts and other receivables, accounts payable, accrued
liabilities and debt approximate fair value.
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents for purposes
of the consolidated statement of cash flows.
Concentrations of credit risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
credit risk exists because the Company's sales are concentrated to a relatively
small number of customers within the natural foods industry. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations.
Inventories
Inventories are valued at the lower of cost or market, cost being
determined on a first-in, first-out basis. At December 31, 1996 and 1995,
inventories consist of:
1996 1995
------------- ------------
Finished goods .................. $ 2,598,000 $ 2,541,000
Raw materials and supplies ...... 1,181,000 369,000
------------ ------------
$ 3,779,000 $ 2,910,000
============ ============
Properties
Properties are stated at cost less accumulated depreciation. Machinery and
equipment are depreciated using a straight-line basis over the estimated useful
life of the asset ranging from five to seven years. Leasehold improvements are
amortized on a straight-line basis over the lesser of the useful lives or the
term of the lease.
8
VESTRO NATURAL FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
1. Summary of significant accounting policies -- (Continued)
Intangible assets
The excess of the cost over the fair value of net assets of purchased
businesses (goodwill) is amortized on a straight-line basis, generally over 40
years. The Company evaluates whether there has been any impairment of goodwill
based upon management's estimate of future net income, on an undiscounted
basis, over the remaining useful life of goodwill.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under the liability method specified by SFAS 109, the deferred tax
liability is determined based on the difference between the financial statement
and tax bases of assets and liabilities as measured by the enacted tax rates
which will be in effect when these differences reverse. Deferred tax expense is
the result of changes in the liability for deferred taxes.
Stock options
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) in 1996. As permitted by
SFAS 123, the Company continues to measure compensation cost in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) but provides pro forma disclosures of net income and
earnings per common share as if the fair value method (as defined in SFAS 123)
had been applied beginning in 1995.
Earnings per share
Earnings per share are based upon the weighted average number of common
shares and common stock equivalents outstanding. Assumed exercise of contingent
shares, convertible preferred stock, outstanding warrants and options have been
considered in the computation of per share data to the extent they are
dilutive.
2. Business divestitures
Divestiture of the net assets of Heidi's Pastry, Inc. and Jan Holzmeister
Cheesecake, Ltd.
Effective December 18, 1992, the Company sold substantially all of the
assets of Heidi's Pastry, Inc., a bakery and wholesale distributor of gourmet
pastries, and Jan Holzmeister Cheesecake, Ltd., a producer of cheesecakes. The
sales price included $4,200,000 in cash, a note receivable valued at $411,000,
and the assumption of certain related liabilities and obligations. A cash
payment for the remaining balance of the note receivable was received during
1995.
3. Debt obligations
Revolving line of credit
In April 1994, the Company executed a revolving credit agreement with a
financial institution. The original agreement established an expiration date of
April 30, 1996. In 1996, the Company executed an amendment which extended the
expiration to April 30, 1997 and revised certain other terms of the credit
agreement. The terms of the credit agreement, as amended, provide: (1)
borrowings up to 80% of eligible accounts receivable plus 30% of eligible
inventory (up to $1,000,000) less all outstanding commercial and standby
letters of credit; (2) a maximum outstanding credit balance of $4,000,000; (3)
interest rate at the bank's prime rate plus 0.5% with a Company option to have
all or portion of the principal balance bear interest at LIBOR plus 2.5%; (4) a
requirement to maintain a non-interest bearing deposit of $200,000 or pay a fee
calculated at the prime rate plus 3% on the difference between the average
daily deposit and the $200,000 requirement.
9
VESTRO NATURAL FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
3. Debt obligations -- (Continued)
Upon execution of the agreement, the Company paid a loan fee of $40,000.
Upon execution of the 1996 amendment, the Company paid an additional fee of
$10,500. In addition, the Company was required to reimburse such expenses as
filing, recording and search fees, appraisal fees, title report fees, legal and
audit fees. These expenses were not significant for the years ended December
1996, 1995 and 1994. Outstanding borrowings under the revolving credit
agreement were $-0- and $100,000 at December 31, 1996 and 1995, respectively.
In addition to revising terms of the existing revolving line of credit,
the 1996 amendment provided an additional credit facility to the Company. The
Company was permitted to borrow up to $150,000 through December 31, 1996 for
capital expenditures. The outstanding borrowing under this additional credit
facility was $36,000 at December 31, 1996 which is included in long-term debt
in the financial statements. This balance bears interest at the bank's prime
rate plus 0.75% and is due in equal monthly installments through December 31,
1998.
The revolving line of credit is secured by substantially all of the
Company's assets. The agreement contains various covenants which restrict the
Company from incurring additional indebtedness and require the Company to
maintain certain financial ratios.
Notes payable
In connection with the exchange agreement (see Note 5) with the holders of
the Company's 10% convertible exchangeable preferred stock, the Company issued
$4,372,000 in notes payable bearing interest at 8% per annum. The Senior
Subordinated Notes A (Notes A) were issued in consideration of the dividends in
arrears at the time of the agreement, which amounted to approximately
$2,872,000. Principal and interest on Notes A are due monthly through May 15,
1998. The Senior Subordinated Notes B (Notes B) total $1,500,000. Interest on
Notes B is payable monthly through May 15, 1998, subject to the limitation that
the total principal and interest paid under both Notes A and B does not exceed
30% of net income. Any interest payments that are deferred due to this
provision are payable in the next quarter that such provision will permit.
Principal payments on Notes B are due quarterly beginning August 15, 1998
through 1999. The aggregate principal maturities of Notes A and B are payable
as follows:
Year Ended
December 31,
- ------------
1997 ........... $ 831,000
1998 ........... 908,000
1999 ........... 987,000
The agreement also contains various covenants which restrict the Company
from incurring additional indebtedness and property liens without the consent
of the holders of a majority of the notes payable.
4. Income taxes
The income tax provision for the years ended December 31, 1996 and 1995
consists of:
1996 1995
----------- ---------
Current income taxes:
Federal ............ $ 81,000 $ 7,000
State ............ 77,000 7,000
---------- ---------
158,000 14,000
---------- ---------
Deferred income taxes:
Federal ............
State ...............
$ 158,000 $ 14,000
========== =========
10
VESTRO NATURAL FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
4. Income taxes -- (Continued)
The differences between the tax provision calculated based on the
statutory and effective tax rates for the year ended December 31, 1996 and 1995
are as follows:
1996 1995
------------ -------------
Computed income taxes, at 34% ........................... $ 463,000 $ 209,000
State income tax, net of federal income tax benefit ...... 51,000 5,000
Goodwill and other nondeductible expenses ............... 76,000 77,000
Utilization of NOL carryforwards ........................ (516,000) (231,000)
Other ................................................... 84,000 (46,000)
---------- ----------
$ 158,000 $ 14,000
========== ==========
Deferred tax assets (liabilities) comprise the following:
December 31,
1996 1995
-------------- ---------------
Deferred tax assets:
Net operating loss carryforwards ............ $ 1,190,000 $ 1,716,000
Asset reserves .............................. 114,000 89,000
Accrued expenses ........................... 276,000 219,000
Deferred tax asset valuation allowance ...... (1,546,000) (1,995,000)
------------ ------------
34,000 29,000
------------ ------------
Deferred tax liabilities:
Properties ................................. (34,000) (29,000)
------------ ------------
Net deferred tax asset (liability) ............ $ -- $ --
============ ============
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $3,457,000 which expire in varying amounts through
2009. The amount of net operating loss deductions available to the Company to
offset future taxable income may be limited due to certain income tax
regulations related to a change in ownership of the Company.
5. Capital stock
On January 21, 1994, the shareholders approved an amendment to the
Company's certificate of incorporation reducing the authorized common shares to
30,000,000 and authorized a one-for-ten reverse stock split. A total of
14,924,729 shares of common stock were retired in connection with the split.
The stated par value of each share was not changed from $.01. A total of
$149,000 was reclassified from the Company's common stock account to additional
paid-in capital account, representing the par value of the shares retired. All
references in the financial statements to average number of shares outstanding,
per share amounts and stock option plan data have been restated to reflect the
split.
On January 10, 1994, the Company consummated an exchange agreement with
the holders of the Series A convertible preferred stock whereby all shares were
retired and dividends in arrears eliminated in exchange for $21,000 in cash and
534,800 shares of the Company's common stock. At the time of the exchange,
dividends in arrears amounted to $297,000.
On January 10, 1994, the Company consummated an exchange agreement with
the holders of the 10% convertible exchangeable preferred stock whereby all
shares were retired and dividends in arrears eliminated in exchange for $73,000
in cash, 3,364,770 shares of the Company's common stock, and notes payable in
the amount of $4,372,000 see Note 3). At the time of the exchange, dividends in
arrears amounted to $2,872,000.
11
VESTRO NATURAL FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
6. Incentive compensation and stock purchase and option plans
The Company adopted a stock option plan in 1996 under which employees may
be granted options to purchase up to 150,000 shares of the Company's common
stock at prices not less than the fair market value of the common stock on the
date of grant. Stock options may be granted under the plan through 2006. As of
December 31, 1996, 74,500 options are outstanding under this plan, none of
which are currently exercisable.
In 1996, the Company granted nonqualified stock options to purchase
120,000 shares of the Company's common stock to an officer of the Company. Of
the options, 60,000 were granted at an exercise price of $1.50 per share and
the remaining 60,000 were granted at $2.25 per share. The options were granted
at market value of the Company's common stock and as such no compensation
expense was recorded. These options were 100% exercisable upon issuance.
In 1995, the Company granted nonqualified stock options to purchase
120,000 shares of the Company's common stock to an officer of the Company. Of
the options, 60,000 were granted at an exercise price of $1.63 per share and
the remaining 60,000 were granted at $1.88 per share. The options were granted
at market value of the Company's common stock and as such no compensation
expense was recorded. These options were 100% exercisable upon issuance.
In 1995, the Company granted nonqualified stock options to purchase
160,000 shares of the Company's common stock at an exercise price of $1.88 per
share to the Directors of the Company. The options were granted at market value
of the Company's common stock and as such no compensation expense was recorded.
The options vest over a three-year period with up to two years credit given to
individual Directors for prior service. As of December 31, 1996, 133,333 of
these options are exercisable.
Effective January 1, 1994, the Company adopted a 401(k) Savings Plan
covering substantially all employees. Monthly contributions to the Savings Plan
are made by the Company based upon the employee's contributions to the plan.
The Company contributed $32,000, $26,000 and $26,000 to the Savings Plan during
the years ended December 31, 1996, 1995 and 1994, respectively.
In 1994, the Company entered into a bonus arrangement with two key
executive officers. In connection with the arrangement, the officers
participate in an incentive compensation plan which provides a bonus based on
pre-tax earnings in excess of predetermined targets. The incentive compensation
bonus was $7,000 for the year ended December 31, 1994. This arrangement expired
on December 31, 1994.
On January 10, 1994, the Company consummated a stock purchase plan under
which 659,750 shares of the Company's common stock were issued to an executive
officer for total consideration of $850,000, consisting of $66,000 in cash and
a $784,000 note receivable, bearing interest at 5.75%, due December 31, 1997.
The purchase plan provides the Company with the right to repurchase shares in
the event that the officer's employment is terminated prior to a five-year
vesting period. Following the officer's resignation in January 1995, the
Company was entitled to repurchase 395,850 shares with a corresponding
reduction in the amount of the note receivable due from the former officer. The
Company entered into a severance agreement with the former officer which
entitled the officer to purchase an additional 131,950 shares with a note
receivable. The Company recorded the repurchased shares and the severance
agreement in the financial statements as of December 31, 1994. The Company also
recognized earned compensation expense of $198,000 during the year ended
December 31, 1994, representing the difference between the sale price and the
fair market value of these shares as of the date of the stock purchase plan and
of the severance agreement. Nonqualified stock options to purchase 494,812
shares of the Company's common stock were also forfeited upon the former
officer's resignation.
In 1993, the Company granted nonqualified stock options to purchase
329,875 shares of the Company's common stock at an exercise price of $1.29 per
share to an officer of the Company's subsidiary. In connection with the
nonqualified stock options granted below the fair market value of the Company's
common stock at the date of grant, the Company will amortize $194,000 to
compensation expense over a five-year vesting period. Amortization recorded to
compensation expense was $52,000 for each the years ended December 31, 1996 and
1995.
12
VESTRO NATURAL FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
6. Incentive compensation and stock purchase and option plans -- (Continued)
The Company adopted a stock option plan in 1988 under which employees may
be granted options to purchase up to 150,000 shares of the Company's common
stock at prices not less than the fair market value of the common stock on the
date of grant. Stock options may be granted under the plan through 1998. As of
December 31, 1996, 149,500 options are outstanding under this plan, 58,375 of
which are currently exercisable.
The Company adopted a nonqualified stock option plan in 1987 under which
certain employees and directors may be granted options to purchase up to
270,000 shares of the Company's common stock at prices not less than the fair
market value of common stock on the date of grant. Stock options may be granted
under the plan through 1997. As of December 31, 1996, there are no options
outstanding under this plan.
The following table sets forth the options granted, forfeited and
exercised during the three years ended December 31, 1996 and their respective
exercise price ranges:
Shares Prices
------------- -------------
Shares under option, December 31, 1993 ...... 925,687 $1.29 - 6.00
Granted .................................... 56,500 2.75
Forfeited and expired ........................ (520,812) 2.58 - 6.00
--------- ------------
Shares under option, December 31, 1994 ...... 461,375 1.29 - 6.00
Granted .................................... 405,500 1.38 - 1.88
Forfeited and expired ........................ (107,500) 1.38 - 6.00
--------- ------------
Shares under option, December 31, 1995 ...... 759,375 1.29 - 1.88
Granted .................................... 194,500 1.50 - 3.00
Forfeited and expired ........................ --
---------
Shares under option, December 31, 1996 ...... 953,875 $1.29 - 3.00
========= ============
The options issued during 1996 in accordance with the 1996 stock option
plan were granted for 10 year periods. All other options were granted for 5
year periods. Except as noted above, options granted to officers and employees
are not generally exercisable for a period of one year after date of grant and
thereafter become exercisable at 25% annually. The following table summarizes
information about stock options outstanding at December 31, 1996:
Weighted-Average
Shares Remaining Shares
Exercise Price Outstanding Contractual Life Exercisable
- -------------------- ------------- ------------------ ------------
$1.29 329,875 1.0 263,900
$1.38 149,500 3.2 58,375
$1.50 60,000 4.1 60,000
$1.63 60,000 3.1 60,000
$1.88 220,000 3.6 193,333
$2.25 60,000 4.5 60,000
$3.00 74,500 9.8 -0-
-------- --- --------
$1.29-$3.00 953,875 3.2 695,608
======== === ========
13
VESTRO NATURAL FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
6. Incentive compensation and stock purchase and option plans
-- (Continued)
Had compensation cost been determined on the basis of fair value pursuant
to SFAS 123 net income and earnings per common share would have been as
follows:
December 31,
1996 1995
------------- ----------
Net income:
As reported ............ $ 1,203,000 $ 602,000
============ ==========
Pro forma ............... $ 1,030,000 $ 371,000
============ ==========
Earnings per common share:
As reported ............ $ .19 $ .10
============ ==========
Pro forma ............... $ .16 $ .07
============ ==========
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes model with the following assumptions used for grants
during both periods: no dividend yield; expected volatility of 39%; risk free
interest rates of 6.5% in 1996 and 7.1% in 1995; and expected option lives of
3-7 years.
At December 31, 1996 the Company has reserved 953,875 shares of common
stock for the exercise of outstanding stock options.
7. Related party transactions
The Company leases certain office and warehouse space in Carson,
California from a partnership which includes a Director of the Company. Total
rent expense paid to the partnership was $196,000, $196,000 and $161,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
8. Sales to major customers
In 1996 sales to three customers accounted for $9,126,000, $6,275,000 and
$4,728,000 or approximately 27%, 18% and 14% of total revenue, respectively. In
1995 sales to four customers accounted for $4,860,000, $3,674,000, $3,170,000
and $3,016,000 or approximately 17%, 13%, 11% and 11% of total revenue,
respectively. In 1994 sales to three customers accounted for $3,650,000,
$3,625,000 and $2,592,000 or approximately 15%, 15% and 10% of total revenue,
respectively.
9. Commitments and contingencies
Leases
As of December 31, 1996, the Company and its subsidiaries are obligated
under various agreements to lease facilities and equipment. Future minimum
rentals under noncancellable operating leases are as follows:
Operating
Year ending December 31, Leases
- ---------------------------- ----------
1997 ............... $ 152,000
1998 ............... 3,000
----------
Total ............... $ 155,000
==========
Rental expense related to operating leases amounted to $201,000, $207,000
and $228,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
14
VESTRO NATURAL FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
9. Commitments and contingencies -- (Continued)
Legal proceedings
Management has received information furnished by legal counsel on the
current status of all outstanding legal proceedings and the development of
these matters to date. Based upon this review, it is the opinion of management
that adequate provision has been made for all reasonably estimable costs and
that the ultimate aggregate liability, if any, should not materially affect the
Company's financial position or results of operations.
10. Accrued liabilities
Accrued liabilities consist of the following:
1996 1995
----------- ----------
Compensation expense and related benefits ...... $ 455,000 $ 288,000
Income Taxes Payable ........................... 147,000
Other .......................................... 184,000 219,000
---------- ----------
$ 786,000 $ 507,000
========== ==========
11. Consolidated statement of cash flows -- supplemental disclosures
Supplemental disclosures of cash flow information:
Interest paid during 1996, 1995 and 1994 amounted to $268,000, $268,000
and $257,000, respectively.
Cash paid for income taxes during 1996, 1995 and 1994 amounted to $4,000,
$8,000 and $8,000, respectively.
Supplemental schedule of noncash investing and financing activities:
Year ended December 31, 1994
- -----------------------------
Notes payable exchanged in retirement of preferred stock and dividends in arrears ... $ 4,372,000
============
Note receivable recorded in connection with stock purchase plan, net of reduction for
shares repurchased ............................................................... $ 444,000
============
15
WESTBRAE NATURAL, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
September 30, December 31,
1997 1996
--------------- -------------
(Unaudited)
Current assets:
Cash and cash equivalents .............................. $ 1,175,000 $ 1,000
Accounts receivable trade -- net ........................ 2,895,000 2,105,000
Inventories ............................................. 4,451,000 3,779,000
Prepaid expenses and other .............................. 603,000 632,000
------------ ------------
Total current assets ................................. 9,124,000 6,517,000
------------ ------------
Properties, at cost:
Machinery and equipment ................................. 683,000 667,000
Leasehold improvements ................................. 16,000 16,000
------------ ------------
699,000 683,000
Less accumulated depreciation ........................... 561,000 514,000
------------ ------------
138,000 169,000
Excess of cost over net assets businesses acquired -- net . 6,535,000 6,694,000
Other Assets ............................................. 256,000 395,000
------------ ------------
Total assets .......................................... $16,053,000 $13,775,000
------------ ------------
See accompanying notes to consolidated financial statements.
16
WESTBRAE NATURAL, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
1997 1996
--------------- --------------
(Unaudited)
Current liabilities:
Accounts payable ............................................. $ 2,878,000 $ 1,713,000
Notes Payable-current portion .............................. 859,000 849,000
Accrued liabilities .......................................... 876,000 786,000
Total current liabilities .................................... 4,613,000 3,348,000
Notes Payable ................................................ 1,255,000 1,913,000
------------ ------------
Total liabilities .......................................... 5,868,000 5,261,000
Commitments and contingencies (Note 3)
Common Stock, $.01 par value, 30,000,000 shares
authorized 5,950,588 shares issued and; outstanding ...... 60,000 60,000
Additional paid-in capital ................................. 17,202,000 16,758,000
Accumulated deficit .......................................... (7,077,000) (8,304,000)
------------ ------------
10,185,000 8,514,000
------------ ------------
Total liabilities and shareholders' equity .................. $ 16,053,000 $13,775,000
------------ ------------
See accompanying notes to consolidated financial statements.
17
WESTBRAE NATURAL, INC., AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(Unaudited)
Three Months Ended
September 30,
-------------------------------
1997 1996
------------- ---------------
Net sales .......................................... $ 9,728,000 $ 8,188,000
Cost of sales .................................... 5,711,000 5,036,000
----------- -----------
Gross profit ....................................... 4,017,000 3,152,000
Selling, general and administrative expenses ...... 3,389,000 2,703,000
----------- -----------
Operating income ................................. 628,000 449,000
Interest & other income (expense) .................. (34,000) (64,000)
----------- -----------
Net Income before income taxes ..................... 594,000 385,000
Income tax provision .............................. 75,000 61,000
----------- -----------
Net Income ....................................... $ 519,000 $ 324,000
Earnings per common share ........................ $ .08 $ .08
See accompanying notes to consolidated financial statements.
18
WESTBRAE NATURAL, INC., AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(Unaudited)
Six Months Ended
September 30,
---------------------------------
1997 1996
-------------- ----------------
Net sales .......................................... $ 27,230,000 $ 25,378,000
Cost of sales .................................... 16,280,000 15,728,000
------------ ------------
Gross profit ....................................... 10,950,000 9,650,000
Selling, general and administrative expenses ...... 9,430,000 8,453,000
------------ ------------
Operating income ................................. 1,520,000 1,197,000
Interest & other income (expense) .................. (123,000) (198,000)
------------ ------------
Net Income before income taxes ..................... 1,397,000 999,000
Income tax provision .............................. 170,000 105,000
------------ ------------
Net Income ....................................... $ 1,227,000 $ 894,000
Earnings per common share ........................ $ .19 $ .14
See accompanying notes to consolidated financial statements.
19
WESTBRAE NATURAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September
----------------------------
1997 1996
------------ -------------
Cash flows from operating activities:
Net income ............................................. $1,227,000 $ 571,000
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization ........................... 206,000 149,000
Provision for doubtful accounts ........................ 27,000 18,000
Change in assets and liabilities, net of effect of business
acquisitions:
(Increase) decrease in accounts receivable ............... (817,000) (448,000)
(Increase) decrease in inventories ..................... (672,000) (879,000)
(Increase) decrease in prepaid expenses and other ...... 29,000 100,000
Increase (decrease) in accounts payable .................. 1,165,000 476,000
Increase (decrease) in other accrued liabilities ......... 90,000 223,000
---------- ----------
Total adjustments ....................................... 28,000 (361,000)
---------- ----------
Net cash provided (used) by operating activities ......... 1,255,000 210,000
---------- ----------
Cash flows from investing activities:
Expenditures for equipment .............................. (16,000) (61,000)
(Increase) in other assets .............................. 139,000 108,000
---------- ----------
Net cash provided (used) by investing activities ......... 123,000 47,000
---------- ----------
Cash flows from financing activities:
Proceeds from stock purchase ........................... 444,000 --
Net borrowing (payments) of long-term obligations ...... (648,000) (449,000)
---------- ----------
Net cash provided (used) by financing activities ......... (204,000) (449,000)
---------- ----------
Increase (decrease) in cash .............................. 1,174,000 (192,000)
Cash and cash equivalents, beginning of period ......... 1,000 192,000
---------- ----------
Cash and cash equivalents, end of period ............... $1,175,000 $ --
---------- ----------
See accompanying notes to consolidated financial statements.
20
WESTBRAE NATURAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
The consolidated balance sheet as of September 30, 1997, and the
consolidated statements of operations and cash flows for the three and nine
months ended September 30, 1997 and September 30, 1996 have been prepared by
the Company, without audit. In the opinion of Management, all adjustments
necessary to present fairly the financial position, results of operations and
changes in financial position at September 30, 1997 and for all periods
presented have been made. Such adjustments consisted only of normal recurring
items.
Certain information and footnote disclosures normally included in annual
financial statements have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996. The results of operations for the
periods ended September 30, 1997 and September 30, 1996 are not necessarily
indicative of the operating results for the full years.
Note 1. Provision for Income Taxes
Effective January 1, 1993, the Company adopted FAS No. 109 for accounting
for income taxes. The adoption of FAS No. 109 did not have a material effect on
the Company's net income for the three months and nine months ended September
30, 1997.
For Federal income tax purposes, the Company has a tax basis net operating
loss carryforward of $1,400,000 expiring through 2009. During the three months
and nine months ended September 30, 1997, the income tax provision reflects the
utilization of available Federal operating loss carryforwards in lieu of income
taxes that would have been incurred. Utilization of the remaining carryforwards
is dependent on future taxable income.
Note 2. Earnings (Loss) Per Share
Earnings (loss) per share amounts are based on the weighted average number
of shares outstanding --
For the three months ended September 30, 1997 ...... 6,462,212
For the nine months ended September 30, 1997 ...... 6,422,821
For the three months ended September 30, 1996 ...... 6,348,042
For the nine months ended September 30, 1996 ...... 6,231,495
Assumed exercise of outstanding options have been considered in the
computation of per share data to the extent they cause dilution.
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Account Standards No. 128, "Earnings per Share" ("FAS 128") which
will become effective in the fourth quarter of 1997. FAS 128 replaces the
presentation of earnings per share reflected on the Income Statement with a
dual presentation of Basic earnings per share ("Basic EPS") and Diluted
earnings per share ("Diluted EPS"). Basic EPS excludes dilution and is computed
by dividing net income by the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
could occur if stock options and other commitments to issue common stock were
exercised resulting in the issuance of common stock which then shared in the
earnings of the Company. FAS 128 does not permit early application; however, it
requires, when implemented in the fourth quarter, the restatement of previously
reported earnings per share for each income statement presented. Pro forma
disclosure of earnings per share information as if the Company had implemented
FAS 128 for the three and nine month periods, ending September 30, 1997 and
September 30, 1996 is as
follows.
21
Three Months Ended Nine Months Ended
--------------------------- --------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
Pro Forma Earnings Per Share: 1997 1996 1997 1996
- ------------------------------------------ ------------ ------------ ------------ -----------
(Unaudited)
Net Income .............................. $ 519,000 $ 324,000 $1,227,000 $ 894,000
Weighted average shares ............... 5,950,588 5,950,588 5,950,588 5,950,588
Basic earnings per share ............... $ .09 $ .09 $ .21 $ .15
----------- ----------- ----------- -----------
Weighted average-shares including the
dilutive effect of stock options ...... 6,428,745 6,346,565 6,401,522 6,229,844
Diluted earnings per share ............... $ .08 $ .05 $ .19 $ .14
----------- ----------- ----------- -----------
Note 3. Acquisition by the Hain Food Group, Inc.
On September 8, 1997 the Company signed a letter of intent to be acquired
by the Hain Food Group, Inc. ("Hain"). A wholly owned subsidiary of Hain began
a cash tender offer of $3.625 per share of the Company's common stock. On
October 14, 1997, due to the tender in excess of 95% of the Company's stock,
the acquisition was consummated. In conjunction with the acquisition, Hain
agreed to redeem the outstanding Subordinated Notes of the Company in the
amount of $2,103,000. Reference is made to the Company's Schedule 14D-9 filed
on September 17, 1997 and attached as an exhibit hereto.
Note 4. Contingencies
Management has considered information furnished by legal counsel as to the
current status of all outstanding legal proceedings and the development of
these matters to date. Based upon this review, it is the opinion of Management
that adequate provision has been made for all reasonable estimable costs and
that the ultimate aggregate liability, if any, should not materially affect the
consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Three months ended September 30, 1997
Net sales for the quarter ended September 30, 1997 were $9,728,000, an
increase of 19% over $8,188,000 in the prior year's period. This was the
highest sales level for any quarter in the Company's history. The increase is
largely due to very strong performance by the Company's non-dairy beverages.
Sales of non-dairy beverages increased by 42% from the prior year's quarter
with all types of beverages, soy and rice, and sizes, quart and half gallons,
experiencing substantial gains.
Gross profit of the Company was $4,017,000 or 41.3% of sales for the
quarter ended September 30, 1997 compared to $3,152,000 or 38.5% of sales in
1996. The gross margin increase of 2.8% was caused by several factors. First,
the Company's new products have higher margins than many of the older items. As
these new products attain a higher percentage of the Company's sales volume,
the mix has produced an overall increase in margin. In addition, the Company
experienced a positive change in product mix towards its higher margin product
lines. The third quarter of 1997 was the seventh consecutive quarter of higher
gross margin percentages for the Company.
Selling, general and administrative expenses were $3,389,000 or 34.8% of
sales for the quarter ended September 30, 1997 compared to $2,703,000 or 33.0%
of sales in 1996. The increase was due largely to programs with distributors
and retailers to promote the Company's products at attractive retail prices.
The Company had net interest and other expense of $34,000 in the current
quarter compared to expense of $64,000 in the prior year. The Company recorded
$75,000 of income tax expense, representing state taxes and the Federal
alternative minimum tax, in the quarter ended September 30, 1997.
Nine months ended September 30, 1997
Net sales for the nine months ended September 30, 1997 were $27,230,000
compared to $25,378,000 in the prior year's period, an increase of 7%. New
product introductions in 1997 did not reach the level of 1996, when the Company
had its largest product introduction, non-dairy half gallons. However,
continued increases in the sales level of the Company's non-dairy beverages and
canned products, accounted for the increase over the prior year.
22
Gross profit of the Company was $10,950,000 or 40.2% of sales for the nine
months ended September 30, 1997 compared to $9,650,000 or 38.0% of sales in
1996. The gross margin increase of 2.2% was caused by a positive change in
product mix during 1997 during 1997 toward the Company's higher margin product
categories. In addition, the Company's new product offerings provide better
margins than previous products.
Selling, general and administrative expenses were $9,430,000 or 34.6% of
sales for the nine months ended September 30, 1997 compared to $8,453,000 or
33.3% of sales in the comparable period of 1996. The increase was due largely
to programs with distributors and retailers to promote the Company's products
at attractive retail prices.
The Company had net interest and other expense of $123,000 in the nine
months ended September 30, 1997 compared to net interest and other expense of
$198,000 in the prior year's comparable period. The Company recorded $170,000
of income tax expense, representing state tax and the Federal alternative
minimum tax, in the nine months ended September 30, 1997.
As a result of the above, the Company recorded net income of $1,227,000 or
$.19 per share for the months ended September 30, 1997, an increase of 37% over
the nine months ended September 30, 1996 in which the Company recorded net
income of $894,000 or $.14 per share.
23
Pro Forma Condensed Combined Financial Information
(Unaudited)
The following unaudited pro forma condensed combined financial information
is based on (i) the historical consolidated financial statements of The Hain
Food Group, Inc. and subsidiaries and (ii) the historical consolidated
financial statements of Westbrae Natural, Inc. and subsidiaries which are
included elsewhere herein and should be read in conjunction with such financial
statements and notes thereto.
The historical condensed balance sheets represent the financial position
of The Hain Food Group, Inc. and Westbrae Natural, Inc. as of September 30,
1997. The unaudited pro forma condensed combined balance sheet as of September
30, 1997 assumes the acquisition of Westbrae Natural, Inc. by The Hain Food
Group, Inc. and the related financing with respect thereto, had occurred as of
that date.
The unaudited pro forma condensed combined statements of operations were
prepared assuming that the acquisition of Westbrae Natural, Inc. by The Hain
Food Group, Inc. had occurred as of the beginning of each period presented. The
unaudited pro forma statements of income give effect to (i) such acquisition
under the purchase method of accounting and (ii) certain estimated operational
and financial benefits and costs that are a direct result of such acquisition.
The unaudited pro forma condensed financial statements have been prepared
based on assumptions deemed appropriate by The Hain Food Group, Inc. and may
not be indicative of actual results of the future operations of The Hain Food
Group, Inc.
24
Pro Forma Condensed Balance Sheet
September 30, 1997
(Amounts in thousands)
(Unaudited)
Historical Pro Forma
---------------------- ------------------------------
Hain Westbrae Adjustments Combined
Assets --------- ---------- ------------------ ---------
Current Assets:
Cash and cash equivalents ..................... $ 184 $ 1,175 ($ 1,000)(1) $ 359
Accounts receivable, net ..................... 8,151 2,895 11,046
Inventories .................................... 7,425 4,451 11,876
Receivables-sales of equipment ................. 379 -- 379
Other current assets ........................... 990 603 1,593
------- -------- ------------ -------
Total current assets ........................ 17,129 9,124 (1,000) 25,253
Property and equipment, net ..................... 732 138 870
Receivables-sales of equipment, non current
portion ....................................... 150 -- 150
(6,535)(2)
Goodwill and other intangible assets, net ...... 28,998 6,535 20,745 (3) 49,743
Unamortized financing costs and other
assets ....................................... 2,422 256 781 (4) 3,459
------- -------- ------------ -------
Total assets ................................. $49,431 $16,053 $ 13,991 $79,475
======= ======== ============ =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses ........... $ 6,097 $ 3,754 $ 9,851
(1,000)(1)
(2,800)(5)
Current portion of revolving credit ............ 3,800 3,429 (6) 3,429
(1,333)(5)
Current portion of senior term loan ............ 1,333 3,000 (6) 3,000
Current portion of other long-term debt ......... 221 859 (859)(7) 221
Income taxes payable ........................... 592 592
------- -------- ------------ -------
Total current liabilities .................. 12,043 4,613 437 17,093
------- -------- ------------ -------
Long-term Debt, less current portion:
(2,006)(5)
Senior credit facility ........................ 2,006 -- 27,000 (6) 27,000
Subordinated debentures ........................ 7,350 1,255 (1,255)(7) 7,350
Other .......................................... 249 -- 249
------- -------- ------------ -------
Total long-term debt ........................ 9,605 1,255 23,739 34,599
------- -------- ------------ -------
Other liabilities .............................. 403 -- -- 403
Deferred income taxes ........................... 552 552
------- -------- ------------ -------
Total Liabilities ........................... 22,603 5,868 24,176 52,647
------- -------- ------------ -------
Stockholders' equity:
Preferred stock .............................. -- -- -- --
Common stock ................................. 89 60 (60)(8) 89
Additional paid in capital ..................... 21,547 17,202 (17,202)(8) 21,547
Retained earnings .............................. 5,467 (7,077) 7,077 (8) 5,467
Treasury Stock ................................. (275) -- -- (275)
------- -------- ------------ -------
Total stockholders' equity .................. 26,828 10,185 (10,185) 26,828
------- -------- ------------ -------
Total Liabilities and Stockholders'
Equity .................................... $49,431 $16,053 $ 13,991 $79,475
======= ======== ============ =======
See notes to unaudited pro forma condensed financial statements.
25
Pro forma Condensed Statement of Income
For the Year Ended June 30, 1997
Amounts in thousands, except per share amounts
(Unaudited)
Historical Pro Forma
---------------------- --------------------------------
Hain Westbrae Adjustments Combined
--------- ---------- -------------------- ---------
Net sales .................................... $65,353 $32,894 -- $98,247
Cost of sales ................................. 40,781 20,019 -- 60,800
-------- -------- -------- --------
Gross profit ................................. 24,572 12,875 -- 37,447
-------- -------- -------- --------
Selling, general and administrative expenses 19,651 10,809 ($1,143)(1) 29,317
Depreciation of property and equipment ......... 178 94 -- 272
Amortization of goodwill and other (213)(2)
intangible assets ........................... 740 213 543 (3) 1,283
-------- -------- -------- --------
20,569 11,116 (813) 30,872
-------- -------- -------- --------
Operating income .............................. 4,003 1,759 813 6,575
-------- -------- -------- --------
Interest expense .............................. 1,639 213 1,786 (4) 3,638
Amortization of deferred financing costs ...... 509 0 (18)(5) 491
-------- -------- -------- --------
2,148 213 1,768 4,129
-------- -------- -------- --------
Income before income taxes ..................... 1,855 1,546 (955) 2,446
Provision for income taxes ..................... 786 206 35 (6) 1,027
-------- -------- -------- --------
Net income .................................... $ 1,069 $ 1,340 ($ 990) $ 1,419
======== ======== ======== ========
Net income per common and common share
equivalents ................................. $ 0.12 $ 0.16
======== ========
Weighted average number of common
shares and common share equivalents ......... 8,993 8,993
======== ========
See notes to unaudited pro forma condensed financial statements.
26
Pro forma Condensed Statement of Income
For the Three Months Ended September 30, 1997
Amounts in thousands, except per share amounts.
(Unaudited)
Historical Pro Forma
---------------------- ------------------------------
Hain Westbrae Adjustments Combined
--------- ---------- ------------------ ---------
Net sales ....................................... $16,336 $9,728 -- $26,064
Cost of sales ................................. 9,862 5,711 -- 15,573
-------- ------- ------ --------
Gross profit .................................... 6,474 4,017 -- 10,491
-------- ------- ------ --------
Selling, general and administrative expenses 4,837 3,313 ($ 301)(1) 7,849
Depreciation of property and equipment ......... 48 23 -- 71
Amortization of goodwill and other (53)(2)
intangible assets .............................. 210 53 136 (3) 346
-------- ------- ------ --------
5,095 3,389 (218) 8,266
-------- ------- ------ --------
Operating income .............................. 1,379 628 218 2,225
-------- ------- ------ --------
Interest expense .............................. 420 34 445 (4) 899
Amortization of deferred financing costs ...... 131 0 (5)(5) 126
-------- ------- ------ --------
551 34 440 1,025
-------- ------- ------ --------
Income before income taxes ..................... 828 594 (222) 1,200
Provision for income taxes ..................... 352 75 77 (6) 504
-------- ------- ------ --------
Net income .................................... $ 476 $ 519 ($ 299) $ 696
======== ======= ====== ========
Net income per common and common share
equivalents .................................... $ 0.05 $ 0.07
======== ========
Weighted average number of common
shares and common share equivalents ............ 9,965 9,965
======== ========
See notes to unaudited pro forma condensed financial statements.
27
Notes to Pro Forma Condensed Combined Financial Information
(Unaudited)
General:
On October 14, 1997, The Hain Food Group, Inc. (the "Company") completed
the acquisition of Westbrae Natural, Inc. ("Westbrae") in a transaction that has
been accounted for as a purchase. The cost of the acquisition (including closing
costs) and the repayment of the Company's existing Credit Facility with IBJ
Schroder bank and Trust Company ("IBJ") and the repayment of Westbrae debt was
funded by the New Credit Facility with IBJ providing for a $30 million senior
term loan and a $10 million revolving credit facility.
Details of the pro forma adjustments relating to the acquisition and the
financing are set forth below.
Pro forma balance sheet adjustments:
(1) Westbrae cash and cash equivalents utilized to pay down Revolving Credit.
(2) Elimination of Westbrae goodwill at date of acquisition.
(3) Excess of acquisition costs over the fair value of the net tangible assets
of Westbrae at date of acquisition.
(4) Financing costs incurred in connection with the financing relating to the
acquisition.
(5) Old Credit Facility paid off with proceeds of New Credit Facility upon
acquisition of Westbrae.
(6) Proceeds of New Credit Facility used to finance the acquisition, repay the
Old Credit facility and repay Westbrae debt at date of acquisition.
(7) Westbrae debt at date of acquisition paid off with proceeds of New Credit
Facility.
(8) Elimination of Westbrae equity accounts at date of acquisition.
Pro forma statement of income adjustments:
(1) Adjustment to give effect to the reduction of certain costs and expenses
associated with the elimination of the principal corporate offices of
Westbrae.
(2) Elimination of Westbrae historical amortization of goodwill.
(3) Goodwill amortization with respect to goodwill acquired in the acquisition
of Westbrae.
(4) Increase in interest costs resulting from the financing of the Westbrae
acquisition.
(5) Adjustment of amortization of financing costs resulting from the New Credit
Facility.
(6) Adjustment to historical provision for income taxes to eliminate the effect
of net operating loss carryforwards utilized by Westbrae and to adjust
income taxes to the expected effective tax rate following acquisition.
28
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 hereunto duly authorized.
THE HAIN FOOD GROUP, INC.
Dated: October 28, 1997 By: /s/ Jack Kaufman
---------------------------------
Jack Kaufman
Chief Financial Officer
29
EXHIBIT INDEX
Number Description
- -------- ------------
2.1 Agreement and Plan of Merger dated as of September 11, 1997, among Parent, the Pur-
chaser and the Company (Incorporated by reference from Exhibit (c)(1) to the Schedule
14D-1 filed by Parent and the Purchaser with the Securities and Exchange Commission (the
"SEC") dated September 12, 1997 (the "Schedule 14D-1")).
2.2 Shareholders Agreement dated as of September 11, 1997 among the Company, the share-
holders named therein, the Parent and the Purchaser (Incorporated by reference from
Exhibit (c)(2) to the Schedule 14D-1).
2.3 First Amendment to the Agreement and Plan of Merger dated as of October 9, 1997, among
Parent, the Purchaser and the Company (Incorporated by reference from Exhibit (c)(5) to
Amendment No. 1 to the Schedule 14D-1 filed by Parent and the Purchaser with the SEC
dated October 9, 1997).
2.4 Press release of Parent dated October 15, 1997 (Incorporated by reference from Exhibit
(a)(9) to Amendment No. 2 to the Schedule 14D-1 filed by Parent and Purchaser with the
SEC dated October 15, 1997).
30
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
October 29, 1997
(212) 701-3512
Re: The Hain Food Group, Inc. - Form 8-K
Ladies and Gentlemen:
On behalf of The Hain Food Group, Inc. (the "Company"), we are filing
herewith, via EDGAR, the Company's Form 8-K dated October 28, 1997.
Any questions or comments regarding this filing should be directed to the
undersigned at the number set forth above.
Sincerely,
/s/ Robert S. Matthews
-----------------
Robert S. Matthews
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
(Enclosures)
cc: The Hain Food Group, Inc.
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