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 Exchange Act of 1934
For the quarterly period ended: 12/31/00 Commission file number: 0-22818
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THE HAIN CELESTIAL 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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 237-6200
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
33,222,527 shares of Common Stock $.01 par value, as of February 12, 2001.
1
THE HAIN CELESTIAL GROUP, INC.
INDEX
Page
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 2000
(unaudited) and June 30, 2000 2
Consolidated Statements of Income - Three months and
six months ended December 31, 2000 and 1999 (unaudited) 3
Consolidated Statements of Cash Flows - Six months
ended December 31, 2000 and 1999 (unaudited) 4
Consolidated Statement of Stockholders' Equity -
Six months ended December 31, 2000 (unaudited) 5
Notes to Consolidated Financial Statements 6 to 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 to 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
Part II Other Information
Items 1, 3 and 5 are not applicable
Item 2 - Change in Securities and Use of Proceeds 14
Item 4 - Submission of Matters to a Vote
of Securities Holders 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
1
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share and share amounts)
December 31, June 30,
2000 2000
------------- ---------
ASSETS (Unaudited) (Note)
Current assets:
Cash $ 47,291 $ 38,308
Accounts receivable, less allowance for doubtful 52,477 36,120
accounts of $988 and $929
Inventories 48,048 48,139
Recoverable income taxes - 7,982
Deferred income taxes 8,724 8,724
Other current assets 4,041 3,611
----------- -----------
Total current assets 160,581 142,884
Property, plant and equipment, net of accumulated 43,492 39,340
depreciation and amortization of $22,269 and $19,471
Goodwill, net of accumulated amortization of $15,625 185,695 188,212
and $13,109
Trademarks and other intangible assets, net of 38,750 39,086
accumulated amortization of $6,182 and $5,594
Deferred financing costs, net of accumulated 417 238
amortization of $337 and $328
Other assets 6,291 6,257
----------- -----------
Total assets $ 435,226 $ 416,017
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 36,896 $ 43,039
Income taxes payable, net 4,969 -
Accrued merger related charges 2,301 9,414
Current portion of long-term debt 857 681
----------- -----------
Total current liabilities 45,023 53,134
Long-term debt, less current portion 5,221 5,622
Deferred income taxes 5,537 5,537
----------- -----------
Total liabilities 55,781 64,293
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.01 par value, authorized 5,000,000 - -
shares, no shares issued
Common stock - $.01 par value, authorized 100,000,000 333 321
shares, issued 33,256,427 and 32,147,261 shares
Additional paid-in capital 337,679 326,641
Retained earnings 41,708 25,037
----------- -----------
379,720 351,999
Less: 100,000 shares of treasury stock, at cost (275) (275)
----------- -----------
Total stockholders' equity 379,445 351,724
----------- -----------
Total liabilities and stockholders' equity $ 435,226 $ 416,017
=========== ===========
Note: The balance sheet at June 30, 2000 has been derived from the audited
financial statements at that date.
See notes to consolidated financial statements.
2
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts)
Three Months Ended December 31, Six Months Ended December 31,
----------------------------- ------------------------------
2000 1999 2000 1999
---------- --------- --------- ---------
(Unaudited) (Unaudited)
Net Sales $ 116,025 $116,675 $ 209,678 $ 204,615
Cost of sales 62,297 60,472 115,542 115,081
------------ ---------- ----------- ------------
Gross profit 53,728 56,203 94,136 89,534
Selling, general & administrative expenses 35,116 39,169 62,401 70,285
Merger costs - - 1,032 -
Amortization of goodwill and other intangible assets 1,674 1,727 3,248 3,297
------------ ---------- ----------- ------------
Operating income 16,938 15,307 27,455 15,952
Other income, net 865 753 1,462 753
Interest and financing costs (104) (1,421) (175) (4,366)
------------ ---------- ----------- ------------
Income before income taxes and 17,699 14,639 28,742 12,339
cumulative change in accounting principle
Provision for income taxes 7,433 6,138 12,071 5,050
------------ ---------- ----------- ------------
Income before cumulative change in 10,266 8,501 16,671 7,289
accounting principle
Cumulative change in accounting principle, net of - - - (3,754)
income tax benefit of $2,547
------------ ---------- ----------- ------------
Net income $ 10,266 $ 8,501 $ 16,671 $ 3,535
============ ========== =========== ============
Basic earnings per common share:
Income before cumulative change in $ 0.31 $ 0.30 $ 0.51 $ 0.27
accounting principle
Cumulative change in accounting principle - - - (0.14)
------------ ---------- ----------- ------------
Net income $ 0.31 $ 0.30 $ 0.51 $ 0.13
============ ========== =========== ============
Diluted earnings per common share:
Income before cumulative change in $ 0.30 $ 0.28 $ 0.49 $ 0.25
accounting principle
Cumulative change in accounting principle - - - (0.13)
------------ ---------- ----------- ------------
Net income $ 0.30 $ 0.28 $ 0.49 $ 0.12
============ ========== =========== ============
Weighted average common shares outstanding:
Basic 33,038 28,613 32,667 26,744
============ ========== =========== ============
Diluted 34,660 30,472 34,340 28,982
============ ========== =========== ============
See notes to consolidated financial statements.
3
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended December 31,
--------------------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited)
Net income $ 16,671 $ 3,535
Adjustments to reconcile net income to net cash
provided by operating activities
Cumulative change in accounting principle - 3,754
Depreciation and amortization of property and equipment 2,939 2,535
Amortization of goodwill and other intangible assets 3,248 3,284
Amortization of deferred financing costs 9 415
Provision for doubtful accounts 128 (134)
Deferred income taxes - (2,593)
Other 24 23
Increase (decrease) in cash attributable to changes in
assets and liabilities, net of amounts applicable to
acquired businesses:
Accounts receivable (16,485) (10,540)
Inventories 91 1,138
Other current assets (430) (1,365)
Other assets (234) (1,314)
Accounts payable and accrued expenses (12,982) 7,633
Income tax payable, net 12,951 4,524
---------- -----------
Net cash provided by operating activities 5,930 10,895
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses - (4,625)
Purchases of property and equipment and other (7,749) (6,501)
intangible assets
Proceeds from sale of assets - 304
---------- -----------
Net cash used in investing activities (7,749) (10,822)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayments)/proceeds from bank revolving credit facility, net - 2,705
Repayment of term loan facilities - (81,759)
Payments on economic development revenue bonds (166) (158)
Costs in connection with bank financing - (26)
Proceeds from private equity offering, net of expenses - 80,589
Proceeds from exercise of warrants and options, net of 11,026 1,078
related expenses
Payment of other long-term debt and other liabilities (58) (164)
---------- -----------
Net cash provided by financing activities 10,802 2,265
---------- -----------
Net increase in cash and cash equivalents 8,983 2,238
Cash and cash equivalents at beginning of period 38,308 712
---------- -----------
Cash and cash equivalents at end of period $ 47,291 $ 3,050
========== ===========
See notes to consolidated financial statements.
4
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
FOR THE SIX MONTHS ENDED DECEMBER 31, 2000
(In thousands, except per share and share data)
Common Stock
--------------------------- Additional Treasury Stock
Amount Paid-in Retained ---------------------
Shares at $.01 Capital Earnings Shares Amount Total
------------------------------------------------------------------------------------------
Balance as June 30, 2000 32,147,261 $ 321 $ 326,641 $ 25,037 100,000 $ (275) $ 351,724
Exercise of common stock 114,666 1 918 14,347 (475) 444
warrants, net of related
expenses
Exercise of stock options 1,008,847 11 10,571 10,582
Retirement of Treasury Shares (14,347) (475) (14,347) 475 -
Non-cash compensation charge 24 24
Net income for the period 16,671 16,671
------------------------------------------------------------------------------------------
Balance at December 31, 2000 33,256,427 $ 333 $ 337,679 $ 41,708 100,000 $ (275) $ 379,445
==========================================================================================
See notes to consolidated financial statements.
5
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL:
The Hain Celestial Group, Inc. (formerly known as The Hain Food Group,
Inc. or "Hain"), headquartered in Uniondale, NY, is a natural, specialty and
snack food company. The Company is a leader in many of the top natural food
categories, with such well-known natural food brands as Celestial Seasonings (R)
teas, Hain Pure Foods(R), Westbrae(R), Westsoy(R), Arrowhead Mills(R), Health
Valley(R), Breadshop's(R), Casbah(R), Garden of Eatin(R), Terra Chips(R),
DeBoles(R), Earth's Best(R), and Nile Spice(R). The Company's principal
specialty product lines include Hollywood(R) cooking oils, Estee(R) sugar-free
products, Weight Watchers(R) dry products, Kineret(R) kosher foods, Boston
Better Snacks(R), and Alba Foods(R).
The Company and its subsidiaries operate in one business segment: the
sale of natural, organic and other food and beverage products. Since fiscal
2000, approximately 55% of the Company's revenues were derived from products
which are manufactured within its own facilities with 45% produced by various
co-packers. There are no co-packers who manufactured 10% or more of the
Company's products.
Certain reclassifications have been made in the consolidated financial
statements to conform to current year's presentation.
2. BASIS OF PRESENTATION:
All amounts in the consolidated financial statements have been rounded
to the nearest thousand dollars, except share and per share amounts.
The accompanying 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. Operating results for the
three and six months ended December 31, 2000 are not necessarily indicative of
the results that may be expected for the year ending June 30, 2001. Reference is
made to the footnotes to the audited consolidated financial statements of the
Company and subsidiaries as at June 30, 2000 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. Celestial Merger
On May 30, 2000, Hain completed a merger (the "Merger") with Celestial
Seasonings, Inc. ("Celestial") by issuing 10.3 million shares of Hain common
stock in exchange for all of the outstanding common stock of Celestial. Each
share of Celestial common stock was exchanged for 1.265 shares of Hain common
stock. In addition, Hain assumed all Celestial stock options previously granted.
As part of the Merger, Hain changed its name to The Hain Celestial Group, Inc.
Celestial, the common stock of which was previously publicly traded, is the
market leader in specialty teas.
The Merger was accounted for as a pooling-of-interests and,
accordingly, all prior period consolidated financial statements of Hain have
been restated to include the results of operations, financial position and cash
flows of Celestial. Information concerning common stock, employee stock plans
and per share data has been restated on an equivalent share basis.
During the six months ended December 31, 2000, the Company incurred $1
million of Merger related employee costs.
6
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
During the fourth quarter of fiscal 2000, the Company approved a plan
to streamline and restructure certain non-core businesses and consolidate
warehouses and information systems within the Company's distribution and
operating network which resulted in a pre-tax charge of $3.7 million. At June
30, 2000 the Company had accrued approximately $2 million of future costs
associated with this restructuring charge. During the three and six months ended
December 31, 2000, approximately $.2 million and $.4 million, respectively, was
charged to the accrual, bringing the remaining balance to $1.6 million which has
been included in accounts payable and accrued expenses on the Consolidated
Balance Sheet at December 31, 2000.
In addition, during the three months ended September 30, 1999,
Celestial decided to cease production of its 30-count supplements product line
and focus its efforts on its 60-count product line. In conjunction with the
discontinuance of the 30-count products, Celestial decided to offer a return
program to its customers. Accordingly, Celestial reversed sales ($5.1 million)
and recorded additional cost of sales ($4.0 million) for the estimated 30-count
products still with customers and an estimated write-down of inventory on hand
and expected to be returned.
Additionally, in September 1999, Celestial entered into a settlement
agreement relating to a shareholder lawsuit resulting in a one-time charge of
$1.2 million which has been included in selling, general and administrative
expenses.
5. ACCOUNTING FOR CERTAIN SALES INCENTIVES
In May 2000, the Emerging Issues Task Force ("EITF") issued Issue
00-14, Accounting for Certain Sales Incentives. Under the consensus, certain
sales incentives must be recognized as a reduction of sales, rather than as an
expense (the Company includes such sales incentives within selling, general and
administrative expenses). Upon application of this consensus, the Company's
earnings for current and prior periods will not be changed, but rather a
reclassification will take place within the Consolidated Statements of Income
for all periods presented for comparative purposes. The Company is not required
to adopt this consensus until its fourth quarter (June 30, 2001).
Had EITF 00-14 been adopted at the beginning of the six-month periods
ended December 31, 2000 and 1999, the Company's net sales and selling, general
and administrative expenses would have each been reduced by $29,579,000 and
$31,630,000, for the respective periods.
6. CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5
was adopted by the Company effective July 1, 1999, and requires start-up costs
capitalized prior to such date be written-off as a cumulative effect of an
accounting change as of July 1, 1999, and any future start-up costs to be
expensed as incurred. Start-up activities are defined broadly as those one-time
activities related to introducing a new product or service, conducting business
7
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
in a new territory, conducting business with a new class of customer or
commencing some new operations. In accordance with SOP 98-5, the Company
recorded a one-time non-cash charge in the first quarter of fiscal 2000
reflecting the cumulative effect of a change in accounting principle, in the
amount of $3.8 million, net of tax benefit, representing start-up costs
capitalized as of the beginning of fiscal year 2000.
7. INVENTORIES:
Inventories consist of the following:
December 31, 2000 June 30, 2000
----------------- -------------
Finished goods $ 28,769 $ 28,730
Raw materials and packaging 19,279 19,409
--------- ----------
$ 48,048 $ 48,139
========= ==========
8. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
December 31, June 30,
2000 2000
--------- ------
Land $ 6,049 $ 6,049
Building and improvements 10,646 10,579
Machinery & equipment 33,856 33,890
Assets held for sale - 197
Furniture and fixtures 2,640 2,580
Leasehold improvements 5,270 5,014
Construction in progress 7,300 502
--------- ---------
65,761 58,811
Less:
Accumulated depreciation and
amortization 22,269 19,471
--------- ---------
$ 43,492 $ 39,340
========= =========
8
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
9. EARNINGS PER SHARE:
The Company reports basic and diluted earnings per share in accordance with FASB
Statement No. 128, "Earnings Per Share" ("SFAS 128"). Basic earnings per share
excludes any dilutive effects of options and warrants. Diluted earnings per
share includes all dilutive common stock equivalents such as stock options and
warrants.
The following table sets forth the computation of basic and diluted earnings per
share pursuant to SFAS 128:
Three Months Ended Six Months Ended
December 31 December 31
------------- ------------
2000 1999 2000 1999
--------- --------- ------- ------
Numerator:
Numerator for basic and diluted
earnings per share -
Income before cumulative change in
accounting principle $ 10,266 $ 8,501 $16,671 $ 7,289
Cumulative change in accounting principle - - - (3,754)
-------- -------- ------- --------
Net income $ 10,266 $ 8,501 $16,671 $ 3,535
======== ======== ======= ========
Denominator:
Denominator for basic earnings per
share - weighted average shares
outstanding during the period 33,038 28,613 32,667 26,744
-------- -------- ------- --------
Effect of dilutive securities:
Stock options 1,385 1,488 1,417 1,688
Warrants 237 371 256 496
-------- -------- ------- --------
1,622 1,859 1,673 2,184
-------- -------- ------- --------
Denominator for diluted earnings
per share - adjusted weighted average
shares and assumed conversions 34,660 30,472 34,340 28,982
======== ======== ======= ========
Basic earnings per share:
Income before cumulative change in
accounting principle $ 0.31 $ 0.30 $ 0.51 $ 0.27
Cumulative change in accounting principle - - - (0.14)
-------- -------- ------- --------
Net income $ 0.31 $ 0.30 $ 0.51 $ 0.13
======== ======== ======= ========
Diluted earnings per share:
Income before cumulative change in
accounting principle $ 0.30 $ 0.28 $ 0.49 $ 0.25
Cumulative change in accounting principle - - - (0.13)
-------- -------- ------- --------
Net income $ 0.30 $ 0.28 $ 0.49 $ 0.12
======== ======== ======= ========
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three months ended December 31, 2000
Net sales for the three months ended December 31, 2000 were $116
million, a decrease of $.7 million or 1% over net sales of $116.7 million in the
quarter ended December 31, 1999. The decrease is primarily due to: a change in
the billing arrangements with our medically directed brands sold to our
exclusive domestic distributor; our net billing arrangement for certain of our
club store channel products sold to Heinz and a change in management focus on
the selling of Celestial supplements. In addition, production issues in the
second quarter impacted the Company's revenue for its Hain and Arrowhead Mills
brands, and Terra Chips reached capacity in the second quarter, thus impacting
sales to new customers. On a pro forma comparable basis, sales increased $5.5
million or 5%, primarily from our rocket brands of Celestial Teas, Health
Valley, Terra Chips, Earth's Best and Westsoy.
Gross profit for the three months ended December 31, 2000 decreased by
approximately $2.5 million to $53.7 million (46.3% of net sales) as compared to
$56.2 million (48.2% of net sales) in the corresponding 1999 period. The
decrease in gross profit dollars is a result of the aforementioned change in the
billing arrangements ($3.2 million). Gross profit percentage decreased 1.9%
primarily from the mix of products sold, a carryover effect of higher costs from
the labor action associated with the Health Valley plant previously discussed
and higher freight costs associated with rising fuel prices.
Selling, general and administrative expenses decreased by $4.1 million
to $35.1 million for the three months ended December 31, 2000 as compared to
$39.2 million in the December 31, 1999 quarter. Such expenses as a percentage of
net sales amounted to 30.3% for the three months ended December 31, 2000
compared with 33.6% in the December 31, 1999 quarter. The dollar decrease is a
combination of $1.5 million of synergies realized in the December 2000 period
resulting from the Celestial merger, approximately $1.0 million in lower
advertising and promotion costs and the remainder coming from lower other
selling, general and administrative expense components. To date, a substantial
portion of synergies from the Celestial merger have been identified and it is
expected that the integration process will be substantially completed by
calendar 2002. It is expected that in the next couple of fiscal quarters, the
Company plans to invest in consumer spending and to enhance brand equity while
closely monitoring its trade spending. These consumer spending categories
include, but are not limited to, consumer advertising using radio and print,
coupons, direct mailing programs, and other forms of promotions. There is no
guarantee that these investments in consumer spending will be successful, and as
the Company attempts to monitor its trade spending and increase consumer
awareness, there may be a period of overlap.
Amortization of goodwill and other intangible assets was both
approximately $1.7 million for the December 2000 and 1999 periods. Amortization
expense in total amounted to 1.4% and 1.5% of net sales for the three months
ended December 31, 2000 and 1999, respectively.
Operating income increased by $1.6 million compared to the 1999 period.
Operating income as a percentage of net sales amounted to 14.6%, compared with
13.1% in the December 1999 quarter. The dollar and percentage increase resulted
10
principally from lower selling, general, administrative and amortization
expenses offset by lower gross profit.
Interest and other income amounted to $.9 million for the three months
ended December 31, 2000 compared with $.8 million in the corresponding period.
This increase is a direct result of the interest earned on the increased cash
balance (approximately $50 million) during the three months ended December 31,
2000 compared to investment gains in marketable securities purchased and sold
within the December 1999 period.
Interest and financing costs for the three months ended December 31,
2000 amounted to approximately $.1 million, compared to $1.4 million in the 1999
period. This decrease is a result of significantly reduced debt levels ($6.1
million outstanding at December 31, 2000 compared with $60 million at December
31, 1999). The average interest rate was 5.5% in the December 2000 period
compared with approximately 8.5% in the December 1999 period.
Income before income taxes for the three months ended December 31, 2000
increased to $17.7 million (15.3% of net sales) from $14.6 million (12.5% of net
sales) in the corresponding 1999 period. This $3.1 million improvement in
profitability was attributable to the aforementioned increase in operating
income, as well as the other income generated.
Income taxes increased to $7.4 million for the three months ended
December 31, 2000 compared to $6.1 million in the corresponding 1999 period. The
effective tax rate was 42.0% in the 2000 period compared with 41.9% in the
corresponding 1999 period. The lower tax rate in 1999 was a result of additional
tax deductions generated from Celestial's contributions of its 30-count
supplements to a qualified organization. The Company expects its pre-tax
earnings will be taxed at a 42.0% effective rate for the remainder of this
fiscal year.
Net income for the three months ended December 31, 2000 increased to
$10.3 million (8.8% of net sales) from $8.5 million (7.3% of net sales) in the
corresponding 1999 period. This $1.8 million improvement in earnings was
primarily attributable to the aforementioned increase in income before income
taxes offset by higher income taxes.
Six months ended December 31, 2000
Net sales for the six months ended December 31, 2000 were $209.7
million, an increase of $5.1 million over net sales of $204.6 million in the
quarter ended December 31, 1999. The increase is primarily the result of
Celestial recording sales returns of $5.1 million in the September 1999 period
related to the returns of its 30-count supplements product line. As previously
mentioned, our net sales were affected by changes in billing arrangements,
redirection of management focus on certain product lines (supplements) and
production issues for certain of our products. On a pro forma comparable basis,
net sales increased by approximately $10 million with the growth coming from our
Westsoy, Health Valley, Earth's Best, and Terra Chips brands.
Gross profit for the six months ended December 31, 2000 increased by
approximately $4.6 million to $94.1 million (44.9% of net sales) as compared to
$89.5 million (43.8% of net sales) in the corresponding 1999 period. The
increase in gross profit dollars was a direct result of the increased sales
level in 2000 along with reductions in gross profit dollars of $4.0 million in
the September 30, 1999 period resulting from the inventory write-down Celestial
recorded related to its 30-count supplement line. Gross profit percentage
11
decreased 2.2% (exclusive of the supplement sales returns and inventory write-
downs in the 1999 period) primarily from mix of products sold, higher costs
associated with the Health Valley brand as a result of intensive preparations
for a potential labor action at the Health Valley plant, previously discussed in
the Company's September 2000 Form 10-Q which the Company has resolved, the mix
of products sold and additional warehousing and freight costs, principally due
to the opening of the new Ontario, California distribution center and fuel
surcharges.
Selling, general and administrative expenses decreased by $7.9 million
to $62.4 million for the six months ended December 31, 2000 as compared to $70.3
million in the December 31, 1999 quarter. Such expenses as a percentage of net
sales amounted to 29.8% for the six months ended December 31, 2000 compared with
34.3% in the December 31, 1999 quarter. The dollar decrease is a combination of
$2.7 million of synergies realized in the December 2000 period resulting from
the Celestial merger, a $1.2 million nonrecurring charge incurred in the
September 1999 period as a result of a shareholder lawsuit settled by Celestial,
approximately $1.0 million lower advertising and promotion costs and $2.8
million of lower other selling, general and administrative expense components.
To date, a substantial portion of synergies from the Celestial merger have been
identified and it is expected that the integration process will be completed by
calendar 2002.
Merger related charges amounted to $1 million for the six months ended
December 31, 2000. There were no merger related charges in the corresponding
period. Merger related charges incurred relate to certain employee costs
associated with the Celestial merger.
Amortization of goodwill and other intangible assets was both
approximately $3.2 million for the December 2000 and 1999 periods. Amortization
expense in total amounted to 1.6% of net sales for both the six months ended
December 31, 2000 and 1999, respectively.
Operating income increased by $11.5 million compared to the 1999
period. Operating income as a percentage of net sales amounted to 13.1%,
compared with 7.8% in the December 1999 period. The dollar and percentage
increase resulted principally from higher gross profit, lower selling, general,
administrative expenses, offset by higher merger related costs.
Other income amounted to $1.5 million for the six months ended December
31, 2000 compared with $.8 million in the corresponding period. This increase is
a direct result of the interest earned on the increased cash balance during the
December 31, 2000 period compared with the December 1999 period.
Interest and financing costs for the six months ended December 31, 2000
amounted to approximately $.2 million, compared to $4.4 million in the 1999
period. This decrease is a result of the aforementioned significantly reduced
debt levels at December 31, 2000 compared to the December 31, 1999 period.
Income before income taxes and cumulative change in accounting
principle for the six months ended December 31, 2000 increased to $28.7 million
(13.7% of net sales) from $12.3 million (6.0% of net sales) in the corresponding
1999 period. This $16.4 million improvement in profitability was attributable to
the aforementioned increase in operating income, as well as the other income
generated.
Income taxes increased to $12.1 million for the six months ended December
31, 2000 compared to a $5.1 million in the corresponding 1999 period. The
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effective tax rate was 42.0% in the 2000 period compared to 40.9% in the
corresponding 1999 period. The lower tax rate in 1999 was a result of additional
tax deductions generated from Celestial's contributions of its 30-count
supplements to a qualified organization. The Company expects its pre-tax
earnings will be taxed at a 42.0% effective rate for the remainder of this
fiscal year.
Income before cumulative change in accounting principle for the six
months ended December 31, 2000 increased to $16.7 million (8% of net sales) from
$7.3 million (3.6% of net sales) in the corresponding 1999 period. This $9.4
million improvement in earnings was primarily attributable to the aforementioned
increase in income before income taxes and cumulative change in accounting
principle.
Change in Accounting Principle:
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting Costs of Start-up Activities"
("SOP 98-5"). SOP 98-5 was effective beginning on July 1, 1999, and required
that start-up costs capitalized prior to such date be written-off as a
cumulative effect of an accounting change as of July 1, 1999. Any future
start-up costs are being expensed as incurred. Start up activities are broadly
defined as those one time activities related to introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer or commencing some new operation. In accordance with SOP 98-5,
the Company recorded a one-time non-cash charge in the first quarter of fiscal
2000 reflecting the cumulative effect of a change in accounting principle, in
the amount of $3.8 million, net of tax benefit, representing such start-up costs
capitalized as of the beginning of fiscal year 2000.
Liquidity and Capital Resources
The Company requires liquidity for working capital needs and debt service
requirements.
The Company had working capital and a current ratio of $115.6 million and
3.6 to 1, respectively, at December 31, 2000 as compared to $89.8 million and
2.7 to 1, respectively, at June 30, 2000. The increase in working capital and
the current ratio is primarily attributable to cash flows from operations and
financing activities. The cash flow from financing activities is attributable to
the exercise of stock options and warrants during the six months ended December
31, 2000.
The Company believes that its cash on hand of $47.3 million at December
31, 2000, as well as cash flows from operations are sufficient to fund its
working capital needs, anticipated capital expenditures, other operating
expenses, as well as provide liquidity to pay down the remaining merger related
and restructuring accruals (aggregating approximately $2.7 million of accrued
merger costs and $1.6 million of restructuring accruals) existing at December
31, 2000 for the remainder of fiscal 2001. Of the $4.3 million of these
accruals, approximately $3.5 will be utilized during the remainder of fiscal
2001. The Company is currently investing its cash on hand in highly liquid
short-term investments yielding approximately 6.25% interest.
In addition, in July 2000, the Company entered into a short-term
revolving credit facility with a bank providing the Company with $50 million of
revolving credit to fund operations. As of February 12, 2001, approximately $4.5
million has been borrowed on this facility.
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Seasonality
Sales of food and beverage products consumed generally decline to some
degree during the Summer months (the first quarter of the Company's fiscal
year). However, the Company believes that such seasonality has a limited effect
on operations.
Inflation
The Company does not believe that inflation had a significant impact on
the Company's results of operations for the periods presented.
Note Regarding Forward Looking Information
Certain statements contained in this Quarterly Report constitute
"forward- looking statements" within the meaning of Section 27A of the
Securities Act and Sections 21E of the Exchange Act. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, levels of activity, performance or
achievements of the Company, or industry results, to be materially different
from any future results, levels of activity, performance or achievements
expressed or implied by such forward- looking statements. Such factors include,
among others, the following: general economic and business conditions, the
ability of the Company to implement its business and acquisition strategy; the
ability to effectively integrate its acquisitions; the ability of the Company to
obtain financing for general corporate purposes; competition; availability of
key personnel, and changes in, or the failure to comply with governments
regulations. As a result of the foregoing and other factors, no assurance can be
given as to the future results, levels of activity and achievements and neither
the Company nor any person assumes responsibility for the accuracy and
completeness of these statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not entered into market risk sensitive transactions
required to be disclosed under this item.
Part II - OTHER INFORMATION
Item 2. - Changes in Securities and Use of Proceeds
As previously disclosed in the Company's filings on September 27, 1999, the
Company announced that it had entered into a global strategic alliance with
Heinz related to the production and distribution of natural products
domestically and internationally. In connection with the alliance, the Company
issued 2,837,343 shares of its common stock, par value $.01 per share to a
wholly-owned subsidiary of Heinz, for an aggregate purchase price of $82,383,843
under a Securities Purchase Agreement dated September 24, 1999 between the
Company and the Heinz Subsidiary. In addition, as part of the consideration paid
by the Company to the Heinz Subsidiary in connection with the Company's
acquisition of the Earth's Best trademarks, the Company issued 670,234 shares of
its common stock to Earth's Best.
On June 19, 2000, the Heinz Subsidiary executed its preemptive right under the
aforementioned Security Purchase Agreement to purchase additional shares of the
Company's common stock. The Company issued 2,582,774 additional shares to the
Heinz Subsidiary for an aggregate purchase price of $79,743,147.
The issuance of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of Securities Act for
transactions by an issuer not involving any public offering.
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Item 4. - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on December 5, 2000. The Company
submitted the following matters to a vote of security holders:
1. To elect a board of directors to serve until the next Annual Meeting of
Stockholders and until their successors are duly elected and qualified; and
2. To ratify the appointment of Ernst & Young LLP as our independent
auditors for fiscal 2001 (Ernst & Young LLP were the independent auditors for
the fiscal year ended June 30, 2000); and
3. To consider and act upon a stockholder proposal requesting the board of
directors to adopt a policy of removing genetically engineered foods from our
brand name or private label products, which proposal is opposed by our board of
directors.
The stockholders elected the persons named below, the Company's nominees for
directors, as directors of the Company, casting approximately 24,600,000 (on
average) votes in favor of each nominee and withholding approximately 165,000
votes (on average) for each nominee:
Irwin D. Simon
Morris J. Siegel
Andrew R. Heyer
Beth L. Bronner
Jack Futterman
James Gold
Joseph Jimenez
Marina Hahn
Gregg Ostrander
Nigel Clare
Roger Meltzer
The stockholders ratified the appointment of Ernst & Young LLP casting
approximately 24,623,000 votes in favor, 210,000 against and 14,700 abstaining.
The stockholders did not approve the adoption of a policy of removing
genetically engineered foods from the Company's brand name or private label
products casting approximately 18,970,000 votes against, approximately 1,370,000
in favor, approximately 953,000 abstaining and 3,550,000 not voting.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule for the six months ended
December 31, 2000
27.2 Financial Data Schedule for the six months ended
December 31, 1999 (restated)
(b) Reports on Form 8-K
None.
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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 CELESTIAL GROUP, INC.
Date: February 13, 2001 /s/ Irwin D. Simon
-----------------------------
Irwin D. Simon,
President and Chief
Executive Officer
Date: February 13, 2001 /s/ Gary M. Jacobs
-----------------------------
Gary M. Jacobs,
Executive Vice President, Finance
and Chief Financial Officer
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