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: 03/31/01 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.
33,570,222 shares of Common Stock $.01 par value, as of May 14, 2001.
1
THE HAIN CELESTIAL GROUP, INC.
INDEX
Page
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2001
(unaudited) and June 30, 2000 2
Consolidated Statements of Income - Three months and
nine months ended March 31, 2001 and 2000 (unaudited) 3
Consolidated Statements of Cash Flows - Nine months
ended March 31, 2001 and 2000 (unaudited) 4
Consolidated Statement of Stockholders' Equity -
Nine months ended March 31, 2001 (unaudited) 5
Notes to Consolidated Financial Statements 6 to 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 to 15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 15
Part II Other Information
Items 1, 3 to 5 are not applicable
Item 2 - Change in Securities and Use of Proceeds 15
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 17
1
PART I - ITEM 1 - FINANCIAL INFORMATION
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share and share amounts)
March 31, June 30,
2001 2000
---------- ----------
ASSETS (Unaudited) (Note)
Current assets:
Cash $ 58,555 $ 38,308
Accounts receivable, less allowance for doubtful 51,017 36,120
accounts of $1,339 and $929
Inventories 46,490 48,139
Recoverable income taxes - 7,982
Deferred income taxes 8,724 8,724
Other current assets 4,360 3,611
------------ ----------
Total current assets 169,146 142,884
Property, plant and equipment, net of accumulated 47,603 39,340
depreciation and amortization of $23,853 and $19,471
Goodwill, net of accumulated amortization of $16,925 191,127 188,212
and $13,109
Trademarks and other intangible assets, net of 38,490 39,086
accumulated amortization of $6,488 and $5,594
Deferred financing costs, net of accumulated 1,408 238
amortization of $343 and $328
Other assets 6,203 6,257
------------ ----------
Total assets $ 453,977 $ 416,017
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 38,734 $ 43,039
Income taxes payable, net 7,786 -
Accrued merger related charges 1,681 9,414
Current portion of long-term debt 803 681
------------ ----------
Total current liabilities 49,004 53,134
Long-term debt, less current portion 9,787 5,622
Deferred income taxes 5,537 5,537
------------ ----------
Total liabilities 64,328 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 100,000,000 336 321
shares, issued 33,570,222 and 32,147,261 shares
Additional paid-in capital 343,639 326,641
Retained earnings 45,949 25,037
------------ ----------
389,924 351,999
Less: 100,000 shares of treasury stock, at cost (275) (275)
------------ ----------
Total stockholders' equity 389,649 351,724
------------ ----------
Total liabilities and stockholders' equity $ 453,977 $ 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 March 31, Nine Months Ended March 31,
------------------------------ --------------------------
2001 2000 2001 2000
----------- ---------- --------- ----------
(Unaudited) (Unaudited)
Net Sales $ 103,909 $ 111,916 $ 313,587 $ 316,531
Cost of sales 61,129 57,302 176,671 172,383
----------- ------------ ------------- ------------
Gross profit 42,780 54,614 136,916 144,148
Selling, general & administrative expenses 34,697 37,670 97,008 107,968
Merger costs - - 1,032 -
Amortization of goodwill and other intangible assets 1,522 1,704 4,770 4,988
----------- ------------ ------------- ------------
Operating income 6,561 15,240 34,106 31,192
Other income, net 915 619 2,324 1,372
Interest and financing costs (163) (1,318) (375) (5,684)
----------- ------------ ------------- ------------
Income before income taxes and 7,313 14,541 36,055 26,880
cumulative change in accounting principle
Provision for income taxes 3,072 5,904 15,143 10,954
----------- ------------ ------------- ------------
Income before cumulative change in 4,241 8,637 20,912 15,926
accounting principle
Cumulative change in accounting principle, net of - - - (3,754)
income tax benefit of $2,547
----------- ------------ ------------- ------------
Net income $ 4,241 $ 8,637 $ 20,912 $ 12,172
=========== ============ ============= ============
Basic earnings per common share:
Income before cumulative change in $ 0.13 $ 0.30 $ 0.64 $ 0.58
accounting principle
Cumulative change in accounting principle - - - (0.14)
----------- ------------ ------------- ------------
Net income $ 0.13 $ 0.30 $ 0.64 $ 0.44
=========== ============ ============= ============
Diluted earnings per common share:
Income before cumulative change in $ 0.12 $ 0.28 $ 0.61 $ 0.54
accounting principle
Cumulative change in accounting principle - - - (0.13)
----------- ------------ ------------- ------------
Net income $ 0.12 $ 0.28 $ 0.61 $ 0.41
=========== ============ ============= ============
Weighted average common shares outstanding:
Basic 33,368 28,840 32,833 27,443
=========== ============ ============= ============
Diluted 34,845 30,906 34,508 29,623
=========== ============ ============= ============
See notes to consolidated financial statements.
3
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended March 31,
------------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited)
Net income $ 20,912 $ 12,172
Adjustments to reconcile net income to net cash
provided by operating activities
Cumulative change in accounting principle - 3,754
Gain on sale of assets held for sale - (706)
Depreciation and amortization of property and equipment 4,645 3,990
Amortization of goodwill and other intangible assets 4,770 4,988
Amortization of deferred financing costs 15 625
Provision for doubtful accounts 398 (22)
Deferred income taxes - (2,047)
Other 36 35
Increase (decrease) in cash attributable to changes in
assets and liabilities, net of amounts applicable to
acquired businesses:
Accounts receivable (14,860) (15,552)
Inventories 1,827 1,017
Other current assets (480) (205)
Other assets 41 (2,110)
Accounts payable and accrued expenses (12,710) (1,748)
Income tax payable, net 15,706 8,032
----------- -------------
Net cash provided by operating activities 20,300 12,223
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired (5,687) (4,673)
Purchases of property, plant and equipment and other (10,063) (6,970)
intangible assets
Proceeds from sale of assets - 1,152
----------- -------------
Net cash used in investing activities (15,750) (10,491)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank revolving credit facility, net 4,400 235
Repayment of term loan facilities - (85,256)
Payments on economic development revenue bonds (266) (258)
Costs in connection with bank financing (1,185) (26)
Proceeds from private equity offering, net of expenses - 80,589
Proceeds from exercise of warrants and options, net of 12,954 3,874
related expenses
Payment of other long-term debt and other liabilities (206) (192)
----------- -------------
----------- -------------
Net cash provided by/(used in) financing activities 15,697 (1,034)
----------- -------------
Net increase in cash and cash equivalents 20,247 698
Cash and cash equivalents at beginning of period 38,308 712
----------- -------------
Cash and cash equivalents at end of period $ 58,555 $ 1,410
=========== =============
See notes to consolidated financial statements.
4
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, 2001
(In thousands, except per share and share data)
Common Stock
------------------------ Treasury Stock
Additional ----------------
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 180,766 2 1,132 14,347 (475) 659
warrants, net of related
expenses
Exercise of stock options 1,132,712 12 12,282 12,294
Issuance of common stock in 123,830 1 4,023 4,024
connection with a business
combination
Retirement of Treasury Shares (14,347) (475) (14,347) 475 -
Non-cash compensation charge 36 36
Net income for the period 20,912 20,912
-------------------------------------------------------------------------------------
Balance at March 31, 2001 33,570,222 $ 336 $ 343,639 $ 45,949 100,000 $ (275) $ 389,649
=====================================================================================
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., "Hain" or the "Company"), 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 nine months ended March 31, 2001 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 of 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 nine months ended March 31, 2001, the Company incurred
approximately $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 nine months
ended March 31, 2001, approximately $.9 million and $1.3 million, respectively,
was charged to the accrual, bringing the remaining balance to $.7 million which
has been included in accounts payable and accrued expenses on the Consolidated
Balance Sheet at March 31, 2001.
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). In April 2001, the EITF reached a consensus on Issue
00-25, "Vendor Statement Characterization of Consideration from a Vendor to a
Retailer", which expanded upon the types of consideration paid by vendors to
retailers which are now considered sales incentives, and accordingly, should be
classified as a reduction of sales, rather than as a component of selling,
general and administrative expenses. This consensus is effective for fiscal
quarters beginning after December 15, 2001 (the Company's March 2002 quarter).
Upon application of these 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 EITF changed the effective date of Issue 00-14 to
coincide with the effective date of Issue 00-25.
Had EITF 00-14 and 00-25 been adopted at the beginning of the
nine-month periods ended March 31, 2001 and 2000, the Company's net sales and
selling, general and administrative expenses would have each been reduced by
$51,097,000 and $52,710,000, for the respective periods.
7
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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
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:
March 31, 2001 June 30, 2000
-------------- -------------
Finished goods $ 28,392 $ 28,730
Raw materials and packaging 18,098 19,409
--------- ----------
$ 46,490 $ 48,139
========= ==========
8. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
March 31, June 30,
2001 2000
---------- ------
Land $ 6,049 $ 6,049
Building and improvements 11,251 10,579
Machinery & equipment 40,043 33,890
Assets held for sale - 197
Furniture and fixtures 2,822 2,580
Leasehold improvements 5,372 5,014
Construction in progress 5,919 502
--------- ---------
71,456 58,811
Less:
Accumulated depreciation and
amortization 23,853 19,471
--------- ---------
$ 47,603 $ 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 Nine Months Ended
March 31 March 31
---------- ---------
2001 2000 2001 2000
--------- -------- ------- -------
Numerator:
Numerator for basic and diluted
earnings per share -
Income before cumulative change in
accounting principle $ 4,241 $ 8,637 $20,912 $ 15,926
Cumulative change in accounting principle - - - (3,754)
-------- -------- ------- --------
Net income $ 4,241 $ 8,637 $20,912 $ 12,172
======== ======== ======= ========
Denominator:
Denominator for basic earnings per
share - weighted average shares
outstanding during the period 33,368 28,840 32,834 27,443
-------- -------- ------- --------
Effect of dilutive securities:
Stock options 1,277 1,738 1,437 1,740
Warrants 200 328 237 440
-------- -------- ------- --------
1,477 2,066 1,674 2,180
-------- -------- ------- --------
Denominator for diluted earnings
per share - adjusted weighted average
shares and assumed conversions 34,845 30,906 34,508 29,623
======== ======== ======= ========
Basic earnings per share:
Income before cumulative change in
accounting principle $ 0.13 $ 0.30 $ 0.64 $ 0.58
Cumulative change in accounting principle - - - (0.14)
-------- -------- ------- --------
Net income $ 0.13 $ 0.30 $ 0.64 $ 0.44
======== ======== ======= ========
Diluted earnings per share:
Income before cumulative change in
accounting principle $ 0.12 $ 0.28 $ 0.61 $ 0.54
Cumulative change in accounting principle - - - (0.13)
-------- -------- ------- --------
Net income $ 0.12 $ 0.28 $ 0.61 $ 0.41
======== ======== ======= ========
9
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10. CREDIT FACILITY:
In March 2001, the Company entered into a new $240 million Senior Revolving
Credit Facility (the "Senior Credit Facility"). The Senior Credit Facility
provides for a four year, $145 million revolving credit facility (initially this
revolving facility is priced at LIBOR plus 1.00%) and a $95 million 364-day
facility (the 364-day facility is also initially priced at LIBOR plus 1.00%).
The Senior Credit Facility is unsecured, but guaranteed by all current and
future direct and indirect domestic subsidiaries of the Company. This Senior
Credit Facility also includes customary affirmative and negative covenants for
transactions of this nature. The Company's outstanding revolving credit loans
under these facilities bears interest at the Company's base rate (greater of the
applicable prime rate or Federal Funds Rate plus 0.50% per annum) or, at the
Company's option, the reserve adjusted LIBOR rate plus the applicable margin (as
defined in the Senior Credit Facility). As of March 31, 2001, approximately $4.4
million was borrowed under the revolving facility.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three months ended March 31, 2001
Net sales for the three months ended March 31, 2001 were approximately
$104 million, a decrease of $8 million or 7.1% over net sales of approximately
$112 million in the quarter ended March 31, 2000. The decrease is primarily due
to: a slowing U.S. economy whereby distributors and retailers made a conscious
decision to reduce inventory levels; a change in the selling price per unit
billing arrangements with our medically directed brands sold to our exclusive
domestic distributor; a change in our selling price per unit 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.
Gross profit for the three months ended March 31, 2001 decreased by
approximately $11.8 million to $42.8 million (41.2% of net sales) as compared to
$54.6 million (48.8% of net sales) in the corresponding 2000 period. The
decrease in gross profit dollars and percentage is a result of the
aforementioned decrease in sales, which significantly and unfavorably impacted
our manufacturing, distribution and logistics infrastructure by approximately
$7.9 million; inventory write-offs associated with the Company's decision to
write-off certain nonperforming inventory SKU's as a result of its decision to
move and consolidate warehouses and upgrade the Company's management information
system within its distribution infrastructure of approximately $1.9 million;
approximately $.3 million associated with the Company's consolidation and move
of one of its distribution facilities into its new Ontario, California
distribution facility that opened in September 2000; approximately $.3 million
of higher fuel costs associated within freight cost and approximately a $1.4
million decrease associated with the aforementioned change in the billing
arrangements.
Selling, general and administrative expenses decreased by $3.0 million
(33.4% of net sales) to $34.7 million for the three months ended March 31, 2001
as compared to $37.7 million (33.7% of net sales) in the March 31, 2000 quarter.
The dollar and percentage decrease is a combination of $2.5 million of synergies
realized in the March 2001 period resulting from the Celestial merger, and
approximately $.5 million in lower other 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 the end of calendar 2002. In the next few fiscal
quarters, the Company expects 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 promotional 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 higher costs.
Amortization of goodwill and other intangible assets was approximately
$1.5 million for the three months ended March 2001 compared with $1.7 million in
the March 2000 period. Amortization expense in total amounted to approximately
1.5% of net sales for both the three months ended March 31, 2001 and 2000
periods, respectively.
Operating income decreased by $8.6 million to $6.6 million for the
three months ended March 31, 2001 compared to $15.2 million for the 2000 period.
11
Operating income as a percentage of net sales amounted to 6.3%, compared with
13.6% in the March 2000 quarter. The dollar and percentage decrease resulted
principally from lower sales and gross profits offset by lower selling, general,
administrative expenses.
Interest and other income amounted to $.9 million for the three months
ended March 31, 2001 compared with $.6 million in the corresponding period. This
increase is a direct result of the interest earned on the increased cash balance
(approximately $58 million) during the three months ended March 31, 2001
compared to gains on proceeds received from assets held for sale sold within the
March 2000 period.
Interest and financing costs for the three months ended March 31, 2001
amounted to approximately $.2 million, compared to $1.3 million in the 2000
period. This decrease is a result of significantly reduced debt levels ($10.6
million outstanding at March 31, 2001 compared with $53.4 million at March 31,
2000). The average interest rate was 7.2% in the March 2001 period compared with
approximately 9.2% in the March 2000 period.
Income before income taxes for the three months ended March 31, 2001
decreased to $7.3 million (7.0% of net sales) from $14.5 million (13.0% of net
sales) in the corresponding 2000 period. This $7.2 million decrease in
profitability was attributable to the aforementioned decrease in operating
income, offset by higher other income generated.
Income taxes decreased to $3.1 million for the three months ended March
31, 2001 compared to $5.9 million in the corresponding 2000 period. The
effective tax rate was 42.0% in the 2001 period compared with 40.6% in the
corresponding 2000 period. The lower tax rate in 2000 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 March 31, 2001 decreased to $4.2
million (4.1% of net sales) from $8.6 million (7.7% of net sales) in the
corresponding 2000 period. This $4.4 million decrease in earnings was primarily
attributable to the aforementioned decrease in income before income taxes offset
by higher income taxes.
Nine months ended March 31, 2001
Net sales for the nine months ended March 31, 2001 were $313.6 million,
a decrease of $2.9 million over net sales of $316.5 million in the period ended
March 31, 2000. As previously mentioned, our net sales were affected by a
slowing U.S. economy, changes in the selling price per unit billing arrangements
and, redirection of management focus on certain product lines (supplements). On
a pro forma comparable basis, net sales increased by approximately $11.5 million
with the growth coming from our Westsoy, Health Valley, Earth's Best, and Terra
Chips brands.
Gross profit for the nine months ended March 31, 2001 decreased by
approximately $7.2 million to $136.9 million (43.7% of net sales) as compared to
$144.1 million (45.5% of net sales) in the corresponding 2000 period. The
decrease in gross profit dollars and percentage of net sales was a direct result
of the decreased sales levels in 2001 compared to 2000; the aforementioned
inventory write-offs of approximately $1.9 million; higher freight costs due to
higher fuel costs of approximately $1.0 million; additional warehousing and
freight costs, principally due to the consolidation and move to the Company's
new Ontario, California distribution center ($.5 million) and mix of products
sold.
12
Selling, general and administrative expenses decreased by $11.0 million
to $97.0 million for the nine months ended March 31, 2001 as compared to $108.0
million in the March 31, 2000 period. Such expenses as a percentage of net sales
amounted to 30.9% for the nine months ended March 31, 2001 compared with 34.1%
in the March 31, 2000 period. The dollar decrease is a combination of $5.4
million of synergies realized in the March 2001 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 $2.4 million in lower advertising and promotion costs and $2.0
million of lower other selling, general and administrative expense components.
To date, a substantial portion of the synergies from the Celestial merger have
been identified and it is expected that the integration process will be
completed by the end of calendar 2002.
Merger related charges amounted to $1 million for the nine months ended
March 31, 2001. There were no merger related charges in the corresponding period
in 2000. Merger related charges incurred relate to certain employee costs
associated with the Celestial merger.
Amortization of goodwill and other intangible assets was approximately
$4.8 million for the March 2001 period compared to $5.0 million in the 2000
period. Amortization expense in total amounted to approximately 1.5% of net
sales for both the nine months ended March 31, 2001 and 2000, respectively.
Operating income increased by $2.9 million compared to the 2000 period.
Operating income as a percentage of net sales amounted to 10.9%, compared with
9.9% in the March 2000 period. The dollar and percentage increase resulted
principally from lower selling, general and administrative expenses, offset by
lower gross profit dollar contributions and higher merger related costs.
Other income amounted to $2.3 million for the nine months ended March
31, 2001 compared with $1.4 million in the corresponding period in 2000. This
increase is a direct result of the interest earned on the increased cash balance
during the March 31, 2001 period compared with other income generated (gains on
sales of marketable securities and assets held for sale) within the March 2000
period.
Interest and financing costs for the nine months ended March 31, 2001
amounted to approximately $.4 million, compared to $5.7 million in the 2000
period. This decrease is a result of the aforementioned significantly reduced
debt levels at March 31, 2001 compared to the March 31, 2000 period.
Income before income taxes and cumulative change in accounting
principle for the nine months ended March 31, 2001 increased to $36.1 million
(11.5% of net sales) from $26.9 million (8.5% of net sales) in the corresponding
2000 period. This $9.2 million improvement in profitability was attributable to
the aforementioned increase in operating income, as well as the other income
generated.
Income taxes increased to $15.1 million for the nine months ended March
31, 2001 compared to $11.0 million in the corresponding 2000 period. The
effective tax rate was 42.0% in the 2001 period compared to 40.8% in the
corresponding 2000 period. The lower tax rate in fiscal 2000 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 nine
months ended March 31, 2001 increased to $20.9 million (6.7% of net sales) from
$15.9
13
million (5.0% of net sales) in the corresponding 2000 period. This $5.0 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 $120.1 million and
3.45 to 1, respectively, at March 31, 2001 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 nine months ended March
31, 2001.
The Company believes that its cash on hand of $58.6 million at March
31, 2001, as well as cash flows from operations are sufficient to fund its
foreseeable 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 $1.7
million of accrued merger costs and $.7 million of restructuring accruals)
existing at March 31, 2001 for the remainder of fiscal 2001. Of the $2.4 million
of these accruals, approximately $.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 5.0% per annum.
In March 2001, the Company entered into a new $240 million Senior
Revolving Credit Facility (the "Senior Credit Facility"). The Senior Credit
Facility provides for a four year, $145 million revolving credit facility
(initially this revolving facility is priced at LIBOR plus 1.00%) and a $95
million, 364-day facility (the 364-day facility is also initially priced at
LIBOR plus 1.00%). The Senior Credit Facility is unsecured, but guaranteed by
all current and future direct and indirect domestic subsidiaries of the Company.
This Senior Credit Facility also includes customary affirmative and negative
covenants for transactions of this nature. The Company's outstanding revolving
credit loan under these facilities bears interest at the Company's base rate
(greater of the applicable prime rate or Federal Funds Rate plus 0.50% per
annum) or, at the Company's option to reserve adjusted LIBOR rate plus the
applicable margin (as defined in the Senior Credit Facility). As of March 31,
2001, approximately $4.4 million was borrowed under the revolving 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.
On January 18, 2001 in connection with the Company's acquisition of Fruit Chips,
B.V., a private company incorporated under the laws of the Netherlands, the
Company issued 123,830 shares of its common stock, par value $.01 per share, to
15
Mosvad Investments B.V.
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.
Item 6. - Exhibits and Reports on Form 8-K
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: May 15, 2001 /s/ Irwin D. Simon
-----------------------------
Irwin D. Simon,
President and Chief
Executive Officer
Date: May 15, 2001 /s/ Gary M. Jacobs
-----------------------------
Gary M. Jacobs,
Executive Vice President, Finance
and Chief Financial Officer
17