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: 12/31/01 Commission file number: 0-22818
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THE HAIN CELESTIAL GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-3240619
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
58 South Service Road, Melville, New York 11747
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 730-2200
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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.
33,866,114 shares of Common Stock $.01 par value, as of February 8, 2002.
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINNAICAL STATEMENTS (UNAUDITED)
THE HAIN CELESTIAL GROUP, INC.
INDEX
Page
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 2001
(unaudited) and June 30, 2001 2
Consolidated Statements of Income - Three months and Six
Months ended December 31, 2001 and 2000 (unaudited) 3
Consolidated Statements of Cash Flows -
Six Months ended December 31, 2001 and 2000 (unaudited) 4
Consolidated Statement of Stockholders' Equity -
Six months ended December 31, 2001 (unaudited) 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
Part II Other Information
Items 1,3 and 4 are not applicable
Item 2 - Changes in Securities and Use of Proceeds 17
Item 5 - Submission of Matters to Vote of Security Holders 17
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 19
PART 1 - ITEM 1 - FINANCIAL INFORMATION
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share and share amounts)
December 31, June 30,
2001 2001
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ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 6,608 $26,643
Accounts receivable, less allowance for doubtful 55,671 42,668
accounts of $1,396 and $815
Inventories 61,995 49,593
Recoverable income taxes 2,101 8,232
Deferred income taxes 3,740 3,740
Other current assets 7,138 7,904
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Total current assets 137,253 138,780
Property, plant and equipment, net of accumulated 70,171 55,780
depreciation and amortization of $27,257 and $25,551
Goodwill, net 237,440 219,826
Trademarks and other intangible assets, net 38,385 38,230
Other assets 9,701 9,077
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Total assets $ 492,950 $461,693
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 49,863 $43,587
Income taxes payable 5,824 -
Current portion of long-term debt 8,300 2,881
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Total current liabilities 63,987 46,468
Long-term debt, less current portion 10,762 10,718
Deferred income taxes 7,854 7,854
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Total liabilities 82,603 65,040
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.01 par value, authorized 5,000,000
shares, none issued - -
Common stock - $.01 par value, authorized 100,000,000
shares, issued 34,021,616 and 33,771,124 shares 340 338
Additional paid-in capital 354,045 348,942
Retained earnings 59,274 48,626
Foreign currency translation adjustment (1,916) (978)
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411,743 396,928
Less: 156,917 and 100,000 shares of treasury stock, at cost (1,396) (275)
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Total stockholders' equity 410,347 396,653
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Total liabilities and stockholders' equity $ 492,950 $461,693
========== =========
Note: The balance sheet at June 30, 2001 has been derived from the audited
financial statements at that date.
See notes to consolidated financial statements.
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ --------------------------
2001 2000 2001 2000
------------ --------- ------------ ---------
(Unaudited) (Unaudited)
Net sales $ 124,766 $116,025 $ 229,632 $209,678
Cost of sales 72,873 62,297 136,333 115,542
----------- ---------- ----------- -----------
Gross profit 51,893 53,728 93,299 94,136
Selling, general & administrative expenses 41,933 36,790 74,232 65,649
Merger costs - - - 1,032
----------- ---------- ----------- -----------
Operating income 9,960 16,938 19,067 27,455
Interest expense (income) and other expenses, net 1,564 (761) 1,893 (1,287)
----------- ---------- ----------- -----------
Income before income taxes 8,396 17,699 17,174 28,742
Provision for income taxes 3,191 7,433 6,526 12,071
----------- ---------- ----------- -----------
Net income $ 5,205 $ 10,266 $10,648 $ 16,671
=========== ========== =========== ===========
Basic net income per common share $ 0.15 $ 0.31 $ 0.32 $ 0.51
=========== ========== =========== ===========
Diluted net income per common share $ 0.15 $ 0.30 $ 0.31 $ 0.49
=========== ========== =========== ===========
Weighted average common shares outstanding:
Basic 33,690 33,038 33,678 32,667
=========== ========== =========== ===========
Diluted 34,881 34,660 34,758 34,340
=========== ========== =========== ===========
See notes to consolidated financial statements.
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
December 31,
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited)
Net income $ 10,648 $ 16,671
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and equipment 3,573 2,939
Amortization of goodwill and other intangible assets 95 3,248
Amortization of deferred financing costs and other 185 33
Provision for doubtful accounts 402 128
Increase (decrease) in cash attributable to changes in
assets and liabilities, net of amounts applicable to
acquired businesses:
Accounts receivable (10,428) (16,485)
Inventories (10,899) 91
Other current assets 2,449 (430)
Other assets (1,168) (234)
Accounts payable and accrued expenses (1,339) (12,982)
Recoverable taxes, net of income tax payable 11,960 12,951
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Net cash provided by operating activities 5,478 5,930
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (14,315) (7,749)
Acquisitions of businesses, net of cash acquired (14,219)
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Net cash used in investing activities (28,534) (7,749)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Credit Facility 5,200 -
Payments on economic development revenue bonds (208) (166)
Purchase of treasury stock (1,121) -
Proceeds from exercise of warrants and options, net of
related expenses 650 11,026
Payment of other long-term debt and other liabilities (1,081) (58)
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Net cash provided by financing activities 3,440 10,802
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Net (decrease) increase in cash and cash equivalents (19,616) 8,983
Effect of exchange rate changes on cash (419) -
Cash and cash equivalents at beginning of period 26,643 38,308
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Cash and cash equivalents at end of period $ 6,608 $ 47,291
========= ==========
See notes to consolidated financial statements.
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
FOR THE SIX MONTHS ENDED DECEMBER 31, 2001
(In thousands, except per share and share data)
Common Stock
----------------------- Foreign
Additional Treasury Stock Currency
Amount Paid-in Retained ------------------ Translation Comprehensive
Shares at $.01 Capital Earnings Shares Amount Adjustment Total Income
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Balance at June 30, 2001 33,771,124 $ 338 $ 348,942 $ 48,626 100,000 $ (275) $ (978) $ 396,653
Exercise of stock options 41,733 594 594
Purchase of treasury shares 56,917 (1,121) (1,121)
Issuances of common stock 208,759 2 4,485 4,487
Non-cash compensation charge 24 24
Net income 10,648 10,648 $ 10,648
Translation adjustments (938) (938) (938)
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Total comprehensive income $ 9,710
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Balance at December 31, 2001 34,021,616 $ 340 $ 354,045 $ 59,274 156,917 $ (1,396) $ (1,916) $ 410,347
========================================================================================
See notes to consolidated financial statements.
1. GENERAL
The Hain Celestial Group (herein referred to as "we","us" and "our") is a
natural, specialty and snack food company. We are 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), Yves Veggie Cuisine(R), Gaston's(R), Lima(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 and refrigerated products, Kineret(R) kosher foods, Boston
Better Snacks(R), and Alba Foods(R).
We operate in one business segment: the sale of natural, organic and other
food and beverage products. In our most recent fiscal year, approximately 51% of
our revenues were derived from products that are manufactured within our own
facilities with 49% produced by various co-packers. There are no co-packers who
manufactured 10% or more of our products.
Certain reclassifications have been made to our previous year's
consolidated financial statements to conform them to the current year's
presentation.
All amounts in our consolidated financial statements have been rounded
to the nearest thousand dollars, except share and per share amounts.
2. BASIS OF PRESENTATION
Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United
States. 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, 2001
are not necessarily indicative of the results that may be expected for the year
ending June 30, 2002. Please refer to the footnotes to our consolidated
financial statements as of June 30, 2001 and for the year then ended included in
our Annual Report on Form 10-K for information not included in these condensed
footnotes.
3. ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS
Our results for the three and six months ended December 31, 2001, include
the effect of adopting Statement of Financial Accounting Standards ("SFAS") No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets", which resulted in a $1.6 and $3.2 million reduction in expenses ($1.1
and $2.2 million, net of tax) and a $0.03 and $0.05 increase in basic and
diluted earnings per share, respectively, for the three and six month periods
ended December 31, 2001. SFAS No. 141 provides that all business combinations
initiated after June 30, 2001 shall be accounted for using the purchase method.
In addition, it provides that the cost of an acquired entity must be allocated
to the assets acquired, including identifiable intangible assets and liabilities
assumed based on their estimated fair values at the date of acquisition. The
excess cost over the fair value of the net assets acquired must be recognized as
goodwill. SFAS No. 142 provides that goodwill is no longer amortized and the
value of an identifiable intangible asset must be amortized over its useful life
unless the asset is determined to have an indefinite useful life. At December
31, 2001, included in trademarks and other intangible assets on the balance
sheet, is approximately $.7 million of intangible assets deemed to have a finite
life being amortized over their estimated useful lives. Goodwill must be tested
for impairment at the beginning of the fiscal year in which SFAS No. 142 is
adopted. In accordance with SFAS No. 142, we have evaluated the fair value of
our reporting units and compared those values to the carrying values of their
related goodwill and indefinite-life intangible assets, and based on such
evaluation, no impairment existed at July 1, 2001. The $3.2 million pre-tax
reduction of intangible amortization expense recognized during the six-month
period ended December 31, 2001 represents the amount of amortization of goodwill
and indefinite-life intangible assets that arose from acquisitions prior to July
1, 2001 and are no longer amortized. Amounts assigned to indefinite-life
intangible assets primarily represent the values of trademarks.
The following table reflects consolidated results of operations(net of tax
effect) adjusted as though the adoption of SFAS No. 141 and 142 occurred as of
the beginning of the six-month period ended December 31,2000.
Three Months Ended Six Months Ended
December 31, 2000 December 31, 2000
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Net Earnings:
As reported $ 10,266 $ 16,671
Goodwill and indefinite-life
intangibles amortization 942 1,914
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As adjusted
$ 11,208 $ 18,585
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Basic earnings per common share:
As reported $ 0.31 $ 0.51
============ ===========
As adjusted $ 0.34 $ 0.57
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Diluted earnings per common share:
As reported $ 0.30 $ 0.49
============ ===========
As adjusted $ 0.32 $ 0.54
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The following table reflects the components of trademarks and other
intangible assets as of December 31, 2001:
Gross Carrying Accumulated
Amount Amortization
------------------- --------------
Amortized intangible assets:
Licensing costs and other intangibles $ 1,072 $ 353
Non-amortized intangible assets:
Trademarks $ 37,666 $ -
4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2000, the Emerging Issues Task Force ("EITF") reached a consensus on
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 (we include 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 to be considered sales incentives and, accordingly, should
be classified as a reduction of sales rather than as a component of selling,
general and administrative expenses. In November 2001, the EITF reached a
consensus on Issue 01-9, "Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of A Vendor's Product", which provides interpretative
guidance to Issues 00-14 and 00-25. These consensuses are effective beginning
with our quarter ending March 31, 2002. Upon application of these consensuses,
our earnings for current and prior periods will not be changed, but rather a
reclassification will take place within the Consolidated Statements of
Operations for all periods presented for comparative purposes.
Had EITF 00-14 and 00-25 been adopted at the beginning of the six-month
periods ended December 31, 2001 and 2000, our net sales and selling, general and
administrative expenses would have each been reduced by $37.2 million and $31.9
million, for the respective periods.
5. ACQUISITIONS
On December 10, 2001, we acquired the outstanding common shares of Lima NV,
a leading Belgian manufacturer and marketer of natural and organic foods, for
cash and stock. The results of Lima's operations have been included in our
consolidated financial statements since that date. The acquisition builds upon
our growing European distribution and manufacturing capabilities and provides us
with a strong platform for the expansion of our European operations.
On June 8, 2001, we acquired privately-held Yves Veggie Cuisine, Inc.
("Yves") a Vancouver, British Columbia based company. Yves is a leading North
American manufacturer, distributor and marketer of soy protein meat alternative
products.
On January 18, 2001 we acquired privately-held Fruit Chips B.V. a
Netherlands based company, which we subsequently renamed Terra Chips B.V. Terra
Chips B.V. is a manufacturer and distributor of low-fat fruit, vegetable and
potato chips selling to European markets.
Details about the Yves and Fruit Chips acquisitions are included in our
annual report for the year ended June 30, 2001.
Unaudited pro forma results of operations for the periods ended December
31, 2001 and 2000 reflecting the above acquisitions as if they occurred at the
beginning of the respective periods would not be materially different than the
actual results as presented.
6. INVENTORIES
Inventories consist of the following:
December 31, June 30,
2001 2001
----------- -----------
Finished goods $42,129 $ 29,933
Raw materials and packaging 19,866 19,660
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$61,995 $ 49,593
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7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
December 31, 2001 June 30, 2001
--------------- --------------
Land $ 6,965 $ 6,673
Building and improvements 23,707 13,611
Machinery and equipment 54,135 42,861
Furniture and fixtures 2,279 2,505
Leasehold improvements 6,881 6,818
Construction in progress 3,461 8,863
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97,428 81,331
Less: Accumulated depreciation and
amortization 27,257 25,551
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$ 70,171 $55,780
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8. EARNINGS PER SHARE
We report basic and diluted earnings per share in accordance with SFAS
Statement No. 128, "Earnings Per Share" ("SFAS No. 128"). Basic earnings per
share excludes any dilutive effects of options and warrants. Diluted earnings
per share include 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 No. 128:
Three Months Ended Six Months Ended
December 31 December 31
----------------------- -----------------------
2001 2000 2001 2000
------------ ---------- ----------- -----------
Numerator:
Numerator for basic and diluted
earnings per common share -
Net income $5,205 $10,266 $ 10,648 $ 16,671
------------ ---------- ----------- -----------
Denominator:
Denominator for basic earnings
per common share - weighted
average shares outstanding
during the period 33,690 33,038 33,678 32,667
------------ ---------- ----------- -----------
Effect of dilutive securities:
Stock options 1,003 1,385 894 1,417
Warrants 188 237 186 256
------------ ---------- ----------- -----------
1,191 1,622 1,080 1,673
------------ ---------- ----------- -----------
Denominator for diluted
earnings per common share -
adjusted weighted average
shares and assumed conversions 34,881 34,660 34,758 34,340
============ ========== =========== ===========
Basic net income per common
share $ 0.15 $ 0.31 $ 0.32 $0.51
============ ========== =========== ===========
Diluted net income per common
share $ 0.15 $ 0.30 $ 0.31 $0.49
============ ========== =========== ===========
9. CREDIT FACILITY
We have available to us a $240 million Credit Facility (the "Credit
Facility") which provides us with a four-year, $145 million revolving credit
facility and a $95 million 364-day facility. The Credit Facility is unsecured,
but is guaranteed by all of our direct and indirect domestic subsidiaries. We
are required to comply with customary affirmative and negative covenants for
facilities of this nature. Revolving credit loans under this facility bear
interest at a base rate (greater of the applicable prime rate or Federal Funds
Rate plus applicable margin) or, at our option, the reserve adjusted LIBOR rate
plus an applicable margin. As of December 31, 2001, we had borrowed
approximately $4.4 million under the revolving facility with interest at 3.0625%
(classified as long-term debt). We also borrowed $5.2 million as of December 31,
2001 under the credit facility with interest at 4.75% (classified as short-term
debt as all of such amount has been subsequently repaid).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We manufacture, market, distribute and sell natural, specialty, organic and
snack food products under brand names which are sold as "better-for-you"
products. We are 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), Gaston's(R),
Yves Veggie Cuisine(R), Lima(R), DeBoles(R), Earth's Best(R), and Nile Spice(R).
Our principal specialty product lines include Hollywood(R) cooking oils,
Estee(R) sugar-free products, Weight Watchers(R) dry and refrigerated products,
Kineret(R) kosher foods, Boston Better Snacks(R), and Alba Foods(R). Our website
can be found at www.hain-celestial.com.
Our products are sold primarily to specialty and natural food distributors,
supermarkets, natural food stores, and other retail classes of trade including
mass-market stores, food service channels and club stores.
Since our formation in 1993, we have completed a number of acquisitions of
companies and brands. Since January 2001, we acquired the following companies
and brands:
On January 18, 2001, we acquired Fruit Chips B.V., (subsequently renamed
Terra Chips B.V.) a Netherlands based company, which manufactures, distributes
and markets low fat fruit, vegetable and potato chips.
On June 8, 2001, we acquired Yves Veggie Cuisine, Inc. and its subsidiaries
("Yves"), a Vancouver, British Columbia based company. Yves is a manufacturer,
distributor and marketer of premium soy protein meat alternative products.
On December 10, 2001, we acquired Lima NV, the leading Belgian natural and
organic foods manufacturer and marketer.
Our brand names are well recognized in the various market categories they
serve. We have acquired numerous brands and we will seek future growth through
internal expansion as well as the acquisition of additional complementary
brands.
Our overall mission is to be a leading marketer and seller of natural,
organic, beverage and specialty food products by integrating all of our brands
under one management team and employing a uniform marketing, sales and
distribution program. Our business strategy is to capitalize on the brand equity
and the distribution previously achieved by each of our acquired product lines
and to enhance revenues by strategic introductions of new product lines that
complement existing products.
Results of Operations
Three months ended December 31, 2001
Net sales for the three months ended December 31, 2001 were $124.8 million,
an increase of $8.7 million or 8% over net sales of $116.0 million in the same
quarter of the prior year. Net sales increased by 9% on a comparable basis when
adjusted for our reduced focus on supplements and certain non-core product
categories. Our increase in sales is primarily the result of strong increases in
unit volume from our Terra, Garden of Eatin' and Westsoy brands, as well as
sales contributed by companies we acquired in the second half of Fiscal 2001.
The unusually warm winter weather throughout the United States impacted sales
growth of our soups, teas and hot cereals products whose strongest performance
comes during the winter's cold weather months.
Gross profit for the three months ended December 31, 2001 decreased to
41.6% of net sales as compared to 46.3% of net sales in the same quarter of the
prior year. The decrease resulted from higher than anticipated costs of
approximately 1.2% associated with the start up of production at our new Terra
Chips manufacturing facility in Moonachie, NJ, including the cost of training
employees on new technology, production downtime during start-up, and the
additional costs associated with the transition of production from the original
Terra Chips facility in Brooklyn, NY, while we operated both our Brooklyn and
Moonachie facilities; approximately 1.6% of lower gross profits caused by
changes in the mix of sales driven principally by the warm winter weather; and
approximately 1% due to additional freight and warehousing costs associated with
certain strategic initiatives to increase inventory levels to reduce stock-outs,
thereby increasing customer satisfaction.
Selling, general and administrative expenses (excluding amortization)
increased by $6.7 million to $41.9 million for the three months ended December
31, 2001 as compared to $35.1 million in the December 31, 2000 quarter. Such
expenses as a percentage of net sales amounted to 33.6% for the three months
ended December 31, 2001 compared with 30.3% in the December 31, 2000 quarter.
The overall increase is a result of the added selling, general and
administrative costs of 2.3% brought on by the aforementioned second half fiscal
2001 acquisitions offset by cost containment initiatives in other general and
administrative expenses, and higher trade and consumer spending of approximately
1%.
Amortization of goodwill and other intangible assets was $1.7 million for
the December 2000 period compared to less than $.1 million in the 2001 period.
The results for the quarter ended December 31, 2001, include the effect of
adopting Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets", which
resulted in a $1.6 million reduction in overall expenses ($1.1 million net of
tax) and a $0.03 increase in basic and diluted earnings per share. The $1.6
million pre-tax reduction of amortization expense recognized this quarter
represents the amount of amortization of goodwill and indefinite-life intangible
assets that arose from acquisitions prior to July 1, 2001 and are no longer
amortized.
Operating income was $10.0 million in the 2001 period compared to $16.9
million in the 2000 period. Operating income as a percentage of net sales
amounted to 8.0%, compared with 14.6% in the December 2000 quarter. The dollar
and percentage decreases resulted principally from lower gross profits, higher
selling, general and administrative costs offset by lower amortization expense,
all as described above.
Interest expense (income), net and other expenses amounted to $1.6 million
for the three months ended December 31, 2001 compared to ($.8) million in the
comparable period. During the current quarter we closed our Terra Chips
Brooklyn, NY manufacturing facility and returned the leased premises to the
owner. We disposed of machinery and equipment and leasehold improvements deemed
unusable which totaled $1 million, and we were required to retrofit the leased
Brooklyn facility to its original condition at a cost of approximately $.5
million. The remaining overall higher interest expense is a direct result of the
carrying costs associated with our Credit Facility, which we entered into March
2001, and having less investable cash in the three months ended December 31,
2001 after the funding of three acquisitions since January 2001, as well as
capital expenditures required for our new Terra Chips Moonachie, NJ facility,
and other strategic initiatives.
Income before income taxes for the three months ended December 31, 2001
amounted to $8.4 million compared to $17.7 million in the corresponding 2000
period. This decrease was attributable to the aforementioned decrease in
operating income, as well as the changes in interest expense and other expenses,
net.
Income taxes decreased to $3.2 million for the three months ended December
31, 2001 compared to $7.4 million in the corresponding 2000 period. The
effective tax rate was 38% in the 2001 period compared to 42% in the
corresponding 2000 period. The lower tax rate was a result of the elimination of
non-deductible goodwill amortization from our income statement as a result of
the aforementioned adoption of the new accounting for goodwill and other
intangible assets at the beginning the current fiscal year.
Net income for the three months ended December 31, 2001 was $5.2 million
compared to $10.3 million in the corresponding 2000 period. The decrease of $5.1
million in earnings was primarily attributable to the aforementioned decrease in
income before income taxes offset by the reduction in income tax expense.
Six months ended December 31, 2001
Net sales for the six months ended December 31, 2001 were $229.6 million,
an increase of $19.9 million or 10% over net sales of $209.7 million in the same
period of the prior year. Net sales increased by 11% on a comparable basis when
adjusted for our reduced focus on supplements and certain non-core product
categories. Our increase in sales is primarily the result of strong increases in
unit volume from our Terra, Garden of Eatin' and Westsoy brands, as well as
sales contributed by companies we acquired in the second half of fiscal 2001.
Our sales during this period were impacted by the events of September 11, 2001
and the aforementioned impact from the warm winter months.
Gross profit for the six months ended December 31, 2001 decreased to 40.6%
of net sales as compared to 44.9% of net sales in the same period of the prior
year. The decrease is a result of 1.2% higher production costs from the
aforementioned Terra plant transition and 1% from the change in the mix of sales
driven principally by warm winter weather. In addition, we incurred 2.2% higher
costs in warehousing and freight expenses over the six month period as a result
of operating our Ontario distribution center in California for only a short
period of time after its opening in 2000, higher freight and warehousing costs
associated with strategic initiatives which increased inventory levels to reduce
stock-outs, along with the added cost of the warehousing and distribution
networks brought on by the aforementioned second half fiscal 2001 acquisitions.
Selling, general and administrative expenses (excluding amortization
expense) increased by $11.7 million to $74.2 million for the six months ended
December 31, 2001 as compared to $62.4 million in the December 31, 2000 period.
Such expenses as a percentage of net sales amounted to 32.3% for the six months
ended December 31, 2001 compared with 29.8% in the December 31, 2000 period. The
increase is a result of $7 million of costs brought on by the aforementioned
second half fiscal 2001 acquisitions and $3 million of higher trade spending
over the comparable period.
Amortization of goodwill and other intangible assets was $3.2 million for
the December 2000 compared to $.1 million in the 2001 period. The decrease is a
result of the aforementioned adoption of SFAS No. 142.
Merger related charges, which related to certain employee costs associated
with the Celestial merger, amounted to $1 million for the six months ended
December 31, 2000. There were no merger related charges in the current 2001
period.
Operating income decreased by $8.4 million compared to the 2000 period.
Operating income as a percentage of net sales amounted to 8.3% compared with
14.6% in the December 2000 period. The dollar and percentage decrease resulted
principally from higher cost of goods sold, higher selling, general and
administrative expenses, offset by the lack of merger related costs and lower
amortization expense in the 2001 period.
Interest expense (income), net and other expenses amounted to $1.9 million
for the six months ended December 31, 2001 compared with income of ($1.3)
million in the same period of the prior year. The change of $3.2 million is
primarily a result of the items discussed above in the three month period ended
December 31, 2001.
Income before income taxes for the six months ended December 31, 2001
amounted to $17.2 million compared to $28.7 million in the same period of the
prior year. This $11.5 million decrease was attributable to the aforementioned
decrease in operating income, as well as the swing in interest expense and other
expenses, net.
Income taxes decreased to $6.5 million for the six months ended December
31, 2001 compared to a $12.1 million in the corresponding 2000 period. The
effective tax rate was 38.0% in the 2001 period compared to 42.0% in the
corresponding 2000 period. The reason for our lower tax rate was described above
in the three month section on income taxes.
Net income for the six months ended December 31, 2001 amounted to $10.6
million compared to $16.7 million in the corresponding 2000 period. This $6.1
million decrease in earnings was primarily attributable to the aforementioned
decrease in income before income taxes offset by the reduction in income tax
expense.
Liquidity and Capital Resources
We finance our operations and growth primarily with the cash flows we
generate from our operations and from borrowings under our Credit Facility.
We have available to us a $240 million Credit Facility which provides us
with a four-year, $145 million revolving credit facility and a $95 million
364-day facility. The Credit Facility is unsecured, but is guaranteed by all
direct and indirect domestic subsidiaries. We are required to comply with
customary affirmative and negative covenants for facilities of this nature.
This access to capital provides us with flexible working capital needs in
the normal course of business and the opportunity to grow our business through
acquisitions or develop our existing infrastructure through capital investment.
Net cash provided by operations was $5.5 and $5.9 million for the six
months ended December 31, 2001 and 2000, respectively. Our working capital and
current ratio was $73.3 million and 2.2 to 1, respectively, at December 31, 2001
compared with $92.3 million and 2.99 to 1 respectively, at June 30, 2001. The
decrease in working capital and current ratio is due to the use of approximately
$14.3 million for capital expenditures and $14.2 million of cash to fund our
recent acquisitions. This $28.5 million of investments compares with only $7.7
million of cash used in investing activities in the comparable December 2000
period.
Net cash provided by financing activities was $3.4 million for the six
months ended December 31, 2001. During the three months ended December 2001, we
borrowed approximately $5 million under our Credit Facility to fund working
capital needs and we used $1.1 million of cash for a stock buyback program. Net
cash provided by financing activities of $10.8 million in the December 2000
period was derived principally from proceeds received from exercises of warrants
and stock options.
We believe that cash on hand of $6.6 million at December 31, 2001, as well
as projected remaining fiscal 2002 and 2003 cash flows from operations and
availability under our Credit Facility, are sufficient to fund our working
capital needs, anticipated capital expenditures and scheduled debt payments for
the remainder of fiscal 2002 and 2003. We currently invest our cash on hand in
highly liquid short-term investments yielding approximately 2% interest.
Seasonality
Our tea business consists primarily of manufacturing and marketing hot tea
products and as a result its quarterly results of operations reflect seasonal
trends resulting from increased demand for its hot tea products in the cooler
months of the year. This is also true for our soups and hot cereals businesses,
but to a lesser extent. Quarterly fluctuations in our sales volume and operating
results are due to a number of factors relating to our business, including the
timing of trade promotions, advertising and consumer promotions and other
factors, such as seasonality, abnormal and inclement weather patterns and
unanticipated increases in labor, commodity, energy, insurance or other
operating costs. The impact on sales volume and operating results, due to the
timing and extent of these factors, can significantly impact our business. For
these reasons, you should not rely on our quarterly operating results as
indications of future performance. In some future periods, our operating results
may fall below the expectations of securities analysts and investors, which
could harm our business.
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 that 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
There have been no material changes in the reported market risks since the
end of the most recent fiscal year.
Part II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On December 10, 2001, in connection with our acquisition of Lima NV, a
Belgian company, and its related entities, we issued 205,128 shares of common
stock, par value $.01 per share, to Philippe Woitrin. 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 5. - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on December 11, 2001. 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 2002, and
3. To consider and act upon a stockholder proposal requesting the
board of directors to review sales of food products containing
genetically engineered ingredients and report to stockholders
certain findings related thereto by August 2002, which
proposal was opposed by our board of directors.
The stockholders elected the persons named below, the Company's nominees
for directors, as directors for the Company, casting approximately 23,391,000
(on average) votes in favor of each nominee and withholding approximately
947,000 votes (on average) for each nominee:
Irwin D. Simon
Morris J. Siegel
Andrew R. Heyer
Beth L. Bronner
Jack Futterman
James S. Gold
Joseph Jimenez
Marina Hahn
Gregg A. Ostrander
Roger Meltzer
Michael J. Bertasso
The stockholders ratified the appointment of Ernst & Young LLP casting
approximately 23,390,000 votes in favor, 313,000 against, and 7,000 abstaining.
The stockholders did not approve the adoption of a proposal requesting the
board of directors to review sales of food products containing genetically
engineered ingredients casting approximately 14,700,000 votes against,
approximately 5,500,000 in favor, approximately 734,000 abstaining, and
2,753,000 not voting.
Item 6. - Exhibits and Reports on Form 8-K
Reports on Form 8-K
On December 10, 2001, we announced that we had completed the acquisition of
Lima NV, a leading Belgian manufacturer and marketer of natural and organic
foods.
On November 5, 2001, we announced our first quarter of fiscal 2002 results
of operations that ended September 30, 2001.
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 14, 2002 /s/ Irwin D. Simon
------------------------------
Irwin D. Simon,
President and Chief Executive Officer
Date: February 14, 2002 /s/ Ira J. Lamel
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Ira J. Lamel,
Executive Vice President,
Chief Financial Officer and Treasurer