-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uhpju5c1ITM7Pao5wz6AKkdZt3TjmejP6garASKNuP06CJirwsjLhPtpdeVnPZ95 02lhxl0lEpLpEN3pk+Hk/Q== 0000910406-03-000002.txt : 20030214 0000910406-03-000002.hdr.sgml : 20030214 20030214103843 ACCESSION NUMBER: 0000910406-03-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAIN CELESTIAL GROUP INC CENTRAL INDEX KEY: 0000910406 STANDARD INDUSTRIAL CLASSIFICATION: FOOD & KINDRED PRODUCTS [2000] IRS NUMBER: 223240619 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22818 FILM NUMBER: 03563434 BUSINESS ADDRESS: STREET 1: 58 SOUTH SERVICE ROAD CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 6317302200 MAIL ADDRESS: STREET 1: 58 SOUTH SERVICE ROAD CITY: MELVILLE STATE: NY ZIP: 11747 FORMER COMPANY: FORMER CONFORMED NAME: KINERET ACQUISITION CORP DATE OF NAME CHANGE: 19931021 FORMER COMPANY: FORMER CONFORMED NAME: 21ST CENTURY FOOD PRODUCTS CORP DATE OF NAME CHANGE: 19930830 FORMER COMPANY: FORMER CONFORMED NAME: HAIN FOOD GROUP INC DATE OF NAME CHANGE: 19941219 10-Q 1 dec10q2002.txt QUARTERLY REPORT ON FORM 10-Q - 12/31/02 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: 12/31/02 Commission file number: 0-22818 -------- ------- 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.) 58 South Service Road, Melville, New York 11747 ---------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (631) 730-2200 ----------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No ------- ------- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 34,058,693 shares of Common Stock $.01 par value, as of February 5, 2003. THE HAIN CELESTIAL GROUP, INC. INDEX Part I Financial Information Item 1. Financial Statements Consolidated Balance Sheets - December 31, 2002 (unaudited) and June 30, 2002 2 Consolidated Statements of Income - Three Months and six months ended December 31, 2002 and 2001 (unaudited) 3 Consolidated Statements of Cash Flows - Six Months ended December 31, 2002 and 2001 (unaudited) 4 Consolidated Statement of Stockholders' Equity - Six months ended December 31, 2002 (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 16 Item 4. Controls and Procedures 16 Part II Other Information Items 1, 3 and 5 are not applicable Item 2 - Changes in Securities and use of proceeds 17 Item 4 - Submission of matters to vote of Security Holders 17 Item 6 - Exhibits and Reports on Form 8-K 18 Signatures 19 PART I - ITEM 1 - FINANCIAL INFORMATION THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
December 31, 2002 June 30, 2002 ------------------ ------------------ ASSETS (Unaudited) (Note) Current assets: Cash and cash equivalents $ 12,673 $ 7,538 Accounts receivable, less allowance for doubtful accounts of $1,365 and $1,002 63,390 49,018 Inventories 57,667 53,624 Recoverable income taxes 315 3,677 Deferred income taxes 7,223 7,223 Other current assets 7,168 5,804 ------------------ ----------------- Total current assets 148,436 126,884 Property, plant and equipment, net of accumulated depreciation and amortization of $26,469 and $29,059 66,741 69,774 Goodwill, net 286,441 239,644 Trademarks and other intangible assets, net 38,117 38,083 Other assets 11,602 6,798 ------------------ ----------------- Total assets $ 551,337 $ 481,183 ================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 49,262 $ 46,166 Accrued restructuring and non-recurring charges 5,378 6,410 Current portion of debt instruments 3,140 1,431 Income taxes payable 7,328 1,935 ------------------ ----------------- Total current liabilities 65,108 55,942 Long-term debt instruments, less current portion 55,591 10,293 Deferred income taxes 11,100 11,100 ------------------ ----------------- Total liabilities 131,799 77,335 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 34,608,910 and 34,075,639 shares 346 341 Additional paid-in capital 361,844 354,822 Retained earnings 64,472 51,597 Foreign currency translation adjustment (670) 963 ------------------ ----------------- 425,992 407,723 Less: 485,217 and 306,917 shares of treasury stock, at cost (6,454) (3,875) ------------------ ----------------- Total stockholders' equity 419,538 403,848 ------------------ ----------------- Total liabilities and stockholders' equity $ 551,337 $ 481,183 ================== =================
Note: The balance sheet at June 30, 2002 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, ------------------------------------ ----------------------------------- 2002 2001 2002 2001 ---------------- ---------------- ---------------- --------------- (Unaudited) (Unaudited) Net sales $ 123,006 $ 105,169 $ 219,426 $ 194,904 Cost of sales 82,660 72,696 149,826 135,769 ---------------- ---------------- ---------------- --------------- Gross profit 40,346 32,473 69,600 59,135 Selling, general & administrative expenses 26,550 22,513 48,101 40,040 Restructuring and other non-recurring charges 440 - 440 - ---------------- ---------------- ---------------- --------------- Operating income 13,356 9,960 21,059 19,095 Interest expense (income) and other expenses, net 206 1,564 376 1,921 ---------------- ---------------- ---------------- --------------- Income before income taxes 13,150 8,396 20,683 17,174 Provision for income taxes 4,964 3,191 7,808 6,526 ---------------- ---------------- ---------------- --------------- Net income $ 8,186 $ 5,205 $ 12,875 $ 10,648 ================ ================ ================ =============== Basic net income per common share $ 0.24 $ 0.15 $ 0.38 $ 0.32 ================ ================ ================ =============== Diluted net income per common share $ 0.24 $ 0.15 $ 0.37 $ 0.31 ================ ================ ================ =============== Weighted average common shares outstanding: Basic 33,776 33,690 33,739 33,678 ================ ================ ================ =============== Diluted 34,467 34,881 34,425 34,758 ================ ================ ================ ===============
See notes to consolidated financial statements. THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Six Months Ended December 31, ---------------------------------- 2002 2001 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited) Net income $ 12,875 $ 10,648 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,163 3,853 Provision for doubtful accounts (138) 402 Increase (decrease) in cash attributable to changes in assets and liabilities, net of amounts applicable to acquired businesses: Accounts receivable (7,740) (10,428) Inventories 3,100 (10,899) Other current assets (1,536) 2,449 Other assets (1,950) (1,168) Accounts payable and accrued expenses (4,191) (1,339) Accrued restructuring and non-recurring charges (1,046) - Recoverable taxes, net of income tax payable 8,695 11,960 ----------------- -------------- Net cash provided by operating activities 12,232 5,478 ----------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (4,262) (14,315) Acquisitions of businesses, net of cash acquired (44,659) (14,219) ----------------- -------------- Net cash used in investing activities (48,921) (28,534) ----------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Credit Facility 44,300 5,200 Payments on economic development revenue bonds (250) (208) Purchase of treasury stock (2,579) (1,121) Proceeds from exercise of warrants and options, net of related expenses 4 650 Proceeds (repayment) of other long-term debt and other liabilities 589 (1,081) ----------------- -------------- Net cash provided by financing activities 42,064 3,440 ----------------- -------------- Effect of exchange rate changes on cash (240) (419) ----------------- -------------- Net increase (decrease) in cash and cash equivalents 5,135 (20,035) Cash and cash equivalents at beginning of period 7,538 26,643 ----------------- -------------- Cash and cash equivalents at beginning of period $ 12,673 $ 6,608 ================= ==============
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, 2002 (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 ----------- ---------- --------- ----------- --------- --------- ----------- ----------- ----------- Balance at June 30, 2002 34,075,639 $341 $354,822 $51,597 306,917 $ (3,875) $ 963 $403,848 Exercise of stock options 506 4 4 Purchase of treasury shares 178,300 (2,579) (2,579) Issuance of common stock 532,765 5 6,995 7,000 Non-cash compensation charge 23 23 Net income for the period 12,875 12,875 $ 12,875 Translation adjustments (1,633) (1,633) (1,633) ---------- Total comprehensive income $ 11,242 ------------ -------- ----------- ----------- --------- ---------- -------------- --------- ========== Balance at December 31, 2002 34,608,910 $ 346 $ 361,844 $ 64,472 485,217 $(6,454) $ (670) $419,538 ============ ======== =========== =========== ========= ========== ============== =========
See notes to consolidated financial statements. The Hain Celestial Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) 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 13 of the top 15 natural food categories, with such well-known natural food brands as Celestial Seasonings(R) teas, Hain Pure Foods(R), Westbrae(R), Westsoy(R), Rice Dream(R), Soy Dream(R), Imagine(R), Arrowhead Mills(R), Health Valley(R), Breadshop's(R), Casbah(R), Garden of Eatin'(R), Terra Chips(R), Yves Veggie Cuisine(R), The Good Dog(R), The Good Slice(R), DeBoles(R), Earth's Best(R), and Nile Spice(R). Our principal speciality product lines include Hollywood(R) cooking oils, Estee(R) sugar-free 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 2002 fiscal year, approximately 54% of our revenues were derived from products that are manufactured within our own facilities with 46% produced by various co-packers. Had the completed sale of our Health Valley manufacturing facility to one of our co-packers (see Note 4) occurred at the beginning of our 2002 fiscal year, approximately 56% of our revenues in such fiscal year would have been derived from products produced at various co-packers. 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, 2002 are not necessarily indicative of the results that may be expected for the year ending June 30, 2003. Please refer to the footnotes to our consolidated financial statements as of June 30, 2002 and for the year then ended included in our Annual Report on Form 10-K for information not included in these condensed footnotes. 3. ADOPTION OF EITF CONSENSUS REGARDING SALES INCENTIVES Effective January 1, 2002, we adopted various Emerging Issues Task Force (EITF) consensuses related to the accounting for and classification of certain sales incentives. In accordance with these consensuses, we have classified certain sales incentives as a reduction of sales rather than as selling expenses. In order to provide comparable information from period to period, promotional allowances and other sales incentives of $19.6 million and $34.7 million, respectively, in the three-month and six-month periods ended December 31, 2001 have been reclassified from selling expense to net sales. 4. RESTRUCTURING AND OTHER NON-RECURRING CHARGES During the fourth quarter of fiscal 2002, we recorded charges aggregating $21.3 million, before taxes, related to the sale (consummated on September 30, 2002) of our Health Valley facility in Irwindale, California and the discontinuation of our supplements business and Weight Watchers licenses. The Health Valley facility charge, which totaled $11.3 million, included $7.6 million of restructuring and non-recurring charges associated with reduced values of inventories of raw ingredients and packaging, certain lease obligations and other items, and $3.7 million of impairment charges to reduce the Health Valley plant's manufacturing assets to their net realizable value. At June 30, 2002, we accrued $2.1 million of future costs associated with this charge primarily relating to lease exit costs relating to incremental costs and contractual obligations and other facility exit costs expected to be incurred as part of this sale. We anticipate that there may be additional charges of approximately $2 million in fiscal 2003 (approximately $.4 million was incurred in the three and six-month periods ended December 31, 2002) for potential severance liabilities and related employee costs and trade items. At December 31, 2002, approximately $.2 million was charged against this accrual in the aggregate. We also discontinued our supplements business at Celestial Seasonings, and did not renew our license to sell certain Weight Watchers products. In connection with these discontinuations, we recorded charges of $7.9 million related to supplements principally for inventories, packaging and trade items. The charge for the non-renewal of the Weight Watchers license amounted to $2.1 million. At June 30, 2002, we accrued $3.1 and $1.2 million for future costs associated with the Celestial Seasonings supplements and Weight Watchers license discontinuations, respectively. These future costs primarily relate to sales returns resulting from the discontinuation notification, other trade incentives, employee severance costs and other items. At December 31, 2002, approximately $.8 million has been charged against these accruals in the aggregate. At December 31, 2002, our balance sheet includes the above-described aggregate of $5.4 million of accrued restructuring and non-recurring charges, substantially all of which are expected to be paid during fiscal 2003. 5. ACQUISITIONS On December 2, 2002, we acquired substantially all of the assets and assumed certain liabilities of privately-held Imagine Foods, Inc. ("Imagine") in the United States and the United Kingdom. Imagine is a non-dairy beverage company specializing in aseptic and refrigerated rice and soy milks, organic aseptic soups and broths, and organic frozen desserts in the U.S., Canada, and Europe. The acquisition of these product lines is expected to enhance our existing market positions in non-dairy beverages and soups while adding frozen dessert products to our offerings to customers. The purchase price consisted of approximately $44.2 million in cash, 532,765 shares of our common stock valued at $7 million, plus the assumption of certain liabilities. The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of acquisition: Current assets $ 13,797 Property and equipment 2,308 -------------- Total assets 16,105 Liabilities assumed 11,460 -------------- Net assets acquired $ 4,645 ============== The balance sheet at December 31, 2002, includes the assets acquired and liabilities assumed based upon a preliminary allocation of the purchase price. We are in the process of accumulating the data necessary to complete the purchase price allocation, and have estimated that most of the excess cost over net assets acquired will be goodwill and trademarks, which will not amortize under SFAS No. 142. The remaining valuation analysis requiring completion is appraisal of property and equipment and various intangibles. We expect this analysis to be completed by the fourth quarter of fiscal 2003. Our results of operations for the three and six-month periods ended December 31, 2002 include the results of Imagine from the date of acquisition. Unaudited pro forma results of operations reflecting the above acquisition as if it occurred at the beginning of the periods presented would have been as follows: Three Months Ended Six Months Ended December 31, December 31, ------------------------- ------------------------ 2002 2001 2002 2001 ----------- ------------ ----------- ------------ Net Sales $137,477 $124,521 $ 254,526 $ 233,608 ============ ============ =========== =========== Net Income $8,630 $4,772 $14,143 $ 9,782 ============ ============ =========== =========== Earnings per share: Basic $ 0.25 $ 0.14 $ 0.41 $ 0.29 ============ ============ =========== =========== Diluted $ 0.25 $ 0.13 $ 0.41 $ 0.28 ============ ============ =========== =========== Weighted average shares: Basic 34,131 34,223 34,183 34,211 ============ ============ =========== =========== Diluted 34,822 35,414 34,869 35,291 ============ ============ =========== =========== In management's opinion, the unaudited pro forma results of operations are not indicative of the actual results that would have occurred had the Imagine acquisition been consummated at the beginning of the periods presented or of future operations of the combined companies under our management. Our results of operations for the three and six-month periods ended December 31, 2002 include the operations of Lima, N.V., a leading manufacturer and marketer of natural and organic foods located in Belgium, which we acquired in December 2001. Results for the three-months and six-months ended December 31, 2001 include less than one month of results for Lima. Had the acquisition of Lima occurred at the beginning of the six-month period ended December 31, 2001, our consolidated results of operations for that period would not be materially different than the actual results as presented. 6. INVENTORIES Inventories consist of the following: December 31, 2002 June 30, 2002 ------------------- ------------------- Finished goods $39,198 $35,158 Raw materials and packaging 18,469 18,466 ------------------- ------------------- $57,667 $53,624 =================== =================== 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: December 31, June 30, 2002 2002 ------------------- ----------------- Land $ 6,826 $ 6,852 Building and improvements 24,928 25,537 Machinery and equipment 54,747 49,797 Furniture and fixtures 2,421 2,648 Leasehold improvements 1,082 3,218 Construction in progress 3,206 6,012 Health Valley plant assets held for sale (see Note 4) - 4,769 ------------------- ----------------- 93,210 98,833 Less: Accumulated depreciation and amortization 26,469 29,059 ------------------- ----------------- $ 66,741 $ 69,774 =================== ================= 8. CREDIT FACILITY We have available to us a $240 million Credit Facility (the "Credit Facility") which provides us with a $145 million revolving credit facility through March 29, 2005 and a $95 million 364-day facility through March 27, 2003. 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, 2002, we had borrowed approximately $48.7 million under the revolving facility with interest at 2.44% (classified within long-term debt instruments). 9. 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 exclude 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 -------------------------------------------------- 2002 2001 2002 2001 ------------ ------------ ----------- --------- Numerator: Numerator for basic and diluted earnings per common share - Net income $ 8,186 $ 5,205 $ 12,875 $ 10,648 ----------- ------------ ----------- ---------- Denominator: Denominator for basic earnings per common share - weighted average shares outstanding during the period 33,776 33,690 33,739 33,678 ----------- ------------ ----------- ---------- Effect of dilutive securities: Stock options 535 1,003 529 894 Warrants 156 188 157 186 ----------- ------------ ----------- ---------- 691 1,191 686 1,080 ----------- ------------ ----------- ---------- Denominator for diluted earnings per common share - adjusted weighted average shares and assumed conversions 34,467 34,881 34,425 34,758 =========== ============ =========== ========== Basic net income per common share $ 0.24 $ 0.15 $0.38 $0.32 =========== ============ =========== ========== Diluted net income per common share $ 0.24 $ 0.15 $0.37 $0.31 =========== ============ =========== ==========
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), Rice Dream(R), Soy Dream(R), Imagine(R), Terra Chips(R), Yves Veggie Cuisine(R), The Good Dog(R), The Good Slice(R), Gaston's(R), Lima(R) and Biomarche(R) in Europe, 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, 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. 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, 2002 Net sales for the three months ended December 31, 2002 were $123.0 million, an increase of $17.8 million or 17.0% over net sales of $105.2 million in the December 31, 2001 quarter. Approximately 9% of the increase in sales came from organic growth. Approximately 8% of the overall 17% increase in net sales was derived from the net sales of businesses which we acquired subsequent to September 30, 2001. Gross profit for the three months ended December 31, 2002 was 32.8% of net sales as compared to 30.9% of net sales in the December 31, 2001 quarter. The increase was a result of a more favorable mix of products sold, and reduced distribution costs, partially offset by the lower gross profits earned by our businesses in Europe. Selling, general and administrative expenses increased by $4.0 million to $26.5 million for the three months ended December 31, 2002 as compared to $22.5 million in the December 31, 2001 quarter. Such expenses as a percentage of net sales amounted to 21.6% for the three months ended December 31, 2002 compared with 21.4% in the December 31, 2001 quarter. While as a percent of sales, selling, general and administrative expenses are flat, we increased consumer advertising and spending in the quarter ended December 31, 2002 verses the quarter ended December 31, 2001 by approximately $3 million. The remaining increases are from our additional infrastructure in Europe and the added costs of the Imagine Foods business. During the quarter ended December 31, 2002, we recorded approximately $0.4 million of additional restructuring and other non-recurring charges related to our sale of the Health Valley Facility. Operating income was $13.4 million in the three months ended December 31, 2002 compared to $10.0 million in the December 31, 2001 quarter. Operating income as a percentage of net sales amounted to 10.9% in the December 2002 quarter, compared with 9.5% in the December 2001 quarter. The dollar and percentage increase resulted principally from the higher gross profit as described above offset by the aforementioned increase in selling, general and administrative expenses. Interest and other expenses amounted to $.2 million for the three months ended December 31, 2002 compared to $1.6 million in the comparable period of the prior year. During the quarter ended December 31, 2001, we incurred a loss of approximately $1.5 million when we closed our Terra Chips manufacturing facility in Brooklyn, NY in connection with the opening of a replacement facility in Moonachie, NJ. Income before income taxes for the three months ended December 31, 2002 amounted to $13.2 million compared to $8.4 million in the comparable period. This increase was attributable to the increase in operating income as well as the swing in interest expense and other expenses, net. Income taxes remained relatively flat at 38% of pre-tax income for both the three months ended December 31, 2002 and 2001. We expect our tax rate to approximate this rate during the remainder of Fiscal 2003. Net income for the three months ended December 31, 2002 was $8.2 million compared to $5.2 million in the December 31, 2001 quarter. The increase of $3 million in earnings was primarily attributable to the aforementioned increase in income before income taxes. Six months ended December 31, 2002 Net sales for the six months ended December 31, 2002 were $219.4 million, an increase of $24.5 million or 12.6% over net sales of $194.9 million in the December 31, 2001 quarter. Our increase in sales is primarily the result of strong increases in sales on our Yves, Celestial, and Garden of Eatin' brands, as well as sales contributed by companies we acquired in December 2002 and 2001. Gross profit for the six months ended December 31, 2002 was 31.7% of net sales as compared to 30.3% of net sales in the December 31, 2001 quarter. The increase was a result of a more favorable mix of products sold and reduced distribution costs, partially offset by the lower gross profits earned by our businesses in Europe. Selling, general and administrative expenses increased by $8.1 million to $48.1 million for the six months ended December 31, 2002 as compared to $40.0 million in the December 31, 2001 quarter. Such expenses as a percentage of net sales amounted to 21.9% for the six months ended December 31, 2002 compared with 20.5% in the December 31, 2001 quarter. The overall increase in dollars and percentage is a result of the increased consumer advertising and spending in the six months ended December 31, 2002 verses the six months ended December 31, 2001 by approximately $5 million. The remaining increases are as a result of the aforementioned acquisitions of Imagine and Lima/Biomarche. During the six months ended December 31, 2002 we recorded approximately $0.4 million of additional restructuring and other non-recurring charges related to our sale of the Health Valley Facility. Operating income was $21.1 million in the six months ended December 31, 2002 compared to $19.1 million for the six months ended December 31, 2001. Operating income as a percentage of net sales amounted to 9.6% for the six months ended December 2002, compared with 9.8% for the six months ended December 31, 2001. While as a percent of sales operating income has remained flat, the dollar increases resulted principally form the higher gross profit as described above offset by the aforementioned increase in selling, general, and administrative costs. Interest and other expenses amounted to $.4 million for the six months ended December 31, 2002 compared to $1.9 million in the comparable period. The prior year period included a loss of approximately $1.5 million incurred when we closed our Terra Chips manufacturing facility in Brooklyn, NY in connection with the opening of a replacement facility in Moonachie, NJ. Income before income taxes for the six months ended December 31, 2002 amounted to $20.7 million compared to $17.2 million in the comparable period. This increase was attributable to the increase in operating income as well as the swing in interest expense and other expenses, net. Income taxes remained relatively flat at 38% of pre-tax income for both the six months ended December 31, 2002 and 2001. We expect our tax rate to approximate this rate during the remainder of fiscal 2003. Net income for the six months ended December 31, 2002, was $12.9 million compared to $10.6 million for the six months ended December 31, 2001. The increase of $2.3 million in earnings was primarily attributable to the aforementioned increase in income before income taxes. 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 $145 million revolving credit facility through March 29, 2005 and a $95 million 364-day facility through March 27, 2003. 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. As of December 31, 2002, we had $48.7 million outstanding under these facilities. 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 $12.2 and $5.5 million for the six months ended December 31, 2002 and 2001, respectively. Our working capital and current ratio was $83.3 million and 2.3 to 1, respectively, at December 31, 2002 compared with $70.9 million and 2.3 to 1 respectively, at June 30, 2002. The improvement in working capital was derived principally from the net income earned during the six months ended December 31, 2002. Net cash provided by financing activities was $42.1 million and $3.4 million for the six months ended December 31, 2002 and 2001, respectively. During December 2002, we borrowed $44.3 million to fund the cash portion of our purchase of the Imagine Foods business. We also continued to acquire shares of our common stock in open market purchases as part of our stock buy back program. Obligations for all debt instruments, capital and operating leases and other contractual obligations are as follows: Payments Due by Period ---------------------------------------------------- Less than 1 1 - 3 Total year Years Thereafter ------------- --------------- ----------- ----------- Debt instruments $ 56,363 $ 2,343 $ 51,308 $ 2,712 Capital lease obligations 2,368 797 1,546 25 Operating leases 21,755 3,565 8,483 9,707 ------------- ------------ ------------ ------------- Total contractual cash $ 80,486 $6,705 $ 61,337 $ 12,444 obligations ============= ============ ============ ============= We believe that cash on hand of $12.7 million at December 31, 2002, projected remaining fiscal 2003 cash flows from operations, and availability under our Credit Facility are sufficient to fund our working capital needs, anticipated capital expenditures of $6.0 million for the remainder of fiscal 2003, $5.4 million in costs associated with restructuring and non-recurring charges and the $6.7 million of debt and lease obligations described in the table above. We currently invest our cash on hand in highly liquid short-term investments yielding approximately 1.5% interest. Critical Accounting Policies Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, it is likely that materially different amounts would be reported under different conditions or using assumptions different from those that we have consistently applied. We believe our critical accounting policies are as follows, including our methodology for estimates made and assumptions used. Valuation of Accounts and Chargeback Receivables We perform ongoing credit evaluations on existing and new customers daily. We apply reserves for delinquent or uncollectible trade receivables based on a specific identification methodology and also apply a general reserve based on the experience we have with our trade receivables aging categories. Credit losses have been within our expectations over the last few years. While two of our customers represent approximately 30% of our trade receivable balance on an ongoing basis, we believe there is no credit exposure at this time. Based on cash collection history and other statistical analysis, we estimate the amount of unauthorized deductions that our customers have taken to be repaid and collectible in the near future in the form of a chargeback receivable. While our estimate of this receivable balance could be different had we used different assumptions and judgments, historically our cash collections of this type of receivable has been within our expectations and no significant write-offs and/or impairment has occurred. Our chargebacks receivable (included in trade receivables) balance at December 31, 2002 was $6.6 million as compared to $5 million at June 30, 2002. There can be no assurance that we would have the same experience with our receivables during different economic conditions, or with changes in business conditions, such as consolidation within the food industry and/or a change the way we market and sell our products. Inventory Our inventory is valued at the lower of cost or market. Cost has been derived principally using standard costs utilizing the first-in, first-out method. We provide write-downs for finished goods expected to become non-saleable due to age and specifically identify and reserve for slow moving or obsolete raw ingredients and packaging. Property, Plant and Equipment Our property, plant and equipment is carried at cost and depreciated and or amortized on a straight-line basis over the lesser of the estimated useful lives or lease life, whichever is shorter. We believe the asset lives assigned to our property, plant and equipment are within ranges/guidelines generally used in food manufacturing and distribution businesses. Our manufacturing plants and distribution centers, and their related assets, are periodically reviewed to determine if any impairment exists by analyzing underlying cash flow projections. At this time, we believe no impairment exists on the carrying value of such assets. Revenue Recognition Sales are recognized upon the shipment of finished goods to customers. Allowances for cash discounts and returns are recorded in the period in which the related sale is recognized. 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. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have reviewed our disclosure controls and procedures within 90 days prior to the filing of this report. Based upon this review, these officers believe that our disclosure controls and procedures are effective in ensuring that material information related to us is made known to them by others within the company. (b) Changes in Internal Controls. There were no significant changes in our internal controls or in other factors that could significantly affect these controls during the quarter covered by this report or from the end of the reporting period to the date of this Form 10-Q. Part II - OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds On December 2, 2002, in connection with our purchase of substantially all of the assets and the assumption of certain liabilities of privately held Imagine Foods, Inc. ("Imagine") in the United States and United Kingdom, we issued 532,765 shares of common stock, par value $.01 per share, and paid approximately $44.2 million in cash to the seller. 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 4. - Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders was held on November 12, 2002. 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 approve our 2002 Long Term Incentive and Stock Award Plan, and 3. To ratify the appointment of Ernst & Young LLP as our independent auditors for fiscal 2003. The stockholders elected the persons named below, the Company's nominees for directors, as directors for the Company, casting approximately 27,305,000 (on average) votes in favor of each nominee and withholding approximately 1,918,000 votes (on average) for each nominee: Irwin D. Simon Andrew R. Heyer Beth L. Bronner Jack Futterman James S. Gold Joseph Jimenez Marina Hahn Roger Meltzer Michael J. Bertasso Daniel R. Glickman Larry Zilavy The stockholders ratified the 2002 Long Term Incentive and Stock Award Plan casting 17,209,973 votes in favor, 11,941,809 votes against, and 71,119 abstaining. The stockholders ratified the appointment of Ernst & Young LLP casting 28,246,778 votes in favor, 958,423 against, and 17,700 abstaining. Item 6. - Exhibits and Reports on Form 8-K Exhibits Exhibit Number Description 99.1 Certification of Chief Executive Officer 99.2 Certification of Chief Financial Officer Reports on Form 8-K On December 2, 2002, we announced that we had completed the purchase of substantially all of the assets and the assumption of certain liabilities of privately-held Imagine Foods, Inc. ("Imagine") in the United States and United Kingdom. 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, 2003 /s/ Irwin D. Simon ---------------------------------- Irwin D. Simon, Chairman, President and Chief Executive Officer Date: February 14, 2003 /s/ Ira J. Lamel ---------------------------------- Ira J. Lamel, Executive Vice President, Chief Financial Officer and Treasurer CERTIFICATION I, Irwin D. Simon, President and Chief Executive Officer of The Hain Celestial Group, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Hain Celestial Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 /s/ Irwin D. Simon ---------------------------------------- Irwin D. Simon Chairman, President and Chief Executive Officer CERTIFICATION I, Ira J. Lamel, Chief Financial Officer of The Hain Celestial Group, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Hain Celestial Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 /s/ Ira J. Lamel --------------------------------------- Ira J. Lamel Executive Vice President, Chief Financial Officer and Treasurer EX-99 3 exhibit991202i.txt CERTIFICATION OF CFO Exhibit 99.2 Certification Pursuant to Chapter 63, Title 18 United States Code ss.1350 As Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 Accompanying Quarterly Report on Form 10-Q of The Hain Celestial Group, Inc. for the Quarter Ended December 31, 2002 I, Ira J. Lamel, Chief Financial Officer of The Hain Celestial Group, Inc. (the "Company"), certify that the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended December 31, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 14, 2003 /s/ Ira J. Lamel -------------------------------- Ira J. Lamel Chief Financial Officer EX-99 4 exhibit991202.txt CERTIFICATION OF CEO Exhibit 99.1 Certification Pursuant to Chapter 63, Title 18 United States Code ss.1350 As Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 Accompanying Quarterly Report on Form 10-Q of The Hain Celestial Group, Inc. for the Quarter Ended December 31, 2002 I, Irwin D. Simon, President and Chief Executive Officer of The Hain Celestial Group, Inc. (the "Company"), certify that the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended December 31, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 14, 2003 /s/ Irwin D. Simon ----------------------------------------------------- Irwin D. Simon President and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----