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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended: 09/30/03
--------
|_| Transition Report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 for the transition period from ______ to _______.
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.
34,236,021 shares of Common Stock $.01 par value, as of October 30, 2003.
THE HAIN CELESTIAL GROUP, INC.
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 2003
(unaudited) and June 30, 2003 2
Consolidated Statements of Income -
Three Months ended September 30, 2003 and 2003 (unaudited) 3
Consolidated Statements of Stockholders' Equity -
Three months ended September 30, 2003 (unaudited) 4
Consolidated Statement of Cash Flows -
Three months ended September 30, 2003 and 2002 (unaudited) 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
Item 4. Controls and Procedures 16
Part II Other Information
Items 1 through 5 are not applicable
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 17
1
PART I - ITEM 1 - FINANCIAL INFORMATION
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share and share amounts)
September 30, June 30,
2003 2003
--------------- --------------
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 12,879 $ 10,984
Accounts receivable, less allowance for doubtful
accounts of $1,840 and $1,748 74,895 61,215
Inventories 69,068 66,444
Recoverable income taxes, net 641 223
Deferred income taxes 3,171 3,171
Other current assets 7,019 7,671
--------------- --------------
Total current assets 167,673 149,708
Property, plant and equipment, net of accumulated
depreciation and amortization of $33,849 and $31,555 67,425 68,665
Goodwill 298,971 296,508
Trademarks and other intangible assets, net of
accumulated amortization of $7,576 and $7,377 55,891 55,975
Other assets 10,393 10,692
--------------- --------------
Total assets $ 600,353 $ 581,548
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 53,684 $ 55,710
Current portion of long-term debt 19,056 8,807
Income taxes payable 4,312 1,867
--------------- --------------
Total current liabilities 77,052 66,384
Long-term debt, less current portion 59,227 59,455
Deferred income taxes 14,912 14,912
--------------- --------------
Total liabilities 151,191 140,751
Stockholders' equity:
Preferred stock - $.01 par value, authorized 5,000,000
shares, no shares issued - -
Common stock - $.01 par value, authorized 100,000,000
shares, issued 34,858,537 and 34,810,722 shares 349 348
Additional paid-in capital 365,464 364,877
Retained earnings 85,631 79,089
Foreign currency translation adjustment 6,153 4,639
--------------- --------------
457,597 448,953
Less: 622,516 and 606,619 shares of
treasury stock, at cost (8,435) (8,156)
--------------- --------------
Total stockholders' equity 449,162 440,797
--------------- --------------
Total liabilities and stockholders' equity $ 600,353 $ 581,548
=============== ==============
Note: The balance sheet at June 30, 2003 has been derived from the audited
financial statements at that date.
See notes to consolidated financial statements.
2
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
September 30,
------------------------------
2003 2002
-------------- ------------
(Unaudited)
Net sales $ 127,053 $ 96,420
Cost of sales 89,891 68,622
-------------- ------------
Gross profit 37,162 27,798
Selling, general and administrative expenses 25,819 20,095
-------------- ------------
Operating income 11,343 7,703
Interest expense and other expenses, net 791 170
-------------- ------------
Income before income taxes 10,552 7,533
Provision for income taxes 4,010 2,844
-------------- ------------
Net income $ 6,542 $ 4,689
============== ============
Net income per share:
Basic $ 0.19 $ 0.14
============== ============
Diluted $ 0.19 $ 0.14
============== ============
Weighted average common shares outstanding:
Basic 34,221 33,702
============== ============
Diluted 35,356 34,382
============== ============
See notes to consolidated financial statements.
3
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
(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, 2003 34,810,722 $348 $ 364,877 $ 79,089 606,619 $(8,156) $ 4,639 $440,797
Exercise of stock options 47,815 1 575 576
Purchase of treasury shares 15,897 (279) (279)
Non-cash compensation charge 12 12
Comprehensive income:
Net income for the period 6,542 6,542 $ 6,542
Translation adjustments 1,514 1,514 1,514
---------
---------
Total comprehensive income $ 8,056
------------ --------- ------------ ----------- --------- --------- --------- ---------- ===========
Balance at September 30, 2003 34,858,537 $ 349 $ 365,464 $ 85,631 622,516 $(8,435) $ 6,153 $449,162
============ ========= ============ =========== ========= ========= ========= ==========
See notes to consolidated financial statements.
4
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended
September 30,
-----------------------------
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited)
Net income $ 6,542 $ 4,689
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,592 2,013
Provision for doubtful accounts 92 (100)
Increase (decrease) in cash attributable to changes in
operating assets and liabilities, net of amounts
applicable to acquired businesses:
Accounts receivable (13,588) (6,493)
Inventories (2,639) 1,506
Other current assets 50 (990)
Other assets 736 (104)
Accounts payable and accrued expenses (2,937) (7,532)
Income taxes, net 2,445 5,804
----------- ------------
Net cash used in operating activities (6,707) (1,207)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (998) (2,047)
----------- ------------
Net cash used in investing activities (998) (2,047)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (repayments) from bank revolving
credit facility, net 10,750 1,800
Payments on economic development revenue bonds (125) (125)
Purchase of treasury stock (279) (2,279)
Proceeds from exercise of options, net of related expenses 576 -
(Repayments) proceeds of other long-term debt, net (428) 341
----------- ------------
Net cash provided by (used in) financing activities 10,494 (263)
----------- ------------
Effect of exchange rate changes on cash (894) (85)
----------- ------------
Net increase (decrease) in cash and cash equivalents 1,895 (3,602)
Cash and cash equivalents at beginning of period 10,984 7,538
----------- ------------
Cash and cash equivalents at end of period $ 12,879 $ 3,936
=========== ============
See notes to consolidated financial statements.
5
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The Hain Celestial Group, Inc. (herein referred to as "we","us" and "our")
is a natural, organic, specialty and snack food company. We are a leader in many
top 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), Little Bear Organic Foods(R), Bearitos(R),
Arrowhead Mills(R), Health Valley(R), Breadshop(R), Casbah(R), Garden of
Eatin'(R), Walnut Acres Certified Organic(R), Terra Chips(R), Harry's Premium
Snacks(R), Boston's(R), Yves Veggie Cuisine(R), DeBoles(R), Earth's Best(R),
Nile Spice(R), Lima(R), Biomarche(R) and Grains Noirs(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 2003 fiscal year, approximately 42% of our
revenues were derived from products that were manufactured within our own
facilities with 58% produced by 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 months ended September 30, 2003 are
not necessarily indicative of the results that may be expected for the year
ending June 30, 2004. Please refer to the footnotes to our consolidated
financial statements as of June 30, 2003 and for the year then ended included in
our Annual Report on Form 10-K for information not included in these condensed
footnotes.
3. 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 the dilutive effects of options and warrants. Diluted earnings
per share includes only the dilutive effects of common stock equivalents such as
stock options and warrants.
6
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table sets forth the computation of basic and diluted
earnings per share pursuant to SFAS No. 128:
Three Months Ended
September 30,
------------------------
2003 2002
----------- ------------
Numerator:
Net income $ 6,542 $ 4,689
=========== ============
Denominator (in thousands):
Denominator for basic earnings per
share - weighted average shares outstanding
during the period 34,221 33,702
----------- -----------
Effect of dilutive securities:
Stock options 965 522
Warrants 170 158
----------- ------------
1,135 680
----------- ------------
Denominator for diluted earnings per
share - adjusted weighted average shares
and assumed conversions 35,356 34,382
=========== ============
Basic net income per share $ 0.19 $ 0.14
=========== ============
Diluted net income per share $ 0.19 $ 0.14
=========== ============
4. INVENTORIES
Inventories consist of the following:
September 30, June 30,
2003 2003
------------------ ----------------
Finished goods $ 44,078 $ 43,022
Raw materials, work-in-progress
and packaging 24,990 23,422
---------------- ----------------
$ 69,068 $ 66,444
================== ================
7
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
September 30, June 30,
2003 2003
---------------------------------
Land $ 6,918 $ 6,913
Building and improvements 24,520 24,448
Machinery and equipment 63,082 61,949
Furniture and fixtures 2,384 2,383
Leasehold improvements 1,474 1,457
Construction in progress 2,896 3,070
---------------------------------
101,274 100,220
Less: Accumulated depreciation
and amortization 33,849 31,555
---------------------------------
$ 67,425 $ 68,665
=================================
6. ACQUISITIONS
On June 17, 2003, we acquired 100% of the stock of privately-held Acirca,
Inc., the owner of the Walnut Acres Certified Organic(R) brand of organic fruit
juices, soups, pasta sauces and salsas. Since June 2000, the financial and
investment group Acirca, Inc. has expanded Walnut Acres, its premier certified
organic food and beverage brand, by integrating a series of organic brands
including Mountain Sun(R), ShariAnn's(R), Millina's Finest(R), and Frutti di
Bosco(R) into its Walnut Acres flagship. The acquisition of these product lines
allows us to add natural and organic juices and sauces to our product offerings,
and enhance our offerings of soups and salsas. The purchase price consisted of
approximately $9 million in cash, 134,797 shares of our common stock valued at
$2.2 million, plus the assumption of certain liabilities. At September 30, 2003,
goodwill from this transaction was estimated to be $15.2 million.
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. At September 30,
2003, goodwill from this transaction was valued at $35.8 million, trademarks and
other non-amortizable intangibles were $15.7 million, and patents and other
amortizable intangibles were valued at $1.5 million.
8
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the estimated fair values of assets acquired
and liabilities assumed of Acirca and Imagine at the dates of the acquisitions:
Current assets $17,714
Property and equipment 2,409
----------------
Total assets 20,123
Liabilities assumed 14,937
----------------
Net assets acquired $ 5,186
================
The balance sheet at September 30, 2003, includes the assets acquired and
liabilities assumed valued at fair market value at the date of purchase. We have
completed substantially all of the procedures required to finalize the purchase
price allocation for Imagine, while such procedures required for Acirca are in
the early stages and are expected to be completed during 2004.
Our results of operations for the three months ended September 30, 2003
include the results of the above described acquisitions for the complete period.
Unaudited pro forma results of operations reflecting the above acquisitions as
if they occurred at the beginning of the three month period ended September 30,
2002, would have been as follows:
Net sales $ 123,131
=================
Net income $ 3,227
=================
Income per share:
Basic $ 0.09
=================
Diluted $ 0.09
=================
Weighted average shares:
Basic 34,370
=================
Diluted 35,050
=================
In management's opinion, the unaudited pro forma results of operations are
not indicative of the actual results that would have occurred had the Acirca and
Imagine acquisitions been consummated at the beginning of the three month period
ended September 30, 2002 or of future operations of the combined companies under
our management.
On May 14, 2003, our subsidiary in Belgium acquired Grains Noirs, N.V., a
Belgian producer and marketer of fresh prepared organic appetizers, salads,
sandwiches and other full-plated dishes. The purchase price paid was
approximately $2.2 million in cash. The net assets acquired, as well as the
sales and results of operations of Grains Noirs, are not material and,
therefore, have not been included in the detailed information about our
acquisitions.
7. CREDIT FACILITY
We have a $240 million Credit Facility with a group of banks (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 25,
2004. The Credit Facility is unsecured, but is guaranteed by all of our current
and future 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
9
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 September 30, 2003, $52.2 million was borrowed under the revolving credit
facility with interest at 2.5% which is classified within long-term debt. In
addition, at September 30, 2003, $12.4 million was borrowed under the 364-day
facility with interest at 4.4% which is classified within current portion of
long-term debt.
8. STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans using the
intrinsic value method under APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related Interpretations. Under APB 25, when the
exercise price of our employee stock options at least equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
If compensation cost for the Company's stock-based compensation plans had
been determined based on the fair value at the grant dates consistent with the
method prescribed by Statement of Financial Accounting Standard No. 123,
"Accounting For Stock-Based Compensation", net earnings and earnings per share
for the three months ended September 30, 2003 and 2002 would have been the
proforma amounts that follow:
Three Months Ended
September 30,
---------------------
2003 2002
---------------------
Net income, as reported $ 6,542 $ 4,689
Non-cash compensation charge, net of
related tax effects 7 7
Stock-based employee compensation expense
determined under fair value method, net of
related tax effects
(1,221) (4,455)
---------- ----------
Proforma net income $ 5,328 $ 241
========== ==========
Basic net income per share:
As reported $ 0.19 $ 0.14
======= =======
Proforma $ 0.15 $ 0.01
======= =======
Diluted net income per share:
As reported $ 0.19 $ 0.14
======= =======
Proforma $ 0.15 $ 0.01
======= =======
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We manufacture, market, distribute and sell natural, organic, specialty 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), Walnut Acres Certified Organic(R), Little Bear Organic Foods(R),
Bearitos(R), Terra Chips(R), Harry's Premium Snacks(R), Boston's(R),
Gaston's(R), Yves Veggie Cuisine(R), DeBoles(R), Earth's Best(R), Nile Spice(R),
Lima(R), Biomarche(R) and Grains Noirs(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, drug 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, snack 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 September 30, 2003
Net sales for the three months ended September 30, 2003 were $127.1
million, an increase of $30.7 million or 31.8% over net sales of $96.4 million
in the September 30, 2002 quarter. Our Canadian business grew 23.2%, our
European business grew 59.0% and our U.S. business grew 30.2%. These increases
come principally from volume increases, including increased volume from brands
owned for more than one year as well as the volume added to each geographic area
by the addition of the Imagine Foods, Walnut Acres and Grains Noirs brands to
our portfolio. Net sales also benefited from the movement of foreign currencies
against the U.S. dollar.
Gross profit for the three months ended September 30, 2003 was 29.2% of net
sales as compared to 28.8% of net sales in the September 30, 2002 quarter. The
increase was a result of more efficient promotional spending and reduced
distribution costs.
11
Selling, general and administrative expenses increased by $5.7 million to
$25.8 million for the three months ended September 30, 2003 as compared to $20.1
million in the September 30, 2002 quarter. Such expenses as a percentage of net
sales amounted to 20.3% for the three months ended September 30, 2003 compared
with 20.8% in the September 30, 2002 quarter. As a percentage of sales, selling,
general, and administrative expenses decreased while the overall dollars
increased. The overall increase in dollars is a result of increased advertising
and marketing spending needed to support our increased sales, while as a
percentage of sales our general and adminstrative costs decreased reflecting
synergies from our acquired businesses.
Operating income was $11.3 million in the three months ended September 30,
2003 compared to $7.7 million in the September 30, 2002 quarter. Operating
income as a percentage of net sales amounted to 8.9% in the September 30, 2003
quarter, compared with 8.0% in the September 30, 2002 quarter. The dollar and
percentage increases resulted principally from the higher gross profits and
lower selling, general and administrative expenses as a percentage of sales.
Interest and other expenses amounted to $.8 million for the three months
ended September 30, 2003 compared to $.2 million in the comparable period. This
increase is from higher interest expense in the 2003 quarter resulting from
increased borrowings for acquisitions, and increased foreign currency
transaction expense in our Canadian business.
Income before income taxes for the three months ended September 30, 2003
amounted to $10.6 million compared to $7.5 million in the comparable period.
This increase was attributable to the increase in operating income.
Our effective income tax rate approximated 38% of pre-tax income for both
the three months ended September 30, 2003 and 2002. We expect our tax rate to
approximate this rate during the remainder of fiscal 2004.
Net income for the three months ended September 30, 2003 was $6.5 million
compared to $4.7 million in the September 30, 2002 quarter. The increase of $1.8
million in earnings was primarily attributable to the aforementioned increase in
income before income tax.
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 (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 25,
2004. 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. As of
September 30, 2003 we had $64.6 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.
12
Net cash used in operations was $6.7 and $1.2 million for the three months
ended September 30, 2003 and 2002, respectively. Our working capital and current
ratio was $90.6 million and 2.2 to 1, respectively, at September 30, 2003
compared with $83.3 million and 2.3 to 1 respectively, at June 30, 2003. The
increase in working capital resulted principally from higher inventory levels as
we enter our busiest seasonal periods.
Net cash provided by (used in) financing activities was $10.5 million and
($0.3) million for the three months ended September 30, 2003 and 2002,
respectively. In the September 2003 period, borrowings under our credit facility
was the principal cause of the cash increase, while the borrowings in the
September 2002 period were offset by acquisitions of shares of our common stock
in open market purchases as part of our 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
Total year 1 - 3 years Thereafter
---------- ------------- ------------- ------------
Debt instruments $ 75,139 $ 17,347 $55,326 $ 2,466
Capital lease obligations 3,144 1,709 1,435 -
Operating leases 19,193 3,168 8,174 7,851
---------- ------------- -------------- -----------
Total contractual cash $ 97,476 $ 22,224 $64,935 $10,317
obligations
========== ============= ============== ===========
We believe that cash on hand of $12.9 million at September 30, 2003,
projected remaining fiscal 2004 cash flows from operations, and availability
under our Credit Facility are sufficient to fund our working capital needs,
anticipated capital expenditures of approximately $10 million for the remainder
of fiscal 2004, and the $22.2 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% 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:
13
Valuation of Accounts and Chargebacks 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 25% 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 have generally been within our expectations. Our
chargebacks receivable balance at September 30, 2003 was $5.7 million as
compared to $6 million at June 30, 2003.
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 in
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 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. Ordinary repairs and maintenance are expensed as incurred.
Intangibles
Goodwill is no longer amortized and the value of an identifiable intangible
asset is amortized over its useful life unless the asset is determined to have
an indefinite useful life. The carrying values of goodwill and other intangible
assets with indefinite useful lives are tested annually for impairment.
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Revenue Recognition and Sales Incentives
Sales are recognized upon the shipment of finished goods to customers and
are reported net of sales incentives. Allowances for cash discounts and returns
are recorded in the period in which the related sale is recognized. Shipping and
handling costs are included as a component of cost of sales.
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 of 1934 and Sections 21E of the Securities Exchange Act of 1934. 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 government
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.
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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 as of the end of the period covered by this
report. Based upon this review, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the end of the period covered by this report, the
Company's disclosure controls and procedures are adequately designed to ensure
that information required to be disclosed by the Company in the reports it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time period specified in applicable rules and forms.
(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 6. - EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
We filed a report on Form 8-K on July 31, 2003, as amended on September 2,
2003 and September 18, 2003, reporting on items 2 and 7, relating to our
acquisition of Acirca, Inc. on June 17, 2003.
On September 2, 2003, we furnished a report on Form 8-K, reporting on Item
12, announcing our earnings for our fourth quarter and fiscal year ended June
30, 2003.
EXHIBITS
Exhibit Number Description
10.1 Employment Agreement dated July 1, 2003 between The Hain Celestial
Group, Inc. and Irwin D. Simon.
31.1 Certification of Chief Executive Officer
pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended.
31.2 Certification of Chief Financial Officer pursuant to Rule13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE HAIN CELESTIAL GROUP, INC.
Date: November 13, 2003 /s/ Irwin D. Simon
----------------------------------
Irwin D. Simon,
Chairman, President and Chief
Executive Officer
Date: November 13, 2003 /s/ Ira J. Lamel
----------------------------------
Ira J. Lamel,
Executive Vice President and
Chief Financial Officer
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