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 Exchange Act of 1934 |
For the quarterly period ended March 31, 2008
¨ | Transition Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 |
for the transition period from to .
Commission File No. 0-22818
THE HAIN CELESTIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 22-3240619 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
58 South Service Road Melville, New York | 11747 | |
(Address of principal executive offices) | (Zip Code) |
Registrants 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 requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
As of May 6, 2008 there were 40,519,317 shares outstanding of the registrants Common Stock, par value $.01 per share.
THE HAIN CELESTIAL GROUP, INC.
INDEX
1
PART I - FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share and share amounts)
March 31, 2008 |
June 30, 2007 |
|||||||
(Unaudited) | (Note) | |||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 86,732 | $ | 60,518 | ||||
Accounts receivable, less allowance for doubtful accounts of $2,560 and $2,371 |
131,775 | 95,405 | ||||||
Inventories |
158,638 | 129,062 | ||||||
Deferred income taxes |
8,115 | 8,069 | ||||||
Other current assets |
21,663 | 22,950 | ||||||
Total current assets |
406,923 | 316,004 | ||||||
Property, plant and equipment, net |
152,314 | 114,901 | ||||||
Goodwill |
530,248 | 509,336 | ||||||
Trademarks and other intangible assets, net |
126,033 | 96,342 | ||||||
Other assets |
19,304 | 21,873 | ||||||
Total assets |
$ | 1,234,822 | $ | 1,058,456 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 137,437 | $ | 112,458 | ||||
Income taxes payable |
6,429 | 4,456 | ||||||
Current portion of long-term debt |
363 | 566 | ||||||
Total current liabilities |
144,229 | 117,480 | ||||||
Long-term debt, less current portion |
298,765 | 215,446 | ||||||
Deferred income taxes and other liabilities |
21,897 | 22,896 | ||||||
Total liabilities |
464,891 | 355,822 | ||||||
Commitments and contingencies |
||||||||
Minority interest |
29,890 | 5,678 | ||||||
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 41,070,278 and 40,882,653 shares |
411 | 409 | ||||||
Additional paid-in capital |
489,477 | 487,750 | ||||||
Retained earnings |
230,504 | 195,658 | ||||||
Foreign currency translation adjustment |
35,122 | 25,884 | ||||||
755,514 | 709,701 | |||||||
Less: 945,590 and 861,256 shares of treasury stock, at cost |
(15,473 | ) | (12,745 | ) | ||||
Total stockholders equity |
740,041 | 696,956 | ||||||
Total liabilities and stockholders equity |
$ | 1,234,822 | $ | 1,058,456 | ||||
Note: The balance sheet at June 30, 2007 has been derived from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
2
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share and share amounts)
Three Months Ended March 31, |
Nine Months Ended March 31, | |||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||
Net sales |
$ | 264,632 | $ | 238,027 | $ | 778,110 | $ | 678,112 | ||||
Cost of sales |
195,910 | 167,289 | 561,393 | 478,673 | ||||||||
Gross profit |
68,722 | 70,738 | 216,717 | 199,439 | ||||||||
Selling, general and administrative expenses |
51,291 | 47,198 | 151,719 | 134,094 | ||||||||
Operating income |
17,431 | 23,540 | 64,998 | 65,345 | ||||||||
Interest and other expenses, net |
3,528 | 3,292 | 8,799 | 6,866 | ||||||||
Income before income taxes |
13,903 | 20,248 | 56,199 | 58,479 | ||||||||
Provision for income taxes |
5,588 | 7,858 | 21,482 | 23,137 | ||||||||
Net income |
$ | 8,315 | $ | 12,390 | $ | 34,717 | $ | 35,342 | ||||
Net income per share: |
||||||||||||
Basic |
$ | 0.21 | $ | 0.31 | $ | 0.87 | $ | 0.90 | ||||
Diluted |
$ | 0.20 | $ | 0.30 | $ | 0.83 | $ | 0.86 | ||||
Weighted average common shares outstanding: |
||||||||||||
Basic |
40,101 | 39,528 | 40,058 | 39,149 | ||||||||
Diluted |
41,588 | 41,500 | 41,837 | 40,909 | ||||||||
See notes to condensed consolidated financial statements.
3
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 2008
(In thousands, except per share and share amounts)
Common Stock | Additional Paid-in Capital |
Retained Earnings |
Treasury Stock | Foreign Currency Translation Adjustment |
Total | Comprehensive Income | ||||||||||||||||||||||
Shares | Amount at $.01 |
|||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||
Balance at July 1, 2007 |
40,882,653 | $ | 409 | $ | 487,750 | $ | 195,658 | 861,256 | $ | (12,745 | ) | $ | 25,884 | $ | 696,956 | |||||||||||||
Adoption of FIN No. 48 |
129 | 129 | ||||||||||||||||||||||||||
Exercise of stock options |
187,625 | 2 | 1,596 | 1,598 | ||||||||||||||||||||||||
Tax benefit from exercise of stock options |
275 | 275 | ||||||||||||||||||||||||||
Shares withheld for payment of employee payroll taxes due on shares issued under stock-based compensation plans |
84,334 | (2,728 | ) | (2,728 | ) | |||||||||||||||||||||||
Non-cash compensation charge |
(144 | ) | (144 | ) | ||||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||
Net income |
34,717 | 34,717 | $ | 34,717 | ||||||||||||||||||||||||
Translation adjustments |
9,238 | 9,238 | 9,238 | |||||||||||||||||||||||||
Total comprehensive income |
$ | 43,955 | ||||||||||||||||||||||||||
Balance at March 31, 2008 |
41,070,278 | $ | 411 | $ | 489,477 | $ | 230,504 | 945,590 | $ | (15,473 | ) | $ | 35,122 | $ | 740,041 | |||||||||||||
See notes to condensed consolidated financial statements.
4
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended March 31, |
||||||||
2008 | 2007 | |||||||
(Unaudited) | ||||||||
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES |
||||||||
Net income |
$ | 34,717 | $ | 35,342 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
14,377 | 10,927 | ||||||
Deferred income taxes |
| (857 | ) | |||||
Non-cash compensation |
(144 | ) | 1,191 | |||||
Gain on sale of businesses |
(2,003 | ) | (2,527 | ) | ||||
Tax benefit from stock options |
275 | 3,900 | ||||||
Excess tax benefit from share-based compensation |
| (810 | ) | |||||
Other non-cash items, net |
2,012 | 803 | ||||||
Increase (decrease) in cash attributable to changes in operating assets and liabilities, net of amounts applicable to acquired/disposed businesses: |
||||||||
Accounts receivable |
(29,597 | ) | (26,797 | ) | ||||
Inventories |
(15,437 | ) | (6,422 | ) | ||||
Other current assets |
(23 | ) | 3,232 | |||||
Other assets |
(2,325 | ) | 280 | |||||
Accounts payable and accrued expenses |
12,287 | 23,236 | ||||||
Income taxes, net |
7,028 | 10,007 | ||||||
Net cash provided by operating activities |
21,167 | 51,505 | ||||||
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES |
||||||||
Purchases of property and equipment |
(11,276 | ) | (9,396 | ) | ||||
Proceeds from disposals of property and equipment |
671 | 2,702 | ||||||
Acquisitions of business, net of cash acquired |
(68,241 | ) | (135,018 | ) | ||||
Proceeds from sales of businesses |
3,783 | 8,160 | ||||||
(Loan to) repayment from affiliate |
2,025 | (1,911 | ) | |||||
Net cash used in investing activities |
(73,038 | ) | (135,463 | ) | ||||
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES |
||||||||
Proceeds from exercises of stock options |
1,598 | 15,948 | ||||||
Shares withheld for payment of employee payroll taxes |
(2,728 | ) | | |||||
Borrowings (repayments) under bank revolving credit facility |
78,000 | 73,000 | ||||||
Repayments of other long-term debt, net |
(410 | ) | (760 | ) | ||||
Loan from minority interest shareholder |
2,368 | | ||||||
Excess tax benefits from share-based compensation |
| 810 | ||||||
Net cash provided by financing activities |
78,828 | 88,998 | ||||||
Effect of exchange rate changes on cash |
(743 | ) | 1,030 | |||||
Net increase in cash and cash equivalents |
26,214 | 6,070 | ||||||
Cash and cash equivalents at beginning of period |
60,518 | 48,875 | ||||||
Cash and cash equivalents at end of period |
$ | 86,732 | $ | 54,945 | ||||
See notes to condensed consolidated financial statements.
5
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. | GENERAL |
The Hain Celestial Group, Inc., a Delaware corporation, and its subsidiaries (collectively, the Company, and herein referred to as we, us, and our) manufacture, market, distribute and sell natural and organic food and personal care 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 food brands as Celestial Seasonings®, Hain Pure Foods®, Westbrae Natural®, WestSoy®, Rice Dream®, Soy Dream®, Imagine®, Walnut Acres Organic®, Ethnic Gourmet®, Rosetto®, Little Bear Organic Foods®, Bearitos®, Arrowhead Mills®, MaraNatha®, SunSpire®, Health Valley®, Breadshops®, Casbah®, Spectrum Naturals®, Spectrum Essentials®, Hollywood®, Garden of Eatin®, Terra®, Harrys Premium Snacks®, Bostons The Best Youve Ever Tasted®, Lima®, Grains Noirs, Natumi®, Yves Veggie Cuisine®, DeBoles®, Earths Best®, Nile Spice®, Linda McCartney® (under license), Daily Bread, Realeat®, Granose®, and TofuTown®. The Companys principal specialty product lines include Estee® sugar-free products and Alba®. Our natural and organic personal care products are marketed under the Avalon Organics®, Alba Botanica®, JASON®, Zia®, Orjene®, Shaman Earthly Organics®, Heathers®, Queen Helene®, Batherapy®, Shower Therapy®, Footherapy®, Tushies® and TenderCare® brands. Our natural and organic antibiotic-free chicken is marketed under the FreeBird brand and our antibiotic-free turkey is marketed under the Plainville Farms® brand.
We operate in one business segment: the manufacturing, distribution and marketing of natural and organic food and personal care products. In our 2007 fiscal year, approximately 46% of our revenues were derived from products that were manufactured within our own facilities with 54% produced by various co-packers.
All dollar amounts in our condensed consolidated financial statements and tables have been rounded to the nearest thousand dollars, except per share amounts. Share amounts in the notes to condensed consolidated financial statements are presented in thousands.
2. | BASIS OF PRESENTATION |
Our condensed 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. The condensed consolidated financial statements reflect all normal recurring adjustments which, in managements opinion, are necessary for a fair presentation for interim periods. Operating results for the three months and nine months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending June 30, 2008. Please refer to the footnotes to our consolidated financial statements as of June 30, 2007 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 Statement of Financial Accounting Standard (SFAS) No. 128, Earnings Per Share (SFAS No. 128). Basic earnings per share excludes the dilutive effects of options. Diluted earnings per share includes only the dilutive effects of common stock equivalents such as stock options.
6
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
The following table sets forth the computation of basic and diluted earnings per share pursuant to SFAS No. 128:
Three Months Ended March 31, |
Nine Months Ended March 31, | |||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||
Numerator: |
||||||||||||
Net income |
$ | 8,315 | $ | 12,390 | $ | 34,717 | $ | 35,342 | ||||
Denominator for basic earnings per share - weighted average shares outstanding during the period |
40,101 | 39,528 | 40,058 | 39,149 | ||||||||
Effect of dilutive stock options |
1,487 | 1,972 | 1,779 | 1,760 | ||||||||
Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions |
41,588 | 41,500 | 41,837 | 40,909 | ||||||||
Basic net income per share |
$ | 0.21 | $ | 0.31 | $ | 0.87 | $ | 0.90 | ||||
Diluted net income per share |
$ | 0.20 | $ | 0.30 | $ | 0.83 | $ | 0.86 | ||||
Options totaling 744,000 for the three months and 296,000 for the nine months ended March 31, 2008 and 204,000 for the three months and 606,000 for the nine months ended March 31, 2007 were excluded from our earnings per share calculations as their effects would have been anti-dilutive.
4. | STOCK-BASED COMPENSATION |
The Company adopted SFAS No. 123(R), Share-Based Payment (SFAS No. 123(R)) effective July 1, 2005 to account for stock-based compensation under its employee and director stock-based compensation plans. SFAS No. 123(R) requires that contractual commitments to issue stock options be recorded as compensation cost whether or not the options have been granted. The Companys employment agreement with its Chief Executive Officer (CEO) contains such a commitment; however the options which were to be awarded in July 2005 and July 2006 were not granted at the those times, principally due to an insufficient number of shares available under the Companys Long Term Incentive and Stock Award Plans. Under SFAS No. 123(R), regardless of whether the options are ever granted, either currently or in the future, a non-cash accounting expense is required to be recorded during the year leading up to the anticipated grant date under the contract. This period is defined in SFAS No. 123(R) as the requisite service period. The requisite service period related to the July 2005 un-granted options was completed on June 30, 2005, which was prior to the required implementation of SFAS No. 123(R) and, therefore, no expense has been recorded for the July 2005 options. The requisite service period related to the July 2006 un-granted options was completed during the fiscal year ended June 30, 2006. These options remained un-granted at March 31, 2008. On April 1, 2008, the Board of Directors approved a resolution of the contractual commitment for the un-granted stock options see Note 14, Subsequent Events. For the three months and nine months ended March 31, 2008, $(0.5) million and $(0.1) million, respectively, of non-cash compensation expense is included in selling, general and administrative expenses in connection with the un-granted options. Results for the three months and nine months ended March 31, 2007 include $(0.1) million and $0.5 million of non-cash compensation expense related to the un-granted options.
7
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
5. | STOCK KEEPING UNIT RATIONALIZATION |
In the quarter ended March 31, 2008, we implemented a Stock Keeping Unit (SKU) rationalization and recorded a related charge of $8.5 million. The SKU rationalization resulted from our review of the positioning of the personal care products operations we acquired during the last several years. The review included identification of SKUs which we believe should be eliminated based on their low volume of sales or insufficient margins, development of a plan to optimize the production of product within the Companys own manufacturing facilities and by outside contract manufacturers and implementation of the optimal organizational structure to position the unit for future growth. As a result, cost of sales for the third quarter of fiscal 2008 includes a charge for approximately $6.0 million related to ingredient, packaging and finished goods inventories, including the costs of disposal, for SKUs being eliminated. Selling, general and administrative expense includes charges of $1.8 million related to assets that will not have continuing value and $0.7 million for severance. In addition to the charges included in the third quarter, the Company anticipates severance and related expenses estimated at approximately $2 million, which will be recorded in future periods when incurred.
6. | INVENTORIES |
Inventories consisted of the following:
March 31, 2008 |
June 30, 2007 | |||||
Finished goods |
$ | 92,038 | $ | 72,149 | ||
Raw materials, work-in-progress and packaging |
66,600 | 56,913 | ||||
$ | 158,638 | $ | 129,062 | |||
7. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consisted of the following:
March 31, 2008 |
June 30, 2007 | |||||
Land |
$ | 12,355 | $ | 8,688 | ||
Buildings and improvements |
57,073 | 36,243 | ||||
Machinery and equipment |
144,584 | 123,278 | ||||
Furniture and fixtures |
7,529 | 6,554 | ||||
Leasehold improvements |
2,022 | 1,751 | ||||
Construction in progress |
3,337 | 1,190 | ||||
226,900 | 177,704 | |||||
Less: Accumulated depreciation and amortization |
74,586 | 62,803 | ||||
$ | 152,314 | $ | 114,901 | |||
8. | GOODWILL AND OTHER INTANGIBLE ASSETS |
Goodwill and indefinite-lived intangible assets must be tested for impairment at least annually. We perform a test for impairment during the fourth quarter of our fiscal year. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we have evaluated the fair value of our goodwill and indefinite-life intangible assets and, based on such evaluations, no impairment existed through June 30, 2007. Amounts assigned to indefinite-lived intangible assets primarily represent the value of trademarks acquired.
8
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
Changes in the carrying amount of goodwill for the nine months ended March 31, 2008 were as follows:
Balance as of July 1, 2007 |
$ | 509,336 | ||
Additions |
45,114 | |||
Reallocations to intangible assets |
(27,646 | ) | ||
Foreign currency translation |
3,444 | |||
Balance as of March 31, 2008 |
$ | 530,248 | ||
Included in foreign currency translation during the nine months ended March 31, 2008 are the impacts of changes in foreign currency exchange rates on goodwill. We are continuing to evaluate the initial purchase price allocations of certain acquisitions and will adjust the allocations as additional information relative to the fair values of the assets and liabilities of the acquired businesses becomes known. We are also in the process of obtaining or finalizing appraisals of tangible and intangible assets for certain acquisitions. Accordingly, management has used its best estimate in the initial purchase price allocation as of the date of these financial statements.
At March 31, 2008, included in trademarks and other intangible assets are approximately $11.6 million of intangible assets deemed to have a finite life, which are being amortized over their estimated useful lives. The following table reflects the components of trademarks and other intangible assets:
March 31, 2008 | June 30, 2007 | |||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization | |||||||||
Amortized intangible assets: |
||||||||||||
Other intangibles |
$ | 11,630 | $ | 4,769 | $ | 8,205 | $ | 3,365 | ||||
Non-amortized intangible assets: |
||||||||||||
Trademarks |
125,893 | 6,721 | 98,173 | 6,671 |
Amortization of intangible assets with finite lives amounted to $1.4 million in the nine months ended March 31, 2008. The expected aggregate amortization expense in each of the next five fiscal years is $2.2 million in 2008, $2.5 million in 2009, $2.3 million in 2010, $2.1 million in 2011 and $1.5 million in 2012.
9. | ACQUISITIONS AND DISPOSALS |
On March 10, 2008, Hain Pure Protein Corporation, a 50.1%-owned subsidiary, acquired the turkey production facility and distribution center of Pilgrims Pride Corporation in New Oxford, Pennsylvania for a total consideration of approximately $20.6 million in cash, including transaction costs. The New Oxford acquisition provides additional scale with the capacity to meet increasing volume demands and expands our ability to offer branded, premium products.
On March 6, 2008, we acquired nSpired Natural Products, Inc., with its MaraNatha and SunSpire brands, for approximately $37.6 million in cash, including transaction costs. MaraNatha is a leading brand of natural and organic nut butters and SunSpire is a leader in natural and organic chocolate products. The addition of MaraNatha strengthens our position in the growing nut butter category and SunSpire provides us entry into the natural candy category.
9
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
On December 7, 2007, we acquired TenderCare International, Inc., a marketer and distributor of chlorine-free and gel-free natural diapers and baby wipes under the TenderCare and Tushies brand names, for approximately $3.9 million in cash. The acquisition strengthens our position in the natural and organic sector with the expansion into diapers and wipes.
On August 29, 2007, Hain Pure Protein Corporation, a 50.1%-owned subsidiary, acquired the assets and business of Plainville Turkey Farm, Inc., a leading supplier of natural and antibiotic-free whole turkeys and deli turkey products to the natural and grocery channels in the Northeast and Mid-Atlantic regions, for a total consideration of approximately $24.6 million in cash, including transaction costs. The Plainville acquisition expands our specialty poultry business with a well-recognized industry leader.
On June 8, 2007, we acquired the tofu and meat-alternative business of WhiteWave Foods Company, a subsidiary of Dean Foods Company. The product line includes baked and grilled tofu, seitan, tempeh and other traditional tofu items which are sold under the TofuTown and WhiteWave (under a 12-month license) brand names. The total consideration paid was approximately $2.2 million, including transaction costs. The acquisition complements our existing Yves Veggie Cuisine product line, strengthening and expanding our fresh, meat-free alternative product offerings.
On January 11, 2007, we acquired Avalon Natural Products, Inc., a leader in the natural and organic personal care products category in the areas of skin care, hair care, bath and body care and sun care, for approximately $126.1 million in cash, including transaction costs. Avalons Alba Botanica and Avalon Organics brands provide us with a stronger, broader product portfolio in the natural and organic personal care products category. During the quarter ended March 31, 2008, the Company finalized the purchase price allocation and has assigned $27.9 million to identifiable intangible assets, of which $2.2 million have been assigned finite lives and are being amortized. The excess of the purchase price over the estimated fair value of the net assets acquired was $92.8 million and was recorded as goodwill, which is not deductible for tax purposes.
On December 8, 2006, we acquired the business and certain assets of Haldane Foods Limited, a producer of meat-free food and non-dairy beverage products, for approximately $10.1 million in cash, including transaction costs. Haldanes product lines include Realeat frozen foods and Granose non-dairy beverages. Employee termination and exit costs relating to the acquired business in the amount of $1.5 million were recorded as costs of the acquisition. During fiscal 2007 we utilized $0.2 million and during the first three quarters of fiscal 2008, we utilized $0.4 million of this reserve. During the quarter ended December 31, 2007, the Company finalized the purchase price allocation and assigned $2.4 million to identifiable intangible assets, of which $1.2 million have been assigned finite lives and are being amortized. The excess of the purchase price over the estimated fair value of the net assets acquired was $1.9 million and was recorded as goodwill, which is deductible for tax purposes.
The aforementioned acquisitions were accounted for using the purchase method of accounting and, accordingly, the results of operations for each acquisition has been included in our consolidated results from their respective acquisition dates. The purchase prices were allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values at the acquisition date. As of March 31, 2008, the purchase price allocations for all of the aforementioned acquisitions with the exception of Avalon and Haldane are still subject to final adjustments for valuations and certain pre-acquisition contingencies.
The following table presents unaudited pro forma information about net sales and net income had the operations of the acquisitions described above been combined with our business on the first day of the periods shown. The following pro forma combined results of operations have been provided for illustrative purposes only, and do not purport to be indicative of the actual results that would have been achieved by the Company for the periods presented or that will be achieved by the combined company in the future.
10
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
Three months ended March 31, 2008 |
Three months ended March 31, 2007 |
Nine months ended March 31, 2008 |
Nine months ended March 31, 2007 | |||||||||
Net sales |
$ | 272,128 | $ | 261,047 | $ | 816,466 | $ | 779,366 | ||||
Net income |
$ | 8,154 | $ | 11,546 | $ | 34,197 | $ | 33,633 | ||||
Earnings per share: |
||||||||||||
Basic |
$ | 0.20 | $ | 0.29 | $ | 0.85 | $ | 0.86 | ||||
Diluted |
$ | 0.20 | $ | 0.28 | $ | 0.82 | $ | 0.82 | ||||
Weighted average shares: |
||||||||||||
Basic |
40,101 | 39,528 | 40,058 | 39,149 | ||||||||
Diluted |
41,588 | 41,500 | 41,837 | 40,909 | ||||||||
This information has not been adjusted to reflect any changes in the operations of these businesses subsequent to their acquisition by us. Changes in operations of these acquired businesses include, but are not limited to, discontinuation of products (including discontinuation resulting from the integration of acquired and existing brands with similar products, and discontinuation of sales of private label products), integration of systems and personnel, changes in trade practices, application of our credit policies, changes in manufacturing processes or locations, and changes in marketing and advertising programs. Had any of these changes been implemented by the former management of the businesses acquired prior to acquisition by us, the sales and net income information might have been materially different than the actual results achieved and from the pro forma information provided.
On August 4, 2007, we completed the sale of our interest in a joint venture in Belgium that manufactured and sold rice cakes and was accounted for using the equity method. We recognized a pre-tax gain of approximately $2.0 million in connection with the sale in the first quarter of fiscal 2008, which is included in Interest and other expenses, net in the accompanying condensed consolidated statements of income.
In September 2007, we sold our minority interest in Halo, Purely for Pets, Inc. for approximately $1.7 million. This investment was made in June 2006 and accounted for using the equity method. The Company recognized a pretax gain of $0.3 million on the sale, which is included in Interest and other expenses, net in the accompanying condensed consolidated statements of income.
On August 31, 2006, we completed the sale of Biomarché, our Belgium-based provider of fresh organic fruits and vegetables. Biomarché generated approximately $18.0 million in sales for the fiscal year ended June 30, 2006. Total consideration received was 6.5 million (approximately $8.3 million). We also earned a contingent additional payment of approximately 0.7 million ($0.9 million) based on sales achieved for the year ended June 30, 2007. We recognized a pretax gain of $3.4 million ($1.2 million after tax), net of a $3.3 million charge for allocated goodwill which was not deductible for tax purposes, in connection with the sale in the first quarter of fiscal 2007, which is included in Interest and other expenses, net in the accompanying condensed consolidated statements of income.
10. | SENIOR NOTES AND CREDIT FACILITY |
On May 2, 2006, we issued $150 million in aggregate principal amount of senior notes due May 2, 2016 in a private placement. The notes bear interest at 5.98%, payable semi-annually on November 2nd and May 2nd. We also have a credit agreement which provides us with a $250 million revolving credit facility (the Credit Facility) expiring in May 2011. The Credit Facility provides for an uncommitted $100 million accordion feature, under which the facility may be increased to $350 million. The Credit Facility and the notes are guaranteed by substantially all of our current and future direct and indirect domestic subsidiaries. Loans under the Credit Facility bear interest at a base rate (greater of the applicable prime
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THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
rate or Federal Funds Rate plus an applicable margin) or, at our option, the reserve adjusted LIBOR rate plus an applicable margin. As of March 31, 2008, $150.0 million of the senior notes were outstanding. As of March 31, 2008, there were $143.0 million of borrowings outstanding under the Credit Facility. We are required by the terms of the Credit Facility and the notes to comply with customary affirmative and negative covenants for facilities and notes of this nature.
11. | INCOME TAXES |
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109 (FIN No. 48). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute of tax positions taken or expected to be taken on a tax return. The Interpretation requires that the Company recognize in its financial statements the impact of a tax position if it is more likely than not that such positioning will be sustained on audit. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
We adopted the provision of FIN No. 48 effective July 1, 2007. As a result, the Company recognized a decrease of approximately $0.1 million in the liability for unrecognized tax benefits, which was accounted for as a cumulative effect adjustment to reduce retained earnings. The total amount of gross unrecognized tax benefits at the date of adoption was $2.5 million, including interest and penalties of $0.2 million. Included in this balance is $0.5 million that, if recognized, would impact the effective income tax rate. We record interest and penalties in our provision for income taxes.
At March 31, 2008, the Company had unrecognized tax benefits of approximately $2.4 million, including interest and penalties of $0.4 million. Included in this balance is $0.6 million that, if recognized, would impact the effective income tax rate.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and several foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2003. Given the uncertainty regarding when tax authorities will complete their examinations and the possible outcomes of their examinations, a current estimate of the range of reasonably possible significant increases or decreases of income tax that may occur within the next twelve months cannot be made.
12. | SEGMENT INFORMATION |
Our Company is engaged in one business segment: the manufacturing, distribution and marketing of natural and organic food and personal care products. We define business segments as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by our chief operating decision maker.
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THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
Outside the United States, we primarily conduct business in Canada and Europe. Selected information related to our operations by geographic area is as follows:
Three Months Ended March 31, |
Nine Months Ended March 31, | ||||||||||||
2008 | 2007 | 2008 | 2007 | ||||||||||
Net sales: |
|||||||||||||
United States |
$ | 209,490 | $ | 180,078 | $ | 608,470 | $ | 513,360 | |||||
Canada |
13,303 | 14,144 | 41,519 | 42,752 | |||||||||
Europe |
41,839 | 43,805 | 128,121 | 122,000 | |||||||||
$ | 264,632 | $ | 238,027 | $ | 778,110 | $ | 678,112 | ||||||
Earnings before income taxes: |
|||||||||||||
United States |
$ | 12,767 | $ | 15,739 | $ | 45,749 | $ | 43,961 | |||||
Canada |
2,012 | 1,629 | 5,343 | 5,785 | |||||||||
Europe |
(876 | ) | 2,880 | 5,107 | 8,733 | ||||||||
$ | 13,903 | $ | 20,248 | $ | 56,199 | $ | 58,479 | ||||||
March 31, 2008 |
June 30, 2007 | |||||
Long-lived assets: |
||||||
United States |
$ | 709,976 | $ | 619,451 | ||
Canada |
58,269 | 60,491 | ||||
Europe |
59,654 | 62,510 | ||||
$ | 827,899 | $ | 742,452 | |||
13. | RECENT ACCOUNTING PRONOUNCEMENTS |
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We have not yet assessed the impact, if any, that the implementation of SFAS No. 157 will have on our consolidated results of operations or financial condition.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 allows companies to choose to measure certain financial instruments and certain other items at fair value. The statement requires that unrealized gains and losses are reported in earnings for items measured using the fair value option and establishes presentation and disclosure requirements. SFAS No. 159 is effective July 1, 2008 for the Company. We have not yet assessed the impact, if any, that SFAS No. 159 may have on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)). SFAS No. 141(R) replaces SFAS No. 141, Business Combinations, however, it retains the basic requirements of the former Statement that the acquisition method of accounting (previously referred to as the purchase method) be used for all business combinations. SFAS No. 141(R) requires the acquiring entity in a business combination to recognize the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the business acquired at their acquisition-date fair values and generally requires acquisition-related costs to be expensed as incurred. SFAS No. 141(R) also provides guidance for recognizing and measuring the goodwill acquired in a business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The
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THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
provisions of SFAS No. 141(R) must be applied prospectively and are effective for the Companys fiscal year ending June 30, 2010 for all business combinations occurring on or after July 1, 2009. We have not yet assessed the impact that the implementation of SFAS No. 141(R) will have on our consolidated results of operations or financial condition.
In December 2007, the FASB also issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 establishes new accounting and reporting standards for a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, and for the deconsolidation of a subsidiary. Among other requirements, SFAS No. 160 establishes accounting and reporting standards that require noncontrolling interests to be reported as a separate component of equity in the consolidated financial statements, changes in a parents ownership interest while the parent retains its controlling interest be accounted for as equity transactions and that consolidated net income include the amounts attributable to both the parent and the noncontrolling interest, with disclosure of those amounts on the face of the consolidated statement of income. SFAS No. 160 is effective beginning in the Companys fiscal year ending June 30, 2010 and must be applied prospectively, except for the presentation and disclosure requirements, which will be applied retrospectively for all periods presented. We have not yet assessed the impact that the implementation of SFAS No. 160 will have on our consolidated results of operations or financial condition.
14. | SUBSEQUENT EVENTS |
Acquisition
On April 2, 2008, we acquired Daily Bread, Ltd., a London-based producer of branded fresh prepared foods for the foodservice channel in the United Kingdom, for approximately $31 million in cash plus transaction costs. The acquisition of Daily Bread strengthens our existing prepared foods operations with a branded fresh platform which will strengthen our ability to expand our fresh operations across the United Kingdom and Europe.
Stock-based Compensation
On April 1, 2008, the Compensation Committee of the Companys Board of Directors recommended and the Board approved equity grants and a cash payment to Irwin Simon, the Companys Chief Executive Officer, as a replacement for 900,000 un-granted stock options due to Mr. Simon under his employment agreement. The Board determined that Mr. Simon should receive the equivalent of the Black-Scholes value of the 900,000 options had they been granted when contractually due pursuant to Mr. Simons employment agreement on July 1, 2005, 2006 and 2007, aggregating $12 million in value. Such amount has been split equally whereby (a) 472,671 stock options were granted at an exercise price of $30.35 per share (equal to the closing market price of the stock on April 1, 2008) with a seven-year term that will vest annually over four years, (b) 131,796 shares of restricted stock were granted that will vest annually over three years and (c) a cash payment of $4 million will be made. The granting of the 900,000 stock options to Mr. Simon had been deferred due in part to the lack of shares available and in part pending the completion of a study on the appropriate manner of settling these awards. During fiscal year 2006 and in subsequent periods, the Company has been accruing amounts related to the July 1, 2006 un-granted options as required under SFAS No. 123(R). The Company has recognized $3.1 million of compensation expense through the period ended March 31, 2008.
In addition to the equity grants made to Mr. Simon, the Compensation Committee recommended, and the Board of Directors approved, equity grants to the Companys other executive officers, non-executive employees and the directors of an aggregate of 262,833 shares of restricted stock, which will generally vest annually over three years, and 118,168 stock options at an exercise price of $30.35 per share (equal to the closing market price on April 1, 2008) with a seven-year term that will vest annually over four years.
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ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
We manufacture, market, distribute and sell natural and organic food and personal care 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 food brands as Celestial Seasonings®, Hain Pure Foods®, Westbrae Natural®, WestSoy®, Rice Dream®, Soy Dream®, Imagine®, Walnut Acres Organic®, Ethnic Gourmet®, Rosetto®, Little Bear Organic Foods®, Bearitos®, Arrowhead Mills®, MaraNatha®, SunSpire®, Health Valley®, Breadshops®, Casbah®, Spectrum Naturals®, Spectrum Essentials®, Hollywood®, Garden of Eatin®, Terra®, Harrys Premium Snacks®, Bostons The Best Youve Ever Tasted®, Lima®, Grains Noirs, Natumi®, Yves Veggie Cuisine®, DeBoles®, Earths Best®, Nile Spice®, Linda McCartney® (under license), Daily Bread, Realeat®, Granose®, and TofuTown®. The Companys principal specialty product lines include Estee® sugar-free products and Alba®. Our natural and organic personal care products are marketed under the Avalon Organics®, Alba Botanica®, JASON®, Zia®, Orjene®, Shaman Earthly Organics®, Heathers®, Queen Helene®, Batherapy®, Shower Therapy®, Footherapy®, Tushies® and TenderCare® brands. Our natural and organic antibiotic-free chicken is marketed under the FreeBird brand and our antibiotic-free turkey is marketed under the Plainville Farms® brand.
Our corporate website is 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 and personal care 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 March 31, 2008
Net sales for the three months ended March 31, 2008 were $264.6 million, an increase of $26.6 million, or 11.2%, over net sales of $238.0 million in the March 31, 2007 quarter. Sales in North America increased $28.6 million from the year ago quarter, reflecting strong performance by our grocery and snacks brands, including Earths Best, Arrowhead Mills, Terra and Spectrum, strong sales from our Avalon and Alba personal care brands, increased sales of our brands in the Canadian market and the addition of sales from our Plainville Farms, New Oxford and nSpired acquisitions. Sales in Europe decreased $2.0 million, primarily as a result of a decrease in our sales in the United Kingdom.
Gross profit for the three months ended March 31, 2008 was $68.7 million, a decrease of $2.0 million from last years quarter. Gross profit as a percentage of net sales was 26.0% for the three months ended March 31, 2008 as compared to 29.7% of net sales for the March 31, 2007 quarter. The gross profit in the third quarter of fiscal 2008 includes a $6.0 million charge for a Stock Keeping Unit (SKU) rationalization program implemented during the quarter. The SKU rationalization charge resulted from our review of the positioning of the personal care products operations we acquired over the last several years. The review included identification of SKUs which we believe should be eliminated, development of a plan to optimize the production of product within the Companys own manufacturing facilities and by outside contract manufacturers and implementation of the optimal organizational structure to position the unit for future growth. Also included in this years third quarter is approximately $1.8 million of acquisition-related integration and manufacturing start-up costs incurred in connection with the integration of the Haldane production lines into our Fakenham frozen foods facility. We anticipate that this integration will continue to impact our gross margin during the remainder of this fiscal year.
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Higher input costs continue to impact our overall business, both directly, as a result of increased costs, such as for corn, wheat, soybeans, canola oil, fruit and fuel, and indirectly, with the pass-through of costs from our suppliers of packaging and other major components of our finished products. We were able to offset much of the cost increases through increased selling prices and improved productivity.
Selling, general and administrative expenses were $51.3 million, an increase of $4.1 million, or 8.7%, for the three months ended March 31, 2008 as compared to $47.2 million in the March 31, 2007 quarter. Selling, general and administrative expenses for the third quarter of fiscal 2008 include approximately $2.5 million of costs related to the SKU rationalization, including approximately $1.8 million for assets that will not have continuing value and $0.7 million of severance. Selling, general and administrative expenses have also increased as a result of costs brought on by the businesses we acquired since the third quarter of 2007 and increased salary and related costs. We also incurred approximately $0.7 million of professional fees in the third quarter of this year in connection with the previously disclosed review of our stock options practices. We anticipate that we will continue to incur additional costs in future periods for ongoing activity related to this matter. Selling, general and administrative expenses as a percentage of net sales decreased to 19.4% in the third quarter of fiscal 2008 as compared to 19.8% in the third quarter of last year, reflecting our ability to integrate back office functions and achieve cost savings in acquired businesses. The acquisition of Plainville Farms in the first quarter of fiscal 2008, with its lower than average administrative expense structure, also benefitted our consolidated selling, general and administrative expense rate.
Operating income was $17.4 million in the three months ended March 31, 2008 compared to $23.5 million in the March 31, 2007 quarter. Operating income as a percentage of net sales was 6.6% in the March 31, 2008 quarter compared with 9.9% in the March 31, 2007 quarter. The decrease in operating income and in operating income as a percentage of net sales resulted primarily from the SKU rationalization charges and the manufacturing start-up and integration costs included in our cost of sales.
Interest and other expenses, net were $3.5 million for the three months ended March 31, 2008 compared to $3.3 million for the three months ended March 31, 2007. Interest expense totaled $3.3 million in this years third quarter, which was primarily related to interest on the $150 million of 5.98% senior notes outstanding and interest related to borrowings under our revolving credit facility made to fund acquisitions and working capital. This was partially offset by $0.4 million of interest income earned in the current years quarter. Interest expense in last years third quarter was approximately $3.3 million, and was partially offset by interest income of $0.6 million.
Income before income taxes for the three months ended March 31, 2008 amounted to $13.9 million compared to $20.2 million in the comparable period of the prior year. This decrease was primarily attributable to the decrease in operating income.
Our effective income tax rate was 40.2% for the three months ended March 31, 2008 compared to 38.8% for the three months ended March 31, 2007. During the quarter ended March 31, 2008, we updated our estimated tax rate for the year ending June 30, 2008 to 38.2% from 37.5% based on a change in the distribution of income expected to be earned in the various tax jurisdictions in which we operate, which resulted in the higher effective tax rate in the current quarter.
Net income for the three months ended March 31, 2008 was $8.3 million compared to $12.4 million in the March 31, 2007 quarter. The decrease of $4.1 million in earnings was primarily attributable to the decrease in operating income resulting from the SKU rationalization charges and the acquisition-related integration and manufacturing start-up costs.
Nine months ended March 31, 2008
Net sales for the nine months ended March 31, 2008 were $778.1 million, an increase of $100.0 million, or 14.7%, over net sales of $678.1 million in the March 31, 2007 nine-month period. Net sales were impacted by acquisitions in the first three quarters of both fiscal 2008 and 2007. Sales in North America were $650.0 million, an increase of $93.9 million from the year ago period, reflecting strong performance by our grocery and snacks brands, including Earths Best, Imagine, Terra, Arrowhead Mills and Spectrum, increased sales of our brands in the Canadian market and the addition of sales from our Avalon and Alba personal care products and Plainville Farms acquisitions. Sales in Europe increased $6.1 million, primarily as a result of increased sales in the United Kingdom.
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Gross profit for the nine months ended March 31, 2008 was $216.7 million, an increase of $17.3 million from last years nine-month period. Gross profit for the nine months ended March 31, 2008 was 27.9% of net sales as compared to 29.4% of net sales for the March 31, 2007 period. The decrease in gross profit percentage was principally the result of the SKU rationalization program implemented in the third quarter and acquisition-related integration and start-up costs incurred during the nine months ended March 31, 2008. Results for the first nine months of fiscal 2008 include a $6.0 million charge for the SKU rationalization program. The SKU rationalization charge resulted from our review of the positioning of the personal care products operations we acquired over the last several years. The review included identification of SKUs which we believe should be eliminated, development of a plan to optimize the production of product within the Companys own manufacturing facilities and by outside contract manufacturers and implementation of the optimal organizational structure to position the unit for future growth. Also included in this years first nine months is approximately $5.0 million of acquisition-related integration and manufacturing start-up costs incurred in connection with the integration of the Haldane production lines into our Fakenham frozen foods facility. We anticipate that this integration will continue to impact our gross margin during the remainder of the fiscal year. Last years comparable period included approximately $1.7 million of start-up costs associated with a new production line at our West Chester frozen foods facility. Higher input costs continue to impact our overall business, both directly, as a result of increased costs, such as for corn, wheat, soybeans, canola oil, fruit and fuel, and indirectly, with the pass-through of costs from our suppliers of packaging and other major components of our finished products. We were able to offset much of the cost increases through increased selling prices and improved productivity.
Selling, general and administrative expenses increased by $17.6 million, or 13.1%, to $151.7 million for the nine months ended March 31, 2008 compared to $134.1 million in the March 31, 2007 nine-month period. Selling, general and administrative expenses increased primarily as a result of $2.5 million of costs related to the SKU rationalization program, including approximately $1.8 million for assets that will have no continuing value and $0.7 million of severance, costs brought on by the businesses we acquired since the third quarter of 2007 and increased salary and related costs. We also incurred approximately $4.7 million of professional fees in the first nine months of this year in connection with the previously disclosed review of our stock options practices. Selling, general and administrative expenses as a percentage of net sales decreased to 19.5% in the first nine months of fiscal 2008 as compared to 19.8% in the first nine months of the last fiscal year.
Operating income was $65.0 million in the nine months ended March 31, 2008 compared to $65.3 million in the March 31, 2007 comparable period. Operating income as a percentage of net sales was 8.4% in the March 31, 2008 period compared with 9.6% in the nine months ended March 31, 2007. The decrease in operating income and operating income as a percentage of net sales primarily resulted from the SKU rationalization charges recorded in the third quarter of fiscal 2008, the aforementioned manufacturing start-up costs included in our cost of sales and the additional professional fees we incurred in connection with the review of our stock options practices, which are included in our selling, general and administrative expenses.
Interest and other expenses, net were $8.8 million for the nine months ended March 31, 2008 compared to $6.9 million for the nine months ended March 31, 2007. Interest expense totaled $9.9 million in this years first nine months, which was primarily related to interest on the $150 million of 5.98% senior notes outstanding and borrowings under our credit facility used to fund acquisitions, and was partially offset by $1.3 million of interest income earned. Interest expense in last years first nine months was approximately $8.0 million and was partially offset by interest income earned of $2.0 million. We recognized a gain of approximately $2.0 million in the first quarter of fiscal 2008 on the sale of an equity interest in a joint venture which manufactures rice cakes in Belgium. At the end of August 2006 we sold Biomarché, our Belgium-based provider of fresh organic fruits and vegetables and recognized a gain on the disposal of approximately $2.5 million, net of a $3.3 million charge for goodwill allocated to that component of the reporting unit. We also recorded a $2.2 million charge in the quarter ended September 30, 2006 for a value added tax assessment resulting from an unfavorable decision by the German government in connection with our sales of non-dairy beverages in Germany.
Income before income taxes for the nine months ended March 31, 2008 amounted to $56.2 million compared to $58.5 million in the comparable period of the prior year. This decrease was primarily attributable to the decrease in operating income.
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Our income tax expense was $21.5 million for the nine months ended March 31, 2008, an effective income tax rate of 38.2%, compared to $23.1 million for the nine months ended March 31, 2007, an effective income tax rate of 39.6%. The effective tax rate for the first nine months of fiscal 2007 was higher than the comparable period in the current year as a result of the unfavorable impact of the nondeductible goodwill expensed in connection with the sale of Biomarché last year.
Net income for the nine months ended March 31, 2008 was $34.7 million compared to $35.3 million for the nine months ended March 31, 2007. The decrease of $0.6 million in net income was primarily attributable to the decrease in our operating profit.
Liquidity and Capital Resources
We finance our operations and growth primarily with the cash flows we generate from our operations and from both long-term fixed-rate borrowings and borrowings available to us under our Credit Facility.
Our cash balance increased $26.2 million from the end of fiscal 2007 to $86.7 million at March 31, 2008. Net cash provided by operating activities was $21.2 million for the first nine months of fiscal 2008, compared to net cash provided by operating activities of $51.5 million in the nine months ended March 31, 2007. The decrease in cash provided by operations in fiscal 2008 resulted from a decrease in cash provided by the changes in operating assets and liabilities of approximately $31.6 million in the current period as compared to the prior year comparable period, primarily resulting from increased inventories, which included a planned increase in ingredient inventory to support the growth of our Earths Best brand, and a smaller increase in our accounts payable and accrued expenses than we had in the prior year. The decrease was partially offset by a $1.3 million increase in net income and non-cash items, such as depreciation and amortization expense. Our working capital increased to $262.7 million at March 31, 2008 compared with $198.5 million at June 30, 2007.
We used $73.0 million of cash in investing activities in the nine months ended March 31, 2008. This included $68.2 million of cash used in the acquisitions of nSpired Natural Foods, Inc., the turkey processing and distribution center in New Oxford, Pa., TenderCare International Inc. and Plainville Farms, and $11.3 million of cash used for capital expenditures. These uses were offset by $3.8 million of proceeds from the sales of a joint venture interest in a rice cake business in Belgium and our equity investment in Halo, Purely for Pets, Inc. and the repayment of a $2.0 million loan by the Belgian joint venture. In the nine months ended March 31, 2007, we used $135.5 million of cash in investing activities. This included $135.0 million of cash used in connection with the acquisitions of Avalon Natural Products, Inc. and the assets of Haldane Foods in the United Kingdom, $9.4 million for capital expenditures and the previously mentioned loan to the rice cake joint venture. This was partially offset by $8.2 million of proceeds from the sale of Biomarche and $2.7 million from the disposals of property, plant and equipment.
Net cash of $78.8 million was provided by financing activities for the nine months ended March 31, 2008 compared to $89.0 million provided by financing activities for the nine months ended March 31, 2007. The decrease was due principally to a decrease in the proceeds from exercises of stock options to $1.6 million in the first nine months of fiscal 2008 from $15.9 million in fiscal 2007, partially offset by an increase of $5.0 million of borrowings drawn under our Credit Facility during the nine months ended March 31, 2008 compared to the comparable period ended March 31, 2007. Treasury stock increased by 84,334 shares ($2.7 million) in the second quarter of fiscal 2008 from stock surrendered to pay employee payroll withholding taxes in connection with stock-based compensation transactions.
We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of March 31, 2008, all of our investments mature in less than three months. Accordingly, we do not believe that our investments have significant exposure to interest rate risk.
On May 2, 2006, we issued $150 million in aggregate principal amount of senior notes due May 2, 2016 in a private placement. The notes bear interest at 5.98%, payable semi-annually on November 2nd and May 2nd. We also have a credit agreement which provides us with a $250 million revolving credit facility (the Credit Facility) expiring in May 2011. The Credit Facility provides for an uncommitted $100 million accordion feature, under which the facility may be increased to $350 million. The Credit Facility and the senior notes are guaranteed by substantially all of our current and future direct and indirect domestic subsidiaries. Loans under the Credit Facility bear interest at a base rate (greater of the applicable prime rate or Federal Funds Rate plus an applicable margin) or, at our option, the reserve adjusted LIBOR rate plus an
18
applicable margin. As of March 31, 2008, $150.0 million was outstanding under the senior notes at an interest rate of 5.98%. There were $143.0 million of borrowings outstanding under the Credit Facility at March 31, 2008. We are required by the terms of the Credit Facility and the senior notes to comply with customary affirmative and negative covenants for facilities and notes of this nature.
This access to capital provides us with the flexibility to address our working capital needs in the ordinary course of business, the opportunity to grow our business through acquisitions and the ability to develop our existing infrastructure through capital investment.
We believe that our cash on hand of $86.7 million at March 31, 2008, projected remaining fiscal 2008 cash flows from operations, and availability under our Credit Facility are sufficient to fund our working capital needs, anticipated capital expenditures of approximately $15.0 million and scheduled debt and lease payments of approximately $8.8 million over the next twelve months.
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. The accounting policies that have been identified as critical to our business operations and understanding the results of our operations pertain to revenue recognition and sales incentives, valuation of accounts and chargebacks receivable, inventories, property, plant and equipment, goodwill and intangibles and segments. The application of each of these critical accounting policies and estimates was discussed in Item 7 of our Annual Report on Form 10-K for the year ended June 30, 2007. There have been no significant changes in the application of these critical accounting policies or estimates during fiscal 2008.
Seasonality
Our tea brand primarily manufactures and markets 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. In addition, some of our other products (e.g., baking and cereal products and soups) also show stronger sales in the cooler months while our snack food product lines are stronger in the warmer months. In years where there are warm winter seasons, our sales of cooler weather products, which typically increase in our second and third fiscal quarters, may be negatively impacted.
Sales of our Plainville Farms turkey products are strongest in the second quarter of our fiscal year, coinciding with seasonal holidays.
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, inclement weather 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.
Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented. Historically, we believe we have been able to mitigate the effects of inflation by improving our manufacturing and supply-chain efficiencies, increasing productivity and adjusting the selling price of our products.
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
19
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; our ability to implement our business and acquisition strategy; the ability to effectively integrate our acquisitions; competition; availability of key personnel; changes in, or the failure to comply with government regulations; and other risks detailed from time-to-time in the Companys reports filed with the Securities and Exchange Commission, including the report on Form 10-K, and any amendments thereto, for the fiscal year ended June 30, 2007. As a result of the foregoing and other factors, no assurance can be given as to 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 |
Information with respect to our exposure to interest rate risk and foreign currency risk is contained in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2007. We believe that at March 31, 2008, there has been no material change to this information.
The Company purchases ingredient inputs such as wheat, corn, soybeans, canola oil and fruit as well as packaging materials to be used in its operations. These inputs are subject to price fluctuations that may create price risk. We do not attempt to hedge against fluctuations in the prices of the ingredients by using future, forward, option or other derivative instruments. As a result, the majority of our future purchases of these items are subject to changes in price. We enter into fixed purchase commitments in an attempt to secure an adequate supply of specific ingredients. These agreements are tied to specific market prices. Market risk is estimated as a hypothetical 10% increase or decrease in the weighted-average cost of our primary inputs as of March 31, 2008. Based on our cost of goods sold during the three months ended March 31, 2008, such a change would have resulted in an increase or decrease to cost of sales of approximately $10 million. We attempt to offset the impact of input cost increases with a combination of cost savings initiatives and efficiencies and price increases to our customers.
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, these officers concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) | Changes in Internal Control Over Financial Reporting. |
There was no change in our internal control over financial reporting during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 1. | LEGAL PROCEEDINGS |
A purported shareholder derivative action was filed against the Company (solely as a nominal defendant) and certain current and former officers and directors on September 21, 2006 in the Supreme Court of the State of New York, County of Suffolk, alleging breaches of fiduciary duties and unjust enrichment in connection with the Companys past stock option practices. The plaintiff seeks unspecified damages, disgorgement of options, attorneys fees and expenses, and other unspecified equitable relief from the defendants. A second purported shareholder derivative action was filed on October 31, 2006 in the same court, against substantially the same defendants and containing substantially the same allegations, adding a claim of breach of fiduciary duty. The Company is defending these lawsuits. Plaintiffs filed a motion to consolidate the two actions. On March 3, 2008, the Court issued an order granting the consolidation of the two actions.
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
The Annual Meeting of Stockholders was held on April 1, 2008. 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; |
2. | To act on a stockholder proposal regarding stockholder ratification of executive compensation. |
3. | To ratify the appointment of Ernst & Young LLP as our registered independent accountants for the fiscal year ending June 30, 2008. |
The stockholders elected the persons named below, the Companys nominees, as directors for the Company, casting votes as shown below:
ELECTION OF DIRECTORS |
FOR | WITHHELD | ||
Irwin D. Simon |
35,829,977 | 1,441,209 | ||
Barry J. Alperin |
35,300,197 | 1,970,989 | ||
Richard C. Berke |
36,700,750 | 570,436 | ||
Beth L. Bronner |
22,426,873 | 14,844,313 | ||
Jack Futterman |
22,878,738 | 14,392,448 | ||
Daniel R. Glickman |
36,477,470 | 793,716 | ||
Marina Hahn |
22,428,314 | 14,842,872 | ||
Andrew R. Heyer |
22,440,912 | 14,830,274 | ||
Roger Meltzer |
32,987,749 | 4,283,437 | ||
Lewis D. Schiliro |
34,975,268 | 2,295,918 | ||
Lawrence S. Zilavy |
35,294,002 | 1,977,184 |
The stockholders did not approve the stockholder proposal recommending an annual shareholder advisory vote to ratify compensation, casting 13,281,602 votes in favor, 15,849,895 votes against, 3,093,656 abstaining and 5,054,033 not voted.
The stockholders ratified the appointment of Ernst & Young LLP, casting 33,632,121 votes in favor, 1,421,704 votes against, and 21,921 abstaining.
ITEM 5. | OTHER INFORMATION |
Annual Meeting of Stockholders
The Company plans to schedule its 2008 Annual Meeting of Stockholders during the second quarter of its 2009 fiscal year, consistent with its past practice. Stockholder proposals intended to be included in the Proxy Statement relating to our 2008 Annual Meeting of Stockholders pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 (Rule 14a-8) must be received by the Corporate Secretary of the Company no later than July 1, 2008, and must otherwise comply with Rule 14a-8.
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Amendment to Credit Agreement
On April 28, 2008, the Company entered into an amendment to its Amended and Restated Credit Agreement dated as of May 2, 2006 with Bank of America, N.A., as administrative agent, and the other agents and lenders party thereto. A copy of the amendment is attached hereto as Exhibit 10.1.
Chief Accounting Officer
On April 1, 2008, the Board of Directors appointed Michael J. Speiller, age 54, as Vice President and Chief Accounting Officer. Mr. Speiller was appointed Vice President Finance on October 9, 2006. Prior to his employment with the Company, Mr. Speiller was the Vice President and Controller and Principal Accounting Officer of Systemax Inc. from October 1998 through September 2006. Mr. Speillers annual compensation is $283,400. Mr. Speiller participates in employee benefit plans generally available to officers of the Company. As was previously disclosed, in connection with Mr. Speillers appointment, he was granted 7,000 shares of restricted stock that will vest annually over 3 years.
ITEM 6. | EXHIBITS |
Exhibit |
Description | |
10.1 |
Amendment No. 1 to the Amended and Restated Revolving Credit Agreement dated as of May 2, 2006. | |
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 Rule 13a-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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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE HAIN CELESTIAL GROUP, INC. | ||||
Date: May 12, 2008 | /s/ Irwin D. Simon | |||
Irwin D. Simon, Chairman, President and Chief Executive Officer | ||||
Date: May 12, 2008 | /s/ Ira J. Lamel | |||
Ira J. Lamel, Executive Vice President and Chief Financial Officer |
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Exhibit 10.1
Execution Version
AMENDMENT NO. 1
to that certain
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
dated as of May 2, 2006
This AMENDMENT NO. 1 (the Amendment), dated as of April 28, 2008, is by and among THE HAIN CELESTIAL GROUP, INC., a Delaware corporation (the Company), the LENDERS which from time to time are parties to this Amendment (individually, a Lender and, collectively, the Lenders), and BANK OF AMERICA, N.A., a national banking association organized under the laws of the United States of America, as administrative agent for itself and the other Lenders (the Agent).
WHEREAS, the Borrower, the Lenders and the Agent are parties to that certain Amended and Restated Credit Agreement dated as of May 2, 2006 (as amended, the Credit Agreement), pursuant to which the Lenders, upon certain terms and conditions, have made loans to the Borrower; and
WHEREAS, the Borrower has requested that the Credit Agreement be amended to allow (i) the Borrower to make business-related loans to third parties up to an aggregate amount of $5,000,000, and (ii) the Borrower to make borrowings under the Credit Agreement of Adjusted Libor Loans with an aggregate number of up to fifteen (15) Interest Periods;
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
§1. Defined Terms. Capitalized terms that are used herein without definition and that are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement.
§2. Amendment of Credit Agreement. The Credit Agreement is hereby amended as follows:
2.1. | Clause (b)(iv) of the definition of Interest Periods shall be deleted in its entirety and replaced with the following: |
(iv) no more than fifteen (15) Interest Periods may exist at any one time; and
2.2 | Section 7.06 shall be amended by (A) inserting, as a new subclause (h), the following: |
(h) working capital loans to third parties accruing interest at market rates or advances to third parties, each such loan or advance to be negotiated at arms length and approved by the Companys board of directors, in an amount not to exceed $5,000,000 in the aggregate, including interest, if any, accrued thereon, at any time outstanding;
and (B) relettering the final subclause of Section 7.06 from (h) to (i).
2.3 | Section 7.15 shall be amended by deleting subclause (a) thereof in its entirety and replacing it with the following: |
(a) dividends paid by a Subsidiary to the Company or to another Subsidiary that is 100% owned, directly or indirectly, by the Company, provided that any dividend paid by a Guarantor shall only be paid directly to the Company or to another Guarantor.
§3. Representations and Warranties. The Borrower represents and warrants to the Agent and the Lenders that (a) the representations and warranties of the Borrower and the Guarantors contained in the Credit Agreement, as amended hereby, (i) were true and correct in all material respects when made, and (ii) continue to be true and correct in all material respects on the date hereof, except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and to the extent such representations and warranties by their terms are made solely as of a prior date and (b) no Default or Event of Default has occurred and is continuing.
§4. Conditions to Effectiveness. This Amendment shall be effective as of the date hereof, upon receipt by the Agent of original or facsimile counterpart signatures to this Amendment, duly executed and delivered by the Borrower, the Guarantors and the Required Lenders.
§5. Miscellaneous Provisions.
(a) Except as otherwise expressly provided by this Amendment, all of the terms, conditions and provisions of the Credit Agreement shall remain the same. It is declared and agreed by each of the parties hereto that the Credit Agreement, as amended hereby, shall continue in full force and effect, and that this Amendment and the Credit Agreement shall be read and construed as one instrument. This Amendment shall be deemed one of the Loan Documents under the Credit Agreement.
(b) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(c) This Amendment, to the extent signed and delivered by means of a facsimile machine or other electronic transmission in which the actual signature is evident, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto, each other party hereto or thereto shall re-execute original forms hereof and deliver them to all other parties. No party hereto shall raise the use of a facsimile machine or other electronic transmission in which the actual signature is evident to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or other electronic transmission in which the actual signature is evident as a defense to the formation of a contract and each party forever waives such defense.
(d) This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which counterparts taken together shall be deemed to constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
THE BORROWER: | ||
THE HAIN CELESTIAL GROUP, INC. | ||
By: | /s/ Ira J. Lamel | |
Name: | Ira J. Lamel | |
Title: | Executive Vice President, Chief Financial Officer, Treasurer and Secretary |
Signature page to Amendment No. 1
BANK OF AMERICA, N.A., as Administrative Agent | ||
By: | /s/ Carol G. Alm | |
Name: | Carol G. Alm | |
Title: | Assistant Vice President | |
Bank of America, N.A. | ||
Agency Management 100 Federal Street Mail Stop MA5 1001102 Boston, MA 02110 |
BANK OF AMERICA, N.A., as Lender | ||
By: | /s/ Steven J. Melicharek | |
Name: | Steven J. Melicharek | |
Title: | SVP Senior Credit Products Officer | |
Bank of America, N.A. | ||
1185 Avenue of the Americas New York, NY 10036 Attention: SVP Senior Credit Products Officer Telephone: (212) 819-6002 Telecopy: (212) 819-6166 |
Signature page to Amendment No. 1
[Lender Signature Page]
JPMorgan Chase Bank, N.A., as Lender | ||
By: | /s/ Jules Panno | |
Name: Jules Panno | ||
Title: Vice President |
Signature page to Amendment No. 1
[Lender Signature Page]
HSBC Bank USA, National Association, as Lender | ||
By: | /s/ Christopher J. Mendelsohn | |
Name: Christopher J. Mendelsohn | ||
Title: First Vice President |
Signature page to Amendment No. 1
[Lender Signature Page]
CITIBANK, N.A., as Lender | ||
By: | /s/ Anthony V. Pantina | |
Name: Anthony V. Pantina | ||
Title: Senior Vice President |
Signature page to Amendment No. 1
[Lender Signature Page]
KBC Bank, N.V., as Lender | ||
By: | /s/ William Cavanaugh | |
Name: William Cavanaugh | ||
Title: Vice President |
By: | /s/ Thomas G. Jackson | |
Name: Thomas G. Jackson | ||
Title: First Vice President |
Signature page to Amendment No. 1
[Lender Signature Page]
CoBank, ACB, as Lender | ||
By: | /s/ Jeffrey C. Norte | |
Name: Jeffrey C. Norte | ||
Title: Vice President |
Signature page to Amendment No. 1
[Lender Signature Page]
Capital One, N.A., as Lender | ||
By: | /s/ Jed Pomerantz | |
Name: Jed Pomerantz | ||
Title: Vice President |
Signature page to Amendment No. 1
[Lender Signature Page]
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. Rabobank Nederland, New York Branch, as Lender | ||
By: | /s/ Theodore W. Cox | |
Name: Theodore W. Cox | ||
Title: Executive Director |
By: | /s/ Rebecca Morrow | |
Name: Rebecca Morrow | ||
Title: Executive Director |
Signature page to Amendment No. 1
[Lender Signature Page]
KeyBank National Association, as Lender | ||
By: | /s/ Lawrence Mack | |
Name: Lawrence Mack | ||
Title: Executive Vice President |
Signature page to Amendment No. 1
[Lender Signature Page]
First Pioneer Farm Credit, ACA, as Lender | ||
By: | /s/ Thomas W. Cosgrove | |
Name: Thomas W. Cosgrove | ||
Title: Vice President |
Signature page to Amendment No. 1
EXHIBIT 31.1
CERTIFICATION
I, Irwin D. Simon, 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 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 report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 12, 2008
/s/ Irwin D. Simon |
Irwin D. Simon |
President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Ira J. Lamel, 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 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 report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 12, 2008
/s/ Ira J. Lamel |
Ira J. Lamel |
Executive Vice President and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION FURNISHED
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2008 (the Report) filed by The Hain Celestial Group, Inc. (the Company) with the Securities and Exchange Commission, I, Irwin D. Simon, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 12, 2008
/s/ Irwin D. Simon |
Irwin D. Simon |
President and Chief Executive Officer |
A signed original of this written statement required by Section 906 has been provided to The Hain Celestial Group, Inc. and will be retained by The Hain Celestial Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION FURNISHED
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2008 (the Report) filed by The Hain Celestial Group, Inc. (the Company) with the Securities and Exchange Commission, I, Ira J. Lamel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 12, 2008
/s/ Ira J. Lamel |
Ira J. Lamel |
Executive Vice President and Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to The Hain Celestial Group, Inc. and will be retained by The Hain Celestial Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.