SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
|X|
Annual
Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange
Act
of
1934
For
The Fiscal Year Ended June 30, 2006
|_|
Transition Report pursuant to Section 13 or 15(d) of The Securities Exchange
Act
of 1934 for the transition period from ______ to _______.
THE
HAIN CELESTIAL GROUP, INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
22-3240619
(I.R.S.
Employer
Identification
No.)
|
58
South Service Road
Melville,
New York
(Address
of principal executive offices)
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11747
(Zip
Code)
|
Registrant’s
telephone number, including area code: (631) 730-2200
Securities
registered pursuant to Section 12(b) of the Act:
(Title
of Each Class)
|
(Name
of Each Exchange on which registered)
|
Common
Stock, par value $.01 per share
|
The
NASDAQ Stock Market LLC
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the
Securities
Act. Yes |X| No |_|
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of
the
Act.
Yes |_| No |X|
Note
-
Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act from their obligations
under
those Sections.
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
Form
10-K. |_|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer [X]
|
Accelerated
filer [ ]
|
Non-accelerated
filer [ ]
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes |_| No |X|
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant based upon the closing price of the
registrant’s stock, as quoted on the Nasdaq National Market on December 30,
2005, the last business day of the registrant’s most recently completed second
fiscal quarter, was $796,266,762.
As
of
September 5, 2006, there were 38,772,915 shares outstanding of the registrant’s
Common Stock, par value $.01 per share.
Documents
Incorporated by Reference
Document
|
Part
of the Form 10-K
|
The
Hain Celestial Group, Inc. Definitive Proxy
Statement
for the 2006 Annual Meeting of Stockholders
|
into
which Incorporated
Part
III
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Table
of Contents
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Page
|
|
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PART
I
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|
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Item
1.
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Business.
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1
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General
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1
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Products
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2
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New
Product Initiatives Through Research and Development
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4
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Sales
and Distribution
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4
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Marketing
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4
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Manufacturing
Facilities
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5
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Suppliers
of Ingredients and Packaging
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5
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Co-Packed
Product Base
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5
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Trademarks
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6
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Competition
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6
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Government
Regulation
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7
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Independent
Certification
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7
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Available
Information
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7
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Item
1A.
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Risk
Factors
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7
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Item
1B.
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Unresolved
Staff Comments
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14
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Item
2.
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Properties.
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14
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Item
3.
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Legal
Proceedings.
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15
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Item
4.
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Submission
of Matters to a Vote of Security Holders.
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15
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and
Issuer
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Purchases
of Equity Securities.
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15
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Item
6.
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Selected
Financial Data.
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16
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
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16
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk.
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25
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Item
8.
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Financial
Statements and Supplementary Data.
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26
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
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50
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Item
9A.
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Controls
and Procedures
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50
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Item
9B.
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Other
Information
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53
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PART
III
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Item
10.
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Directors
and Executive Officers of the Registrant
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53
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Item
11.
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Executive
Compensation
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53
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management
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and
Related Stockholder Matters
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53
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Item
13.
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Certain
Relationships and Related Transactions
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53
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Item
14.
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Principal
Accountant Fees and Services
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53
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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53
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Signatures
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57
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PART
I
THE
HAIN CELESTIAL GROUP, INC.
Item
1. Business.
Unless
otherwise indicated, references in this Annual Report to 2006, 2005, 2004 or
“fiscal” 2006, 2005, 2004 or other years refer to our fiscal year ended June 30
of that year and references to 2007 or “fiscal” 2007 refer to our fiscal year
ending June 30, 2007.
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 products
and
natural and organic 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® teas, Hain
Pure Foods®, Westbrae®, WestSoy®, Rice Dream®, Soy Dream®, Imagine®, Walnut
Acres Organic™, Ethnic Gourmet®, Rosetto®, Little Bear Organic Foods®,
Bearitos®, Arrowhead Mills®, Health Valley®, Breadshop®, Casbah®, Spectrum
Naturals®, Spectrum Essentials®, Garden of Eatin’®, Terra®, Harry’s Premium
Snacks®, Boston’s®, Lima®, Grains Noirs®, Natumi®, Milkfree, Yves Veggie
Cuisine®, DeBoles®, Earth’s Best®, Nile Spice® and Linda McCartney®. The
Company’s principal specialty product lines include Hollywood® cooking oils,
Estee® sugar-free products, Boston Better Snacks®, and Alba Foods®. Our natural
personal care products line is marketed under the JASON®, Zia®, Orjene®, Shaman
Earthly Organics™,
Heather’s®, Queen Helene®, Batherapy®, Shower Therapy® and Footherapy® brands.
Our natural and organic antibiotic-free chicken is marketed under the
FreeBird™
brand.
Our
products are sold primarily to specialty and natural food distributors and
are
marketed nationally to supermarkets, natural food stores, and other retail
classes of trade including mass-market stores, drug stores, food service
channels and club stores. During 2006, 2005 and 2004, approximately 47%, 47%
and
39%, respectively, of our revenues were derived from products manufactured
within our own facilities. The remaining 53%, 53% and 61%, for 2006, 2005 and
2004, respectively, of our revenues were derived from products which are
produced by independent food manufacturers (“co-packers”) using proprietary
specifications controlled by us.
Since
our
formation, we have completed a number of acquisitions of companies and brands.
In the last three fiscal years, we have acquired the following companies and
brands:
· |
On
June 12, 2006, we acquired the Linda McCartney® brand (under license) and
the frozen meat-free business from the H.J. Heinz Company, L.P. ("Heinz")
including a manufacturing facility based in Fakenham,
England.
|
· |
On
April 30, 2006, we acquired the fresh prepared food business based
in
Luton, England from Heinz.
|
· |
On
March 3, 2006, we acquired the business and assets of Para Laboratories,
Inc., including the Queen Helene®, Batherapy®, Shower Therapy® and
Footherapy® brands of skin care, hair care, and body care products for
professional and personal use, sold through drug stores, supermarkets,
and
mass retailers.
|
· |
On
December 16, 2006, we acquired Spectrum Organic Products, Inc., a
leading
manufacturer and marketer of natural and organic culinary oils, vinegars,
condiments and butter substitutes under the Spectrum Naturals® brand and
essential fatty acid nutritional supplements under the Spectrum
Essentials® brand, sold mainly through natural food
retailers.
|
· |
On
July 1, 2005, we acquired a 50.1% controlling interest in Hain Pure
Protein Corporation which specializes in natural and organic
antibiotic-free chicken.
|
· |
On
April 4, 2005, we acquired Zia Cosmetics, Inc., including the Zia® Natural
Skincare brand, a respected leader in therapeutic products for healthy,
beautiful skin sold mainly through natural food retailers.
|
· |
On
June 3, 2004, we acquired Jason Natural Products, Inc., a California-based
manufacturer and marketer of natural personal care
products.
|
· |
On
May 27, 2004, we acquired the Rosetto® and Ethnic Gourmet® brands
from Heinz, which produce and market frozen pasta and natural ethnic
frozen meals, respectively. Heinz owned approximately 16.7% of our
common
stock at the time of the
transaction.
|
· |
On
February 25, 2004, we acquired Natumi AG, a German producer and
marketer of soymilk and other non-dairy
products.
|
Our
brand
names are well recognized in the various market categories they serve. We have
acquired numerous brands since our formation (in addition to those mentioned
above) and we will seek future growth through internal expansion as well as
the
acquisition of complementary brands.
Our
overall mission is to be a leading marketer and seller of natural and organic
food products and natural personal care products by anticipating and exceeding
consumer expectations and providing quality, innovation, value and convenience.
Our business strategy is to integrate all of our brands under one management
team and employ a uniform marketing, sales and distribution program. We
capitalize on the brand equity and the distribution achieved through each of
our
acquired brands with strategic introductions of new product lines that
complement existing product lines to enhance revenues and margins. We believe
that by integrating our various brands, we will achieve economies of scale
and
enhanced market penetration. We consider the acquisition of natural and organic
food companies and product lines as an integral part of our business strategy.
To that end, we do, from time to time, review and conduct discussions with
acquisition candidates.
As
of June
30, 2006, we employed a total of 2,074 full-time employees. Of these employees,
156 were in sales and 1,265 in production, with the remaining 653 employees
filling management, accounting, marketing, operations and clerical
positions.
Products
Grocery
We
develop, manufacture, market and distribute a comprehensive line of branded
natural and organic grocery products in numerous categories including non-dairy
drinks (soy and rice), popcorn cakes, cookies, crackers, flour and baking mixes,
hot and cold cereals, pasta, baby food, condiments, cooking and culinary oils,
granolas, granola bars, cereal bars, canned, aseptic and instant soups, chilis,
packaged grain, nut butters and nutritional oils, juices, frozen desserts,
pastas and ethnic meals, as well as other food products. Our Hain®, Westbrae®,
WestSoy®, Imagine®, Rice Dream®, Soy Dream®, Walnut Acres Organic™, Ethnic
Gourmet®, Bearitos®, Arrowhead Mills®, DeBoles®, Health Valley®, Hollywood®,
Casbah®, Spectrum Naturals®, Spectrum Essentials®, Breadshop®, Nile Spice®,
Earth’s Best® and Lima® brands comprise this full line of natural or organic
grocery products. We are a leader in many of the top natural food categories.
Natural foods are defined as foods that are minimally processed, largely or
completely free of artificial ingredients, preservatives, and other
non-naturally occurring chemicals, and are as near to their whole natural state
as possible. Many of our products are also made with “organic” ingredients that
are grown without dependence upon artificial pesticides, chemicals or
fertilizers. Grocery products accounted for approximately 51% of total net
sales
in 2006, 55% in 2005, and 56% in 2004.
Snacks
We
develop, manufacture, market and distribute a full line of branded snack
products including a variety of potato and vegetable chips, organic tortilla
style chips, pretzels, popcorn and potato chips under the Terra®, Garden of
Eatin’®, Little Bear®, Boston’s Popcorn® and Harry’s Premium Snacks® names.
Terra® natural food products consist of varieties of potato chips, potato sticks
(known as Frites®), sweet potato chips and other vegetable chips. Garden of
Eatin’® natural food products consist of organic tortilla chip products and
other snacks. Boston Popcorn® and Harry’s® products consist of popcorn, potato
chips, tortilla chips and other snack food items. Snacks accounted for
approximately 13% of total net sales in 2006 and 14% in 2005 and in
2004.
Teas
Our
tea
products are 100% natural and are made from high-quality, natural flavors and
ingredients and are generally offered in 10, 20 and 40 count packages. We are
the leading specialty tea brand in North America. Our teas are sold in grocery,
natural foods and other retail stores. We develop flavorful, unique blends
with
attractive, colorful and thought-provoking packaging. Our products include
herb
teas such as Sleepytime®, Lemon Zinger®, Peppermint, Chamomile, Mandarin Orange
Spice®, Cinnamon Apple Spice, Red Zinger®, Raspberry Zinger®, Tension Tamer®,
Country Peach Passion® and Wild Berry Zinger®, a line of green teas, a line of
wellness teas, a line of organic teas, a line of specialty black teas, chais,
and our new line of Zingers To Go™. Our tea products include over 80 flavors
made from 100% natural ingredients. The types of teas offered include herb,
red
(rooibos), honeybush, white, green, black and chai. Our teas are offered both
with and without caffeine. We also offer Cool Brew iced teas, natural ciders,
and Teahouse Chais. Tea beverages accounted for approximately 14% total net
sales in 2006, 16% in 2005 and 18% in 2004.
Personal
Care Products
We
manufacture and market a full line of personal care products including skin
care, hair care, body care, oral care, and deodorants under the
JASON®,
Earth’s
Best® Baby Body Care, Zia®, Orjene®, Shaman Earthly Organics™,
Queen
Helene®,
Batherapy
®, Shower Therapy®, and Footherapy® brands. We also manufacture and market a
brand of natural cleaning products under the Heather’s® brand.
Other
Fresh
We
process, market and distribute fresh prepared foods from our facility in Luton,
England, and from our Grains Noirs facilities in Brussels, Belgium. Products
include fresh sandwiches, appetizers and full-plated meals for distribution
to
retailers, caterers, and food service providers, principally transportation
providers.
On
July 1,
2005, we began processing natural and organic, antibiotic- and hormone-free
chickens marketed and distributed to natural food stores, supermarkets, and
food
service providers. We market our chickens under the FreeBird™ brand.
Meat
Alternative Products
We
manufacture, distribute and market a full line of soy protein meat alternative
products under the Yves brand name including such well known products as The
Good Dog®, The Good Lunch® and The Good Slice®, among others. We also
manufacture, market and distribute a full line of meat-free frozen products
under the Linda McCartney® brand (under license). Meat alternative products
provide consumers with the health benefits of soy without the health concerns
associated with traditional meat products. Our meat alternative products and
other meat-free ingredients include veggie burgers, veggie wieners, veggie
slices, veggie entrees, veggie ground round and veggie skewers. Our Yves meat
alternative brand operates from our facility in Vancouver, British Columbia
in
Canada. Our Linda McCartney® brand operates from our facility in Fakenham,
England.
Medically-Directed
and Weight Management Products
Our
Estee®
and Featherweight® businesses market and distribute a full line of sugar-free,
fructose-sweetened and low-sodium products targeted towards diabetic and health
conscious consumers and persons on medically-restricted diets.
We
continuously evaluate our existing products for taste, nutritional value and
cost and make improvements where possible. We will discontinue products or
stock
keeping units when sales of those items do not warrant further production.
During fiscal 2005, we initiated a stock keeping unit (SKU) rationalization
program which resulted in the discontinuation of numerous SKUs, the elimination
of which resulted in a pre-tax charge to fiscal 2005 earnings of approximately
$12.1 million and to fiscal 2006 earnings of approximately $0.9
million.
New
Product Initiatives Through Research and Development
We
consider research and development of new products to be a significant part
of
our overall philosophy and we are committed to developing high-quality products.
A team of professional product developers, including microbiologists,
nutritionists, food scientists and chefs, work together to develop products
meeting consumers’ changing needs. Our Research and Development Department
incorporates product ideas from all areas of our business in order to formulate
new products. In addition to developing new products, the Research and
Development Department routinely reformulates and revises existing products.
We
incurred approximately $1.2 million in Company-sponsored research and
development activities in 2006, $2.6 million in 2005 and $2.0 million in
2004.
Sales
and Distribution
Our
products are sold in all 50 states and in more than 50 countries. Certain of
our
product lines have seasonal fluctuations (e.g., hot tea products, baking and
cereal products and soup sales are stronger in colder months while sales of
snack food products are stronger in the warmer months).
A
majority
of the products marketed by us are sold through independent food distributors.
Over half of these sales orders are received from third-party food brokers.
We
utilize a direct sales force for sales into natural food stores that has allowed
us to reduce our reliance on food brokers. Food brokers act as agents for us
within designated territories, usually on a non-exclusive basis, and receive
commissions. Food distributors purchase products from us for resale to
retailers. Because food distributors take title to the products upon purchase,
product pricing decisions on sales of our products by the distributors are
generally made in their sole discretion, although we may participate in product
pricing during promotional periods.
Our
customer base consists principally of natural food distributors, mass-market
merchandisers, supermarkets, drug store chains, club stores and grocery
wholesalers. Recently, growth of natural and organic foods has shifted from
the
natural food channel to the grocery channels as mainstream grocery distributors
and retailers provide these products to meet consumer demand and awareness.
In
fiscal 2006 and 2005, one of our distributors, United Natural Foods, Inc.,
accounted for approximately 21% and 22% of net sales, respectively. Two of
our
distributors, United Natural Foods, Inc. and Tree of Life, accounted for
approximately 20% and 12%, respectively, in 2004. Net sales to export customers
account for less than 5% of total net sales for each of the three years in
the
period ended June 30, 2006.
Our
subsidiaries in Canada and Europe sell to all major channels of distribution
in
the countries they serve. International sales represented approximately 19.3%
of
total net sales in 2006, 21.1% in 2005 and 20.3% in 2004.
Marketing
We
use a
mix of trade and consumer promotions as well as media advertising to market
our
products. We use trade advertising and promotion, including placement fees,
cooperative advertising and feature advertising in distribution catalogs. We
also utilize advertising and sales promotion expenditures via national and
regional consumer promotion through television and magazine advertising,
couponing and other trial use programs. In each of 2006, 2005
and
2004
we have increased our investment in consumer spending to enhance brand equity
while closely monitoring our trade spending. These consumer spending categories
include, but are not limited to, consumer advertising using television, radio
and print, coupons, direct mailing programs and other forms of promotions.
During fiscal 2006, we initiated sponsorship programs including Earth’s Best®
with PBS Kids and Sesame Street, and Terra® as The Official Chip of Madison
Square Garden. In addition, Celestial Seasonings® continued its partnership with
The
Heart Truth Campaign.
There
is
no guarantee that these promotional investments in consumer spending will be
successful.
Manufacturing
Facilities
We
currently manage and operate the following manufacturing facilities located
throughout the United States: Celestial Seasonings®, in Boulder, Colorado, which
produces specialty teas; Terra®, in Moonachie, New Jersey, which produces
vegetable chips; Arrowhead Mills®, in Hereford, Texas, which produces hot and
cold cereals, baking goods and meal cups; DeBoles®, in Shreveport, Louisiana,
which produces organic pasta; a frozen foods facility in West Chester,
Pennsylvania, which produces Ethnic Gourmet® frozen meals and Rosetto® frozen
pasta; JASON®, in Culver City, California, which produces personal care
products; and Hain Pure Protein in Fredericksburg, Pennsylvania, which processes
natural and organic antibiotic-free chickens.
Outside
the United States, we have the following manufacturing facilities: Yves Veggie
Cuisine® in Vancouver, British Columbia, which produces soy-based meat
alternative products; Hain Celestial Belgium, with its Lima, N.V. facility
in
Maldegem, Belgium, which manufactures natural and organic food products, its
Grains Noirs® facility in Brussels, Belgium, which prepares fresh organic
appetizers, salads, sandwiches and other full-plated dishes, and its Natumi
facility in Eitorf, Germany, which produces soymilk and other non-dairy
products; our Luton, England facility where we produce fresh prepared foods;
and
our Fakenham, England facility where we produce meat-free frozen
foods.
We
own the
manufacturing facilities in Moonachie, New Jersey; Boulder, Colorado; Hereford,
Texas; Shreveport, Louisiana; West Chester, Pennsylvania; Fredericksburg,
Pennsylvania; Vancouver, British Columbia; Maldegem, Belgium; and Fakenham,
England. During 2006, 2005 and 2004, approximately 47%, 47% and 39%,
respectively, of our revenue was derived from products manufactured at our
owned
manufacturing facilities.
Suppliers
of Ingredients and Packaging
Our
natural and organic ingredients and our packaging materials and supplies are
obtained from various sources and suppliers located principally in the United
States and locally in Canada and Europe for our operations in these areas.
Certain of our packaging and products are sourced from the Far
East.
Our
tea
ingredients are purchased from numerous foreign and domestic manufacturers,
importers and growers, with the majority of those purchases occurring outside
of
the United States.
We
maintain long-term relationships with most of our suppliers. Purchase
arrangements with ingredient suppliers are generally made annually and in the
local currency of the country in which we operate. Purchases are made through
purchase orders or contracts, and price, delivery terms and product
specifications vary.
Our
organic and botanical purchasers visit major suppliers around the world annually
to procure ingredients and to assure quality by observing production methods
and
providing product specifications. We perform laboratory analyses on incoming
ingredient shipments for the purpose of assuring that they meet both our own
quality standards and those of the U.S. Food and Drug Administration (FDA),
the
U.S. Department of Agriculture (USDA) and the U.S. Environmental Protection
Agency (EPA).
Co-Packed
Product Base
During
2006, 2005 and 2004, approximately 53%, 53% and 61%, respectively, of our
revenue was derived from products manufactured at independent co-packers.
Currently, independent food manufacturers, who are referred to
in
our
industry as co-packers, manufacture many of our products, including our Health
Valley®, Breadshop®, Casbah®, Bearitos®, Nile Spice®, Harry’s Premium Snacks®,
Boston’s®, Alba Foods®, Estee®, Earth’s Best®, Garden of Eatin’®, Hain Pure
Foods®, Hollywood®, Little Bear Organic Foods®, Westbrae®, WestSoy®, Rice
Dream®, Soy Dream®, Imagine®, Walnut Acres Organic™,
Spectrum
Naturals®, Spectrum Essentials®, Lima®, Queen Helene®, Batherapy®, Shower
Therapy®, Footherapy®, Zia® and some of our Terra®, Rosetto®, Arrowhead Mills®,
Yves Veggie Cuisine® and Ethnic Gourmet® product lines.
Trademarks
We
believe
that brand awareness is a significant component in a consumer’s decision to
purchase one product over another in the highly competitive food and beverage
industry. Our trademarks and brand names for the product lines referred to
herein are registered in the United States and a number of foreign countries
and
we intend to keep these filings current and seek protection for new trademarks
to the extent consistent with business needs. We also copyright certain of
our
artwork and package designs. We own the trademarks for our principal products,
including Arrowhead Mills®, Bearitos®, Breadshop®, Casbah®, Spectrum Naturals®,
Spectrum Essentials®, Celestial Seasonings®, DeBoles®, Earth’s Best®, Estee®,
Ethnic Gourmet®, Garden of Eatin’®, Hain Pure Foods®, Health Valley®, Imagine®,
JASON®, Zia®, Orjene®, Shaman Earthly Organics™,
Heather’s®, Little Bear Organic Foods®, Nile Spice®, Harry’s Premium Snacks®,
Boston’s®, Rice Dream®, Rosetto®, Soy Dream®, Terra®, Walnut Acres Organic™,
Westbrae®, WestSoy®, Lima®, Grains Noirs®, Natumi®, FreeBird™,
Yves
Veggie Cuisine®, Queen Helene®, Batherapy®, Shower Therapy® and Footherapy®
brands.
Celestial
Seasonings® has trademarks for most of its best-selling teas, including
Sleepytime®, Lemon Zinger®, Mandarin Orange Spice®, Red Zinger®, Wild Berry
Zinger®, Tension Tamer®, Country Peach Passion® and Raspberry Zinger®. We market
the Linda McCartney® brand under license.
Competition
We
operate
in highly competitive geographic and product markets, and some of these markets
are dominated by competitors with greater resources. In addition, we compete
for
limited retailer shelf space for our products. Larger competitors include
mainstream food companies such as Dean Foods, General Mills, Inc., Nestle S.A.,
Kraft Foods, Inc., Groupe Danone, Kellogg Company, Unilever PLC, Pepsico, Inc.
and Sara Lee Corporation. Retailers also market competitive products under
their
own private labels.
The
beverage markets for both tea and soy beverages are large and highly
competitive. Competitive factors in the tea industry include product quality
and
taste, brand awareness among consumers, variety of specialty tea flavors,
interesting or unique product names, product packaging and package design,
supermarket and grocery store shelf space, alternative distribution channels,
reputation, price, advertising and promotion. Celestial Seasonings currently
competes in the specialty tea market segment which includes herb tea, green
tea,
wellness tea and black tea. Celestial Seasonings® specialty tea products, like
other specialty tea products, are priced higher than most commodity black tea
products.
The
principal competitors of Celestial Seasonings® on a national basis in the
specialty teas market are Thomas J. Lipton Company (a division of Unilever
PLC),
Twinings (a division of Associated British Grocers) and R.C. Bigelow, Inc.
In
addition, in April 2004, Tazo Tea Company (a subsidiary of Starbucks
Corporation) and Kraft Foods. announced a licensing agreement whereby Tazo
products might gain additional access to grocery channels through placement
by
Kraft. Additional competitors include a number of regional specialty tea
companies.
The
soy
beverage market, including both aseptic and refrigerated products, has shown
sustained growth over the past several years. A statement by the FDA endorsing
the heart healthy benefits of soy in October 1999 spurred the growth in both
the
aseptic and refrigerated segments. Aseptic soymilk is the more mature product
category of the two and in recent years, additional larger competitors entered
the category but have since exited the category after unsuccessful regional
launches. WestSoy® has taken advantage of the shelf space which became available
and continues to be the number one and largest growing brand of aseptic soymilk
in the grocery and natural channels.
Government
Regulation
Along
with
our manufacturers, brokers, distributors and co-packers, we are subject to
extensive regulation by federal, state and local authorities. The federal
agencies governing our business include the Federal Trade Commission (FTC),
FDA,
United States Department of Agriculture (USDA), and Occupational Safety and
Health Administration (OSHA). These agencies regulate, among other things,
the
production, sale, safety, advertising, labeling of and ingredients used in
our
products. Under various statutes, these agencies prescribe the requirements
and
establish the standards for quality, purity and labeling. Among other
requirements, the USDA, in certain circumstances, must not only approve our
products, but also review the manufacturing processes and facilities used to
produce these products before these products can be marketed in the United
States. In addition, advertising of our business is subject to regulation by
the
FTC. Our activities are also regulated by state agencies as well as county
and
municipal authorities. We are also subject to the laws of the foreign
jurisdictions in which we manufacture and sell our products.
We
rely
on
independent certification, such as certifications of our products as “organic”
or “kosher,” to differentiate our products in natural and specialty food
categories. The loss of any independent certifications could adversely affect
our market position as a natural and specialty food company, which could harm
our business.
We
must
comply
with the requirements of independent organizations or certification authorities
in order to label our products
as
certified. We
utilize
organizations such as Quality Assurance International (QAI) and Oregon Tilth
to
certify our products as organic under the guidelines established by the USDA.
Similarly, we utilize appropriate kosher supervision organizations, such as
The
Union
of
Orthodox
Jewish
Congregations,
The
Organized Kashruth Laboratories, “KOF-K”
Kosher
Supervision, Star
K
Kosher Certification, Kosher
Overseers Associated of America and Upper Midwest Kashruth.
Available
Information
The
following information can be found on our website at
http://www.hain-celestial.com:
· |
our
annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and all amendments to those reports as soon
as
reasonably practicable after such material is electronically filed
with or
furnished to the Securities and Exchange Commission
(SEC);
|
· |
our
policies related to corporate governance, including our Code of Business
Conduct and Ethics applying to our directors, officers and employees
(including our principal executive officer and principal financial
and
accounting officer) that we have adopted to meet the requirements
set
forth in the rules and regulations of the SEC; and
|
· |
the
charters of the Audit, Compensation and Corporate Governance and
Nominating Committees of our Board of
Directors.
|
We
intend
to satisfy the applicable disclosure requirements regarding amendments to,
or
waivers from, provisions of our Code of Ethics by posting such information
on
our website.
Our
business, operations and financial condition are subject to various risks and
uncertainties. The most significant of these risks include those described
below; however, there may be additional risks and uncertainties not presently
known to us or that we currently consider immaterial. If any of the following
risks and uncertainties develop into actual events, our business, financial
condition or results of operations could be materially adversely affected.
In
such case, the trading price of our common stock could decline, and you may
lose
all or part of your investment. These risk factors should be read in conjunction
with the other information in this Annual Report on Form 10-K and in the other
documents that we file from time to time with the SEC.
Our
Markets Are Highly Competitive
We
operate
in highly competitive geographic and product markets, and some of our markets
are dominated by competitors with greater resources. We cannot be certain that
we could successfully compete for sales to distributors or stores that purchase
from larger, more established companies that have greater financial, managerial,
sales and technical resources. In addition, we compete for limited retailer
shelf space for our products. Larger competitors, such as mainstream food
companies including but not limited to Dean Foods Company, General Mills, Inc.,
Nestle S.A., Kraft Foods Inc., Groupe Danone, Kellogg Company, PepsiCo, Inc.
and
Sara Lee Corporation, also may be able to benefit from economies of scale,
pricing advantages or the introduction of new products that compete with our
products. Retailers also market competitive products under their own private
labels.
One
example of the competitiveness of the markets in which we participate is in
the
tea portion of the beverage market. Competitive factors in the tea industry
include product quality and taste, brand awareness among consumers, variety
of
specialty tea flavors, interesting or unique product names, product packaging
and package design, supermarket and grocery store shelf space, alternative
distribution channels, reputation, price, advertising and promotion. Our
principal competitors on a national basis in the specialty tea market are Thomas
J. Lipton Company, a division of Unilever PLC, and R.C. Bigelow, Inc. Unilever
has substantially greater financial resources than we do. In addition, in April
2004, Tazo Tea Company (a subsidiary of Starbucks Corporation) and Kraft Foods
Global, Inc. (a subsidiary of Kraft Foods Inc.) announced a licensing agreement
whereby Tazo products may gain additional access to grocery channels through
placement by Kraft, which has substantially greater financial resources than
we
do. Additional competitors include a number of regional specialty tea companies.
There may be potential entrants which are not currently in the specialty tea
market who may have substantially greater resources than we do. Private label
competition in the specialty tea category is currently minimal, but growing.
In
the future, competitors may introduce other products that compete with our
products and these competitive products may have an adverse effect on our
business, results of operations and financial condition.
We
also
compete with other manufacturers in the procurement of natural and organic
product ingredients, which may be less plentiful in the open market than
conventional product ingredients. This competition may increase in the future
along with increasing public demand for natural and organic products. This
could
cause our expenses to increase or could limit the amount of product that we
can
manufacture and sell.
Consumer
Preferences for Our Products Are Difficult to Predict and May Change
A
significant shift in consumer demand away from our products or our failure
to
maintain our current market position could reduce our sales or the prestige
of
our brands in our markets, which could harm our business. While we continue
to
diversify our product offerings, we cannot be certain that demand for our
products will continue at current levels or increase in the future.
Our
business is primarily focused on sales of natural and organic products in
markets geared to consumers of natural foods, specialty teas, non-dairy
beverages, cereals, breakfast bars, canned soups and vegetables, snacks and
cooking oils, which, if consumer demand for such categories were to decrease,
could harm our business. Consumer trends change based on a number of possible
factors, including:
· |
nutritional
values, such as a change in preference from fat free to reduced fat
to no
reduction in fat; and
|
· |
a
shift in preference from organic to non-organic and from natural
products
to non-natural products.
|
In
addition, we have other product categories, such as medically-directed food
products and other specialty food items, as well as natural health and beauty
care products. We are subject to evolving consumer preferences for these
products.
Our
Acquisition Strategy Exposes Us to Risk
We
intend
to continue to grow our business in part through the acquisition of new brands,
both in the United States and internationally. Our acquisition strategy is
based
on identifying and acquiring brands with products that complement our existing
product mix. We cannot be certain that we will be able to successfully:
· |
identify
suitable acquisition candidates;
|
· |
negotiate
identified acquisitions on terms acceptable to us; or
|
· |
integrate
acquisitions that we complete.
|
We
may
encounter increased competition for acquisitions in the future, which could
result in acquisition prices we do not consider acceptable. We are unable to
predict whether or when any prospective acquisition candidate will become
available or the likelihood that any acquisition will be completed.
Our
Future Success May Be Dependent on Our Ability to Integrate Brands That We
Acquire
Our
future
success may be dependent upon our ability to effectively integrate new brands
that we acquire, including our ability to realize potentially available
marketing opportunities and cost savings, some of which may involve operational
changes. We cannot be certain:
· |
as
to the timing or number of marketing opportunities or amount of cost
savings that may be realized as the result of our integration of
an
acquired brand;
|
· |
that
a business combination will enhance our competitive position and
business
prospects;
|
· |
that
we will not experience difficulties with customers, personnel or
other
parties as a result of a business combination; or
|
· |
that,
with respect to our acquisitions outside the United States, we will
not be
affected by, among other things, exchange rate risk.
|
In
addition, we cannot be certain that we will be successful in:
· |
integrating
an acquired brand’s distribution channels with our own;
|
· |
coordinating
sales force activities of an acquired brand or in selling the products
of
an acquired brand to our customer base; or
|
· |
integrating
an acquired brand into our management information systems or integrating
an acquired brand’s products into our product mix.
|
Additionally,
integrating an acquired brand into our existing operations will require
management resources and may divert our management from our day-to-day
operations. If we are not successful in integrating the operations of acquired
brands, our business could be harmed.
We
are Dependent Upon the Services of Our Chief Executive Officer
We
are
highly dependent upon the services of Irwin D. Simon, our Chairman of the Board,
President and Chief Executive Officer. We believe Mr. Simon’s reputation as our
founder and his expertise and knowledge in the natural and organic products
market are critical factors in our continuing growth. The loss of the services
of Mr. Simon could harm our business.
We
Rely on Independent Brokers and Distributors for a Substantial Portion of Our
Sales
We
rely
upon sales efforts made by or through non-affiliated food brokers to
distributors and other customers, in addition to our own retail sales
organization. The loss of, or business disruption at, one or more of these
distributors or brokers may harm our business. If we were required to obtain
additional or alternative distribution and food brokerage agreements or
arrangements in the future, we cannot be certain that we will be able to do
so
on satisfactory
terms
or
in a timely manner. One of our distributors, United Natural Foods, Inc., or
“UNFI,”
which
redistribute products to natural foods supermarkets, independent natural
retailers and other retailers, accounted for approximately 21%, 22% and 20%
of
our net sales for the fiscal years ended June 30, 2006, 2005, and 2004,
respectively. Our inability to enter into satisfactory brokerage agreements
may
inhibit our ability to implement our business plan or to establish markets
necessary to develop products successfully. Food brokers act as selling agents
representing specific brands on a non-exclusive basis under oral or written
agreements generally terminable at any time on 30 days’ notice, and receive a
percentage of net sales as compensation. Distributors purchase directly for
their own account for resale. In addition, the success of our business depends,
in large part, upon the establishment and maintenance of a strong distribution
network.
Loss
of One or More of Our Manufacturing Facilities or Independent Co-Packers Could
Harm Our Business
For
the
fiscal years ended June 30, 2006, 2005 and 2004, approximately 47%, 47% and
39%,
respectively, of our revenue was derived from products manufactured at our
manufacturing facilities. An interruption in or the loss of operations at one
or
more of these facilities, or the failure to maintain our labor force at one
or
more of these facilities, could delay or postpone production of our products,
which could have a material adverse effect on our business, results of
operations and financial condition until we could secure an alternate source
of
supply.
During
fiscal 2006, 2005 and 2004, approximately 53%, 53% and 61%, respectively, of
our
revenue was derived from products manufactured at independent co-packers. None
of our co-packers manufactured products representing as much as 10% of our
revenue; however, in some cases a co-packer produces all of our requirements
for
a particular brand. The loss of one or more co-packers, or our failure to retain
co-packers for newly acquired products or brands, could delay or postpone
production of our products, which could have a material adverse effect on our
business, results of operations and financial condition until such time as
an
alternate source could be secured, which may be on less favorable terms.
Our
Tea Ingredients Are Subject to Import Risk
Our
tea
brand purchases its ingredients from numerous foreign and domestic
manufacturers, importers and growers, with the majority of those purchases
occurring outside of the United States. We maintain long-term relationships
with
most of our suppliers. Purchase arrangements with ingredient suppliers are
generally made annually and in U.S. currency. Purchases are made through
purchase orders or contracts, and price, delivery terms and product
specifications vary.
Our
botanical purchasers visit major suppliers around the world annually to procure
ingredients and to assure quality by observing production methods and providing
product specifications. Many ingredients are presently grown in countries where
labor-intensive cultivation is possible, and where we often must educate the
growers about product standards. We perform laboratory analysis on incoming
ingredient shipments for the purpose of assuring that they meet our quality
standards and those of the FDA.
Our
ability to ensure a continuing supply of ingredients at competitive prices
depends on many factors beyond our control, such as foreign political
situations, embargoes, changes in national and world economic conditions,
currency fluctuations, forecasting adequate need of seasonal raw material
ingredients and climate conditions. We take steps and will continue to take
steps intended to lessen the risk of an interruption of botanical supplies,
including identification of alternative sources and maintenance of appropriate
inventory levels. We have, in the past, maintained sufficient supplies for
our
ongoing operations.
Our
failure to maintain relationships with our existing suppliers or to find new
suppliers, observe production standards for our foreign-procured products or
continue our supply of botanicals from foreign sources could harm our business.
Our
Future Results of Operations May be Adversely Affected by Escalating Fuel Costs
Many
aspects of our business have been, and continue to be, directly affected by
the
continuously rising cost of fuel. Increased fuel costs have translated into
increased costs for the products and services we receive from our third party
providers including, but not limited to, increased production and distribution
costs for our products. As the cost of doing business increases, we may not
be
able to pass these higher costs on to our customers and, therefore, any such
increase may adversely affect our earnings.
We
are Subject to Risks Associated with Our International Sales and Operations,
Including Foreign Currency Risks
Operating
in international markets involves exposure to movements in currency exchange
rates, which are volatile at times. The economic impact of currency exchange
rate movements is complex because such changes are often linked to variability
in real growth, inflation, interest rates, governmental actions and other
factors. Consequently, isolating the effect of changes in currency does not
incorporate these other important economic factors. These changes, if material,
could cause adjustments to our financing and operating strategies. During fiscal
2006, approximately 19.3% of our net sales were generated outside the United
States, while such sales outside the United States were 21.1% of net sales
in
2005 and 20.3% in 2004.
Sales
from
outside our U.S. markets may represent an increasing portion of our total net
sales in the future. Our non-U.S. sales and operations are subject to risks
inherent in conducting business abroad, many of which are outside our control,
including:
· |
periodic
economic downturns and unstable political environments;
|
· |
price
and currency exchange controls;
|
· |
fluctuations
in the relative values of currencies;
|
· |
unexpected
changes in trading policies, regulatory requirements, tariffs and
other
barriers;
|
· |
compliance
with applicable foreign laws; and
|
· |
difficulties
in managing a global enterprise, including staffing, collecting accounts
receivable and managing distributors.
|
Our
Inability to Use Our Trademarks Could Have a Material Adverse Effect on Our
Business
We
believe
that brand awareness is a significant component in a consumer’s decision to
purchase one product over another in the highly competitive food, beverage
and
personal care industry. Although we endeavor to protect our trademarks and
trade
names, there can be no assurance that these efforts will be successful, or
that
third parties will not challenge our right to use one or more of our trademarks
or trade names. We believe that our trademarks and trade names are significant
to the marketing and sale of our products and that the inability to utilize
certain of these names could have a material adverse effect on our business,
results of operations and financial condition.
Our
Products Must Comply with Government Regulation
The
USDA
has adopted regulations with respect to a national organic labeling and
certification program which became effective February 20, 2001, and fully
implemented on October 21, 2002. We currently manufacture approximately 900
organic products which are covered by these regulations. Future developments
in
the regulation of labeling of organic foods could require us to further modify
the labeling of our products, which could affect the sales of our products
and
thus harm our business.
In
addition, on January 18, 2001, the FDA proposed new policy guidelines regarding
the labeling of genetically engineered foods. The FDA is currently considering
the comments it received before issuing final guidance. These guidelines, if
adopted, could require us to modify the labeling of our products, which could
affect the sales of our products and thus harm our business.
The
FDA
published the final rule amending the Nutritional Labeling regulations to
require declaration of “Trans Fatty Acids” in the nutritional label of
conventional foods and dietary supplements on July 11, 2003. The final rule
became effective on January 1, 2006. Additionally, an allergen labeling law
was
passed and signed on August 3, 2004. This law requires that eight major
allergens to be clearly labeled by January 1, 2006. We have revised our labels
in order to be in compliance with the final rules. Additionally, Canada adopted
new food labeling regulations that required implementation by December 12,
2005.
These regulations require a Nutritional Facts panel to be on the packages.
Our
Yves products are subject to these regulations, as are all of our other products
sold into Canada. Any change in labeling requirements for our products may
lead
to an increase in packaging costs or interruptions or delays in packaging
deliveries.
Similar
labeling regulations exist throughout the rest of the world. We continually
monitor and modify packaging to be in compliance with the rules of the various
countries where we sell our products. Our ability to meet local packaging
regulations impact our ability to sell products in these regions.
Furthermore,
new government laws and regulations may be introduced in the future that could
result in additional compliance costs, seizures, confiscations, recalls or
monetary fines, any of which could prevent or inhibit the development,
distribution and sale of our products. If we fail to comply with applicable
laws
and regulations, we may be subject to civil remedies, including fines,
injunctions, recalls or seizures, as well as potential criminal sanctions,
which
could have a material adverse effect on our business, results of operations
and
financial condition.
Product
Recalls Could Have a Material Adverse Effect on Our Business
Manufacturers
and distributors of products in our industry are sometimes subject to the recall
of their products for a variety of reasons, including for product defects,
such
as ingredient contamination, packaging safety and inadequate labeling
disclosure. If any of our products are recalled due to a product defect or
for
any other reason, we could be required to incur the expense of the recall or
the
expense of any resulting legal proceeding. Additionally, if one of our
significant brands were subject to recall, the image of that brand and our
image
could be harmed, which could have a material adverse effect on our business.
Product
Liability Suits, If Brought, Could Have a Material Adverse Effect on Our
Business
If
a
product liability claim exceeding our insurance coverage were to be successfully
asserted against us, it could harm our business. We cannot assure you that
such
coverage will be sufficient to insure against claims which may be brought
against us, or that we will be able to maintain such insurance or obtain
additional insurance covering existing or new products. As a marketer of food,
beverage and personal care products, we are subject to the risk of claims for
product liability. We maintain product liability insurance and generally require
that our co-packers maintain product liability insurance naming us as a
co-insured.
We
Rely on Independent Certification for a Number of Our Food Products
We
rely on
independent certification, such as certifications of our products as “organic”
or “kosher,” to differentiate our products from others. The loss of any
independent certifications could adversely affect our market position as a
natural and organic food company, which could harm our business.
We
must
comply with the requirements of independent organizations or certification
authorities in order to label our products as certified. For example, we can
lose our “organic” certification if a manufacturing plant becomes contaminated
with non-organic materials, or if it is not properly cleaned after a production
run. In addition, all raw materials must be certified organic. Similarly, we
can
lose our “kosher” certification if a manufacturing plant and raw materials do
not meet the requirements of the appropriate kosher supervision organization.
Due
to the Seasonality of Many of Our Products, Including Our Tea Products, and
Other Factors, Our Operating Results Are Subject to Quarterly Fluctuations
Our
tea
brand manufactures and markets hot tea products and, as a result, our quarterly
results of operations reflect seasonal trends resulting from increased demand
for our 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. 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 our future
performance.
Our
Growth is Dependent on Our Ability to Introduce New Products and Improve
Existing Products
Our
growth
depends in large part on our ability to generate and implement improvements
to
our existing products and to introduce new products to consumers. The innovation
and product improvements are affected by the level of funding that can be made
available, the technical capability of our Research and Development Department
in developing and testing product prototypes, and the success of our management
in rolling out the resulting improvements in a timely manner. If we are
unsuccessful in implementing product improvements that satisfy the demands
of
consumers, our business could be harmed.
The
Profitability of Our Operations is Dependent on Our Ability to Manage Our
Inventory
Our
profit
margins depend on our ability to manage our inventory efficiently. As part
of
our effort to manage our inventory more efficiently, we carried out a SKU
rationalization program which resulted in the discontinuation of numerous
lower-margin or low-turnover SKUs. However, a number of factors, such as changes
in customers’ inventory levels, access to shelf space and changes in consumer
preferences, may lengthen the number of days we carry certain inventories,
hence
impeding our effort to manage our inventory efficiently.
Our
Officers and Directors May Be Able to Control Our Actions
Our
officers and directors beneficially owned (assuming the exercise of all stock
options held by them) approximately 10% of our common stock as of June 30,
2006.
Accordingly, our officers and directors may be in a position to influence the
election of our directors and otherwise influence stockholder action.
Our
Ability to Issue Preferred Stock May Deter Takeover Attempts
Our
board
of directors is empowered to issue, without stockholder approval, preferred
stock with dividends, liquidation, conversion, voting or other rights which
could decrease the amount of earnings and assets available for distribution
to
holders of our common stock and adversely affect the relative voting power
or
other rights of the holders of our common stock. In the event of issuance,
the
preferred stock could be used as a method of discouraging, delaying or
preventing a change in control. Our amended and restated certificate of
incorporation authorizes the issuance of up to 5,000,000 shares of “blank check”
preferred stock with such designations, rights and preferences as may be
determined from time to time by our board of directors. Although we have no
present intention to issue any shares of our preferred stock, we may do so
in
the future under appropriate circumstances.
Future
Sales or the Perception of Future Sales of Our Common Stock Could Adversely
Affect Our Stock Price
The
market
price of our common stock could decline as a result of sales of substantial
amounts of our common stock in the public market, or the perception that those
sales could occur. These sales or the possibility that they may occur also
could
make it more difficult for us to raise funds in any equity offering in the
future at a time and price that we deem appropriate.
Item
1B. Unresolved
Staff Comments.
None.
Our
corporate headquarters are located in approximately 35,000 square feet of leased
office space located at 58 South Service Road, Melville, New York 11747. The
lease on this facility expires in 2012 with a current annual rental of
approximately $1.3 million.
We
own a
manufacturing and office facility in Boulder, Colorado, built in 1990 on 42
acres of company-owned land. The facility has approximately 158,000 square
feet,
of which 60,000 square feet is office space 3,000 square feet is retail space,
and 95,000 square feet is manufacturing space for our teas. We lease 81,000
square feet of warehouse space nearby which is used for the storage and shipment
of our tea products. The lease expires in 2011, and provides for a current
annual rental of approximately $519,000. We also lease 400 square feet of retail
space in Longmont, Colorado and 400 square feet of retail space in Boulder,
Colorado, each of which are used for our tea products; the leases for these
retail spaces provide for current annual rentals aggregating approximately
$64,000. We also have a sales office located in Bentonville, Arkansas, the
lease
for which provides for annual rentals of approximately $10,600. Additionally,
we
lease warehouse space which is used for tea products; annual rental for this
space is variable based upon amount of space utilized.
We
own
a 75,000
square foot manufacturing facility in Moonachie, New Jersey where we manufacture
our Terra® vegetable chip products.
We
own and
operate manufacturing and distribution centers in Hereford, Texas (136,000
square feet) and Shreveport, Louisiana (37,000 square feet) for certain of
our
natural food product lines.
We
own and
operate a 105,000
square
foot manufacturing facility in West Chester, Pennsylvania that manufactures
our
Ethnic Gourmet® frozen meals and Rosetto® frozen pasta and co-packs similar
products for others.
We
lease a
24,275
square
foot manufacturing facility in Culver City, California through 2010 that
produces our JASON®
personal
care products. We also lease two
nearby
warehouse locations, a 39,000 square foot warehouse in Inglewood, California
through 2007, and a 30,000 square foot warehouse in Culver City, California
through 2007.
The
leases on these properties require aggregate annual rentals of approximately
$810,000.
We
lease
375,000 square feet of space used as one of our West Coast distribution centers
in a building located in Ontario, California. The lease provides for a minimum
annual rental of approximately $1.4 million and provides renewal options. The
lease expires in 2008.
We
lease
16,664 square feet of office space in Petaluma, California which serves as
an operations center. The lease provides for annual rentals of
approximately $250,000 and expires in 2008.
We
lease
11,174 square feet of office space in Irwindale, California for one of our
research and development centers. The lease provides for annual rentals of
approximately $180,000 and expires in 2009. We also own a 4,000 square foot
research and development facility in Plainview, New York.
Our
Hain
Pure Protein Corporation joint venture owns a 57,850 square foot processing
plant in Fredericksburg, Pennsylvania, which is used to process natural, organic
and antibiotic-free chicken.
In
Canada,
we own and operate a 76,000 square foot manufacturing and office facility in
Delta, British Columbia that produces soy protein meat alternative products.
We
also lease a 3,993 square foot office in Toronto, Canada
that
is
used for sales and marketing and as Hain Celestial Canada’s head office. This
lease provides for annual rentals of approximately $104,000 and expires in
2008.
In
Europe
we lease a 46,000 square foot manufacturing and office facility in Eitorf,
Germany, where we produce soymilk and other non-dairy products. Annual rentals
on this property are approximately $220,000 and the lease expires in 2012.
In
addition, we lease a 30,000 square foot facility located in Brussels, Belgium,
which produces fresh prepared appetizers and sandwiches. The lease on the
property provides for annual rentals of approximately $130,000 and expires
in
2010. In addition we lease a 58,000 square foot office and manufacturing
facility in Maldegem, Belgium which also produces natural and organic food
products and provides for annual rentals of approximately $32,000 and is
cancellable within six months notice. We own a 26,000 square foot office
facility in Maldegem, Belgium which serves as our Belgian operations and
marketing offices. We also lease 5,300 square feet of office space in Brussels,
Belgium which serves as our European headquarters office. The lease on this
property is cancelable with one month’s notice and provides for annual rentals
of approximately $70,000.
In
the
United Kingdom, we own a 101,000 square foot manufacturing and office facility
in Fakenham, England, which is used to manufacture meat-free frozen products.
We
also lease a 97,000 square foot manufacturing and office facility in Luton,
England, where we produce our fresh prepared food products. The lease expires
in
2011 and provides for a current annual rental of approximately
$512,000.
In
addition to the foregoing distribution facilities operated by us, we also
utilize bonded public warehouses from which deliveries are made to
customers.
Item
3. Legal
Proceedings.
From
time
to time, we are involved in litigation incidental to the conduct of our
business. Disposition of pending litigation is not expected by management to
have a material adverse effect on our business, results of operations or
financial condition.
Item
4. Submission
of Matters to a Vote of Security Holders.
None.
Item
5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
Outstanding
shares of our Common Stock, par value $.01 per share, are listed on the NASDAQ
Global Select Market (under the ticker symbol HAIN). The following table sets
forth the reported high and low closing prices for our Common Stock for each
fiscal quarter from July 1, 2004 through September 5, 2006.
|
Common
Stock
|
|
Fiscal
2006
|
Fiscal
2005
|
|
High
|
Low
|
High
|
Low
|
First
Quarter
|
$20.45
|
$18.30
|
$18.24
|
$15.24
|
Second
Quarter
|
22.44
|
18.37
|
20.69
|
16.18
|
Third
Quarter
|
26.40
|
20.96
|
20.73
|
18.20
|
Fourth
Quarter
|
27.24
|
24.81
|
20.17
|
17.20
|
July
1 - September 5,
2006
|
26.37
|
21.02
|
|
|
As
of
September 5, 2006, there were 497 holders of record of our Common
Stock.
We
have
not paid any dividends on our Common Stock to date. We intend to retain all
future earnings for use in the development of our business and do not anticipate
declaring or paying any dividends in the foreseeable future. The payment of
all
dividends will be at the discretion of our Board of Directors and will depend
on, among other things, future earnings, operations, capital requirements,
contractual restrictions, including restrictions under our Credit Facility
(as
defined below) and our outstanding senior notes, our general financial condition
and general business conditions.
The
table
below sets forth information with respect to our equity compensation plans
as of
June 30, 2006:
|
Number
of Securities
to
be Issued Upon
Exercise
of
Outstanding
Options,
Warrants
and Rights
|
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
|
Number
of Securities
Remaining
Available for
Future
Issuance Under Equity Compensation Plans
(excluding
securities
reflected
in column (a))
|
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans
approved
by security holders
|
7,107,055
|
$
18.76
|
1,014,100
|
Equity
compensation plans not
approved
by security holders
|
None
|
None
|
None
|
Total
|
7,107,055
|
$
18.76
|
1,014,100
|
Issuer
Purchases of Equity Securities
We
made no
purchases of our Common Stock during the fiscal year ended June 30, 2006. As
of
June 30, 2006, there remained 900,300 shares authorized for repurchase under
our
publicly-announced Common Stock repurchase plan.
Item
6. Selected
Financial Data.
The
following information has been summarized from our financial statements and
should be read in conjunction with such financial statements and related notes
thereto (in thousands, except per share amounts):
|
Year
Ended June 30
|
|
2006
|
2005
|
2004
|
2003
|
2002
|
Operating
results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
738,557
|
|
$
|
619,967
|
|
$
|
544,058
|
|
$
|
466,459
|
|
$
|
395,954
|
|
Net
income
|
|
$
|
37,067
|
|
$
|
21,870
|
|
$
|
27,008
|
|
$
|
27,492
|
|
$
|
2,971
|
|
Basic
earnings per common share
|
|
$
|
.98
|
|
$
|
.60
|
|
$
|
.77
|
|
$
|
.81
|
|
$
|
.09
|
|
Diluted
earnings per common share
|
|
$
|
.95
|
|
$
|
.59
|
|
$
|
.74
|
|
$
|
.79
|
|
$
|
.09
|
|
Financial
position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
|
$
|
174,434
|
|
$
|
124,342
|
|
$
|
129,949
|
|
$
|
83,324
|
|
$
|
70,942
|
|
Total
assets
|
|
$ |
877,684
|
|
$ |
707,136
|
|
$ |
684,231
|
|
$ |
581,548
|
|
$ |
481,183
|
|
Long-term
debt
|
|
$ |
151,229
|
|
$ |
92,271
|
|
$ |
104,294
|
|
$ |
59,455
|
|
$ |
10,293
|
|
Stockholders’
equity
|
|
$ |
616,401
|
|
$ |
528,290
|
|
$ |
496,765
|
|
$ |
440,797
|
|
$ |
403,848
|
|
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
General
We
manufacture, market, distribute and sell natural, organic, specialty and snack
food products and natural personal care products under brand names which are
sold as “better-for-you” products. Our products are sold primarily to specialty
and natural food distributors and are marketed nationally to supermarkets,
natural food stores, and other retail classes of trade including mass-market
stores, drug stores, food service channels and club stores.
We
made
the following acquisitions during the three years ended June 30,
2006:
· |
On
June 12, 2006, we acquired the Linda McCartney® brand (under license) and
the frozen meat-free business from Heinz, including the manufacturing
facility based in Fakenham,
England.
|
· |
On
April 30, 2006 we acquired the fresh prepared food business based
in
Luton, England from Heinz.
|
· |
On
March 3, 2006, we acquired the business and assets of Para Laboratories,
Inc., including the Queen Helene®, Batherapy®, Shower Therapy® and
Footherapy® brands of skin care, hair care, and body care products for
professional and personal use, sold through drug stores, supermarkets,
and
mass retailers.
|
· |
On
December 16, 2006, we acquired Spectrum Organic Products, Inc., a
leading
manufacturer and marketer of natural and organic culinary oils, vinegars,
condiments and butter substitutes under the Spectrum Naturals® brand and
essential fatty acid nutritional supplements under the Spectrum
Essentials® brand, solid mainly through natural food
retailers.
|
· |
On
July 1, 2005, we acquired a 50.1% controlling interest in Hain Pure
Protein Corporation, which specializes in natural, organic and
antibiotic-free chickens.
|
· |
On
April 4, 2005, we acquired Zia Cosmetics, Inc., including the Zia® Natural
Skincare brand, a respected leader in therapeutic products for healthy,
beautiful skin sold mainly through natural food
retailers.
|
· |
On
June 3, 2004, we acquired Jason Natural Products, Inc., a California-based
manufacturer and marketer of natural personal care
products.
|
· |
On
May 27, 2004, we acquired the Rosetto® and Ethnic Gourmet® brands from
Heinz, which produce and market frozen pasta and natural ethnic frozen
meals, respectively.
|
· |
On
February 25, 2004, we acquired Natumi AG, a German producer and marketer
of soymilk and other non-dairy
products.
|
All
of the
foregoing acquisitions (“the acquisitions” or “acquired brands”) have been
accounted for as purchases. Consequently, the operations of the acquired brands
are included in our results of operations from their respective dates of
acquisition.
On
June
30, 2005, we sold our Kineret® and Kosherific® brands, which marketed and
distributed a line of frozen and dry kosher food products. We acquired these
brands in fiscal 1994.
On
August
31, 2006, we sold our Biomarché operations. Biomarché is a Belgian-based
provider of fresh organic fruits and vegetables. We acquired the Biomarché
operations in fiscal 2002.
Our
financial statements are prepared in accordance with accounting principles
generally accepted in the United States. The accounting principles we use
require us to make estimates and assumptions that affect the reported amounts
of
assets and liabilities at the date of the financial statements and amounts
of
income and expenses during the reporting periods presented. We believe in the
quality and reasonableness of our critical accounting policies; however, it
is
likely that materially different amounts would be reported under different
conditions or using assumptions different from those that we have consistently
applied. We believe our critical accounting policies are as follows, including
our methodology for estimates made and assumptions used:
Revenue
Recognition and Sales Incentives
Sales
are
recognized when the earnings process is complete, which occurs when products
are
shipped in accordance with terms of agreements, title and risk of loss transfer
to customers, collection is probable and pricing is fixed or determinable.
Sales
are reported net of sales incentives, which include trade discounts and
promotions and certain coupon costs. Shipping and handling costs billed to
customers are included in reported sales. Allowances for cash discounts are
recorded in the period in which the related sale is recognized.
Valuation
of Accounts and Chargebacks Receivable
We
perform
ongoing credit evaluations on existing and new customers daily. We apply
reserves for delinquent or uncollectible trade receivables based on a specific
identification methodology and also apply a general reserve based on the
experience we have with our trade receivables aging categories. Credit losses
have been within our expectations in recent years. While one of our customers
represented approximately 12% of our trade receivable balance at June 30, 2006,
we believe there is no credit exposure at this time.
Based
on
cash collection history and other statistical analysis, we estimate the amount
of unauthorized deductions that our customers have taken to be repaid and
collectible in the near future in the form of a chargeback receivable. While
our
estimate of this receivable balance could be different had we used different
assumptions and judgments, historically our cash collections of this type of
receivable have been within our expectations and no significant write-offs
have
occurred during the most recent three fiscal years.
There
can
be no assurance that we would have the same experience with our receivables
during different economic conditions, or with changes in business conditions,
such as consolidation within the food industry and/or a change in the way we
market and sell our products.
Inventory
Our
inventory is valued at the lower of actual cost or market, utilizing the
first-in, first-out method. We provide write-downs for finished goods expected
to become non-saleable due to age and specifically identify and provide for
slow
moving or obsolete raw ingredients and packaging.
Property,
Plant and Equipment
Our
property, plant and equipment is carried at cost and depreciated or amortized
on
a straight-line basis over the lesser of the estimated useful lives or lease
life, whichever is shorter. We believe the asset lives assigned to our property,
plant and equipment are within ranges/guidelines generally used in food
manufacturing and distribution businesses. Our manufacturing plants and
distribution centers, and their related assets, are periodically reviewed to
determine if any impairment exists by analyzing underlying cash flow
projections. At this time, we believe no impairment exists on the carrying
value
of such assets. Ordinary repairs and maintenance are expensed as
incurred.
Intangibles
Goodwill
is no longer amortized and the value of an identifiable intangible asset is
amortized over its useful life unless the asset is determined to have an
indefinite useful life. The carrying value of goodwill, which is allocated
to
the Company’s six reporting units, and other intangible assets with indefinite
useful lives are tested annually for impairment.
Segments
SFAS
No.
131 defines an operating segment as that component of an enterprise
(i) that engages in business activities from which it may earn revenues and
incur expenses, (ii) whose operating results are regularly reviewed by the
enterprise’s chief operating decision maker (CODM) to make decisions about
resources to be allocated to the segment and assess its performance, and
(iii) for which discrete financial information is available. SFAS No. 142
de-
fines
a
reporting unit as an operating segment or one level below an operating segment
if the component constitutes a business for which discrete financial information
is available and segment management regularly reviews the operating results
of
that component. The Company has determined that it operates in one segment,
the
sale of natural and organic products, including food, beverage and personal
care
products, and further that such single segment includes six reporting units
in
the annual test of Goodwill for impairment. Characteristics of the Company’s
operations which are relied on in making these determinations include the
similarities apparent in the Company’s products in the natural and organic
consumer markets, the commonality of the Company’s customers across brands, the
Company’s unified marketing strategy, and the nature of the financial
information used by the CODM, described below, other than information on sales
and direct product costs, by brand. The Company’s six reporting units are
Grocery (including snacks); Tea; Personal Care; Protein; Canada; and Europe.
The
Company has further determined that its Chairman of the Board and Chief
Executive Officer is the Company’s CODM as defined in SFAS No. 131,
and is also the manager of the Company’s single segment. In making decisions
about resource allocation and performance assessment, the Company’s CODM focuses
on sales performance by brand using internally generated sales data as well
as
externally developed market consumption data acquired from independent sources,
and further reviews certain data regarding standard costs and standard gross
margins by brand. In making these decisions, the CODM receives and reviews
certain Company consolidated quarterly and year-to-date information; however,
the CODM does not receive or review any discrete financial information by
geographic location, business unit, subsidiary, division or brand. The CODM
reviews and approves capital spending on a Company consolidated basis rather
than at any lower unit level. The Company’s Board of Directors receives the same
quarterly and year-to-date information as the Company’s CODM.
Results
of Operations
Fiscal
2006 Compared to Fiscal 2005
Net
sales
in 2006 were $738.6 million, an increase of $118.6 million or 19.1% over net
sales of $620.0 million in 2005. The increase in sales came from volume
increases principally in our domestic grocery and snacks brands, which were
up
15.2%, and our personal care brands, which were up 61.0%. These increases came
from strong performance in grocery and snack brands such as Earth’s Best®, up
49.0%, Imagine® soups, up 40.1%, Garden of Eatin’®, up 18.3%, Walnut Acres
Organic™, up 13.5% and Westbrae®, up 14.0%. With the 2005 SKU Rationalization
Program affecting sales performance principally in the grocery and snacks
brands, many of our other brands experienced slower or negative growth on actual
shipments, while individual SKUs within brands accelerated. In our personal
care
unit, we saw strong increases from our Jason® brand, with sales up 29.5%. Our
Celestial Seasonings® tea brand was up 1.4% for the year after experiencing the
challenge of an extremely warm winter season when it typically has strong sales
in cold months. Our Canada unit increased sales by 9.8% and in Europe we
experienced increases of 8.8%. We saw sales increases from companies we acquired
during both the 2006 and 2005 years, including our Hain Pure Protein
antibiotic-free chicken unit, Spectrum Organic Products in grocery and snacks,
Para Laboratories in personal care, and both the meat-free frozen operation
and
the fresh prepared foods operation in Europe.
Gross
profit in 2006 was 28.9% of net sales as compared to 27.6% of net sales in
2005.
Gross profit in 2006 was negatively impacted by the inclusion of the operations
of our Hain Pure Protein antibiotic-free chicken unit and the new fresh prepared
foods unit in Europe, each of which operates at margins significantly lower
than
our other units. Without the negative impact of these units’ gross margins, our
gross margins would have been 30.1%, or 1.3% higher than our total. Gross margin
was further affected by charges for our SKU Rationalization Program of $0.9
million, or 0.1% in 2006, and $9.0 million, or 1.2% in 2005. Our gross margin
performance has also been negatively impacted by the increasing costs of
petroleum, ingredients, health care and other input costs. We have offset these
increasing costs with the successful implementation of price increases for
selected products we sell, and with a sharper focus on operating efficiencies,
including the positive effects of our SKU Rationalization Program. Our gross
margin as a percentage of sales has been further diluted by the mix of our
sales
as our higher margin tea sales continue to contribute a lower proportion of
our
consolidated sales.
Selling,
general and administrative expenses increased by $15.1 million to $147.9 million
in 2006 from $132.8 million in 2005. These expenses as a percentage of net
sales
were 20.0% in 2006 compared to 21.4% in 2005. Selling,
general
and administrative expenses increased from the addition of $7.7 million of
costs
added with acquisitions in 2006, and were further increased by a $3.2 million
charge associated with the adoption of FAS No. 123R (See Note 2 to Notes to
Consolidated Financial Statements). Other increases result from the increasing
scale of our business.
Operating
income was $65.5 million in 2006 compared to $38.2 million in 2005. Operating
income as a percentage of net sales was 8.9% in 2006 compared to 6.2% in 2005.
These changes are a result of higher sales and better gross margin performance,
as well as the reduced results in 2005 having been caused by the $12.1 million
of charges for our 2005 SKU Rationalization Program.
Interest
and other expenses, net, amounted to $5.9 million in 2006 compared to $3.7
million in 2005. We incurred higher interest costs in 2006 resulting from
borrowings for acquisitions and higher market interest rates. In May 2006,
we
completed a private placement of $150 million of 10-year 5.98% fixed rate notes.
Income
before income taxes in 2006 amounted to $59.6 million compared to $34.5 in
2005.
The increase is attributable to the aforementioned increase in operating income
offset by the increase in interest and other expenses, net.
Income
taxes in 2006 amounted to $22.5 million compared to $12.6 million in 2005.
Our
effective tax rate was 37.8% in 2006 compared to 36.7% in 2005. Our lower
effective tax rate in 2005 was attributable to a $1.3 reduction in tax
liabilities resulting from the termination of certain outstanding tax matters,
while in 2006 we had $0.4 million of benefits from tax deductions related to
the
exercise of stock options which were subject to accelerated vesting in
2005.
Net
income
in 2006 amounted to $37.1 million, or $0.95 per diluted share, compared to
$21.9
million, or $0.59 per diluted share in 2005. The increase was attributable
to
the aforementioned increase in income before income taxes, and for per share
amounts, offset by a 4.7% increase in the number of weighted average shares
used
in the computation.
Fiscal
2005 Compared to Fiscal 2004
Net
sales
in 2005 were $620.0 million, an increase of $75.9 million or 14% over net sales
of $544.1 million in 2004. The increase came from volume increases, the phasing
in of price increases and from sales generated by brands acquired in 2004,
with
increases offset by reduced sales due to the elimination of our CarbFit® brand,
which experienced strong sales during the prior year, before the decline in
consumer demand for low carbohydrate products. We experienced strong brand
sales
gains for Terra®, which was up 20.0%, Garden of Eatin’®, which was up 14.7%,
Earth’s Best®, which was up 39.6%, Imagine® soups, which was up 18.8%, and to a
lesser extent increased sales of Celestial Seasoning® teas, which was up 6.1%.
Sales of our brands in Europe increased 27.1%.
Gross
profit in 2005 was 27.6% of net sales as compared to 29.5% of net sales in
2004.
The decline in gross profit percentage was principally the result of a $9.0
million charge for our SKU Rationalization Program, which had the effect of
reducing 2005 gross profit by 1.2 percentage points. After considering the
effect of the SKU rationalization, our margins remained relatively flat as
a
result of the price increases we phased in beginning July 1, 2004 and June
1,
2005, which provided us with an almost equal offset to increases
in ingredient and other input costs; increases in transportation costs resulting
from higher fuel costs; the cost effects of new regulations on the U.S. trucking
industry in effect for the full fiscal year; an increase in the percentage
of
our shipments that are delivered by us, which has stabilized since we first
experienced such increases in our third quarter of fiscal 2004; and a change
in
the mix of products sold whereby our higher margin tea sales became a lower
proportion of our consolidated sales.
Selling,
general and administrative expenses, excluding non-cash compensation, increased
by $14.1 million to $128.1 million in 2005 from $114.0 million in 2004. Such
expenses as a percentage of net sales amounted to 20.7% in 2005 as compared
with
21.0% in 2004. Selling, general and administrative expenses have increased
in
overall dollars, primarily as a result of costs brought on by brands acquired
in
2004, increased consumer marketing expenses needed to support our increased
sales as well as increases across all levels of general and administrative
expenses to support our growing business. General and administrative expenses
for the year ended June 30, 2005 in-
cludes
approximately $3.1 million for the SKU Rationalization Program and approximately
$1.1 million of outside professional costs for Sarbanes-Oxley compliance.
Non-cash
compensation expenses were $4.7 million in 2005, an increase of $4.3 million
from $0.4 million in 2004. The increase in non-cash compensation expenses
primarily relate to the accelerated vesting of employee stock options in June
2005, when our board of directors approved the acceleration of the vesting
of
all outstanding unvested stock options held by employees. This action was taken
in order to reduce future compensation charges for these stock options and
to
provide an incentive to employees in view of the uncertainty of future
equity-based compensation with the pending implementation of SFAS No. 123(R).
As
a result of this action, approximately 1.2 million outstanding unvested stock
options were accelerated (approximately 56,000 of which were at exercise prices
greater than market price at the date of acceleration), substantially all of
which were granted in August 2004 at an exercise price of $16.01 per share
with
original vesting through August 2006. We recognized a charge to earnings for
the
difference between the market value of our stock on the date of acceleration
and
the exercise price of the options, such charge amounting to approximately $3.7
million ($3.1 million net of tax) for the year ended June 30, 2005. As a result
of this action, there will be no stock option amortization expense in future
periods unless additional stock options are granted.
Operating
income was $38.2 million or 6.2% in 2005 compared to $45.9 million or 8.4%
in
2004. The decline in operating income was the result of the aggregate of $16.0
million of charges from SKU Rationalization Program and the acceleration of
vesting of stock options. After considering the effect of such $16.0 million
of
charges, operating income was $55.0 million in 2005, representing a 19.8%
increase over 2004. This increase results principally from higher sales coupled
by stable margins and lower selling, general and administrative expenses as
a
percentage of sales.
Interest
and other expenses, net, amounted to $3.7 million in 2005 compared to $2.5
million in 2004. Our interest expense was $2.0 million higher in 2005 as
compared to 2004, principally as a result of the higher interest rates on higher
average borrowings we carried this year after our recent acquisitions. We had
$0.7 million in net currency exchange gains in the current year as compared
to
less than $0.3 million in net currency exchange losses in the prior year, which
partially offset the additional interest costs.
Income
before income taxes in 2005 amounted to $34.5 million compared to $43.4 million
in 2004. This decrease is attributable to the aforementioned decrease in
operating income and increase in interest and other expenses, net. After
considering the effect of the aggregate of $16.0 million of charges from SKU
Rationalization Program and the acceleration of vesting of stock options, income
before income taxes was $50.5 million representing an increase of $7.1 million,
or 16.4% over the prior year. This increase results principally from higher
sales coupled with stable margins and lower selling, general and administrative
expenses as a percentage of sales.
Our
effective income tax rate approximated 36.7% of pre-tax income for 2005 compared
to 37.8% for 2004. This decrease was attributable to a $1.3 million reduction
in
tax liabilities resulting from the termination of certain outstanding tax
matters and is equal to the amount charged against the Company’s earnings when
these arose in prior years.
Net
income
in 2005 amounted to $21.9 million, or $0.59 per diluted share, compared to
$27.0
million, or $0.74 per diluted share, in 2004. The decrease of $5.1 million
in
net income was primarily attributable to the aforementioned decrease in income
before income taxes offset by the decrease in our effective tax rate.
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.
On
May 2,
2006, we issued $150 million in aggregate principal amount of senior notes
due
May 2, 2016 in a private placement. Proceeds from the senior notes were used
to
repay outstanding borrowings of $131.7 million under the Company’s revolving
credit facility. The notes bear interest at 5.98%, payable semi-annually on
November 2nd
and
May
2nd.
Also on
May 2, 2006, we entered into a new Amended and Restated Credit Agreement,
providing us with a $250 million 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. Revolving credit 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
applicable margin. As of June 30, 2006, $150.0 million was outstanding under
the
senior notes at an interest rate of 5.98%, and no borrowings were outstanding
under the Credit Facility. 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 flexible working capital needs in the normal
course of business and the opportunity to grow our business through acquisitions
or develop our existing infrastructure through capital investment.
Net
cash
provided by operations was $52.5
million
and $35.0 million for 2006 and 2005, respectively. Our working capital and
current ratio were $174.4
million
and
3.0
to
1,
respectively, at June 30, 2006 compared with $124.3 million and 2.8 to 1
respectively, at June 30, 2005.
Our
improvement in cash provided by operations was the result of higher
income.
Net
cash
used in investing activities was $100.6 million and $21.0 million for 2006
and
2005, respectively. During 2006, $84.5 million was used in acquisitions and
$14.5 million was used in the purchase of fixed assets. During 2005, $11.1
million was used in acquisitions and $9.9 million was used in the purchase
of
fixed assets.
Net
cash
provided
by
(used in)
financing activities was $72.6
million
for 2006
and
($14.7)
million
for 2005. During
2006
and
2005, we
borrowed cash to fund acquisitions
made during each
year.
During 2006, we received $15.1 million of proceeds on the exercise of stock
options and we incurred $1.2 million of costs in connection with our new
financing arrangements. In addition, during 2006 we recorded the proceeds of
$150.0 million in fixed rate senior notes and repaid $137.1 million of
borrowings under the Credit Facility. During 2005, we received $5.2 million
of
proceeds on the exercise of stock options and warrants and we acquired 189,700
shares of our common stock in open market purchases at a cost of approximately
$3.5 million.
Obligations
for all debt instruments, capital and operating leases and other contractual
obligations are as follows:
|
|
Payments
Due by Period
|
|
|
|
Total
|
|
Less
than
1
year
|
|
1-3
years
|
|
3-5
years
|
|
Thereafter
|
|
Debt
instruments
|
|
$
|
151,911
|
|
$
|
872
|
|
$
|
573
|
|
$
|
466
|
|
$
|
150,000
|
|
Capital
lease
obligations
|
|
|
383
|
|
|
193
|
|
|
160
|
|
|
30
|
|
|
-
|
|
Operating
leases
|
|
|
17,303
|
|
|
4,999
|
|
|
5,409
|
|
|
4,513
|
|
|
2,382
|
|
Purchase
Obligations
|
|
|
35,340
|
|
|
25,191
|
|
|
10,149
|
|
|
-
|
|
|
-
|
|
Total
contractual cash obligations
|
|
$
|
204,937
|
|
$
|
31,255
|
|
$
|
16,291
|
|
$
|
5,009
|
|
$
|
152,382
|
|
We
believe
that cash on hand of $48.9
million
at June 30, 2006, as well as projected fiscal 2007 cash flows from operations
and availability under our Credit Facility are sufficient to fund our working
capital needs, anticipated capital expenditures of approximately $15
million, and the $6.1
million
of debt
and lease obligations described in the table above, during the 2007 fiscal
year.
We currently invest our cash on hand in highly liquid short-term investments
yielding approximately 5.1%
interest.
Note
Regarding Forward Looking Information
Certain
statements contained in this Annual Report constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1934 (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the
“Exchange Act”). Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
levels of activity, performance or achievements of the Company, or industry
results, to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following:
· |
general
economic and business conditions;
|
· |
our
ability to implement our business strategy;
|
· |
our
ability to integrate acquisitions;
|
· |
our
reliance on third party distributors, manufacturers, and
suppliers;
|
· |
changes
in customer preferences;
|
· |
international
sales and operations;
|
· |
retention
of key personnel; and
|
· |
compliance
with government regulations.
|
As
a
result of the foregoing and other factors, no assurance can be given as to
the
future results, levels of activity and achievements and neither the Company
nor
any person assumes responsibility for the accuracy and completeness of these
statements.
Unaudited
quarterly financial data (in thousands, except per share amounts) for fiscal
2006 and 2005 is summarized as follows:
|
|
Three
Months Ended
|
|
|
|
September
30,
2005
(c)
|
|
December
31,
2005
(c)
|
|
March
31,
2006
(c)
|
|
June
30,
2006
|
|
Net
sales
|
|
$
|
161,097
|
|
$
|
186,227
|
|
$
|
196,443
|
|
$
|
194,790
|
|
Gross
profit (a)
|
|
|
45,849
|
|
|
58,166
|
|
|
57,683
|
|
|
51,654
|
|
Operating
income
|
|
|
11,980
|
|
|
21,178
|
|
|
16,117
|
|
|
16,199
|
|
Income
before income taxes
|
|
|
11,112
|
|
|
19,869
|
|
|
14,535
|
|
|
14,047
|
|
Net
income
|
|
|
6,891
|
|
|
12,338
|
|
|
9,063
|
|
|
8,775
|
|
Basic
earnings per common share
|
|
$
|
.19
|
|
$
|
.33
|
|
$
|
.24
|
|
$
|
.23
|
|
Diluted
earnings per common share
|
|
$
|
.18
|
|
$
|
.32
|
|
$
|
.23
|
|
$
|
.22
|
|
|
|
Three
Months Ended
|
|
|
|
September
30,
2004
|
|
December
31,
2004
|
|
March
31, 2005
|
|
June
30,
2005
|
|
Net
sales
|
|
$
|
137,604
|
|
$
|
169,753
|
|
$
|
161,261
|
|
$
|
151,349
|
|
Gross
profit (a)
|
|
|
38,975
|
|
|
53,231
|
|
|
45,468
|
|
|
33,283
|
|
Operating
income (loss)(b)
|
|
|
10,790
|
|
|
18,058
|
|
|
11,728
|
|
|
(2,388
|
)
|
Income
(loss) before income taxes (b)
|
|
|
10,135
|
|
|
17,505
|
|
|
10,546
|
|
|
(3,675
|
)
|
Net
income (loss)(b)
|
|
|
6,182
|
|
|
10,678
|
|
|
7,698
|
|
|
(2,688
|
)
|
Basic
earnings per common share
|
|
$
|
.17
|
|
$
|
.29
|
|
$
|
.21
|
|
$
|
(.07
|
)
|
Diluted
earnings per common share
|
|
$
|
.17
|
|
$
|
.29
|
|
$
|
.21
|
|
$
|
(.07
|
)
|
(a) |
Gross
profit was negatively impacted by approximately $1.2 million ($.7
million
net tax) for the three months ended March 31, 2005, and approximately
$7.8
million ($4.8 million net of tax) for the three months ended June
30,
2005, and $0.9 million ($0.6 million net of tax) for the three months
ended June 30, 2006, as the result of charges related to the Company’s SKU
Rationalization.
|
(b) |
Operating
income (loss) and income (loss) before income taxes for the three
months
ended June 30, 2005 were negatively impacted by a charge of approximately
$3.9 million ($3.3 million net of tax) resulting from non-cash
compensation, including the acceleration of the vesting of outstanding
stock options.
|
(c) |
Results
previously reported have been adjusted to reflect charges in connection
with the requirements of SFAS No. 123(R) to record compensation when
there
is a contractual requirement to grant stock options, whether or not
such
options have been granted. These options remain ungranted at September
5,
2006. Results have been reduced from those previously reported by
$0.8
million ($0.5 million net of tax) or $0.01 per share for the three
months
ended September 30, 2005; $0.5 million ($0.3 million net of tax)
or $0.01
per share for the three months ended December 31, 2005; and $1.1
million
($0.7 million net of tax) or $0.02 per share for the three months
ended
March 31, 2006. See note 2 of the Notes to Consolidated Financial
Statements.
|
Seasonality
Our
tea
brand 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. 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
Management
does not believe that inflation had a significant impact on our results of
operations for the periods presented.
Market
Risk
The
principal market risks (i.e., the risk of loss arising from adverse changes
in
market rates and prices) to which the Company is exposed are:
· |
interest
rates on debt and cash equivalents,
and
|
· |
foreign
exchange rates, generating translation and transaction gains and
losses.
|
Interest
Rates
We
centrally manage our debt and cash equivalents considering investment
opportunities and risks, tax consequences and overall financing strategies.
Our
cash equivalents consist primarily of commercial paper and obligations of U.S.
Government agencies. We had no variable debt at June 30, 2006. Assuming current
cash equivalents levels, a one-point change in interest rates would have the
effect of increasing
our
interest income which is included in interest and other expense, net, by an
insignificant amount.
Foreign
Operations
Operating
in international markets involves exposure to movements in currency exchange
rates, which are volatile at times. The economic impact of currency exchange
rate movements is complex because such changes are often linked to variability
in real growth, inflation, interest rates, governmental actions and other
factors. Consequently, isolating the effect of changes in currency does not
incorporate these other important economic factors. These changes, if material,
could cause adjustments to our financing and operating strategies. During fiscal
2006, approximately 19.3%
of our
net sales were generated from sales outside the United States, while such sales
outside the United States were 21.1% of net sales in 2005 and 20.3% of net
sales
in 2004.
We
expect
sales from non-U.S. markets to possibly represent an increasing portion of
our
total net sales in the future. Our non-U.S. sales and operations are subject
to
risks inherent in conducting business abroad, many of which are outside our
control, including:
· |
periodic
economic downturns and unstable political
environments;
|
· |
price
and currency exchange controls;
|
· |
fluctuations
in the relative values of
currencies;
|
· |
unexpected
changes in trading policies, regulatory requirements, tariffs and
other
barriers;
|
· |
compliance
with applicable foreign laws; and
|
· |
difficulties
in managing a global enterprise, including staffing, collecting accounts
receivable and managing
distributors.
|
Item
8. Financial
Statements and Supplementary Data.
The
following consolidated financial statements of The Hain Celestial Group, Inc.
and subsidiaries are included in Item 8:
Report
of
Independent Registered
Public Accounting Firm
Consolidated
Balance Sheets - June 30, 2006 and 2005
Consolidated
Statements of Income - Years ended June 30, 2006, 2005 and 2004
Consolidated
Statements of Stockholders’ Equity - Years ended June 30, 2006, 2005 and
2004
Consolidated
Statements of Cash Flows - Years ended June 30, 2006, 2005 and 2004
The
following consolidated financial statement schedule of The Hain Celestial Group,
Inc. and subsidiaries is included in Item 15 (a):
Schedule
II Valuation and qualifying accounts
All
other
schedules for which provision is made in the applicable accounting regulation
of
the SEC are not required under the related instructions or are inapplicable
and
therefore have been omitted.
Report
of Independent Registered
Public Accounting Firm
The
Stockholders and Board of Directors of
The
Hain
Celestial Group, Inc. and Subsidiaries
We
have
audited the accompanying consolidated balance sheets of The Hain Celestial
Group, Inc. (the Company) and Subsidiaries as of June 30, 2006 and 2005, and
the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended June 30, 2006. Our audits also
included the financial statement schedule listed in the Index at Item 15(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of The Hain Celestial
Group, Inc. and Subsidiaries at June 30, 2006 and 2005, and the consolidated
results of their operations and their cash flows for each of the three years
in
the period ended June 30, 2006, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as
a whole presents fairly in all material respects the information set forth
therein.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of The Hain Celestial Group,
Inc.’s internal control over financial reporting as of June 30, 2006, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated August 31, 2006 expressed an unqualified opinion thereon.
/s/
Ernst
& Young LLP
Melville,
New York
August
31,
2006
THE
HAIN
CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except per share and share amounts)
|
|
June
30
|
|
|
|
2006
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
48,875
|
|
$
24,139
|
Accounts
receivable, less allowance for doubtful accounts of $2,104
and
$2,074
|
|
|
80,764
|
|
67,148
|
Inventories
|
|
|
105,883
|
|
76,497
|
Recoverable
income taxes, net
|
|
|
-
|
|
2,575
|
Deferred
income taxes
|
|
|
2,986
|
|
5,671
|
Other
current assets
|
|
|
21,968
|
|
18,164
|
Total
current assets
|
|
|
260,476
|
|
194,194
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated depreciation and amortization
of
$55,053
and
$49,035
|
|
|
119,830
|
|
88,204
|
Goodwill
|
|
|
421,002
|
|
350,833
|
Trademarks
and other intangible assets, net of accumulated amortization of
$9,416
and
$9,142
|
|
|
61,626
|
|
61,010
|
Other
assets
|
|
|
14,750
|
|
12,895
|
Total
assets
|
|
$
|
877,684
|
|
$707,136
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
81,894
|
|
$
65,922
|
Income
taxes payable
|
|
|
3,083
|
|
1,139
|
Current
portion of long-term debt
|
|
|
1,065
|
|
2,791
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
6,042
|
|
69,852
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
151,229
|
|
92,271
|
Deferred
income taxes
|
|
|
19,086
|
|
16,723
|
Minority
interest
|
|
|
4,926
|
|
-
|
|
|
|
|
|
|
Total
liabilities
|
|
|
261,283
|
|
178,846
|
|
|
|
|
|
|
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 39,583,671
and 37,475,998
shares
|
|
|
396
|
|
375
|
Additional
paid-in capital
|
|
|
446,319
|
|
402,645
|
Retained
earnings
|
|
|
165,034
|
|
127,967
|
Foreign
currency translation adjustment
|
|
|
17,397
|
|
10,048
|
|
|
|
629,146
|
|
541,035
|
Less:
861,256
shares of treasury stock, at cost
|
|
|
(12,745
|
)
|
(12,745)
|
Total
stockholders’ equity
|
|
|
616,401
|
|
528,290
|
Total
liabilities and stockholders’ equity
|
|
$
|
877,684
|
|
$707,136
|
See
notes
to consolidated financial statements.
THE
HAIN
CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands, except per share amounts)
|
|
Year
Ended June 30
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Net
sales
|
|
$
|
738,557
|
|
$
|
619,967
|
|
$544,058
|
Cost
of sales
|
|
|
525,205
|
|
|
449,010
|
|
383,794
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
213,352
|
|
|
170,957
|
|
160,264
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
147,878
|
|
|
132,769
|
|
114,386
|
Operating
income
|
|
|
65,474
|
|
|
38,188
|
|
45,878
|
|
|
|
|
|
|
|
|
|
Interest
expense,
net and other expenses
|
|
|
5,911
|
|
|
3,677
|
|
2,490
|
Income
before income taxes
|
|
|
59,563
|
|
|
34,511
|
|
43,388
|
Provision
for income taxes
|
|
|
22,496
|
|
|
12,641
|
|
16,380
|
Net
income
|
|
$
|
37,067
|
|
$
|
21,870
|
|
$27,008
|
Earnings
per
share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.98
|
|
$
|
.60
|
|
$.77
|
Diluted
|
|
$
|
.95
|
|
$
|
.59
|
|
$.74
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
37,643
|
|
|
36,407
|
|
35,274
|
Diluted
|
|
|
38,912
|
|
|
37,153
|
|
36,308
|
See
notes
to consolidated financial statements.
THE
HAIN
CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS
ENDED JUNE 30, 2004, 2005 AND 2006 (In thousands, except per share and share
data)
|
|
Common
Stock
|
|
Additional
|
|
|
|
|
|
|
|
Amount
|
|
Paid-In
|
|
Retained
|
|
|
|
Shares
|
|
at
$.01
|
|
Capital
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2003
|
|
|
34,810,722
|
|
$
|
348
|
|
$
|
364,877
|
|
$
|
79,089
|
|
Exercise
of stock options and warrants
|
|
|
2,103,926
|
|
|
21
|
|
|
19,787
|
|
|
|
|
Purchase
of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock
grant
|
|
|
150,000
|
|
|
2
|
|
|
(2
|
)
|
|
|
|
Non-cash
compensation charge
|
|
|
|
|
|
|
|
|
372
|
|
|
|
|
Tax
benefit from stock options
|
|
|
|
|
|
|
|
|
6,897
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
27,008
|
|
Translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2004
|
|
|
37,064,648
|
|
|
371
|
|
|
391,931
|
|
|
106,097
|
|
Exercise
of stock options and warrants
|
|
|
411,350
|
|
|
4
|
|
|
5,237
|
|
|
|
|
Purchase
of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
compensation charge
|
|
|
|
|
|
|
|
|
4,650
|
|
|
|
|
Tax
benefit from stock options
|
|
|
|
|
|
|
|
|
827
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
21,870
|
|
Translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2005
|
|
|
37,475,998
|
|
|
375
|
|
|
402,645
|
|
|
127,967
|
|
Exercise
of stock options and warrants
|
|
|
1,009,099
|
|
|
10
|
|
|
15,408
|
|
|
|
|
Issuance
of common stock
|
|
|
1,098,574
|
|
|
11
|
|
|
21,784
|
|
|
|
|
Non-cash
compensation charge
|
|
|
|
|
|
|
|
|
4,213
|
|
|
|
|
Tax
benefit from stock options
|
|
|
|
|
|
|
|
|
2,269
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
37,067
|
|
Translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2006
|
|
|
39,583,671
|
|
$
|
396
|
|
$
|
446,319
|
|
$
|
165,034
|
|
|
|
Treasury
Stock
|
|
Foreign
Currency
Translation
Adjustment
|
|
Total
|
|
Comprehensive
Income
|
|
|
|
Shares
|
|
Amount
|
|
Balance
at June 30, 2003
|
|
|
606,619
|
|
$
|
(8,156
|
)
|
$
|
4,639
|
|
$
|
440,797
|
|
|
|
|
Exercise
of stock options and warrants
|
|
|
|
|
|
|
|
|
|
|
|
19,808
|
|
|
|
|
Purchase
of treasury shares
|
|
|
64,937
|
|
|
(1,129
|
)
|
|
|
|
|
(1,129
|
)
|
|
|
|
Restricted
stock
grant
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
Non-cash
compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
372
|
|
|
|
|
Tax
benefit from stock options
|
|
|
|
|
|
|
|
|
|
|
|
6,897
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
27,008
|
|
$
|
27,008
|
|
Translation
adjustments
|
|
|
|
|
|
|
|
|
3,012
|
|
|
3,012
|
|
|
3,012
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,020
|
|
Balance
at June 30, 2004
|
|
|
671,556
|
|
|
(9,285
|
)
|
|
7,651
|
|
|
496,765
|
|
|
|
|
Exercise
of stock options and warrants
|
|
|
|
|
|
|
|
|
|
|
|
5,241
|
|
|
Purchase
of treasury shares
|
|
|
189,700
|
|
|
(3,460
|
)
|
|
|
|
|
(3,460
|
)
|
|
Non-cash
compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
4,650
|
|
|
Tax
benefit from stock options
|
|
|
|
|
|
|
|
|
|
|
|
827
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
21,870
|
|
$21,870
|
Translation
adjustments
|
|
|
|
|
|
|
|
|
2,397
|
|
|
2,397
|
|
2,397
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$24,267
|
Balance
at June 30, 2005
|
|
|
861,256
|
|
|
(12,745
|
)
|
|
10,048
|
|
|
528,290
|
|
|
Exercise
of stock options and warrants
|
|
|
|
|
|
|
|
|
|
|
|
15,418
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
21,795
|
|
|
Non-cash
compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
4,213
|
|
|
Tax
benefit from stock options
|
|
|
|
|
|
|
|
|
|
|
|
2,269
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
37,067
|
|
$37,067
|
Translation
adjustments
|
|
|
|
|
|
|
|
|
7,349
|
|
|
7,349
|
|
7,349
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$44,416
|
Balance
at June 30, 2006
|
|
|
861,256
|
|
$
|
(12,745
|
)
|
$
|
17,397
|
|
$
|
616,401
|
|
|
See
notes
to consolidated financial statements.
THE
HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
Year
Ended June 30
|
|
2006
|
2005
|
2004
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
37,067
|
|
$
|
21,870
|
|
$
|
27,008
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
SKU
Rationalization charges
|
|
|
907
|
|
|
12,142
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
12,549
|
|
|
13,838
|
|
|
9,763
|
|
Provision
for doubtful accounts
|
|
|
30
|
|
|
68
|
|
|
438
|
|
Deferred
income taxes
|
|
|
5,048
|
|
|
(644
|
)
|
|
3,968
|
|
Minority
interest
|
|
|
238
|
|
|
-
|
|
|
-
|
|
Non-cash
compensation
|
|
|
4,213
|
|
|
4,650
|
|
|
372
|
|
Increase
(decrease) in cash attributable to changes in operating assets
and
liabilities, net of amounts applicable to acquired brands:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(12,418
|
)
|
|
2,577
|
|
|
(5,230
|
)
|
Inventories
|
|
|
(9,841
|
)
|
|
496
|
|
|
(11,436
|
)
|
Other
current assets
|
|
|
(2,311
|
)
|
|
(6,977
|
)
|
|
(2,086
|
)
|
Other
assets
|
|
|
769
|
|
|
(5,936
|
)
|
|
1,888
|
|
Accounts
payable and accrued expenses
|
|
|
10,015
|
|
|
(4,015
|
)
|
|
(1,403
|
)
|
Income
taxes, net
|
|
|
6,278
|
|
|
(3,923
|
)
|
|
622
|
|
Tax
benefit of nonqualified stock options
|
|
|
-
|
|
|
827
|
|
|
6,897
|
|
Net
cash provided by operating activities
|
|
|
52,544
|
|
|
34,973
|
|
|
30,801
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
of brands, net of cash acquired
|
|
|
(84,480
|
)
|
|
(11,098
|
)
|
|
(50,734
|
)
|
Equity
investments
|
|
|
(1,600
|
)
|
|
-
|
|
|
-
|
|
Purchases
of property and equipment
|
|
|
(14,479
|
)
|
|
(9,890
|
)
|
|
(9,918
|
)
|
Net
cash used in investing activities
|
|
|
(100,559
|
)
|
|
(20,988
|
)
|
|
(60,652
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from senior notes
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
(Payments)
proceeds from
bank revolving credit facility, net
|
|
|
(89,700
|
)
|
|
(9,500
|
)
|
|
45,350
|
|
Payments
on economic development revenue bonds
|
|
|
-
|
|
|
(3,550
|
)
|
|
(558
|
)
|
Costs
in connection with bank financing
|
|
|
(1,201
|
)
|
|
(34
|
)
|
|
(985
|
)
|
Purchase
of treasury stock
|
|
|
-
|
|
|
(3,460
|
)
|
|
(1,129
|
)
|
Proceeds
from exercise of options and warrants, net of related
expenses
|
|
|
15,104
|
|
|
5,241
|
|
|
19,808
|
|
Tax
benefit of non-qualified stock options
|
|
|
2,269
|
|
|
-
|
|
|
-
|
|
Repayments
of
other long-term debt, net
|
|
|
(3,854
|
)
|
|
(3,412
|
)
|
|
(13,612
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
72,618
|
|
|
(14,715
|
)
|
|
48,874
|
|
Effect
of exchange rate changes on cash
|
|
|
133
|
|
|
(2,620
|
)
|
|
(2,518
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
24,736
|
|
|
(3,350
|
)
|
|
16,505
|
|
Cash
and cash equivalents at beginning of year
|
|
|
24,139
|
|
|
27,489
|
|
|
10,984
|
|
Cash
and cash equivalents at end of year
|
|
$
|
48,875
|
|
$
|
24,139
|
|
$
|
27,489
|
|
See
notes
to consolidated financial statements.
1. BUSINESS
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 products
and natural 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® teas, Hain Pure Foods®, Westbrae®, WestSoy®,
Rice Dream®, Soy Dream®, Imagine®, Walnut Acres Organic™,
Ethnic
Gourmet®, Rosetto®, Little Bear Organic Foods®, Bearitos®, Arrowhead Mills®,
Health Valley®, Breadshop®, Casbah®, Spectrum Naturals®,
Spectrum Essentials®, Garden
of
Eatin’®, Terra®, Harry’s Premium Snacks®, Boston’s®, Lima®,
Grains Noirs®, Natumi®,
Milkfree, Yves Veggie Cuisine®, DeBoles®,
Earth’s Best®, Nile Spice® and Linda McCartney®. The
Company’s
principal
specialty product lines include Hollywood® cooking oils, Estee® sugar-free
products, Boston Better Snacks®, and Alba Foods®.
Our
natural personal care product line is marketed under the JASON®, Zia®, Orjene®,
Shaman Earthly Organics™,
Heather’s®, Queen Helene®, Batherapy®, Shower Therapy® and Footherapy®
brands.
Our
natural and organic antibiotic-free chicken is marketed under the FreeBird™
brand.
We
operate
in one business segment: the sale of natural and organic food and
personal care products.
During
the three years ended June 30, 2006, approximately 47%, 47% and 39% of our
revenues were derived from products that are manufactured within our own
facilities with 53%, 53% and 61% produced by various co-packers. In fiscal
2006,
2005 and 2004, there were no
co-packers who manufactured 10% or more of our
products.
2. SUMMARY
OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES
In
the
Notes to Consolidated Financial Statements, all dollar amounts, except per
share
data, are in thousands unless otherwise indicated.
Consolidation
Policy
Our
accompanying consolidated financial statements include the accounts of the
Company and all of its wholly-owned and majority-owned subsidiaries. Material
intercompany accounts and transactions have been eliminated in
consolidation.
Use
of Estimates
The
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.
Valuation
of Accounts and Chargebacks Receivable and Concentration of Credit
Risk
We
perform
ongoing credit evaluations on existing and new customers daily. We apply
reserves for delinquent or uncollectible trade receivables based on a specific
identification methodology and also apply an additional reserve based on the
experience we have with our trade receivables aging categories. Credit losses
have been within our expectations in recent years. While one of our customers
represented 12% of our trade receivables balance as of June 30, 2006 and 20%
of
our trade receivables balance as of June 30, 2005, and two of our customers
represented 28%
of our
trade receivables balance as of June 30, 2004, we believe there is no credit
exposure at this time.
Based
on
cash collection history and other statistical analysis, we estimate the amount
of unauthorized deductions our customers have taken that we expect to be repaid
and collectible in the near future in the form of a chargeback receivable.
Our
estimate of this receivable balance ($4.1 million at June 30, 2006 and
$4.5
million at June 30, 2005)
could be
different had we used different assumptions and judgments.
During
the
year ended June 30, 2006, sales to one customer and its affiliates approximated
21% of net sales. In fiscal 2005 sales to one customer and its affiliates
approximated 22% of net sales. In fiscal 2004 two customers accounted for
approximately 20% and 12% of
net
sales.
Inventory
Our
inventory is valued at the lower of actual cost or market, utilizing the
first-in, first-out method. We provide write-downs for finished goods expected
to become non-saleable due to age and specifically identify and provide for
slow
moving or obsolete raw ingredients and packaging.
Property,
Plant and Equipment
Our
property, plant and equipment is carried at cost and depreciated or amortized
on
a straight-line basis over the estimated useful lives or lease life, whichever
is shorter. We believe the asset lives assigned to our property, plant and
equipment are within ranges generally used in food manufacturing and
distribution businesses. Our manufacturing plants and distribution centers,
and
their related assets, are periodically reviewed to determine if any impairment
exists by analyzing underlying cash flow projections. At this time, we believe
no impairment exists on the carrying value of such assets. Ordinary repairs
and
maintenance are expensed as incurred. We utilize the following ranges of asset
lives:
|
10-31
years
|
Machinery
and equipment
|
5-15
years
|
Furniture
and fixtures
|
3-7
years
|
Leasehold
improvements
|
3-10
years
|
Intangibles
Goodwill
is no longer amortized and the value of an identifiable intangible asset is
amortized over its useful life unless the asset is determined to have an
indefinite useful life. The carrying value of goodwill, which is allocated
to
reporting units, and other intangible assets with indefinite useful lives are
tested annually for impairment.
Revenue
Recognition and Sales Incentives
Sales
are
recognized when the earnings process is complete, which occurs when products
are
shipped in accordance with terms of agreements, title and risk of loss transfer
to customers, collection is probable and pricing is fixed or determinable.
Sales
are reported net of sales incentives, which include trade discounts and
promotions and certain coupon costs. Shipping and handling costs billed to
customers are included in reported sales. Allowances for cash discounts are
recorded in the period in which the related sale is recognized.
Foreign
Currency Translation
Financial
statements of foreign subsidiaries are translated into U.S. dollars at current
rates, except that revenues, costs and expenses are translated at average rates
during each reporting period. Net exchange gains or losses resulting from the
translation of foreign financial statements and the effect of exchange rate
changes on intercompany transactions of a long-term investment nature are
accumulated and credited or charged directly to a separate component of
stockholders’ equity and other comprehensive income.
Advertising
Costs
Media
advertising costs, which are included in selling, general and administrative
expenses, amounted to $5.4 million in fiscal 2006, $4.3
million
for fiscal 2005 and $5.5
million for fiscal year 2004.
Such
costs are expensed as incurred.
Income
Taxes
We
follow
the liability method of accounting for income taxes. Under the liability method,
deferred taxes are determined based on the differences between the financial
statement and tax bases of assets and liabilities at enacted rates in effect
in
the years in which the differences are expected to reverse.
Shipping
and Handling Costs
We
include
the costs associated with shipping and handling of our inventory as a component
of cost of sales.
Fair
Values of Financial Instruments
At
June
30, 2006 and 2005, we had $27.8
million
and $10.0
million invested in corporate money market securities, including commercial
paper, repurchase agreements, variable rate instruments and bank instruments.
These securities are classified as cash equivalents as their maturities when
purchased are less than three months. At June 30, 2006 and 2005, the carrying
values of these money market securities approximate
their fair values.
We
believe
that the interest rates charged on our debt instruments approximate current
borrowing rates and, accordingly, the carrying amounts of such debt at June
30,
2006 and 2005 approximate fair value.
Accounting
For Stock Issued to Employees
Adoption
of SFAS 123(R)
In
December 2004, Statement of Financial Accounting Standards 123(R) (“SFAS No.
123(R)”), “Share Based Payment,” was issued, pursuant to which the intrinsic
value method of accounting under APB Opinion 25 was superseded with a fair
value
method that requires recognition of compensation expense in the consolidated
results of operations for all share-based transactions.
Effective
July 1, 2005, the Company adopted the provisions of SFAS 123(R), using the
modified-prospective-transition method. Under that transition method,
compensation cost recognized for the year ended June 30, 2006 includes: (a)
compensation cost for all share-based payments granted prior to, but not yet
vested as of July 1, 2005, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS No. 123, and (b) compensation
cost for the vested portion of share-based payments granted subsequent to July
1, 2005, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123(R). Results for prior periods have not been restated.
The
fair
value of employee stock options is recognized in expense over the vesting period
of the options, using the graded attribution method. The fair value of employee
stock options is determined on the date of grant using the Black-Scholes option
pricing model. The Company has used historical volatility in its estimate of
expected volatility. The expected life represents the period of time (in years)
for which the options granted are expected to be outstanding. The Company used
the simplified method for determining expected life as permitted in SEC Staff
Accounting Bulletin 107 for options qualifying for such treatment
(“plain-vanilla” options) due to the limited history the Company currently has
with option exercise activity. The risk-free interest rate is based on the
U.S.
Treasury yield curve. There were no modifications to stock option awards during
the year ended June 30, 2006.
The
Company receives an income tax deduction for stock options exercised by
employees in the United States equal to the excess of the market value of our
common stock on the date of exercise over the option price. Prior to the
adoption of SFAS 123(R), the income tax benefit from the exercise of stock
options was presented as a component of cash flow from operating activities.
SFAS 123(R) requires the excess tax benefits (tax benefits resulting from tax
deductions in excess of compensation cost recognized) to be classified as a
cash
flow provided by financing activities.
During
the
year ended June 30, 2006, no stock options were granted by the Company. Also,
previous to the adoption of SFAS 123(R), all outstanding options were vested
as
the result of the acceleration of vesting during the year ended June 30, 2005.
As a result, there is no compensation expense for granted stock options
recognized in operating results during the year ended June 30, 2006. 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 Company’s
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 have not been granted, principally due to an insufficient number of shares
available under the Company’s 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 Statement 123(R) as the “requisite service
period.” As the requisite service period related to the July 2005 un-granted
options was completed on June 30, 2005, prior to the required implementation
of
Statement 123(R), no expense has been recorded for the July 2005 ungranted
options. The Company will incur a charge to earnings at such time as the July
2005 currently ungranted options are granted. The requisite service period
related to the July 2006 un-granted options was completed during the fiscal
year
ended June 30, 2006, and as a result, $3.2 million of compensation cost was
charged to earnings during the fiscal year ended June 30, 2006. This charge
was
the only impact of SFAS No. 123(R) on the Company’s 2006 results of
operations.
Restricted
stock
In
accordance with the terms of the employment agreement with our CEO, on February
24, 2004, we granted 150,000 shares of restricted common stock to our CEO.
On
the grant date, the market value of our common stock was $20.90 per share and,
therefore, the total market value of the grant approximated $3.1 million. These
shares will vest ratably from the date of grant through expiration of the
employment agreement on June 30, 2007. Through June 30, 2006, 105,210 shares
have vested. For the years ended June 30, 2006, 2005 and 2004, approximately
$0.9 million, $0.9 million, and $0.3 million, respectively, are included in
general
and administrative expenses.
Under
the
provisions of SFAS 123(R), the recognition of unearned compensation is no longer
required. Unearned compensation is a contra-equity balance sheet account
representing the amount of unrecognized expense related to restricted stock
that
is amortized as the expense is recognized over the vesting period of the award.
As of July 1, 2005, the remaining unamortized balance of Unearned Restricted
Stock Compensation amounting to $1.9 million, which will be recognized over
the
remaining vesting period through February 2007, was reversed into Additional
Paid-in Capital on the Company’s balance sheet.
Prior
to the adoption of SFAS 123(R)
Prior
to
fiscal 2006, the Company elected to follow the accounting provisions of APB
Opinion 25 for stock-based compensation and to provide the pro forma disclosures
required under SFAS 148, “Accounting for Stock-Based Compensation - Transition
and Disclosure.” Accordingly, the Company did not recognize compensation expense
for stock option grants made at an exercise price equal to or in excess of
the
market value of the underlying stock on the date of grant for periods prior
to
July 1, 2005. The following table illustrates the effect on net income per
share
had compensation costs of the plans been determined under a fair value
alternative method as stated in SFAS 123, “Accounting for Stock-Based
Compensation” (in thousands, except per share data):
|
|
2005
|
|
2004
|
|
Net
income, as reported
|
|
$
|
21,870
|
|
$
|
27,008
|
|
Non-cash
compensation charge net of related tax
effects
|
|
|
3,759
|
|
|
232
|
|
Stock-based
employee compensation expense
determined
under fair value method, net of related tax effects
|
|
|
(8,886
|
)
|
|
(3,921
|
)
|
Pro
forma net income
|
|
$
|
16,743
|
|
$
|
23,319
|
|
|
|
2005
|
|
2004
|
|
Basic
net income per common share:
|
|
|
|
|
|
As
reported
|
|
$
|
.60
|
|
$
|
.77
|
|
Pro
forma
|
|
$
|
.46
|
|
$
|
.66
|
|
Diluted
net income per common share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
.59
|
|
$
|
.74
|
|
Pro
forma
|
|
$
|
.45
|
|
$
|
.64
|
|
Pro
forma
information regarding earnings and earnings per share was determined as if
we
have accounted for our stock options under the fair value method of SFAS No.
123. The fair value for these options was estimated at the date of grant using
a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk free interest rates ranging from 4.0% to 6.77%; no dividend
yield; volatility factors of the expected market price of our common stock
of
approximately 45% for fiscal 2005
and 51%
for fiscal 2004; and
a
weighted-average expected life of the options of approximately seven years
in
fiscal 2005 and five years in 2004.
The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
our stock options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management’s opinion, the existing
models did not necessarily provide a reliable single measure of the fair value
of our employee stock options. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options’
vesting periods.
Accounting
for the Impairment of Long-Lived Assets
Effective
July 1, 2002, we adopted SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS No. 144”). SFAS No. 144 supersedes SFAS
No. 121; however, it retains fundamental provisions related to the recognition
and measurement of the impairment of long-lived assets to be “held and used.” In
addition, SFAS No. 144 provides more guidance on estimating cash flows when
performing a recoverability test, requires that a long-lived assets group to
be
disposed of other than by sale (e.g., abandoned) be classified as “held and
used” until disposed of, and establishes more restrictive criteria regarding
classification of an asset group as “held for sale.”
SFAS
No.
144 also supersedes the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, “Reporting the Results of Operations” (“APB
30”), for the disposal of a segment of a business, and extends the reporting of
a discontinued operation to a “component of an entity.” Further, SFAS No. 144
requires operating losses from a “component of an entity” to be recognized in
the period in which they occur rather than as of the measurement date as
previously required by APB 30.
Deferred
Financing Costs
Eligible
costs associated with obtaining debt financing are capitalized and amortized
over the related term of the applicable debt instruments, which approximates
the
effective interest method.
Earnings
Per Share
We
report
basic and diluted earnings per share in accordance with SFAS No. 128, “Earnings
Per Share” (“SFAS No. 128”). Basic earnings per share excludes the dilutive
effects of options and warrants. Diluted earnings per share includes only the
dilutive effects of common stock equivalents such as stock options and
warrants.
The
following table sets forth the computation of basic and diluted earnings per
share pursuant to SFAS No. 128.
|
|
2006
|
|
2005
|
|
2004
|
|
Numerator:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
37,067
|
|
$
|
21,870
|
|
$
|
27,008
|
|
Denominator
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share - weighted
|
|
|
|
|
|
|
|
|
|
|
average
shares outstanding during the period
|
|
|
37,643
|
|
|
36,407
|
|
|
35,274
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Stock
options and awards
|
|
|
1,269
|
|
|
745
|
|
|
940
|
|
Warrants
|
|
|
-
|
|
|
1
|
|
|
94
|
|
|
|
|
1,269
|
|
|
746
|
|
|
1,034
|
|
Denominator
for diluted earnings per share - adjusted
|
|
|
|
|
|
|
|
|
|
|
weighted
average shares and assumed conversions
|
|
|
38,912
|
|
|
37,153
|
|
|
36,308
|
|
Basic
net income per share
|
|
$
|
0.98
|
|
$
|
0.60
|
|
$
|
0.77
|
|
Diluted
net income per share
|
|
$
|
0.95
|
|
$
|
0.59
|
|
$
|
0.74
|
|
Options
totaling 2,131,403
in 2006, 3,119,203
in 2005
and 2,964,303 in 2004, were excluded from our earnings per share computations
as
their effects would have been anti-dilutive.
Reclassifications
We
have
made certain reclassifications to the prior years’ consolidated financial
statements and notes thereto to conform to the current year
presentation.
3. STOCK
KEEPING UNIT RATIONALIZATION
During
2005, we evaluated the portfolio of stock keeping units (“SKUs”) we maintained
on our active list of products sold to our customers, and determined that there
were numerous underperforming SKUs that should be eliminated based on their
low
volume of sales or insufficient margins due to disproportionate manufacturing
and other costs. As a result, cost of sales for 2005 includes a charge for
approximately $9.0 million of ingredient and finished goods inventories,
including the costs of disposal, for SKUs eliminated, and selling, general
and
administrative expenses includes a charge for approximately $3.1 million for
the
write-off of deferred packaging design and other costs related to these SKUs.
While the SKU rationalization impacted products across virtually all of our
brands, approximately 20% of the charges were related to the discontinuance
of
our CarbFit line of low-carbohydrate products. The SKU rationalization program
was completed in June 2006, at which time a further charge to cost of sales
was
required amounting to $0.9 million.
4. GOODWILL
AND OTHER INTANGIBLE ASSETS
The
following table reflects the components of trademarks and other intangible
assets:
|
|
2006
|
|
2005
|
|
|
|
Gross
Carrying
|
|
Accumulated
|
|
Gross
Carrying
|
|
Accumulated
|
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
|
Amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
intangibles
|
|
$
|
6,043
|
|
$
|
2,818
|
|
$
|
6,290
|
|
$
|
2,657
|
|
Non-amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
64,999
|
|
|
6,598
|
|
|
63,861
|
|
|
6,484
|
|
Amortization
of amortized intangible assets amounted $0.6 million in each of fiscal 2006,
2005 and 2004, and is expected to approximate $0.6 million in each of the next
five fiscal years.
5. ACQUISITIONS
Fiscal
2006
On
June
12, 2006, we acquired the Linda McCartney® brand (under license) of frozen
meat-free business from the H.J. Heinz Company, including its manufacturing
facility based in Fakenham, England. A leader in the meat-free category with
its
range of sausages, ready meals, and pastry products, the Linda McCartney brand
is recognized for its vegetarian credentials while providing healthy and tasty
meal solutions. Total consideration paid was approximately $7.0 million plus
the
assumption of certain liabilities. No goodwill resulted from this transaction
since assets acquired exceeded consideration paid. The excess of net assets
acquired over purchase price of approximately $4.0 million was allocated as
a
reduction of fixed assets.
On
April
30, 2006, the Company acquired the fresh prepared foods business based in Luton,
England, from the H.J. Heinz Company. Total consideration paid was approximately
$1.8 million plus the assumption of certain liabilities. No goodwill resulted
from this transaction since assets acquired exceeded consideration paid. The
excess of net assets acquired over purchase price of approximately $1.7 million
was allocated as a reduction of fixed assets.
On
March
3, 2006, we acquired the business and assets of Para Laboratories, Inc.,
including the Queen Helene®, Batherapy®, Shower Therapy® and Footherapy® brands
of skin care, hair care, and body care products, which are sold through drug
stores, supermarkets and mass retailers. The total consideration paid was
approximately $25.1 million in cash, $2.5 million in stock, plus the assumption
of certain liabilities. The purchase price excludes contingency payments we
may
be obligated to pay. The contingency payments are based on the achievement
by
the acquired business of certain financial targets over an approximate two-year
period following the date of acquisition. Such payments, which could total
$3.0
million, will be charged to goodwill if and when paid. No such contingency
payments have been made since the acquisition. At June 30, 2006, goodwill
(deductible for tax purposes) from this transaction was estimated to be $24.8
million.
On
December 16, 2005, we acquired Spectrum Organic Products, Inc. Spectrum is
a
California-based leading manufacturer and marketer of natural and organic
culinary oils, vinegars, condiments and butter substitutes under the Spectrum
Naturals® brand and essential fatty acid nutritional supplements under the
Spectrum Essentials® brand. Spectrum’s products are sold mainly through natural
food retailers. Spectrum shareholders received $0.7035 per share, consisting
of
$0.3485 per share in cash and $0.355 per share in Hain shares, which is based
on
valuing the Hain shares at $19.80 per share as provided in the merger agreement.
We issued approximately 900,000 shares in connection with this acquisition.
The
total consideration paid was approximately $29.3 million in cash, $17.4 million
in stock plus the assumption of certain liabilities. At June 30, 2006, goodwill
(not deductible for tax purposes) from the transaction was estimated to be
$36.6
million.
The
following table summarizes the estimated fair values of the assets acquired
and
liabilities assumed of Spectrum Organic Products, Para Laboratories, and the
frozen meat-free and fresh prepared foods businesses as of the dates of the
acquisitions:
Current
assets
|
|
$
|
33,207
|
|
Property
and equipment
|
|
|
26,426
|
|
Other
assets
|
|
|
604
|
|
|
|
|
|
|
Total
assets
|
|
|
60,237
|
|
Liabilities
assumed
|
|
|
19,535
|
|
|
|
|
|
|
Net
assets acquired
|
|
$
|
40,702
|
|
The
balance sheet at June 30, 2006 includes the assets acquired and liabilities
assumed valued on a preliminary basis at fair market value at the dates of
purchase. We are in the process of performing the procedures required to
finalize the purchase price allocation for the above fiscal 2006 acquisitions;
however, these procedures
are in
the early stages and are expected to be completed during fiscal
2007.
The
following table presents information about sales and net income had the
operations of the above described acquisitions been combined with our business
as of the first day of the periods shown. This information has not been adjusted
to reflect any changes in the operations of these businesses subsequent to
its
acquisition by us. Changes in operations of these acquired businesses include,
but are not limited to, integration of systems and personnel, 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), 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
below.
|
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
782,814
|
|
$
|
697,853
|
|
Net
income
|
|
$
|
36,243
|
|
$
|
20,638
|
|
Earnings
per share:
Basic
|
|
$
|
0.95
|
|
$
|
0.55
|
|
Diluted
|
|
$
|
0.92
|
|
$
|
0.54
|
|
Weighted
average shares:
Basic
|
|
|
38,125
|
|
|
37,405
|
|
Diluted
|
|
|
39,394
|
|
|
38,151
|
|
In
management’s opinion, the unaudited pro forma results of operations is not
indicative of the actual results that would have occurred had the Spectrum
acquisition and the purchase of Para Laboratories, the frozen meat-free business
and the fresh prepared foods business been consummated at the beginning of
the
periods presented or of future operations of the combined companies under our
management.
On
July 1,
2005, we acquired the assets of College Hill Poultry of Fredericksburg, PA
through Hain Pure Protein Corporation, which is a joint venture with Pegasus
Capital Advisors, LP, a private equity firm. We control 50.1% of the joint
venture. Hain Pure Protein’s brand of natural and organic antibiotic-free
chickens are raised on family farms and grain-fed without antibiotics or animal
by-products. FreeBird™
customers
include supernaturals and conventional supermarkets, natural food stores and
foodservice outlets. The purchase price consisted of approxi-
mately
$4.7 million in cash as well as the assumption of certain liabilities. The
net
assets acquired, as well as the sales and operations of Hain Pure Protein
Corporation are not material to the Company’s consolidated financial position or
the results of operations.
Fiscal
2005
On
April
4, 2005, we acquired 100% of the stock of privately held Zia Cosmetics, Inc.,
including the Zia® Natural Skincare brand, a respected leader in therapeutic
products for healthy, beautiful skin sold mainly through natural food retailers.
The purchase price consisted of approximately $10 million in cash as well as
the
assumption of certain liabilities. The purchase price excludes the amount of
contingency payments we may be obligated to pay. The contingency payments are
based on the achievement by Zia of certain financial targets over an approximate
two-year period following the date of acquisition. Such payments, which could
total approximately $1.3 million, will be charged to goodwill if and when paid.
No such contingency payments have been made since the acquisition. The net
assets acquired, as well as the sales and operations of Zia, are not material
to
the Company’s consolidated financial position or the results of operations.
Fiscal
2004
On
June 3,
2004, we acquired 100% of the stock of privately-held Jason Natural Products,
Inc., a California-based manufacturer and marketer of natural personal care
products. In recent years, Jason Natural Products has expanded its lines of
natural personal care products by integrating a series of brands including
Orjene®, Shaman Earthly Organics™,
and
Heather’s® into its portfolio. The purchase price consisted of approximately
$23.9 million in cash, plus the assumption of certain liabilities. At June
30,
2005, goodwill (not deductible for tax purposes) from this transaction
approximated $25.9 million.
On
May 27,
2004, we acquired substantially all of the assets and assumed certain
liabilities of the Rosetto® and Ethnic Gourmet® brands of H.J. Heinz Company,
LP, which owned approximately 16.7% of our common stock at the time of the
transaction. These brands produce and market frozen pasta and natural ethnic
frozen meals, respectively. The purchase price consisted of approximately $22.8
million in cash, plus the assumption of certain liabilities. At June 30, 2005,
goodwill (deductible for tax purposes) from this transaction approximated $3.3
million,
trademarks and other non-amortizable intangibles were $3.1 million, and other
amortizable intangibles were valued at $0.7 million.
The
following table summarizes the estimated fair values of assets acquired and
liabilities assumed of Jason Natural Products, Rosetto, and Ethnic Gourmet
at
the dates of the acquisitions:
Current
assets
|
|
$
|
12,358
|
|
Property
and equipment
|
|
|
12,871
|
|
Other
assets
|
|
|
102
|
|
|
|
|
|
|
Total
assets
|
|
|
25,331
|
|
Liabilities
assumed
|
|
|
4,321
|
|
|
|
|
|
|
Net
assets acquired
|
|
$
|
21,010
|
|
The
balance sheet at June 30, 2005, includes the assets acquired and liabilities
assumed valued at fair market value at the date of purchase. We
have
completed all of the procedures required to finalize the purchase price
allocation for Jason, Rosetto, and Ethnic Gourmet.
Our
results of operations for the year ended June 30, 2005 includes the results
of
the above described fiscal 2004 acquisitions for the complete period. The
following table presents information about sales and net income had the
operations of the acquired brands been combined with our business as of the
first day of the period shown. This
information
has not been adjusted to reflect any changes in the operations of these brands
subsequent to their acquisition by us. Changes in operations of these acquired
brands include, but are not limited to, integration of systems and personnel,
discontinuation of products (including discontinuation resulting from the
integration of acquired and existing brands with similar products), 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 brands
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 below.
|
|
2004
|
|
Net
sales
|
|
$
|
599,599
|
|
Net
income
|
|
|
28,930
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
Basic
|
|
$
|
.82
|
|
Diluted
|
|
|
.80
|
|
|
|
|
|
|
Weighted
average shares:
|
|
|
|
|
Basic
|
|
|
35,274
|
|
Diluted
|
|
|
36,308
|
|
In
management’s opinion, the unaudited pro forma results of operations is not
indicative of the actual results that would have occurred had the
JASON®,
Rosetto®
and
Ethnic Gourmet®
acquisitions been consummated at the beginning of the periods presented or
of
future operations of the combined companies under our management.
On
February 25, 2004, our subsidiary in Belgium acquired Natumi, AG, a German
producer of non-dairy beverages and desserts marketed principally in retail
channels in Europe. The purchase price consisted of approximately
$1.75 million in cash as well as the assumption of certain liabilities. The
net assets acquired, as well as the sales and operations of Natumi, are not
material to the Company’s consolidated financial position or results of
operations and, therefore, have not been included in the detailed information
about our acquisitions.
6. INVENTORIES
Inventories
consist of the following at June 30:
|
|
2006
|
|
2005
|
|
Finished
goods
|
|
$
|
64,771
|
|
$
|
48,240
|
|
Raw
materials, work-in-process and packaging
|
|
|
41,112
|
|
|
28,257
|
|
|
|
$
|
105,883
|
|
$
|
76,497
|
|
Property,
plant and equipment consist of the following at June 30:
|
|
2006
|
|
2005
|
|
Land
|
|
$
|
10,958
|
|
$
|
7,481
|
|
Buildings
and improvements
|
|
|
38,483
|
|
|
31,766
|
|
Machinery
and equipment
|
|
|
113,958
|
|
|
89,331
|
|
Furniture
and fixtures
|
|
|
6,107
|
|
|
2,542
|
|
Leasehold
improvements
|
|
|
3,120
|
|
|
2,955
|
|
Construction
in progress
|
|
|
2,257
|
|
|
3,164
|
|
|
|
|
174,883
|
|
|
137,239
|
|
Less:
|
|
|
|
|
|
|
|
Accumulated
depreciation and amortization
|
|
|
55,053
|
|
|
49,035
|
|
|
|
$
|
119,830
|
|
$
|
88,204
|
|
Assets
held under capital leases, which are included within machinery and equipment
at
June 30, 2006 and 2005, are not material.
Long-term
debt at June 30 consists of the following:
|
|
2006
|
|
2005
|
|
Senior
Notes
|
|
$
|
150,000
|
|
|
-
|
|
Senior
Revolving Credit Facilities payable to banks
|
|
|
-
|
|
$
|
89,700
|
|
Capital
leases on machinery and equipment
|
|
|
382
|
|
|
386
|
|
Other
debt instruments
|
|
|
1,912
|
|
|
4,976
|
|
|
|
|
152,294
|
|
|
95,062
|
|
Current
Portion
|
|
|
1,065
|
|
|
2,791
|
|
|
|
$
|
151,229
|
|
$
|
92,271
|
|
On
May 2,
2006, we issued $150 million in aggregate principal amount of senior notes
due
May 2, 2016 in a private placement. Proceeds from the senior notes were used
to
repay outstanding borrowings of $131.7 million under the Company’s previous
revolving credit facility. The notes bear interest at 5.98%, payable
semi-annually on November 2nd
and May
2nd.
Also on
May 2, 2006, we entered into a new Amended and Restated Credit Agreement,
providing us with a $250 million 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. Revolving
credit 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 applicable margin. The
Credit Facility provides for reductions in the applicable margin as compared
to
the Credit Facility prior to its amendment and restatement. As of June 30,
2006,
$150.0 million was borrowed under the senior notes at an interest rate of 5.98%,
and there were no 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.
Obligations
under capitalized leases for machinery and equipment with a net book value
of
$.4 million have aggregate minimum future lease payments of $.4 million, bear
interest at rates ranging from 2.2% to 11.3% and are due in monthly installments
through 2011. Other debt instruments aggregating $1.9 million consist of various
borrowings
including
a note payable of $1.0 million due by our European operations to one of the
banks that is a participant in our Credit Facility, payable in quarterly
installments plus interest of 4.9% over a two year period through May
2008.
Maturities
of all debt instruments at June 30, 2006, are as follows:
2007
|
|
$
|
1,065
|
|
2008
|
|
|
492
|
|
2009
|
|
|
241
|
|
2010
|
|
|
116
|
|
2011
|
|
|
380
|
|
Thereafter
|
|
|
150,000
|
|
|
|
$
|
152,294
|
|
9. INCOME
TAXES
The
provision for income taxes for the years ended June 30, 2006, 2005 and 2004
is
presented below.
|
|
2006
|
|
2005
|
|
2004
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
9,257
|
|
$
|
8,790
|
|
$
|
7,418
|
|
State
|
|
|
1,806
|
|
|
1,841
|
|
|
1,612
|
|
Foreign
|
|
|
4,666
|
|
|
2,639
|
|
|
3,580
|
|
|
|
|
15,729
|
|
|
13,270
|
|
|
12,610
|
|
Deferred
Federal and State
|
|
|
6,767
|
|
|
(629
|
)
|
|
3,770
|
|
Total
|
|
$
|
22,496
|
|
$
|
12,641
|
|
$
|
16,380
|
|
Components
of our deferred tax asset/(liability) as of June 30 are as follows:
|
|
2006
|
|
2005
|
|
Current
deferred tax assets:
|
|
|
|
|
|
|
|
Basis
difference on inventory
|
|
$
|
2,074
|
|
$
|
4,240
|
|
Allowance
for doubtful accounts
|
|
|
387
|
|
|
224
|
|
Net
operating loss carryforwards
|
|
|
191
|
|
|
191
|
|
Reserves
not currently deductible
|
|
|
334
|
|
|
1,016
|
|
Current
deferred tax assets
|
|
|
2,986
|
|
|
5,671
|
|
Noncurrent
deferred tax liabilities:
|
|
|
|
|
|
|
|
Difference
in amortization
|
|
|
(15,821
|
)
|
|
(13,899
|
)
|
Basis
difference on property and equipment
|
|
|
(7,689
|
)
|
|
(6,420
|
)
|
Noncurrent
deferred tax assets:
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
|
2,858
|
|
|
3,024
|
|
Stock
options as compensation
|
|
|
1,566
|
|
|
572
|
|
Noncurrent
deferred tax liabilities, net
|
|
|
(19,086
|
)
|
|
(16,723
|
)
|
|
|
$
|
(16,100
|
)
|
$
|
(11,052
|
)
|
|
|
2006
|
|
%
|
|
2005
|
|
%
|
|
2004
|
|
%
|
|
Expected
U.S. federal income tax at statutory rate
|
|
$
|
20,847
|
|
|
35.0%
|
%
|
$
|
12,079
|
|
|
35.0
|
%
|
$
|
15,185
|
|
|
35.0
|
%
|
State
income taxes, net of federal benefit
|
|
|
1,949
|
|
|
3.3
|
|
|
997
|
|
|
2.9
|
|
|
1,501
|
|
|
3.5
|
|
Stock
options
|
|
|
(368
|
)
|
|
(0.6
|
)
|
|
766
|
|
|
2.2
|
|
|
-
|
|
|
-
|
|
Foreign
income at different rates
|
|
|
115
|
|
|
0.2
|
|
|
160
|
|
|
0.5
|
|
|
448
|
|
|
1.0
|
|
Other
|
|
|
(47
|
)
|
|
(0.1
|
)
|
|
(1,361
|
)
|
|
(3.9
|
)
|
|
(754
|
)
|
|
(1.7
|
)
|
Provision
for income taxes
|
|
$
|
22,496
|
|
|
37.8
|
%
|
$
|
12,641
|
|
|
36.7
|
%
|
$
|
16,380
|
|
|
37.8
|
%
|
Income
taxes paid during the years ended June 30, 2006, 2005 and 2004 amounted to
$8.0
million, $14.6 million and $4.7 million.
10. STOCKHOLDERS’
EQUITY
Preferred
Stock
We
are
authorized to issue “blank check” preferred stock (up to 5 million shares) with
such designations, rights and preferences as may be determined from time to
time
by the Board of Directors. Accordingly, the Board of Directors is empowered
to
issue, without stockholder approval, preferred stock with dividends,
liquidation, conversion, voting, or other rights which could decrease the amount
of earnings and assets available for distribution to holders of our Common
Stock. At June 30, 2006 and 2005, no preferred stock was issued or
outstanding.
Warrants
In
connection with an acquisition in 1997, we issued warrants to Argosy Investment
Corp. (“Argosy”) to acquire 100,000 shares of our common stock at an exercise
price of $12.688. In fiscal 2001, Argosy exercised 26,666 of these warrants,
resulting in proceeds of $0.3 million. In
fiscal
2002 and 2003, Argosy exercised no warrants. In
fiscal
2004, Argosy exercised 36,667 of the warrants resulting in proceeds of $0.5
million. During fiscal 2005, the remaining 36,667 warrants were exercised
resulting in proceeds of $0.5 million.
In
fiscal
2001, Argosy exercised warrants previously granted in 1994 to acquire 104,100
of
our common stock at an exercise price of $3.25. During
fiscal
2004,
the
remaining
322,764
warrants were
exercised resulting in proceeds of $1.0 million.
11. STOCK
OPTION PLANS
Acceleration
of Vesting of Stock Options
In
June
2005, our board of directors approved the acceleration of the vesting of all
outstanding unvested stock options held by employees. This action was taken
in
order to reduce future compensation charges for these stock options and to
provide an incentive to employees in view of the uncertainty of future
equity-based compensation with the pending implementation of SFAS No. 123(R).
As
a result of this action, approximately 1.2 million outstanding unvested stock
options were accelerated (approximately 56,000 of which were at exercise prices
greater than market price at the date of acceleration), substantially all of
which were granted in August 2004 at an exercise price of $16.01 per share
with
original vesting through August 2006. We recognized a charge to earnings for
the
difference between the market value of our stock on the date of acceleration
and
the exercise price of the options, such charge amounting to approximately $3.7
million ($3.1 million net of tax) for the year ended June 30, 2005. As a result
of this action, there will be no stock option amortization expense in future
periods unless additional stock options are granted.
Hain
In
December 1994, we adopted the 1994 Long-Term Incentive and Stock Award Plan,
which amended and restated our 1993 stock option plan. On December 9, 1997,
the
stockholders of Hain approved an amendment to increase the number of shares
issuable under the 1994 Long Term Incentive and Stock Award Plan by 345,000
to
1,200,000 shares. In December 1998, the plan was further amended to increase
the
number of shares issuable by 1,200,000 bringing the total shares issuable under
this plan to 2,400,000. In December 1999, the plan was further amended to
increase the number of shares issuable by 1,000,000 bringing the total shares
issuable under this plan to 3,400,000. In May 2000, the plan was further amended
to increase the number of shares issuable by 3,000,000 bringing the total shares
issuable under this plan to 6,400,000. The plan provides for the granting of
incentive stock options to employees, directors and consultants to purchase
shares of our common stock. All of the options granted to date under the plan
have been incentive and non-qualified stock options providing for exercise
prices equivalent to the fair market price at date of grant, and expire ten
years after date of grant. Vesting terms are determined at the discretion of
the
Company. During 2004, options to purchase 195,550 shares were granted at prices
ranging from $18.25 to $20.90. During
2005, options to purchase 212,500 shares were granted at a price of $16.01.
The
availability of this plan for the granting of awards terminated in December
2004.
In
October
2002, we adopted a new Long-Term Incentive and Stock Award Plan. The plan
provides for the granting of stock options and other equity awards to employees,
directors and consultants to purchase shares of our common stock. An aggregate
of 1,600,000 shares of common stock were originally reserved for issuance under
this plan. In December 2003, the plan was amended to increase the number of
shares issuable by 1,500,000 shares to 3,100,000 shares. In November 2005,
the
plan was further amended to increase the number of shares issuable by 750,000
shares bringing the total shares issuable under this plan to 3,850,000. All
of
the options granted to date under the plan have been incentive and non-qualified
stock options providing for exercise price equivalent to the fair market price
at the date of grant and expire ten years after the date of grant. Effective
December 1, 2005, new options granted under the plan will expire seven years
after the date of grant. Vesting terms are determined at the discretion of
the
Company. During 2004, options to purchase 116,300 shares were granted at prices
ranging from $15.85 to $18.63 per share. During 2005, options to purchase
1,545,400
shares
were granted at prices ranging from $16.01
to
$20.57
per
share. During 2006, no options were granted under this plan. At June 30, 2006,
794,600
options
were available for grant under this plan.
Our
CEO
was granted options to purchase 125,000 shares of common stock at $4.8125 per
share on the date of grant (June 30, 1997) pending approval of an increase
in
the number of shares available for grant (approved by shareholders on December
9, 1997). We incur a straight line non-cash compensation charge
of $46,000
annually
over the
ten-year vesting period based on the excess ($0.5 million) of the market value
of the stock options ($8.50 per share) on December 9, 1997 over the $4.8125
per
share market value on the date of grant.
In
December 1995, we adopted a Directors Stock Option Plan. The plan provides
for
the granting of stock options to non-employee directors to purchase up to an
aggregate of 300,000 shares of our common stock. In December 1998, the plan
was
amended to increase the number of shares issuable from 300,000 to 500,000.
In
December 1999, the plan was amended to increase the number of shares issuable
by
250,000, bringing the total shares issuable under this plan to 750,000. The
remaining available shares in this plan have been canceled and no future grants
are available on this plan effective January 2001.
In
May
2000, we adopted a new Directors Stock Option Plan. The plan originally provided
for the granting of stock options to non-employee directors to purchase up
to an
aggregate of 750,000 shares of our common stock. In December 2003, the plan
was
amended to increase the number of shares issuable by 200,000 shares to 950,000
shares. At June 30, 2001, no options were granted under this plan. During 2004,
options for an aggregate of 163,000 shares were granted at prices ranging from
$18.03 to $22.08. During 2005, options to purchase 67,500
shares
were granted at a price of $18.11
per
share. During 2006, no options were granted under this plan. At June 30, 2006,
219,500
options
were available for grant under this plan.
We
also
have a 1993 Executive Stock Option Plan pursuant to which we granted our CEO
options to acquire 600,000 shares of our common stock. The exercise price of
options designed to qualify as incentive options was
$3.58
per
share and the exercise price of non-qualified options was $3.25 per share.
No
exercises were made during 2003.
During
fiscal 2004, the remaining outstanding 535,000
options
were
exercised.
As of
June 30, 2004, no additional shares were available for grant under this
plan.
Celestial
Seasonings
In
1991,
Celestial Seasonings granted options to an executive officer of Celestial
Seasonings to purchase 241,944 shares of common stock in connection with capital
contributions made by the officer and certain other agreements. Such options
were immediately vested at the grant date, are exercisable at a weighted average
price per share of $3.90 and expire in 2031.
During
1993, Celestial Seasonings adopted an incentive and non-qualified stock option
plan that provided for the granting of awards for up to 331,430 shares of
Celestial Seasonings common stock. Options granted at the time of Celestial
Seasonings initial public offering in 1993 vested over one-year and five-year
periods. Options granted subsequent to Celestial Seasonings initial public
offering generally vested over a five-year period. Options expire ten years
from
the grant date.
In
1993,
Celestial Seasonings granted options to purchase 25,300 shares of Celestial
Seasonings common stock to a director of Celestial Seasonings. The options
vested over a three-year period and expire ten years from the grant date. During
fiscal 2001, all of these options were exercised.
In
1995,
Celestial Seasonings adopted a non-qualified stock option plan for non-employee
directors. The plan provides for up to 189,750 shares of Celestial Seasonings
common stock for issuance upon exercise of options granted to non-employee
directors and in lieu of meeting fees paid to non-employee directors. The
options vest over a one-year period and expire ten years from the grant
date.
During
1998, Celestial Seasonings amended this plan to provide each non-employee
director an initial grant of an option to purchase 12,650 shares and an annual
grant, commencing in 1999, of an option to purchase 5,060 shares. Effective
May
30, 2000, no further grants are available under this plan.
In
1997,
Celestial Seasonings granted options to an executive officer of Celestial
Seasonings to purchase 417,450 shares of Celestial Seasonings common stock.
The
options were granted in connection with the officer’s employment agreement,
initially vested over a five-year period, are exercisable at $8.70 per share
and
expire ten years from the grant date. During 2001, all of these options were
exercised.
A
summary
our stock option plans’ activity for the three years ended June 30,
2006
follows:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at beginning of year
|
|
|
8,150,454
|
|
$
|
18.37
|
|
|
6,803,187
|
|
$
|
18.67
|
|
|
8,266,721
|
|
$
|
17.05
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
1,848,500
|
|
|
16.35
|
|
|
508,600
|
|
|
20.23
|
|
Exercised
|
|
|
(1,009,099
|
)
|
|
15.16
|
|
|
(374,683
|
)
|
|
12.75
|
|
|
(1,744,495
|
)
|
|
10.92
|
|
Terminated
|
|
|
(34,300
|
)
|
|
22.54
|
|
|
(126,550
|
)
|
|
21.57
|
|
|
(227,639
|
)
|
|
20.95
|
|
Outstanding
at end of year
|
|
|
7,107,055
|
|
$
|
18.76
|
|
|
8,150,454
|
|
$
|
18.37
|
|
|
6,803,187
|
|
$
|
18.67
|
|
Exercisable
at end of year
|
|
|
7,107,055
|
|
$
|
18.76
|
|
|
8,150,454
|
|
$
|
18.37
|
|
|
6,162,554
|
|
$
|
19.09
|
|
Weighted
average fair value of options granted during year
|
|
$
|
-
|
|
|
|
|
$
|
16.35
|
|
|
|
|
$
|
9.77
|
|
|
|
|
The
following table summarizes information for stock options outstanding at June
30,
2006:
Options
Outstanding
|
|
Options
Exercisable
|
|
Range
of
Exercise
Prices
|
|
Options
Outstanding
as
of 06/30/2006
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
Weighted
Average
Exercise
Price
|
|
Options
Exercisable
as
of 06/30/2006
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.94-$6.75
|
|
|
413,644
|
|
|
15.1
|
|
$
|
4.18
|
|
|
413,644
|
|
$
|
4.18
|
|
6.75-12.50
|
|
|
391,678
|
|
|
6.2
|
|
|
11.78
|
|
|
391,678
|
|
|
11.78
|
|
12.50-17.65
|
|
|
2,495,880
|
|
|
6.3
|
|
|
15.97
|
|
|
2,495,880
|
|
|
15.97
|
|
17.65-19.19
|
|
|
826,200
|
|
|
5.5
|
|
|
18.07
|
|
|
826,200
|
|
|
18.07
|
|
19.19-22.73
|
|
|
1,402,980
|
|
|
5.0
|
|
|
21.06
|
|
|
1,402,980
|
|
|
21.06
|
|
22.73-25.68
|
|
|
157,230
|
|
|
2.8
|
|
|
23.50
|
|
|
157,230
|
|
|
23.50
|
|
25.68-29.35
|
|
|
1,215,693
|
|
|
4.1
|
|
|
26.78
|
|
|
1,215,693
|
|
|
26.78
|
|
29.35-33.01
|
|
|
203,750
|
|
|
4.3
|
|
|
31.56
|
|
|
203,750
|
|
|
31.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,107,055
|
|
|
5.9
|
|
$
|
18.76
|
|
|
7,107,055
|
|
$
|
18.76
|
|
There
were
8,121,155 shares of Common Stock reserved for future issuance as of June 30,
2006.
Common
Stock
Issued - Business Acquisitions
As
part of
the Spectrum and Para Laboratories acquisitions consummated during Fiscal 2006,
998,092 common shares were issued to the sellers, valued at approximately $20.1
million in the aggregate. (See note 6.)
In
connection with our strategic alliance with Yeo Hiap Seng, Limited, we issued
100,482 common shares valued at approximately $2.0 million. (See note
15.)
12. LEASES
Our
corporate headquarters are located in approximately 35,000 square feet of leased
office space in Melville, New York, under a lease which expires in December
2012. In addition, the Company leases manufacturing and warehouse space under
leases which expire through 2012. These leases provide for additional payments
of real estate taxes and other operating expenses over a base period
amount.
The
aggregate minimum future lease payments for these operating leases at June
30,
2006, are as follows:
2007
|
|
$
|
4,999
|
|
2008
|
|
|
2,866
|
|
2009
|
|
|
2,543
|
|
2010
|
|
|
2,306
|
|
2011
|
|
|
2,207
|
|
Thereafter
|
|
|
2,382
|
|
|
|
$
|
17,303
|
|
Rent
expense charged to operations for the years ended June 30, 2006, 2005 and 2004
was approximately $5.4,
$5.5,
and $4.1
million, respectively.
13. 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.
The
Company’s sales by product category are as follows:
|
|
2006
|
|
2005
|
|
2004
|
|
Grocery
|
|
$
|
376,518
|
|
$
|
343,445
|
|
$
|
303,377
|
|
Snacks
|
|
|
96,243
|
|
|
87,207
|
|
|
78,554
|
|
Tea
|
|
|
100,918
|
|
|
100,871
|
|
|
95,786
|
|
Other
|
|
|
164,878
|
|
|
88,444
|
|
|
66,341
|
|
|
|
$
|
738,557
|
|
$
|
619,967
|
|
$
|
544,058
|
|
The
other
category in the above table includes, but is not limited to, sales in such
product categories as personal care, protein, meat alternative products, and
fresh prepared foods. Sales of each of these categories was less than 10% of
total sales in each year.
Outside
the United States, we primarily conduct business in Canada and Europe.
Selected
information related to our operations by geographic area are as
follows:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
United
States
|
|
Canada
|
|
Europe
|
|
United
States
|
|
Canada
|
|
Europe
|
|
United
States
|
|
Canada
|
|
Europe
|
|
Net
sales
|
|
$
|
595,754
|
|
$
|
51,408
|
|
$
|
91,395
|
|
$
|
489,096
|
|
$
|
46,833
|
|
$
|
84,038
|
|
$
|
433,787
|
|
$
|
48,326
|
|
$
|
61,945
|
|
Earnings
before income taxes
|
|
|
46,561
|
|
|
5,447
|
|
|
7,555
|
|
|
26,743
|
|
|
3,291
|
|
|
4,477
|
|
|
34,437
|
|
|
4,670
|
|
|
4,281
|
|
Long
lived
assets
|
|
|
508,001
|
|
|
56,349
|
|
|
52,858
|
|
|
426,571
|
|
|
50,082
|
|
|
36,289
|
|
|
425,563
|
|
|
43,424
|
|
|
16,930
|
|
14. DEFINED
CONTRIBUTION PLANS
We
have a
401(k) Employee Retirement Plan (“Plan”) to provide retirement benefits for
eligible employees. All full-time employees of Hain and our domestic
subsidiaries who have attained the age of 21 are eligible to participate upon
completion of 30 days of service. The subsidiary Yves Veggie Cuisine has its
own
separate Registered Retirement Employee Savings Plan for those employees
residing in Canada. Employees of Yves who meet eligibility requirements may
participate in that plan. On an annual basis, we may, in our sole discretion,
make certain matching contributions. For the years ended June 30, 2006, 2005
and
2004, we made contributions to the Plan of $0.3, $0.3
and
$0.2 million, respectively.
15. EQUITY
INVESTMENTS
On
June
30, 2006, the Company made an investment in Halo, Purely for Pets, Inc., a
company specializing in natural and organic pet food and pet products. Our
investment consisted of $1.6 million for which we received a 33.6%
non-controlling interest in the joint venture. As of June 30, 2006, the cost
approximates the value of our investment which is included in other assets
in
the accompanying consolidated balance sheet.
On
September 6, 2005, the Company and Yeo Hiap Seng Limited (“YHS”), a
Singapore-based natural food and beverage company listed on the Singapore
Exchange, exchanged $2 million in equity investments in each other resulting
in
the issuance of 100,482 shares of the Company’s common stock to YHS and the
issuance of 1,326,938 ordinary shares of YHS (representing less than 1% of
the
outstanding shares) to the Company. These investments represent the completion
of the first stage of an alliance established between the Company and YHS which
is ex-
pected
to
result in the pursuit of joint interests in marketing and distribution of food
and beverages and product development.
The
Company’s investment in YHS shares, which is included in other assets in the
accompanying consolidated balance sheet, is carried at cost since the Company
is
restricted from selling these shares prior to April 30, 2007. The market value
of the YHS shares on the Singapore Exchange at June 30, 2006 approximates their
carrying value.
16. LITIGATION
From
time
to time, the Company is involved in litigation, incidental to the conduct of
its
business. In the opinion of management, disposition of pending litigation will
not have a material adverse effect on the Company’s business, results of
operations or financial condition.
17. SUBSEQUENT
EVENTS
On
August
31, 2006, the Company completed the sale of Biomarché, its Belgian-based
provider of fresh organic fruits and vegetables, to Pro Natural, a French
company specializing in the distribution of organic produce. 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), plus
a contingent additional payment of up to approximately €0.7 million based on
sales, all subject to an adjustment for working capital and other items.
There
were
no changes in or disagreements with accountants on accounting and financial
disclosure.
Item
9A. Controls
and Procedures
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
SEC’s rules and forms and (2) accumulated and communicated to our management,
including our Chief Executive Officer and our Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
Management’s
Report on Internal Control over Financial Reporting
Management,
including our Chief Executive Officer and our Chief Financial Officer, is
responsible for establishing and maintaining adequate internal control over
financial reporting. The Company’s internal control system was designed to
provide reasonable assurance to the Company’s management and board of directors
regarding the preparation and fair presentation of the published financial
statements in accordance with generally accepted accounting
principles.
Management
assessed the effectiveness of our internal control over financial reporting
as
of June 30, 2006. In making this assessment, management used the criteria set
forth by the Committee on Sponsoring Organizations of the Treadway Commission
(COSO) in Internal
Control—Integrated Framework.
Based on
our assessment, we believe that, as of June 30, 2006, our internal control
over
financial reporting is effective based on those criteria.
Management’s
assessment of the effectiveness of internal control over financial reporting
as
of June 30, 2006 has been audited by Ernst & Young LLP, the independent
registered public accounting firm who also audited the Company’s consolidated
financial statements. Ernst & Young’s attestation report on management’s
assessment of the Company’s internal control over financial reporting
follows.
Report
of Independent Registered Public Accounting Firm
The
Stockholders and Board of Directors of
The
Hain
Celestial Group, Inc. and
Subsidiaries
We
have
audited management’s assessment, included in the accompanying The Hain Celestial
Group, Inc.’s (the Company) Management Assessment Report, that the Company
maintained effective internal control over financial reporting as of June 30,
2006, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment
of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management’s assessment and an
opinion on the effectiveness of the Company’s internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed 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. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management’s assessment that the Company maintained effective internal
control over financial reporting as of June 30, 2006, is fairly stated, in
all
material respects, based on the COSO criteria. Also, in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2006, based on the
COSO
criteria.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of The Hain
Celestial Group, Inc. and Subsidiaries as of June 30, 2006 and 2005, and the
related consolidated statements of income, stockholders’ equity, and cash flows
for each of the three years in the period ended June 30, 2006 of the Company
and
our report dated August 31, 2006 expressed an unqualified opinion
thereon.
/s/Ernst & Young LLP
Melville,
New York
August
31,
2006
Changes
in Internal Controls over Financial Reporting.
There
was
no change in our internal control over financial reporting that occurred during
the fourth fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Item
9B. Other
Information
Not
applicable.
Item
10,
“Directors and Executive Officers of the Registrant”, Item 11, “Executive
Compensation”, Item 12, “Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters”, Item 13, “Certain Relationships and
Related Transactions”, and Item 14, “Principal Accountant Fees and Services”
have been omitted from this report inasmuch as the Company will file with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days
after the end of the fiscal year covered by this report a definitive Proxy
Statement for the 2006 Annual Meeting of Stockholders of the Company, at which
meeting the stockholders will vote upon election of the directors. This
information in such Proxy Statement is incorporated herein by
reference.
(a)
(1)
List of Financial Statements
Consolidated
Balance Sheets - June 30, 2006 and 2005
Consolidated
Statements of Income - Years ended June 30, 2006, 2005 and 2004
Consolidated
Statements of Stockholders’ Equity - Years ended June 30, 2006, 2005 and
2004
Consolidated
Statements of Cash Flows - Years ended June 30, 2006, 2005 and 2004
Notes
to
Consolidated Financial Statements
(2)
List
of Financial Statement Schedules
Valuation
and Qualifying Accounts (Schedule II)
(3)
List
of Exhibits
3.1
|
Amended
and Restated Certificate of Incorporation (incorporated by reference
to
Exhibit 3.1 of Amendment No. 1 to the Registrant's Registration Statement
on Form S-4 (Commission File No. 333-33830) filed with the Commission
on
April 24, 2000).
|
3.2
|
Amended
and Restated Bylaws (incorporated by reference to Exhibit 3.2 of
Amendment
No. 1 to the Registrant's Registration Statement on Form S-4 (Commission
File No. 333-33830) filed with the Commission on April 24,
2000).
|
4.1
|
Specimen
of common stock certificate (incorporated by reference to Exhibit
4.1 of
Amendment No. 1 to the Registrant's Registration Statement on Form
S-4
(Commission File No. 333-33830) filed with the Commission on April
24,
2000).
|
4.2
|
1993
Executive Stock Option Plan (incorporated by reference to Exhibit
4.2 of
Amendment No. 1 to the Registrant's Registration Statement on Form
SB-2
(Commission File No. 33-68026) filed with the Commission on October
21,
1993).
|
4.3
|
Amended
and Restated 1994 Long Term Incentive and Stock Award Plan (incorporated
by reference to Annex F to the Joint Proxy Statement/Prospectus contained
in the Registrant's Registration Statement on Form S-4 (Commission
File
No. 333-33830) filed with the Commission on April 24, 2000).
|
4.4
|
1996
Directors Stock Option Plan (incorporated by reference to Appendix
A to
the Registrant's Notice of Annual Meeting of Stockholders and Proxy
Statement dated November 4, 1996).
|
4.5
|
2000
Directors Stock Option Plan (incorporated by reference to Annex G
to the
Joint Proxy Statement/Prospectus contained in the Registrant's
Registration Statement on Form S-4 (Commission File No. 333-33830)
filed
with the Commission on April 24, 2000).
|
4.5.1
|
Amendment
No. 1 to 2000 Directors Stock Option Plan (incorporated by reference
to
Exhibit 4.4 to the Registrant's Registration Statement on Form S-8
(Commission File No. 333-111881) filed with the Commission on January
13,
2004).
|
4.6
|
Amended
and Restated 2002 Long Term Incentive and Stock Award Plan (incorporated
by reference to Annex 1 of the Registrant’s Notice of Annual Meeting of
Stockholders and Proxy Statement dated November 3, 2005, filed with
the
Commission on October 31, 2005).
|
4.7(a)
|
Form
of Senior Note under Note Purchase Agreement dated as of May 2,
2006.
|
10.1
|
Amended
and Restated Credit Agreement, dated as of May 2, 2006, by and among
the
Registrant, Bank of America, N.A., as Administrative Agent, Keybank
National Association and Citibank, N.A., as Co-Syndication Agents,
First
Pioneer Farm Credit, ACA and HSBC Bank USA, N.A., as Co-Documentation
Agents, North Fork Bank, as Managing Agent, and the lenders party
thereto
(incorporated by reference to Exhibit 10.1 of the Registrant's Current
Report on Form 8-K filed with the Commission on May 4, 2006).
|
10.2
|
Note
Purchase Agreement, dated as of May 2, 2006, by and among the Registrant
and the several purchasers named therein (incorporated by reference
to
Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed
with the
Commission on May 4, 2006).
|
10.3
|
Employment
Agreement between the Registrant and Irwin D. Simon, dated July 1,
2003
(incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2003,
filed
with the Commission on November 14, 2003).
|
10.4
|
Form
of Indemnification Agreement (incorporated by reference to Exhibit
10.1 of
the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 2004, filed with the Commission on February 9,
2005).
|
10.5
|
Form
of Change in Control Agreement (incorporated by reference to Exhibit
10.2
of the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter
ended December 31, 2004, filed with the Commission on February 9,
2005).
|
10.6
|
Description
of cash compensation to non-management directors (incorporated by
reference to Registrant’s Current Report on Form 8-K, filed with the
Commission on November 4, 2005).
|
21.1(a)
|
Subsidiaries
of Registrant.
|
23.1(a)
|
Consent
of Independent Registered Public Accounting Firm - Ernst & Young LLP.
|
31.1(a)
|
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(a)
|
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(a)
|
Certification
by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section
906 of the Sarbanes-Oxley Act of 2002.
|
32.2(a)
|
Certification
by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section
906 of the Sarbanes-Oxley Act of 2002.
|
a
- Filed
herewith
The
Hain Celestial Group, Inc. and Subsidiaries
Schedule
II - Valuation and Qualifying Accounts
Column
A
|
|
Column
B
|
|
Column
C
|
|
Column
D
|
|
Column
E
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
Balance
at
beginning
of
period
|
|
Charged
to
costs
and
expenses
|
|
Charged
to
other
accounts -
describe
|
|
Deductions
-
describe
|
|
Balance
of
end
of
period
|
|
Year
Ended June 30, 2006 Deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
2,074
|
|
$
|
30
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,104
|
|
Year
Ended June 30, 2005 Deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
2,185
|
|
$
|
68
|
|
$
|
-
|
|
$
|
179(2
|
)
|
$
|
2,074
|
|
Year
Ended June 30, 2004 Deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
1,748
|
|
$
|
437
|
|
$
|
10(1
|
)
|
$
|
10(2
|
)
|
$
|
2,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Allowance for doubtful accounts at dates of acquisitions of acquired
brands.
(2)
Uncollectible accounts written off, net of recoveries.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
By:
/s/
Irwin D. Simon
Irwin D. Simon
President, Chief Executive Officer and
Chairman of the Board of Directors
By:
/s/
Ira J. Lamel
Ira J. Lamel
Executive Vice President and
Chief Financial Officer
|
Date:
September 13, 2006
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature
|
Title
|
Date
|
|
|
|
/s/
Irwin D. Simon
Irwin
D. Simon
|
President,
Chief Executive Officer and Chairman of the Board of
Directors
|
September
13, 2006
|
|
|
|
/s/
Ira J. Lamel
Ira
J. Lamel
|
Executive
Vice President and Chief Financial Officer
|
September
13, 2006
|
|
|
|
/s/
Barry J. Alperin
Barry
J. Alperin
|
Director
|
September
13, 2006
|
|
|
|
/s/
Beth L. Bronner
Beth
L. Bronner
|
Director
|
September
13, 2006
|
|
|
|
/s/
Jack Futterman
Jack
Futterman
|
Director
|
September
13, 2006
|
|
|
|
/s/
Daniel R. Glickman
Daniel
R. Glickman
|
Director
|
September
13, 2006
|
|
|
|
/s/
Marina Hahn
Marina
Hahn
|
Director
|
September
13, 2006
|
|
|
|
/s/
Andrew R. Heyer
Andrew
R. Heyer
|
Director
|
September
13, 2006
|
|
|
|
/s/
Roger Meltzer
Roger
Meltzer
|
Director
|
September
13, 2006
|
|
|
|
/s/
Mitchell A. Ring
Mitchell
A. Ring
|
Director
|
September
13, 2006
|
|
|
|
/s/
Lewis D. Schiliro
Lewis
D. Schiliro
|
Director
|
September
13, 2006
|
|
|
|
/s/
D. Edward I. Smyth
D.
Edward I. Smyth
|
Director
|
September
13, 2006
|
|
|
|
/s/
Larry S. Zilavy
Larry
S. Zilavy
|
Director
|
September
13, 2006
|
-58-