The Hain Celestial Group, Inc. 10Q - 09/30/06
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
[X]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of 1934
For
the
quarterly period ended September 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)
|
11747
(Zip
Code)
|
Registrant’s
telephone number, including area code: (631) 730-2200
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes |X| No |_|
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|
As
of
November 2, 2006 there were 38,990,244 shares outstanding of the registrant’s
Common Stock, par value $.01 per share.
THE
HAIN CELESTIAL GROUP, INC.
INDEX
Part
I
Financial Information
Item
1.
|
Financial
Statements
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets - September 30, 2006
(unaudited)
and June 30, 2006
|
2
|
|
|
|
|
Condensed
Consolidated Statements of Income -
Three
Months ended September 30, 2006 and 2005 (unaudited)
|
3
|
|
|
|
|
Condensed
Consolidated Statement of Stockholders' Equity -
Three
months ended September 30, 2006 (unaudited)
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows -
Three
months ended September 30, 2006 and 2005 (unaudited)
|
5
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations
|
12
|
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures
About
Market Risk
|
15
|
|
|
|
Item
4.
|
Controls
and Procedures
|
16
|
|
|
|
|
Part
II Other Information
|
|
|
|
|
Item
1. |
Legal
Proceedings |
16 |
|
|
Items
1A through 5 are not applicable
|
|
|
|
|
Item 6. |
Exhibits
|
17
|
|
|
|
Signatures
|
|
18
|
PART
I -
FINANCIAL INFORMATION
ITEM
1.
FINANCIAL STATEMENTS
THE
HAIN
CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except per share and share amounts)
|
|
September
30,
2006
|
|
June
30,
2006
|
|
ASSETS
|
|
(Unaudited)
|
|
(Note)
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
78,143
|
|
$
|
48,875
|
|
Accounts
receivable, less allowance for doubtful
accounts
of $2,111 and $2,104
|
|
|
95,215
|
|
|
80,764
|
|
Inventories
|
|
|
111,440
|
|
|
105,883
|
|
Deferred
income taxes
|
|
|
3,843
|
|
|
2,986
|
|
Other
current assets
|
|
|
17,291
|
|
|
21,968
|
|
Total
current assets
|
|
|
305,932
|
|
|
260,476
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
113,982
|
|
|
119,830
|
|
Goodwill
|
|
|
416,836
|
|
|
421,002
|
|
Trademarks
and other intangible assets, net
|
|
|
62,260
|
|
|
61,626
|
|
Other
assets
|
|
|
16,001
|
|
|
14,750
|
|
Total
assets
|
|
$
|
915,011
|
|
$
|
877,684
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
100,281
|
|
$
|
81,894
|
|
Income
taxes payable
|
|
|
8,175
|
|
|
3,083
|
|
Current
portion of long-term debt
|
|
|
840
|
|
|
1,065
|
|
Total
current liabilities
|
|
|
109,296
|
|
|
86,042
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
151,172
|
|
|
151,229
|
|
Deferred
income taxes
|
|
|
19,086
|
|
|
19,086
|
|
Total
liabilities
|
|
|
279,554
|
|
|
256,357
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
5,184
|
|
|
4,926
|
|
|
|
|
|
|
|
|
|
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 39,831,121 and 39,583,671 shares
|
|
|
398
|
|
|
396
|
|
Additional
paid-in capital
|
|
|
450,657
|
|
|
446,319
|
|
Retained
earnings
|
|
|
174,068
|
|
|
165,034
|
|
Foreign
currency translation adjustment
|
|
|
17,895
|
|
|
17,397
|
|
|
|
|
643,018
|
|
|
629,146
|
|
Less:
861,256 shares of treasury stock, at cost
|
|
|
(12,745
|
)
|
|
(12,745
|
)
|
Total
stockholders' equity
|
|
|
630,273
|
|
|
616,401
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
915,011
|
|
$
|
877,684
|
|
Note:
The
balance sheet at June 30, 2006 has been derived from the audited financial
statements at that date.
See
notes
to condensed consolidated financial statements.
THE
HAIN
CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In
thousands, except per share and share amounts)
|
|
Three
Months Ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
210,207
|
|
$
|
161,097
|
|
Cost
of sales
|
|
|
151,065
|
|
|
115,248
|
|
Gross
profit
|
|
|
59,142
|
|
|
45,849
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
41,846
|
|
|
33,869
|
|
Operating
income
|
|
|
17,296
|
|
|
11,980
|
|
|
|
|
|
|
|
|
|
Interest
and other expenses, net
|
|
|
1,820
|
|
|
868
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
15,476
|
|
|
11,112
|
|
Provision
for income taxes
|
|
|
6,442
|
|
|
4,221
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
9,034
|
|
$
|
6,891
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.23
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.23
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
|
38,746
|
|
|
36,636
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
40,023
|
|
|
37,560
|
|
|
|
|
|
|
|
|
|
See
notes
to condensed consolidated financial statements.
THE
HAIN
CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR
THE
THREE MONTHS ENDED SEPTEMBER 30, 2006
(In
thousands, except per share and share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
Common
Stock
|
|
Additional
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Paid-in
|
|
Retained
|
|
Treasury
Stock
|
|
Translation
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
at
$.01
|
|
Capital
|
|
Earnings
|
|
Shares
|
|
Amount
|
|
Adjustment
|
|
Total
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2006
|
|
|
39,583,671
|
|
$
|
396
|
|
$
|
446,319
|
|
$
|
165,034
|
|
|
861,256
|
|
$
|
(12,745
|
)
|
$
|
17,397
|
|
$
|
616,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
247,450
|
|
|
2
|
|
|
4,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
compensation charge
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
9,034
|
|
|
|
|
|
|
|
|
|
|
|
9,034
|
|
$
|
9,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
498
|
|
|
498
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,532
|
|
Balance
at September 30, 2006
|
|
|
39,831,121
|
|
$
|
398
|
|
$
|
450,657
|
|
$
|
174,068
|
|
|
861,256
|
|
$
|
(12,745
|
)
|
$
|
17,895
|
|
$
|
630,273
|
|
|
|
|
See
notes
to condensed consolidated financial statements.
THE
HAIN
CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In
thousands)
|
|
Three
Months Ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
CASH
FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
9,034
|
|
$
|
6,891
|
|
Adjustments
to reconcile net income to net cash
provided
by operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,319
|
|
|
3,207
|
|
Deferred
income tax benefit
|
|
|
(857
|
)
|
|
-
|
|
Non-cash
compensation
|
|
|
75
|
|
|
1,020
|
|
Gain
on sale of Biomarché
|
|
|
(2,510
|
)
|
|
-
|
|
Other
non-cash items, net
|
|
|
95
|
|
|
90
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash attributable to changes in operating assets
and
liabilities,
net of amounts applicable to acquired/disposed businesses:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(16,374
|
)
|
|
(4,340
|
)
|
Inventories
|
|
|
(5,880
|
)
|
|
(6,594
|
)
|
Other
current assets
|
|
|
4,287
|
|
|
(439
|
)
|
Other
assets
|
|
|
898
|
|
|
1,711
|
|
Accounts
payable and accrued expenses
|
|
|
22,925
|
|
|
(5,409
|
)
|
Income
taxes, net
|
|
|
4,861
|
|
|
4,392
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
19,873
|
|
|
529
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(3,553
|
)
|
|
(3,108
|
)
|
Proceeds
from disposals of property and equipment
|
|
|
2,665
|
|
|
-
|
|
Acquisitions
of business, net of cash acquired
|
|
|
-
|
|
|
(4,257
|
)
|
Proceeds
from sale of Biomarché
|
|
|
8,160
|
|
|
-
|
|
Loan
to affiliate
|
|
|
(1,911
|
)
|
|
-
|
|
Net
cash provided by (used in) investing activities
|
|
|
5,361
|
|
|
(7,365
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds
from exercises of stock options, net of related expenses
|
|
|
4,265
|
|
|
2,974
|
|
Repayments
of other long-term debt, net
|
|
|
(239
|
)
|
|
(401
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
4,026
|
|
|
2,573
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
8
|
|
|
145
|
|
Net
(increase) in cash and cash equivalents
|
|
|
29,268
|
|
|
(4,118
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
48,875
|
|
|
24,139
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
78,143
|
|
$
|
20,021
|
|
See
notes
to condensed consolidated financial statements.
THE
HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The
Hain
Celestial Group,
Inc., a
Delaware corporation, and its subsidiaries (collectively, the “Company”, and
herein
referred to as “we”,“us”,
and
“our”) manufacture,
market, distribute and sell
natural
and organic food 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. In our 2006 fiscal year, approximately 47% of our revenues were
derived from products that were manufactured within our own facilities with
53%
produced by various co-packers.
All
dollar
amounts in our condensed consolidated financial statements and tables have
been
rounded to the nearest thousand dollars, except per share amounts. Share amounts
in the notes to condensed consolidated financial statements are presented in
thousands.
2. BASIS
OF PRESENTATION
Our
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10
of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States. The condensed consolidated financial statements reflect all normal
recurring adjustments which, in management’s opinion, are necessary for a fair
presentation for interim periods. Operating results for the three months ended
September 30, 2006 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2007. Please refer to the footnotes to
our
consolidated financial statements as of June 30, 2006 and for the year then
ended included in our Annual Report on Form 10-K, for information not included
in these condensed footnotes.
Results
previously reported for the three months ended September 30, 2005 have been
adjusted to reflect charges in connection with the requirements of Statement
of
Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS
No. 123(R)”). 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 SFAS No. 123(R) as
the
“requisite service period.” The requisite service period related to the July
2006 un-granted options was completed during the fiscal year ended June 30,
2006. These options remain un-granted at November 6, 2006. Results for the three
months ended September 30, 2005 have been reduced from those previously reported
by $0.8 million ($0.5 million net of tax) or $0.01 per diluted share. The
requisite service period related to the July 2005 un-granted options was
completed on June 30, 2005, which was prior to the required implementation
of
SFAS No. 123(R), and therefore, no expense has been recorded for the July 2005
options. The Company will incur a charge to earnings at such time as those
options are granted.
THE
HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-Continued
3. 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:
|
|
Three
Months Ended September 30,
|
|
|
|
2006
|
|
2005
|
|
Numerator:
Net
income
|
|
$
|
9,034
|
|
$
|
6,891
|
|
Denominator
for basic earnings per
share
- weighted average shares
outstanding
during the period
|
|
|
38,746
|
|
|
36,636
|
|
Effect
of dilutive stock options
|
|
|
1,277
|
|
|
924
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted earnings per
share
- adjusted weighted average
shares
and assumed conversions
|
|
|
40,023
|
|
|
37,560
|
|
Basic
net income per share
|
|
$
|
0.23
|
|
$
|
0.19
|
|
Diluted
net income per share
|
|
$
|
0.23
|
|
$
|
0.18
|
|
Options
totaling 1,412 in fiscal 2007 and 3,013 in fiscal 2006 were excluded from our
earnings per share calculations as their effects would have been
anti-dilutive.
4. INVENTORIES
Inventories
consisted of the following:
|
|
September
30,
|
|
June
30,
|
|
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
Finished
goods
|
|
$
|
64,063
|
|
$
|
64,771
|
|
Raw
materials, work-in-progress
|
|
|
|
|
|
|
|
and
packaging
|
|
|
47,377
|
|
|
41,112
|
|
|
|
$
|
111,440
|
|
$
|
105,883
|
|
THE
HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-Continued
5. PROPERTY,
PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following:
|
|
September
30,
|
|
June
30,
|
|
|
|
2006
|
|
2006
|
|
Land
|
|
$
|
9,425
|
|
$
|
10,958
|
|
Buildings
and improvements
|
|
|
|
|
|
38,483
|
|
Machinery
and equipment
|
|
|
112,868
|
|
|
113,958
|
|
Furniture
and fixtures
|
|
|
5,992
|
|
|
6,107
|
|
Leasehold
improvements
|
|
|
2,595
|
|
|
3,120
|
|
Construction
in progress
|
|
|
3,029
|
|
|
2,257
|
|
|
|
|
168,738
|
|
|
174,883
|
|
Less:
Accumulated depreciation
|
|
|
|
|
|
|
|
and
amortization
|
|
|
54,756
|
|
|
55,053
|
|
|
|
$
|
113,982
|
|
$
|
119,830
|
|
6.
GOODWILL
AND OTHER INTANGIBLE ASSETS
Goodwill
and indefinite-life intangible assets must be tested for impairment at least
annually. We perform a test for impairment during the fourth quarter of our
fiscal year. In accordance with SFAS No. 142, “Goodwill and Other Intangible
Assets”, we have evaluated the fair value of our goodwill and indefinite-life
intangible assets and, based on such evaluations, no impairment existed through
June 30, 2006. Amounts assigned to indefinite-life intangible assets primarily
represent the values of trademarks.
Changes
in
the carrying amount of goodwill for the three months ended September 30, 2006
were as follows:
Balance
as of July 1, 2006
|
|
$
|
421,002
|
|
Sale
of Biomarché
|
|
|
(3,350
|
)
|
Translation
and other adjustments
|
|
|
(816
|
)
|
Balance
as of September 30, 2006
|
|
$
|
416,836
|
|
Included
in translation and other adjustments during the three months ended September
30,
2006 are the impacts of changes in foreign currency exchange rates on goodwill
and adjustments to our estimates of fair value of net assets acquired. We are
continuing to evaluate the initial purchase price allocations of certain
acquisitions and will adjust the allocations as additional information relative
to the fair values of the assets and liabilities of the acquired businesses
becomes known. We are also in the process of obtaining or finalizing appraisals
of tangible and intangible assets for certain acquisitions. Accordingly,
management has used its best estimate in the initial purchase price allocation
as of the date of these financial statements.
THE
HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-Continued
|
|
September
30, 2006
|
|
June
30, 2006
|
|
|
|
Gross
Carrying Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying Amount
|
|
Accumulated
Amortization
|
|
Amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
intangibles
|
|
$
|
3,345
|
|
$
|
1,596
|
|
$
|
4,025
|
|
$
|
2,763
|
|
Non-amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
67,163
|
|
|
6,652
|
|
|
67,017
|
|
|
6,653
|
|
Amortization
of amortized intangible assets amounted to $0.2 million in the three months
ended September 30, 2006, and these intangibles are expected to be completely
amortized over the next five years.
7. ACQUISITIONS
AND DISPOSAL
In
fiscal
2006, our acquisitions included Spectrum Organic Products, Inc., 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; 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; and the fresh prepared foods
business based in Luton, England, and the Linda McCartney® brand (under license)
of frozen meat-free products, including its manufacturing facility, based in
Fakenham, England, both acquired from the H. J. Heinz Company. As of September
30, 2006, the purchase accounting for these acquisitions are still subject
to
final adjustment for valuations and certain pre-acquisition
contingencies.
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 period shown. This information has not been adjusted
to reflect any changes in the operations of these businesses subsequent to
their
acquisition by us. Changes in operations of these acquired businesses include,
but are not limited to, 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.
|
|
Three
months ended September 30, 2005
|
|
|
|
|
|
Net
sales
|
|
$
|
201,009
|
|
Net
income
|
|
$
|
6,942
|
|
Earnings
per share:
Basic
|
|
$
|
0.18
|
|
Diluted
|
|
$
|
0.18
|
|
Weighted
average shares:
Basic
|
|
|
37,664
|
|
Diluted
|
|
|
38,559
|
|
THE
HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-Continued
In
management’s opinion, the unaudited pro forma results of operations are not
indicative of the actual results that would have occurred had the above
acquisitions been consummated at the beginning of the period presented or of
future operations of the combined companies under our management.
On
August
31, 2006, we completed the sale of Biomarché, our Belgium-based provider of
fresh organic fruits and vegetables, to Pro Natura, 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. We
recognized a pretax gain of $2.5 million, net of a $3.3 million charge for
goodwill allocated to that unit, ($1.1 million after tax) in connection with
the
sale, which is included in “Interest and other expenses, net” in the
accompanying condensed consolidated statement of income. The results of
operations and cash flows for Biomarché for the two months ended August 31,
2006, which were not material, are included in the condensed consolidated
statements of income and of cash flows, respectively.
8. SENIOR
NOTES AND CREDIT FACILITY
On
May 2,
2006, we issued $150 million in aggregate principal amount of senior notes
due
May 2, 2016 in a private placement. 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 September
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.
9. STRATEGIC
ALLIANCE WITH YHS
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 expected 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 is carried at cost and is included in other assets
in
the accompanying condensed consolidated balance sheet. The market value of
the
YHS shares on the Singapore Exchange at September 30, 2006 approximates their
carrying value.
THE
HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-Continued
10. 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.
Outside
the United States, we primarily conduct business in Canada and Europe. Selected
information related to our operations by geographic area is as follows:
|
Three
months ended September 30,
|
|
2006
|
|
2005
|
|
|
United
States
|
|
Canada
|
|
Europe
|
|
United
States
|
|
Canada
|
|
Europe
|
|
Net
sales
|
$
|
156,669
|
|
$
|
14,269
|
|
$
|
39,269
|
|
$
|
130,329
|
|
$
|
12,000
|
|
$
|
18,768
|
|
Earnings
before income taxes
|
|
10,558
|
|
|
1,907
|
|
|
3,011
|
|
|
9,063
|
|
|
967
|
|
|
1,082
|
|
Long
lived assets
|
|
508,318
|
|
|
53,744
|
|
|
47,017
|
|
|
432,765
|
|
|
55,720
|
|
|
36,406
|
|
11. RECENT
ACCOUNTING PRONOUNCEMENTS
In
June
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - an Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN
No. 48 clarifies the accounting for uncertainty in income taxes recognized
in
financial statements in accordance with FASB Statement No. 109, “Accounting for
Income Taxes.” This Interpretation prescribes a recognition threshold and
measurement attribute of tax positions taken or expected to be taken on a tax
return. FIN No. 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. This Interpretation is effective for the first fiscal year beginning
after December 15, 2006. We are currently evaluating the impact FIN No. 48
may
have on our consolidated financial statements.
In
June
2006, the FASB’s Emerging Issues Task Force (EITF) reached a consensus on Issue
No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That Is, Gross versus
Net Presentation)” (“EITF No. 06-3”). The scope of EITF No. 06-3 includes any
tax assessed by a governmental authority that is directly imposed on a
revenue-producing activity between a seller and a customer and may include,
but
is not limited to, sales, use, value added, and some excise taxes. EITF No.
06-3
requires disclosure of the method of accounting for the applicable assessed
taxes and the amount of assessed taxes that are included in revenues if they
are
accounted for under the gross method. EITF No. 06-3 is effective for interim
and
annual periods beginning after December 15, 2006. EITF No. 06-3 will not impact
the method for recording these taxes in our consolidated financial statements.
We currently present these taxes on a net basis and have elected not to change
our presentation method.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure of fair value measurements. SFAS
No.
157 applies under other accounting pronouncements that require or permit fair
value measurements and accordingly, does not require any new fair value
measurements. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. We have not yet assessed the
impact, if any, that the implementation of SFAS No. 157 will have on our
consolidated results of operations or financial condition.
THE
HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-Continued
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”).
SAB No. 108 provides guidance on how prior year misstatements should be taken
into consideration when quantifying misstatements in current year financial
statements for purposes of determining whether the current year’s financial
statements are materially misstated. SAB No. 108 requires registrants to apply
the new guidance for the first time that it identifies material errors in
existence at the beginning of the first fiscal year ending after November 15,
2006 by correcting those errors through a one-time cumulative effect adjustment
to beginning-of-year retained earnings. We are currently evaluating SAB No.
108
and have not yet determined the impact on our consolidated results of operations
or financial position.
ITEM
2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Overview
We
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’s®, 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®, Queen Helene®, Batherapy®, Shower Therapy®, Footherapy®,
Orjene®, Shaman Earthly Organics™,
and
Heather’s® brands. Our natural and organic antibiotic-free chicken is marketed
under the FreeBird™
brand.
Our website is www.hain-celestial.com.
Our
products are sold primarily to specialty and natural food distributors,
supermarkets, natural food stores, and other retail classes of trade including
mass-market stores, drug stores, food service channels and club stores.
Our
brand
names are well recognized in the various market categories they serve. We have
acquired numerous brands and we will seek future growth through internal
expansion as well as the acquisition of additional complementary brands.
Our
overall mission is to be a leading marketer and seller of natural, organic,
beverage, snack, specialty food and personal care products by integrating all
of
our brands under one management team and employing a uniform marketing, sales
and distribution program. Our business strategy is to capitalize on the brand
equity and the distribution previously achieved by each of our acquired product
lines and to enhance revenues by strategic introductions of new product lines
that complement existing products.
Results
of Operations
Three
months ended September 30, 2006
Net
sales
for the three months ended September 30, 2006 were $210.2 million, an increase
of $49.1 million, or 30.5%, over net sales of $161.1 million in the September
30, 2005 quarter. Sales of our recently acquired Para Laboratories personal
care
brands, Spectrum Organic brands and our frozen meat-free and fresh prepared
foods operations in the United Kingdom are included only in the current year’s
quarter. Sales of grocery and snacks increased 21% with the addition of sales
from our acquired Spectrum Organic brands and from successful new product
introductions. Sales of our Celestial Seasonings® tea brand were down 2%,
principally as a result of lower consumption of green tea and continued warmer
than normal temperatures in the United States. Sales of our personal care brands
increased 82%, with sales from our acquired Para brands and strong growth
from our JASON® brand. Sales for our brands in Canada were up 14% as a result of
increased sales of our refrigerated and frozen products and currency benefits.
Sales in Europe were up 109%, primarily as a result of our recently acquired
United Kingdom operations.
Gross
profit for the three months ended September 30, 2006 was $59.1 million, an
increase of $13.3 million from last year’s quarter. Gross profit for the three
months ended September 30, 2006 was 28.1% of net sales as compared to 28.5%
of
net sales for the September 30, 2005 quarter. The decrease in gross profit
percentage was principally the result of approximately $1.1 million of start-up
costs associated with a new production line at our West Chester frozen foods
facility (a reduction of 53 basis points) and the inclusion of our recently
acquired United Kingdom operations. In the United Kingdom, we continue to
co-pack for the previous owner at one of the facilities under an agreement
allowing for a minimal margin and, as a result, during the term of the co-pack
arrangement our gross margin generated in the United Kingdom will be depressed
even though the arrangement helps absorb what otherwise may be unabsorbed
overhead. The effect on our gross profit percentage this quarter was a full
100
basis points reduction from the lower margins in the United Kingdom. In
addition, higher costs for petroleum and natural gas continue to impact our
overall business, both directly with increased inbound and outbound delivery
costs, and indirectly with the pass-through of costs from our suppliers of
packaging and other major components of our finished products.
Selling,
general and administrative expenses increased by $8.0 million, or 23.6%, to
$41.8 million for the three months ended September 30, 2006 as compared to
$33.9
million in the September 30, 2005 quarter. Selling, general and administrative
expenses have increased primarily as a result of costs brought on by the
businesses we acquired in 2006. We also increased spending in certain
advertising and promotional programs in the first quarter of this year. We
have
been successful in leveraging our existing infrastructure as selling, general
and administrative expenses as a percentage of net sales declined to 19.9%
in
the first quarter of fiscal 2007 as compared to 21.0% in the first quarter
of
last year.
Operating
income was $17.3 million in the three months ended September 30, 2006 compared
to $12.0 million in the September 30, 2005 quarter. Operating income as a
percentage of net sales was 8.2% in the September 30, 2006 quarter compared
with
7.4% in the September 30, 2005 quarter. The increase in operating income is
a
result of our increased net sales and gross profit. The improvement in operating
income as a percentage of net sales resulted from our ability to leverage our
selling, general and administrative expenses over the increased sales
base.
Interest
and other expenses, net were $1.8 million for the three months ended September
30, 2006 compared to $0.9 million for the three months ended September 30,
2005.
Interest expense totaled $2.5 million in this year’s first quarter, which was
primarily related to the $150 million of 5.98% senior notes we issued in the
fourth quarter of last fiscal year and was partially offset by $0.6 million
of
interest income earned. Net interest expense in last year’s first quarter was
approximately $0.9 million. We also recorded a $2.2 million charge in the
quarter ended September 30, 2006 for a value added tax assessment resulting
from
an unfavorable decision by the German government in connection with our sales
of
non-dairy beverages in Germany. At the end of August 2006 we sold Biomarché, our
Belgium-based provider of fresh organic fruits and vegetables and recognized
a
gain on the disposal of approximately $2.5 million, net of a $3.3 million charge
for goodwill allocated to that component of the reporting unit.
Income
before income taxes for the three months ended September 30, 2006 amounted
to
$15.5 million compared to $11.1 million in the comparable period of the prior
year. This increase was primarily attributable to the increase in operating
income.
Our
effective income tax rate was 41.6% of pre-tax income for the three months
ended
September 30, 2006 compared to 38.1% for the three months ended September 30,
2005. The effective tax rate for the first quarter of fiscal 2007 was higher
than the comparable period in the prior year as a result of the unfavorable
impact of the nondeductible goodwill expensed in connection with the sale of
Biomarché.
Net
income
for the three months ended September 30, 2006 was $9.0 million compared to
$6.9
million in the September 30, 2005 quarter. The increase of $2.1 million in
earnings was primarily attributable to the increase in sales and the resultant
increase in gross profit dollars.
Liquidity
and Capital Resources
We
finance
our operations and growth primarily with the cash flows we generate from our
operations and from both long-term fixed-rate borrowings and borrowings
available to us under our Credit Facility.
Our
cash
balance increased $29.3 million to $78.1 million during the three months ended
September 30, 2006. Net cash provided by operating activities was $19.9 million
for the first three months of fiscal 2007, compared to net cash provided by
operating activities of $0.5 million in the three months ended September 30,
2005. The increase in cash provided by operations in 2007 resulted from improved
working capital management. Our working capital increased to $196.6 million
at
September 30, 2006 compared with $174.4 million at June 30, 2006.
We
had
$5.4 million of cash provided by investing activities in the three months ended
September 30, 2006. This consisted of $8.2 million of proceeds from the sale
of
Biomarché, our Belgium-based provider of fresh organic fruits and vegetables,
and $2.7 million of proceeds from the disposals of fixed assets, offset by
$3.6
million of capital expenditures and a $1.9 million loan to an affiliated joint
venture. In the three months ended September 30, 2005, we used $7.4 million
of
cash in investing activities. We used $4.3 million for the acquisition of the
business that became Hain Pure Protein and $3.1 million for the purchase of
property, plant and equipment.
Net
cash
of $4.0 million was provided by financing activities for the three months ended
September 30, 2006 compared to $2.6 million provided for the three months ended
September 30, 2005. The change was due principally to an increase in the
proceeds from exercises of stock options to $4.3 million in the first quarter
of
fiscal 2007 from $3.0 million in fiscal 2006, offset by repayments of other
long-term debt of $0.2 million for the three months ended September 30, 2006
and
$0.4 million for the September 30, 2005 quarter.
We
maintain our cash and cash equivalents primarily in money market funds or their
equivalent. As of September 30, 2006, all of our investments mature in less
than
three months. Accordingly, we do not believe that our investments have
significant exposure to interest rate risk.
On
May 2,
2006, we issued $150 million in aggregate principal amount of senior notes
due
May 2, 2016 in a private placement. 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 September 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. We were in
compliance with all of the covenants as of September 30, 2006.
This
access to capital provides us with the flexibility to address our working
capital needs in the ordinary course of business, the opportunity to grow our
business through acquisitions and the ability to develop our existing
infrastructure through capital investment.
We
believe
that our cash on hand of $78.1 million at September 30, 2006, projected
remaining 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 for the current fiscal year,
and scheduled debt and lease payments of approximately $5 million over the
next
twelve months.
Critical
Accounting Policies
Our
financial statements are prepared in accordance with accounting principles
generally accepted in the United States. The accounting principles we use
require us to make estimates and assumptions that affect the reported amounts
of
assets and liabilities at the date of the financial statements and amounts
of
income and expenses during the reporting periods presented. We believe in the
quality and reasonableness of our critical accounting policies; however, it
is
likely that materially different amounts would be reported under different
conditions or using assumptions different from those that we have consistently
applied. The accounting policies that have been identified as critical to our
business operations and understanding the results of our operations pertain
to
revenue recognition and sales incentives, valuation of accounts and chargebacks
receivable, inventories, property, plant and equipment, goodwill and intangibles
and segments. The application of each of these critical accounting policies
and
estimates was discussed in Item 7 of our Annual Report on Form 10-K for the
year
ended June 30, 2006. There have been no significant changes in the application
of these critical accounting policies or estimates during fiscal
2007.
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
The
Company does not believe that inflation had a significant impact on the
Company’s results of operations for the periods presented.
Note
Regarding Forward Looking Information
Certain
statements contained in this Quarterly Report constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1934 and
Sections 21E of the Securities Exchange Act of 1934. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
that
may cause the actual results, levels of activity, performance or achievements
of
the Company, or industry results, to be materially different from any future
results, levels of activity, performance or achievements expressed or implied
by
such forward-looking statements.
Such
factors include, among others, the following: general economic and business
conditions; our ability to implement our business and acquisition strategy;
the
ability to effectively integrate our acquisitions; competition; availability
of
key personnel; changes in, or the failure to comply with government regulations;
and other risks detailed from time-to-time in the Company’s reports filed with
the Securities and Exchange Commission, including the report on Form 10-K,
and
any amendments thereto, for the fiscal year ended June 30, 2006. As a result
of
the foregoing and other factors, no assurance can be given as to future results,
levels of activity and achievements and neither the Company nor any person
assumes responsibility for the accuracy and completeness of these
statements.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There
have
been no material changes in the reported market risks since the end of the
most
recent fiscal year.
ITEM
4. CONTROLS
AND PROCEDURES
(a) Evaluation
of Disclosure Controls and Procedures.
Our
Chief
Executive Officer and Chief Financial Officer have reviewed our disclosure
controls and procedures as of the end of the period covered by this report.
Based upon this review, 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 Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
(b) Changes in
Internal Control Over Financial Reporting.
There
was
no change in our internal control over financial reporting during the fiscal
quarter covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
ITEM
1.
LEGAL PROCEEDINGS
A
purported shareholder derivative action was filed against the Company (solely
as
a nominal defendant) and certain current and former officers and directors
in
the Supreme Court of the State of New York, County of Suffolk, alleging breaches
of fiduciary duties and unjust enrichment in connection with the Company's
past
stock option practices. The plaintiff seeks unspecified damages, disgorgement
of
options, attorneys fees and expenses, and other unspecified equitable relief
from the defendants. The Company became aware of the complaint on November
9,
2006, which had been filed on September 21, 2006.
Over
the
past few months, at the direction of the Board of Directors, the Company
has
carefully reviewed its historical stock option grants. The Company is confident
that there has not been any inappropriate conduct and does not expect any
restatement of its financial statements. The Company's independent accountants
issued an unqualified audit opinion for the fiscal year ended June 30, 2006,
and
all annual and interim financial statements have been filed on a timely
basis.
Despite
assertions in the complaint to the contrary, to the Company's knowledge,
the
Company has not been subject to any regulatory investigation regarding its
stock
option practices. The Company believes that the lawsuit is without
merit.
ITEM
6. EXHIBITS
Exhibit
Number |
Description |
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as amended.
|
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as amended.
|
|
|
32.1
|
Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.2
|
Certification
by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
THE
HAIN CELESTIAL GROUP, INC.
|
|
|
|
|
|
|
Date:
November 9, 2006
|
/s/
Irwin D Simon
|
|
Irwin
D. Simon,
|
|
Chairman,
President and Chief
|
|
Executive
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
November 9, 2006
|
/s/
Ira J. Lamel
|
|
Ira
J. Lamel,
|
|
Executive
Vice President and
|
|
Chief
Financial Officer
|
18