NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except par values and per share data)
1. BUSINESS
The Hain Celestial Group, Inc., a Delaware corporation (collectively, along with its subsidiaries, the “Company,” and herein referred to as “Hain Celestial,” “we,” “us” and “our”), was founded in 1993 and is headquartered in Lake Success, New York. The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet — To Create and Inspire A Healthier Way of Life
TM
and be the leading marketer, manufacturer and seller of organic and natural, “better-for-you” products by anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience. The Company is committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over
80
countries worldwide.
The Company manufactures, markets, distributes and sells organic and natural products under brand names that are sold as “better-for-you” products, providing consumers with the opportunity to lead A Healthier Way of Life™. Hain Celestial is a leader in many organic and natural products categories, with many recognized brands in the various market categories it serves, including Almond Dream
®
, Arrowhead Mills
®
, Bearitos
®
, Better Bean
®
, BluePrint
®
, Casbah
®
, Celestial Seasonings
®
, Clarks™, Coconut Dream
®
, Cully & Sully
®
, Danival
®
, DeBoles
®
, Earth’s Best
®
, Ella’s Kitchen
®
, Europe’s Best
®
, Farmhouse Fare™, Frank Cooper’s
®
, Gale’s
®
, Garden of Eatin’
®
, GG UniqueFiber
®
, Hain Pure Foods
®
, Hartley’s
®
, Health Valley
®
, Imagine
®
, Johnson’s Juice Co.™, Joya
®
, Lima
®
, Linda McCartney
®
(under license), MaraNatha
®
, Mary Berry (under license), Natumi
®
, New Covent Garden Soup Co.
®
, Orchard House
®
, Rice Dream
®
, Robertson’s
®
, Rudi’s Gluten-Free Bakery™, Rudi’s Organic Bakery
®
, Sensible Portions
®
, Spectrum
®
Organics, Soy Dream
®
, Sun-Pat
®
, Sunripe
®
, SunSpire
®
, Terra
®
, The Greek Gods
®
, Tilda
®
, Walnut Acres
®
, Yorkshire Provender
®
, Yves Veggie Cuisine
®
and William’s™. The Company’s personal care products are marketed under the Alba Botanica
®
, Avalon Organics
®
, Earth’s Best
®
, JASON
®
, Live Clean
®
and Queen Helene
®
brands.
2. BASIS OF PRESENTATION
The Company’s unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP. The amounts as of and for the periods ended
June 30, 2018
are derived from the Company’s audited annual financial statements. The unaudited 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 and nine months ended
March 31, 2019
are not necessarily indicative of the results that may be expected for the fiscal year ending
June 30, 2019
. Please refer to the Notes to the Consolidated Financial Statements as of
June 30, 2018
and for the fiscal year then ended included in the Company’s Annual Report on Form 10-K for the fiscal year ended
June 30, 2018
(the “Form 10-K”) for information not included in these condensed notes.
The Company is presenting the operating results and cash flows of the Hain Pure Protein reportable segment within discontinued operations in the current and prior periods. The assets and liabilities of the Hain Pure Protein reportable segment are presented as assets and liabilities of discontinued operations in the Consolidated Balance Sheets for all periods presented.
All amounts in the unaudited consolidated financial statements, notes and tables have been rounded to the nearest thousand, except par values and per share amounts, unless otherwise indicated.
Newly Adopted Accounting Pronouncements
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Topic 606).
This guidance outlines a single, comprehensive model for accounting for revenue from contracts with customers, providing a single five-step model to be applied to all revenue transactions. The guidance also requires improved disclosures to assist users of the financial statements to better understand the nature, amount, timing and uncertainty of revenue that is recognized. Subsequent to the issuance of ASU 2014-09, the FASB issued various additional ASUs clarifying and amending this new revenue guidance. The Company adopted the new revenue standard on July 1, 2018 using the modified retrospective transition method. The adoption did not materially impact our results of operations or financial position, and, as a result, comparisons of revenues and operating profit between periods were not materially affected by the adoption of ASU 2014-09. The Company recorded a net increase to beginning retained earnings of
$163
on July 1, 2018 due to the cumulative impact of adopting ASU 2014-09. Additionally, as our products exhibit similar economic characteristics, are sold through similar channels to similar customers and are recognized at a point in time, we have concluded that the Company’s segment disclosures in Note 17,
Segment Information,
are indicative of the level of revenue disaggregation required under ASU 2014-09.
ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10)
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The pronouncement also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. We adopted ASU 2016‑01 in the three months ended September 30, 2018, which resulted in a net decrease to beginning retained earnings of
$348
on July 1, 2018, representing the accumulated unrealized losses (net of tax) reported in accumulated other comprehensive income (loss) for available-for-sale equity securities on June 30, 2018. We no longer classify equity investments as trading or available-for-sale and will no longer recognize unrealized holding gains and losses on equity securities previously classified as available-for-sale in other comprehensive income (loss) as a result of adoption of ASU 2016-01.
Recently Issued Accounting Pronouncements Not Yet Effective
In February 2016, the FASB issued ASU 2016-02,
Leases (ASC 842)
. The amendments in this ASU replace most of the existing U.S. GAAP lease accounting guidance in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The ASU requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB approved amendments to create an optional transition method that will provide an option to use the effective date of ASC 842 as the date of initial application of the transition. Under the new transition method, a reporting entity would initially apply the new lease requirements at the effective date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, continue to report comparative periods presented in the financial statements in the period of adoption in accordance with current U.S. GAAP (i.e., ASC 840, Leases) and provide the required disclosures under ASC 840 for all periods presented under current U.S. GAAP. We will adopt the standard effective July 1, 2019.
As part of the Company’s assessment work to-date, the Company has formed an implementation work team to perform a comprehensive evaluation of the impact of the adoption of this guidance, which includes assessing the Company’s lease portfolio, the impact to business processes and internal controls over financial reporting and the related disclosure requirements. Additionally, the Company is implementing lease accounting software to assist in the quantification of the expected impact on the Consolidated Balance Sheet and to facilitate the calculations of the related accounting entries and disclosures, as well as to facilitate accounting, presentation and disclosure for all leases after the initial date of application under the new standard.
While the Company is continuing to assess all potential impacts of the standard, the most significant impact relates to the recognition of new right-of-use assets and lease liabilities on the balance sheet for manufacturing, warehouse and office space operating leases. We believe that all of these leases will continue to be classified as operating leases under the new standard. We expect the accounting for capital leases to remain substantially unchanged.
Refer to Note 2,
Summary of Significant Accounting Policies and Practices
, in the Notes to the Consolidated Financial Statements as of
June 30, 2018
and for the fiscal year then ended included in the Form 10-K for a detailed discussion on additional recently
issued accounting pronouncements not yet adopted by the Company. There has been no change to the statements made in the Form 10-K as of the date of filing of this Form 10-Q.
3. CHIEF EXECUTIVE OFFICER SUCCESSION PLAN
On June 24, 2018, the Company entered into a Chief Executive Officer (“CEO”) Succession Agreement (the “Succession Agreement”), whereby the Company’s former CEO, Irwin D. Simon, agreed to terminate his employment with the Company upon the hiring of a new CEO.
On October 26, 2018, the Company’s Board of Directors appointed Mark L. Schiller as President and CEO, succeeding Mr. Simon. In connection with the appointment, on October 26, 2018, the Company and Mr. Schiller entered into an employment agreement, which was approved by the Board, with Mr. Schiller’s employment commencing on November 5, 2018. Accordingly, Mr. Simon’s employment with the Company terminated on November 4, 2018.
Cash Separation Payments
The Succession Agreement provides Mr. Simon with a cash separation payment of
$34,295
payable in a single lump sum and cash benefit continuation costs of
$208
. These costs were recognized from June 24, 2018 through November 4, 2018. Expense recognized in connection with the agreement was
$33,051
in the
nine months ended
March 31, 2019
, and are included in the Consolidated Statement of Operations as a component of “Chief Executive Officer Succession Plan expense, net.” As of
March 31, 2019
, the total cash separation payment was held in a rabbi trust, which has been classified as restricted cash and included in accrued expenses and other current liabilities in the Consolidated Balance Sheet. The cash separation payment was paid on May 6, 2019.
Consulting Agreement
On October 26, 2018, the Company and Mr. Simon entered into a Consulting Agreement (the “Consulting Agreement”) in order to, among other things, assist Mr. Schiller with his transition as the Company’s incoming CEO. The term of the Consulting Agreement commenced on November 5, 2018 and continued until February 5, 2019. Mr. Simon was entitled to receive an aggregate consulting fee of
$975
as compensation for his services during the consulting term, of which
$325
and
$975
was recognized in the Consolidated Statement of Operations as a component of “Chief Executive Officer Succession Plan expense, net” in the
three and nine months ended
March 31, 2019
, respectively.
4. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
$
|
10,088
|
|
|
$
|
25,241
|
|
|
$
|
(42,291
|
)
|
|
$
|
86,984
|
|
|
Net loss from discontinued operations, net of tax
|
(75,925
|
)
|
|
(12,555
|
)
|
|
(127,472
|
)
|
|
(7,349
|
)
|
|
Net (loss) income
|
$
|
(65,837
|
)
|
|
$
|
12,686
|
|
|
$
|
(169,763
|
)
|
|
$
|
79,635
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
104,117
|
|
|
103,918
|
|
|
104,045
|
|
|
103,821
|
|
|
Effect of dilutive stock options, unvested restricted stock and unvested restricted share units
|
217
|
|
|
585
|
|
|
—
|
|
|
652
|
|
|
Diluted weighted average shares outstanding
|
104,334
|
|
|
104,503
|
|
|
104,045
|
|
|
104,473
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.10
|
|
|
$
|
0.24
|
|
|
$
|
(0.41
|
)
|
|
$
|
0.84
|
|
|
Discontinued operations
|
(0.73
|
)
|
|
(0.12
|
)
|
|
(1.23
|
)
|
|
(0.07
|
)
|
|
Basic net (loss) income per common share
|
$
|
(0.63
|
)
|
|
$
|
0.12
|
|
|
$
|
(1.63
|
)
|
|
$
|
0.77
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.10
|
|
|
$
|
0.24
|
|
|
$
|
(0.41
|
)
|
|
$
|
0.83
|
|
|
Discontinued operations
|
(0.73
|
)
|
|
(0.12
|
)
|
|
(1.23
|
)
|
|
(0.07
|
)
|
|
Diluted net (loss) income per common share
|
$
|
(0.63
|
)
|
|
$
|
0.12
|
|
|
$
|
(1.63
|
)
|
|
$
|
0.76
|
|
Basic net (loss) income per share excludes the dilutive effects of stock options, unvested restricted stock and unvested restricted share units.
Due to our net loss in the
nine months ended
March 31, 2019
, all common stock equivalents such as stock options and unvested restricted stock awards have been excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive to the computations. Diluted earnings per share for the
three months ended
March 31, 2019
and the
three and nine months ended
March 31, 2018
includes the dilutive effects of common stock equivalents such as stock options and unvested restricted stock awards.
There were
3,071
and
3,117
stock-based awards excluded from our diluted net (loss) income per share calculations for the
three and nine months ended
March 31, 2019
, respectively, as such awards were contingently issuable based on market or performance conditions, and such conditions had not been achieved during the respective periods. Contingently issuable awards excluded were
559
for each of the
three and nine months ended
March 31, 2018
, respectively.
There were
273
and
621
restricted stock awards excluded from our diluted net (loss) income per share calculation for the
three and nine months ended
March 31, 2019
, as such awards were anti-dilutive. Anti-dilutive restricted stock awards excluded from our diluted earnings per share calculation for the
three and nine months ended
March 31, 2018
were de minimis.
There were
110
potential shares of common stock issuable upon exercise of stock options excluded from our diluted net loss per share calculation for the
nine months ended
March 31, 2019
, as they were anti-dilutive due to the net loss recorded in the period.
No
such awards were excluded for the
three months ended
March 31, 2019
and the
three and nine months ended
March 31, 2018
.
Share Repurchase Program
On June 21, 2017, the Company's Board of Directors authorized the repurchase of up to
$250,000
of the Company’s issued and outstanding common stock. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The authorization does not have a stated expiration date. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations, including the Company’s historical strategy of pursuing accretive acquisitions. As of
March 31, 2019
, the Company had not repurchased any shares under this program and had
$250,000
of remaining capacity under the share repurchase program.
5. DISCONTINUED OPERATIONS
In March 2018, the Company’s Board of Directors approved a plan to sell all of the operations of the Hain Pure Protein Corporation (“HPPC”) and EK Holdings, Inc. (“Empire”) operating segments, which were reported in the aggregate as the Hain Pure Protein reportable segment. Collectively, these planned dispositions represent a strategic shift that will have a major impact on the Company’s operations and financial results and have been accounted for as discontinued operations.
The Company is presenting the operating results and cash flows of Hain Pure Protein within discontinued operations in the current and prior periods. The assets and liabilities of Hain Pure Protein are presented as assets and liabilities of discontinued operations in the Consolidated Balance Sheets for all periods presented.
Sale of Plainville Farms Business
On February 15, 2019, the Company completed the sale of substantially all of the assets used primarily for the Plainville Farms business (a component of HPPC), which included
$25,000
in cash to the purchaser, for a nominal purchase price. In addition, the purchaser assumed the current liabilities on the balance sheet of the Plainville Farms business as of the closing date. As a condition to consummating the sale, the Company entered into a Contingent Funding and Earnout Agreement, which provides for the issuance by the Company of an irrevocable stand-by letter of credit of
$10,000
which expires
nineteen
months after issuance. The Company is entitled to receive an earnout not to exceed, in the aggregate,
120%
of the maximum amount that the purchaser draws on the letter of credit at any point from the date of issuance through the expiration of the letter of credit. Earnout payments are based on a specified percentage of annual free cash flow achieved for all fiscal years ending on or prior to June 30, 2026. If a change in control of the purchaser occurs prior to June 30, 2026, the purchaser will pay the Company
120%
of the difference between the amount drawn on the letter of credit less the sum of all earnout payments made prior to such time up to the net proceeds received by the purchaser. At
March 31, 2019
, the Company had not recorded an asset associated with the earnout. As a result of the disposition, the Company recognized a pre-tax loss on sale of
$40,223
, or
$29,685
net of tax, in the
three months ended
March 31, 2019
to write down the assets and liabilities to the final sales price less costs to sell.
On May 8, 2019, the Company entered into a definitive agreement to sell all of its equity interest in Hain Pure Protein Corporation, which includes the FreeBird™ and Empire® Kosher businesses, for a purchase price of
$80,000
, subject to adjustments. The transaction is expected to close before June 30, 2019, the end of the Company's fiscal year.
The following table presents the major classes of Hain Pure Protein’s line items constituting the “Net loss from discontinued operations, net of tax” in our Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net sales
|
$
|
88,729
|
|
|
$
|
118,198
|
|
|
$
|
349,449
|
|
|
$
|
396,227
|
|
|
Cost of sales
|
88,277
|
|
|
113,629
|
|
|
356,073
|
|
|
373,122
|
|
|
Gross profi
t (loss)
|
452
|
|
|
4,569
|
|
|
(6,624
|
)
|
|
23,105
|
|
|
Selling, general and administrative expense
|
4,039
|
|
|
5,888
|
|
|
13,031
|
|
|
14,458
|
|
|
Asset impairments
(1)
|
51,348
|
|
|
—
|
|
|
109,252
|
|
|
—
|
|
|
Other expense
|
2,182
|
|
|
805
|
|
|
7,377
|
|
|
3,258
|
|
|
Loss on sale of discontinued operations
|
40,223
|
|
|
—
|
|
|
40,223
|
|
|
—
|
|
|
Net (loss) income from discontinued operations before income taxes
|
(97,340
|
)
|
|
(2,124
|
)
|
|
(176,507
|
)
|
|
5,389
|
|
|
(Benefit) provision for income taxes
|
(21,415
|
)
|
|
10,431
|
|
|
(49,035
|
)
|
|
12,738
|
|
|
Net loss from discontinued operations, net of tax
|
$
|
(75,925
|
)
|
|
$
|
(12,555
|
)
|
|
$
|
(127,472
|
)
|
|
$
|
(7,349
|
)
|
Assets and liabilities of discontinued operations presented in the Consolidated Balance Sheets as of
March 31, 2019
and
June 30, 2018
are included in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
ASSETS
|
2019
|
|
2018
|
|
Cash and cash equivalents
|
$
|
3,678
|
|
|
$
|
6,461
|
|
|
Accounts receivable, less allowance for doubtful accounts
|
11,680
|
|
|
21,616
|
|
|
Inventories
|
31,600
|
|
|
105,359
|
|
|
Prepaid expenses and other current assets
|
1,906
|
|
|
5,604
|
|
|
Property, plant and equipment, net
|
49,537
|
|
|
83,776
|
|
|
Goodwill
|
41,089
|
|
|
41,089
|
|
|
Trademarks and other intangible assets, net
|
33,762
|
|
|
51,029
|
|
|
Other assets
|
2,636
|
|
|
4,381
|
|
|
Deferred tax assets
(2)
|
37,925
|
|
|
—
|
|
|
Impairments of long-lived assets held for sale
(1)
|
(77,632
|
)
|
|
(78,464
|
)
|
|
Current assets of discontinued operations
(3)
|
$
|
136,181
|
|
|
$
|
240,851
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Accounts payable
|
$
|
11,211
|
|
|
$
|
31,762
|
|
|
Accrued expenses and other current liabilities
|
3,914
|
|
|
6,880
|
|
|
Deferred tax liabilities
(2)
|
—
|
|
|
11,111
|
|
|
Other noncurrent liabilities
|
70
|
|
|
93
|
|
|
Current liabilities of discontinued operations
(3)
|
$
|
15,195
|
|
|
$
|
49,846
|
|
(1) In the nine months ended
March 31, 2019
the Company recorded asset impairment charges of
$109,252
, of which
$51,348
was recorded in the third quarter of fiscal 2019 to adjust the carrying value of the Hain Pure Protein reportable segment to its estimated selling price.
(2) The change in deferred taxes from June 30, 2018 to
March 31, 2019
was the result of the reversal of the
$12,250
deferred tax liability previously recorded related to Hain Pure Protein being classified as held for sale. In addition, deferred taxes were impacted by the tax effect of current period book losses as well as the deferred tax benefit arising from asset impairment charges.
(
3) The assets and liabilities of Hain Pure Protein are classified as current on the
March 31, 2019
and
June 30, 2018
Consolidated Balance Sheets because it is probable that the sale will occur within the three months ended June 30, 2019.
6. ACQUISITIONS
The Company accounts for acquisitions in accordance with ASC 805,
Business Combinations
. The results of operations of the acquisitions have been included in the consolidated results from their respective dates of acquisition. The purchase price of each acquisition is allocated to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. Acquisitions may include contingent consideration, the fair value of which is estimated on the acquisition date as the present value of the expected contingent payments, determined using weighted probabilities of possible payments. The fair values assigned to identifiable intangible assets acquired were determined primarily by using an income approach which was based on assumptions and estimates made by management. Significant assumptions utilized in the income approach were based on Company-specific information and projections which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance. The excess of the purchase price over the fair value of the identified assets and liabilities has been recorded as goodwill.
The costs related to all acquisitions have been expensed as incurred and are included in “Project Terra costs and other” in the Consolidated Statements of Operations. Acquisition-related costs for the
three and nine months ended
March 31, 2019
were de minimis. Acquisition-related costs of
$8
and
$336
were expensed in the
three and nine months ended
March 31, 2018
, respectively. The expenses incurred primarily related to professional fees and other transaction-related costs associated with our recent acquisitions.
Fiscal 2019
There were no acquisitions completed in the
nine months ended
March 31, 2019
.
Fiscal 2018
On December 1, 2017, the Company acquired Clarks UK Limited, (“Clarks”), a leading maple syrup and natural sweetener brand in the United Kingdom. Clarks produces natural sweeteners under the Clarks
TM
brand, including maple syrup, honey and carob, date and agave syrups, which are sold in leading retailers and used by food service and industrial customers in the United Kingdom. Consideration for the transaction, inclusive of a subsequent working capital adjustment, consisted of cash, net of cash acquired, totaling
£9,179
(approximately
$12,368
at the transaction date exchange rate). Additionally, contingent consideration of up to a maximum of
£1,500
is payable based on the achievement of specified operating results over the
18
-month period following completion of the acquisition. Clarks is included in our United Kingdom operating segment. Net sales and income before income taxes attributable to the Clarks acquisition included in our consolidated results represented less than
1%
of our consolidated results for the three and nine months ended March 31, 2019 and 2018.
7. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
June 30,
2018
|
|
Finished goods
|
$
|
235,232
|
|
|
$
|
231,926
|
|
|
Raw materials, work-in-progress and packaging
|
160,014
|
|
|
159,599
|
|
|
|
$
|
395,246
|
|
|
$
|
391,525
|
|
8. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
June 30,
2018
|
|
Land
|
$
|
28,049
|
|
|
$
|
28,378
|
|
|
Buildings and improvements
|
95,604
|
|
|
83,289
|
|
|
Machinery and equipment
|
315,574
|
|
|
323,348
|
|
|
Computer hardware and software
|
56,168
|
|
|
54,092
|
|
|
Furniture and fixtures
|
18,624
|
|
|
17,894
|
|
|
Leasehold improvements
|
31,269
|
|
|
31,519
|
|
|
Construction in progress
|
30,556
|
|
|
17,280
|
|
|
|
575,844
|
|
|
555,800
|
|
|
Less: Accumulated depreciation and amortization
|
244,774
|
|
|
245,628
|
|
|
|
$
|
331,070
|
|
|
$
|
310,172
|
|
Depreciation and amortization expense for the
three months ended
March 31, 2019
and
2018
was
$8,110
and
$8,212
, respectively. Such expense for the
nine months ended
March 31, 2019
and
2018
was
$24,294
and
$24,580
, respectively.
In the
nine months ended
March 31, 2019
, the Company recorded
$5,809
of non-cash impairment charges primarily related to the Company’s decision to consolidate manufacturing of certain fruit-based products in the United Kingdom.
There were no impairment charges recorded in the
three months ended
March 31, 2019
.
9. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table shows the changes in the carrying amount of goodwill by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
United Kingdom
|
|
Rest of World
|
|
Total
|
|
Balance as of June 30, 2018
(a)
|
$
|
552,814
|
|
|
$
|
377,163
|
|
|
$
|
94,159
|
|
|
$
|
1,024,136
|
|
|
Translation and other adjustments, net
|
—
|
|
|
(5,203
|
)
|
|
(2,070
|
)
|
|
(7,273
|
)
|
|
Balance as of March 31, 2019
(a)
|
$
|
552,814
|
|
|
$
|
371,960
|
|
|
$
|
92,089
|
|
|
$
|
1,016,863
|
|
(a) The total carrying value of goodwill is reflected net of
$134,277
of accumulated impairment charges, of which
$97,358
related to the Company’s United Kingdom operating segment,
$29,219
related to the Company’s Europe operating segment and
$7,700
related to the Company’s Hain Ventures operating segment (formerly known as the Cultivate operating segment).
Beginning in the third quarter of fiscal 2018, operations of Hain Pure Protein have been classified as discontinued operations as discussed in Note 5,
Discontinued Operations
. Therefore, goodwill associated with Hain Pure Protein is presented as current assets of discontinued operations in the Consolidated Financial Statements.
The Company performs its annual test for goodwill and indefinite-lived intangible asset impairment as of the first day of the fourth quarter of its fiscal year. In addition, if and when events or circumstances change that would more likely than not reduce the fair value of any of its reporting units or indefinite-life intangible assets below their carrying value, an interim test is performed.
During the
three months ended
December 31, 2018, the Company updated the forecasted operating results for each of its reporting units based on the most recent financial results. The updated forecasts reflected lower projected short-term revenue growth and profitability than previously expected, primarily in its United States segment. In connection with the preparation of the Consolidated Financial Statements for the period ended December 31, 2018, the Company assessed qualitative and quantitative factors, which included sensitivity analyses, and concluded that it is more likely than not that the fair value of its reporting units exceeded its carrying amount.
There were
no
events or circumstances that warranted an interim impairment test for goodwill during the
three months ended
March 31, 2019
. The Company will continue to monitor impairment indicators and financial results in future periods.
Other Intangible Assets
The following table sets forth Consolidated Balance Sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
June 30,
2018
|
|
Non-amortized intangible assets:
|
|
|
|
|
Trademarks and tradenames
(a)
|
$
|
364,068
|
|
|
$
|
385,609
|
|
|
Amortized intangible assets:
|
|
|
|
|
Other intangibles
|
236,333
|
|
|
239,323
|
|
|
Less: accumulated amortization
|
(124,819
|
)
|
|
(114,545
|
)
|
|
Net carrying amount
|
$
|
475,582
|
|
|
$
|
510,387
|
|
(a) The gross carrying value of trademarks and tradenames is reflected net of
$83,734
and
$65,834
of accumulated impairment charges at
March 31, 2019
and at June 30, 2018, respectively.
Indefinite-lived intangible assets, which are not amortized, consist primarily of acquired tradenames and trademarks. Indefinite-lived intangible assets are evaluated on an annual basis in conjunction with the Company’s evaluation of goodwill, or on an interim basis if and when events or circumstances change that would more likely than not reduce the fair value of any of its indefinite-life intangible assets below their carrying value. In assessing fair value, the Company utilizes a “relief from royalty” methodology. This approach involves two steps: (i) estimating the royalty rates for each trademark and (ii) applying these royalty rates to a projected net sales stream and discounting the resulting cash flows to determine fair value. If the carrying value of the indefinite-lived intangible asset exceeds the fair value of the asset, the carrying value is written down to fair value in the period identified. During the three months ended December 31, 2018, the Company determined that an indicator of impairment existed in certain of the Company’s indefinite-lived tradenames. The result of this assessment for the second quarter of fiscal 2019 indicated that the fair value of certain of the Company’s tradenames was below their carrying value, and therefore an impairment charge of
$17,900
was recognized (
$11,300
in the United States segment,
$2,787
in the United Kingdom segment and
$3,813
in the Rest of World). During the fiscal year ended June 30, 2018, an impairment charge of
$5,632
(
$5,100
in the Rest of World and
$532
in the United Kingdom segment) related to certain of the Company’s tradenames was recognized.
There were
no
events or circumstances that warranted an interim impairment test for indefinite-lived intangible assets during the
three months ended
March 31, 2019
.
Amortized intangible assets, which are deemed to have a finite life, primarily consist of customer relationships and are amortized over their estimated useful lives of
3
to
25
years. Amortization expense included in continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Amortization of acquired intangibles
|
$
|
3,802
|
|
|
$
|
4,713
|
|
|
$
|
11,567
|
|
|
$
|
13,859
|
|
10. DEBT AND BORROWINGS
Debt and borrowings consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
June 30,
2018
|
|
Revolving credit facility
|
$
|
455,206
|
|
|
$
|
401,852
|
|
|
Term loan
|
285,000
|
|
|
296,250
|
|
|
Less: Unamortized issuance costs
|
(579
|
)
|
|
(692
|
)
|
|
Tilda short-term borrowing arrangements
|
6,654
|
|
|
9,338
|
|
|
Other borrowings
|
5,442
|
|
|
7,358
|
|
|
|
751,723
|
|
|
714,106
|
|
|
Short-term borrowings and current portion of long-term debt
|
22,522
|
|
|
26,605
|
|
|
Long-term debt, less current portion
|
$
|
729,201
|
|
|
$
|
687,501
|
|
Credit Agreement
On February 6, 2018, the Company entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for a
$1,000,000
revolving credit facility through February 6, 2023 and provides for a
$300,000
term loan. Under the Credit Agreement, the revolving credit facility may be increased by an additional uncommitted
$400,000
, provided certain conditions are met.
Borrowings under the Credit Agreement may be used to provide working capital, finance capital expenditures and permitted acquisitions, refinance certain existing indebtedness and for other lawful corporate purposes. The Credit Agreement provides for multicurrency borrowings in Euros, Pounds Sterling and Canadian Dollars as well as other currencies which may be designated. In addition, certain wholly-owned foreign subsidiaries of the Company may be designated as co-borrowers. The Credit Agreement contains restrictive covenants, which are usual and customary for facilities of its type, and include, with specified exceptions, limitations on the Company’s ability to engage in certain business activities, incur debt, have liens, make capital expenditures, pay dividends or make other distributions, enter into affiliate transactions, consolidate, merge or acquire or dispose of assets, and make certain investments, acquisitions and loans. The Credit Agreement also requires the Company to satisfy certain financial covenants. On the date the Credit Agreement was consummated, these covenants included maintaining a consolidated interest coverage ratio (as defined in the Credit Agreement) of no less than
4.0
to 1.0 and a consolidated leverage ratio (as defined in the Credit Agreement) of no more than
3.5
to 1.0. The consolidated leverage ratio was initially subject to a step-up to
4.0
to 1.0 for the four full fiscal quarters following an acquisition. Obligations under the Credit Agreement are guaranteed by certain existing and future domestic subsidiaries of the Company. As of
March 31, 2019
, there were
$455,206
and
$285,000
of borrowings outstanding under the revolving credit facility and term loan, respectively, and
$16,224
letters of credit outstanding under the Credit Agreement.
On November 7, 2018, the Company amended the Credit Agreement to modify the calculation of the consolidated leverage ratio related to costs associated with CEO succession as well as the Project Terra cost reduction programs.
On February 6, 2019, the Company entered into an amendment to the Credit Agreement, whereby its allowable consolidated leverage ratio increased to no more than
4.0
to 1.0 as of December 31, 2018 and no more than
3.75
to 1.0 as of March 31, 2019 and June 30, 2019. Under the terms of the February 6, 2019 amendment, the consolidated leverage ratio would return to
3.5
to 1.0 beginning in the period ending September 30, 2019.
On May 8, 2019, the Company entered into the Third Amendment to the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), whereby, among other things, its allowable consolidated leverage ratio increased to no more than
5.0
to 1.0 from March 31, 2019 to December 31, 2019, no more than
4.75
to 1.0 at March 31, 2020, no more than
4.25
to 1.0 at June 30, 2020 and no more than
4.0
to 1.0 on September 30, 2020 and thereafter. The allowable consolidated leverage ratio for each period will be decreased by
0.25
upon sale of the Company’s remaining Hain Pure Protein business. Additionally, the Company’s required consolidated interest coverage ratio (as defined in the Credit Agreement) was reduced to no less than
3.0
to 1 through March 31, 2020, no less than
3.75
to 1 through March 31, 2021 and no less than
4.0
to 1 thereafter. As part of the Amended Credit Agreement, HPPC was released from its obligations as a borrower and a guarantor under the Credit Agreement.
The Amended Credit Agreement also required that the Company and the subsidiary guarantors enter into a Security and Pledge Agreement pursuant to which all of the obligations under the Amended Credit Agreement are secured by liens on assets of the
Company and its material domestic subsidiaries, including stock of each of their direct subsidiaries and intellectual property, subject to agreed upon exceptions.
As of
March 31, 2019
,
$528,570
is available under the Amended Credit Agreement, and the Company was in compliance with all associated covenants, as amended by the Amended Credit Agreement.
The Amended Credit Agreement provides that loans will bear interest at rates based on (a) the Eurocurrency Rate, as defined in the Credit Agreement, plus a rate ranging from
0.875%
to
2.50%
per annum; or (b) the Base Rate, as defined in the Credit Agreement, plus a rate ranging from
0.00%
to
1.50%
per annum, the relevant rate being the Applicable Rate. The Applicable Rate will be determined in accordance with a leverage-based pricing grid, as set forth in the Amended Credit Agreement. Swing line loans and Global Swing Line loans denominated in U.S. dollars will bear interest at the Base Rate plus the Applicable Rate, and Global Swing Line loans denominated in foreign currencies shall bear interest based on the overnight Eurocurrency Rate for loans denominated in such currency plus the Applicable Rate. The weighted average interest rate on outstanding borrowings under the Amended Credit Agreement at
March 31, 2019
was
4.30%
. Additionally, the Amended Credit Agreement contains a Commitment Fee, as defined in the Amended Credit Agreement, on the amount unused under the Amended Credit Agreement ranging from
0.20%
to
0.45%
per annum, and such Commitment Fee is determined in accordance with a leverage-based pricing grid.
The term loan has required installment payments due on the last day of each fiscal quarter commencing June 30, 2018 in an amount equal to
$3,750
and can be prepaid in whole or in part without premium or penalty.
Tilda Short-Term Borrowing Arrangements
Tilda, a component of our United Kingdom reportable segment, maintains short-term borrowing arrangements primarily used to fund the purchase of rice from India and other countries. The maximum borrowings permitted under all such arrangements are
£52,000
. Outstanding borrowings are collateralized by the current assets of Tilda, typically have
six
-month terms and bear interest at variable rates typically based on LIBOR plus a margin (weighted average interest rate of approximately
3.27%
at
March 31, 2019
). As of
March 31, 2019
and June 30, 2018, there were
$6,654
and
$9,338
of borrowings under these arrangements, respectively.
11. INCOME TAXES
In general, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. In the first quarter of fiscal 2019, the Company used an estimated annual effective tax rate to calculate its provision for income taxes. For the quarters ended March 31, 2019 and December 31, 2018, the Company calculated its effective tax rate on a discrete basis due to significant variations in the relationship between tax expense and projected pre-tax income. The Company’s effective tax rate may change from period-to-period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes and tax audit settlements.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation pursuant to the Tax Cuts and Jobs Act (the “Tax Act”), which significantly revised the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from 35% to 21%, implementing a territorial tax system, imposing a one-time tax on foreign unremitted earnings and setting limitations on deductibility of certain costs (e.g., interest expense and executive compensation), among other things.
Due to the complexities involved in accounting for the Tax Act, the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 118 required that the Company include in its financial statements a reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined. Pursuant to SAB 118, the Company was allowed a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. As of December 31, 2018, the Company finalized its accounting for the income tax effects of the Tax Act and recorded an additional expense of
$8,205
related to its transition tax liability. The net increase in the transition tax was due to the finalization of the Company’s earnings and profits study for our foreign subsidiaries. The adjustment of the Company’s provisional tax expense was recorded as a change in estimate in accordance with SAB No. 118. Despite the completion of the Company’s accounting for the Tax Act under SAB 118, many aspects of the law remain unclear, and we expect ongoing guidance to be issued at both the federal and state levels. There was no new guidance issued in the third quarter of fiscal 2019 that impacted the Company’s liability. The Company will continue to monitor and assess the impact of any new developments.
The Tax Act also includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries. The FASB Staff Q&A Topic No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election either to recognize deferred taxes for temporary differences that are expected to reverse as GILTI in future years or provide
for the tax expense related to GILTI resulting from those items in the year the tax is incurred. We have elected to recognize the resulting tax on GILTI as a period expense in the period the tax is incurred. We have computed the impact on our effective tax rate on a discrete basis.
The effective income tax rate from continuing operations was expense of
23.2%
and a benefit of
5.5%
for the
three months ended
March 31, 2019
and
March 31, 2018
, respectively. The effective income tax rate from continuing operations was a benefit of
3.9%
and
15.3%
for the
nine months ended
March 31, 2019
and
March 31, 2018
, respectively. The effective income tax rate from continuing operations for the
three and nine months ended
March 31, 2019
was impacted by provisions in the Tax Act including GILTI, finalization of the transition tax liability, and limitations on the deductibility of executive compensation. The effective income tax rate was also impacted by the geographical mix of earnings and state taxes. The effective rate for the
three and nine months ended
March 31, 2018
was primarily impacted by the enactment of the Tax Act on December 22, 2017, specifically the revalue of net deferred tax liabilities to the enacted 21% tax rate, repealing the deduction for domestic production activities, inclusion of the transition tax liability estimate and deductibility of executive officers’ compensation. The effective income tax rate from continuing operations for the
three and nine months ended
March 31, 2018
was also favorably impacted by the geographical mix of earnings, as well as a
$3,754
benefit relating to the release of the Company’s domestic uncertain tax position as a result of the expiration of the statute of limitations.
The income tax benefit from discontinued operations was
$21,415
and
$49,035
for the
three and nine months ended
March 31, 2019
, while the income tax expense from discontinued operations was
$10,431
and
$12,738
for the
three and nine months ended
March 31, 2018
. The benefit for income taxes for the
nine months ended
March 31, 2019
includes the reversal of the
$12,250
deferred tax liability previously recorded related to Hain Pure Protein being classified as held for sale. In addition, the three and nine month tax benefit is impacted by the tax effect of current period book losses including the loss on the sale of Plainville Farms assets in the third quarter of fiscal 2019 as well as the deferred tax benefit arising from asset impairment charges.
12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the changes in accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
(1)
|
$
|
20,934
|
|
|
$
|
37,868
|
|
|
$
|
(20,533
|
)
|
|
$
|
80,065
|
|
|
Deferred (losses)/gains
on cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income before reclassifications
|
(42
|
)
|
|
—
|
|
|
(42
|
)
|
|
39
|
|
|
Amounts reclassified into income
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
(106
|
)
|
|
Unrealized gains/(losses) on equity investment:
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
—
|
|
|
(101
|
)
|
|
—
|
|
|
(103
|
)
|
|
Net change in accumulated other comprehensive income (loss)
|
$
|
20,892
|
|
|
$
|
37,767
|
|
|
$
|
(20,575
|
)
|
|
$
|
79,895
|
|
(1) Foreign currency translation adjustments included intra-entity foreign currency transactions that were of a long-term investment nature and were a net loss of
$403
and a net gain of
$670
for the
three months ended
March 31, 2019
and
2018
,
respectively, and a net loss of
$875
and a net gain of
$1,736
for the
nine months ended
March 31, 2019
and
2018
, respectively.
(2) Amounts reclassified into income for deferred (losses)/gains on cash flow hedging instruments are recorded in “Cost of sales” in the Consolidated Statements of Operations and, before taxes, were
$132
for the
nine months ended
March 31, 2018
. There were
no
amounts reclassified into income for deferred (losses)/gains on cash flow hedging instruments for the
three and nine months ended
March 31, 2019
and for the
three months ended
March 31, 2018
.
13. STOCK-BASED COMPENSATION AND INCENTIVE PERFORMANCE PLANS
The Company has
two
stockholder-approved plans, the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan and the 2000 Directors Stock Plan, under which the Company’s officers, senior management, other key employees, consultants and directors may be granted options to purchase the Company’s common stock or other forms of equity-based awards. The Company also grants shares under its 2019 Equity Inducement Award Program to induce selected individuals to become employees of the Company.
Compensation cost and related income tax benefits recognized in the Consolidated Statements of Operations for stock-based compensation plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Selling, general and administrative expense
|
$
|
3,937
|
|
|
$
|
2,936
|
|
|
$
|
5,502
|
|
|
$
|
10,258
|
|
|
Chief Executive Officer Succession Plan expense, net
|
—
|
|
|
—
|
|
|
429
|
|
|
—
|
|
|
Discontinued operations
|
6
|
|
|
—
|
|
|
58
|
|
|
—
|
|
|
Total compensation cost recognized for stock-based compensation plans
|
$
|
3,943
|
|
|
$
|
2,936
|
|
|
$
|
5,989
|
|
|
$
|
10,258
|
|
|
Related income tax benefit
|
$
|
470
|
|
|
$
|
971
|
|
|
$
|
765
|
|
|
$
|
3,391
|
|
In the
nine months ended
March 31, 2019
, the Company recorded a benefit of
$1,867
related to the reversal of expense associated with the TSR Grant under the 2017-2019 LTIP, as defined and discussed further below.
Restricted Stock
A summary of the restricted stock and restricted share unit activity for the
nine months ended
March 31, 2019
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
and Units
|
|
Weighted
Average Grant
Date Fair
Value (per share)
|
|
Non-vested restricted stock, restricted share units, and performance units at June 30, 2018
|
1,057
|
|
|
$
|
22.29
|
|
|
Granted
|
3,470
|
|
|
$
|
7.13
|
|
|
Vested
|
(291
|
)
|
|
$
|
26.50
|
|
|
Forfeited
|
(333
|
)
|
|
$
|
17.68
|
|
|
Non-vested restricted stock, restricted share units, and performance units at March 31, 2019
|
3,903
|
|
|
$
|
8.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
Fair value of restricted stock and restricted share units granted
|
$
|
24,734
|
|
|
$
|
14,595
|
|
|
Fair value of shares vested
|
$
|
7,725
|
|
|
$
|
14,622
|
|
|
Tax benefit recognized from restricted shares vesting
|
$
|
3,331
|
|
|
$
|
4,970
|
|
At
March 31, 2019
,
$24,083
of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested restricted stock awards was expected to be recognized over a weighted average period of approximately
2.3 years
.
Stock Options
A summary of the stock option activity for the
nine months ended
March 31, 2019
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Contractual
Life (years)
|
|
Aggregate
Intrinsic Value
|
|
Options outstanding and exercisable at June 30, 2018
|
122
|
|
|
$
|
2.26
|
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
|
Options outstanding and exercisable at March 31, 2019
|
122
|
|
|
$
|
2.26
|
|
|
12.3
|
|
$
|
2,544
|
|
At
March 31, 2019
, there was
no
unrecognized compensation expense related to stock option awards.
Long-Term Incentive Plan
The Company maintains a long-term incentive program (the “LTI Plan”). The LTI Plan currently consists of
four
performance-based long-term incentive plans (the “2016-2018 LTIP”, “2017-2019 LTIP”, “2018-2020 LTIP” and “2019-2021 LTIP”) that provide for performance equity awards that can be earned over defined performance periods. Participants in the LTI Plan include certain of the Company’s executive officers and other key executives.
The Compensation Committee administers the LTI Plan and is responsible for, among other items, selecting the specific performance measures for awards and setting the target performance required to receive an award after the completion of the performance period. The Compensation Committee determines the specific payout to the participants. Any such stock-based awards shall be issued pursuant to and be subject to the terms and conditions of the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan, as in effect and as amended from time-to-time, and the 2019 Equity Inducement Award Program, as applicable.
2019-2021 LTIP
Grants Made Pursuant to the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan
On January 24, 2019, upon adoption of the 2019-2021 LTIP, the Compensation Committee granted
912
performance share units (“PSUs”), the achievement of which is dependent upon a defined calculation of relative total shareholder return (“TSR”) over the period from November 6, 2018 to November 6, 2021. The PSUs granted represent
100%
of the targeted award, and will vest pursuant to the achievement of pre-established
three
-year compound annual TSR levels that are aligned with the CEO Inducement Grant. The number of shares actually issued will range from
zero
to
300%
of the shares granted.
No
PSUs will vest if the
three
-year compound annual TSR is below
15%
. Of the
912
PSUs issued,
451
are subject to a holding period of
one
year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value for those shares subject to the
one
year holding period. The total grant date fair value with and without the illiquidity discount was estimated to be
$5.99
and
$5.26
per share, respectively. The total grant date fair value of this award was
$5,132
. Total compensation cost related to this PSU award was
$432
in the
three and nine months ended
March 31, 2019
.
The Company also issued
156
three
-year time-based restricted share units under the 2019-2021 LTIP.
Grants Made Pursuant to the 2019 Equity Inducement Award Program
The primary purpose of the 2019 Equity Inducement Award Program is to further the long term stability and success of the Company by providing a program to reward selected individuals newly hired as employees of the Company with grants of inducement awards. Shares issued under this program are granted outside of the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan.
In the three months ended March 31, 2019, the Compensation Committee granted
926
PSUs to selected individuals hired as employees of the Company, the achievement of which is dependent upon a defined calculation of relative TSR over the period from November 6, 2018 to November 6, 2021. The PSUs granted represent
300%
of the targeted award and will vest pursuant to the achievement of pre-established
three
-year compound annual TSR levels, which are aligned with the CEO Inducement Grant.
The number of PSUs expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the service period, regardless of the eventual number of PSUs that are earned based upon the market condition, provided that each grantee remains an employee at the end of the performance period. Compensation expense is reversed if at any time during the service period a grantee is no longer an employee. These PSUs are subject to a holding period of
one
year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
Shares Issued
|
Fair Value Per Share
|
Grant Date Fair Value
|
|
February 19, 2019
|
739
|
|
$
|
1.79
|
|
$
|
1,324
|
|
|
March 29, 2019
|
187
|
|
$
|
3.01
|
|
563
|
|
|
Total
|
926
|
|
|
$
|
1,887
|
|
The total number of shares actually issued will range from
zero
to
926
.
No
PSUs will vest if the
three
-year compound annual TSR is below
15%
.
2018-2020 LTIP
Upon adoption of the 2018-2020 LTIP, the Compensation Committee granted
45
PSUs, the achievement of which is dependent upon a defined calculation of relative TSR over the period from January 24, 2019 to June 30, 2020. The total grant date fair value of this award was estimated to be
$18.32
per share, or
$819
.
2016-2018 and 2017-2019 LTIP
Upon adoption of the 2016-2018 LTIP and 2017-2019 LTIP, the Compensation Committee granted PSUs to each participant, the achievement of which is dependent upon a defined calculation of relative TSR over the period from July 1, 2015 to June 30, 2018 and from July 1, 2017 to June 30, 2019 (the “TSR Grant”), respectively. The grant date fair value for these awards was separately estimated based on a Monte Carlo simulation that calculated the likelihood of goal attainment. Each performance unit translates into
one
unit of common stock. The TSR Grant represents half of each participant’s target award. The other half of the 2016-2018 LTIP and 2017-2019 LTIP is based on the Company’s achievement of specified net sales growth targets over the respective
three
-year period. If the targets are achieved, the award in connection with the 2017-2019 LTIP may be paid only in unrestricted shares of the Company’s common stock.
During the three months ended September 30, 2018, in connection with the 2016-2018 LTIP, for the
three
-year performance period of July 1, 2015 through June 30, 2018, the Compensation Committee determined that the adjusted operating income goal required to be met for Section 162(m) funding was not achieved and determined that no awards would be paid or vested pursuant to the 2016-2018 LTIP. Accordingly, the
223
unvested performance stock unit awards previously granted in connection with the relative TSR portion of the award were forfeited, and amounts accrued relating to the net sales portion of the award were reversed. As such, in the three months ended September 30, 2018, the Company recorded a benefit of
$6,482
associated with the reversal of previously accrued amounts under the net sales portion of the 2016-2018 LTIP, of which
$5,065
was recorded in Chief Executive Officer Succession Plan expense, net on the Consolidated Statement of Operations.
In connection with the 2017-2019 LTIP, in the three months ended September 30, 2018, the Company determined that the achievement of the adjusted operating income goal required to be met for Section 162(m) funding was not probable. Accordingly, during the three months ended September 30, 2018, the Company recorded benefits of
$1,129
and
$1,867
associated with the reversal of previously accrued amounts under the portions of the 2017-2019 LTIP that were dependent on the achievement of pre-determined performance measures of net sales and relative TSR, respectively.
Other Grants
In the
nine months ended
March 31, 2019
, the Company granted
201
time-based restricted share units to certain key employees and members of the Company’s Board of Directors that vest primarily over
three
years. Additionally, the Company issued
101
PSUs to certain key executives vesting over a period of
one
to
two
years based upon the achievement of certain market and/or performance based metrics being met.
CEO Inducement Grant
On November 6, 2018, Mr. Schiller received an award of
1,050
PSUs intended to represent the total
three
-year long-term incentive opportunity that would have been made in fiscal years 2019 – 2021. The PSUs will vest pursuant to the achievement of pre-established
three
-year compound annual TSR levels. The number of shares actually issued will range from
zero
to
1,050
.
No
PSUs will vest if the
three
-year compound annual TSR is below
15%
. This award was granted outside of Amended and Restated 2002 Long-Term Incentive and Stock Award Plan and the 2019 Equity Inducement Award Program.
The number of PSUs expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the
three
-year service period, regardless of the eventual number of PSUs that are earned based upon the market condition, provided Mr. Schiller remains an employee at the end of the
three
-year period. Compensation expense is reversed if at any time during the
three
-year service period Mr. Schiller is no longer an employee, subject to certain termination and change in control eligibility provisions. These PSUs are subject to a holding period of
one
year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value. The total grant date fair value of the award was estimated to be
$7,571
, or
$7.21
per share.
Total compensation cost related to this award recognized in the
three and nine months ended
March 31, 2019
was
$621
and
$1,008
, respectively.
The Company also issued
79
three
-year time-based restricted share units to Mr. Schiller.
14. INVESTMENTS
Equity method investment
On October 27, 2015, the Company acquired a
14.9%
interest in Chop’t Creative Salad Company LLC (“Chop’t”). Chop’t
develops and operates fast-casual, fresh salad restaurants in the Northeast and Mid-Atlantic United States. Chop’t markets and sells certain of the Company’s branded products and provides consumer insight and feedback. The investment is being accounted for as an equity method investment due to the Company’s representation on the Board of Directors of Chop’t. During fiscal 2018, the Company’s ownership interest was reduced to
13.4%
due to the distribution of additional ownership interests. Further ownership interest distributions could potentially dilute the Company’s ownership interest to as low as
11.9%
. At
March 31, 2019
and
June 30, 2018
, the carrying value of the Company’s investment in Chop’t was
$14,622
and
$15,524
, respectively, and is included in the Consolidated Balance Sheets as a component of “Investments and joint ventures.”
15. FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The Company’s financial assets and liabilities measured at fair value are required to be grouped in one of three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:
|
|
|
|
•
|
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
|
|
|
•
|
Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
|
|
|
|
|
•
|
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
|
The following table presents by level within the fair value hierarchy assets and liabilities measured at fair value on a recurring basis as of
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Rabbi trust investments
|
$
|
34,452
|
|
|
$
|
34,452
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Forward foreign currency contracts
|
40
|
|
|
—
|
|
|
40
|
|
|
—
|
|
|
Equity investment
|
661
|
|
|
661
|
|
|
—
|
|
|
—
|
|
|
Contingent consideration, current
|
1,735
|
|
|
—
|
|
|
—
|
|
|
1,735
|
|
|
Total
|
$
|
36,888
|
|
|
$
|
35,113
|
|
|
$
|
40
|
|
|
$
|
1,735
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Forward foreign currency contracts
|
$
|
702
|
|
|
$
|
—
|
|
|
$
|
702
|
|
|
$
|
—
|
|
|
Contingent consideration, non-current
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
702
|
|
|
$
|
—
|
|
|
$
|
702
|
|
|
$
|
—
|
|
The following table presents by level within the fair value hierarchy assets and liabilities measured at fair value on a recurring basis as of
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
99
|
|
|
$
|
99
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Forward foreign currency contracts
|
365
|
|
|
—
|
|
|
365
|
|
|
—
|
|
|
Equity investments
|
692
|
|
|
692
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
1,156
|
|
|
$
|
791
|
|
|
$
|
365
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Forward foreign currency contracts
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
—
|
|
|
Contingent consideration, non-current
|
1,909
|
|
|
—
|
|
|
—
|
|
|
1,909
|
|
|
Total
|
$
|
1,936
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
1,909
|
|
The rabbi trust investments consist of cash and mutual funds whose fair value is based on quoted prices in active markets for identical assets, and are designated as Level 1 within the valuation hierarchy. The equity investment consists of the Company’s less than 1% investment in Yeo Hiap Seng Limited, a food and beverage manufacturer and distributor based in Singapore. Fair value is measured using the market approach based on quoted prices. The Company utilizes the income approach to measure fair value for its foreign currency forward contracts. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates and forward prices.
The Company estimates the original fair value of the contingent consideration as the present value of the expected contingent payments, determined using the weighted probabilities of the possible payments. The Company reassesses the fair value of contingent payments on a periodic basis. Although the Company believes its estimates and assumptions are reasonable, different assumptions, including those regarding the operating results of the respective businesses, or changes in the future may result in different estimated amounts.
The following table summarizes the Level 3 activity for the
nine months ended
March 31, 2019
:
|
|
|
|
|
|
|
|
Balance as of June 30, 2018
|
$
|
1,909
|
|
|
Contingent consideration adjustment
(a)
|
(147
|
)
|
|
Translation adjustment
|
(27
|
)
|
|
Balance as of March 31, 2019
|
$
|
1,735
|
|
(a) The change in the fair value of contingent consideration is included in “Project Terra costs and other” in the Company’s Consolidated Statements of Operations.
There were no transfers of financial instruments between the three levels of fair value hierarchy during the
nine months ended
March 31, 2019
and
March 31, 2018
.
The carrying amount of cash and cash equivalents, accounts receivable, net, accounts payable and certain accrued expenses and other current liabilities approximate fair value due to the short-term maturities of these financial instruments. The Company’s debt approximates fair value due to the debt bearing fluctuating market interest rates (See Note 10,
Debt and Borrowings
).
In addition to the instruments named above, the Company also makes fair value measurements in connection with its interim and annual goodwill and trade name impairment testing. These measurements fall into Level 3 of the fair value hierarchy (See Note 9,
Goodwill and Other Intangible Assets
).
Derivative Instruments
The Company primarily has exposure to changes in foreign currency exchange rates relating to certain anticipated cash flows and firm commitments from its international operations. The Company may enter into certain derivative financial instruments, when available on a cost-effective basis, to manage such risk. Derivative financial instruments are not used for speculative purposes. The fair value of these derivatives is included in prepaid expenses and other current assets and accrued expenses and other current liabilities in the Consolidated Balance Sheet. For derivative instruments that qualify as hedges of probable forecasted cash flows, the effective portion of changes in fair value is temporarily reported in accumulated other comprehensive income and recognized in earnings when the hedged item affects earnings. Fair value hedges and derivative instruments not designated as hedges are marked-to-market each reporting period with any unrealized gains or losses recognized in earnings.
Derivative instruments designated at inception as hedges are measured for effectiveness at the inception of the hedge and on a quarterly basis. These assessments determine whether derivatives designated as qualifying hedges continue to be highly effective in offsetting changes in the cash flows of hedged items. Any ineffective portion of change in fair value is not deferred in accumulated other comprehensive (loss) income and is included in current period results. The Company will discontinue cash flow hedge accounting when the forecasted transaction is no longer probable of occurring on the originally forecasted date or when the hedge is no longer effective. There were
no
discontinued foreign exchange hedges for the
three and nine months ended
March 31, 2019
and
March 31, 2018
.
The notional and fair value amounts of cash flow hedges at
March 31, 2019
were
$3,920
and
$52
of net liabilities, respectively. There were
no
cash flow hedges or fair value hedges outstanding as of
June 30, 2018
.
The notional amounts of foreign currency exchange contracts not designated as hedges at
March 31, 2019
and
June 30, 2018
were
$54,884
and
$20,986
, respectively. The fair values of foreign currency exchange contracts not designated as hedges at
March 31, 2019
and
June 30, 2018
were
$610
of net liabilities and
$338
of net assets, respectively.
Gains and losses related to both designated and non-designated foreign currency exchange contracts are recorded in the Company’s Consolidated Statements of Operations based upon the nature of the underlying hedged transaction and were not material for the
three and nine months ended
March 31, 2019
and
March 31, 2018
.
16. COMMITMENTS AND CONTINGENCIES
Securities Class Actions Filed in Federal Court
On August 17, 2016,
three
securities class action complaints were filed in the Eastern District of New York against the Company alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The
three
complaints are: (1) Flora v. The Hain Celestial Group, Inc., et al. (the “Flora Complaint”); (2) Lynn v. The Hain Celestial Group, Inc., et al. (the “Lynn Complaint”); and (3) Spadola v. The Hain Celestial Group, Inc., et al. (the “Spadola Complaint” and, together with the Flora and Lynn Complaints, the “Securities Complaints”). On June 5, 2017, the court issued an order for consolidation, appointment of Co-Lead Plaintiffs and approval of selection of co-lead counsel. Pursuant to this order, the Securities Complaints were consolidated under the caption In re The Hain Celestial Group, Inc. Securities Litigation (the “Consolidated Securities Action”), and Rosewood Funeral Home and Salamon Gimpel were appointed as Co-Lead Plaintiffs. On June 21, 2017, the Company received notice that plaintiff Spadola voluntarily dismissed his claims without prejudice to his ability to participate in the Consolidated Securities Action as an absent class member. The Co-Lead Plaintiffs in the Consolidated Securities Action filed a Consolidated Amended Complaint on August 4, 2017 and a Corrected Consolidated Amended Complaint on September 7, 2017 on behalf of a purported class consisting of all persons who purchased or otherwise acquired Hain Celestial securities between November 5, 2013 and February 10, 2017 (the “Amended Complaint”). The Amended Complaint names as defendants the Company and certain of its current and former officers (collectively, the “Defendants”) and asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegedly materially false or misleading statements and omissions in public statements, press releases and SEC filings regarding the Company’s business, prospects, financial results and internal controls. Defendants filed a motion to dismiss on October 3, 2017. Co-Lead Plaintiffs filed an opposition on December 1, 2017, and Defendants filed the reply on January 16, 2018. On April 4, 2018, the Court requested additional briefing relating to certain aspects of Defendants’ motion to dismiss. In accordance with this request, Lead Plaintiffs submitted their supplemental brief on April 18, 2018, and Defendants submitted an opposition on May 2, 2018. Lead Plaintiffs filed a reply brief on May 9, 2018, and Defendants submitted a sur-reply on May 16, 2018.
On March 29, 2019, the Court granted Defendant’s motion, dismissing the Amended Complaint in its entirety, without prejudice to replead. Lead Plaintiffs filed a seconded amended complaint on May 6, 2019.
Stockholder Derivative Complaints Filed in State Court
On September 16, 2016, a stockholder derivative complaint, Paperny v. Heyer, et al. (the “Paperny Complaint”), was filed in New York State Supreme Court in Nassau County against the Board of Directors and certain officers of the Company alleging breach of fiduciary duty, unjust enrichment, lack of oversight and corporate waste. On December 2, 2016 and December 29, 2016,
two
additional stockholder derivative complaints were filed in New York State Supreme Court in Nassau County against the Board of Directors and certain officers under the captions Scarola v. Simon (the “Scarola Complaint”) and Shakir v. Simon (the “Shakir Complaint” and, together with the Paperny Complaint and the Scarola Complaint, the “Derivative Complaints”), respectively. Both the Scarola Complaint and the Shakir Complaint allege breach of fiduciary duty, lack of oversight and unjust enrichment. On February 16, 2017, the parties for the Derivative Complaints entered into a stipulation consolidating the matters under the caption In re The Hain Celestial Group (the “Consolidated Derivative Action”) in New York State Supreme Court in Nassau County, ordering the Shakir Complaint as the operative complaint. On November 2, 2017, the parties agreed to stay the Consolidated Derivative Action until April 11, 2018. On April 6, 2018, the parties filed a proposed stipulation agreeing to stay the Consolidated Derivative Action until October 4, 2018, which the Court granted on May 3, 2018. On October 9, 2018, the Court further stayed this matter until December 4, 2018 and on December 4, 2018 further stayed the matter until January 14, 2019. On January 14, 2019, the Court held a status conference and granted Plaintiffs leave to file an amended complaint by March 7, 2019, while continuing the stay as to all other aspects of the case. On March 7, 2019, Plaintiffs filed an amended complaint. The Court held a status conference on March 13, 2019 and continued the stay until a subsequent conference scheduled for May 6, 2019. At the May 6 conference, the Court indicated that the stay will be lifted, and after a preliminary conference for June 13, 2019, a scheduling order will be entered and the case will proceed.
Additional Stockholder Class Action and Derivative Complaints Filed in Federal Court
On April 19, 2017 and April 26, 2017,
two
class action and stockholder derivative complaints were filed in the Eastern District of New York against the Board of Directors and certain officers of the Company under the captions Silva v. Simon, et al. (the “Silva Complaint”) and Barnes v. Simon, et al. (the “Barnes Complaint”), respectively. Both the Silva Complaint and the Barnes Complaint allege violation of securities law, breach of fiduciary duty, waste of corporate assets and unjust enrichment.
On May 23, 2017, an additional stockholder filed a complaint under seal in the Eastern District of New York against the Board of Directors and certain officers of the Company. The complaint alleges that the Company’s directors and certain officers made
materially false and misleading statements in press releases and SEC filings regarding the Company’s business, prospects and financial results. The complaint also alleges that the Company violated its by-laws and Delaware law by failing to hold its 2016 Annual Stockholders Meeting and includes claims for breach of fiduciary duty, unjust enrichment and corporate waste. On August 9, 2017, the Court granted an order to unseal this case and reveal Gary Merenstein as the plaintiff (the “Merenstein Complaint”).
On August 10, 2017, the court granted the parties stipulation to consolidate the Barnes Complaint, the Silva Complaint and the Merenstein Complaint under the caption In re The Hain Celestial Group, Inc. Stockholder Class and Derivative Litigation (the “Consolidated Stockholder Class and Derivative Action”) and to appoint Robbins Arroyo LLP and Scott+Scott as Co-Lead Counsel, with the Law Offices of Thomas G. Amon as Liaison Counsel for Plaintiffs. On September 14, 2017, a related complaint was filed under the caption Oliver v. Berke, et al. (the “Oliver Complaint”), and on October 6, 2017, the Oliver Complaint was consolidated with the Consolidated Stockholder Class and Derivative Action. The Plaintiffs filed their consolidated amended complaint under seal on October 26, 2017. On December 20, 2017, the parties agreed to stay Defendants’ time to answer, move, or otherwise respond to the consolidated amended complaint through and including 30 days after a decision is rendered on the motion to dismiss the Amended Complaint in the consolidated Securities Class Actions, described above.
After the Court dismissed the Amended Complaint in the Securities Class Actions, the parties to the Consolidated Stockholder Class and Derivative Action agreed to continue the stay of Defendants’ time to answer, move, or otherwise respond to the consolidated amended complaint. The stay is continued through the later of: (a) thirty (30) days after the deadline for plaintiffs to file a second amended complaint in the Securities Class Actions; or, (b) if plaintiffs file a second amended complaint, and Defendants file a motion to dismiss the second amended complaint, thirty (30) days after the Court rules on the motion to dismiss the second amended complaint in the Securities Class Actions.
Other
In addition to the litigation described above, the Company is and may be a defendant in lawsuits from time to time in the normal course of business. While the results of litigation and claims cannot be predicted with certainty, the Company believes the reasonably possible losses of such matters, individually and in the aggregate, are not material. Additionally, the Company believes the probable final outcome of such matters will not have a material adverse effect on the Company’s consolidated results of operations, financial position, cash flows or liquidity.
17. SEGMENT INFORMATION
Beginning in the third quarter of fiscal 2018, the Hain Pure Protein operations were classified as discontinued operations as discussed in “Note 5,
Discontinued Operations
.” Therefore, segment information presented excludes the results of Hain Pure Protein. As a result, the Company is now managed in
seven
operating segments: the United States, United Kingdom, Tilda, Ella’s Kitchen UK, Europe, Canada and Hain Ventures (formerly known as Cultivate).
The prior period segment information contained below has been adjusted to reflect the Company’s revised operating and reporting structure.
Net sales and operating income are the primary measures used by the Company’s Chief Operating Decision Maker (“CODM”) to evaluate segment operating performance and to decide how to allocate resources to segments. The CODM is the Company’s Chief Executive Officer. Expenses related to certain centralized administration functions that are not specifically related to an operating segment are included in Corporate and Other. Corporate and Other expenses are comprised mainly of the compensation and related expenses of certain of the Company’s senior executive officers and other selected employees who perform duties related to the entire enterprise, as well as expenses for certain professional fees, facilities and other items which benefit the Company as a whole. Additionally, certain Project Terra costs are included in “Corporate and Other.” Expenses that are managed centrally, but can be attributed to a segment, such as employee benefits and certain facility costs, are allocated based on reasonable allocation methods. Assets are reviewed by the CODM on a consolidated basis and therefore are not reported by operating segment.
The following tables set forth financial information about each of the Company’s reportable segments. Transactions between reportable segments were insignificant for all periods presented.
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|
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|
|
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|
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Three Months Ended March 31,
|
|
Nine Months Ended March 31,
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|
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2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net Sales:
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|
|
|
|
|
|
|
|
United States
|
$
|
266,445
|
|
|
$
|
281,052
|
|
|
$
|
769,585
|
|
|
$
|
815,013
|
|
|
United Kingdom
|
227,206
|
|
|
238,321
|
|
|
671,121
|
|
|
698,968
|
|
|
Rest of World
|
106,146
|
|
|
113,347
|
|
|
304,080
|
|
|
324,190
|
|
|
|
$
|
599,797
|
|
|
$
|
632,720
|
|
|
$
|
1,744,786
|
|
|
$
|
1,838,171
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income/(Loss):
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|
|
|
|
|
|
|
|
United States
|
$
|
17,099
|
|
|
$
|
24,974
|
|
|
$
|
26,449
|
|
|
$
|
67,696
|
|
|
United Kingdom
|
18,147
|
|
|
13,863
|
|
|
36,822
|
|
|
37,062
|
|
|
Rest of World
|
10,868
|
|
|
11,059
|
|
|
27,078
|
|
|
30,591
|
|
|
|
$
|
46,114
|
|
|
$
|
49,896
|
|
|
$
|
90,349
|
|
|
$
|
135,349
|
|
|
Corporate and Other
(a)
|
(22,249
|
)
|
|
(20,642
|
)
|
|
(105,975
|
)
|
|
(45,889
|
)
|
|
|
$
|
23,865
|
|
|
$
|
29,254
|
|
|
$
|
(15,626
|
)
|
|
$
|
89,460
|
|
(a) For the
three months ended
March 31, 2019
, Corporate and Other includes
$455
of Chief Executive Officer Succession Plan expense, net and
$7,562
of Project Terra costs and other. For the
three months ended
March 31, 2018
, Corporate and Other includes
$4,175
of Project Terra costs and other
$3,313
of accounting review and remediation costs.
For the
nine months ended
March 31, 2019
, Corporate and Other includes
$30,156
of Chief Executive Officer Succession Plan expense, net,
$21,045
of Project Terra costs and other and
$4,334
of accounting review and remediation costs. Corporate and Other for the
nine months ended
March 31, 2019
also includes impairment charges of
$17,900
(
$11,300
related to the United States segment,
$2,787
related to the United Kingdom segment and
$3,813
in Rest of World) related to certain of the Company’s tradenames. For the
nine months ended
March 31, 2018
, Corporate and Other included
$7,429
of Project Terra costs and other and net expense of
$6,406
of accounting review and remediation costs, net of insurance proceeds, consisting of
$11,406
of costs incurred in the
nine months ended
March 31, 2018
offset by insurance proceeds of
$5,000
.
The Company’s long-lived assets, which primarily represent net property, plant and equipment, by geographic area were as follows:
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|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
June 30,
2018
|
|
United States
|
$
|
115,243
|
|
|
$
|
99,650
|
|
|
United Kingdom
|
179,226
|
|
|
174,214
|
|
|
All Other
|
86,331
|
|
|
86,700
|
|
|
Total
|
$
|
380,800
|
|
|
$
|
360,564
|
|
The Company’s net sales by geographic region, which are generally based on the location of the Company’s subsidiary, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
United States
|
$
|
279,609
|
|
|
$
|
296,635
|
|
|
$
|
807,899
|
|
|
$
|
860,987
|
|
|
United Kingdom
|
227,206
|
|
|
238,321
|
|
|
671,121
|
|
|
698,968
|
|
|
All Other
|
92,982
|
|
|
97,764
|
|
|
265,766
|
|
|
278,216
|
|
|
Total
|
$
|
599,797
|
|
|
$
|
632,720
|
|
|
$
|
1,744,786
|
|
|
$
|
1,838,171
|
|