NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except par values and per share data)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
The Hain Celestial Group, Inc., a Delaware corporation, 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. The Company continues to be a 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, 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®, 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.
Historically, the Company divided its business into core platforms, which are defined by common consumer need, route-to-market or internal advantage and are aligned with the Company’s strategic roadmap to continue its leadership position in the organic and natural, “better-for-you” products industry. Those core platforms within our United States segment are:
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Better-for-You Baby, which includes infant foods, infant and toddler formula, toddler and kids foods and diapers that nurture and care for babies and toddlers, under the Earth’s Best® and Ella’s Kitchen® brands.
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Better-for-You Pantry, which includes core consumer staples, such as MaraNatha®, Arrowhead Mills®, Imagine® and Spectrum® brands.
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Better-for-You Snacking, which includes wholesome products for in-between meals, such as Terra®, Sensible Portions® and Garden of Eatin’® brands.
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Fresh Living, which includes yogurt, plant-based proteins and other refrigerated products, such as The Greek Gods® yogurt and Dream™ plant-based beverage brands.
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Pure Personal Care, which includes personal care products focused on providing consumers with cleaner and gentler ingredients, such as JASON®, Live Clean®, Avalon Organics® and Alba Botanica® brands.
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Tea, which includes tea products marketed under the Celestial Seasonings® brand.
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Additionally, beginning in fiscal 2017, the Company launched Hain Ventures (formerly known as “Cultivate Ventures”), a venture unit with a twofold purpose: (i) to strategically invest in the Company’s smaller brands in high potential categories, by giving these brands a dedicated, creative focus for refresh and relaunch and; (ii) to incubate and grow small acquisitions until they reach the scale required to migrate to the Company’s core platforms.
During fiscal 2019, the Company refined its strategy within the United States segment, focusing on simplifying the Company’s portfolio and reinvigorating profitable sales growth through removing uneconomic investment, realigning resources to coincide with individual brand role, reducing unproductive stock-keeping units (“SKUs”) and brands, and reassessing current pricing architecture. As part of this initiative, the Company reviewed its product portfolio and divided it into “Get Bigger” and “Get Better” brand categories.
The Company’s “Get Bigger” brands represent its strongest brands with higher margins, which compete in categories with strong growth. In order to capitalize on the potential of these brands, the Company began reallocating resources to optimize assortment and increase share of distribution. In addition, the Company will increase its marketing and innovation investments.
The Company’s “Get Better” brands are the brands in which the Company is primarily focused on simplification and expansion of profit. Some of these are low margin, non-strategic brands that add complexity with minimal benefit to the Company’s operations. Accordingly, in fiscal 2019, the Company initiated a SKU rationalization, which included the elimination of approximately 350 low velocity SKUs. The elimination of these SKUs is expected to impact sales growth in the next fiscal year, but is expected to result in expanded profits and a remaining set of core SKUs that will maintain their shelf space in the store.
As part of the Company’s overall strategy, the Company may seek to dispose of businesses and brands that are less profitable or are otherwise less of a strategic fit within our core portfolio. Accordingly, the Company divested of all of its operations of the Hain Pure Protein reportable segment (discussed further below) and WestSoy® tofu, seitan and tempeh businesses in the United States. Additionally, on August 27, 2019, the Company sold the entities comprising its Tilda operating segment and certain other assets of the Tilda business. See Note 21, Subsequent Event, for additional information.
Productivity and Transformation
As part of the Company’s historical strategic review, it focused on a productivity initiative, which it called “Project Terra.” A key component of this project was the identification of global cost savings, and the removal of complexity from the business. This review has included and continues to include streamlining the Company’s manufacturing plants, co-packers and supply chain, eliminating served categories or brands within those categories, and product rationalization initiatives which are aimed at eliminating slow moving SKUs.
In fiscal 2019, the Company announced a new transformation initiative, of which one aspect is to identify additional areas of productivity savings to support sustainable profitable performance.
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”) operating segment, which includes the Plainville Farms and FreeBird businesses, and the EK Holdings, Inc. (“Empire Kosher” or “Empire”) operating segment, which were reported in the aggregate as the Hain Pure Protein reportable segment. These dispositions were being undertaken to reduce complexity in the Company’s operations and simplify the Company’s brand portfolio, in addition to allowing additional flexibility to focus on opportunities for growth and innovation in the Company’s more profitable and faster growing core businesses.
Collectively, these 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.
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).
On June 28, 2019, the Company completed the sale of the remainder of HPPC and Empire Kosher which includes the FreeBird and Empire Kosher businesses. See Note 5, Discontinued Operations, for additional information.
Basis of Presentation
The Company’s consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Investments in affiliated companies in which the Company exercises significant influence, but which it does not control, are accounted for under the equity method of accounting. As such, consolidated net (loss) income includes the Company’s equity in the current earnings or losses of such companies.
Unless otherwise indicated, references in these consolidated financial statements to 2019, 2018 and 2017 or “fiscal” 2019, 2018 and 2017 or other years refer to our fiscal year ended June 30 of that respective year and references to 2020 or “fiscal” 2020 refer to our fiscal year ending June 30, 2020.
Reclassifications
Certain prior year amounts have been reclassified to conform with current year presentation.
Discontinued Operations
The financial statements separately report discontinued operations and the results of continuing operations (See Note 5). All footnotes exclude discontinued operations unless otherwise noted.
Use of Estimates
The financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). 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. These estimates include, among others, revenue recognition, trade promotions and sales incentives, valuation of accounts and chargeback receivables, accounting for acquisitions, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation, and valuation allowances for deferred tax assets. We believe in the quality and reasonableness of our critical accounting estimates; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have consistently applied.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Cash and Cash Equivalents
The Company considers cash and cash equivalents to include cash in banks, commercial paper and deposits with financial institutions that can be liquidated without prior notice or penalty. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Revenue Recognition
The Company sells its products through specialty and natural food distributors, supermarkets, natural foods stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 80 countries worldwide. The majority of our revenue contracts represent a single performance obligation related to the fulfillment of customer orders for the purchase of our products. We recognize revenue as performance obligations are fulfilled when control passes to our customers. Our customer contracts typically contain standard terms and conditions. In instances where formal written contracts are not in place we consider the customer purchase orders to be contracts based on the criteria outlined in ASC 606, Revenue from Contracts with Customers. Payment terms and conditions vary by customer and are based on the billing schedule established in our contracts or purchase orders with customers, but we generally provide credit terms to customers ranging from 15-60 days; therefore, we have determined that our contracts do not include a significant financing component.
Sales includes shipping and handling charges billed to the customer and are reported net of discounts, trade promotions and sales incentives, consumer coupon programs and other costs, including estimated allowances for returns, allowances and discounts associated with aged or potentially unsalable product, and prompt pay discounts. Shipping and handling costs are accounted for as a fulfillment activity of our promise to transfer products to our customers and are included in cost of sales line item on the Consolidated Statements of Operations.
During the fourth quarter of fiscal 2016, the Company identified the practice of granting additional concessions to certain distributors in the United States and commenced an internal accounting review in order to (i) determine whether the revenue associated with those concessions was accounted for in the correct period and (ii) evaluate its internal control over financial reporting. The Audit Committee of the Company’s Board of Directors separately conducted an independent review of these matters and retained independent counsel to assist in their review. On November 16, 2016, the Company announced that the independent review of the Audit Committee was completed and that the review found no evidence of intentional wrongdoing in connection with the preparation of the Company’s financial statements.
Management’s internal accounting review included consideration of certain side agreements and concessions provided to distributors in the United States in fiscal 2016, including payment terms beyond the customer’s standard terms, rights of return of product and post-sale concessions, most of which were associated with sales that occurred at the end of the quarter. It had been the Company’s policy to record revenue related to these distributors when title of the product transfers to the distributor. The Company concluded that its historical accounting policy for these distributors is appropriate as the sales price is fixed or determinable at the time ownership transfers to these distributors, based on the Company’s ability to make a reasonable estimate of future returns and certain concessions at the time of shipment.
Variable Consideration
In addition to fixed contract consideration, many of our contracts include some form of variable consideration. We offer various trade promotions and sales incentive programs to customers and consumers, such as price discounts, slotting fees, in-store display incentives, cooperative advertising programs, new product introduction fees and coupons. The expenses associated with these programs are accounted for as reductions to the transaction price of our products and are therefore deducted from our net sales to determine reported net sales. Trade promotions and sales incentive accruals are subject to significant management estimates and assumptions. The critical assumptions used in estimating the accruals for trade promotions and sales incentives include management’s estimate of expected levels of performance and redemption rates. Management exercises judgment in developing these assumptions. These assumptions are based upon historical performance of the retailer or distributor customers with similar types of promotions adjusted for current trends. The Company regularly reviews and revises, when deemed necessary, estimates of costs to the Company for these promotions and incentives based on what has been incurred by the customers. The terms of most of our promotion and incentive arrangements do not exceed a year and therefore do not require highly uncertain long-term estimates. Settlement of these liabilities typically occurs in subsequent periods primarily through an authorization process for deductions taken by a customer from amounts otherwise due to the Company. Differences between estimated expense and actual promotion and incentive costs are normally insignificant and are recognized in earnings in the period such differences are determined. Actual expenses may differ if the level of redemption rates and performance were to vary from estimates.
Costs to Obtain or Fulfill a Contract
As our contracts are generally shorter than one year, the Company has elected a practical expedient under ASC 606 that allows the Company to expense as incurred the incremental costs of obtaining a contract if the contract period is for one year or less. These costs are included in the selling, general and administrative expense line item on the Consolidated Statements of Operations.
Disaggregation of Net Sales
The Company does not disaggregate revenue below the segment revenues level disclosed in Note 19, Segment Information, as all revenues are recognized at a point in time and the Company’s segment revenues depict how the economic factors affect the nature, amount, and timing and uncertainty of cash flows.
Valuation of Accounts and Chargebacks Receivable and Concentration of Credit Risk
The Company routinely performs credit evaluations on existing and new customers. The Company applies reserves for delinquent or uncollectible trade receivables based on a specific identification methodology and also applies an additional reserve based on the experience the Company has with its trade receivables aging categories. Credit losses have been within the Company’s expectations in recent years. While one of the Company’s customers represented approximately 12% and 11% of trade receivables balances as of June 30, 2019 and 2018, respectively, the Company believes that there is no significant or unusual credit exposure at this time.
Based on cash collection history and other statistical analysis, the Company estimates the amount of unauthorized deductions customers have taken that we expect will be collected and repaid in the near future and records a chargeback receivable. Differences between estimated collectible receivables and actual collections are recognized in earnings in the period such differences are determined.
Sales to one customer and its affiliates approximated 11%, 11% and 12% of net sales during the fiscal years ended June 30, 2019, 2018 and 2017, respectively. Sales to a second customer and its affiliates approximated 10%, 11% and 11% of net sales during the fiscal years ended June 30, 2019, 2018 and 2017, respectively.
In addition, cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand.
Inventory
Inventory is valued at the lower of cost or net realizable value, utilizing the first-in, first-out method. The Company provides write-downs for finished goods expected to become non-saleable due to age and specifically identifies and provides for slow moving or obsolete raw ingredients and packaging.
Property, Plant and Equipment
Property, plant and equipment is carried at cost and depreciated or amortized on a straight-line basis over the estimated useful lives or lease term (for leasehold improvements), whichever is shorter. The Company believes the useful lives assigned to our property, plant and equipment are within ranges generally used in consumer products manufacturing and distribution businesses. The Company’s manufacturing plants and distribution centers, and their related assets, are reviewed when impairment indicators are present by analyzing underlying cash flow projections. The Company believes no impairment of the carrying value of such assets exists other than as disclosed under Note 8, Property, Plant and Equipment, Net, and Note 5, Discontinued Operations. Ordinary repairs and maintenance costs are expensed as incurred. The Company utilizes the following ranges of asset lives:
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Buildings and improvements
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10 - 40 years
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Machinery and equipment
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3 - 20 years
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Furniture and fixtures
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3 - 15 years
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Leasehold improvements are amortized over the shorter of the respective initial lease term or the estimated useful life of the assets, and generally range from 3 to 15 years.
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill and other intangible assets with indefinite useful lives are not amortized but rather are tested at least annually for impairment, or when circumstances indicate that the carrying amount of the asset may not be recoverable. The Company performs its annual test for impairment at the beginning of the fourth quarter of its fiscal year.
Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a two-step quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all reporting units and perform a two-step quantitative impairment test. The impairment test for goodwill requires the Company to compare the fair value of a reporting unit to its carrying value, including goodwill. The Company uses a blended analysis of a discounted cash flow model and a market valuation approach to determine the fair values of its reporting units. If the carrying value of a reporting unit exceeds its fair value, the Company would then compare the carrying value of the goodwill to its implied fair value in order to determine the amount of the impairment, if any.
Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Fair value is determined based on a relief from royalty method that include significant management assumptions such as revenue growth rates, weighted average cost of capital, and assumed royalty rates. If the fair value is less than the carrying value, the asset is reduced to fair value.
See Note 9, Goodwill and Other Intangible Assets, for information on goodwill and intangibles impairment charges.
Cost of Sales
Included in cost of sales are the cost of products sold, including the costs of raw materials and labor and overhead required to produce the products, warehousing, distribution, supply chain costs, as well as costs associated with shipping and handling of our inventory.
Foreign Currency Translation and Remeasurement
The assets and liabilities of international operations are translated at the exchange rates in effect at the balance sheet date. Revenue and expense accounts are translated at the monthly average exchange rates. Adjustments arising from the translation of the foreign currency financial statements of the Company’s international operations are reported as a component of accumulated other comprehensive (loss)/income in the Company’s Consolidated Balance Sheets. Gains and losses arising from intercompany foreign currency transactions that are of a long-term nature are reported in the same manner as translation adjustments.
Gains and losses arising from intercompany foreign currency transactions that are not of a long-term nature and certain transactions of the Company’s subsidiaries which are denominated in currencies other than the subsidiaries’ functional currency are recognized as incurred in other (income)/expense, net in the Consolidated Statements of Operations.
Selling, General and Administrative Expenses
Included in selling, general and administrative expenses are advertising costs, promotion costs not paid directly to the Company’s customers, salary and related benefit costs of the Company’s employees in the finance, human resources, information technology, legal, sales and marketing functions, facility related costs of the Company’s administrative functions, research and development costs, and costs paid to consultants and third party providers for related services.
Research and Development Costs
Research and development costs are expensed as incurred and are included in selling, general and administrative expenses in the accompanying consolidated financial statements. Research and development costs amounted to $11,120 in fiscal 2019, $9,696 in fiscal 2018 and $10,130 in fiscal 2017, consisting primarily of personnel related costs. The Company’s research and development expenditures do not include the expenditures on such activities undertaken by co-packers and suppliers who develop numerous products on behalf of the Company and on their own initiative with the expectation that the Company will accept their new product ideas and market them under the Company’s brands.
Advertising Costs
Advertising costs, which are included in selling, general and administrative expenses, amounted to $28,164 in fiscal 2019, $35,138 in fiscal 2018 and $30,333 in fiscal 2017. Such costs are expensed as incurred.
Proceeds from Insurance Claims
In July of 2019, the Company received $7,027 as partial payment from an insurance claim relating to business disruption costs associated with a co-packer, $4,460 of which was recognized in fiscal 2019 as it relates to reimbursement of costs already incurred. The Company will record an additional $2,567 in the first quarter of fiscal 2020.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities at enacted rates in effect in the years in which the differences are expected to reverse. Valuation allowances are provided for deferred tax assets to the extent it is more likely than not that the deferred tax assets will not be recoverable against future taxable income.
The Company recognizes liabilities for uncertain tax positions based on a two-step process prescribed by the authoritative guidance. The first step requires the Company to determine if the weight of available evidence indicates that the tax position has met the threshold for recognition; therefore, the Company must evaluate whether it is more likely than not that the position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step requires the Company to measure the tax benefit of the tax position taken, or expected to be taken, in an income tax return as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company reevaluates the uncertain tax positions each period based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Depending on the jurisdiction, such a change in recognition or measurement may result in the recognition of a tax benefit or an additional charge to the tax provision in the period. The Company records interest and penalties in the provision for income taxes.
Fair Value of Financial Instruments
The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. At June 30, 2019 and 2018, the Company had $44 and $99, respectively, invested in money market funds, which are classified as cash equivalents. At June 30, 2019 and 2018, the carrying values of financial instruments such as accounts receivable, accounts payable, accrued expenses and other current liabilities, as well as borrowings under our credit facility and other borrowings, approximated fair value based upon either the short-term maturities or market interest rates of these instruments.
Derivative Instruments
The Company utilizes derivative instruments, principally foreign exchange forward contracts, to manage certain exposures to changes in foreign exchange rates. The Company’s contracts are hedges for transactions with notional balances and periods consistent with the related exposures and do not constitute investments independent of these exposures. These contracts, which are designated and documented as cash flow hedges, qualify for hedge accounting treatment in accordance with ASC 815,
Derivatives and Hedging. Exposure to counterparty credit risk is considered low because these agreements have been entered into with high quality financial institutions.
All derivative instruments are recognized on the Consolidated Balance Sheets at fair value. The effective portion of changes in the fair value of derivative instruments that qualify for cash flow hedge accounting treatment are recognized in stockholders’ equity as a component of accumulated other comprehensive (loss)/income until the hedged item is recognized in earnings. Changes in the fair value of fair value hedges, derivatives that do not qualify for hedge accounting treatment, as well as the ineffective portion of any cash flow hedges, are recognized currently in earnings as a component of other (income)/expense, net in the accompanying financial statements.
Stock-Based Compensation
The Company has employee and director stock-based compensation plans.
The fair value of stock-based compensation awards is recognized as an expense over the vesting period using the straight-line method. For awards that contain a market condition, expense is recognized over the defined or derived service period using a Monte Carlo simulation model. Compensation expense is recognized for these awards on a straight-line basis over the service period, regardless of the eventual number of shares that are earned based upon the market condition, provided that each grantee remains an employee at the end of the performance period. Compensation expense on awards that contain a market condition is reversed if at any time during the service period a grantee is no longer an employee.
For restricted stock awards which include performance criteria, compensation expense is recorded when the achievement of the performance criteria is probable and is recognized over the performance and vesting service periods. Compensation expense is recognized for only that portion of stock-based awards that are expected to vest. Therefore, estimated forfeiture rates that are derived from historical employee termination activity are applied to reduce the amount of compensation expense recognized. If the actual forfeitures differ from the estimate, additional adjustments to compensation expense may be required in future periods.
The Company receives an income tax deduction in certain tax jurisdictions for restricted stock grants when they vest and for stock options exercised by employees equal to the excess of the market value of our common stock on the date of exercise over the option price. Excess tax benefits (tax benefits resulting from tax deductions in excess of compensation cost recognized) are classified as a cash flow provided by operating activities in the accompanying Consolidated Statements of Cash Flows.
Valuation of Long-Lived Assets
The Company periodically evaluates the carrying value of long-lived assets, other than goodwill and intangible assets with indefinite lives, held and used in the business when events and circumstances occur indicating that the carrying amount of the asset may not be recoverable. An impairment test is performed when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. Once such impairment test is performed, a loss is recognized based on the amount, if any, by which the carrying value exceeds the estimated fair value for assets to be held and used.
See Note 8, Property, Plant and Equipment, Net, and Note 5, Discontinued Operations, for information on long-lived asset impairment charges.
Net (Loss) Income Per Share
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding for the period. Diluted net (loss) income per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.
Newly Adopted Accounting Pronouncements
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.
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. The Company 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 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.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance is effective for annual periods beginning after December 15, 2017. The Company adopted the provisions of ASU 2016-15 as of July 1, 2018. There was no impact on the Company's consolidated financial statements resulting from the adoption of this guidance.
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.
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 has implemented lease accounting software to assist in the quantification of the expected impact on the Company’s 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.
The Company will adopt ASC 842 during the first quarter of fiscal 2020 using the modified retrospective method. The new guidance will be applied to leases that exist or are entered into on or after July 1, 2019 without adjusting comparative periods in the financial statements. The Company will utilize the package of practical expedients under ASC 842, which allows entities to (1) not reassess whether any expired or existing contracts are or contain leases, (2) retain the classification of leases (e.g., operating or finance lease) existing as of the date of adoption and (3) not reassess initial direct costs for any existing leases. Based on the most recent assessment of existing leases, the Company expects to record lease liabilities in the range of $85,000 to $95,000, with a corresponding amount for the right-of-use assets, which will also be adjusted by reclassifications of existing assets and liabilities primarily related to deferred rent. The Company does not expect the adoption of ASC 842 to have a material impact on the Company’s results of operations or cash flows.
In January 2017, the FASB, issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the
amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual or any interim impairment tests with a measurement date on or after January 1, 2017. The adoption of this standard is not expected to have a material impact to the Company’s consolidated financial statements.
3. CHIEF EXECUTIVE OFFICER SUCCESSION PLAN
On June 24, 2018, the Company entered into a CEO succession plan, whereby the Company’s former CEO, Irwin D. Simon, agreed to terminate his employment with the Company upon the hiring of a new CEO (the “Succession Agreement”).
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 provided Mr. Simon with a cash separation payment of $34,295 payable in a single lump sum and cash benefits continuation costs of $208. These costs were recognized from June 24, 2018 through November 4, 2018. Expense recognized in connection with these payments was $33,051 and $1,452 in the twelve months ended June 30, 2019 and 2018. 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, which was fully recognized in the Consolidated Statement of Operations as a component of “Chief Executive Officer Succession Plan expense, net” in the twelve months ended June 30, 2019.
Long Term Incentive Award
Mr. Simon was granted 164 total shareholder return (“TSR”) performance based awards on September 26, 2017. The performance period was set to end on June 30, 2019. Under the Succession Agreement, he was entitled to compensation if the TSR components were met. The Succession Agreement modified Mr. Simon’s award such that his award went from improbable of being earned to probable since the Succession Agreement allowed him to be eligible for the award while he is no longer an employee. Accordingly, the Company determined that a Type III modification pursuant to ASC 718 occurred. Therefore, in accordance with ASC 718, the Company determined the fair value of the replacement award as of the modification date, utilizing the Monte Carlo valuation model. As a result, the fair value of the TSR performance based awards granted on September 26, 2017 was reduced from $31.60 per share to $3.19 per share based on the lower likelihood of attainment, resulting in revised expense of $524, which was amortized on a straight-line basis from June 24, 2018 through November 4, 2018. In the fiscal year ended June 30, 2018, the Company reversed the previously recognized stock-based compensation expense of $2,244 and recognized $22 of stock-based compensation expense associated with the modified grant, resulting in a net reduction to stock-based compensation expense of $2,222 in the twelve months ended June 30, 2018 associated with the modification of this grant recognized in the Consolidated Statement of Operations. Additionally, the Succession Agreement allowed for acceleration of vesting of all service-based awards outstanding at the Succession Date. In connection with these accelerations, the Company recognized $19 in the twelve months ended June 30, 2018. In connection with the aforementioned items, the Company recorded a net benefit of $2,203 as a component of “Chief Executive Officer Succession Plan expense, net” in the twelve months ended June 30, 2018.
4. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
$
|
(49,945
|
)
|
|
$
|
82,428
|
|
|
$
|
65,541
|
|
|
Net (loss) income from discontinued operations, net of tax
|
$
|
(133,369
|
)
|
|
$
|
(72,734
|
)
|
|
$
|
1,889
|
|
|
Net (loss) income
|
$
|
(183,314
|
)
|
|
$
|
9,694
|
|
|
$
|
67,430
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
104,076
|
|
|
103,848
|
|
|
103,611
|
|
|
Effect of dilutive stock options, unvested restricted stock and
unvested restricted share units
|
—
|
|
|
629
|
|
|
637
|
|
|
Diluted weighted average shares outstanding
|
104,076
|
|
|
104,477
|
|
|
104,248
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.48
|
)
|
|
$
|
0.79
|
|
|
$
|
0.63
|
|
|
Discontinued operations
|
(1.28
|
)
|
|
(0.70
|
)
|
|
0.02
|
|
|
Basic net (loss) income per common share
|
$
|
(1.76
|
)
|
|
$
|
0.09
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share:
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.48
|
)
|
|
$
|
0.79
|
|
|
$
|
0.63
|
|
|
Discontinued operations
|
(1.28
|
)
|
|
(0.70
|
)
|
|
0.02
|
|
|
Diluted net (loss) income per common share
|
$
|
(1.76
|
)
|
|
$
|
0.09
|
|
|
$
|
0.65
|
|
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 twelve months ended June 30, 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 fiscal years ended June 30, 2018 and 2017 includes the dilutive effects of common stock equivalents such as stock options and unvested restricted stock awards.
There were 3,625, 560 and 271 stock-based awards excluded from our diluted net (loss) income per share calculations for the fiscal years ended June 30, 2019, 2018 and 2017, respectively, as such awards were contingently issuable based on market or performance conditions, and such conditions had not been achieved during the respective periods. Additionally, 659, 4 and 12 restricted stock awards were excluded from our diluted net (loss) income per share calculation for the fiscal years ended June 30, 2019, 2018 and 2017, respectively, as such awards were anti-dilutive.
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 fiscal year ended June 30, 2019, as they were anti-dilutive due to the net loss recorded in the period. No such awards were excluded for the fiscal years ended June 30, 2018 and 2017.
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. The Company did not repurchase any shares under this program in fiscal 2019, 2018 or 2017, and accordingly, as of the end of fiscal 2019, we had $250,000 of remaining capacity under our 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”) operating segment, which includes the Plainville Farms and FreeBird businesses, and the EK Holdings, Inc. (“Empire Kosher” or “Empire”) operating segment, which were reported in the aggregate as the Hain Pure Protein reportable segment. Collectively, these dispositions represented 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.
The Company recorded reserves of $109,252 and $78,464 in fiscal years ended June 30, 2019 and 2018, respectively, to adjust the carrying value of Hain Pure Protein and Empire Kosher to its fair value, less its cost to sell, which is reflected in net (loss) income from discontinued operations, net of taxes in each respective period. The reserves were recorded due to negative market conditions in the sector, resulting in the Company lowering the projected long-term growth rate and profitability levels of HPPC and to adjust the carrying value of Hain Pure Protein to its estimated selling price.
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 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 June 30, 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 twelve months ended June 30, 2019 to write down the assets and liabilities to the final sales price less costs to sell, inclusive of the $10,000 stand-by letter of credit.
Sale of HPPC and Empire Kosher
On June 28, 2019, the Company completed the sale of the remainder of HPPC and EK Holdings, which includes the FreeBird and Empire Kosher businesses. The purchase price, net of customary adjustments based on the closing balance sheet of HPPC, was $77,714. The Company used the proceeds from the sale to pay down outstanding borrowings under its term loan. As a result of the disposition, the Company recognized a pre-tax loss of $636 in the twelve months ended June 30, 2019 to write down the assets and liabilities to the final sales price less costs to sell.
The following table presents the major classes of Hain Pure Protein’s line items constituting the “Net (loss) income from discontinued operations, net of tax” in our Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Net sales
|
$
|
408,109
|
|
|
$
|
509,475
|
|
|
$
|
509,606
|
|
|
Cost of sales
|
409,433
|
|
|
486,023
|
|
|
487,631
|
|
|
Gross (loss) profit
|
(1,324
|
)
|
|
23,452
|
|
|
21,975
|
|
|
Asset impairments
|
109,252
|
|
|
78,464
|
|
|
—
|
|
|
Selling, general and administrative expense
|
16,384
|
|
|
18,743
|
|
|
19,180
|
|
|
Other expense
|
9,088
|
|
|
4,699
|
|
|
1,530
|
|
|
Loss on sale of discontinued operations before income taxes
|
40,859
|
|
|
—
|
|
|
—
|
|
|
Net (loss) income from discontinued operations before income taxes
|
(176,907
|
)
|
|
(78,454
|
)
|
|
1,265
|
|
|
Benefit for income taxes
|
(43,538
|
)
|
|
(5,720
|
)
|
|
(624
|
)
|
|
Net (loss) income from discontinued operations, net of tax
|
$
|
(133,369
|
)
|
|
$
|
(72,734
|
)
|
|
$
|
1,889
|
|
Assets and liabilities of discontinued operations presented in the Consolidated Balance Sheets as of June 30, 2018 are included in the following table:
|
|
|
|
|
|
|
|
|
ASSETS
|
|
June 30,
2018
|
|
Cash and cash equivalents
|
|
$
|
6,460
|
|
|
Accounts receivable, less allowance for doubtful accounts
|
|
21,616
|
|
|
Inventories
|
|
105,359
|
|
|
Prepaid expenses and other current assets
|
|
5,604
|
|
|
Property, plant and equipment, net
|
|
83,776
|
|
|
Goodwill
|
|
41,089
|
|
|
Trademarks and other intangible assets, net
|
|
51,029
|
|
|
Other assets
|
|
4,382
|
|
|
Impairments of long-lived assets held for sale
|
|
(78,464
|
)
|
|
Current assets of discontinued operations
|
|
$
|
240,851
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
Accounts payable
|
|
$
|
31,762
|
|
|
Accrued expenses and other current liabilities
|
|
6,880
|
|
|
Deferred tax liabilities
|
|
11,111
|
|
|
Other noncurrent liabilities
|
|
93
|
|
|
Current liabilities of discontinued operations
|
|
$
|
49,846
|
|
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 of $409 and $2,035 were expensed in the fiscal years ended June 30, 2018 and 2017, respectively. Acquisition-related costs for the fiscal year ended June 30, 2019 were de minimis. 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 fiscal year ended June 30, 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 ClarksTM 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 for the fiscal year ended June 30, 2018 represented less than 1% of our consolidated results.
Fiscal 2017
On June 19, 2017, the Company acquired Sonmundo, Inc. d/b/a The Better Bean Company (“Better Bean”), which offers prepared beans and bean-based dips sold in refrigerated tubs under the Better BeanTM brand. Consideration for the transaction consisted of cash, net of cash acquired, totaling $3,434. Additionally, contingent consideration of up to a maximum of $4,000 is payable based on the achievement of specified operating results over the three-year period following the closing date. Better Bean is included in our Hain Ventures operating segment, which is part of the Rest of World segment. Net sales and income before income taxes attributable to the Better Bean acquisition and included in our consolidated results for the fiscal year ended June 30, 2017 were less than 1% of consolidated results.
On April 28, 2017, the Company acquired The Yorkshire Provender Limited (“Yorkshire Provender”), a producer of premium branded soups based in North Yorkshire in the United Kingdom. Yorkshire Provender supplies leading retailers, on-the-go food outlets and food service providers in the United Kingdom. Consideration for the transaction consisted of cash, net of cash acquired, totaling £12,465 (approximately $16,110 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 at the end of the three-year period following the closing date. Yorkshire Provender is included in our United Kingdom operating and reportable segment. Net sales and income before income taxes attributable to Yorkshire Provender and included in our consolidated results for the fiscal year ended June 30, 2017 were less than 1% of consolidated results.
7. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
June 30,
2018
|
|
Finished goods
|
$
|
220,600
|
|
|
$
|
231,926
|
|
|
Raw materials, work-in-progress and packaging
|
144,287
|
|
|
159,599
|
|
|
|
$
|
364,887
|
|
|
$
|
391,525
|
|
At each period end, inventory is reviewed to ensure that it is recorded at the lower of cost or net realizable value. In the twelve months ended June 30, 2019, the Company recorded inventory write-downs of $12,381 in connection with the discontinuance of slow moving SKUs as part of a product rationalization initiative, $10,346 of which was recorded in the three months ended June 30, 2019.
In the twelve months ended June 30, 2018, the Company recorded an inventory write-down of $4,913 in connection with the discontinuance of slow moving SKUs as part of a product rationalization initiative.
8. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
June 30,
2018
|
|
Land
|
$
|
26,892
|
|
|
$
|
28,378
|
|
|
Buildings and improvements
|
89,534
|
|
|
83,289
|
|
|
Machinery and equipment
|
306,670
|
|
|
323,348
|
|
|
Computer hardware and software
|
52,655
|
|
|
54,092
|
|
|
Furniture and fixtures
|
18,501
|
|
|
17,894
|
|
|
Leasehold improvements
|
32,264
|
|
|
31,519
|
|
|
Construction in progress
|
35,786
|
|
|
17,280
|
|
|
|
562,302
|
|
|
555,800
|
|
|
Less: Accumulated depreciation
|
233,940
|
|
|
245,628
|
|
|
|
$
|
328,362
|
|
|
$
|
310,172
|
|
Depreciation expense for the fiscal years ended June 30, 2019, 2018, and 2017 was $32,872, $33,973 and $33,558, respectively.
During fiscal 2019, the Company determined that it was more likely than not that certain fixed assets of two of its manufacturing facilities would be sold or otherwise disposed of before the end of their estimated useful lives due to the Company’s decision to consolidate manufacturing of certain fruit-based and soup products in the United Kingdom. As such, the Company recorded a $6,166 non-cash impairment charge related to the closures of these facilities.
During fiscal 2019, the Company recorded non-cash impairment charges of $9,653 to write down the value of certain machinery and equipment no longer in use in the United States and United Kingdom, some of which was used to manufacture certain slow moving SKUs that were discontinued.
In fiscal 2018, the Company determined that it was more likely than not that certain fixed assets at three of its manufacturing facilities would be sold or otherwise disposed of before the end of their estimated useful lives due to the Company’s decision to utilize third-party manufacturers for two facilities in the United States and to consolidate manufacturing of certain soup products in the United Kingdom. As such, the Company recorded a $6,344 non-cash impairment charge primarily related to the closures of these facilities and included $3,767 as assets held for sale within “Prepaid expenses and other current assets” in its June 30, 2018 Consolidated Balance Sheet.
Additionally, the Company recorded a $2,057 non-cash impairment charge to write down the value of certain machinery and equipment used to manufacture certain slow moving SKUs in the United States that were discontinued and included $686 as assets held for sale within “Prepaid expenses and other current assets” in its June 30, 2018 Consolidated Balance Sheet.
In fiscal 2017, the Company determined that it was more likely than not that certain fixed assets at one of its manufacturing facilities in the United Kingdom would be sold or otherwise disposed of before the end of their estimated useful lives due to the Company’s decision to exit its own-label chilled desserts business over the next twelve months. As such, the Company recorded a $23,712 non-cash impairment charge related to the long-lived assets associated with the own-label chilled desserts business to their estimated fair values, which was equal to its salvage value. Additionally, the Company recorded a $2,661 non-cash impairment charge related to fixed assets in the United States.
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, 2017(1)
|
$
|
588,333
|
|
|
$
|
329,135
|
|
|
$
|
101,424
|
|
|
$
|
1,018,892
|
|
|
Acquisition activity
|
—
|
|
|
7,062
|
|
|
—
|
|
|
7,062
|
|
|
Reallocation of goodwill between reporting units(2)
|
(35,519
|
)
|
|
35,519
|
|
|
—
|
|
|
—
|
|
|
Impairment charge
|
—
|
|
|
—
|
|
|
(7,700
|
)
|
|
(7,700)
|
|
|
Translation and other adjustments, net
|
—
|
|
|
5,447
|
|
|
435
|
|
|
5,882
|
|
|
Balance as of June 30, 2018(3)
|
552,814
|
|
|
377,163
|
|
|
94,159
|
|
|
1,024,136
|
|
|
Translation and other adjustments, net
|
—
|
|
|
(14,344
|
)
|
|
(813
|
)
|
|
(15,157
|
)
|
|
Balance as of June 30, 2019(3)
|
$
|
552,814
|
|
|
$
|
362,819
|
|
|
$
|
93,346
|
|
|
$
|
1,008,979
|
|
(1) The total carrying value of goodwill is reflected net of $126,577 of accumulated impairment charges, of which $97,358 related to the Company’s United Kingdom operating segment and $29,219 related to the Company’s Europe operating segment.
(2) Effective July 1, 2017, due to changes to the Company’s internal management and reporting structure, the United Kingdom operations of the Ella’s Kitchen® brand, which was previously included within the United States reportable segment, was moved to the United Kingdom reportable segment. Goodwill totaling $35,519 was reallocated to the United Kingdom reportable segment in connection with this change. See Note 1, Business, and Note 19, Segment Information, for additional information on the Company’s operating and reportable segments.
(3) 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.
Additions during the fiscal year ended June 30, 2018 were due to the acquisition of Clarks on December 1, 2017.
The Company completed its annual goodwill impairment analysis in the fourth quarter of fiscal 2019, in conjunction with its budgeting and forecasting process for fiscal year 2020, and concluded that no indicators of impairment existed at any of its reporting units.
Other Intangible Assets
The following table sets forth balance sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
June 30,
2018
|
|
Non-amortized intangible assets:
|
|
|
|
|
Trademarks and trade names(1)
|
$
|
359,727
|
|
|
$
|
385,609
|
|
|
Amortized intangible assets:
|
|
|
|
|
Other intangibles
|
232,450
|
|
|
239,323
|
|
|
Less: accumulated amortization
|
(126,966
|
)
|
|
(114,545
|
)
|
|
Net carrying amount
|
$
|
465,211
|
|
|
$
|
510,387
|
|
(1) The gross carrying value of trademarks and trade names is reflected net of $83,734 and $65,834 of accumulated impairment charges as of June 30, 2019 and 2018, respectively.
Indefinite-lived intangible assets, which are not amortized, consist primarily of acquired trade names 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 assets exceeds the fair value of the asset, the carrying value is written down to fair value in the period identified. In the second quarter of fiscal 2019, the Company determined that an indicator of impairment existed in certain of the Company’s indefinite-lived tradenames. The result of this interim assessment 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, $3,813 in the Rest of World segment and $2,787 in the United Kingdom segment) during the fiscal year ended June 30, 2019. The result of the annual assessment for the year ended June 30, 2019 indicated that the fair value of the Company’s trade names exceeded their carrying values and no indicators of impairment were present.
During the fiscal year ended June 30, 2018, an impairment charge of $5,632 ($5,100 in the Rest of World segment and $532 in the United Kingdom segment) related to certain of the Company’s trade names was recognized.
Amortizable intangible assets, which are deemed to have a finite life, primarily consist of customer relationships and are being amortized over their estimated useful lives of 3 to 25 years. Amortization expense included in continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Amortization of intangible assets
|
$
|
15,294
|
|
|
$
|
18,202
|
|
|
$
|
16,988
|
|
Expected amortization expense over the next five fiscal years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending June 30,
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Estimated amortization expense
|
$
|
13,916
|
|
|
$
|
13,473
|
|
|
$
|
12,770
|
|
|
$
|
12,197
|
|
|
$
|
9,646
|
|
The weighted average remaining amortization period of amortized intangible assets is 9.4 years.
10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
June 30,
2018
|
|
Payroll, employee benefits and other administrative accruals
|
$
|
80,338
|
|
|
$
|
75,918
|
|
|
Facility, freight and warehousing accruals
|
21,402
|
|
|
20,970
|
|
|
Selling and marketing related accruals
|
7,399
|
|
|
15,546
|
|
|
Other accruals
|
9,801
|
|
|
3,567
|
|
|
|
$
|
118,940
|
|
|
$
|
116,001
|
|
11. DEBT AND BORROWINGS
Debt and borrowings consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
June 30,
2018
|
|
Revolving credit facility
|
$
|
420,575
|
|
|
$
|
401,852
|
|
|
Term loan
|
206,250
|
|
|
296,250
|
|
|
Less: Unamortized issuance costs
|
(1,022
|
)
|
|
(692
|
)
|
|
Tilda short-term borrowing arrangements
|
8,687
|
|
|
9,338
|
|
|
Other borrowings
|
4,966
|
|
|
7,358
|
|
|
|
639,456
|
|
|
714,106
|
|
|
Short-term borrowings and current portion of long-term debt
|
25,919
|
|
|
26,605
|
|
|
Long-term debt, less current portion
|
$
|
613,537
|
|
|
$
|
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 is 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 June 30, 2019, there were $420,575 and $206,250 of borrowings outstanding under the revolving credit facility and term loan, respectively, and $9,698 letters of credit outstanding under the Amended 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 was 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 June 30, 2019, $569,727 was 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 June 30, 2019 was 4.20%. 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.
On June 28, 2019, the Company completed the sale of the Company’s remaining Hain Pure Protein business and utilized the proceeds from the sale, net of transaction related costs, to prepay a portion of the term loan. See Note 5, Discontinued Operations, for information on the sale of the Hain Pure Protein business. In connection with the prepayment of debt, the Company wrote-off unamortized issuance costs of $372.
Tilda Short-Term Borrowing Arrangements
Tilda, formerly a component of the Company’s United Kingdom reportable segment, maintained 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 were £52,000. Outstanding borrowings were collateralized by the current assets of Tilda, typically had six-month terms and bore interest at variable rates typically based on LIBOR plus a margin (weighted average interest rate of approximately 4.38% at June 30, 2019). As of June 30, 2019 and 2018, there were $8,687 and $9,338 of borrowings under these arrangements, respectively. See Note 21, Subsequent Event, for information on the sale of the Tilda business.
Maturities of all debt instruments at June 30, 2019, are as follows:
|
|
|
|
|
|
|
|
|
Due in Fiscal Year
|
|
Amount
|
|
2020
|
|
$
|
25,919
|
|
|
2021
|
|
16,400
|
|
|
2022
|
|
15,204
|
|
|
2023
|
|
581,775
|
|
|
2024
|
|
47
|
|
|
Thereafter
|
|
111
|
|
|
|
|
$
|
639,456
|
|
Interest paid during the fiscal years ended June 30, 2019, 2018 and 2017 amounted to $33,751, $24,168 and $18,819, respectively.
12. INCOME TAXES
The components of (loss) income from continuing operations before income taxes and equity in net loss (income) of equity-method investees were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Domestic
|
$
|
(134,096
|
)
|
|
$
|
(13,936
|
)
|
|
$
|
47,781
|
|
|
Foreign
|
82,109
|
|
|
95,138
|
|
|
40,097
|
|
|
Total
|
$
|
(51,987
|
)
|
|
$
|
81,202
|
|
|
$
|
87,878
|
|
The (benefit) provision for income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
3,639
|
|
|
$
|
(1,309
|
)
|
|
$
|
18,331
|
|
|
State and local
|
760
|
|
|
1,383
|
|
|
(293
|
)
|
|
Foreign
|
18,694
|
|
|
20,542
|
|
|
14,884
|
|
|
|
23,093
|
|
|
20,616
|
|
|
32,922
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
(24,045
|
)
|
|
(22,612
|
)
|
|
(3,198
|
)
|
|
State and local
|
1,188
|
|
|
1,973
|
|
|
960
|
|
|
Foreign
|
(2,933
|
)
|
|
(864
|
)
|
|
(8,218
|
)
|
|
|
(25,790
|
)
|
|
(21,503
|
)
|
|
(10,456
|
)
|
|
Total
|
$
|
(2,697
|
)
|
|
$
|
(887
|
)
|
|
$
|
22,466
|
|
For the fiscal year ended June 30, 2019, the Company paid cash for income taxes, net of refunds, of $22,535. Cash paid for income taxes, net of (refunds), during the fiscal years ended June 30, 2018 and 2017 amounted to $24,284 and $(2,900), respectively.
The reconciliation of the U.S. federal statutory rate to our effective rate on income before provision (benefit) for income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
%
|
|
2018
|
|
%
|
|
2017
|
|
%
|
|
Expected United States federal income tax at statutory rate
|
$
|
(10,917
|
)
|
|
21.0
|
%
|
|
$
|
22,818
|
|
|
28.1
|
%
|
|
$
|
30,757
|
|
|
35.0
|
%
|
|
State income taxes, net of federal (benefit) provision
|
(9,793
|
)
|
|
18.8
|
%
|
|
2,774
|
|
|
3.4
|
%
|
|
2,757
|
|
|
3.1
|
%
|
|
Domestic manufacturing deduction
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
(846
|
)
|
|
(1.0
|
)%
|
|
Foreign income at different rates
|
205
|
|
|
(0.4
|
)%
|
|
(7,174
|
)
|
|
(8.8
|
)%
|
|
(6,539
|
)
|
|
(7.4
|
)%
|
|
Impairment of goodwill and intangibles
|
—
|
|
|
—
|
%
|
|
1,816
|
|
|
2.2
|
%
|
|
—
|
|
|
—
|
%
|
|
Change in valuation allowance
|
9,810
|
|
|
(18.9
|
)%
|
|
119
|
|
|
0.1
|
%
|
|
(60
|
)
|
|
(0.1
|
)%
|
|
Unrealized foreign exchange losses
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
807
|
|
|
0.9
|
%
|
|
Change in reserves for uncertain tax positions
|
841
|
|
|
(1.6
|
)%
|
|
(3,859
|
)
|
|
(4.8
|
)%
|
|
(4,417
|
)
|
|
(5.0
|
)%
|
|
Tax Act’s transition tax (a)
|
6,834
|
|
|
(13.1
|
)%
|
|
7,054
|
|
|
8.7
|
%
|
|
—
|
|
|
—
|
%
|
|
Tax Act’s impact of deferred taxes (b)
|
—
|
|
|
—
|
%
|
|
(25,006
|
)
|
|
(30.8
|
)%
|
|
—
|
|
|
—
|
%
|
|
Global Intangible Low Taxed Income
|
3,872
|
|
|
(7.4
|
)%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
Reduction of deferred tax liabilities resulting from change in United Kingdom tax rate
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
(1,841
|
)
|
|
(2.1
|
)%
|
|
Other
|
(3,549
|
)
|
|
6.8
|
%
|
|
571
|
|
|
0.8
|
%
|
|
1,848
|
|
|
2.2
|
%
|
|
(Benefit) provision for income taxes
|
$
|
(2,697
|
)
|
|
5.2
|
%
|
|
$
|
(887
|
)
|
|
(1.1
|
)%
|
|
$
|
22,466
|
|
|
25.6
|
%
|
(a) For the year ended June 30, 2018, the Company accrued a provisional estimate of $7,054 of tax expense for the Tax Act’s one-time transition tax on the foreign subsidiaries’ accumulated, unremitted earnings in accordance with U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB 118”). Additionally, during fiscal year June 30, 2019, the Company recorded $6,834 of tax expense upon finalizing its analysis of the impact from the Tax Act.
(b) For the year ended June 30, 2018, the Company accrued $25,006 in provisional tax benefit related to the net change in deferred tax liabilities stemming from the Tax Cuts and Jobs Act’s (the “Tax Act”) reduction of the U.S. federal tax rate from 35% to 21% and disallowance of certain incentive based compensation tax deductibility under Internal Revenue Code 162(m). There was an immaterial tax benefit recorded for the period ended June 30, 2019 related to return to provision adjustments.
With the effective date of January 1, 2018, the Tax Act also introduced a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a measure to tax certain intercompany payments under the base erosion anti-abuse tax “BEAT” regime. For the fiscal year ended June 30, 2019, the Company did not generate intercompany transactions that met the BEAT threshold but did generate GILTI tax. The Company elected to account for GILTI tax as a current period cost and recorded an expense of $3,872 during the fiscal year ended June 30, 2019.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Deferred tax assets and liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
June 30,
2018
|
|
Noncurrent deferred tax assets/(liabilities):
|
|
|
|
|
Basis difference on inventory
|
$
|
9,128
|
|
|
$
|
9,139
|
|
|
Reserves not currently deductible
|
23,518
|
|
|
11,060
|
|
|
Basis difference on intangible assets
|
(92,923
|
)
|
|
(97,365
|
)
|
|
Basis difference on property and equipment
|
(6,060
|
)
|
|
(8,444
|
)
|
|
Other comprehensive income
|
502
|
|
|
(133
|
)
|
|
Net operating loss and tax credit carryforwards
|
73,976
|
|
|
18,276
|
|
|
Stock-based compensation
|
827
|
|
|
1,348
|
|
|
Other
|
3,985
|
|
|
41
|
|
|
Valuation allowances
|
(34,912
|
)
|
|
(20,831
|
)
|
|
Noncurrent deferred tax liabilities, net(1)
|
$
|
(21,959
|
)
|
|
$
|
(86,909
|
)
|
(1) Includes $29,951 of non-current deferred tax assets included within Other Assets on the June 30, 2019 consolidated balance sheet.
At June 30, 2019 and 2018, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $201,242 and $23,057, respectively, the majority of which will not expire until 2036. Certain of these federal loss carryforwards are subject to Internal Revenue Code Section 382 which imposes limitations on utilization following certain changes in ownership of the entity generating the loss carryforward. The Company had foreign NOL carryforwards of approximately $23,761 and $30,065 at June 30, 2019 and 2018, respectively, the majority of which are indefinite lived.
At June 30, 2019, the Company utilized the U.S. federal foreign tax credit carryforward of approximately $877.
The company historically considered the undistributed earnings of its foreign subsidiaries to be indefinitely reinvested and as a result has not provided for taxes on such earnings. The company has not changed previous indefinite reinvestment assertion following the enactment of the Tax Act, which required a one-time transition tax for deemed repatriation of accumulated undistributed earnings of certain foreign subsidiaries. At June 30, 2019, cumulative undistributed earnings of foreign subsidiaries were approximately $289,076 which partially have been already subjected to U.S. transition tax as part of the Tax Act. If the company determines that all or a portion of its foreign earnings are no longer indefinitely reinvested, then the company may be subject to additional foreign withholding taxes and U.S. state income taxes, beyond the Tax Act’s one-time transition tax.
As required by the authoritative guidance on accounting for income taxes, the Company evaluates the realizability of deferred tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred tax assets will not be realized. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, we establish a valuation allowance. We have recorded valuation allowances in the amounts of $34,912 and $20,831 at June 30, 2019 and 2018, respectively. During fiscal 2019, we recorded a partial valuation allowance against our state deferred tax assets and state net operating loss carryforwards as it is not more likely than not that the state tax attributes will be realized.
The changes in valuation allowances against deferred income tax assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
2018
|
|
Balance at beginning of year
|
$
|
20,831
|
|
|
$
|
20,712
|
|
|
Additions charged to income tax expense
|
17,773
|
|
|
1,251
|
|
|
Reductions credited to income tax expense
|
(3,231
|
)
|
|
(1,345
|
)
|
|
Currency translation adjustments
|
(461
|
)
|
|
213
|
|
|
Balance at end of year
|
$
|
34,912
|
|
|
$
|
20,831
|
|
Unrecognized tax benefits activity, including interest and penalties, is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Balance at beginning of year
|
$
|
6,730
|
|
|
$
|
11,602
|
|
|
$
|
16,019
|
|
|
Additions based on tax positions related to the current year
|
248
|
|
|
118
|
|
|
217
|
|
|
Additions based on tax positions related to prior years
|
5,446
|
|
|
—
|
|
|
—
|
|
|
Reductions due to lapse in statute of limitations and settlements
|
(555
|
)
|
|
(4,990
|
)
|
|
(4,634
|
)
|
|
Balance at end of year
|
$
|
11,869
|
|
|
$
|
6,730
|
|
|
$
|
11,602
|
|
As of June 30, 2019, the Company had $11,869 of unrecognized tax benefits, of which $8,057 represents the amount that, if recognized, would impact the effective tax rate in future periods. As of June 30, 2018 and 2017, the Company had $6,730 and $11,602, respectively, of unrecognized tax benefits of which $2,917 and $6,409, respectively, would impact the effective income tax rate in future periods. Accrued liabilities for interest and penalties were $275 and $82 at June 30, 2019 and 2018, respectively. Interest and penalties (expense and/or benefit) are recorded as a component of the provision (benefit) for income taxes in the consolidated financial statements.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and several foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to fiscal 2016. However, to the extent we generated NOLs or tax credits in closed tax years, future use of the NOL or tax credit carryforward balance would be subject to examination within the relevant statute of limitations for the year in which utilized. The Company is no longer subject to tax examinations in the United Kingdom for years prior to fiscal 2016. Given the uncertainty regarding when tax authorities will complete their examinations and the possible outcomes of their examinations, a current estimate of the range of reasonably possible significant increases or decreases of income tax that may occur within the next twelve months cannot be made. Although there are various tax audits currently ongoing, the Company does not believe the ultimate outcome of such audits will have a material impact on the Company’s consolidated financial statements.
13. STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue “blank check” preferred stock of up to 5,000 shares with such designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered to issue, without stockholder approval, preferred stock with dividends, liquidation, conversion, voting or other rights which could decrease the amount of earnings and assets available for distribution to holders of the Company’s Common Stock. At June 30, 2019 and 2018, no preferred stock was issued or outstanding.
Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
2018
|
|
Foreign currency translation adjustments:
|
|
|
|
|
Other comprehensive (loss) income before reclassifications (1)
|
$
|
(41,180
|
)
|
|
$
|
11,497
|
|
|
Deferred gains/(losses) on cash flow hedging instruments:
|
|
|
|
|
Other comprehensive income before reclassifications
|
94
|
|
|
39
|
|
|
Amounts reclassified into income (2)
|
(26
|
)
|
|
(106
|
)
|
|
Unrealized gain on equity investment:
|
|
|
|
|
Other comprehensive loss before reclassifications
|
—
|
|
|
(191
|
)
|
|
Other comprehensive (loss) income
|
$
|
(41,112
|
)
|
|
$
|
11,239
|
|
|
|
|
|
(1)
|
Foreign currency translation adjustments included intra-entity foreign currency transactions that were of a long-term investment nature and were a loss of $619 and a gain of $493 for the fiscal years ended June 30, 2019 and 2018, respectively.
|
|
|
|
|
(2)
|
Amounts reclassified into income for deferred gains/(losses) on cash flow hedging instruments are recorded in “Cost of sales” in the Consolidated Statements of Operations and, before taxes, were $32 and $132 for the fiscal years ended June 30, 2019 and 2018, respectively.
|
14. STOCK-BASED COMPENSATION AND INCENTIVE PERFORMANCE PLANS
The Company has one shareholder-approved plan, the Amended and Restated 2002 Long-Term Incentive and Stock Award 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.
2002 Long-Term Incentive and Stock Award Plan, as amended
In November 2002, our stockholders approved the 2002 Long-Term Incentive and Stock Award Plan. An aggregate of 3,200 shares of common stock were originally reserved for issuance under this plan. At various Annual Meetings of Stockholders, including the 2014 Annual Meeting, the plan was amended to increase the number of shares issuable to 31,500 shares. The plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted share units, performance shares, performance share units and other equity awards to employees, directors and consultants. Awards denominated in shares of common stock other than options and stock appreciation rights will be counted against the available share limit as two and seven hundredths shares for every one share covered by such award. All of the options granted to date under the plan have been incentive or non-qualified stock options providing for the exercise price equal to the fair market price at the date of grant. Stock option awards granted under the plan expire seven years after the date of grant. Options and other stock-based awards vest in accordance with provisions set forth in the applicable award agreements. No awards shall be granted under this plan after November 20, 2024. As of June 30, 2019, no options are outstanding under the plan.
There were no options granted under this plan in fiscal years 2019, 2018 or 2017.
There were 1,626, 685 and 195 shares of restricted stock and restricted share units granted under this plan during fiscal years 2019, 2018 and 2017, respectively, of which 1,130, 307 and 0, respectively, are subject to the achievement of minimum performance goals established under those programs or market conditions.
At June 30, 2019, 1,898 unvested restricted stock and restricted share units were outstanding under this plan, and there were 3,774 shares available for grant under this plan. At June 30, 2019, there were no options outstanding under this plan.
Other Plans
At June 30, 2019, there were 122 options outstanding that were granted under a prior Celestial Seasonings plan. Although no further awards can be granted under the prior Celestial Seasonings plan, the options outstanding continue in accordance with the terms of the plan and grants.
Compensation cost and related income tax benefits recognized in the Consolidated Statements of Operations for stock-based compensation plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Selling, general and administrative expense
|
$
|
9,503
|
|
|
$
|
13,380
|
|
|
$
|
9,658
|
|
|
Chief Executive Officer Succession Plan expense, net
|
429
|
|
|
(2,203
|
)
|
|
—
|
|
|
Discontinued operations
|
133
|
|
|
—
|
|
|
—
|
|
|
Total compensation cost recognized for stock-based compensation plans
|
$
|
10,065
|
|
|
$
|
11,177
|
|
|
$
|
9,658
|
|
|
Related income tax benefit
|
$
|
1,189
|
|
|
$
|
2,165
|
|
|
$
|
3,622
|
|
In the fiscal year ended June 30, 2019, the Company recorded a benefit of $1,867 related to the reversal of expense associated with the total share return (“TSR”) Grant under the 2017-2019 LTIP, as defined and discussed further below.
In the fiscal year ended June 30, 2018, the Company recorded a net benefit of $2,203 primarily in connection with the modification of Irwin D. Simon’s TSR performance based awards granted on September 26, 2017. Refer to Note 3, Chief Executive Officer Succession Plan, for further discussion.
Restricted Stock
Awards of restricted stock may be either grants of restricted stock or restricted share units that are issued at no cost to the recipient. For restricted stock grants, at the date of grant the recipient has all rights of a stockholder, subject to certain restrictions on transferability and a risk of forfeiture. For restricted share units, legal ownership of the shares is not transferred to the employee until the unit vests. Restricted stock and restricted share unit grants vest in accordance with provisions set forth in the applicable award agreements, which may include performance criteria for certain grants. The compensation cost of these awards is determined using the fair market value of the Company’s common stock on the date of the grant. Compensation expense for restricted stock awards with a service condition is recognized on a straight-line basis over the vesting term. Compensation expense for restricted stock awards with a performance condition is recorded when the achievement of the performance criteria is probable and is recognized over the performance and vesting service periods.
A summary of the restricted stock and restricted share units activity for the three fiscal years ended June 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Weighted
Average
Grant
Date Fair
Value
(per share)
|
|
2018
|
|
Weighted
Average
Grant
Date Fair
Value
(per share)
|
|
2017
|
|
Weighted
Average
Grant
Date Fair
Value
(per share)
|
|
Non-vested restricted stock and restricted share units - beginning of year
|
1,057
|
|
|
$22.29
|
|
992
|
|
|
$27.59
|
|
1,121
|
|
|
$28.24
|
|
Granted
|
4,088
|
|
|
$7.11
|
|
685
|
|
|
$26.13
|
|
195
|
|
|
$33.68
|
|
Vested
|
(411
|
)
|
|
$27.36
|
|
(433
|
)
|
|
$36.68
|
|
(290
|
)
|
|
$33.89
|
|
Forfeited
|
(374
|
)
|
|
$18.33
|
|
(187
|
)
|
|
$31.15
|
|
(34
|
)
|
|
$29.88
|
|
Non-vested restricted stock and restricted share units - end of year
|
4,360
|
|
|
$7.92
|
|
1,057
|
|
|
$22.29
|
|
992
|
|
|
$27.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Fair value of restricted stock and restricted share units granted
|
$
|
29,067
|
|
|
$
|
17,898
|
|
|
$
|
6,567
|
|
|
Fair value of shares vested
|
$
|
11,232
|
|
|
$
|
15,736
|
|
|
$
|
9,866
|
|
|
Tax benefit recognized from restricted shares vesting
|
$
|
3,241
|
|
|
$
|
5,235
|
|
|
$
|
3,768
|
|
At June 30, 2019, $23,942 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 2.1 years.
Stock Options
A summary of the stock option activity for the three fiscal years ended June 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Weighted
Average
Exercise
Price
|
|
2018
|
|
Weighted
Average
Exercise
Price
|
|
2017
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at beginning of year
|
122
|
|
|
$
|
2.26
|
|
|
122
|
|
|
$
|
2.26
|
|
|
342
|
|
|
$
|
6.66
|
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
(220
|
)
|
|
$
|
9.10
|
|
|
Outstanding at end of year
|
122
|
|
|
$
|
2.26
|
|
|
122
|
|
|
$
|
2.26
|
|
|
122
|
|
|
$
|
2.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
122
|
|
|
$
|
2.26
|
|
|
122
|
|
|
$
|
2.26
|
|
|
122
|
|
|
$
|
2.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Intrinsic value of options exercised
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,507
|
|
|
Cash received from stock option exercises
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Tax benefit recognized from stock option exercises
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,538
|
|
For options outstanding and exercisable at June 30, 2019, the aggregate intrinsic value (the difference between the closing stock price on the last day of trading in the year and the exercise price) was $2,394, and the weighted average remaining contractual life was 12.0 years. At June 30, 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.
Grants Made Pursuant to the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan
2019-2021 LTIP
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 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 (as further discussed below). 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 $872 in the twelve months ended June 30, 2019.
The Company also issued 156 three-year time-based restricted share units under the 2019-2021 LTIP.
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.
In the first quarter of fiscal 2019, 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 first quarter of fiscal 2019, 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 Statements of Operations.
In connection with the 2017-2019 LTIP, in the first quarter of fiscal 2019, 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, in the first quarter of fiscal 2019, 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 twelve months ended June 30, 2019, the Company granted 262 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 173 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.
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. At June 30, 2019, 1,412 unvested restricted stock and restricted share units were outstanding under this plan, and there were 1,588 shares available for grant under this plan.
In the twelve months ended June 30, 2019, the Compensation Committee granted 1,398 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 (defined and discussed further below). Additionally, 14 time-based restricted share units were granted under the 2019 Equity Inducement Award Program in fiscal 2019.
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. With the exception of the April 25, 2019 grant, 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
|
|
|
April 15, 2019
|
136
|
|
$
|
2.83
|
|
$
|
385
|
|
|
April 25, 2019
|
123
|
|
$
|
2.64
|
|
325
|
|
|
May 15, 2019
|
213
|
|
$
|
3.55
|
|
$
|
755
|
|
|
Total
|
1,398
|
|
|
$
|
3,352
|
|
The fair value per share amounts reflect the number of shares granted at 300% of the target award. The total number of shares actually issued will range from zero to 1,398. No PSUs will vest if the three-year compound annual TSR is below 15%.
Total compensation cost related to these awards recognized in the fiscal year ended June 30, 2019 was $289.
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 fiscal year ended June 30, 2019 was $1,636.
The Company also issued 79 three-year time-based restricted share units to Mr. Schiller.
15. INVESTMENTS AND JOINT VENTURES
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. 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 June 30, 2019 and June 30, 2018, the carrying value of the Company’s investment in Chop’t was $14,632 and $15,524, respectively, and is included in the Consolidated Balance Sheets as a component of “Investments and joint ventures.”
16. 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 June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
44
|
|
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Forward foreign currency contracts
|
626
|
|
|
—
|
|
|
626
|
|
|
—
|
|
|
Equity investment
|
621
|
|
|
621
|
|
|
—
|
|
|
—
|
|
|
|
$
|
1,291
|
|
|
$
|
665
|
|
|
$
|
626
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Forward foreign currency contracts
|
103
|
|
|
—
|
|
|
103
|
|
|
—
|
|
|
Total
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
103
|
|
|
$
|
—
|
|
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 investment
|
692
|
|
|
692
|
|
|
—
|
|
|
—
|
|
|
|
$
|
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 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.
In connection with the acquisitions of Better Bean and Yorkshire Provender during fiscal 2017, payments of a portion of the respective purchase prices were contingent upon the achievement of certain operating results. Contingent consideration of up to a maximum of $4,000 related to the Better Bean acquisition is payable based on the achievement of specified operating results over the three years following the closing date. Contingent consideration of up to a maximum of £1,500 related to the Yorkshire Provender acquisition is payable based on the achievement of specified operating results at the end of the three-year period following the closing date.
In connection with the acquisition of Clarks during fiscal 2018, payment of a portion of the purchase price is contingent upon the achievement of certain operating results. 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.
The following table summarizes the Level 3 activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
2019
|
|
2018
|
|
Balance at beginning of year
|
$
|
1,909
|
|
|
$
|
2,656
|
|
|
Fair value of initial contingent consideration
|
—
|
|
|
1,547
|
|
|
Contingent consideration adjustment(1)
|
(1,870
|
)
|
|
(2,281
|
)
|
|
Translation adjustment
|
(39
|
)
|
|
(13
|
)
|
|
Balance at end of year
|
$
|
—
|
|
|
$
|
1,909
|
|
(1) 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.
In the fiscal years ended June 30, 2019 and 2018, the Company recorded net benefits of $1,870 and $2,281, respectively. The net benefit in the fiscal year ended June 30, 2019 was due to a decrease in the fair value of contingent consideration related to Clarks. The net benefit in the fiscal year ended June 30, 2018 was due to a decrease in the fair value of contingent consideration related
to Better Bean and Yorkshire Provender. The decreases in each period were due to lower probability of achievement of specified operating results.
There were no transfers of financial instruments between the three levels of fair value hierarchy during the fiscal years ended June 30, 2019 or 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 11, Debt and Borrowings).
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 Sheets. 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 off-setting changes in the cash flows of hedged items. Any ineffective portion of change in fair value is not deferred in accumulated other comprehensive 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 fiscal years ended June 30, 2019 and June 30, 2018.
The notional and fair value amounts of cash flow hedges at June 30, 2019 were $2,275 and $83 of net assets, 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 June 30, 2019 and June 30, 2018 were $41,845 and $20,986, respectively. The fair values of foreign currency exchange contracts not designated as hedges at June 30, 2019 and June 30, 2018 were $440 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 in the fiscal years ended June 30, 2019 and 2018.
17. COMMITMENTS AND CONTINGENCIES
Lease commitments and rent expense
The Company leases office, manufacturing and warehouse space. These leases provide for additional payments of real estate taxes and other operating expenses over a base period amount.
The aggregate minimum future lease payments for these operating leases at June 30, 2019 are as follows:
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
$
|
19,426
|
|
|
2021
|
16,584
|
|
|
2022
|
14,218
|
|
|
2023
|
13,221
|
|
|
2024
|
11,041
|
|
|
Thereafter
|
44,452
|
|
|
|
$
|
118,942
|
|
Rent expense charged to operations for the fiscal years ended June 30, 2019, 2018 and 2017 was $37,091, $36,054 and $35,153, respectively.
Off Balance Sheet Arrangements
At June 30, 2019, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have had, or are likely to have, a material current or future effect on our consolidated financial statements.
Legal Proceedings
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 named as defendants the Company and certain of its current and former officers (collectively, “Defendants”) and asserted 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 the Amended Complaint on October 3, 2017 which the Court granted on March 29, 2019, dismissing the case in its entirety, without prejudice to replead. Co-Lead Plaintiffs filed a Second Amended Consolidated Class Action Complaint on May 6, 2019 (the “Second Amended Complaint”). The Second Amended Complaint again names as defendants the Company and certain of its current and former officers and asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegations similar to those in the Amended Complaint, including 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 the Second Amended Complaint on June 20, 2019. Co-Lead Plaintiffs filed an opposition on August 5, 2019, and Defendants have until September 3, 2019 to submit a reply.
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 alleged 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. Co-Lead Plaintiffs requested leave to file an amended consolidated complaint, and on January 14, 2019, the Court partially lifted the stay, ordering Co-Lead Plaintiffs to file their amended complaint by March 7, 2019. Co-Lead Plaintiffs filed a Verified Amended Shareholder Derivative Complaint on March 7, 2019. The Court continued the stay pending a decision on Defendants’ motion to dismiss in the Consolidated Securities Action (referenced above). After the Court in the Consolidated Securities Action dismissed the Amended Complaint, the Court in the Consolidated Derivative Action ordered Co-Lead Plaintiffs to file a second amended complaint no later than July 8, 2019. Co-Lead Plaintiffs filed a Verified Second Amended Shareholder Derivative Complaint on July 8, 2019 (the “Second Amended Derivative Complaint”). Defendants moved to dismiss the Second Amended Derivative Complaint on August 7, 2019. Co-Lead Plaintiffs must file any opposition to Defendants’ motion to dismiss by September 6, 2019, and Defendants have until September 20, 2019 to submit a reply.
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 alleged 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 alleged 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 was rendered on the motion to dismiss the Amended Complaint in the consolidated Consolidated Securities Action, described above.
On March 29, 2019, the Court in the Consolidated Securities Action granted Defendants’ motion, dismissing the Amended Complaint in its entirety, without prejudice to replead. Co-Lead Plaintiffs in the Consolidated Securities Action filed a second amended complaint on May 6, 2019. 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 30 days after the Court rules on the motion to dismiss the Second Amended Complaint in the Consolidated Securities Action.
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.
18. DEFINED CONTRIBUTION PLANS
We have a 401(k) Employee Retirement Plan (the “Plan”) to provide retirement benefits for eligible employees. All full-time employees of the Company and its wholly-owned domestic subsidiaries are eligible to participate upon completion of 30 days of service. On an annual basis, we may, in our sole discretion, make certain matching contributions. For the fiscal years ended June 30, 2018 and 2017, we made contributions to the Plan of $1,371 and $1,367, respectively, including with respect to employees of Hain Pure Protein. There were no contributions made in fiscal 2019.
In addition, while certain of our international subsidiaries maintain separate defined contribution plans for their employees, the amounts are not significant to the Company’s consolidated financial statements.
19. SEGMENT INFORMATION
The Company is managed in seven operating segments: the United States, United Kingdom, Tilda, Ella’s Kitchen UK, Europe, Canada and Hain Ventures (formerly known as Cultivate Ventures). Beginning in the third quarter ended March 31, 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. On August 27, 2019, the Company sold its Tilda business as discussed in “Note 21, Subsequent Event.”
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, Project Terra costs and other, along with accounting review and remediation 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Net Sales: (1)
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,009,406
|
|
|
$
|
1,084,871
|
|
|
$
|
1,107,806
|
|
|
United Kingdom
|
|
885,488
|
|
|
938,029
|
|
|
851,757
|
|
|
Rest of World
|
|
407,574
|
|
|
434,869
|
|
|
383,942
|
|
|
|
|
$
|
2,302,468
|
|
|
$
|
2,457,769
|
|
|
$
|
2,343,505
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss) Income:
|
|
|
|
|
|
|
|
United States
|
|
$
|
23,864
|
|
|
$
|
86,319
|
|
|
$
|
145,307
|
|
|
United Kingdom
|
|
52,413
|
|
|
56,046
|
|
|
51,948
|
|
|
Rest of World
|
|
32,820
|
|
|
38,660
|
|
|
32,010
|
|
|
|
|
109,097
|
|
|
181,025
|
|
|
229,265
|
|
|
Corporate and Other (2)
|
|
(123,983
|
)
|
|
(74,985
|
)
|
|
(119,842
|
)
|
|
|
|
$
|
(14,886
|
)
|
|
$
|
106,040
|
|
|
$
|
109,423
|
|
|
|
|
|
(1)
|
One of our customers accounted for approximately 11%, 11%, and 12% of our consolidated net sales for the fiscal years ended June 30, 2019, 2018 and 2017, respectively, which were primarily related to the United States and United Kingdom segments. A second customer accounted for approximately, 10%, 11% and 11% of our consolidated net sales for the fiscal years ended June 30, 2019, 2018 and 2017, respectively, which were primarily related to the United States segment.
|
|
|
|
|
(2)
|
For the fiscal year ended June 30, 2019, Corporate and Other included $30,156 of Chief Executive Officer Succession Plan expense, net, $28,443 of Project Terra costs and other and $4,334 of accounting review and remediation costs. Corporate and Other for the fiscal year ended June 30, 2019 also included 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 the Rest of World segment) related to certain of the Company’s tradenames and a $4,460 benefit for proceeds received in connection with an insurance recovery.
|
For the fiscal year ended June 30, 2018, Corporate and Other included $10,118 of Project Terra costs and other and $9,293 of accounting review and remediation costs, net of insurance proceeds. Corporate and Other for the fiscal year ended June 30, 2018 also included impairment charges of $5,632 ($5,100 related to the Rest of World segment and $532 related to the United Kingdom segment) related to certain of the Company’s trade names.
For the fiscal year ended June 30, 2017, Corporate and Other included $29,562 of accounting review and remediation costs and $10,388 of Project Terra costs and other. Corporate and Other for the fiscal year ended June 30, 2017 also included impairment charges of $14,079 ($7,579 related to the United Kingdom segment and $6,500 related to the United States segment) related to certain of the Company’s trade names and a $26,373 impairment charge primarily related to long-lived assets associated with the exit of certain portions of our own-label chilled desserts business in the United Kingdom segment.
The Company’s net sales by product category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Grocery
|
|
$
|
1,709,695
|
|
|
$
|
1,842,535
|
|
|
$
|
1,743,860
|
|
|
Snacks
|
|
298,333
|
|
|
302,795
|
|
|
312,784
|
|
|
Personal Care
|
|
178,966
|
|
|
196,245
|
|
|
176,408
|
|
|
Tea
|
|
115,474
|
|
|
116,194
|
|
|
110,453
|
|
|
Total
|
|
$
|
2,302,468
|
|
|
$
|
2,457,769
|
|
|
$
|
2,343,505
|
|
The Company’s net sales by geographic region, which are generally based on the location of the Company’s subsidiary, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
United States
|
|
$
|
1,057,625
|
|
|
$
|
1,144,832
|
|
|
$
|
1,167,688
|
|
|
United Kingdom
|
|
885,488
|
|
|
938,029
|
|
|
851,757
|
|
|
All Other
|
|
359,355
|
|
|
374,908
|
|
|
324,060
|
|
|
Total
|
|
$
|
2,302,468
|
|
|
$
|
2,457,769
|
|
|
$
|
2,343,505
|
|
The Company’s long-lived assets, which primarily represent net property, plant and equipment, by geographic region are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
United States
|
|
$
|
115,866
|
|
|
$
|
99,650
|
|
|
United Kingdom
|
|
173,544
|
|
|
174,214
|
|
|
All Other
|
|
87,277
|
|
|
86,700
|
|
|
Total
|
|
$
|
376,687
|
|
|
$
|
360,564
|
|
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of the Company’s consolidated quarterly results of operations is as follows. The sum of the net income per share from continuing operations for each of the four quarters may not equal the net income per share for the full year, as presented, due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
June 30,
2019
|
|
March 31, 2019
|
|
December 31, 2018
|
|
September 30, 2018
|
|
Net sales
|
$
|
557,682
|
|
|
$
|
599,797
|
|
|
$
|
584,156
|
|
|
$
|
560,833
|
|
|
Gross profit
|
$
|
106,077
|
|
|
$
|
125,269
|
|
|
$
|
114,273
|
|
|
$
|
99,594
|
|
|
Operating income (loss)
|
$
|
740
|
|
|
$
|
23,865
|
|
|
$
|
(15,387
|
)
|
|
$
|
(24,104
|
)
|
|
(Loss) income before income taxes and equity in earnings of equity-method investees
|
$
|
(8,408
|
)
|
|
$
|
13,407
|
|
|
$
|
(24,577
|
)
|
|
$
|
(32,409
|
)
|
|
Net (loss) income from continuing operations
|
$
|
(7,654
|
)
|
|
$
|
10,088
|
|
|
$
|
(29,278
|
)
|
|
$
|
(23,101
|
)
|
|
Net loss from discontinued operations, net of tax
|
$
|
(5,897
|
)
|
|
$
|
(75,925
|
)
|
|
$
|
(37,223
|
)
|
|
$
|
(14,324
|
)
|
|
Net loss
|
$
|
(13,551
|
)
|
|
$
|
(65,837
|
)
|
|
$
|
(66,501
|
)
|
|
$
|
(37,425
|
)
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share from continuing operations
|
$
|
(0.07
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.22
|
)
|
|
Basic net loss per common share from discontinued operations
|
$
|
(0.06
|
)
|
|
$
|
(0.73
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.14
|
)
|
|
Basic net loss per common share
|
$
|
(0.13
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(0.36
|
)
|
|
Diluted net (loss) income per common share from continuing operations
|
$
|
(0.07
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.22
|
)
|
|
Diluted net loss per common share from discontinued operations
|
$
|
(0.06
|
)
|
|
$
|
(0.73
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.14
|
)
|
|
Diluted net loss per common share
|
$
|
(0.13
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(0.36
|
)
|
Net loss from continuing operations in the quarter ended June 30, 2019 was impacted by $4,393 ($3,558 net of tax) and $5,617 ($4,143 net of tax) non-cash impairment charges in the United Kingdom and United States, respectively, primarily associated with a write down of the value of certain machinery and equipment no longer in use, some of which was used to manufacture certain slow moving SKUs that were discontinued. Additionally, the Company recorded an inventory write-down of $10,346 ($7,606 net of tax) related to the discontinuation of additional slow moving SKUs in the United States as part of an ongoing product rationalization initiative.
Net loss from discontinued operations in the quarter ended March 31, 2019 included a pre-tax loss on sale on the disposition of the Plainville Farms business of $40,223 ($29,511 net of tax), to write down the assets and liabilities to the final sales price less costs to sell and asset impairments of $51,348 ($37,532 net of tax), each as a component of net loss on discontinued operations, net of tax.
The quarter ended December 31, 2018 was impacted by $10,148 ($7,484 net of tax) of Chief Executive Officer Succession Plan expense, net, $920 ($678 net of tax) related to professional fees associated with our internal accounting review and the independent review by the Audit Committee and other related matters, impairment charges of $17,900 ($13,374 net of tax) related to indefinite-lived intangible assets (trade names) and asset impairment charges in discontinued operations of $54,946 ($40,314 net of tax).
The quarter ended September 30, 2018 was impacted by $19,553 ($14,420 net of tax) of Chief Executive Officer Succession Plan expense, net, $3,414 ($2,518 net of tax) related to professional fees associated with our internal accounting review and the independent review by the Audit Committee and other related matters, $4,243 ($3,436 net of tax) primarily related to the closure of a manufacturing facility of fruit-based products in the United Kingdom and asset impairment charges in discontinued operations of $2,958 ($2,170 net of tax).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
June 30,
2018
|
|
March 31, 2018
|
|
December 31, 2017
|
|
September 30, 2017
|
|
Net sales
|
$
|
619,598
|
|
|
$
|
632,720
|
|
|
$
|
616,232
|
|
|
$
|
589,219
|
|
|
Gross profit
|
$
|
125,097
|
|
|
$
|
133,013
|
|
|
$
|
133,950
|
|
|
$
|
123,388
|
|
|
Operating income
|
$
|
16,580
|
|
|
$
|
29,254
|
|
|
$
|
30,965
|
|
|
$
|
29,241
|
|
|
Income before income taxes and equity in earnings of equity-method investees
|
$
|
5,838
|
|
|
$
|
24,032
|
|
|
$
|
25,246
|
|
|
$
|
26,086
|
|
|
Net (loss) income from continuing operations
|
$
|
(4,556
|
)
|
|
$
|
25,241
|
|
|
$
|
43,130
|
|
|
$
|
18,613
|
|
|
Net (loss) income from discontinued operations, net of tax
|
$
|
(65,385
|
)
|
|
$
|
(12,555
|
)
|
|
$
|
3,973
|
|
|
$
|
1,233
|
|
|
Net (loss) income
|
$
|
(69,941
|
)
|
|
$
|
12,686
|
|
|
$
|
47,103
|
|
|
$
|
19,846
|
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share from continuing operations
|
$
|
(0.04
|
)
|
|
$
|
0.24
|
|
|
$
|
0.42
|
|
|
$
|
0.18
|
|
|
Basic net (loss) income per common share from discontinued operations
|
$
|
(0.63
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
0.04
|
|
|
$
|
0.01
|
|
|
Basic net (loss) income per common share
|
$
|
(0.67
|
)
|
|
$
|
0.12
|
|
|
$
|
0.45
|
|
|
$
|
0.19
|
|
|
Diluted net (loss) income per common share from continuing operations
|
$
|
(0.04
|
)
|
|
$
|
0.24
|
|
|
$
|
0.41
|
|
|
$
|
0.18
|
|
|
Diluted net (loss) income per common share from discontinued operations
|
$
|
(0.63
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
0.04
|
|
|
$
|
0.01
|
|
|
Diluted net (loss) income per common share
|
$
|
(0.67
|
)
|
|
$
|
0.12
|
|
|
$
|
0.45
|
|
|
$
|
0.19
|
|
The quarter ended June 30, 2018 was impacted by goodwill impairment charges of $7,700 ($5,553 net of tax) in the Hain Ventures (formerly known as Cultivate Ventures) operating segment, impairment charges of $5,632 ($5,192 net of tax) related to indefinite-lived intangible assets (trade names), as well as a $113 ($104 net of tax) impairment charge primarily related to the closure of manufacturing facilities in the United States. Additionally, the quarter ended June 30, 2018 was impacted by $2,887 ($1,941 net of tax) related to professional fees associated with our internal accounting review and remediation costs, net of insurance proceeds. Net loss from discontinued operations in the quarter ended June 30, 2018 was impacted by asset impairment charges of $78,464 ($52,699 net of tax) to adjust the carrying value of Hain Pure Protein to its fair value, less its cost to sell.
The quarter ended March 31, 2018 was impacted by impairment charges of $2,557 ($2,050 net of tax) primarily related to the closure of a manufacturing facility of certain soup products in the United Kingdom, as well as an impairment charge of $2,057 ($1,648 net of tax) related to the discontinuation of additional slow moving SKUs in the United States as part of an ongoing product rationalization initiative. Additionally, the quarter ended March 30, 2018 was impacted by $3,313 ($2,654 net of tax) related to professional fees associated with our internal accounting review and remediation costs.
The quarter ended December 31, 2017 was impacted by impairment charges of $3,449 ($2,593 net of tax) related to the closure of a facility in the United States, as well as $4,451 ($3,346 net of tax) related to professional fees associated with our internal accounting review and remediation costs.
The quarter ended September 30, 2017 was impacted by $3,642 ($2,638 net of tax) related to professional fees associated with our internal accounting review and insurance proceeds of $5,000 ($3,622 net of tax) related to the reimbursement of costs incurred as part of the internal accounting review and the independent review by the Audit Committee and other related matters.
21. SUBSEQUENT EVENT
On August 27, 2019, the Company and Ebro Foods S.A. (the “Purchaser”) entered into, and consummated the transactions contemplated by, an Agreement relating to the sale and purchase of the Tilda operating segment and certain other assets (the “Sale and Purchase Agreement”). Under the Sale and Purchase Agreement, the Company sold the entities comprising its Tilda operating segment and certain other assets of the Tilda business to the Purchaser for an aggregate price of $342,000 in cash, subject to customary post-closing adjustments based on the balance sheets of the Tilda business. The other assets sold in the transaction consist of raw materials, consumables, packaging, and finished and unfinished goods related to the Tilda business held by other Company entities that are not Tilda Group Entities.
The Sale and Purchase Agreement contains representations, warranties and covenants that are customary for a transaction of this nature. The Company also entered into certain ancillary agreements with the Purchaser and certain of the Tilda Group Entities in connection with the Sale and Purchase Agreement, including a transitional services agreement pursuant to which the Company and the Purchaser will provide transitional services to one another, and business transfer agreements pursuant to which the applicable Tilda Group Entities will transfer certain non-Tilda assets and liabilities in India and the United Arab Emirates to subsidiaries of the Company to be formed in those countries.