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 75 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 Celestial Seasonings®, Clarks™, Cully & Sully®, Dream®, Earth’s Best®, Ella’s Kitchen®, Farmhouse Fare™, Frank Cooper’s®, GG UniqueFiber®, Gale’s®, Garden of Eatin’®, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, Joya®, Lima®, Linda McCartney® (under license), MaraNatha®, Natumi®, New Covent Garden Soup Co.®, Orchard House®, Robertson’s®, Sensible Portions®, Spectrum®, Sun-Pat®, Sunripe®, Terra®, The Greek Gods®, William’s™, Yorkshire Provender® and Yves Veggie Cuisine®. The Company’s personal care products are marketed under the Alba Botanica®, Avalon Organics®, Earth’s Best®, JASON®, Live Clean®, One Step® and Queen Helene® brands.
The Company continues to execute the four key pillars of its strategy to: (1) simplify its portfolio; (2) strengthen its capabilities; (3) expand profit margins and cash flow; and (4) reinvigorate profitable topline growth. The Company has executed this strategy, with a focus on discontinuing uneconomic investment, realigning resources to coincide with brand importance, reducing unproductive stock-keeping units (“SKUs”) and brands and reassessing current pricing architecture. As part of this initiative, the Company reviewed its product portfolio within North America 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 potential. The Company has concentrated its investment in marketing, innovation and other resources to prioritize spending for these brands, in an effort to reinvigorate profitable topline growth, optimize assortment and increase share of distribution.
The Company’s “Get Better” brands are the brands in which the Company is primarily focused on simplification and expansion of profit margin. Some of these brands have historically been low margin, non-strategic brands that added complexity with minimal benefit to the Company’s operations.
During the fourth quarter of fiscal 2019, the Company initiated a SKU rationalization that included the elimination of approximately 350 low velocity and low profitability SKUs. These SKU rationalizations are expected to result in expanded future profits and a remaining set of core SKUs that will maintain their shelf space in the store.
In addition, 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. During fiscal 2019, for example, the Company divested its Hain Pure Protein reportable segment and its WestSoy® tofu, seitan and tempeh businesses. In fiscal 2020, the Company divested its Tilda business and its Arrowhead Mills®, SunSpire®, Europe's Best®, Casbah®, Rudi’s Gluten-Free Bakery™, Rudi’s Organic Bakery® and Fountain of Truth™ brands. More recently, the Company divested its Danival® business in July 2020. See Note 25, Subsequent Events, for additional information.
Productivity and Transformation Costs
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. In fiscal 2019, the Company announced a strategy that includes as one of its key pillars identifying areas of cost savings and operating efficiencies to expand profit margins and cash flow. As part of this overall strategy and the key pillar of realizing
savings and efficiencies, during fiscal 2020, the Company began the integration of its United States and Canada operations in alignment with the North America reportable segment structure. The Company will carry out additional productivity initiatives under this strategy in fiscal 2021.
Productivity and transformation costs include costs, such as consulting and severance costs, relating to 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.
Discontinued Operations
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 Group Entities and certain other assets.
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 the Company’s Hain Pure Protein Corporation (“HPPC”) operating segment. On June 28, 2019, the Company completed the sale of the remainder of HPPC and Empire Kosher which included the FreeBird and Empire Kosher businesses. These dispositions were 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 were reported in the aggregate as the Hain Pure Protein reportable segment.
These dispositions represented strategic shifts that had a major impact on the Company’s operations and financial results, and therefore, the Company is presenting the operating results and cash flows of the Tilda operating segment and the Hain Pure Protein reportable segment within discontinued operations in the current and prior periods. The assets and liabilities of the Tilda operating segment are presented as assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of June 30, 2019. See Note 5, Discontinued Operations and Assets Held for Sale, for additional information.
Change in Reportable Segments
Historically, the Company had three reportable segments: United States, United Kingdom and Rest of World. Effective July 1, 2019, the Company reassessed its segment reporting structure and as a result, the Canada and Hain Ventures operating segments, which were included within the Rest of World reportable segment, were moved to the United States reportable segment and renamed the North America reportable segment. Additionally, the Europe operating segment, which was included in the Rest of World reportable segment, was combined with the United Kingdom reportable segment and renamed the International reportable segment. Accordingly, the Company now operates under two reportable segments: North America and International. Prior period segment information contained herein has been adjusted to reflect the Company’s new operating and reporting structure. See Note 22, Segment Information, 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 2020, 2019 and 2018 or “fiscal” 2020, 2019 and 2018 or other years refer to our fiscal year ended June 30 of that respective year and references to 2021 or “fiscal” 2021 refer to our fiscal year ending June 30, 2021.
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 75 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 commenced an internal accounting review with respect to the timing of recording revenue associated with concessions provided to distributors in the United States. 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. In November 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. In particular, the Company concluded that its historical accounting policy for recording revenue and concessions related to distributors was appropriate. In December 2018, the Company and the Securities and Exchange Commission (“SEC”) settled the SEC’s charges against the Company with respect to these matters without a monetary penalty on the Company.
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 22, 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 13% of trade receivables balances as of both June 30, 2020 and 2019, 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 12%, 11% and 11% of net sales during the fiscal years ended June 30, 2020, 2019 and 2018, respectively. Sales to a second customer and its affiliates approximated 9%, 10% and 12% of net sales during the fiscal years ended June 30, 2020, 2019 and 2018, 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 and Assets Held for Sale. 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, which are not amortized, consist primarily of acquired trademarks and trade names. 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. This method includes significant management assumptions such as revenue growth rates, weighted average cost of capital and assumed royalty rates.
See Note 10, Goodwill and Other Intangible Assets, for information on goodwill and intangibles impairment charges.
Transfer of Financial Assets
The Company accounts for transfers of financial assets, such as non-recourse accounts receivable factoring arrangements, when the Company has surrendered control over the related assets. Determining whether control has transferred requires an evaluation of relevant legal considerations, an assessment of the nature and extent of the Company’s continuing involvement with the assets transferred and any other relevant considerations. The Company has a non-recourse factoring arrangement in which eligible receivables are sold to a third-party buyer in exchange for cash. The Company transferred accounts receivables in their entirety to the buyer and satisfied all of the conditions to report the transfer of financial assets in their entirety as a sale. The principal amount of receivables sold under this arrangement was $108,928 during the year ended June 30, 2020, and no amounts were sold in the years ended June 30, 2019 and 2018. The incremental cost of factoring receivables under this arrangement is included in interest and other financing expense, net in the Company’s Consolidated Statements of Operations.
The proceeds from the sale of receivables are included in cash from operating activities in the accompanying Consolidated Statements of Cash Flows.
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 $11,653 in fiscal 2020, $11,120 in fiscal 2019 and $9,696 in fiscal 2018, 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 $19,455 in fiscal 2020, $23,099 in fiscal 2019 and $30,463 in fiscal 2018. 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 related to reimbursement of costs incurred in that fiscal year. The Company recorded an additional $2,567 in the first quarter of fiscal 2020 and received an additional $462 of proceeds in the third 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, 2020 and 2019, the Company had $7 and $44, respectively, invested in money market funds, which are classified as cash equivalents. At June 30, 2020 and 2019, 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 and Hedging Activities
Issued by the Financial Accounting Standards Board (“FASB”), ASC 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The effective portion of changes in the fair value of derivative instruments that qualify for cash flow hedge and net investment 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 or interest and other financing expense, net in the accompanying financial statements. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
Stock-Based Compensation
The Company uses the fair market value of the Company’s common stock on the grant date to measure fair value for service-based and performance-based awards, and a Monte Carlo simulation model to determine the fair value of market-based awards. 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 the Company’s 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 and Assets Held for Sale, for information on long-lived asset impairment charges.
Leases
Effective July 1, 2019, arrangements containing leases are evaluated as an operating or finance lease at lease inception. For operating leases, the Company recognizes an operating right-of-use ("ROU") asset and operating lease liability at lease commencement based on the present value of lease payments over the lease term.
With the exception of certain finance leases, an implicit rate of return is not readily determinable for the Company's leases. For these leases, an incremental borrowing rate is used in determining the present value of lease payments and is calculated based on information available at the lease commencement date. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest the Company would have to pay to borrow funds on a collateralized basis over a similar term. The Company references market yield curves which are risk-adjusted to approximate a collateralized rate in the currency of the lease. These rates are updated on a quarterly basis for measurement of new lease obligations.
The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Leases with an initial term of 12 months or less are not recognized on the Company's Consolidated Balance Sheets. The Company has elected to separate lease and non-lease components.
Operating lease assets are presented as operating lease ROU assets, and corresponding operating lease liabilities are presented within accrued expenses and other current liabilities (current portions), and as operating lease liabilities, noncurrent portion, on the Company’s Consolidated Balance Sheet. Finance lease assets are included in property, plant and equipment, net, and corresponding finance lease liabilities are included within current portion of long-term debt and long-term debt, less current portion, on the Company’s Consolidated Balance Sheet.
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.
Recently Adopted Accounting Pronouncements
In May 2014, the 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. The Company no longer classifies equity investments as trading or available-for-sale and no longer recognizes 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 February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The Company adopted ASU 2016-02 effective July 1, 2019, using a modified retrospective approach. As permitted by the new guidance, the Company elected the package of practical expedients, which among other things, allowed historical lease classification to be carried forward. Excluding Tilda, adoption of the new standard resulted in the recording of operating lease ROU assets and lease liabilities as of July 1, 2019 of $87,414 and $92,982, respectively, with the difference largely due to prepaid and deferred rent that were reclassified to the ROU asset value. In addition, the Company recorded a cumulative-effect adjustment to opening retained earnings of $439 at adoption for the impairment of an abandoned ROU asset for a manufacturing facility in the United Kingdom that was previously impaired and the remaining lease payments were accounted for under ASC Topic 420, Exit or Disposal Obligations. The standard did not materially affect the Company’s consolidated net income (loss) or cash flows. See Note 9, Leases, for further details.
Recently Issued Accounting Pronouncements Not Yet Effective
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected versus incurred credit losses for most financial assets. The new guidance is effective for annual periods beginning after December 15, 2019, and for interim periods within those fiscal years. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
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.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurement by removing, modifying or adding certain disclosures. The new guidance is effective for annual periods beginning after December 15, 2019, and for interim periods within those fiscal years. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amended guidance
is effective for annual periods beginning after December 15, 2019, and for interim periods within those fiscal years. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies various aspects related to accounting for income taxes and eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. The new guidance is effective for annual periods beginning after December 15, 2021, and for interim periods within those fiscal years. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
3. FORMER 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”). 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, at which time the Company’s new CEO, Mark L. Schiller, commenced his employment. Expense recognized in connection with these payments was $33,051 and $1,452 during the twelve months ended June 30, 2019 and June 30, 2018, respectively. The cash separation payment was paid on May 6, 2019. Additionally, the Succession Agreement allowed for acceleration of vesting of all service-based awards outstanding at the termination of Mr. Simon’s employment. In connection with these accelerations, the Company recognized additional stock-based compensation expense of $429 ratably through November 4, 2018. The aforementioned impacts were recorded in Former Chief Executive Officer Succession Plan expense, net in the Consolidated Statements of Operations.
As further discussed in Note 15, Stock-based Compensation and Incentive Performance Plans, in the three months ended September 30, 2018, the Company’s Compensation Committee determined that no awards would be paid or vested pursuant to the 2016-2018 LTIP. Accordingly, the Company recorded a benefit of $5,065 associated with the reversal of previously accrued amounts under the net sales portion of the 2016-2018 LTIP associated with Mr. Simon’s stock awards during the twelve months ended June 30, 2019.
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 received 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 Former Chief Executive Officer Succession Plan expense, net in the twelve months ended June 30, 2019.
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,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
Net income (loss) from continuing operations
|
$
|
25,634
|
|
|
$
|
(53,427)
|
|
|
$
|
74,744
|
|
Net loss from discontinued operations, net of tax
|
$
|
(106,041)
|
|
|
$
|
(129,887)
|
|
|
$
|
(65,050)
|
|
Net (loss) income
|
$
|
(80,407)
|
|
|
$
|
(183,314)
|
|
|
$
|
9,694
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Basic weighted average shares outstanding
|
103,618
|
|
|
104,076
|
|
|
103,848
|
|
Effect of dilutive stock options, unvested restricted stock and
unvested restricted share units
|
319
|
|
|
—
|
|
|
629
|
|
Diluted weighted average shares outstanding
|
103,937
|
|
|
104,076
|
|
|
104,477
|
|
|
|
|
|
|
|
Basic net (loss) income per common share:
|
|
|
|
|
|
Continuing operations
|
$
|
0.25
|
|
|
$
|
(0.51)
|
|
|
$
|
0.72
|
|
Discontinued operations
|
(1.02)
|
|
|
(1.25)
|
|
|
(0.63)
|
|
Basic net (loss) income per common share
|
$
|
(0.77)
|
|
|
$
|
(1.76)
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share:
|
|
|
|
|
|
Continuing operations
|
$
|
0.25
|
|
|
$
|
(0.51)
|
|
|
$
|
0.72
|
|
Discontinued operations
|
(1.02)
|
|
|
(1.25)
|
|
|
(0.63)
|
|
Diluted net (loss) income per common share
|
$
|
(0.77)
|
|
|
$
|
(1.76)
|
|
|
$
|
0.09
|
|
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 from continuing operations in the fiscal year 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. Diluted earnings per share for the fiscal years ended June 30, 2020 and 2018 includes the dilutive effects of common stock equivalents such as stock options and unvested restricted stock awards.
There were 428, 769 and 4 restricted stock awards and stock options excluded from our calculation of diluted net (loss) income per share for the fiscal years ended June 30, 2020, 2019 and 2018, respectively, as such awards were anti-dilutive. Additionally, there were 2,645, 3,625 and 560 stock-based awards excluded for the fiscal years ended June 30, 2020, 2019 and 2018, respectively, as such awards were contingently issuable based on market or performance conditions, and such conditions had not been achieved during the respective periods.
5. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Discontinued Operations
Sale of Tilda Business
On August 27, 2019, the Company sold the entities comprising its Tilda operating segment (the “Tilda Group Entities”) 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 consisted 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. In January 2020, the Company and the Purchaser agreed to fully resolve all matters relating to post-closing adjustments to the sale price, resulting in a final aggregate sale price of $341,800. The Company used the proceeds from the sale to pay down the remaining outstanding borrowings under its term loan and a portion of its revolving credit facility.
The Company also entered into certain ancillary agreements with the Purchaser and certain of the Tilda Group Entities in connection with the sale, including a transitional services agreement (the "TSA") pursuant to which the Company and the Purchaser provided transitional services to one another, and business transfer agreements pursuant to which the applicable Tilda Group Entities would 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. Additionally, the Company distributed certain Tilda products in the United States, Canada and Europe through the expiration of the TSA. The TSA expired during the second quarter of fiscal 2020.
The disposition of the Tilda operating segment represented a strategic shift that had a major impact on the Company’s operations and financial results and has been accounted for as discontinued operations.
The following table presents the major classes of Tilda’s results within “Net income (loss) from discontinued operations, net of tax” in our Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Net sales
|
$
|
30,399
|
|
|
$
|
197,862
|
|
|
$
|
192,099
|
|
Cost of sales
|
26,648
|
|
|
151,146
|
|
|
143,908
|
|
Gross (loss) profit
|
3,751
|
|
|
46,716
|
|
|
48,191
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
5,185
|
|
|
26,949
|
|
|
25,349
|
|
Amortization of acquired intangibles and other expense
|
1,172
|
|
|
2,189
|
|
|
3,536
|
|
Interest expense (1)
|
2,432
|
|
|
13,561
|
|
|
10,538
|
|
Translation loss (2)
|
95,120
|
|
|
—
|
|
|
—
|
|
Gain on sale of discontinued operations
|
(9,386)
|
|
|
—
|
|
|
—
|
|
Net (loss) income from discontinued operations before income taxes
|
(90,772)
|
|
|
4,017
|
|
|
8,768
|
|
Provision for income taxes (3)
|
12,909
|
|
|
535
|
|
|
1,084
|
|
Net (loss) income from discontinued operations, net of tax
|
$
|
(103,681)
|
|
|
$
|
3,482
|
|
|
$
|
7,684
|
|
(1) Interest expense was allocated to discontinued operations based on borrowings repaid with proceeds from the sale of Tilda.
(2) At the completion of the sale of Tilda, the Company reclassified $95,120 of related cumulative translation losses from Accumulated other comprehensive loss to discontinued operations, net of tax.
(3) Includes a tax provision related to the tax gain on the sale of Tilda of $13,960 for the twelve months ended June 30, 2020.
Assets and liabilities of discontinued operations associated with Tilda presented in the Consolidated Balance Sheet as of June 30, 2019 are included in the following table. There were no assets or liabilities from discontinued operations associated with Tilda as of June 30, 2020.
|
|
|
|
|
|
|
|
|
ASSETS
|
|
June 30, 2019
|
Cash and cash equivalents
|
|
$
|
8,509
|
|
Accounts receivable, less allowance for doubtful accounts
|
|
26,955
|
|
Inventories
|
|
65,546
|
|
Prepaid expenses and other current assets
|
|
9,038
|
|
Total current assets of discontinued operations(1)
|
|
110,048
|
|
Property, plant and equipment, net
|
|
40,516
|
|
Goodwill
|
|
133,098
|
|
Trademarks and other intangible assets, net
|
|
84,925
|
|
Other assets
|
|
628
|
|
Total noncurrent assets of discontinued operations(1)
|
|
259,167
|
|
Total assets of discontinued operations
|
|
$
|
369,215
|
|
|
|
|
LIABILITIES
|
|
|
Accounts payable
|
|
$
|
18,341
|
|
Accrued expenses and other current liabilities
|
|
4,675
|
|
Current portion of long-term debt
|
|
8,687
|
|
Total current liabilities of discontinued operations(1)
|
|
31,703
|
|
Deferred tax liabilities
|
|
17,153
|
|
Other noncurrent liabilities
|
|
208
|
|
Total noncurrent liabilities of discontinued operations(1)
|
|
17,361
|
|
Total liabilities of discontinued operations(1)
|
|
$
|
49,064
|
|
(1) Assets and liabilities from discontinued operations were classified as current and noncurrent at June 30, 2019 as they did not meet the held-for-sale criteria.
Sale of Hain Pure Protein Reportable Segment
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 included 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 had 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 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 (“Plainville”)
On February 15, 2019, the Company completed the sale of substantially all of the assets used primarily for Plainville (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 Plainville 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 (the “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 subsequent change in control of Plainville 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, 2020, 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 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 included 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,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Net sales
|
$
|
—
|
|
|
$
|
408,109
|
|
|
$
|
509,475
|
|
Cost of sales
|
—
|
|
|
409,433
|
|
|
486,023
|
|
Gross (loss) profit
|
—
|
|
|
(1,324)
|
|
|
23,452
|
|
Asset impairments
|
—
|
|
|
109,252
|
|
|
78,464
|
|
Selling, general and administrative expense
|
—
|
|
|
16,384
|
|
|
18,743
|
|
Other expense
|
—
|
|
|
9,088
|
|
|
4,699
|
|
Loss on sale of discontinued operations
|
3,043
|
|
|
40,859
|
|
|
—
|
|
Net (loss) income from discontinued operations before income taxes
|
(3,043)
|
|
|
(176,907)
|
|
|
(78,454)
|
|
Benefit for income taxes
|
(684)
|
|
|
(43,538)
|
|
|
(5,720)
|
|
Net (loss) income from discontinued operations, net of tax
|
$
|
(2,359)
|
|
|
$
|
(133,369)
|
|
|
$
|
(72,734)
|
|
There were no assets or liabilities from discontinued operations associated with Hain Pure Protein as of June 30, 2020 or 2019.
Assets Held for Sale
The Company entered into a definitive stock purchase agreement on June 30, 2020 for the sale of its Danival business, and the transaction was completed on July 21, 2020.
During fiscal 2020, the Company recorded a pre-tax noncash loss of $13,052 to reduce the carrying value of the Danival business to its estimated fair value, less costs to sell. This included the noncash impairment charge of the relative fair value of goodwill allocated to the Danival business, a part of the International segment, of $394 included in Goodwill impairment in the Company’s Consolidated Statement of Operations. Also included in the pre-tax noncash loss were noncash impairment charges for intangibles consisting of trade name and customer lists, fixed assets and inventory totaling $12,658 included in Long-lived assets and intangibles impairment in the Company’s Consolidated Statement of Operations. The estimated fair value, less costs to sell, reflects the amount of consideration the Company expected to receive upon closing of the transaction as of June 30, 2020.
As of June 30, 2020, the Company determined the held for sale criteria was met and classified the assets and liabilities to held for sale. Current assets held for sale of $8,333 are included in the Consolidated Balance Sheet as a component of Prepaid expenses and other current assets and current liabilities held for sale of $3,567 are included in the Consolidated Balance Sheet as a component of Accrued expenses and other current liabilities.
The Company deconsolidated the net assets of the Danival business upon closing of sale, which occurred during the first quarter of fiscal 2021.
6. ACQUISITIONS
There were no acquisitions completed in the fiscal years ended June 30, 2020 and 2019.
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 was payable based on the achievement of specified operating results over an 18-month period following completion of the acquisition; no contingent consideration amounts were paid, and the arrangement expired during fiscal 2019. 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.
The costs related to all acquisitions have been expensed as incurred and are included in Productivity and transformation costs in the Consolidated Statements of Operations. Acquisition-related costs of $409 were expensed in the fiscal years ended June 30, 2018. Acquisition-related costs for the fiscal year ended June 30, 2020 and 2019 were de minimis. The expenses incurred primarily related to professional fees and other transaction-related costs associated with these acquisitions.
7. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
June 30,
2019
|
Finished goods
|
$
|
158,162
|
|
|
$
|
199,754
|
|
Raw materials, work-in-progress and packaging
|
90,008
|
|
|
99,587
|
|
|
$
|
248,170
|
|
|
$
|
299,341
|
|
In the twelve months ended June 30, 2020 and June 30, 2019, the Company recorded inventory write-downs of $4,175 and $12,381, respectively, primarily related to the discontinuance of slow moving SKUs as part of product rationalization initiatives.
8. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
June 30,
2019
|
Land
|
$
|
13,866
|
|
|
$
|
14,240
|
|
Buildings and improvements
|
74,325
|
|
|
83,151
|
|
Machinery and equipment
|
288,466
|
|
|
274,554
|
|
Computer hardware and software
|
60,391
|
|
|
48,984
|
|
Furniture and fixtures
|
20,044
|
|
|
17,325
|
|
Leasehold improvements
|
40,876
|
|
|
32,264
|
|
Construction in progress
|
16,489
|
|
|
35,786
|
|
|
514,457
|
|
|
506,304
|
|
Less: Accumulated depreciation and impairment
|
225,201
|
|
|
218,459
|
|
|
$
|
289,256
|
|
|
$
|
287,845
|
|
Depreciation expense for the fiscal years ended June 30, 2020, 2019, and 2018 was $31,409, $28,922 and $29,849, respectively.
During fiscal 2020, the Company recorded $12,313 of non-cash impairment charges primarily related to a write-down of building improvements, machinery and equipment in the United States and Europe used to manufacture certain slow moving or low margin SKUs, held for sale accounting of Danival and consolidation of certain office space and manufacturing facilities.
In 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. Additionally, 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. 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.
9. LEASES
The Company leases office space, warehouse and distribution facilities, manufacturing equipment and vehicles primarily in North America and Europe. The Company determines if an arrangement is or contains a lease at inception. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company’s lease agreements generally do not contain residual value guarantees or material restrictive covenants. A limited number of lease agreements include rental payments adjusted periodically for inflation.
Certain of the Company’s leases contain variable lease payments, which are expensed as incurred unless those payments are based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and included in the measurement of the lease liability; thereafter, changes to lease payments due to rate or index changes are recorded as variable lease expense in the period incurred. The Company does not have any related party leases, and sublease transactions are de minimis.
The components of lease expenses for the fiscal year ended June 30, 2020 were as follows:
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
June 30, 2020
|
Operating lease expenses (a)
|
$
|
18,981
|
|
Finance lease expenses (a)
|
1,197
|
|
Variable lease expenses
|
2,570
|
|
Short-term lease expenses
|
1,723
|
|
Total lease expenses
|
$
|
24,471
|
|
(a) Operating lease expenses and finance lease expenses include $1,505 and $251 of ROU asset impairment charges, respectively, associated with the Company’s ongoing productivity and transformation costs initiatives. Of this amount, $929 was recognized as a component of Long-lived asset and intangibles impairment on the Consolidated Statement of Operations with the remainder recognized as a component of Cost of Sales.
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
Classification
|
|
June 30, 2020
|
Assets
|
|
|
|
|
Operating lease ROU assets
|
|
Operating lease right-of-use assets
|
|
$
|
88,165
|
|
Finance lease ROU assets, net
|
|
Property, plant and equipment, net
|
|
691
|
|
Total leased assets
|
|
|
|
$
|
88,856
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current
|
|
|
|
|
Operating
|
|
Accrued expenses and other current liabilities
|
|
$
|
12,338
|
|
Finance
|
|
Current portion of long-term debt
|
|
308
|
|
Non-current
|
|
|
|
|
Operating
|
|
Operating lease liabilities, noncurrent portion
|
|
82,962
|
|
Finance
|
|
Long-term debt, less current portion
|
|
316
|
|
Total lease liabilities
|
|
|
|
$
|
95,924
|
|
Additional information related to leases is as follows:
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
June 30, 2020
|
Supplemental cash flow information
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
17,290
|
|
Operating cash flows from finance leases
|
$
|
26
|
|
Financing cash flows from finance leases
|
$
|
543
|
|
ROU assets obtained in exchange for lease obligations (b):
|
|
Operating leases
|
$
|
104,915
|
|
Finance leases
|
$
|
1,475
|
|
Weighted average remaining lease term:
|
|
Operating leases
|
10.0 years
|
Finance leases
|
2.5 years
|
Weighted average discount rate:
|
|
Operating leases
|
3.0
|
%
|
Finance leases
|
2.3
|
%
|
(b) ROU assets obtained in exchange for lease obligations includes the impact of the adoption of ASU 2016-02 effective July 1, 2019 (see Note 2) and leases which commenced, were modified or terminated during the fiscal year ended June 30, 2020.
Maturities of lease liabilities as of June 30, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
Operating leases
|
|
Finance leases
|
|
Total
|
2021
|
$
|
14,781
|
|
|
$
|
308
|
|
|
$
|
15,089
|
|
2022
|
13,798
|
|
205
|
|
14,003
|
|
2023
|
12,833
|
|
95
|
|
12,928
|
|
2024
|
10,941
|
|
18
|
|
10,959
|
|
2025
|
9,521
|
|
6
|
|
9,527
|
|
Thereafter
|
51,545
|
|
—
|
|
51,545
|
|
Total lease payments
|
113,419
|
|
632
|
|
114,051
|
|
Less: Imputed interest
|
18,119
|
|
8
|
|
18,127
|
|
Total lease liabilities
|
$
|
95,300
|
|
|
$
|
624
|
|
|
$
|
95,924
|
|
The aggregate minimum future lease payments for operating leases at June 30, 2019, adjusted for discontinued operations, were as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
$
|
19,066
|
|
2021
|
|
16,281
|
2022
|
|
14,002
|
2023
|
|
13,134
|
2024
|
|
11,012
|
Thereafter
|
|
44,452
|
|
|
$
|
117,947
|
|
At June 30, 2020, the Company has additional operating leases that had not yet commenced. Obligations under these leases are approximately $9,797 and the leases are expected to commence during the fiscal year ending June 30, 2021 with lease terms ranging from 10 to 11 years, excluding renewal options.
10. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table shows the changes in the carrying amount of goodwill by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
International
|
|
Total
|
Balance as of June 30, 2018(1)
|
$
|
612,457
|
|
|
$
|
273,206
|
|
|
$
|
885,663
|
|
Translation and other adjustments, net
|
133
|
|
|
(9,915)
|
|
|
(9,782)
|
|
Balance as of June 30, 2019(1)
|
612,590
|
|
|
263,291
|
|
|
875,881
|
|
Divestiture
|
(5,009)
|
|
|
—
|
|
|
(5,009)
|
Impairment charge
|
—
|
|
|
(394)
|
|
|
(394)
|
|
Translation and other adjustments, net
|
(1,526)
|
|
|
(6,994)
|
|
|
(8,520)
|
|
Balance as of June 30, 2020
|
$
|
606,055
|
|
|
$
|
255,903
|
|
|
$
|
861,958
|
|
(1) 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 former Hain Ventures operating segment.
During fiscal 2019, the Company’s reporting units were Hain Pure Personal Care, Grocery and Snacks and Celestial Tea in the United States reportable segment, Hain Daniels, Ella’s Kitchen and Tilda in the United Kingdom reportable segment and Hain Canada, Hain Europe and Hain Ventures within the Rest of World reportable segment. As discussed in Note 22, Segment Information, effective July 1, 2019, the Company changed its segment reporting structure due to changes in how the Company’s Chief Operating Decision Maker (“CODM”) assesses the Company’s performance and allocates resources as a result of a change in the Company’s strategy. In connection with these changes, the Company’s reporting units now consist of the United States (as a single reporting unit) and Hain Canada within the North America reportable segment and Hain Daniels, Ella’s Kitchen, Tilda (prior to its sale on August 27, 2019) and Hain Europe within the International reportable segment. The brands constituting the Hain Ventures reporting unit were combined within the United States and Hain Canada reporting units, and its goodwill was reallocated to the United States and Canada operating segments on a relative fair value basis. The Company completed an assessment for potential impairment of the goodwill both prior and subsequent to the aforementioned changes and determined that no impairment indicators were present.
On October 7, 2019, the Company completed the divestiture of its Arrowhead and SunSpire businesses, components of the United States reporting unit, for a purchase price of $13,347 following post-closing adjustments, recognizing a loss on sale of $2,037 during the fiscal year ended June 30, 2020. Goodwill of $4,357 was assigned to the divested businesses on a relative fair value basis. An interim impairment analysis was performed for the United States reporting unit both before and after the sale, noting no impairment indicators were present.
During March 2020, the Company completed the divestiture of its Europe's Best and Casbah businesses, components of the Canada reporting unit. Goodwill of $440 was assigned to the divested businesses on a relative fair value basis. An interim impairment analysis was performed for the Canada reporting unit both before and after the sale, noting no impairment indicators were present. The gain/loss on sale recognized during the fiscal year ended June 30, 2020 as a result of the transactions was insignificant.
During May 2020, the Company completed the divestiture of its Rudi’s business, a component of the United States reporting unit. Goodwill of $212 was assigned to the divested businesses on a relative fair value basis. An interim impairment analysis was performed for the United States reporting unit both before and after the sale, noting no impairment indicators were present. The gain/loss on sale recognized during the fiscal year ended June 30, 2020 as a result of the transaction was insignificant.
During June 2020, in anticipation of the Company’s divestiture of its Danival business, a component of the Europe reporting unit, the goodwill of $394 assigned to the business on a relative fair value basis was impaired based on the expected selling price. See Note 5, Discontinued Operations and Assets Held for Sale, for a discussion of the sale completed after the fiscal 2020 period.
Beginning in the three months ended September 30, 2019, operations of Tilda have been classified as discontinued operations as discussed in Note 5, Discontinued Operations and Assets Held for Sale. Therefore, goodwill associated with Tilda is presented within Noncurrent assets of discontinued operations in the Consolidated Balance Sheet as of June 30, 2019.
The Company completed its annual goodwill impairment analysis in the fourth quarter of fiscal 2020, in conjunction with its budgeting and forecasting process for fiscal year 2021, and concluded that no 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,
2020
|
|
June 30,
2019
|
Non-amortized intangible assets:
|
|
|
|
Trademarks and trade names(1)
|
$
|
278,103
|
|
|
$
|
291,199
|
|
Amortized intangible assets:
|
|
|
|
Other intangibles
|
184,854
|
|
|
204,630
|
|
Less: accumulated amortization and impairment
|
(116,495)
|
|
|
(115,543)
|
|
Net carrying amount
|
$
|
346,462
|
|
|
$
|
380,286
|
|
(1) The gross carrying value of trademarks and trade names is reflected net of $93,273 and $83,734 of accumulated impairment charges as of June 30, 2020 and 2019, respectively.
The Company completed its annual assessment of impairment for indefinite-lived intangible assets in the fourth quarter of fiscal 2020. The assessment indicated that the fair value of the Company’s trade names exceeded their carrying values and no impairment existed except as described below.
During the second and third quarters of fiscal 2020, in association with the sale or discontinuation of certain businesses and brands, the Company determined that certain of its indefinite-lived trade names were impaired due to the carrying value of the trade names exceeding their fair values, and therefore an impairment charge of $9,539 was recognized ($4,007 in the North America segment and $5,532 in the International segment).
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 ($15,113 in the North America segment and $2,787 in the International segment) during the fiscal year ended June 30, 2019.
For the fiscal year ended June 30, 2018, a trade name impairment charge of $5,632 ($5,100 in the North America segment and $532 in the International segment) was recorded.
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,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Amortization of intangible assets
|
$
|
11,638
|
|
|
$
|
13,134
|
|
|
$
|
15,934
|
|
Expected amortization expense over the next five fiscal years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending June 30,
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
Estimated amortization expense
|
$
|
9,807
|
|
|
$
|
9,564
|
|
|
$
|
9,023
|
|
|
$
|
6,768
|
|
|
$
|
5,753
|
|
The weighted average remaining amortization period of amortized intangible assets is 9.1 years.
In the fourth quarter of fiscal 2020, the Company recognized impairment charges relating to customer relationships of certain brand divestitures totaling $4,455, all within the North America segment.
11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
June 30, 2019
|
Payroll, employee benefits and other administrative accruals
|
$
|
74,544
|
|
|
$
|
77,339
|
|
Facility, freight and warehousing accruals
|
11,304
|
|
|
20,288
|
|
Selling and marketing related accruals
|
10,930
|
|
|
7,007
|
|
Other accruals(1)
|
30,834
|
|
|
9,631
|
|
|
$
|
127,612
|
|
|
$
|
114,265
|
|
(1)Included within other accruals in fiscal 2020 are $12,338 of short-term operating lease liabilities (see Note 9, Leases), $3,567 of current liabilities held for sale (see Note 5, Discontinued Operations and Assets Held for Sale) and $263 of short-term derivative liabilities (see Note 18, Derivatives and Hedging Instruments).
12. DEBT AND BORROWINGS
Debt and borrowings consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
June 30, 2019
|
Revolving credit facility
|
$
|
280,000
|
|
|
$
|
420,575
|
|
Term loan
|
—
|
|
|
206,250
|
|
Less: Unamortized issuance costs
|
—
|
|
|
(1,022)
|
|
Other borrowings(1)
|
2,774
|
|
|
4,966
|
|
|
282,774
|
|
|
630,769
|
|
Short-term borrowings and current portion of long-term debt
|
1,656
|
|
|
17,232
|
|
Long-term debt, less current portion
|
$
|
281,118
|
|
|
$
|
613,537
|
|
(1) Included in other borrowings are $308 of short term finance lease obligations as discussed in Note 9, Leases.
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, British 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. Obligations under the Credit Agreement are guaranteed by certain existing and future domestic subsidiaries of the Company. As of June 30, 2020, there were $280,000 of borrowings outstanding under the revolving credit facility and $9,698 letters of credit outstanding under the Credit Agreement. During fiscal 2020, the Company used the proceeds from the sale of Tilda, net of transaction costs, to prepay the entire principal amount of term loan outstanding under its credit facility and to partially pay down its revolving credit facility. In connection with the prepayment, the Company wrote off unamortized deferred debt issuance costs of $973, recorded in interest and other financing expense, net in the Consolidated Statements of Operations.
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 (as defined in the Credit
Agreement) and interest coverage ratio (as defined in the Credit Agreement) were adjusted. The Company’s allowable consolidated leverage ratio is no more than 4.75 to 1.0 from March 31, 2019 to December 31, 2019, no more than 4.50 to 1.0 at March 31, 2020, no more than 4.0 to 1.0 at June 30, 2020 and no more than 3.75 to 1.0 on September 30, 2020 and thereafter. Additionally, the Company’s required consolidated interest coverage ratio is 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.
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, 2020, $710,302 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, 2020 was 1.89%. 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.
Maturities of all debt instruments at June 30, 2020, are as follows:
|
|
|
|
|
|
|
|
|
Due in Fiscal Year
|
|
Amount
|
2021
|
|
$
|
1,656
|
|
2022
|
|
916
|
|
2023
|
|
280,172
|
|
2024
|
|
18
|
|
2025
|
|
6
|
|
Thereafter
|
|
6
|
|
|
|
$
|
282,774
|
|
Interest paid during the fiscal years ended June 30, 2020, 2019 and 2018 amounted to $15,514, $20,396 and $13,745, respectively.
13. INCOME TAXES
The components of income (loss) from continuing operations before income taxes and equity in net loss (income) of equity-method investees were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Domestic
|
$
|
(29,339)
|
|
|
$
|
(120,969)
|
|
|
$
|
(3,379)
|
|
Foreign
|
63,167
|
|
|
64,965
|
|
|
75,813
|
|
Total
|
$
|
33,828
|
|
|
$
|
(56,004)
|
|
|
$
|
72,434
|
|
The provision (benefit) for income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(44,595)
|
|
|
$
|
3,639
|
|
|
$
|
(312)
|
|
State and local
|
619
|
|
|
760
|
|
|
1,383
|
|
Foreign
|
14,021
|
|
|
16,075
|
|
|
17,683
|
|
|
(29,955)
|
|
|
20,474
|
|
|
18,754
|
|
Deferred:
|
|
|
|
|
|
Federal
|
33,007
|
|
|
(21,538)
|
|
|
(22,612)
|
|
State and local
|
3,414
|
|
|
1,188
|
|
|
1,973
|
|
Foreign
|
(261)
|
|
|
(3,356)
|
|
|
(86)
|
|
|
36,160
|
|
|
(23,706)
|
|
|
(20,725)
|
|
Total
|
$
|
6,205
|
|
|
$
|
(3,232)
|
|
|
$
|
(1,971)
|
|
For the fiscal year ended June 30, 2020, the Company paid cash for income taxes, net of refunds, of $16,162. Cash paid for income taxes, net of (refunds), during the fiscal years ended June 30, 2019 and 2018 amounted to $22,535 and $24,284, 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,
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
%
|
|
2019
|
|
%
|
|
2018
|
|
%
|
Expected United States federal income tax at statutory rate
|
$
|
7,104
|
|
|
21.0
|
%
|
|
$
|
(11,761)
|
|
|
21.0
|
%
|
|
$
|
20,354
|
|
|
28.1
|
%
|
State income taxes, net of federal (benefit) provision
|
(668)
|
|
|
(1.9)
|
%
|
|
(8,922)
|
|
|
15.9
|
%
|
|
2,774
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign income at different rates
|
382
|
|
|
1.1
|
%
|
|
763
|
|
|
(1.4)
|
%
|
|
(3,825)
|
|
|
(5.3)
|
%
|
Impairment of goodwill and intangibles
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
1,816
|
|
|
2.5
|
%
|
Change in valuation allowance
|
4,499
|
|
|
13.3
|
%
|
|
8,938
|
|
|
(16.0)
|
%
|
|
119
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserves for uncertain tax positions
|
7,925
|
|
|
23.4
|
%
|
|
841
|
|
|
(1.5)
|
%
|
|
(3,859)
|
|
|
(5.3)
|
%
|
Tax Act’s transition tax (a)
|
—
|
|
|
—
|
%
|
|
6,834
|
|
|
(12.2)
|
%
|
|
7,054
|
|
|
9.7
|
%
|
Tax Act’s impact of deferred taxes (b)
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
(25,006)
|
|
|
(34.5)
|
%
|
U.S. tax (benefit) on foreign earnings
|
7,449
|
|
|
22.0
|
%
|
|
3,872
|
|
|
(6.9)
|
%
|
|
—
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
CARES Act
|
(25,668)
|
|
|
(75.9)
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Other
|
5,182
|
|
|
15.3
|
%
|
|
(3,797)
|
|
|
6.9
|
%
|
|
(1,398)
|
|
|
(1.9)
|
%
|
Provision (benefit) for income taxes
|
$
|
6,205
|
|
|
18.3
|
%
|
|
$
|
(3,232)
|
|
|
5.8
|
%
|
|
$
|
(1,971)
|
|
|
(2.7)
|
%
|
(a) For the year ended June 30, 2018, the Company accrued a provisional estimate of $7,054 of tax expense for the Tax Cuts and Jobs Act’s (the “Tax Act”) 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 No.118”). Additionally, during fiscal year 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 Act’s 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 fiscal 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 years ended June 30, 2020 and 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 $3,850 during the fiscal year ended June 30, 2020. The GILTI of $3,850 is included in U.S. tax (benefit) on foreign earnings in the effective tax rate which also includes tax expense related to Subpart F Income and unremitted earnings in the total.
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, 2020
|
|
June 30, 2019
|
Noncurrent deferred tax assets (liabilities):
|
|
|
|
Basis difference on inventory
|
$
|
6,724
|
|
|
$
|
9,128
|
|
Reserves not currently deductible
|
21,173
|
|
|
23,518
|
|
Basis difference on intangible assets
|
(76,746)
|
|
|
(78,638)
|
|
Basis difference on property and equipment
|
(2,627)
|
|
|
(3,195)
|
|
Other comprehensive income
|
1,737
|
|
|
502
|
|
Net operating loss and tax credit carryforwards
|
34,393
|
|
|
73,500
|
|
Stock-based compensation
|
1,417
|
|
|
827
|
|
Unremitted earnings of foreign subsidiaries
|
(1,212)
|
|
|
—
|
|
Lease liability
|
14,096
|
|
|
—
|
|
Lease ROU assets
|
(12,807)
|
|
|
—
|
|
Other
|
4,006
|
|
|
3,995
|
|
Valuation allowances
|
(41,941)
|
|
|
(34,912)
|
|
Noncurrent deferred tax liabilities, net(1)
|
$
|
(51,787)
|
|
|
$
|
(5,275)
|
|
(1) Includes $62 and $29,482 of non-current deferred tax assets included within Other Assets on the June 30, 2020 and 2019 Consolidated Balance Sheets.
At June 30, 2020 and 2019, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $19,141 and $201,242, respectively, certain 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 $12,587 and $23,761 at June 30, 2020 and 2019, respectively, the majority of which are indefinite lived.
On March 27, 2020, H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into legislation which includes business tax provisions that impacts taxes related to 2018, 2019 and 2020. Some of the significant tax law changes in accordance with the CARES Act are to increase the limitation on deductible business interest expense for 2019 and 2020, allow for the five-year carryback of NOLs for 2018-2020, suspend the 80% limitation of taxable income for net operating loss carryforwards for 2018-2020, provide for the acceleration of depreciation expense from 2018 and forward on qualified improvement property and accelerate the ability to claim refunds of Alternative Minimum Tax (“AMT”) credit carryforwards. The Company carried back net operating losses generated in the June 30, 2019 tax year for five years, resulting in an income tax benefit of $18,949. The $18,949 income tax benefit represents the Federal rate differential between 35% and 21%. In addition, there was an indirect tax benefit of $6,719 related to discontinued operations due to the CARES Act. Accordingly, the gross benefit recorded under the CARES Act in fiscal 2020 is $25,668 prior to the reserve under ASC 740-10.
The benefit of $18,949 and reversal of the deferred tax asset on federal NOLs of $33,551 resulted in a tax refund receivable of $52,500 which is included as a component of Prepaid expenses and other current assets on the Consolidated Balance Sheets.
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. To achieve its cash management objectives, during the fourth quarter of fiscal 2020, the Company reversed its reinvestment assertion on $93,359 of foreign earnings and recorded a deferred tax liability of $1,212. The Company continues to reinvest $641,841 of undistributed earnings of its foreign subsidiaries and may be subject to additional foreign withholding taxes and U.S. state income taxes if it reverses its indefinite reinvestment assertion on these foreign earnings in the future. All other outside basis differences not related to earnings were impractical to account for at this period of time and are currently considered as being permanent in duration.
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, the Company establishes a valuation allowance. The Company has recorded valuation allowances in the amounts of $41,941 and $34,912 at June 30, 2020 and 2019, respectively. During fiscal 2019, the Company recorded a partial valuation allowance against 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 partial state valuation allowance was retained for fiscal 2020.
The changes in valuation allowances against deferred income tax assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
2020
|
|
2019
|
Balance at beginning of year
|
$
|
34,912
|
|
|
$
|
20,831
|
|
Additions charged to income tax expense
|
7,391
|
|
|
17,773
|
|
Reductions credited to income tax expense
|
35
|
|
|
(3,231)
|
|
Currency translation adjustments
|
(397)
|
|
|
(461)
|
|
Balance at end of year
|
$
|
41,941
|
|
|
$
|
34,912
|
|
Unrecognized tax benefits activity, including interest and penalties, is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Balance at beginning of year
|
$
|
11,869
|
|
|
$
|
6,730
|
|
|
$
|
11,602
|
|
Additions based on tax positions related to the current year
|
636
|
|
|
248
|
|
|
118
|
|
Additions based on tax positions related to prior years
|
8,499
|
|
|
5,446
|
|
|
—
|
|
Reductions due to lapse in statute of limitations and settlements
|
(105)
|
|
|
(555)
|
|
|
(4,990)
|
|
Balance at end of year
|
$
|
20,899
|
|
|
$
|
11,869
|
|
|
$
|
6,730
|
|
As of June 30, 2020, the Company had $20,899 of unrecognized tax benefits, of which $17,087 represents the amount that, if recognized, would impact the effective tax rate in future periods. As of June 30, 2019 and 2018, the Company had $11,869 and $6,730, respectively, of unrecognized tax benefits of which $8,057 and $2,917, respectively, would impact the effective income tax rate in future periods. Accrued liabilities for interest and penalties were $2,166 and $275 at June 30, 2020 and 2019, 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 2014. 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 2017. 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.
14. 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, 2020 and 2019, 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,
|
|
|
|
2020
|
|
2019
|
Foreign currency translation adjustments:
|
|
|
|
Other comprehensive loss before reclassifications (1)
|
$
|
(37,847)
|
|
|
$
|
(41,180)
|
|
Amounts reclassified into income (2)
|
95,120
|
|
|
—
|
|
Deferred gains (losses) on cash flow hedging instruments:
|
|
|
|
Other comprehensive (loss) income before reclassifications
|
(1,413)
|
|
|
94
|
|
Amounts reclassified into income (3)
|
617
|
|
|
(26)
|
|
Deferred gains (losses) on net investment hedging instruments:
|
|
|
|
Other comprehensive loss before reclassifications
|
(2,788)
|
|
|
—
|
|
Amounts reclassified into income (4)
|
(77)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Cumulative effect of adoption of ASU 2016-01
|
—
|
|
|
348
|
|
Other comprehensive income (loss)
|
$
|
53,612
|
|
|
$
|
(40,764)
|
|
(1)Foreign currency translation adjustments included intra-entity foreign currency transactions that were of a long-term investment nature and were a loss of $898 and a gain of $619 for the fiscal years ended June 30, 2020 and 2019, respectively.
(2)Foreign currency translation gains or losses of foreign subsidiaries related to divested businesses are reclassified into income once the liquidation of the respective foreign subsidiaries is substantially complete. At the completion of the sale of Tilda, the Company reclassified $95,120 of translation losses from accumulated comprehensive loss to the Company’s results of discontinued operations.
(3)Amounts reclassified into income for deferred gains (losses) on cash flow hedging instruments are recorded in the Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
2020
|
|
2019
|
Cost of sales
|
$
|
103
|
|
|
$
|
32
|
|
Interest and other financing expense, net
|
$
|
72
|
|
|
$
|
—
|
|
Other expense (income), net
|
$
|
(959)
|
|
|
$
|
—
|
|
(4)Amounts reclassified into income for deferred gains (losses) on net investment hedging instruments are recognized in “Interest and other financing expense, net” in the Consolidation Statements of Operations and were $98 and $0 for the fiscal years ended June 30, 2020 and 2019, respectively
Share Repurchase Program
On June 21, 2017, the Company's Board of Directors authorized the repurchase of up to $250,000 of the Company’s issued and
outstanding common stock. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The authorization does not have a stated expiration date. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations, including the Company’s historical strategy of pursuing accretive acquisitions. During the fiscal year ended June 30, 2020, the Company repurchased 2,551 shares under the repurchase program for a total of $60,171, excluding commissions, at an average price of $23.59 per share. As of June 30, 2020, the Company had $189,829 of remaining authorization under the share repurchase program. The Company did not repurchase any shares under this program in fiscal 2019 or 2018.
15. STOCK-BASED COMPENSATION AND INCENTIVE PERFORMANCE PLANS
The Company has one stockholder approved plan, the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan (the “2002 Plan”), under which the Company’s officers, senior management, other key employees, consultants and directors may be granted equity-based awards. The Company also grants equity awards under its 2019 Equity Inducement Award Program (the “2019 Inducement Program”) to induce selected individuals to become employees of the Company. The 2002 Plan and 2019 Inducement Program are collectively referred to as the “Stock Award Plans”. In conjunction with the Stock Award Plans, the Company maintains a long-term incentive program (the “LTI Program”) that provide for performance and market equity awards that can be earned over defined performance periods.
There were 990, 2,106 and 685 shares underlying restricted stock awards (“RSAs”) or restricted share units (“RSUs”) granted under the Stock Award Plans during fiscal years 2020, 2019 and 2018, respectively, of which 554, 1,610 and 307, respectively, were granted under the LTI Program and are subject to the achievement of minimum performance goals or market conditions, with the remaining being service-based awards. For performance awards and market awards, the foregoing share figures are stated at target levels, and the awards generally provide for vesting at 150% or 300% of the target level. There were no options granted under the Stock Award Plans during fiscal years 2020, 2019 and 2018. At June 30, 2020, there were 5,473 and 1,886 shares available for grant under the 2002 Plan and 2019 Inducement Program, respectively.
Apart from the Stock Award Plans, the Company granted an award of performance share units to the Company’s CEO in fiscal year 2019. The award has a target payout of 350 shares of common stock and a maximum payout of 1,050 shares of common stock. See “Restricted Stock – CEO Inducement Grant” below.
Restricted Stock
Awards of restricted stock are either RSAs or RSUs that are issued at no cost to the recipient. RSA holders have all rights of a stockholder at the grant date, subject to certain restrictions on transferability and a risk of forfeiture. Shares underlying RSUs are not issued until vesting. Both award types are subject to continued employment and vesting conditions in accordance with provisions set forth in the applicable award agreements. The Company also grants market-based RSUs that vest contingent on meeting specific Total Shareholder Return (“TSR”) targets over a specified time period, and performance-based RSUs that vest contingent on meeting specific financial results within a specified time period. Performance-based and market-based RSUs are issued in the form of performance share units (“PSUs”).
A summary of the restricted stock activity (includes all RSAs, RSUs and PSUs) for the last three fiscal years ended June 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Weighted
Average
Grant
Date Fair
Value
(per share)
|
|
2019
|
|
Weighted
Average
Grant
Date Fair
Value
(per share)
|
|
2018
|
|
Weighted
Average
Grant
Date Fair
Value
(per share)
|
Non-vested - beginning of period
|
2,729
|
|
|
$12.94
|
|
1,057
|
|
|
$22.29
|
|
992
|
|
|
$27.59
|
Granted
|
990
|
|
|
$17.36
|
|
2,457
|
|
|
$11.84
|
|
685
|
|
|
$26.13
|
Vested
|
(291)
|
|
|
$23.28
|
|
(411)
|
|
|
$27.36
|
|
(433)
|
|
|
$36.68
|
Forfeited
|
(1,379)
|
|
|
$8.80
|
|
(374)
|
|
|
$18.33
|
|
(187)
|
|
|
$31.15
|
Non-vested - end of period
|
2,049
|
|
|
$15.85
|
|
2,729
|
|
|
$12.94
|
|
1,057
|
|
|
$22.29
|
At June 30, 2020 and 2019, the table above includes a total of 918 and 1,964 shares, respectively, that represent the target number of shares that may be earned under non-vested performance equity awards that are eligible to vest at 300% of target
depending on the achievement of pre-defined performance criteria. Additionally, at June 30, 2020 and 2019, the table above includes a total of 29 and 42 shares, respectively, that represent the target number of shares that may be earned under non-vested performance equity awards that are eligible to vest at 150% of target depending on the achievement of pre-defined performance criteria.
A summary of the fair value of restricted stock (includes all RSAs, RSUs and PSUs) granted and vested, and the tax benefit recognized from restricted stock vesting, for the last three fiscal years ended June 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Fair value of restricted stock granted
|
$
|
17,179
|
|
|
$
|
29,067
|
|
|
$
|
17,898
|
|
Fair value of restricted stock vested
|
$
|
6,775
|
|
|
$
|
11,232
|
|
|
$
|
15,736
|
|
Tax benefit recognized from restricted stock vesting
|
$
|
939
|
|
|
$
|
3,241
|
|
|
$
|
5,235
|
|
At June 30, 2020, $18,713 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.
Long-Term Incentive Program
The participants of the LTI Program include certain of the Company’s executive officers and other key executives. The LTI Program is administered by the Compensation Committee which is responsible for, among other items, selecting the specific performance measures for awards, setting the target performance required to receive an award after the completion of the performance period, and determining the specific payout to the participants. Any stock-based awards issued under the LTI Program are generally issued pursuant to and are subject to the terms and conditions of the 2002 Plan and 2019 Inducement Program, as applicable. The CEO Inducement Grant (discussed below) was granted outside of the Stock Award Plans.
The LTI Program consists of certain performance-based long-term incentive plans that provide for PSUs that can be earned over defined performance periods.
•2019-2021 LTIP - Vesting is pursuant to the achievement of pre-established three-year compound annual TSR targets over the period from November 6, 2018 to November 6, 2021. The TSR levels are aligned with the CEO Inducement Grant (discussed below), with total shares eligible to vest ranging from zero to 300% of the target award amount. Certain shares are subject to a holding period of one year after the vesting date, resulting in an illiquidity discount being applied to the grant date fair value for such shares. There were 554 and 912 PSUs granted during fiscal years 2020 and 2019, respectively, relating to the 2019-2021 LTIP plan. Grant date fair values ranged from $5.95 to $25.86 per unit for PSUs granted during fiscal 2020. Grant date fair values ranged from $5.26 to $10.65 per unit for PSUs granted during fiscal year 2019. No such awards were granted during fiscal 2018.
•2018-2020 LTIP - Vesting is pursuant to a defined calculation of relative TSR over the period from January 24, 2019 to June 30, 2020, with total shares eligible to vest ranging from zero to 150% of the grant. There were 45 PSUs granted during fiscal year 2019 with a grant date fair value of $18.32 per unit. No such awards were granted during fiscal 2020 or 2018. In the first quarter of fiscal 2021, the Compensation Committee determined that all outstanding awards under the 2018-2020 LTIP vested at 150% as a result of the maximum relative TSR target having been met.
•2016-2018 and 2017-2019 LTIP - Vesting was dependent upon achievement of specified net sales growth targets, and 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, for the 2016-2018 LTIP and 2017-2019 LTIP, respectively. In the first quarter of fiscal 2019, the Compensation Committee determined that no awards would be paid or vested pursuant to the 2016-2018 LTIP or 2017-2019 LTIP as a result of the failure to meet the performance conditions. Accordingly, the awards were forfeited, and 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 Former Chief Executive Officer Succession Plan expense, net on the Consolidated Statements of Operations. Additionally, 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.
CEO Inducement Grant
On November 6, 2018, the Company’s CEO, Mark L. Schiller received a market-based PSU award with a target payout of 350 shares of common stock and a maximum payout of 1,050 shares of common stock. The award will vest pursuant to the achievement of pre-established three-year compound annual TSR levels over the period from November 6, 2018 to November 6, 2021. No PSUs will vest if the three-year compound annual TSR is below 15%. 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 $21.63 per target share. Total compensation cost related to this award recognized in the fiscal year ended June 30, 2020 and 2019 was $2,526 and $1,636, respectively. This PSU award was granted outside of the Stock Award Plans. Separately, the Company also issued 79 three-year service-based RSAs to Mr. Schiller in November 2018 under the 2002 Plan.
Other Grants
In the twelve months ended June 30, 2019, 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.
Summary of Stock-Based Compensation
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,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Selling, general and administrative expense
|
$
|
13,078
|
|
|
$
|
9,471
|
|
|
$
|
13,380
|
|
Former Chief Executive Officer Succession Plan expense, net
|
—
|
|
|
429
|
|
|
(2,203)
|
|
Discontinued operations
|
544
|
|
|
165
|
|
|
—
|
|
Total compensation cost recognized for stock-based compensation plans
|
$
|
13,622
|
|
|
$
|
10,065
|
|
|
$
|
11,177
|
|
Related income tax benefit
|
$
|
1,518
|
|
|
$
|
1,189
|
|
|
$
|
2,165
|
|
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, Former Chief Executive Officer Succession Plan, for further discussion.
Stock Options
The Company did not grant any stock options in fiscal years 2020, 2019 or 2018, and there were no stock options exercised during these periods. There were no stock options outstanding under the Stock Award Plans at June 30, 2020. There were 122 options outstanding at June 30, 2020, 2019 and 2018, relating to a grant 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 grant.
For options outstanding and exercisable at June 30, 2020, 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 $3,567, and the weighted average remaining contractual life was 11.0 years. The weighted average exercise price of these options was $2.26. At June 30, 2020, there was no unrecognized compensation expense related to stock option awards.
16. INVESTMENTS
On October 27, 2015, the Company acquired a minority equity interest in Chop’t Creative Salad Company LLC, predecessor to Chop't Holdings, LLC (“Chop’t”). Chop’t develops and operates fast-casual, fresh salad restaurants in the Northeast and Mid-Atlantic United States. The investment is being accounted for as an equity method investment due to the Company’s representation on the Board of Directors of Chop’t. At June 30, 2020 and 2019, the carrying value of the Company’s investment in Chop’t was $12,793 and $14,632, respectively, and is included in the Consolidated Balance Sheets as a component of Investments and joint ventures.
The Company also holds the following investments: (a) Hutchison Hain Organic Holdings Limited (“HHO”) with Hutchison China Meditech Ltd., a joint venture accounted for under the equity method of accounting, (b) Hain Future Natural Products Private Ltd. (“HFN”) with Future Consumer Ltd, a joint venture accounted for under the equity method of accounting and (c) Yeo Hiap Seng Limited (“YHS”), a 1% equity ownership interest accounted for under the equity method of accounting. The carrying value of these combined investments was $4,646 and $4,258 as of June 30, 2020 and 2019, respectively, and is included in the Consolidated Balance Sheets as a component of Investments and joint ventures.
17. 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, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative financial instruments
|
1,014
|
|
|
—
|
|
|
1,014
|
|
|
—
|
|
Equity investment
|
562
|
|
|
562
|
|
|
—
|
|
|
—
|
|
|
$
|
1,583
|
|
|
$
|
569
|
|
|
$
|
1,014
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative financial instruments
|
6,405
|
|
|
—
|
|
|
6,405
|
|
|
—
|
|
Total
|
$
|
6,405
|
|
|
$
|
—
|
|
|
$
|
6,405
|
|
|
$
|
—
|
|
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
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative financial instruments
|
626
|
|
|
—
|
|
|
626
|
|
|
—
|
|
Equity investment
|
621
|
|
|
621
|
|
|
—
|
|
|
—
|
|
|
$
|
1,291
|
|
|
$
|
665
|
|
|
$
|
626
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative financial instruments
|
103
|
|
|
—
|
|
|
103
|
|
|
—
|
|
Total
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
103
|
|
|
$
|
—
|
|
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 acquisition of Clarks during fiscal 2018, payment of a portion of the purchase price was contingent upon the achievement of certain operating results. Contingent consideration of up to a maximum of £1,500 was payable based on the achievement of specified operating results over an 18-month period following completion of the acquisition; no contingent consideration amounts were paid, and the arrangement expired during fiscal 2019.
The following table summarizes the Level 3 activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
2020
|
|
2019
|
Balance at beginning of year
|
$
|
—
|
|
|
$
|
1,909
|
|
Fair value of initial contingent consideration
|
—
|
|
|
—
|
|
Contingent consideration adjustment(1)
|
—
|
|
|
(1,870)
|
|
Translation adjustment
|
—
|
|
|
(39)
|
|
Balance at end of year
|
$
|
—
|
|
|
$
|
—
|
|
(1) The change in the fair value of contingent consideration is included in Productivity and transformation costs in the Company’s Consolidated Statements of Operations.
In the fiscal year ended June 30, 2019, the Company recorded a net benefit $1,870, with no corresponding amount in fiscal 2020. 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 decrease in the period was 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, 2020 or 2019.
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 12, Debt and Borrowings).
Derivative Instruments
The Company uses interest rate swaps to manage its interest rate risk and cross-currency swaps and foreign currency exchange contracts to manage its exposure to fluctuations in foreign currency exchange rates. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
In accordance with the provisions of ASC 820, Fair Value Measurements, we incorporate credit valuation adjustments to appropriately reflect both the Company’s nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the derivatives held as of June 30, 2020 and 2019 were classified as Level 2 of the fair value hierarchy.
The fair value estimates presented in the fair value hierarchy tables above are based on information available to management as of June 30, 2020 and 2019. These estimates are not necessarily indicative of the amounts we could ultimately realize.
18. DERIVATIVES AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s receivables and borrowings.
Certain of the Company’s foreign operations expose the Company to fluctuations of foreign exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company enters into derivative financial instruments to protect the value or fix the amount of certain assets and liabilities in terms of its functional currency, the U.S. Dollar.
Accordingly, the Company uses derivative financial instruments to manage and mitigate such risks. The Company does not use derivatives for speculative or trading purposes.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During fiscal 2020, such derivatives were used to hedge the variable cash flows associated with existing variable rate debt.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated other comprehensive loss and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate debt. During fiscal 2021, the Company estimates that an additional $272 will be reclassified as an increase to interest expense.
As of June 30, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
|
|
|
|
|
|
|
|
|
Interest Rate Derivative
|
Number of Instruments
|
Notional Amount
|
Interest Rate Swap
|
4
|
$230,000
|
Cash Flow Hedges of Foreign Exchange Risk
The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. Dollar. The Company uses foreign currency derivatives including cross-currency swaps to manage its exposure to fluctuations in the USD-EUR exchange rates. Cross-currency swaps involve exchanging fixed-rate interest payments for fixed-rate interest receipts, both of which will occur at the USD-EUR forward exchange rates in effect upon entering into the instrument. The Company also uses forward contracts to manage its exposure to fluctuations in the GBP-EUR exchange rates. The Company designates these derivatives as cash flow hedges of foreign exchange risks.
For derivatives designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified in the period(s) during which the hedged transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During fiscal 2021, the Company estimates that an additional $181 relating to cross-currency swaps will be reclassified as an increase to interest income.
As of June 30, 2020, the Company had the following outstanding foreign currency derivatives that were used to hedge its foreign exchange risks:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Derivative
|
Number of Instruments
|
Notional Sold
|
Notional Purchased
|
Cross-currency swap
|
1
|
€24,700
|
$26,775
|
Foreign currency forward contract
|
1
|
£850
|
€1,000
|
Net Investment Hedges
The Company is exposed to fluctuations in foreign exchange rates on investments it holds in its European foreign entities and their exposure to the Euro. The Company uses fixed-to-fixed cross-currency swaps to hedge its exposure to changes in the foreign exchange rate on its foreign investment in Europe. Currency forward agreements involve fixing the USD-EUR exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in U.S. Dollars for their fair value at or close to their settlement date. Cross-currency swaps involve the receipt of functional-currency-fixed-rate amounts from a counterparty in exchange for the Company making foreign-currency fixed-rate payments over the life of the agreement.
For derivatives designated as net investment hedges, the gain or loss on the derivative is reported in Accumulated other comprehensive loss as part of the cumulative translation adjustment. Amounts are reclassified out of Accumulated other comprehensive loss into earnings when the hedged net investment is either sold or substantially liquidated.
As of June 30, 2020, the Company had the following outstanding foreign currency derivatives that were used to hedge its net investments in foreign operations:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Derivative
|
Number of Instruments
|
Notional Sold
|
Notional Purchased
|
Cross-currency swap
|
2
|
€76,969
|
$83,225
|
Non-Designated Hedges
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.
As of June 30, 2020, the Company had outstanding derivatives that were not designated as hedges in qualifying hedging relationships consisting of foreign currency forward contracts with a notional amount of $32,386.
The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate swaps
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
Accrued expenses and other current liabilities / Other noncurrent liabilities
|
|
$
|
856
|
|
Cross-currency swaps
|
Prepaid expenses and other current assets
|
|
746
|
|
|
Other noncurrent liabilities
|
|
5,475
|
|
Foreign currency forward contracts
|
Prepaid expenses and other current assets
|
|
75
|
|
|
Other noncurrent liabilities
|
|
—
|
|
Total derivatives designated as hedging instruments
|
|
|
821
|
|
|
|
|
6,331
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
Prepaid expenses and other current assets
|
|
193
|
|
|
Accrued expenses and other current liabilities
|
|
74
|
|
Total derivative instruments
|
|
|
$
|
1,014
|
|
|
|
|
$
|
6,405
|
|
The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
Prepaid expenses and other current assets
|
|
$
|
83
|
|
|
Other noncurrent liabilities
|
|
$
|
103
|
|
Total derivatives designated as hedging instruments
|
|
|
83
|
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
Prepaid expenses and other current assets
|
|
543
|
|
|
Accrued expenses and other current liabilities
|
|
—
|
|
Total derivative instruments
|
|
|
$
|
626
|
|
|
|
|
$
|
103
|
|
The following table presents the pre-tax effect of cash flow hedge accounting on Accumulated other comprehensive loss as of June 30, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
Amount of Gain (Loss) Recognized in OCI on Derivatives
|
|
|
|
|
Location of Gain (Loss) Reclassified from Accumulated OCL into Income
|
Amount of Gain (Loss) Reclassified from Accumulated OCL into Income
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Interest rate swaps
|
$
|
(817)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest and other financing expense, net
|
$
|
(40)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cross-currency swaps
|
(1,069)
|
|
|
—
|
|
|
—
|
|
Interest and other financing expense, net / Other expense (income), net
|
927
|
|
|
—
|
|
|
—
|
|
Foreign currency forward contracts
|
95
|
|
|
113
|
|
|
45
|
|
Cost of sales
|
(103)
|
|
|
(30)
|
|
|
(127)
|
|
Total
|
$
|
(1,791)
|
|
|
$
|
113
|
|
|
$
|
45
|
|
|
$
|
784
|
|
|
$
|
(30)
|
|
|
$
|
(127)
|
|
The following table presents the pre-tax effect of the Company’s derivative financial instruments electing cash flow hedge accounting on the Consolidated Statements of Operations as of June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss) Recognized in the Consolidated Statement of Operations on Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, 2020
|
|
|
|
|
|
Fiscal Year Ended June 30, 2019
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
Interest and other financing expense, net
|
|
Other expense (income), net
|
|
Cost of sales
|
|
Interest and other financing expense, net
|
|
Other expense (income), net
|
The effects of cash flow hedging:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from accumulated OCL into income
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from accumulated OCL into income
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
(959)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from accumulated OCL into income
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the pre-tax effect of the Company’s net investment hedges on Accumulated other comprehensive loss and the Consolidated Statements of Operations as of June 30, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Net Investment Hedging Relationships
|
Amount of Gain (Loss) Recognized in OCI on Derivatives
|
|
|
|
|
Location of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)
|
Amount of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Cross-currency swaps
|
$
|
(3,529)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest and other financing expense, net
|
$
|
98
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The following table presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements Operations as of June 30, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
Location of Gain (Loss) Recognized in Income on Derivative
|
Amount of Gain (Loss) Recognized in Income on Derivatives
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Foreign currency forward contracts
|
Other expense (income), net
|
$
|
119
|
|
|
$
|
440
|
|
|
$
|
337
|
|
Credit-Risk-Related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision providing that upon certain defaults by the Company on any of its indebtedness, the Company could also be declared in default on its derivative obligations.
19. TERMINATION BENEFITS RELATED TO PRODUCTIVITY AND TRANSFORMATION INITIATIVES
As a part of the ongoing productivity and transformation initiatives as a part of the Company’s strategic objective to expand profit margins and cash flow, the Company initiated a reduction in workforce at targeted locations in the United States as well as at certain locations internationally. The reduction in workforce associated with these initiatives may result in additional charges throughout fiscal 2021.
The following table displays the termination benefits and personnel realignment activities and liability balances relating to the reduction in workforce for the year ended as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
|
Charges (reversals)
|
|
Amounts Paid
|
|
Foreign Currency Translation & Other Adjustments
|
|
Balance at June 30, 2020
|
Termination benefits and personnel realignment
|
$
|
5,603
|
|
|
$
|
22,143
|
|
|
$
|
(16,346)
|
|
|
$
|
141
|
|
|
$
|
11,541
|
|
The liability balance as of June 30, 2020 and 2019 is included within Accrued expenses and other current liabilities on the Company’s Consolidated Balance Sheets. Additional non-cash impairment charges related to the Company’s productivity and transformation costs initiative have been incurred and are discussed within Note 8, Property, Plant and Equipment, Net, and Note 9, Leases.
20. COMMITMENTS AND CONTINGENCIES
Off Balance Sheet Arrangements
At June 30, 2020, 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 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 named as defendants the Company and certain of its 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 submitted a reply on September 3, 2019. On April 6, 2020, the Court granted Defendants' motion to dismiss the Second Amended Complaint in its entirety, with prejudice. Co-Lead Plaintiffs filed a notice of appeal on May 5, 2020 indicating their intent to appeal the Court’s decision dismissing the Second Amended Complaint to the United States Court of Appeals for the Second Circuit. Co-Lead Plaintiffs filed their appellate brief on August 18, 2020. Defendants will submit a scheduling request within 14 days after the filing of Co-Lead Plaintiffs’ appellate brief to schedule the filing of their opposition brief.
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 former Board of Directors and certain former 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 former Board of Directors and certain former 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 filed an opposition to Defendants’ motion to dismiss, and Defendants submitted a reply on September 20, 2019. On May 18, 2020, the Court granted Defendants’ motion to dismiss the Second Amended Derivative Complaint. Plaintiffs did not file notice of appeal, and their time to do so has run. Accordingly, the Company considers this matter complete.
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 former Board of Directors and certain former 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 former Board of Directors and certain former officers of the Company. The complaint alleged that the Company’s former directors and certain former 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 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 the 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 through 30 days after a decision on Defendants' motion to dismiss the Second Amended Complaint in the Consolidated Securities Action.
On April 6, 2020, the Court granted Defendants’ motion to dismiss the Second Amended Complaint in the Consolidated Securities Action, with prejudice. Pursuant to the terms of the stay, Defendants in the Consolidated Stockholder Class and Derivative Action had until May 6, 2020 to answer, move, or otherwise respond to the complaint in this matter. This deadline was extended, and Defendants moved to dismiss the Consolidated Stockholder Class and Derivative Action Complaint on June 23, 2020, with Plaintiffs’ opposition due August 7, 2020. On July 24, 2020, Plaintiffs made a stockholder litigation demand on the current Board containing overlapping factual allegations to those set forth in the Consolidated Stockholder Class and Derivative Action. The Board of Directors will evaluate the demand and determine what, if any, actions to take in response. On August 10, 2020, the Court vacated the briefing schedule on Defendants’ pending motion to dismiss in order to give the Board of Directors time to consider the demand. The parties must provide the Court with an update on or before September 7, 2020.
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.
21. 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, 2020 and 2018, we made contributions to the Plan of $2,464 and $1,371, respectively, including with respect to employees of Hain Pure Protein in 2018. 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.
22. SEGMENT INFORMATION
Prior to July 1, 2019, the Company’s operations were managed in seven operating segments: the United States, United Kingdom, Tilda, Ella’s Kitchen UK, Europe, Canada and Hain Ventures. For segment reporting purposes, based on economic similarity as outlined within ASC 280, Segment Reporting, the Company elected to combine the United Kingdom, Tilda and Ella’s Kitchen UK operating segments into one reportable segment known as United Kingdom. Additionally, the Canada, Europe and Hain Ventures operating segments were combined as the Rest of World reportable segment. Separately, the United States operating segment comprised its own reportable segment.
Effective July 1, 2019, the Company reassessed its segment reporting structure due to changes in how the Company’s CODM assesses the Company’s performance and allocates resources as a result of a change in the Company’s strategy, which includes creating synergies among the Company’s United States and Canada businesses, as well as among the Company’s international businesses in the United Kingdom and Europe. As a result, the Canada and Hain Ventures operating segments, which were included within the Rest of World reportable segment, were moved to the United States reportable segment and renamed the North America reportable segment. Additionally, the Europe operating segment, which was included in the Rest of World reportable segment, was combined with the United Kingdom reportable segment and renamed the International reportable segment. Accordingly, the Company now operates under two reportable segments: North America and International.
Prior period segment information has been adjusted to reflect the Company’s new operating and reporting structure. Additionally, the Tilda operating segment was classified as discontinued operations as discussed in Note 5, Discontinued Operations and Assets Held for Sale. Segment information presented herein excludes the results of Tilda for all periods presented.
The following tables set forth financial information about each of the Company’s reportable segments. Information about total assets by segment is not disclosed because such information is not reported to or used by the Company’s CODM for purposes of assessing segment performance or allocating resources. Transactions between reportable segments were insignificant for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Net Sales: (1)
|
|
|
|
|
|
|
North America
|
|
$
|
1,171,478
|
|
|
$
|
1,195,979
|
|
|
$
|
1,295,413
|
|
International
|
|
882,425
|
|
|
908,627
|
|
|
970,257
|
|
|
|
$
|
2,053,903
|
|
|
$
|
2,104,606
|
|
|
$
|
2,265,670
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
North America
|
|
$
|
95,934
|
|
|
$
|
32,682
|
|
|
$
|
104,025
|
|
International
|
|
55,333
|
|
|
58,808
|
|
|
57,630
|
|
|
|
151,267
|
|
|
91,490
|
|
|
161,655
|
|
Corporate and Other (2)
|
|
(95,225)
|
|
|
(123,983)
|
|
|
(74,985)
|
|
|
|
$
|
56,042
|
|
|
$
|
(32,493)
|
|
|
$
|
86,670
|
|
(1)One of our customers accounted for approximately 12%, 11%, and 11% of our consolidated net sales for the fiscal years ended June 30, 2020, 2019 and 2018, respectively, which were primarily related to the United States and United Kingdom operating segments. A second customer accounted for approximately, 9%, 10% and 12% of our consolidated net sales for the fiscal years ended June 30, 2020, 2019 and 2018, respectively, which were primarily related to the United States operating segment.
(2)For the fiscal year ended June 30, 2020, Corporate and Other included expenses of $32,664 related to Productivity and transformation costs and trade name impairment charges of $9,539 ($4,007 related to North America and $5,532 related to International), partially offset by a benefit of $2,962 of proceeds from insurance claim.
For the fiscal year ended June 30, 2019, Corporate and Other included $30,156 of Former Chief Executive Officer Succession Plan expense, net, $28,443 of Productivity and transformation costs and $4,334 of accounting review and remediation costs. Corporate and Other for the fiscal year ended June 30, 2019 also included trade name impairment charges of $17,900 ($15,113 related to North America and $2,787 related to International) 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 Productivity and transformation costs 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 trade name impairment charges of $5,632 ($5,100 related to North America and $532 related to International).
The Company’s net sales by product category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Grocery
|
|
$
|
1,423,761
|
|
|
$
|
1,512,868
|
|
|
$
|
1,650,336
|
|
Snacks
|
|
309,261
|
|
|
296,123
|
|
|
302,859
|
|
Personal Care
|
|
192,875
|
|
|
180,141
|
|
|
196,195
|
|
Tea
|
|
128,006
|
|
|
115,474
|
|
|
116,280
|
|
Total
|
|
$
|
2,053,903
|
|
|
$
|
2,104,606
|
|
|
$
|
2,265,670
|
|
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,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
United States
|
|
$
|
1,016,230
|
|
|
$
|
1,052,930
|
|
|
$
|
1,138,749
|
|
United Kingdom
|
|
650,416
|
|
|
704,524
|
|
|
762,706
|
|
All Other
|
|
387,257
|
|
|
347,152
|
|
|
364,215
|
|
Total
|
|
$
|
2,053,903
|
|
|
$
|
2,104,606
|
|
|
$
|
2,265,670
|
|
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,
|
|
|
|
|
2020
|
|
2019
|
United States
|
|
$
|
115,211
|
|
|
$
|
115,866
|
|
United Kingdom
|
|
136,845
|
|
|
132,876
|
|
All Other
|
|
78,815
|
|
|
87,277
|
|
Total
|
|
$
|
330,871
|
|
|
$
|
336,019
|
|
23. 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,
2020
|
|
March 31, 2020
|
|
December 31, 2019
|
|
September 30, 2019
|
Net sales
|
$
|
511,746
|
|
|
$
|
553,297
|
|
|
$
|
506,784
|
|
|
$
|
482,076
|
|
Gross profit
|
$
|
129,937
|
|
|
$
|
132,395
|
|
|
$
|
105,607
|
|
|
$
|
97,831
|
|
Operating income
|
$
|
25,261
|
|
|
$
|
19,135
|
|
|
$
|
9,191
|
|
|
$
|
2,455
|
|
Income (loss) before income taxes and equity in earnings of equity-method investees
|
$
|
20,427
|
|
|
$
|
15,358
|
|
|
$
|
3,210
|
|
|
$
|
(5,167)
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
$
|
3,699
|
|
|
$
|
25,036
|
|
|
$
|
1,852
|
|
|
$
|
(4,953)
|
|
Net loss from discontinued operations, net of tax
|
$
|
(460)
|
|
|
$
|
(697)
|
|
|
$
|
(2,816)
|
|
|
$
|
(102,068)
|
|
Net income (loss)
|
$
|
3,239
|
|
|
$
|
24,339
|
|
|
$
|
(964)
|
|
|
$
|
(107,021)
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
Basic net income (loss) per common share from continuing operations
|
$
|
0.04
|
|
|
$
|
0.24
|
|
|
$
|
0.02
|
|
|
$
|
(0.05)
|
|
Basic net loss per common share from discontinued operations
|
$
|
—
|
|
|
$
|
(0.01)
|
|
|
$
|
(0.03)
|
|
|
$
|
(0.98)
|
|
Basic net income (loss) per common share
|
$
|
0.04
|
|
|
$
|
0.23
|
|
|
$
|
(0.01)
|
|
|
$
|
(1.03)
|
|
Diluted net income (loss) per common share from continuing operations
|
$
|
0.04
|
|
|
$
|
0.24
|
|
|
$
|
0.02
|
|
|
$
|
(0.05)
|
|
Diluted net loss per common share from discontinued operations
|
$
|
—
|
|
|
$
|
(0.01)
|
|
|
$
|
(0.03)
|
|
|
$
|
(0.98)
|
|
Diluted net income (loss) per common share
|
$
|
0.04
|
|
|
$
|
0.23
|
|
|
$
|
(0.01)
|
|
|
$
|
(1.03)
|
|
Net income from continuing operations in the quarter ended June 30, 2020 was impacted by a goodwill impairment charge of $394 relating to the Company’s anticipated divestiture of its Danival business and by $6,438 ($5,897 net of tax) of non-cash impairment charges primarily related to a write-down of building improvements, machinery and equipment in the United States and Europe used to manufacture certain slow moving or low margin SKUs, held for sale accounting of Danival and consolidation of certain office space and manufacturing facilities. The current period charge also includes $4,455 ($3,274 net of tax) of intangible impairment relating to the divestiture of certain brands.
Net income from continuing operations in the quarter ended March 31, 2020 was impacted by impairment charges of $7,650 ($5,706 net of tax) related to indefinite-lived intangible assets (trade names) and $5,875 ($5,265 net of tax) of non-cash impairment charges primarily related to a write-down of certain machinery and equipment in the United States and Europe used to manufacture certain slow moving or low margin SKUs. Additionally, in the quarter ended March 31, 2020, there was an inventory write-down of $1,362 ($1,005 net of tax) in connection with the discontinuance of slow moving SKUs as part of a product rationalization initiative. Net loss from discontinued operations in the quarter ended March 31, 2020 was impacted by a $540 ($362 net of tax) adjustment to the sale of Tilda entities relating to post-closing adjustments.
Net income from continuing operations in the quarter ended December 31, 2019 was impacted by impairment charges of $1,889 ($1,389 net of tax) related to indefinite-lived intangible assets (trade names) and an inventory write-down of $3,927 ($2,896 net of tax) in connection with the discontinuance of slow moving SKUs as part of a product rationalization initiative. Net loss from discontinued operations in the quarter ended December 31, 2019 was impacted by a $3,752 ($2,720 net of tax) adjustment to the sale of Tilda entities relating to post-closing adjustments.
Net loss from discontinued operations in the quarter ended September 30, 2019 was primarily impacted by a reclassification of $95,120 of cumulative translation losses from accumulated comprehensive loss to the Company’s results of the Tilda business’ discontinued operations. The expense for income taxes for the three months ended September 30, 2019 was impacted by $16,500 of tax related to the tax gain on the sale of the Tilda entities.
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Three Months Ended
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|
|
|
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|
|
June 30,
2019
|
|
March 31, 2019
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|
December 31, 2018
|
|
September 30, 2018
|
Net sales
|
$
|
505,305
|
|
|
$
|
547,257
|
|
|
$
|
533,566
|
|
|
$
|
518,478
|
|
Gross profit
|
$
|
95,030
|
|
|
$
|
113,208
|
|
|
$
|
101,351
|
|
|
$
|
88,908
|
|
Operating (loss) income
|
$
|
(2,641)
|
|
|
$
|
18,992
|
|
|
$
|
(20,880)
|
|
|
$
|
(27,964)
|
|
(Loss) income before income taxes and equity in earnings of equity-method investees
|
$
|
(8,378)
|
|
|
$
|
11,931
|
|
|
$
|
(26,679)
|
|
|
$
|
(32,878)
|
|
Net (loss) income from continuing operations
|
$
|
(7,336)
|
|
|
$
|
8,783
|
|
|
$
|
(31,787)
|
|
|
$
|
(23,087)
|
|
Net loss from discontinued operations, net of tax
|
$
|
(6,215)
|
|
|
$
|
(74,620)
|
|
|
$
|
(34,714)
|
|
|
$
|
(14,338)
|
|
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)
|
|
|
$
|
0.08
|
|
|
$
|
(0.31)
|
|
|
$
|
(0.22)
|
|
Basic net loss per common share from discontinued operations
|
$
|
(0.06)
|
|
|
$
|
(0.72)
|
|
|
$
|
(0.33)
|
|
|
$
|
(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)
|
|
|
$
|
0.08
|
|
|
$
|
(0.31)
|
|
|
$
|
(0.22)
|
|
Diluted net loss per common share from discontinued operations
|
$
|
(0.06)
|
|
|
$
|
(0.72)
|
|
|
$
|
(0.33)
|
|
|
$
|
(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 Former 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 Former 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).
24. RELATED PARTY TRANSACTIONS
A member of our Board of Directors is also the chair of the board of one of the Company’s suppliers, for which the Company incurs expenses in the ordinary course of business. The Company incurred expenses of $19,551, $21,633 and $22,400 in fiscal years 2020, 2019 and 2018, respectively, to the supplier and affiliated entities.
A former member of our Board of Directors is a partner in a law firm which provides legal services to the Company. The Company incurred expenses of $4,242, $2,592 and $1,700 in fiscal years 2020, 2019 and 2018, respectively, to the law firm and affiliated entities. The director resigned from the Board in February 2020.
25. SUBSEQUENT EVENT
On July 21, 2020, the Company completed the sale of the Danival business. As of June 30, 2020, all assets and liabilities related to Danival were classified as held for sale within the Company’s Consolidated Balance Sheet. See Note 5, Discontinued Operations and Assets Held for Sale, for additional information on the transaction.