NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except par values and per share data)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
The Hain Celestial Group, Inc., a Delaware corporation, was founded in 1993 and is headquartered in Lake Success, New York. The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet. The Company continues to be a leading marketer, manufacturer and seller of organic and natural, “better-for-you” products by anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience. The Company is committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 80 countries worldwide. The Company operates under two reportable segments: North America and International.
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 income (loss) includes the Company’s equity in the current earnings or losses of such companies.
Unless otherwise indicated, references in these consolidated financial statements to 2021, 2020 and 2019 or “fiscal” 2021, 2020 and 2019 or other years refer to our fiscal year ended June 30 of that respective year and references to 2022 or “fiscal” 2022 refer to our fiscal year ending June 30, 2022.
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, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation, and valuation allowances for deferred tax assets. We believe in the quality and reasonableness of our critical accounting estimates; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have consistently applied.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Cash and Cash Equivalents
The Company considers cash and cash equivalents to include cash in banks, commercial paper and deposits with financial institutions that can be liquidated without prior notice or penalty. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Revenue Recognition
The Company sells its products through specialty and natural food distributors, supermarkets, natural foods stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 80 countries worldwide. The majority of our revenue contracts represent a single performance obligation related to the fulfillment of customer orders for the purchase of our products. We recognize revenue as performance obligations are fulfilled when control passes to our customers.
Our customer contracts typically contain standard terms and conditions. In instances where formal written contracts are not in place we consider the customer purchase orders to be contracts based on the criteria outlined in Accounting Standard Codification (“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.
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.
Valuation of Accounts and Chargebacks Receivable and Concentration of Credit Risk
The Company routinely performs credit evaluations on existing and new customers and maintains an allowance for expected uncollectible accounts receivable which is recorded as an offset to trade accounts receivable on the Consolidated Balance Sheets. Effective July 1, 2020, collectability of accounts receivable is assessed by applying a historical loss-rate methodology in accordance with ASC Topic 326, Financial Instruments - Credit Losses, adjusted as necessary based on the Company's review of accounts receivable on an individual basis, specifically identifying customers with known disputes or collectability issues, and experience with trade receivable aging categories. The Company also considers market conditions and current and expected future economic conditions to inform adjustments to historical loss data. Changes to the allowance, if any, are classified as bad debt provisions in the Consolidated Statements of Operations. Credit losses have been within the Company’s expectations in recent years. While one of the Company’s customers represented approximately 9% and 13% of trade receivables balances as of June 30, 2021 and 2020, respectively, the Company believes that there is no significant or unusual credit exposure at this time.
Based on cash collection history and other statistical analysis, the Company estimates the amount of unauthorized deductions customers have taken that we expect will be collected and repaid in the near future and records a chargeback receivable. Differences between estimated collectible receivables and actual collections are recognized in earnings in the period such differences are determined.
Sales to one customer and its affiliates approximated 11%, 12% and 11% of sales during the fiscal years ended June 30, 2021, 2020 and 2019, respectively. Sales to a second customer and its affiliates approximated 8%, 9% and 10% of sales during the fiscal years ended June 30, 2021, 2020 and 2019, 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 7, Property, Plant and Equipment, Net, and Note 5, Dispositions. 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 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 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 tradenames. 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 9, 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 $96,788 during the year ended June 30, 2021, $108,928 during the year ended June 30, 2020 and no amounts were sold in the year ended June 30, 2019. 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 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 $10,372 in fiscal 2021, $11,653 in fiscal 2020 and $11,120 in fiscal 2019, 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 $20,706 in fiscal 2021, $19,455 in fiscal 2020 and $23,099 in fiscal 2019. 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. In fiscal 2021, the Company received $592 of proceeds from an insurance claim.
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, 2021 and 2020, the Company had $0 and $7, respectively, invested in money market funds, which are classified as cash equivalents. At June 30, 2021 and 2020, 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 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.
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 7, Property, Plant and Equipment, Net, and Note 5, Dispositions, 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 lease 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 Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (loss) 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 June 2016, the FASB issued Accounting Standards Update ("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 ASU applies to trade and other receivables recorded on the Consolidated Balance Sheets. The Company adopted the standard on July 1, 2020 using the modified retrospective transition method, recognizing an adjustment to beginning retained earnings of $310 reflecting the cumulative impact of adoption. The adoption did not materially impact the Company's results of operations or financial position, and as a result, comparisons between periods were not materially affected by the adoption of ASU 2016-13.
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. The Company adopted ASU 2017-04 on July 1, 2020, and the adoption of this standard did not have an impact on 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 adopted ASU 2018-13 on July 1, 2020, and the adoption of this standard did not have an impact on the Company’s 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 adopted ASU 2018-15 on July 1, 2020, and the adoption of this standard did not have an impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Effective
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 intraperiod 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.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform. ASU 2020-04 is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies certain provisions in Topic 848, if elected by an entity, to apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The Company is currently assessing the impact that these standards will have on its consolidated financial statements.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements - Disclosures. This ASU improves consistency by amending the codification to include all disclosure guidance in the appropriate disclosure sections and clarifies application of various provisions in the codification by amending and adding new headings, cross referencing to other guidance, and refining or correcting terminology. This ASU is effective for fiscal years beginning after December 15, 2020. 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 during the twelve months ended June 30, 2019. 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.
During 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 $975 as compensation for his services during the consulting term, which was fully recognized in the Consolidated Statement of Operations as a component of Former Chief Executive Officer Succession Plan expense, net in the twelve months ended June 30, 2019.
4. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net income (loss) per share:
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Fiscal Year Ended June 30,
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2021
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2020
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2019
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Numerator:
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Net income (loss) from continuing operations
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$
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66,109
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$
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25,634
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$
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(53,427)
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Net income (loss) from discontinued operations, net of tax
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$
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11,255
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$
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(106,041)
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$
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(129,887)
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Net income (loss)
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$
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77,364
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$
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(80,407)
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$
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(183,314)
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Denominator:
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Basic weighted average shares outstanding
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100,235
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103,618
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104,076
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Effect of dilutive stock options, unvested restricted stock and
unvested restricted share units
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1,087
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319
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—
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Diluted weighted average shares outstanding
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101,322
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103,937
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104,076
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Basic net income (loss) per common share:
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Continuing operations
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$
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0.66
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$
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0.25
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$
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(0.51)
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Discontinued operations
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0.11
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(1.02)
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(1.25)
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Basic net income (loss) per common share
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$
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0.77
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$
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(0.77)
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$
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(1.76)
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Diluted net income (loss) per common share:
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Continuing operations
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$
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0.65
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$
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0.25
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$
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(0.51)
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Discontinued operations
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0.11
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(1.02)
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(1.25)
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Diluted net income (loss) per common share
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$
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0.76
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$
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(0.77)
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$
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(1.76)
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Basic net income (loss) 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, 2021 and 2020 includes the dilutive effects of common stock equivalents such as stock options and unvested restricted stock awards.
There were 137, 428 and 769 restricted stock awards and stock options excluded from our calculation of diluted net income (loss) per share for the fiscal years ended June 30, 2021, 2020 and 2019, respectively, as such awards were anti-dilutive. Additionally, there were 721, 2,645 and 3,625 stock-based awards excluded for the fiscal years ended June 30, 2021, 2020 and 2019, respectively, as such awards were contingently issuable based on market or performance conditions, and such conditions had not been achieved during the respective periods.
5. DISPOSITIONS
GG UniqueFiber®
On June 28, 2021, the Company completed the divestiture of its crispbread crackers business, GG UniqueFiber® (“GG”) for total cash consideration of $336. The sale of GG is consistent with the Company’s ongoing transformation and portfolio simplification process. GG operated in Norway and was part of the Company’s International reportable segment. At closing, the assets and liabilities of GG consisted of the following:
|
|
|
|
|
|
|
June 28,
|
|
2021
|
ASSETS
|
|
|
|
|
|
Inventories
|
$
|
1,056
|
|
Property, plant and equipment, net
|
605
|
|
Other intangible assets, net
|
729
|
|
Operating lease right-of-use assets
|
2,191
|
|
Other assets
|
338
|
|
Total assets
|
$
|
4,919
|
|
LIABILITIES
|
|
Accounts payable and accrued expenses
|
$
|
81
|
|
Operating lease liabilities
|
1,475
|
|
Total liabilities
|
$
|
1,556
|
|
The Company deconsolidated the net assets of GG during the twelve months ended June 30, 2021, recognizing a pre-tax loss on sale of $3,753.
Dream® and WestSoy®
On April 15, 2021, the Company completed the divestiture of its North America non-dairy beverages business, consisting of the Dream® and WestSoy® brands, for total cash consideration of $33,000, subject to customary post-closing adjustments. The final purchase price was $31,320. The non-dairy beverage business was considered to be non-core within our broader North American business, and the sale aligns with the Company’s portfolio simplification process. The business operated out of the United States and Canada and was part of the Company’s North America reportable segment. At closing, there were no liabilities. Assets consisted of the following:
|
|
|
|
|
|
|
April 15,
|
|
2021
|
ASSETS
|
|
|
|
|
|
Inventories
|
$
|
6,662
|
|
Goodwill
|
8,429
|
|
Other intangible assets, net
|
7,833
|
|
|
|
Other assets
|
247
|
|
Total assets
|
$
|
23,171
|
|
|
|
|
|
|
|
|
|
The Company deconsolidated the net assets of the North American non-dairy beverage business during the twelve months ended June 30, 2021, recognizing a pre-tax gain on sale of $7,519.
Fruit
In August 2020, the Company's Board of Directors approved a plan to sell its prepared fresh fruit, fresh fruit drinks and fresh fruit desserts division ("Fruit"), primarily consisting of the Orchard House® Foods Limited business and associated brands. This decision supported the Company's overall strategy as the Fruit business did not align, and had limited synergies, with the rest of the Company's businesses. The sale was completed on January 13, 2021 for total cash consideration of $38,547.
Fruit operated in the United Kingdom and was included in the Company's International reportable segment, comprising 3.8% and 8.0% of the Company's net sales during the twelve months ended June 30, 2021 and 2020, respectively. The Company determined that the held for sale criteria was met and classified the assets and liabilities of the Fruit business as held for sale as of September 30 and December 31, 2020, recognizing a pre-tax non-cash loss to reduce the carrying value to its estimated fair value, less costs to sell of $56,093 during the six months ended December 31, 2020.
At the closing date, the assets and liabilities of the Fruit business consisted of the following:
|
|
|
|
|
|
|
January 13,
|
|
2021
|
ASSETS
|
|
Cash and cash equivalents
|
$
|
13,559
|
|
Accounts receivable, less allowance for doubtful accounts
|
14,057
|
|
Inventories
|
5,028
|
|
Prepaid expenses and other current assets
|
2,728
|
|
Property, plant and equipment, net
|
25,039
|
|
Goodwill
|
14,362
|
|
Other intangible assets, net
|
36,171
|
|
Operating lease right-of-use assets
|
5,623
|
|
Allowance for reduction of assets held for sale
|
(58,444)
|
|
Total assets
|
$
|
58,123
|
|
LIABILITIES
|
|
Accounts payable
|
$
|
14,428
|
|
Accrued expenses and other current liabilities
|
4,229
|
|
Operating lease liabilities
|
5,039
|
|
Deferred tax liabilities
|
7,298
|
|
Other liabilities
|
1,942
|
|
Total liabilities
|
$
|
32,936
|
|
The Company deconsolidated the net assets of the Fruit business during the twelve months ended June 30, 2021, recognizing a pre-tax loss on sale of $1,904.
Danival®
The Company entered into a definitive stock purchase agreement on June 30, 2020 for the sale of its Danival business, a component of the International reportable segment, and the transaction closed on July 21, 2020. As of June 30, 2020, the Company determined the held for sale criteria was met, resulting in assets held for sale of $8,334 and related liabilities held for sale of $3,567 being included in the Company's Consolidated Balance Sheet as of June 30, 2020. These assets and liabilities were previously presented within Prepaid and other current assets and Accrued expenses and other liabilities, respectively, in the Annual Report on Form 10-K for the fiscal year ended June 30, 2020 and have been reclassified to conform to current year presentation. The Company deconsolidated the net assets of the Danival business upon the closing of the sale during the twelve months ended June 30, 2021, recognizing a pre-tax gain on sale of $611.
Additionally, the Company recognized a pre-tax gain of $131 relating to a previous disposition during the twelve months ended June 30, 2021.
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 Ebro Foods S.A. (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,
|
|
2021
|
|
2020
|
|
2019
|
Net sales
|
$
|
—
|
|
|
$
|
30,399
|
|
|
$
|
197,862
|
|
Cost of sales
|
—
|
|
|
26,648
|
|
|
151,146
|
|
Gross profit
|
—
|
|
|
3,751
|
|
|
46,716
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
—
|
|
|
5,185
|
|
|
26,949
|
|
Other expense
|
75
|
|
|
1,172
|
|
|
2,189
|
|
Interest expense (1)
|
—
|
|
|
2,432
|
|
|
13,561
|
|
Translation loss (2)
|
—
|
|
|
95,120
|
|
|
—
|
|
Gain on sale of discontinued operations
|
—
|
|
|
(9,386)
|
|
|
—
|
|
Net (loss) income from discontinued operations before income taxes
|
(75)
|
|
|
(90,772)
|
|
|
4,017
|
|
(Benefit) provision for income taxes (3)
|
(11,320)
|
|
|
12,909
|
|
|
535
|
|
Net income (loss) from discontinued operations, net of tax
|
$
|
11,245
|
|
|
$
|
(103,681)
|
|
|
$
|
3,482
|
|
(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 $11,320 of tax benefit related to the legal entity reorganization for the twelve months ended June 30, 2021, as well as a tax provision related to the tax gain on the sale of Tilda of $13,960 for the twelve months ended June 30, 2020.
There were no assets or liabilities from discontinued operations associated with Tilda as of June 30, 2021 and June 30, 2020.
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.
The Company recorded a reserve of $109,252 in fiscal year 2019, 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. The reserve was 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 was drawn down by the buyer immediately. 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, 2021, 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,
|
|
2021
|
|
2020
|
|
2019
|
Net sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
408,109
|
|
Cost of sales
|
—
|
|
|
—
|
|
|
409,433
|
|
Gross loss
|
—
|
|
|
—
|
|
|
(1,324)
|
|
Asset impairments
|
—
|
|
|
—
|
|
|
109,252
|
|
Selling, general and administrative expense
|
—
|
|
|
—
|
|
|
16,384
|
|
Other expense
|
—
|
|
|
—
|
|
|
9,088
|
|
Loss on sale of discontinued operations
|
—
|
|
|
3,043
|
|
|
40,859
|
|
Net loss from discontinued operations before income taxes
|
—
|
|
|
(3,043)
|
|
|
(176,907)
|
|
Benefit for income taxes
|
—
|
|
|
(684)
|
|
|
(43,538)
|
|
Net loss from discontinued operations, net of tax
|
$
|
—
|
|
|
$
|
(2,359)
|
|
|
$
|
(133,369)
|
|
There were no assets or liabilities from discontinued operations associated with Hain Pure Protein as of June 30, 2021 or 2020.
6. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
June 30,
2020
|
Finished goods
|
$
|
187,884
|
|
|
$
|
158,162
|
|
Raw materials, work-in-progress and packaging
|
97,526
|
|
|
90,008
|
|
|
$
|
285,410
|
|
|
$
|
248,170
|
|
In the twelve months ended June 30, 2021 and June 30, 2020, the Company recorded inventory (reversal) write-downs of $(421) and $4,175, respectively, primarily related to the discontinuance of slow moving SKUs as part of product rationalization initiatives.
7. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
June 30,
2020
|
Land
|
$
|
13,666
|
|
|
$
|
13,866
|
|
Buildings and improvements
|
58,143
|
|
|
74,325
|
|
Machinery and equipment
|
306,811
|
|
|
288,466
|
|
Computer hardware and software
|
65,132
|
|
|
60,391
|
|
Furniture and fixtures
|
23,546
|
|
|
20,044
|
|
Leasehold improvements
|
54,360
|
|
|
40,876
|
|
Construction in progress
|
21,633
|
|
|
16,489
|
|
|
543,291
|
|
|
514,457
|
|
Less: Accumulated depreciation and impairment
|
230,514
|
|
|
225,201
|
|
|
$
|
312,777
|
|
|
$
|
289,256
|
|
Depreciation expense for the fiscal years ended June 30, 2021, 2020 and 2019 was $34,291, $31,409 and $28,922, respectively.
During fiscal year 2021, the Company recorded $1,333 of non-cash impairment charge related to the write-down of building improvements. Additionally, during fiscal year 2021, the Company completed the sale of its manufacturing facility in Moonachie, NJ in the United States which resulted in a gain in the amount of $4,900. In connection with the sale, property, plant and equipment, net in the amount of $5,502 was written off. In addition to the aforementioned, a non-cash impairment charge of $244 was recorded related to a facility in the United Kingdom which was held for sale as of June 30, 2021; the remaining property, plant and equipment, net of $1,874 have been classified as held for sale on the Consolidated Balance Sheets as of June 30, 2021.
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.
During fiscal 2019, the Company determined that it was more likely than not that certain fixed assets of two of its manufacturing facilities would be sold or otherwise disposed of before the end of their estimated useful lives due to the Company’s decision to consolidate manufacturing of certain fruit-based and soup products in the United Kingdom. As such, the Company recorded a $6,166 non-cash impairment charge related to the closures of these facilities. 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.
8. 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 years ended June 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Fiscal Year Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
Operating lease expenses (a)
|
|
$
|
16,403
|
|
|
$
|
18,981
|
|
Finance lease expenses (a)
|
|
391
|
|
|
1,197
|
|
Variable lease expenses
|
|
1,423
|
|
|
2,570
|
|
Short-term lease expenses
|
|
2,387
|
|
|
1,723
|
|
Total lease expenses
|
|
$
|
20,604
|
|
|
$
|
24,471
|
|
(a) For the fiscal year ended June 30, 2020, operating lease expenses and finance lease expenses included $1,505 and $251, respectively, of ROU asset impairment charges associated with the Company’s ongoing productivity and transformation 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 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
Classification
|
|
June 30, 2021
|
|
June 30, 2020
|
Assets
|
|
|
|
|
|
|
Operating lease ROU assets
|
|
Operating lease right-of-use assets
|
|
$
|
92,010
|
|
|
$
|
88,165
|
|
Finance lease ROU assets, net
|
|
Property, plant and equipment, net
|
|
547
|
|
|
691
|
|
Total leased assets
|
|
|
|
$
|
92,557
|
|
|
$
|
88,856
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Operating
|
|
Accrued expenses and other current liabilities
|
|
$
|
10,870
|
|
|
$
|
12,338
|
|
Finance
|
|
Current portion of long-term debt
|
|
229
|
|
|
308
|
|
Non-current
|
|
|
|
|
|
|
Operating
|
|
Operating lease liabilities, noncurrent portion
|
|
85,929
|
|
|
82,962
|
|
Finance
|
|
Long-term debt, less current portion
|
|
326
|
|
|
316
|
|
Total lease liabilities
|
|
|
|
$
|
97,354
|
|
|
$
|
95,924
|
|
Additional information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Fiscal Year Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
Supplemental cash flow information
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
16,738
|
|
|
$
|
17,290
|
|
Operating cash flows from finance leases
|
|
$
|
17
|
|
|
$
|
26
|
|
Financing cash flows from finance leases
|
|
$
|
338
|
|
|
$
|
543
|
|
ROU assets obtained in exchange for lease obligations (b):
|
|
|
|
|
Operating leases
|
|
$
|
25,446
|
|
|
$
|
104,915
|
|
Finance leases
|
|
$
|
690
|
|
|
$
|
1,475
|
|
Weighted average remaining lease term:
|
|
|
|
|
Operating leases
|
|
9.8 years
|
|
10.0 years
|
Finance leases
|
|
4.0 years
|
|
2.5 years
|
Weighted average discount rate:
|
|
|
|
|
Operating leases
|
|
3.3
|
%
|
|
3.0
|
%
|
Finance leases
|
|
3.9
|
%
|
|
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, 2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
Operating leases
|
|
Finance leases
|
|
Total
|
2022
|
$
|
13,592
|
|
|
$
|
235
|
|
|
$
|
13,827
|
|
2023
|
14,560
|
|
|
137
|
|
|
14,697
|
|
2024
|
12,803
|
|
|
55
|
|
|
12,858
|
|
2025
|
11,411
|
|
|
54
|
|
|
11,465
|
|
2026
|
10,816
|
|
|
53
|
|
|
10,869
|
|
Thereafter
|
52,615
|
|
|
76
|
|
|
52,691
|
|
Total lease payments
|
115,797
|
|
|
610
|
|
|
116,407
|
|
Less: Imputed interest
|
18,998
|
|
|
55
|
|
|
19,053
|
|
Total lease liabilities
|
$
|
96,799
|
|
|
$
|
555
|
|
|
$
|
97,354
|
|
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
|
|
9. 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, 2019
|
$
|
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
|
|
Divestiture
|
(8,429)
|
|
(14,362)
|
|
(22,791)
|
|
|
|
|
|
|
|
Translation and other adjustments, net
|
3,186
|
|
28,714
|
|
31,900
|
|
Balance as of June 30, 2021
|
$
|
600,812
|
|
|
$
|
270,255
|
|
|
$
|
871,067
|
|
The Company completed its annual goodwill impairment analysis in the fourth quarter of fiscal 2021, in conjunction with its budgeting and forecasting process for fiscal year 2022, and concluded that no impairment existed at any of its reporting units.
During January 2021, the Company completed the divestiture of its Fruit business, a component of the Hain Daniels reporting unit. Goodwill of $14,362 was assigned to the divested business on a relative fair value basis.
During April 2021, the Company completed the divestiture of its Dream business, a component of the United States and Canada reporting units. Goodwill of $8,429 was assigned to the divested business on a relative fair value basis.
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.
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.
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.
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.
Interim impairment analyses were performed on the applicable reporting units both before and after the sale of the respective businesses, noting no impairment indicators were present.
Beginning in the three months ended September 30, 2019, operations of Tilda were classified as discontinued operations as discussed in Note 5, Dispositions. Therefore, goodwill associated with Tilda is presented within Noncurrent assets of discontinued operations in the Consolidated Balance Sheet as of June 30, 2020.
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,
2021
|
|
June 30,
2020
|
Non-amortized intangible assets:
|
|
|
|
Trademarks and tradenames(1)
|
$
|
273,471
|
|
|
$
|
278,103
|
|
Amortized intangible assets:
|
|
|
|
Other intangibles
|
146,856
|
|
|
184,854
|
|
Less: accumulated amortization and impairment
|
(105,432)
|
|
|
(116,495)
|
|
Net carrying amount
|
$
|
314,895
|
|
|
$
|
346,462
|
|
(1) The gross carrying value of trademarks and trade names is reflected net of $93,273 of accumulated impairment charges as of both June 30, 2021 and June 30, 2020.
The Company completed its annual assessment of impairment for indefinite-lived intangible assets in the fourth quarter of fiscal 2021. The assessment indicated that the fair value of the Company’s indefinite-lived intangible assets exceeded their carrying values and no impairment existed.
During fiscal 2020, in association with the sale or discontinuation of certain businesses and brands, the Company determined that certain of its indefinite-lived tradenames were impaired due to the carrying value of the tradenames exceeding their fair values, and therefore an impairment charge of $13,994 was recognized ($8,462 in the North America reportable segment and $5,532 in the International reportable segment).
In the fourth quarter of fiscal 2021, the Company completed the divestiture of its Dream and GG businesses. Other intangible assets totaling $7,833 and $729, consisting primarily of trademarks, were assigned to the divested businesses, respectively.
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 5 to 25 years. Amortization expense included in continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
2021
|
|
2020
|
|
2019
|
Amortization of intangible assets
|
$
|
8,931
|
|
|
$
|
11,638
|
|
|
$
|
13,134
|
|
Expected amortization expense over the next five fiscal years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending June 30,
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026
|
Estimated amortization expense
|
$
|
8,004
|
|
|
$
|
7,468
|
|
|
$
|
5,155
|
|
|
$
|
3,868
|
|
|
$
|
3,405
|
|
The average remaining amortization period of amortized intangible assets is 6.8 years.
10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
Payroll, employee benefits and other administrative accruals
|
$
|
71,229
|
|
|
$
|
74,544
|
|
Facility, freight and warehousing accruals
|
15,197
|
|
|
11,304
|
|
Selling and marketing related accruals
|
9,988
|
|
|
10,930
|
|
Short-term operating lease liabilities
|
10,870
|
|
|
12,338
|
|
Other accruals
|
10,673
|
|
|
14,929
|
|
|
$
|
117,957
|
|
|
$
|
124,045
|
|
11. DEBT AND BORROWINGS
Debt and borrowings consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
Revolving credit facility
|
$
|
230,000
|
|
|
$
|
280,000
|
|
|
|
|
|
|
|
|
|
Other borrowings(1)
|
1,022
|
|
|
2,774
|
|
|
231,022
|
|
|
282,774
|
|
Short-term borrowings and current portion of long-term debt(2)
|
530
|
|
|
1,656
|
|
Long-term debt, less current portion
|
$
|
230,492
|
|
|
$
|
281,118
|
|
(1) Included in other borrowings are $555 of finance lease obligations as discussed in Note 8, Leases.
(2) Included in short-term borrowings are $229 of short term finance lease obligations as discussed in Note 8, 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, 2021, there were $230,000 of borrowings outstanding under the revolving credit facility and $6,394 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 was no more than 3.75 to 1.0 on September 30, 2020 and thereafter. Additionally, the Company’s required consolidated interest coverage ratio was 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, 2021, $763,606 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 0.88% to 2.50% per annum; or (b) the Base Rate, as defined in the Credit Agreement, plus a rate ranging from 0% 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, 2021 was 1.09%. 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, 2021, are as follows:
|
|
|
|
|
|
|
|
|
Due in Fiscal Year
|
|
Amount
|
2022
|
|
$
|
530
|
|
2023
|
|
230,254
|
|
2024
|
|
55
|
|
2025
|
|
54
|
|
2026
|
|
53
|
|
Thereafter
|
|
76
|
|
|
|
$
|
231,022
|
|
Interest paid during the fiscal years ended June 30, 2021, 2020 and 2019 amounted to $5,903, $15,514 and $20,396, respectively.
12. 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,
|
|
2021
|
|
2020
|
|
2019
|
Domestic
|
$
|
60,215
|
|
|
$
|
(29,339)
|
|
|
$
|
(120,969)
|
|
Foreign
|
48,578
|
|
|
63,167
|
|
|
64,965
|
|
Total
|
$
|
108,793
|
|
|
$
|
33,828
|
|
|
$
|
(56,004)
|
|
The provision (benefit) for income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
2021
|
|
2020
|
|
2019
|
Current:
|
|
|
|
|
|
Federal
|
$
|
2,243
|
|
|
$
|
(44,595)
|
|
|
$
|
3,639
|
|
State and local
|
1,735
|
|
|
619
|
|
|
760
|
|
Foreign
|
27,253
|
|
|
14,021
|
|
|
16,075
|
|
|
31,231
|
|
|
(29,955)
|
|
|
20,474
|
|
Deferred:
|
|
|
|
|
|
Federal
|
14,266
|
|
|
33,007
|
|
|
(21,538)
|
|
State and local
|
(10,064)
|
|
|
3,414
|
|
|
1,188
|
|
Foreign
|
5,660
|
|
|
(261)
|
|
|
(3,356)
|
|
|
9,862
|
|
|
36,160
|
|
|
(23,706)
|
|
Total
|
$
|
41,093
|
|
|
$
|
6,205
|
|
|
$
|
(3,232)
|
|
For the fiscal year ended June 30, 2021, the Company received net tax refunds of $32,998 including a $53,817 tax loss carryback claim under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") which allowed for, among other provisions, a five-year carryback of net operating losses (“NOLs”) for 2018-2020 offset by taxes paid in other jurisdictions. Cash paid for income taxes, net of (refunds), during the fiscal years ended June 30, 2020 and 2019 amounted to $16,162 and $22,535, 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,
|
|
2021
|
|
%
|
|
2020
|
|
%
|
|
2019
|
|
%
|
Expected United States federal income tax at statutory rate
|
$
|
22,847
|
|
|
21.0
|
%
|
|
$
|
7,104
|
|
|
21.0
|
%
|
|
$
|
(11,761)
|
|
|
21.0
|
%
|
State income taxes, net of federal (benefit) provision
|
1,150
|
|
|
1.1
|
%
|
|
(668)
|
|
|
(1.9)
|
%
|
|
(8,922)
|
|
|
15.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign income at different rates
|
4,756
|
|
|
4.4
|
%
|
|
382
|
|
|
1.1
|
%
|
|
763
|
|
|
(1.4)
|
%
|
Impairment of intangible assets
|
13,466
|
|
|
12.4
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Change in valuation allowance (a)
|
(5,921)
|
|
|
(5.4)
|
%
|
|
4,499
|
|
|
13.3
|
%
|
|
8,938
|
|
|
(16.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserves for uncertain tax positions
|
1,971
|
|
|
1.8
|
%
|
|
7,925
|
|
|
23.4
|
%
|
|
841
|
|
|
(1.5)
|
%
|
Change in foreign tax rate (b)
|
1,840
|
|
|
1.7
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Loss on disposal of subsidiary
|
1,073
|
|
|
1.0
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Tax Act’s transition tax (c)
|
—
|
|
|
—
|
%
|
|
—
|
|
|
|
|
6,834
|
|
|
(12.2)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. tax (benefit) on foreign earnings
|
(50)
|
|
|
(0.1)
|
%
|
|
7,449
|
|
|
22.0
|
%
|
|
3,872
|
|
|
(6.9)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
CARES Act (d)
|
(1,116)
|
|
|
(1.0)
|
%
|
|
(25,668)
|
|
|
(75.9)
|
%
|
|
—
|
|
|
—
|
%
|
Other
|
1,077
|
|
|
1.0
|
%
|
|
5,182
|
|
|
15.3
|
%
|
|
(3,797)
|
|
|
6.9
|
%
|
Provision (benefit) for income taxes
|
$
|
41,093
|
|
|
37.8
|
%
|
|
$
|
6,205
|
|
|
18.3
|
%
|
|
$
|
(3,232)
|
|
|
5.8
|
%
|
(a) The Company estimates that it will utilize certain of its state tax loss carryovers in the year ended June 30, 2021. This positive evidence, in addition to other positive evidence, resulted in the Company releasing the valuation allowance on its state deferred assets of $9,774. Further, there was a release of a valuation allowance of $1,600 related to Danival; an increase in the valuation allowance of $5,051 related to the UK rate change; and a valuation allowance increase of $402 related to capital leases.
(b) On July 22, 2020, the U.K. enacted into law a tax rate increase from 17% to 19%. On June 10, 2021, the U.K. enacted an increase in the corporate income tax rate to 25% effective April 1, 2023. The rate change impact is primarily for the re-measurement of deferred tax liabilities on indefinite lived intangible assets.
(c) On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") included a provision to tax previously untaxed foreign earnings (“transition tax”). During fiscal year 2019, the Company recorded $6,834 of tax expense upon finalizing its analysis of the impact from the Tax Act.
(d) The Company carried back NOLs 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 was $25,668 prior to the reserve under ASC 740-10. In fiscal 2021, the Company received the full refund with interest, with the net adjustment resulting in a benefit of $1,116.
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, 2021 and 2020, the Company did not generate intercompany transactions that met the BEAT threshold but does have to include GILTI tax relating to the Company’s foreign subsidiaries.
The Company elected to account for GILTI tax as a current period cost but did not record an expense during the fiscal year ended June 30, 2021 as tested losses exceeded tested income.
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, 2021
|
|
June 30, 2020
|
Noncurrent deferred tax assets (liabilities):
|
|
|
|
Basis difference on inventory
|
$
|
6,213
|
|
|
$
|
6,724
|
|
Reserves not currently deductible
|
15,261
|
|
|
21,173
|
|
Basis difference on intangible assets
|
(70,482)
|
|
|
(76,746)
|
|
Basis difference on property and equipment
|
(11,643)
|
|
|
(2,627)
|
|
Other comprehensive income
|
2,792
|
|
|
1,737
|
|
Net operating loss and tax credit carryforwards
|
43,960
|
|
|
34,393
|
|
Stock-based compensation
|
1,797
|
|
|
1,417
|
|
Unremitted earnings of foreign subsidiaries
|
(1,172)
|
|
|
(1,212)
|
|
Lease liability
|
14,165
|
|
|
14,096
|
|
Lease ROU assets
|
(12,971)
|
|
|
(12,807)
|
|
Other
|
7,048
|
|
|
4,006
|
|
Valuation allowances
|
(37,453)
|
|
|
(41,941)
|
|
Noncurrent deferred tax liabilities, net(1)
|
$
|
(42,485)
|
|
|
$
|
(51,787)
|
|
(1) Includes $154 and $62 of non-current deferred tax assets included within Other Assets on the June 30, 2021 and 2020 Consolidated Balance Sheets, respectively.
At June 30, 2021 and 2020, the Company had U.S. federal NOL carryforwards of approximately $59,514 and $19,141, 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 $15,441 and $12,587 at June 30, 2021 and 2020, respectively, the majority of which are indefinite lived.
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. For the year ended June 30, 2021, the Company represents that $116,895 of foreign earnings are not permanently reinvested with a corresponding deferred tax liability of $1,172. The Company continues to reinvest $732,065 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 $37,453 and $41,941 at June 30, 2021 and 2020, 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. As mentioned above, positive evidence has allowed the Company to utilize some state deferred tax assets as well release a portion of the previously established valuation allowance.
The changes in valuation allowances against deferred income tax assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
2021
|
|
2020
|
Balance at beginning of year
|
$
|
41,941
|
|
|
$
|
34,912
|
|
Additions charged to income tax expense
|
5,601
|
|
|
7,391
|
|
Reductions credited to income tax expense
|
(11,520)
|
|
|
35
|
|
Currency translation adjustments
|
1,431
|
|
|
(397)
|
|
Balance at end of year
|
$
|
37,453
|
|
|
$
|
41,941
|
|
Unrecognized tax benefits activity, including interest and penalties, is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
2021
|
|
2020
|
|
2019
|
Balance at beginning of year
|
$
|
20,899
|
|
|
$
|
11,869
|
|
|
$
|
6,730
|
|
Additions based on tax positions related to the current year
|
343
|
|
|
636
|
|
|
248
|
|
Additions based on tax positions related to prior years
|
3,045
|
|
|
8,499
|
|
|
5,446
|
|
Reductions due to lapse in statute of limitations and settlements
|
(1,417)
|
|
|
(105)
|
|
|
(555)
|
|
Balance at end of year
|
$
|
22,870
|
|
|
$
|
20,899
|
|
|
$
|
11,869
|
|
As of June 30, 2021, the Company had $22,870 of unrecognized tax benefits, of which $19,058 represents an amount that, if recognized, would impact the effective tax rate in future periods. 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, the Company had $11,869 of unrecognized tax benefits of which $8,057 would impact the effective income tax rate in future periods. Accrued liabilities for interest and penalties were $2,549 and $2,166 at June 30, 2021 and 2020, 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 2019. Given the uncertainty regarding when tax authorities will complete their examinations and the possible outcomes of their examinations, a current estimate of the range of reasonably possible significant increases or decreases of income tax that may occur within the next twelve months cannot be made. Although there are various tax audits
currently ongoing, the Company does not believe the ultimate outcome of such audits will have a material impact on the Company’s consolidated financial statements.
13. STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue “blank check” preferred stock of up to 5,000 shares with such designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered to issue, without stockholder approval, preferred stock with dividends, liquidation, conversion, voting or other rights which could decrease the amount of earnings and assets available for distribution to holders of the Company’s common stock. At June 30, 2021 and 2020, no preferred stock was issued or outstanding.
Accumulated Other Comprehensive Loss
The following table presents the changes in accumulated other comprehensive loss (“AOCL”):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
2021
|
|
2020
|
Foreign currency translation adjustments:
|
|
|
|
Other comprehensive income (loss) before reclassifications (1)
|
$
|
85,581
|
|
|
$
|
(37,847)
|
|
Amounts reclassified into income (2)
|
16,073
|
|
|
95,120
|
|
Deferred (losses) gains on cash flow hedging instruments:
|
|
|
|
Amount of loss recognized in AOCL on derivatives
|
(810)
|
|
|
(1,413)
|
|
Amount of loss reclassified from AOCL into expense (3)
|
1,290
|
|
|
617
|
|
Deferred losses on net investment hedging instruments:
|
|
|
|
Amount of loss recognized in AOCL on derivatives
|
(3,359)
|
|
|
(2,788)
|
|
Amount of gain reclassified from AOCL into income (4)
|
(394)
|
|
|
(77)
|
|
Net change in AOCL
|
$
|
98,381
|
|
|
$
|
53,612
|
|
(1)Foreign currency translation adjustments included intra-entity foreign currency transactions that were of a long-term investment nature and were $0 and a loss of $898 for the fiscal years ended June 30, 2021 and 2020, 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 sales of Danival, Fruit and GG UniqueFiber®, the Company reclassified $16,073 of translations from AOCL to the Company's results of operations. 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,
|
|
2021
|
|
2020
|
Cost of sales
|
$
|
68
|
|
|
$
|
103
|
|
Interest and other financing expense, net
|
(150)
|
|
|
$
|
72
|
|
Other expense (income), net
|
$
|
(1,556)
|
|
|
$
|
(959)
|
|
(4)Amounts reclassified into income for deferred losses on net investment hedging instruments are recognized in “Interest and other financing expense, net” in the Consolidation Statements of Operations and were $498 and $98 for the fiscal years ended June 30, 2021 and 2020, 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. During the fiscal year ended June 30, 2021, the Company repurchased 3,080 shares under the repurchase program for a total of $107,421, excluding commissions, at an average price of $34.87 per share. Of that amount, $1,415 is included in Accrued expenses and other current liabilities on the Company’s Consolidated Balance Sheet at June 30, 2021 pending settlement of trade. As of June 30, 2021, the Company had $82,408 of remaining authorization under the share repurchase program. 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. The Company did not repurchase any shares under this program in fiscal 2019.
In August 2021, the Company announced that its Board of Directors approved an additional $300,000 share repurchase authorization. Share repurchases under the 2021 authorization will commence after the 2017 authorization is fully utilized, at the Company’s discretion.
14. 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 provides for performance and market equity awards that can be earned over defined performance periods.
There were 237, 990 and 2,106 shares underlying restricted stock awards (“RSAs”) or restricted share units (“RSUs”) granted under the Stock Award Plans during fiscal years 2021, 2020 and 2019, respectively, of which 51, 554 and 1,610, 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 zero to 300% of the target level. There were no options granted under the Stock Award Plans during fiscal years 2021, 2020 and 2019. At June 30, 2021, there were 5,330 and 1,886 shares available for grant under the 2002 Plan and 2019 Inducement Program, respectively. The CEO Inducement Grant (discussed below) was granted outside of the Stock Award Plans.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
Weighted
Average
Grant
Date Fair
Value
(per share)
|
|
2020
|
|
Weighted
Average
Grant
Date Fair
Value
(per share)
|
|
2019
|
|
Weighted
Average
Grant
Date Fair
Value
(per share)
|
Non-vested - beginning of period
|
2,049
|
|
|
$15.85
|
|
2,729
|
|
|
$12.94
|
|
1,057
|
|
|
$22.29
|
Granted
|
237
|
|
|
$36.13
|
|
990
|
|
|
$17.36
|
|
2,457
|
|
|
$11.84
|
Vested
|
(374)
|
|
|
$25.21
|
|
(291)
|
|
|
$23.28
|
|
(411)
|
|
|
$27.36
|
Forfeited
|
(132)
|
|
|
$17.18
|
|
(1,379)
|
|
|
$8.80
|
|
(374)
|
|
|
$18.33
|
Non-vested - end of period
|
1,780
|
|
|
$16.55
|
|
2,049
|
|
|
$15.85
|
|
2,729
|
|
|
$12.94
|
At June 30, 2021 and 2020, the table above includes a total of 1,382 and 1,384 shares (including the inducement grant of 350 shares made to the Company’s CEO), 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. Vested shares during the year ended June 30, 2021 include a total of 20 shares under the 2018-2020 LTIP that vested at 150% of target based on achievement of the maximum relative TSR target.
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,
|
|
2021
|
|
2020
|
|
2019
|
Fair value of restricted stock granted
|
$
|
8,551
|
|
|
$
|
17,179
|
|
|
$
|
29,067
|
|
Fair value of restricted stock vested
|
$
|
15,847
|
|
|
$
|
6,775
|
|
|
$
|
11,232
|
|
Tax benefit recognized from restricted stock vesting
|
$
|
1,597
|
|
|
$
|
939
|
|
|
$
|
3,241
|
|
At June 30, 2021, $10,026 of unrecognized stock-based compensation expense related to non-vested restricted stock was expected to be recognized over a weighted average period of approximately 1.1 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 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 51, 554 and 912 PSUs granted during fiscal years 2021, 2020 and 2019, respectively, relating to the 2019-2021 LTIP. Grant date fair values are calculated using a Monte-Carlo simulation model. The weighted average grant date fair values per target share and related valuation assumptions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended June 30,
|
|
2021
|
|
2020
|
|
2019
|
Grant date fair value (per target share)
|
$32.13
|
|
$10.92
|
|
$6.91
|
Risk-free interest rate
|
0.13
|
%
|
|
1.54
|
%
|
|
2.40
|
%
|
Expected dividend yield
|
—
|
|
—
|
|
—
|
Expected volatility
|
40.37
|
%
|
|
36.28
|
%
|
|
34.29
|
%
|
Expected term
|
1.17 years
|
|
1.85 years
|
|
2.67 years
|
•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.
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 grant date fair value per target share and related valuation assumptions used in the Monte Carlo simulation to value this award were as follows:
|
|
|
|
|
|
Grant date fair value (per target share)
|
$21.63
|
Risk-free interest rate
|
2.99
|
%
|
Expected dividend yield
|
—
|
Expected volatility
|
35.17
|
%
|
Expected term
|
3.00 years
|
The total grant date fair value of the award was $7,571. Total compensation cost related to this award recognized in the fiscal year ended June 30, 2021, 2020, 2019 and was $2,519, $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
From time to time, the Company issues PSUs to certain key executives which vest over a period of one to two years based upon the achievement of certain market and/or performance-based metrics being met. As of June 30, 2021 and 2020, there were 22 and 23 of such PSUs outstanding.
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,
|
|
2021
|
|
2020
|
|
2019
|
Selling, general and administrative expense
|
$
|
15,659
|
|
|
$
|
13,078
|
|
|
$
|
9,471
|
|
Former Chief Executive Officer Succession Plan expense, net
|
—
|
|
|
—
|
|
|
429
|
|
Discontinued operations
|
—
|
|
|
544
|
|
|
165
|
|
Total compensation cost recognized for stock-based compensation plans
|
$
|
15,659
|
|
|
$
|
13,622
|
|
|
$
|
10,065
|
|
Related income tax benefit
|
$
|
1,296
|
|
|
$
|
1,518
|
|
|
$
|
1,189
|
|
Stock Options
The Company did not grant any stock options in fiscal years 2021, 2020 or 2019, and there were no stock options exercised during these periods. There were 122 options outstanding at each of June 30, 2021, 2020 and 2019, 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, 2021, 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 $4,650, and the weighted average remaining contractual life was 10.0 years. The weighted average exercise price of these options was $2.26. At June 30, 2021, there was no unrecognized compensation expense related to stock option awards.
15. INVESTMENTS
On October 27, 2015, the Company acquired a minority equity interest in Chop’t Creative Salad Company LLC, predecessor to Founders Table Restaurant Group, LLC (“Founders Table”). Founders Table owns and operates the fast-casual restaurant chains Chopt Creative Salad Co. and Dos Toros Taqueria. The investment is being accounted for as an equity method investment due to the Company’s representation on the Board of Directors of Founders Table. At June 30, 2021 and 2020, the carrying value of the Company’s investment in Founders Table was $10,699 and $12,793, 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 fair value method of accounting and (c) Yeo Hiap Seng Limited (“YHS”), a less than 1% equity ownership interest carried at fair value in which the Company recognizes in net income any changes in fair value. The carrying value of these combined investments was $6,218 and $4,646 as of June 30, 2021 and 2020, respectively, and is included in the Consolidated Balance Sheets as a component of Investments and joint ventures.
16. FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The Company’s financial assets and liabilities measured at fair value are required to be grouped in one of three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:
•Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
•Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
•Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following table presents by level within the fair value hierarchy, assets and liabilities measured at fair value on a recurring basis as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
$
|
699
|
|
|
$
|
—
|
|
|
$
|
699
|
|
|
$
|
—
|
|
Equity investment
|
646
|
|
|
646
|
|
|
—
|
|
|
—
|
|
|
$
|
1,345
|
|
|
$
|
646
|
|
|
$
|
699
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative financial instruments
|
$
|
11,968
|
|
|
$
|
—
|
|
|
$
|
11,968
|
|
|
$
|
—
|
|
Total
|
$
|
11,968
|
|
|
$
|
—
|
|
|
$
|
11,968
|
|
|
$
|
—
|
|
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 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.
There were no transfers of financial instruments between the three levels of fair value hierarchy during the fiscal years ended June 30, 2021 or 2020.
The carrying amount of cash and cash equivalents, accounts receivable, net, accounts payable and certain accrued expenses and other current liabilities approximate fair value due to the short-term maturities of these financial instruments. The Company’s debt approximates fair value due to the debt bearing fluctuating market interest rates (See Note 11, Debt and Borrowings).
Derivative Instruments
The Company 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, 2021 and 2020 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, 2021 and 2020. These estimates are not necessarily indicative of the amounts we could ultimately realize.
17. 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 2021 and 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 2022, the Company estimates that an additional $183 will be reclassified as a decrease to interest expense.
As of June 30, 2021, 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 loss 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 2022, the Company estimates that an additional $80 relating to cross-currency swaps will be reclassified as an increase to interest expense.
As of June 30, 2021, 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
|
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 AOCL as part of the cumulative translation adjustment. Amounts are reclassified out of AOCL into earnings when the hedged net investment is either sold or substantially liquidated.
As of June 30, 2021, 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, 2021, the Company had no outstanding derivatives that were not designated as hedges in qualifying hedging relationships.
Designated Hedges
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, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
43
|
|
|
Accrued expenses and other current liabilities / Other noncurrent liabilities
|
|
$
|
312
|
|
Cross-currency swaps
|
Prepaid expenses and other current assets
|
|
656
|
|
|
Other noncurrent liabilities
|
|
11,656
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
699
|
|
|
|
|
$
|
11,968
|
|
|
|
|
|
|
|
|
|
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 pre-tax effect of cash flow hedge accounting on AOCL as of June 30, 2021, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
Amount of Gain (Loss) Recognized in AOCL on Derivatives
|
Location of Gain (Loss) Reclassified from AOCL into Income
|
Amount of Gain (Loss) Reclassified from AOCL into Income
|
|
Fiscal Year Ended June 30,
|
|
Fiscal Year Ended June 30,
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
Interest rate swaps
|
$
|
279
|
|
|
$
|
(817)
|
|
|
$
|
—
|
|
Interest and other financing expense, net
|
$
|
(308)
|
|
|
$
|
(40)
|
|
|
$
|
—
|
|
Cross-currency swaps
|
(1,366)
|
|
|
(1,069)
|
|
|
—
|
|
Interest and other financing expense, net / Other expense (income), net
|
(1,398)
|
|
|
927
|
|
|
—
|
|
Foreign currency forward contracts
|
(78)
|
|
|
95
|
|
|
113
|
|
Cost of sales
|
(67)
|
|
|
(103)
|
|
|
(30)
|
|
Total
|
$
|
(1,165)
|
|
|
$
|
(1,791)
|
|
|
$
|
113
|
|
|
$
|
(1,773)
|
|
|
$
|
784
|
|
|
$
|
(30)
|
|
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, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss) Recognized in the Consolidated Statements of Operations on Cash Flow Hedging Relationships
|
|
|
|
|
Fiscal Year Ended June 30, 2021
|
|
Fiscal Year Ended June 30, 2020
|
|
|
|
|
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 AOCL into income
|
$
|
—
|
|
|
$
|
(308)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from AOCL into income
|
$
|
—
|
|
|
$
|
158
|
|
|
$
|
(1,556)
|
|
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
(959)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from AOCL into income
|
$
|
(67)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2021, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Net Investment Hedging Relationships
|
Amount of Gain (Loss) Recognized in AOCL on Derivatives
|
Location of Gain (Loss) Recognized in Income on Derivatives
|
Amount of Gain (Loss) Recognized in Income on Derivatives
|
|
Fiscal Year Ended June 30,
|
|
Fiscal Year Ended June 30,
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
Cross-currency swaps
|
$
|
(4,251)
|
|
|
$
|
(3,529)
|
|
|
$
|
—
|
|
Interest and other financing expense, net
|
$
|
498
|
|
|
$
|
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, 2021, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
2021
|
|
2020
|
|
2019
|
Foreign currency forward contracts
|
Other expense (income), net
|
$
|
(399)
|
|
|
$
|
119
|
|
|
$
|
440
|
|
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.
18. TERMINATION BENEFITS RELATED TO PRODUCTIVITY AND TRANSFORMATION INITIATIVES
As a part of the ongoing productivity and transformation initiatives and 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 2022.
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, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
|
Charges, net
|
|
Amounts Paid
|
|
Foreign Currency Translation & Other Adjustments
|
|
Balance at June 30, 2021
|
Termination benefits and personnel realignment
|
$
|
11,541
|
|
|
$
|
5,887
|
|
|
$
|
(13,394)
|
|
|
$
|
414
|
|
|
$
|
4,448
|
|
The liability balance as of June 30, 2021 and 2020 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 initiatives have been incurred and are discussed within Note 7, Property, Plant and Equipment, Net, and Note 8, Leases.
19. COMMITMENTS AND CONTINGENCIES
Off Balance Sheet Arrangements
At June 30, 2021, 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 filed their opposition brief on November 17, 2020, and Plaintiffs filed their reply brief on December 8, 2020. Accordingly, Co-Lead Plaintiffs’ appeal is fully briefed. Oral argument is scheduled for September 27, 2021.
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. 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. On each of September 8 and October 8, 2020, the Court extended its stay of any applicable deadlines for 30 days to give the Board of Directors additional time to complete its evaluation of the demand. On November 3, 2020, Plaintiffs were informed that the Board of Directors had finished investigating and resolved, among other things, that the demand should be rejected. On November 6, 2020, Plaintiffs and Defendants notified the Court that Plaintiffs were evaluating the rejection of the demand, sought certain additional information and were assessing next steps, and requested that the Court extend the stay for an additional 30 days, to on or around December 7, 2020. Since that time, Plaintiffs and Defendants have filed a number of joint status reports, requesting that the Court stay applicable deadlines to allow for the production of certain materials by the Board of Directors for review by Plaintiffs. The current stay ordered by the Court is set to expire on October 29, 2021.
Baby Food Litigation
Since February 2021, a large number of consumer class actions have been brought against the Company alleging that the Company’s Earth’s Best baby food products (the “Products”) contain unsafe and undisclosed levels of various naturally-occurring heavy metals, namely lead, arsenic, cadmium and mercury. There are currently 29 active lawsuits, which generally allege that the Company violated various state consumer protection laws and make other state and common law warranty and unjust enrichment claims related to the alleged failure to disclose the presence of these metals and that consumers would have allegedly either not purchased the Products or would have paid less for them had the Company made adequate disclosures. These putative class actions seek to certify a nationwide class of consumers as well as various state subclasses. One of the consumer class actions (Lauren Smith, et. al. v. Plum PBC, et. al.) filed in the U.S. District Court for the Northern District of California also alleges civil RICO claims that the Company conspired with other baby food manufacturers to conceal the presence of these heavy metals in our respective products. These actions have been filed against all of the major baby food manufacturers in federal courts across the country. The U.S. Judicial Panel on Multidistrict Litigation (“JPML”) declined a request to centralize all of the consumer class action lawsuits against all of the baby food manufacturers into a single multidistrict proceeding, and the vast majority of cases against the Company have now been transferred and consolidated in the U.S. District Court for the Eastern District of New York, In re Hain Celestial Heavy Metals Baby Food Litigation, Case No. 2:21-cv-678. One consumer class action is pending in the U.S. District Court for Northern District of California, and another is pending in the New York Supreme Court, Nassau County. The Company has moved to stay or transfer these two cases to the consolidated proceeding in the Eastern District of New York and those motions are pending. The Company denies the allegations in these lawsuits and contends that its baby foods are safe and properly labeled.
The claims raised in these lawsuits were brought in the wake of a highly publicized report issued by the U.S. House of Representatives Subcommittee on Economic and Consumer Policy on Oversight and Reform, dated February 4, 2021 (the “House Report”), addressing the presence of heavy metals in baby foods made by certain manufacturers, including the Company. Since the publishing of the House Report, the Company has also received information requests with respect to the advertising and quality of its baby foods from certain governmental authorities, as such authorities investigate the claims made in the House Report. The Company is fully cooperating with these requests and is providing documents and other requested information.
In addition to the consumer class actions discussed above, the Company is currently named in four lawsuits in state and federal courts alleging some form of personal injury from the ingestion of the Company’s Products, purportedly due to unsafe and undisclosed levels of various naturally occurring heavy metals. Two of these lawsuits name multiple plaintiffs alleging claims of physical injuries. These lawsuits generally allege injuries related to neurological development disorders such as autism and attention deficit hyperactivity disorder. The Company denies that its Products led to any of these injuries and will defend the cases vigorously.
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.
20. 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, 2021 and 2020, we made contributions to the Plan of $3,025 and $2,464, respectively. 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.
21. SEGMENT INFORMATION
Our organization structure consist of two geographic based reportable segments: North America and International. Our North America reportable segment consists of the United States and Canada as operating segments. Our International reportable segment is comprised of three operating segments: United Kingdom, Ella’s Kitchen UK and Europe. This structure is in line with how our Chief Operating Decision Maker (“CODM”) assesses our performance and allocates resources.
We use segment net sales and operating income to evaluate performance and to allocate resources. We believe these measures are most relevant in order to analyze segment results and trends. Segment operating income excludes certain general corporate expenses (which are a component of selling, general and administrative expenses), impairment and acquisition related expenses, restructuring, integration and other charges.
The Tilda operating segment was classified as discontinued operations as discussed in Note 5, Dispositions. 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.
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Fiscal Year Ended June 30,
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2021
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2020
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2019
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Net Sales: (1)
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North America
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$
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1,104,128
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$
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1,171,478
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$
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1,195,979
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International
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866,174
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882,425
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908,627
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$
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1,970,302
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$
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2,053,903
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$
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2,104,606
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Operating Income (Loss):
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North America
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$
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129,010
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$
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95,934
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$
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32,682
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International
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38,036
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55,333
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58,808
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167,046
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151,267
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91,490
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Corporate and Other (2)
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(59,666)
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(95,225)
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(123,983)
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$
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107,380
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$
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56,042
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$
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(32,493)
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(1)One of our customers accounted for approximately 11%, 12%, and 11% of our consolidated sales for the fiscal years ended June 30, 2021, 2020 and 2019, respectively, which were primarily related to the United States, Canada and United Kingdom operating segments. A second customer accounted for approximately, 8%, 9% and 10% of our consolidated sales for the fiscal years ended June 30, 2021, 2020 and 2019, respectively, which were primarily related to the United States operating segment.
(2)For the fiscal year ended June 30, 2021, Corporate and Other primarily included $10,576 related to Productivity and transformation costs and $49,353 of selling general and administrative costs.
For the fiscal year ended June 30, 2020, Corporate and Other included $32,664 related to Productivity and transformation costs and tradename impairment charges of $13,994 ($8,462 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 tradename impairment charges of $17,900 ($15,113 related to North America and $2,787 related to International) and a $4,460 benefit for proceeds received in connection with an insurance recovery.
The Company’s net sales by product category are as follows:
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Fiscal Year Ended June 30,
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2021
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2020
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2019
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Grocery
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$
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1,325,552
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$
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1,423,761
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$
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1,512,868
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Snacks
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321,832
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309,261
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296,123
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Personal Care
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186,188
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192,875
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180,141
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Tea
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136,730
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128,006
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115,474
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Total
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$
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1,970,302
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$
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2,053,903
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$
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2,104,606
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The Company’s net sales by geographic region, which are generally based on the location of the Company’s subsidiary, are as follows:
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Fiscal Year Ended June 30,
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2021
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2020
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2019
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United States
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$
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954,415
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$
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1,016,230
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$
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1,052,930
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United Kingdom
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607,674
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650,416
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704,524
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All Other
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408,213
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387,257
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347,152
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Total
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$
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1,970,302
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$
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2,053,903
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$
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2,104,606
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The Company’s long-lived assets, which primarily represent net property, plant and equipment, by geographic region are as follows:
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Fiscal Year Ended June 30,
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2021
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2020
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United States
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$
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148,950
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$
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131,537
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United Kingdom
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142,973
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144,044
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All Other
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112,864
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101,840
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Total
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$
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404,787
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$
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377,421
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22. RELATED PARTY TRANSACTIONS
On April 15, 2021, the Company completed the divestiture of its North America non-dairy beverages brands, Dream® and WestSoy®, for $31,320. The purchaser in this transaction was SunOpta Inc. (“SunOpta”). The non-employee chair of the Company's Board of Directors is also the chair of the board of SunOpta.
SunOpta is also one of the Company’s suppliers, for which the Company incurs expenses in the ordinary course of business. The Company incurred expenses of $13,050, $19,551 and $21,633 in fiscal years 2021, 2020 and 2019, respectively, to SunOpta and its 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 $2,295, $4,242 and $2,592 in fiscal years 2021, 2020 and 2019, respectively, to the law firm and affiliated entities. The director resigned from the Board of Directors in February 2020.