NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BUSINESS
The Hain Celestial Group, Inc., a Delaware corporation, and its subsidiaries (collectively, the “Company”) manufacture, market, distribute and sell organic and natural products under brand names which are sold as “better-for-you” products, providing consumers with the opportunity to lead A Healthier Way of Life
TM
. The Company is a leader in many organic and natural products categories, with many recognized brands in the various market categories they serve. The brand names include Almond Dream
®
, Arrowhead Mills
®
, Bearitos
®
, BluePrint
®
, Celestial Seasonings
®
, Cully & Sully
®
, Danival
®
, DeBoles
®
, Earth’s Best
®
, Ella’s Kitchen
®
, Empire
®
, Europe’s Best
®
, Farmhouse Fare
®
, Frank Cooper’s
®
, FreeBird
®
, Gale’s
®
, Garden of Eatin’
®
, GG UniqueFiber
TM
, Hain Pure Foods
®
, Hartley’s
®
, Health Valley
®
, Imagine
®
, Johnson’s Juice Co.
®
, Joya
®
, Kosher Valley
®
, Lima
®
, Linda McCartney
®
(under license), MaraNatha
®
, Natumi
®
, New Covent Garden Soup Co.
®
, Plainville Farms
®
, Rice Dream
®
, Robertson’s
®
, Rudi’s Gluten-Free Bakery
®
, Rudi’s Organic Bakery
®
, Sensible Portions
®
, Spectrum
®
, Spectrum Essentials
®
, Soy Dream
®
, Sun-Pat
®
, SunSpire
®
, Terra
®
, The Greek Gods
®
, Tilda
®
, Walnut Acres
®
, WestSoy
®
and Yves Veggie Cuisine
®
. Our personal care products are marketed under the Alba Botanica
®
, Avalon Organics
®
, Earth’s Best
®
, JASON
®
, Live Clean
®
and Queen Helene
®
brands.
The Company’s operations are managed in five operating segments: United States, United Kingdom, Hain Pure Protein, Canada and Europe. Refer to Note 15 for additional information and selected financial information for the reportable segments.
2. BASIS OF PRESENTATION
The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States (“U.S. GAAP”). The amounts as of and for the periods ended
June 30, 2015
are derived from the Company’s audited annual financial statements. The consolidated financial statements reflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair presentation for interim periods. Operating results for the three and nine months ended
March 31, 2016
are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2016. Please refer to the notes to the consolidated financial statements as of
June 30, 2015
and for the fiscal year then ended included in the Company’s Annual Report on Form 10-K for information not included in these condensed notes.
All amounts in the condensed consolidated financial statements, notes and tables have been rounded to the nearest thousand, except share and per share amounts, unless otherwise indicated.
Newly Adopted Accounting Pronouncements
In September 2015, the FASB issued ASU No. 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
. ASU No. 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU No. 2015-16 is effective for annual reporting periods beginning after December 15, 2015 and for interim periods within such annual period. Early application is permitted for any interim and annual financial statements that have not yet been made available for issuance. The Company has elected to early adopt the provisions of ASU No. 2015-16 at the beginning of fiscal 2016. The adoption of the new guidance did not materially impact the Company’s consolidated financial position or results of operations.
In April 2015, the FASB issued ASU No. 2015-03,
Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
. The amendments in ASU No. 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected by the amendments. ASU No. 2015-03 must be applied retrospectively and is effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted. In August 2015, the FASB issued ASU No. 2015-15,
Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
. ASU No. 2015-15 states that for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting such costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company has elected to early adopt the provisions of ASU Nos. 2015-03 and 2015-15 at the beginning of fiscal 2016. The adoption of the new guidance did not materially impact the Company’s consolidated financial position or results of operations.
Recently Issued Accounting Pronouncements Not Yet Effective
In March 2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
, which simplifies several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees’ maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. The standard will be effective for the first interim period within annual periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-09.
In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
. ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
. ASU 2016-10 clarifies the implementation guidance on identifying performance obligations. These ASU’s apply to all companies that enter into contracts with customers to transfer goods or services. These ASU’s are effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but not before interim and annual reporting periods beginning after December 15, 2016. Entities have the choice to apply these ASU’s either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying these standards at the date of initial application and not adjusting comparative information. The Company is currently evaluating the transition method that will be elected and the potential effects of adopting the provisions of these standards.
In March 2016, the FASB issued ASU 2016-07,
Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
. ASU 2016-07 eliminates the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The equity method investor is required to add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. ASU 2016-07 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-07.
In February 2016, the FASB issued ASU 2016-02,
Leases
. ASU 2016-02 revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability to make lease payments and an asset representing its right to use the underlying asset for the lease term in the balance sheet. The standard is effective for the first interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-02.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The pronouncement also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-01.
In November 2015, the FASB issued ASU No. 2015-17,
Income Taxes
(Topic 740): Balance Sheet Classification of Deferred Taxes
. ASU No. 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. The Company intends to adopt this new guidance in the fourth quarter of fiscal 2016. The adoption of this guidance will impact the balance sheet classification of such assets and liabilities.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory.
ASU No. 2015-11 requires inventory measured using any method other than last-in, first out or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. ASU No. 2015-11 is effective for annual reporting periods beginning after December 15, 2016 and for interim periods within such annual period. Early application is permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2015-11.
In June 2014, the FASB issued ASU No. 2014-12,
Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
.
ASU No. 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. ASU No. 2014-12 is effective for annual periods beginning after December 15, 2015 and for interim periods within such annual period, with early adoption permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2014-12.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606).
Under ASU No. 2014-09, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
|
|
|
|
Net income
|
$
|
48,985
|
|
|
$
|
33,394
|
|
|
$
|
137,234
|
|
|
$
|
96,824
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share - weighted average shares
outstanding during the period (
in thousands
)
|
103,265
|
|
|
102,252
|
|
|
103,030
|
|
|
101,401
|
|
Effect of dilutive stock options, unvested restricted stock and unvested
restricted share units (
in thousands
)
|
822
|
|
|
1,544
|
|
|
1,138
|
|
|
1,825
|
|
Denominator for diluted earnings per share - adjusted weighted
average shares and assumed conversions (
in thousands
)
|
104,087
|
|
|
103,796
|
|
|
104,168
|
|
|
103,226
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.47
|
|
|
$
|
0.33
|
|
|
$
|
1.33
|
|
|
$
|
0.95
|
|
Diluted earnings per share
|
$
|
0.47
|
|
|
$
|
0.32
|
|
|
$
|
1.32
|
|
|
$
|
0.94
|
|
Note: The sum of our quarterly net income per share amounts may not equal the year-to-date amounts,as presented, due to rounding.
Basic earnings per share excludes the dilutive effects of stock options, unvested restricted stock and unvested restricted share units. Diluted earnings per share includes the dilutive effects of common stock equivalents such as stock options and unvested restricted stock awards.
Restricted stock awards totaling
195,244
were excluded from our diluted earnings per share calculations for the three and nine months ended
March 31, 2016
as such awards were antidilutive. There were
107,460
awards excluded from our diluted earnings per share calculations for the three and nine months ended
March 31, 2015
as such awards were contingently issuable based on market or performance conditions and such conditions had not been achieved during the respective periods.
4. ACQUISITIONS
The Company accounts for acquisitions in accordance with Accounting Standards Codification “Business Combinations.” The results of operations of the acquisitions typically have been included in the consolidated results from their respective dates of acquisition. The purchase price of each acquisition is allocated to the tangible assets, liabilities, and identifiable intangible assets acquired based on their estimated fair values. Acquisitions may include contingent consideration, the fair value of which is estimated on the acquisition date as the present value of the expected contingent payments, determined using weighted probabilities of possible payments. The fair values assigned to identifiable intangible assets acquired were determined primarily by using an income approach which was based on assumptions and estimates made by management. Significant assumptions utilized in the income approach were based on company specific information and projections which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance. The excess of the purchase price over the fair value of the identified assets and liabilities has been recorded as goodwill.
The costs related to all acquisitions have been expensed as incurred and are included in “Acquisition related expenses, restructuring and integration charges, net” in the Condensed Consolidated Statements of Income. Acquisition-related expenses of
$720
and
$3,681
were expensed in the three and nine months ended
March 31, 2016
and
$2,184
and
$3,672
were expensed in the three and nine months ended
March 31, 2015
, respectively. The expenses incurred during the first nine months of fiscal 2016 primarily related to the acquisitions of Orchard House and Mona (as defined below). The expenses incurred during the first nine months of fiscal 2015 primarily relate to the acquisition of the remaining interest in Hain Pure Protein Corporation (“HPPC”).
Fiscal 2016
On December 21, 2015, the Company acquired Orchard House Foods Limited (“Orchard House”), a leader in prepared fruit, juices, fruit desserts and ingredients with facilities in Corby and Gateshead in the United Kingdom. Orchard House supplies leading retailers, on-the-go food outlets, food service providers and manufacturers in the United Kingdom. Consideration in the transaction consisted of cash (net of cash acquired) totaling
£76,923
(approximately
$114,113
at the transaction date exchange rate). The acquisition was funded with borrowings under the Credit Agreement (as defined below). Additionally, contingent consideration of
£3,000
may be payable to the sellers based on the outcome of a review by the Competition and Markets Authority in the United Kingdom. Orchard House is included in the United Kingdom operating segment. Net sales and income before income taxes attributable to the Orchard House acquisition and included in our consolidated results were not material in the three and nine months ended
March 31, 2016
.
On July 24, 2015, the Company acquired Formatio Beratungs- und Beteiligungs GmbH and its subsidiaries (“Mona”), a leader in plant-based foods and beverages with facilities in Germany and Austria. Mona offers a wide range of organic and natural products under the Joya
®
and Happy
®
brands, including soy, oat, rice and nut based drinks as well as plant-based yogurts, desserts, creamers, tofu and private label products, sold to leading retailers in Europe, primarily in Austria and Germany and eastern European countries. Consideration in the transaction consisted of cash totaling
€23,012
(approximately
$25,233
at the transaction date exchange rate) and
240,207
shares of the Company’s common stock valued at
$16,308
. Also included in the acquisition was the assumption of net debt totaling
€16,252
. The cash portion of the purchase price was funded with borrowings under our Credit Agreement. Mona is included in the Europe operating segment. Net sales and income before income taxes attributable to the Mona acquisition and included in our consolidated results were not material in the three and nine months ended
March 31, 2016
.
The following table summarizes the components of the preliminary purchase price allocations for the fiscal 2016 acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mona
|
|
Orchard House
|
|
Total
|
Purchase Price:
|
|
|
|
|
|
Cash paid
|
$
|
25,233
|
|
|
$
|
114,113
|
|
|
$
|
139,346
|
|
Equity issued
|
16,308
|
|
|
—
|
|
|
16,308
|
|
Fair value of contingent consideration
|
—
|
|
|
2,225
|
|
|
2,225
|
|
Total investment:
|
$
|
41,541
|
|
|
$
|
116,338
|
|
|
$
|
157,879
|
|
Allocation:
|
|
|
|
|
|
Current assets
|
$
|
17,811
|
|
|
$
|
18,960
|
|
|
$
|
36,771
|
|
Property, plant and equipment
|
16,391
|
|
|
17,707
|
|
|
34,098
|
|
Other long term assets
|
226
|
|
|
—
|
|
|
226
|
|
Identifiable intangible assets
|
14,803
|
|
|
24,032
|
|
|
38,835
|
|
Deferred taxes
|
(1,100
|
)
|
|
(4,326
|
)
|
|
(5,426
|
)
|
Assumed liabilities
|
(27,303
|
)
|
|
(19,070
|
)
|
|
(46,373
|
)
|
Goodwill
|
20,713
|
|
|
79,035
|
|
|
99,748
|
|
|
$
|
41,541
|
|
|
$
|
116,338
|
|
|
$
|
157,879
|
|
The purchase price allocations are based upon preliminary valuations, and the Company’s estimates and assumptions are subject to change within the measurement period as valuations are finalized. Any change in the estimated fair value of the net assets, prior to the finalization of the more detailed analyses, but not to exceed one year from the dates of acquisition, will change the amount of the purchase price allocation.
The preliminary fair values assigned to identifiable intangible assets acquired were based on assumptions and estimates made by management. Identifiable intangible assets acquired consisted of customer relationships valued at
$27,870
with an estimated
useful life of
12
years and trade names valued at
$10,965
with indefinite lives. The goodwill represents the future economic benefits expected to arise that could not be individually identified and separately recognized, including use of the Company’s existing infrastructure to expand sales of the acquired business’ products and to expand sales of the Company’s existing products into new regions. The goodwill recorded as a result of these acquisitions is not expected to be deductible for tax purposes.
The following table provides unaudited pro forma results of continuing operations for the three and nine months ended
March 31, 2016
and
March 31, 2015
, as if the acquisitions of Orchard House and Mona had been completed at the beginning of fiscal 2015. The information has been provided for illustrative purposes only, and does not purport to be indicative of the actual results that would have been achieved by the Company for the periods presented or that will be achieved by the combined company in the future. The pro forma information has been adjusted to give effect to items that are directly attributable to the transactions and are expected to have a continuing impact on the combined results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31,
|
|
Nine Months ended March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net sales
|
$
|
749,862
|
|
|
$
|
740,463
|
|
|
$
|
2,278,151
|
|
|
$
|
2,251,205
|
|
Net income
|
$
|
48,985
|
|
|
$
|
36,076
|
|
|
$
|
140,576
|
|
|
$
|
106,319
|
|
Net income per diluted common share
|
$
|
0.47
|
|
|
$
|
0.35
|
|
|
$
|
1.35
|
|
|
$
|
1.03
|
|
Fiscal 2015
On July 17, 2014, the Company acquired the remaining
51.3%
of HPPC that it did not already own, at which point HPPC became a wholly-owned subsidiary. HPPC processes, markets and distributes antibiotic-free, organic and other poultry products. HPPC held a
19%
interest in EK Holdings, Inc. (“Empire”), which grows, processes and sells kosher poultry and other products under the Empire and Kosher Valley brand names. Consideration in the transaction consisted of cash totaling
$20,310
and
462,856
shares of the Company’s common stock valued at
$19,690
. The cash consideration paid was funded with existing cash balances. Additionally, HPPC’s existing bank borrowings were repaid on September 30, 2014 with proceeds from borrowings under the Credit Agreement. The carrying amount of the pre-existing
48.7%
investment in HPPC as of June 30, 2014 was
$30,740
. Due to the acquisition of the remaining
51.3%
of HPPC, the Company adjusted the carrying amount of its pre-existing investment to its fair value. This resulted in a gain of
$5,334
recorded in “Interest and other expenses, net” in the Condensed Consolidated Statements of Income.
On February 20, 2015, the Company acquired Belvedere International, Inc., (“Belvedere”) a leader in health and beauty care products including the Live Clean
®
brand with approximately 200 baby, body and hair care products as well as several mass market brands sold primarily in Canada and manufactured in a company facility in Mississauga, Ontario, Canada. Consideration in the transaction consisted of cash totaling
C$17,454
(
$13,988
at the transaction date exchange rate), which included debt that was repaid at closing, and was funded with existing cash balances. Additionally, contingent consideration of up to a maximum of
C$4,000
is payable based on the achievement of specified operating results during the two consecutive one-year periods following the closing date. At
March 31, 2016
, the Company has recorded the maximum amount of
C$4,000
for the contingent consideration payable. Belvedere is included in our Canada operating segment.
On March 4, 2015, the Company acquired the remaining
81%
of Empire that it did not already own, at which point Empire became a wholly-owned subsidiary. Consideration in the transaction consisted of cash totaling
$57,595
(net of cash acquired) which included debt that was repaid at closing. The acquisition was funded with borrowings under the Credit Agreement. The carrying amount of the pre-existing
19%
investment in Empire as of March 4, 2015 was
$6,864
. Due to the acquisition of the remaining
81%
of Empire, the Company adjusted the carrying amount of its pre-existing investment to its fair value. This resulted in a gain of
$2,922
recorded in “Interest and other expenses, net” in the Condensed Consolidated Statements of Income.
The following table summarizes the components of the purchase price allocations for the fiscal
2016
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HPPC
|
|
Belvedere
|
|
Empire
|
|
Total
|
Carrying value of pre-existing interest, after fair value adjustments:
|
$
|
36,074
|
|
|
$
|
—
|
|
|
$
|
9,786
|
|
|
$
|
45,860
|
|
Purchase Price:
|
|
|
|
|
|
|
|
Cash paid
|
20,310
|
|
|
13,988
|
|
|
57,595
|
|
|
91,893
|
|
Equity issued
|
19,690
|
|
|
—
|
|
|
—
|
|
|
19,690
|
|
Fair value of contingent consideration
|
—
|
|
|
1,603
|
|
|
—
|
|
|
1,603
|
|
Total investment:
|
$
|
76,074
|
|
|
$
|
15,591
|
|
|
$
|
67,381
|
|
|
$
|
159,046
|
|
Allocation:
|
|
|
|
|
|
|
|
Current assets
|
$
|
52,055
|
|
|
$
|
10,042
|
|
|
$
|
19,629
|
|
|
$
|
81,726
|
|
Property, plant and equipment
|
21,864
|
|
|
2,598
|
|
|
12,334
|
|
|
36,796
|
|
Other assets
|
7,288
|
|
|
—
|
|
|
—
|
|
|
7,288
|
|
Identifiable intangible assets
|
20,700
|
|
|
5,850
|
|
|
34,800
|
|
|
61,350
|
|
Deferred taxes
|
1,388
|
|
|
(3,890
|
)
|
|
(14,764
|
)
|
|
(17,266
|
)
|
Assumed liabilities
|
(42,332
|
)
|
|
(1,825
|
)
|
|
(15,987
|
)
|
|
(60,144
|
)
|
Goodwill
|
15,111
|
|
|
2,816
|
|
|
31,369
|
|
|
49,296
|
|
|
$
|
76,074
|
|
|
$
|
15,591
|
|
|
$
|
67,381
|
|
|
$
|
159,046
|
|
The fair values assigned to identifiable intangible assets acquired were based on assumptions and estimates made by management. Identifiable intangible assets acquired consisted of customer relationships valued at
$15,903
with an estimated useful life of
11.0 years
, a patent valued at
$1,700
with an estimated useful life of
9.0 years
, and trade names valued at
$43,747
with indefinite lives. The goodwill represents the future economic benefits expected to arise that could not be individually identified and separately recognized, including use of the Company’s existing infrastructure to expand sales of the acquired business’ products. The goodwill recorded as a result of these acquisitions is not expected to be deductible for tax purposes.
The following table provides unaudited pro forma results of continuing operations for the three and nine months ended
March 31, 2015
as if only the acquisitions completed in fiscal 2015 (HPPC, Belvedere and Empire) had been completed at the beginning of fiscal year 2015. The information has been provided for illustrative purposes only, and does not purport to be indicative of the actual results that would have been achieved by the Company for the periods presented or that will be achieved by the combined company in the future. The pro forma information has been adjusted to give effect to items that are directly attributable to the transactions and are expected to have a continuing impact on the combined results, which include amortization expense associated with acquired identifiable intangible assets and the impact of reversing our previously recorded equity in HPPC’s net income as prior to the date of acquisition, HPPC was accounted for under the equity-method of accounting.
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, 2015
|
|
Nine Months ended March 31, 2015
|
Net sales
|
$
|
687,992
|
|
|
$
|
2,082,712
|
|
Net income
|
$
|
34,483
|
|
|
$
|
100,105
|
|
Net income per diluted common share
|
$
|
0.33
|
|
|
$
|
0.97
|
|
5. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
June 30,
2015
|
Finished goods
|
$
|
206,853
|
|
|
$
|
240,004
|
|
Raw materials, work-in-progress and packaging
|
188,105
|
|
|
142,207
|
|
|
$
|
394,958
|
|
|
$
|
382,211
|
|
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
June 30,
2015
|
Land
|
$
|
36,566
|
|
|
$
|
36,386
|
|
Buildings and improvements
|
103,142
|
|
|
88,507
|
|
Machinery and equipment
|
401,180
|
|
|
359,183
|
|
Furniture and fixtures
|
13,900
|
|
|
10,272
|
|
Leasehold improvements
|
20,677
|
|
|
19,257
|
|
Construction in progress
|
20,027
|
|
|
11,444
|
|
|
595,492
|
|
|
525,049
|
|
Less: Accumulated depreciation and amortization
|
202,773
|
|
|
180,787
|
|
|
$
|
392,719
|
|
|
$
|
344,262
|
|
Depreciation expense for the three months ended
March 31, 2016
and
2015
was
$9,096
and
$7,795
, respectively. Such expense for the nine months ended
March 31, 2016
and
2015
was
$27,039
and
$24,539
, respectively.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill by reportable segment for the nine months ended
March 31, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
United Kingdom
|
|
Hain Pure Protein
|
|
Rest of World
|
|
Total
|
Balance as of June 30, 2015 (a)
|
$
|
607,843
|
|
|
$
|
420,166
|
|
|
$
|
45,328
|
|
|
$
|
62,742
|
|
|
$
|
1,136,079
|
|
Acquisition activity
|
—
|
|
|
79,035
|
|
|
1,154
|
|
|
20,611
|
|
|
100,800
|
|
Translation adjustments
|
(2,937
|
)
|
|
(37,363
|
)
|
|
—
|
|
|
(1,274
|
)
|
|
(41,574
|
)
|
Balance as of March 31, 2016 (a)
|
$
|
604,906
|
|
|
$
|
461,838
|
|
|
$
|
46,482
|
|
|
$
|
82,079
|
|
|
$
|
1,195,305
|
|
(a) The total carrying value of goodwill for all periods in the table above is reflected net of
$42,029
of accumulated impairment charges recorded during fiscal 2009 which relate to the Company’s United Kingdom and Europe operating segments.
The Company performs its annual test for goodwill and indefinite lived intangible asset impairment as of the first day of the fourth quarter of its fiscal year. In addition, if and when events or circumstances change that would more likely than not reduce the fair value of any of its reporting units or indefinite-life intangible assets below their carrying value, an interim test is performed. During fiscal 2015, the Company recorded a non-cash partial impairment charge of
$5,510
related to a United Kingdom indefinite-lived intangible asset (the Company’s New Covent Garden Soup Co.
®
tradename). There were no other impairment charges recorded during fiscal 2015, and no impairment charges have been recorded during fiscal 2016 to date.
Amounts assigned to indefinite-life intangible assets primarily represent the values of trademarks and tradenames. At
March 31, 2016
, included in trademarks and other intangible assets on the balance sheet are
$226,824
of intangible assets deemed to have a finite life, which are primarily related to customer relationships, and are being amortized over their estimated useful lives of
3
to
25 years
. The following table reflects the components of trademarks and other intangible assets:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
June 30,
2015
|
Non-amortized intangible assets:
|
|
|
|
Trademarks and tradenames
|
$
|
496,082
|
|
|
$
|
507,853
|
|
Amortized intangible assets:
|
|
|
|
Other intangibles
|
226,824
|
|
|
207,609
|
|
Less: accumulated amortization
|
(78,966
|
)
|
|
(67,708
|
)
|
Net carrying amount
|
$
|
643,940
|
|
|
$
|
647,754
|
|
Amortization expense included in continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31,
|
|
Nine Months ended March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Amortization of intangible assets
|
$
|
4,586
|
|
|
$
|
4,303
|
|
|
$
|
13,994
|
|
|
$
|
8,813
|
|
Expected amortization expense over the next five fiscal years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended June 30,
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
Estimated amortization expense
|
$
|
18,279
|
|
|
$
|
19,193
|
|
|
$
|
17,511
|
|
|
$
|
15,698
|
|
|
$
|
16,090
|
|
The weighted average remaining amortization period of amortized intangible assets is
9.6 years
.
8. DEBT AND BORROWINGS
Debt and borrowings consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
June 30,
2015
|
Senior Notes
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Revolving Credit Agreement borrowings payable to banks
|
720,276
|
|
|
660,216
|
|
Tilda short-term borrowing arrangements
|
27,979
|
|
|
29,600
|
|
Other borrowings
|
19,178
|
|
|
4,067
|
|
|
917,433
|
|
|
843,883
|
|
Short-term borrowings and current portion of long-term debt
|
37,806
|
|
|
31,275
|
|
|
$
|
879,627
|
|
|
$
|
812,608
|
|
The Company has
$150,000
in aggregate principal amount of
10
year senior notes due
May 2, 2016
issued in a private placement. The notes bear interest at
5.98%
, payable semi-annually on November 2 and May 2. As of
March 31, 2016
,
$150,000
of the senior notes was outstanding. On May 2, 2016, the Company utilized capacity under its existing revolving credit facility to redeem these notes. Accordingly, the Company has classified these borrowings as long term in the Condensed Consolidated Balance Sheet as of March 31, 2016 since the notes were refinanced on a long-term basis.
On December 12, 2014, the Company entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) which provides for a
$1,000,000
unsecured revolving credit facility which may be increased by an additional uncommitted
$350,000
, provided certain conditions are met. The Credit Agreement expires in
December 2019
. Borrowings under the Credit Agreement may be used to provide working capital, finance capital expenditures and permitted acquisitions, refinance certain existing indebtedness and for other lawful corporate purposes. The Credit Agreement provides for multicurrency borrowings in Euros, Pounds Sterling and Canadian Dollars as well as other currencies which may be designated. In addition, certain wholly-owned foreign subsidiaries of the Company may be designated as co-borrowers. The Credit Agreement contains restrictive covenants usual and customary for facilities of its type, which 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, such as maintaining a consolidated interest coverage ratio (as defined in the Credit Agreement) of no less than
4.0
to
1.0
and a consolidated leverage ratio (as defined in the Credit Agreement) of no more than
3.5
to
1.0
. The consolidated leverage ratio is subject to a step-up to
4.0
to
1.0
for the four full fiscal quarters following an acquisition. Obligations under the Credit Agreement are guaranteed by certain existing and future domestic subsidiaries of the Company. As of
March 31, 2016
, there were
$723,326
of borrowings and letters of credit outstanding under the Credit Agreement and
$276,674
available, and the Company was in compliance with all associated covenants.
The Credit Agreement provides that loans will bear interest at rates based on (a) the Eurocurrency Rate, as defined in the Credit Agreement, plus a rate ranging from
0.875%
to
1.70%
per annum; or (b) the Base Rate, as defined in the Credit Agreement, plus a rate ranging from
0.00%
to
0.70%
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 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 Credit Agreement at
March 31, 2016
was
1.92%
. Additionally, the Credit Agreement contains a Commitment Fee, as defined in the Credit Agreement, on the amount unused under the Credit Agreement ranging from
0.20%
to
0.30%
per annum. Such Commitment Fee is determined in accordance with a leverage-based pricing grid, as set forth in the Credit Agreement.
Tilda maintains short-term borrowing arrangements primarily used to fund the purchase of rice from India and other countries. The maximum borrowings permitted under all such arrangements are
£52,000
. Outstanding borrowings are collateralized by the current assets of Tilda, typically have six month terms and bear interest at variable rates typically based on LIBOR plus a margin (weighted average interest rate of approximately
2.8%
at
March 31, 2016
).
Other borrowings primarily relate to borrowings at Mona and include only long-term arrangements. Mona entered into long-term borrowings which were used to finance capital expenditures. Outstanding borrowings are collateralized by the assets of Mona and have terms ranging from 12 months to 8 years. Such borrowings bear interest at variable rates typically based on EURIBOR plus a margin (weighted average interest rate of approximately
2.5%
at
March 31, 2016
).
9. INCOME TAXES
The Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter. The Company’s effective tax rate may change from period to period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes and tax audit settlements.
The effective income tax rate from continuing operations was
30.5%
and
35.2%
for the three months ended
March 31, 2016
and
2015
, respectively, and
29.5%
and
31.9%
for the nine months ended
March 31, 2016
and
2015
, respectively. The effective tax rate for the nine months ended March 31, 2016 was favorably impacted by the geographical mix of earnings and a reduction in the statutory tax rate in the United Kingdom enacted in the second quarter of fiscal 2016. Such reduction resulted in a decrease to the carrying value of net deferred tax liabilities of
$4,436
which favorably impacted the effective tax rate partially offset by an unfavorable settlement of a tax claim of
$1,151
in the United Kingdom relating to a prior acquisition. The effective tax rate for the nine months ended March 31, 2015 was favorably impacted by the non-taxable gain recorded on the pre-existing ownership interests in HPPC and Empire of
$8,256
.
10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables present the changes in accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended
March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
(1)
|
$
|
(20,296
|
)
|
|
$
|
(57,118
|
)
|
|
$
|
(86,380
|
)
|
|
$
|
(167,087
|
)
|
Amounts reclassified into income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Deferred gains/(losses) on cash flow hedging instruments:
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
753
|
|
|
750
|
|
|
4,024
|
|
|
5,179
|
|
Amounts reclassified into income
(2)
|
(1,962
|
)
|
|
(498
|
)
|
|
(4,188
|
)
|
|
(3,148
|
)
|
Unrealized gain/(loss) on available for sale investment:
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
20
|
|
|
(120
|
)
|
|
(112
|
)
|
|
(819
|
)
|
Amounts reclassified into income
(3)
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(190
|
)
|
Net change in accumulated other comprehensive income (loss)
|
$
|
(21,485
|
)
|
|
$
|
(56,987
|
)
|
|
$
|
(86,656
|
)
|
|
$
|
(166,065
|
)
|
|
|
(1)
|
Foreign currency translation adjustments include intra-entity foreign currency transactions that are of a long-term investment nature of
$35,592
and
$21,210
for the three months ended
March 31, 2016
and
2015
,
respectively, and
$74,508
and
$64,316
for the nine months ended
March 31, 2016
and
2015
, respectively.
|
|
|
(2)
|
Amounts reclassified into income for deferred gains/(losses) on cash flow hedging instruments are recorded in “Cost of sales” in the Consolidated Statements of Income and, before taxes, were
$2,546
and
$711
for the three months ended
March 31, 2016
and
2015
, respectively and
$5,492
and
$4,126
for the nine months ended
March 31, 2016
and
2015
, respectively.
|
|
|
(3)
|
Amounts reclassified into income for gains on sale of available for sale investments were based on the average cost of the shares held (See Note 12). Such amounts are recorded in “Interest and other expenses, net” in the Condensed Consolidated Statements of Income and were
$312
before taxes for the nine months ended
March 31, 2015
.
|
11. STOCK BASED COMPENSATION AND INCENTIVE PERFORMANCE PLANS
The Company has two shareholder-approved plans, the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan and the 2000 Directors Stock Plan, under which the Company’s officers, senior management, other key employees, consultants and directors may be granted options to purchase the Company’s common stock or other forms of equity-based awards.
Compensation cost and related income tax benefits recognized in the Condensed Consolidated Statements of Income for stock based compensation plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Compensation cost (included in selling, general and administrative expense)
|
$
|
2,776
|
|
|
$
|
2,935
|
|
|
$
|
10,005
|
|
|
$
|
8,934
|
|
Related income tax benefit
|
$
|
1,041
|
|
|
$
|
1,125
|
|
|
$
|
3,752
|
|
|
$
|
3,438
|
|
Stock Options
A summary of the stock option activity for the nine months ended
March 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Contractual
Life (years)
|
|
Aggregate
Intrinsic Value
|
Options outstanding and exercisable at June 30, 2015
|
1,248,912
|
|
|
$
|
6.12
|
|
|
|
|
|
Exercised
|
(907,302
|
)
|
|
$
|
5.91
|
|
|
|
|
|
Options outstanding and exercisable at March 31, 2016
|
341,610
|
|
|
$
|
6.66
|
|
|
5.9 years
|
|
$
|
11,701
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
2016
|
|
2015
|
Intrinsic value of options exercised
|
$
|
27,147
|
|
|
$
|
62,213
|
|
Cash received from stock option exercises
|
$
|
—
|
|
|
$
|
18,643
|
|
Tax benefit recognized from stock option exercises
|
$
|
10,587
|
|
|
$
|
24,213
|
|
At
March 31, 2016
there was
no
unrecognized compensation expense related to stock option awards.
Restricted Stock
A summary of the restricted stock and restricted share units activity for the nine months ended
March 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
Number of Shares
and Units
|
|
Weighted
Average Grant
Date Fair
Value (per share)
|
Non-vested restricted stock, restricted share units, and performance units at June 30, 2015
|
1,145,042
|
|
|
$
|
32.30
|
|
Granted
|
409,564
|
|
|
$
|
24.29
|
|
Vested
|
(386,854
|
)
|
|
$
|
33.79
|
|
Forfeited
|
(28,365
|
)
|
|
$
|
45.90
|
|
Non-vested restricted stock, restricted share units, and performance units at March 31, 2016
|
1,139,387
|
|
|
$
|
28.82
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
2016
|
|
2015
|
Fair value of restricted stock, restricted share units, and performance units granted
|
$
|
9,947
|
|
|
$
|
14,255
|
|
Fair value of shares vested
|
$
|
17,904
|
|
|
$
|
21,121
|
|
Tax benefit recognized from restricted shares vesting
|
$
|
6,762
|
|
|
$
|
8,223
|
|
On July 3, 2012, the Company entered into a Restricted Stock Agreement (the “Agreement”) with Irwin D. Simon, the Company’s Chairman, President and Chief Executive Officer. The Agreement provides for a grant of
800,000
shares of restricted stock (the “Shares”), the vesting of which is both market and time-based. The market condition is satisfied in increments of
200,000
Shares upon the Company’s common stock achieving four share price targets. On the last day of any forty-five (45) consecutive trading day period during which the average closing price of the Company’s common stock on the Nasdaq Global Select Market equals or exceeds the following prices:
$31.25
,
$36.25
,
$41.25
and
$50.00
, respectively, the market condition for each increment of
200,000
Shares will be satisfied. The market conditions must be satisfied prior to June 30, 2017. Once each market condition has been satisfied, a tranche of
200,000
Shares will vest in equal amounts annually over a five-year period. Except in the case of a change of control, termination without cause, death or disability (each as defined in Mr. Simon’s Employment Agreement), the unvested Shares are subject to forfeiture unless Mr. Simon remains employed through the applicable market and time vesting periods. The grant date fair value for each tranche was separately estimated based on a Monte Carlo simulation that calculated the likelihood of goal attainment and the time frame most likely for goal attainment. The total grant date fair value of the Shares was estimated to be
$16,151
, which was expected to be recognized over a weighted-average period of approximately
4.0 years
. On September 28, 2012, August 27, 2013, December 13, 2013, and October 22, 2014, the four respective market conditions were satisfied. As such, the four tranches of
200,000
Shares are expected to vest in equal amounts over the five-year period commencing on the first anniversary of the date the market condition for the respective tranche was satisfied.
At
March 31, 2016
,
$19,625
of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested restricted stock awards, inclusive of the Shares, is expected to be recognized over a weighted-average period of approximately
1.9 years
.
Long-Term Incentive Plan
The Company maintains a long-term incentive program (the “LTI Plan”). As of
March 31, 2016
, the LTI Plan consisted of a two-year performance-based long-term incentive plan (the “2015-2016 LTIP”) and a three-year performance-based long-term incentive plan (the “2016-2018 LTIP”) that provide for a combination of equity grants and performance awards that can be earned over the respective performance period. Participants in the LTI Plans include the Company’s executive officers, including the Chief Executive Officer, and certain other key executives.
The Compensation Committee administers the LTI Plans and is responsible for, among other items, establishing the target values of awards to participants and selecting the specific performance factors for such awards. Following the end of each performance period, the Compensation Committee determines, at its sole discretion, the specific payout to each participant. Such awards may be paid in cash and/or unrestricted shares of the Company’s common stock at the discretion of the Compensation Committee, provided that any such stock-based awards shall be issued pursuant to and be subject to the terms and conditions of the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan, as in effect and as amended from time to time.
Upon the adoption of the 2015-2016 LTIP, the Compensation Committee granted an initial award to each participant in the form of equity-based instruments (restricted stock or restricted share units), for a portion of the individual target awards (the “Initial Equity Grants”). These Initial Equity Grants are subject to time vesting requirements and a portion are also subject to the achievement of minimum performance goals. The 2015-2016 LTIP awards contain an additional year of time-based vesting. The Initial Equity Grants are expensed over the respective vesting periods on a straight-line basis. The payment of the actual awards earned at the end of the applicable performance period, if any, will be reduced by the value of the Initial Equity Grants.
Upon adoption of the 2016-2018 LTIP, the Compensation Committee granted performance units to each participant, the achievement of which is dependent upon a defined calculation of relative total shareholder return over the period from July 1, 2015 to June 30, 2018 (the “TSR Grant”). Each performance unit translates into one unit of common stock. The TSR grant represents half of each participant’s target award. The other half of the 2016-2018 LTIP is based on the Company’s achievement of specified net sales growth targets over this three-year period, and if achieved, may be paid in cash and/or unrestricted shares of the Company’s common stock at the discretion of the Compensation Committee.
In October 2015, although the target values previously set under the 2014-2015 LTIP were fully achieved, the Compensation Committee exercised its discretion to reduce the awards due to the challenges faced by the Company in connection with the nut butter voluntary recall during fiscal year 2015. After deducting the value of the Initial Equity Grants, the reduced awards to participants related to the 2014-2015 LTIP totaled
$4,400
(which were settled by the issuance of
82,495
unrestricted shares of the Company’s common stock in October 2015).
In addition to the stock based compensation expense associated with the Initial Equity Grants and the TSR Grant, there was
$1,127
of expense for the three months ended
March 31, 2016
and a reversal of expense of
$4,290
for the nine months ended
March 31,
2016
, due to the Company’s current estimates of achievement under the plans. The Company recorded expense of
$2,149
and
$5,410
for the three and nine months ended
March 31, 2015
, respectively, related to LTI plans.
12. INVESTMENTS AND JOINT VENTURES
Equity method investments
At
March 31, 2016
, the Company owned
50.0%
of a joint venture, Hutchison Hain Organic Holdings Limited (“HHO”), with Hutchison China Meditech Ltd. (“Chi-Med”), a majority owned subsidiary of CK Hutchison Holdings Limited, a company listed on the Hong Kong Stock Exchange. HHO markets and distributes certain of the Company’s brands in Hong Kong, China and other markets. Voting control of the joint venture is shared 50/50 between the Company and Chi-Med, although, in the event of a deadlock, Chi-Med has the ability to cast the deciding vote. The carrying value of the investment and advances to HHO of
$1,279
are included on the Condensed Consolidated Balance Sheet in “Investments and joint ventures.” The investment is being accounted for under the equity method of accounting.
On October 27, 2015, the Company acquired a
15.2%
interest in Chop’t Creative Salad Company LLC (“Chop’t”). Chop’t develops and operates fast-casual, fresh salad restaurants in the Northeast and Mid-Atlantic United States. Chop’t markets and sells certain of the Company’s branded products and provides consumer insight and feedback. The investment is being accounted for as a equity method investment and its carrying value of
$17,741
is included in the Condensed Consolidated Balance Sheet in “Investments and joint ventures.” The Company’s current ownership percentage may be diluted in the future to
12.1%
pending the distribution of additional ownership interests.
Available-For-Sale Securities
The Company has a less than
1%
equity ownership interest in Yeo Hiap Seng Limited (“YHS”), a Singapore based natural food and beverage company listed on the Singapore Exchange, which is accounted for as an available-for-sale security. The Company sold
943,300
of its YHS shares during the nine months ended
March 31, 2015
which resulted in a pre-tax gain of
$312
on the sales. No shares were sold during the nine months ended
March 31, 2016
. The remaining shares held at
March 31, 2016
totaled
1,035,338
. The fair value of these shares held was
$1,014
(cost basis of
$1,291
) at
March 31, 2016
and
$1,196
(cost basis of
$1,291
) at
June 30, 2015
and is included in “Investments and joint ventures,” with the related unrealized gain or loss, net of tax, included in “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheets.
13. FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The Company’s financial assets and liabilities measured at fair value are required to be grouped in one of three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:
|
|
•
|
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
|
•
|
Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
|
|
|
•
|
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
|
The following table presents by level within the fair value hierarchy assets and liabilities measured at fair value on a recurring basis as of
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
26,300
|
|
|
$
|
26,300
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Forward foreign currency contracts
|
1,047
|
|
|
—
|
|
|
1,047
|
|
|
—
|
|
Available for sale securities
|
1,014
|
|
|
1,014
|
|
|
—
|
|
|
—
|
|
|
$
|
28,361
|
|
|
$
|
27,314
|
|
|
$
|
1,047
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Contingent consideration, of which $3,738 is noncurrent
|
7,437
|
|
|
—
|
|
|
—
|
|
|
7,437
|
|
Total
|
$
|
7,437
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,437
|
|
The following table presents assets and liabilities measured at fair value on a recurring basis as of
June 30, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
45,101
|
|
|
$
|
45,101
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Forward foreign currency contracts
|
1,590
|
|
|
—
|
|
|
1,590
|
|
|
—
|
|
Available for sale securities
|
1,196
|
|
|
1,196
|
|
|
—
|
|
|
—
|
|
|
$
|
47,887
|
|
|
$
|
46,297
|
|
|
$
|
1,590
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Forward foreign currency contracts
|
$
|
274
|
|
|
$
|
—
|
|
|
$
|
274
|
|
|
$
|
—
|
|
Contingent consideration, of which $3,789 is noncurrent
|
3,789
|
|
|
—
|
|
|
—
|
|
|
3,789
|
|
Total
|
$
|
4,063
|
|
|
$
|
—
|
|
|
$
|
274
|
|
|
$
|
3,789
|
|
Available for sale securities consist of the Company’s investment in YHS (see Note 12). 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.
In connection with the acquisitions of Belvedere in February 2015 and GG UniqueFiber AS in January 2011, payment of a portion of the respective purchase prices are contingent upon the achievement of certain operating results. During the nine months ended
March 31, 2016
, additional expense of
$1,541
was recorded related to the Belvedere acquisition. In addition, additional consideration of
£3,000
related to the acquisition of Orchard House may be payable to the sellers based on the outcome of a review by the Competition and Markets Authority in the United Kingdom. The Company estimated the original fair value of these contingent consideration arrangements as the present value of the expected contingent payments, determined using the weighted probabilities of the possible payments. The Company is required to reassess the fair value of contingent payments on a periodic basis. The significant inputs used in the estimates include numerous possible scenarios for the payments based on the contractual terms of the contingent consideration, for which probabilities are assigned to each scenario, which are then discounted based on an individual risk analysis of the liability (weighted average discount rate of
4.5%
for the outstanding liability as of
March 31, 2016
). Although the Company believes its estimates and assumptions are reasonable, different assumptions, including those regarding the operating results of the respective businesses, or changes in the future may result in different estimated amounts.
The following table summarizes the Level 3 activity for the nine months ended
March 31, 2016
.
|
|
|
|
|
Balance as of June 30, 2015
|
$
|
3,789
|
|
Fair value of initial contingent consideration
|
2,225
|
|
Contingent consideration adjustment
|
1,541
|
|
Translation adjustment
|
(118
|
)
|
Balance as of March 31, 2016
|
$
|
7,437
|
|
There were no transfers of financial instruments between the three levels of fair value hierarchy during the nine months ended
March 31, 2016
or
2015
.
Cash Flow Hedges
The Company primarily has exposure to changes in foreign currency exchange rates relating to certain anticipated cash flows from its international operations. To reduce that risk, the Company may enter into certain derivative financial instruments, when available on a cost-effective basis, to manage such risk. Derivative financial instruments are not used for speculative purposes.
The Company utilizes foreign currency contracts to hedge forecasted transactions, primarily intercompany transactions, on certain foreign currencies and designates these derivative instruments as foreign currency cash flow hedges when appropriate. The notional and fair value amounts of the Company’s foreign exchange derivative contracts at
March 31, 2016
were
$14,861
and
$1,047
of net assets. There were
$47,202
of notional amount and
$1,316
of net assets of foreign exchange derivative contracts outstanding at
June 30, 2015
. The fair value of these derivatives is included in prepaid expenses and other current assets and accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets. For these derivatives, which qualify as hedges of probable forecasted cash flows, the effective portion of changes in fair value is temporarily reported in accumulated other comprehensive income and recognized in earnings when the hedged item affects earnings. These foreign exchange contracts have maturities over the next
3 months
.
The Company assesses effectiveness at the inception of the hedge and on a quarterly basis. These assessments determine whether derivatives designated as qualifying hedges continue to be highly effective in offsetting changes in the cash flows of hedged items. Any ineffective portion of change in fair value is not deferred in accumulated other comprehensive income and is included in current period results. For the three and nine months ended
March 31, 2016
and
2015
, the impact of hedge ineffectiveness on earnings was not significant. The Company will discontinue cash flow hedge accounting when the forecasted transaction is no longer probable of occurring on the originally forecasted date or when the hedge is no longer effective. There were no discontinued foreign exchange hedges for the three months ended
March 31, 2016
and
2015
.
14. COMMITMENTS AND CONTINGENCIES
On May 11, 2011, Rosminah Brown, on behalf of herself and all other similarly situated individuals, as well as a non-profit organization, filed a putative class action in the Superior Court of California, Alameda County against the Company. The complaint alleged that the labels of certain Avalon Organics
®
brand and JASON
®
brand personal care products used prior to the Company’s implementation of ANSI/NSF-305 certification in mid-2011 violated certain California statutes. Defendants removed the case to the United States District Court for the Northern District of California. The action was consolidated with a subsequently-filed putative class action containing substantially identical allegations concerning only the JASON
®
brand personal care products. The
consolidated actions sought an award for damages, injunctive relief, costs, expenses and attorney’s fees. In July 2015, the Company reached an agreement in principle with the plaintiffs to settle the class action for
$7,500
in addition to the distribution of consumer coupons up to a value of
$2,000
. In connection with the proposed settlement, the Company recorded a charge of
$5,725
in the fourth quarter of fiscal 2015 (a separate charge of
$1,775
was recorded in prior years). The parties finalized the settlement and the court granted preliminary approval in October 2015. The court granted final approval of the settlement and issued a judgment dismissing the case on February 17, 2016.
The Company may be a party to a number of legal actions, proceedings, audits, tax audits, claims and disputes, arising in the ordinary course of business, including those with current and former customers over amounts owed. While any action, proceeding, audit or claim contains an element of uncertainty and may materially affect the Company’s cash flows and results of operations in a particular quarter or year, based on current facts and circumstances, the Company’s management believes that the outcome of such actions, proceedings, audits, claims and disputes will not have a material adverse effect on the Company’s business, prospects, results of operations, financial condition, cash flows or liquidity.
15. SEGMENT INFORMATION
The Company’s operations are managed in five operating segments: United States, United Kingdom, Hain Pure Protein, Canada and Europe. The United States, the United Kingdom and Hain Pure Protein are currently reportable segments, while Canada and Europe do not currently meet the quantitative thresholds for reporting and are therefore combined and reported as “Rest of World.”
Net sales and operating profit are the primary measures used by the Company’s Chief Operating Decision Maker (“CODM”) to evaluate segment operating performance and to decide how to allocate resources to segments. The CODM is the Company’s Chief Executive Officer. Expenses related to certain centralized administration functions that are not specifically related to an operating segment are included in “Corporate and other.” Corporate and other expenses are comprised mainly of the compensation and related expenses of certain of the Company’s senior executive officers and other selected employees who perform duties related to the entire enterprise, as well as expenses for certain professional fees, facilities, and other items which benefit the Company as a whole. Additionally, acquisition related expenses, restructuring, impairment and integration charges are included in “Corporate and other.” Expenses that are managed centrally but can be attributed to a segment, such as employee benefits and certain facility costs, are allocated based on reasonable allocation methods. Assets are reviewed by the CODM on a consolidated basis and are not reported by operating segment.
The following tables set forth financial information about each of the Company’s reportable segments. Transactions between reportable segments were insignificant for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net Sales:
|
|
|
|
|
|
|
|
United States
|
$
|
351,887
|
|
|
$
|
343,728
|
|
|
$
|
1,025,398
|
|
|
$
|
1,034,612
|
|
United Kingdom
|
208,391
|
|
|
178,068
|
|
|
567,971
|
|
|
551,144
|
|
Hain Pure Protein
|
113,643
|
|
|
83,192
|
|
|
379,336
|
|
|
240,078
|
|
Rest of World
|
75,941
|
|
|
57,751
|
|
|
216,934
|
|
|
164,545
|
|
|
$
|
749,862
|
|
|
$
|
662,739
|
|
|
$
|
2,189,639
|
|
|
$
|
1,990,379
|
|
|
|
|
|
|
|
|
|
Operating Income:
|
|
|
|
|
|
|
|
United States
|
$
|
54,546
|
|
|
$
|
55,851
|
|
|
$
|
149,233
|
|
|
$
|
141,031
|
|
United Kingdom
|
16,217
|
|
|
11,760
|
|
|
45,189
|
|
|
29,618
|
|
Hain Pure Protein
|
4,613
|
|
|
4,970
|
|
|
33,009
|
|
|
16,505
|
|
Rest of World
|
6,198
|
|
|
4,412
|
|
|
12,981
|
|
|
10,660
|
|
|
$
|
81,574
|
|
|
$
|
76,993
|
|
|
$
|
240,412
|
|
|
$
|
197,814
|
|
Corporate and other
(1)
|
(12,567
|
)
|
|
(16,799
|
)
|
|
(26,215
|
)
|
|
(34,781
|
)
|
|
$
|
69,007
|
|
|
$
|
60,194
|
|
|
$
|
214,197
|
|
|
$
|
163,033
|
|
|
|
(1)
|
Includes
$5,227
and
$4,263
of acquisition related expenses, restructuring and integration charges for the three months ended
March 31, 2016
and
2015
, respectively. Such expenses for the nine months ended
March 31, 2016
and
2015
were
$9,818
and
$5,925
, respectively. A non-cash impairment charge of
$5,510
for the three and nine months ended
March 31, 2015
related to a United Kingdom indefinite-lived intangible asset is also included in Corporate and other.
|
The Company’s long-lived assets, which primarily represent net property, plant and equipment, by geographic area are as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
June 30,
2015
|
United States
|
$
|
182,155
|
|
|
$
|
151,450
|
|
Canada
|
10,655
|
|
|
11,386
|
|
United Kingdom
|
210,676
|
|
|
195,131
|
|
Europe
|
42,233
|
|
|
22,451
|
|
|
$
|
445,719
|
|
|
$
|
380,418
|
|