NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except par values and per share data)
1. BUSINESS
The Hain Celestial Group, Inc., a Delaware corporation (collectively, along with its subsidiaries, the “Company,” and herein referred to as “Hain Celestial,” “we,” “us” and “our”), was founded in 1993 and is headquartered in Lake Success, New York. The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet — To Create and Inspire A Healthier Way of LifeTM and be the leading marketer, manufacturer and seller of organic and natural products by anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience. The Company is committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 75 countries worldwide.
The Company manufactures, markets, distributes and sells organic and natural products under brand names, with many recognized brands in the various market categories it serves, including Celestial Seasonings®, Clarks™, Cully & Sully®, Dream®, Earth’s Best®, Ella’s Kitchen®, Farmhouse Fare™, Frank Cooper’s®, GG UniqueFiber®, Gale’s®, Garden of Eatin’®, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, Joya®, Lima®, Linda McCartney's®™ (under license), MaraNatha®, Natumi®, New Covent Garden Soup Co.®, Robertson’s®, Sensible Portions®, Spectrum®, Sun-Pat®, Terra®, The Greek Gods®, William’s™, Yorkshire Provender® and Yves Veggie Cuisine®. The Company’s personal care products are marketed under the Alba Botanica®, Avalon Organics®, Earth’s Best®, JASON®, Live Clean®, One Step® and Queen Helene® brands.
The Company continues to execute the four key pillars of its strategy to: (1) simplify its portfolio; (2) strengthen its capabilities; (3) expand profit margins and cash flow; and (4) reinvigorate profitable topline growth. The Company has executed this strategy, with a focus on discontinuing uneconomic investment, realigning resources to coincide with brand importance, reducing unproductive stock-keeping units (“SKUs”) and brands and reassessing current pricing architecture. As part of this initiative, the Company reviewed its product portfolio within North America and divided it into “Get Bigger” and “Get Better” brand categories.
•The Company’s “Get Bigger” brands represent its strongest brands with higher margins, which compete in categories with strong growth potential. The Company has concentrated its investment in marketing, innovation and other resources to prioritize spending for these brands, in an effort to reinvigorate profitable topline growth, optimize assortment and increase share of distribution.
•The Company’s “Get Better” brands are the brands in which the Company is primarily focused on simplification and expansion of profit margin. Some of these brands have historically been low margin, non-strategic brands that added complexity with minimal benefit to the Company’s operations.
In addition, as part of the Company’s overall strategy, the Company may seek to dispose of businesses and brands that are less profitable or are otherwise less of a strategic fit within its core portfolio. During fiscal 2019, for example, the Company divested its Hain Pure Protein reportable segment and its WestSoy® tofu, seitan and tempeh businesses. In fiscal 2020, the Company divested its Tilda business and its Arrowhead Mills®, SunSpire®, Europe's Best®, Casbah®, Rudi’s Gluten-Free Bakery™, Rudi’s Organic Bakery® and Fountain of Truth™ brands. During the first quarter of fiscal 2021, the Company divested its Danival® business. Additionally, in January 2021, subsequent to the end of second quarter of fiscal 2021, the Company completed the sale of its U.K. fruit business, primarily consisting of the Orchard House® Foods Limited business and associated brands. Assets and liabilities of this business are classified as held for sale in the Company's Consolidated Balance Sheet as of December 31, 2020. See Note 4, Assets Held for Sale and Discontinued Operations, for additional information.
Productivity and Transformation Costs
In fiscal 2019, the Company announced a strategy that includes as one of its key pillars identifying areas of cost savings and operating efficiencies to expand profit margins and cash flow. As part of this overall strategy and the key pillar of realizing savings and efficiencies, during fiscal 2020, the Company began the integration of its United States and Canada operations in alignment with the North America reportable segment structure. In addition, during fiscal 2021, the Company initiated cost reduction programs for its international businesses in the United Kingdom and Europe. The Company will carry out additional productivity initiatives under this strategy in fiscal 2021.
Productivity and transformation costs include costs, such as consulting and severance costs, relating to streamlining the Company’s manufacturing plants, co-packers and supply chain, eliminating served categories or brands within those categories, and product rationalization initiatives which are aimed at eliminating slow moving SKUs.
Discontinued Operations
On August 27, 2019, the Company and Ebro Foods S.A. entered into, and consummated the transactions contemplated by, an agreement relating to the sale and purchase of the Tilda Group Entities and certain other assets.
On February 15, 2019, the Company completed the sale of substantially all of the assets used primarily for the Plainville Farms business, a component of the Company’s Hain Pure Protein Corporation (“HPPC”) operating segment. On June 28, 2019, the Company completed the sale of the remainder of HPPC and Empire Kosher which included the FreeBird and Empire Kosher businesses. These dispositions were undertaken to reduce complexity in the Company’s operations and simplify the Company’s brand portfolio, in addition to allowing additional flexibility to focus on opportunities for growth and innovation in the Company’s more profitable and faster growing core businesses. Collectively, these dispositions were reported in the aggregate as the Hain Pure Protein reportable segment.
These dispositions represented strategic shifts that had a major impact on the Company’s operations and financial results, and therefore, the Company is presenting the operating results and cash flows of the Tilda operating segment and the Hain Pure Protein reportable segment within discontinued operations in the current and prior periods. See Note 4, Assets Held for Sale and Discontinued Operations, for additional information.
2. BASIS OF PRESENTATION
The Company’s unaudited 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 exerts significant influence, but which it does not control, are accounted for under the equity method of accounting. As such, consolidated net loss includes the Company's equity in the current earnings or losses of such companies.
The Company's unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP and should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2020 (the “Form 10-K”). The amounts as of and for the periods ended June 30, 2020 are derived from the Company’s audited annual financial statements. The unaudited consolidated financial statements reflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair presentation for interim periods. Operating results for the six months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021. Please refer to the Notes to the Consolidated Financial Statements as of June 30, 2020 and for the fiscal year then ended included in the Form 10-K for information not included in these condensed notes.
All amounts in the unaudited consolidated financial statements, notes and tables have been rounded to the nearest thousand, except par values and per share amounts, unless otherwise indicated.
Reclassifications
Certain prior year amounts have been reclassified to conform with current year presentation.
Significant Accounting Policies
The Company's significant accounting policies are described in Note 2, Summary of Significant Accounting Policies and Practices, in the Notes to the Consolidated Financial Statements in the Form 10-K. Included herein are certain updates to those policies.
Valuation of Accounts Receivable
The Company 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 Accounting Standards Codification ("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.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("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. The Company is currently assessing the impact that this standard 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. This ASU will not affect the Company's results of operations, cash flows or financial position. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
3. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net income (loss) per share:
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Three Months Ended December 31,
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Six Months Ended December 31,
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2020
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2019
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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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2,151
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$
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1,852
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$
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(8,630)
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$
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(3,101)
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Net (loss) income from discontinued operations
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(11)
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(2,816)
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11,255
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(104,884)
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Net income (loss)
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$
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2,140
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$
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(964)
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$
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2,625
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$
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(107,985)
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Denominator:
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Basic weighted average shares outstanding
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100,117
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104,318
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100,837
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104,272
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Effect of dilutive stock options, unvested restricted stock and unvested restricted share units
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445
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301
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—
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—
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Diluted weighted average shares outstanding
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100,562
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104,619
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100,837
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104,272
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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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0.02
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$
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0.02
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$
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(0.09)
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$
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(0.03)
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Discontinued operations
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—
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(0.03)
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0.11
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(1.01)
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Basic net income (loss) per common share
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$
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0.02
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$
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(0.01)
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$
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0.02
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$
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(1.04)
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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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0.02
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$
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0.02
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$
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(0.09)
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$
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(0.03)
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Discontinued operations
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—
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(0.03)
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0.11
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(1.01)
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Diluted net income (loss) per common share
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$
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0.02
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$
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(0.01)
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$
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0.02
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$
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(1.04)
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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 the net loss from continuing operations in the six months ended December 31, 2020 and 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 common share because the effect would have been anti-dilutive to the computations in the period.
There were 211 and 485 restricted stock awards and stock options excluded from our calculation of diluted net income (loss) per share for the three months ended December 31, 2020 and 2019, respectively, as such awards were anti-dilutive. Additionally, there were 1,419 and 2,550 stock-based awards excluded for the three months ended December 31, 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.
There were 709 and 689 restricted stock awards and stock options excluded from the calculation of diluted net income (loss) per share for the six months ended December 31, 2020 and December 31, 2019, respectively, as such awards were anti-dilutive. Additionally, there were 1,429 and 2,745 stock-based awards excluded for the six months ended December 31, 2020 and December 31, 2019, respectively, as such awards were contingently issuable based on market or performance conditions, and such conditions had not been achieved during the respective periods.
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 six months ended December 31, 2020, the Company repurchased 2,204 shares under the repurchase program for a total of
$71,693, excluding commissions, at an average price of $32.53 per share. As of December 31, 2020, the Company had $118,136 of remaining authorization under the share repurchase program.
4. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
Assets Held for Sale
Fruit
In August 2020, the Company’s Board of Directors approved a plan to sell the operations of 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. Fruit operated out of the United Kingdom and was part of the Company's International reportable segment, comprising 6.8% and 9.7% of the Company's net sales during the six months ended December 31, 2020 and 2019, 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 for the three and six months ended December 31, 2020 of $23,596 and $56,093, respectively, to reduce the carrying value to its estimated fair value, less costs to sell. The sale of the Fruit business was completed on January 13, 2021, as disclosed in Note 20, Subsequent Event.
The assets and liabilities of the Fruit business classified as held for sale in the Company's Consolidated Balance Sheets consisted of the following:
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December 31,
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2020
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ASSETS
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Cash and cash equivalents
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$
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13,808
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Accounts receivable, less allowance for doubtful accounts
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8,574
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Inventories
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5,014
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Prepaid expenses and other current assets
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2,743
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Property, plant and equipment, net
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24,971
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Goodwill
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14,323
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Other intangible assets, net
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36,074
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Operating lease right-of-use assets
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5,607
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Allowance for reduction of assets held for sale
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(58,286)
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Assets held for sale
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$
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52,828
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LIABILITIES
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Accounts payable
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$
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10,373
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Accrued expenses and other current liabilities
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4,569
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Operating lease liabilities
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5,311
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Deferred tax liabilities
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7,278
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Other liabilities
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1,761
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Liabilities related to assets held for sale
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$
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29,292
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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 Form 10-K 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 quarter ended September 30, 2020.
Discontinued Operations
Sale of Tilda Business
On August 27, 2019, the Company sold the entities comprising its Tilda operating segment (the “Tilda Group Entities”) and certain other assets of the Tilda business to the Purchaser for an aggregate price of $342,000 in cash, subject to customary post-closing adjustments based on the balance sheets of the Tilda business. The other assets sold in the transaction consisted of raw materials, consumables, packaging, and finished and unfinished goods related to the Tilda business held by other Company entities that are not Tilda Group Entities. In January 2020, the Company and the Purchaser agreed to fully resolve all matters relating to post-closing adjustments to the sale price, resulting in a final aggregate sale price of $341,800. The Company used the proceeds from the sale to pay down the remaining outstanding borrowings under its term loan and a portion of its revolving credit facility.
The Company also entered into certain ancillary agreements with Ebro Foods S.A. (the "Purchaser") and certain of the Tilda Group Entities in connection with the Sale and Purchase Agreement, including a transitional services agreement (the "TSA") pursuant to which the Company and the Purchaser provided transitional services to one another, and business transfer agreements pursuant to which the applicable Tilda Group Entities transferred certain non-Tilda assets and liabilities in India and the United Arab Emirates to subsidiaries of the Company to be formed in those countries. Additionally, the Company distributed certain Tilda products in the United States, Canada and Europe through the expiration of the TSA, which expired during the second quarter of fiscal 2020.
The disposition of the Tilda operating segment represented a strategic shift that had a major impact on the Company’s operations and financial results and has been accounted for as discontinued operations.
The following table presents the major classes of Tilda’s results within “Net (loss) income from discontinued operations, net of tax” in the Consolidated Statements of Operations:
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Three Months Ended December 31,
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Six Months Ended December 31,
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2020
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2019
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2020
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2019
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Net sales
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$
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—
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|
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$
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2,667
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$
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—
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$
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30,399
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Cost of sales
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—
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2,496
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—
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26,648
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Gross profit
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—
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|
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171
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|
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—
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|
|
3,751
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Selling, general and administrative expense
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—
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|
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246
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|
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—
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|
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5,185
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Other expense
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—
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824
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|
75
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1,172
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Interest expense(1)
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—
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—
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—
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2,432
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Translation loss(2)
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—
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—
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—
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95,120
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Gain on sale of discontinued operations
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—
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3,752
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—
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(10,170)
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Net loss from discontinued operations before income taxes
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—
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|
|
(4,651)
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|
(75)
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|
|
(89,988)
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Provision (benefit) for income taxes(3)
|
11
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|
|
(1,835)
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|
|
(11,320)
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|
|
13,865
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Net (loss) income from discontinued operations, net of tax
|
$
|
(11)
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|
|
$
|
(2,816)
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|
|
$
|
11,245
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|
|
$
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(103,853)
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|
(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 $11,331 of tax benefit related to the legal entity reorganization for the six months ended December 31, 2020, as well as a tax benefit related to the gain on the sale of Tilda of $1,250 and $15,250 for the three and six months ended December 31, 2019.
There were no assets or liabilities from discontinued operations associated with Tilda as of December 31, 2020 or 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 operating segment, which included the Plainville Farms and FreeBird businesses, and the EK Holdings, Inc. (“Empire Kosher” or “Empire”) operating segment, which were reported in the aggregate as the Hain Pure Protein reportable segment. Collectively, these dispositions represented a strategic shift that had a major impact on the Company’s operations and financial results and have been accounted for as discontinued operations.
The Company is presenting the operating results and cash flows of Hain Pure Protein within discontinued operations in the current and prior periods.
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 provided for the issuance by the Company of an irrevocable stand-by letter of credit (the “Letter of Credit”) of $10,000 which expired nineteen months after issuance, during the first quarter of fiscal 2021. The Company was 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 December 31, 2020, the Company had not recorded an asset associated with the earnout.
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 estimated customary adjustments based on the closing balance sheet of HPPC, was $77,714. The Company used the proceeds from the sale to pay down a portion of its outstanding borrowings under its term loan. The following table presents the major classes of Hain Pure Protein’s results within “Net loss (income) from discontinued operations, net of tax” in the Consolidated Statements of Operations:
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Three Months Ended December 31,
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Six Months Ended December 31,
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2020
|
|
2019
|
2020
|
|
2019
|
Net sales
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost of sales
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Gross profit (loss)
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Selling, general and administrative expense
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Asset impairments
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Other expense (income)
|
—
|
|
|
—
|
|
(10)
|
|
|
—
|
|
Loss on sale of discontinued operations(1)
|
—
|
|
|
—
|
|
—
|
|
|
1,424
|
|
Net income (loss) from discontinued operations before income taxes
|
—
|
|
|
—
|
|
10
|
|
|
(1,424)
|
|
Benefit for income taxes
|
—
|
|
|
—
|
|
—
|
|
|
(393)
|
|
Net income (loss) from discontinued operations, net of tax
|
$
|
—
|
|
|
$
|
—
|
|
$
|
10
|
|
|
$
|
(1,031)
|
|
(1) Primarily relates to preliminary closing balance sheet adjustments.
There were no assets or liabilities from discontinued operations associated with Hain Pure Protein at December 31, 2020 or June 30, 2020.
5. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
June 30,
2020
|
Finished goods
|
$
|
205,003
|
|
|
$
|
158,162
|
|
Raw materials, work-in-progress and packaging
|
106,985
|
|
|
90,008
|
|
|
$
|
311,988
|
|
|
$
|
248,170
|
|
At each period end, inventory is reviewed to ensure that it is recorded at the lower of cost or net realizable value. During the six months ended December 31, 2020 and the fiscal year ended June 30, 2020, the Company recorded inventory write-downs of $311 and $4,175, respectively, primarily related to the discontinuance of slow moving SKUs as part of product rationalization initiatives.
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
June 30,
2020
|
Land
|
$
|
14,575
|
|
|
$
|
13,866
|
|
Buildings and improvements
|
72,034
|
|
|
74,325
|
|
Machinery and equipment
|
297,737
|
|
|
288,466
|
|
Computer hardware and software
|
60,841
|
|
|
60,391
|
|
Furniture and fixtures
|
22,902
|
|
|
20,044
|
|
Leasehold improvements
|
38,761
|
|
|
40,876
|
|
Construction in progress
|
32,171
|
|
|
16,489
|
|
|
539,021
|
|
|
514,457
|
|
Less: accumulated depreciation and amortization
|
243,008
|
|
|
225,201
|
|
|
$
|
296,013
|
|
|
$
|
289,256
|
|
Depreciation and amortization expense for the three months ended December 31, 2020 and 2019 was $7,481 and $8,024, respectively. Depreciation and amortization expense for the six months ended December 31, 2020 and 2019 was $17,184 and $15,729, respectively.
As of December 31, 2020, the Company reclassified $24,971 of Property, plant and equipment, net to Assets held for sale as part of the held for sale accounting related to the Company's Fruit business (see Note 4, Assets Held for Sale and Discontinued Operations, for more information related to the held for sale assets). There was an impairment charge of $1,333 recorded during the three and six months ended December 31, 2020 and no impairment charge recorded during the six months ended December 31, 2019.
7. 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.
Some 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 three and six months ended December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2020
|
|
December 31, 2019
|
Operating lease expenses
|
$
|
4,205
|
|
|
$
|
4,800
|
|
|
$
|
8,161
|
|
|
$
|
9,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease expenses
|
61
|
|
|
188
|
|
|
246
|
|
|
489
|
|
Variable lease expenses
|
91
|
|
|
381
|
|
|
957
|
|
|
1,240
|
|
Short-term lease expenses
|
687
|
|
|
419
|
|
|
1,243
|
|
|
859
|
|
Total lease expenses
|
$
|
5,044
|
|
|
$
|
5,788
|
|
|
$
|
10,607
|
|
|
$
|
12,077
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
Classification
|
|
December 31, 2020
|
|
June 30, 2020
|
Assets
|
|
|
|
|
|
|
Operating lease ROU assets, net
|
|
Operating lease right-of-use assets
|
|
$
|
89,971
|
|
|
$
|
88,165
|
|
Operating lease ROU assets, net
|
|
Assets held for sale
|
|
5,607
|
|
—
|
|
Finance lease ROU assets, net
|
|
Property, plant and equipment, net
|
|
386
|
|
691
|
|
Finance lease ROU assets, net
|
|
Assets held for sale
|
|
356
|
|
—
|
|
Total leased assets
|
|
|
|
$
|
96,320
|
|
|
$
|
88,856
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Operating
|
|
Accrued expenses and other current liabilities
|
|
$
|
11,584
|
|
|
$
|
12,338
|
|
Operating
|
|
Liabilities related to assets held for sale
|
|
5,311
|
|
|
—
|
|
Finance
|
|
Current portion of long-term debt
|
|
239
|
|
|
308
|
|
Finance
|
|
Liabilities related to assets held for sale
|
|
296
|
|
|
—
|
|
Non-current
|
|
|
|
|
|
|
Operating
|
|
Operating lease liabilities, noncurrent portion
|
|
83,268
|
|
|
82,962
|
|
Finance
|
|
Long-term debt, less current portion
|
|
162
|
|
|
316
|
|
Total lease liabilities
|
|
|
|
$
|
100,860
|
|
|
$
|
95,924
|
|
Additional information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
Supplemental cash flow information
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
$
|
8,569
|
|
|
$
|
8,113
|
|
Operating cash flows from finance leases
|
$
|
6
|
|
|
$
|
12
|
|
Financing cash flows from finance leases
|
$
|
201
|
|
|
$
|
244
|
|
ROU assets obtained in exchange for lease obligations (a):
|
|
|
|
Operating leases
|
$
|
12,745
|
|
|
$
|
92,640
|
|
Finance leases
|
$
|
371
|
|
|
$
|
1,131
|
|
Weighted average remaining lease term:
|
|
|
|
Operating leases
|
10.0 years
|
|
8.6 years
|
Finance leases
|
1.8 years
|
|
2.4 years
|
Weighted average discount rate:
|
|
|
|
Operating leases
|
3.1
|
%
|
|
2.7
|
%
|
Finance leases
|
2.4
|
%
|
|
3.1
|
%
|
(a) ROU assets obtained in exchange for lease obligations includes leases which commenced, were modified or terminated. The balance as of December 31, 2019 also included $87,414 relating to the impact of the adoption of ASU 2016-02 effective July 1, 2019.
Maturities of lease liabilities as of December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
Operating leases
|
|
Finance leases
|
|
Total
|
2021 (remainder of year)
|
$
|
7,471
|
|
|
$
|
222
|
|
|
$
|
7,693
|
|
2022
|
15,054
|
|
|
377
|
|
|
15,431
|
|
2023
|
14,139
|
|
|
113
|
|
|
14,252
|
|
2024
|
12,129
|
|
|
—
|
|
|
12,129
|
|
2025
|
10,823
|
|
|
—
|
|
|
10,823
|
|
Thereafter
|
59,500
|
|
|
—
|
|
|
59,500
|
|
Total lease payments
|
119,116
|
|
|
712
|
|
|
119,828
|
|
Less: Imputed interest
|
18,953
|
|
|
15
|
|
|
18,968
|
|
Total lease liabilities
|
$
|
100,163
|
|
|
$
|
697
|
|
|
$
|
100,860
|
|
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
|
|
At December 31, 2020, the Company had an operating lease that had not yet commenced. Obligations under this lease are approximately $6,095, and the lease is expected to commence during the fiscal year ending June 30, 2021 with a lease term of 10 years, excluding renewal options.
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table provides the changes in the carrying value of goodwill by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
International
|
|
Total
|
Balance as of June 30, 2020 (a)
|
$
|
606,055
|
|
|
$
|
255,903
|
|
|
$
|
861,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of goodwill to Assets held for sale
|
—
|
|
|
(14,323)
|
|
|
(14,323)
|
|
|
|
|
|
|
|
Translation and other adjustments, net
|
2,150
|
|
|
27,208
|
|
|
29,358
|
|
Balance as of December 31, 2020 (a)
|
$
|
608,205
|
|
|
$
|
268,788
|
|
|
$
|
876,993
|
|
|
|
|
|
|
|
(a) The total carrying value of goodwill is reflected net of $134,277 of accumulated impairment charges, of which $97,358 related to the Company’s United Kingdom operating segment, $29,219 related to the Company’s Europe operating segment and $7,700 related to the Company’s former Hain Ventures operating segment, whose goodwill and accumulated impairment charges were reallocated within the North America reportable segment to the United States and Canada operating segments on a relative fair value basis.
As of September 30 and December 31, 2020, operations of the United Kingdom Fruit business, a part of the International reportable segment, were classified as held for sale and therefore, goodwill associated with Fruit was reclassified to Assets held for sale within the Consolidated Balance Sheet as of December 31, 2020. See Note 4, Assets Held for Sale and Discontinued Operations, for more information. The Fruit business was a component of the Company's Hain Daniels reporting unit prior to being classified as held for sale. The decision to sell the business was a triggering event requiring an interim goodwill impairment test for the Hain Daniels reporting unit. No impairment was recorded during the six months ended December 31, 2020.
Other Intangible Assets
The following table includes the gross carrying amount and accumulated amortization, where applicable, for intangible assets, excluding goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
June 30,
2020
|
Non-amortized intangible assets:
|
|
|
|
Trademarks and tradenames (a)
|
$
|
280,385
|
|
|
$
|
278,103
|
|
Amortized intangible assets:
|
|
|
|
Other intangibles
|
155,146
|
|
|
184,854
|
|
Less: accumulated amortization
|
(109,259)
|
|
|
(116,495)
|
|
Net carrying amount
|
$
|
326,272
|
|
|
$
|
346,462
|
|
(a) The gross carrying value of trademarks and tradenames is reflected net of $93,273 of accumulated impairment charges as of both December 31, 2020 and June 30, 2020.
There were no events or circumstances that warranted an interim impairment test for indefinite-lived intangible assets during the six months ended December 31, 2020 or 2019.
As of September 30 and December 31, 2020, $36,074 of customer relationship assets, net, and $1,230 of tradenames, were reclassified to Assets held for sale in relation to the held for sale classification of the Fruit business.
During the six months ended December 31, 2020, the Company reclassified certain of its indefinite-lived intangible assets consisting of trademarks and tradenames to definite-lived intangible assets and began amortization of these assets. The annualized amortization expense of these assets is $914 and will amortize over an estimated useful life of 10 years.
Amortized intangible assets, which are deemed to have a finite life, primarily consist of customer relationships and trademarks and tradenames and are amortized over their estimated useful lives of 3 to 25 years. Amortization expense included in continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Amortization of acquired intangibles
|
$
|
2,193
|
|
|
$
|
3,189
|
|
|
$
|
4,626
|
|
|
$
|
6,272
|
|
9. DEBT AND BORROWINGS
Debt and borrowings consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
June 30,
2020
|
Revolving credit facility
|
$
|
293,000
|
|
|
$
|
280,000
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
1,231
|
|
|
2,774
|
|
|
294,231
|
|
|
282,774
|
|
Short-term borrowings and current portion of long-term debt
|
899
|
|
|
1,656
|
|
Long-term debt, less current portion
|
$
|
293,332
|
|
|
$
|
281,118
|
|
Credit Agreement
On February 6, 2018, the Company entered into the Third Amended and Restated Credit Agreement (as amended, the “Credit Agreement”). The Credit Agreement provides for a $1,000,000 revolving credit facility through February 6, 2023 and provided for a $300,000 term loan. Under the Credit Agreement, the revolving credit facility may be increased by an additional uncommitted $400,000, provided certain conditions are met.
Borrowings under the Credit Agreement may be used to provide working capital, finance capital expenditures and permitted acquisitions, refinance certain existing indebtedness and for other lawful corporate purposes. The Credit Agreement provides for multicurrency borrowings in Euros, Pounds Sterling and Canadian dollars as well as other currencies which may be designated. In addition, certain wholly-owned foreign subsidiaries of the Company may be designated as co-borrowers. The Credit Agreement contains restrictive covenants, which are usual and customary for facilities of its type, and include, with specified exceptions, limitations on the Company’s ability to engage in certain business activities, incur debt, have liens, make capital expenditures, pay dividends or make other distributions, enter into affiliate transactions, consolidate, merge or acquire or dispose of assets, and make certain investments, acquisitions and loans. The Credit Agreement also requires the Company to satisfy certain financial covenants. Obligations under the Credit Agreement are guaranteed by certain existing and future domestic subsidiaries of the Company. As of December 31, 2020, there were $293,000 of borrowings outstanding under the revolving credit facility and $6,394 letters of credit outstanding under the Credit Agreement. In the six months ended December 31, 2019, the Company used the proceeds from the sale of Tilda, net of transaction costs, to prepay the entire principal amount of term loan outstanding under its credit facility and to partially pay down its revolving credit facility. In connection with the prepayment, the Company wrote off unamortized deferred debt issuance costs of $973, recorded in Interest and other financing expense, net in the Consolidated Statements of Operations.
On May 8, 2019, the Company entered into the Third Amendment to the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), whereby, among other things, its allowable consolidated leverage ratio (as defined in the Credit Agreement) and interest coverage ratio (as defined in the Credit Agreement) were adjusted. The Company’s allowable consolidated leverage ratio is no more than 4.75 to 1.0 from March 31, 2019 to December 31, 2019, no more than 4.50 to 1.0 at March 31, 2020, no more than 4.0 to 1.0 at June 30, 2020 and no more than 3.75 to 1.0 on September 30, 2020 and thereafter. Additionally, the Company’s required consolidated interest coverage ratio is no less than 3.0 to 1 through March 31, 2020, no less than 3.75 to 1 through March 31, 2021 and no less than 4.0 to 1 thereafter.
The Amended Credit Agreement also required that the Company and the subsidiary guarantors enter into a Security and Pledge Agreement pursuant to which all of the obligations under the Amended Credit Agreement are secured by liens on assets of the Company and its material domestic subsidiaries, including stock of each of their direct subsidiaries and intellectual property, subject to agreed upon exceptions.
As of December 31, 2020, $700,606 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 0.875% to 2.50% per annum; or (b) the Base Rate, as defined in the Credit Agreement, plus a rate ranging from 0.00% to 1.50% per annum, the relevant rate being the Applicable Rate. The Applicable Rate will be determined in accordance with a leverage-based pricing grid, as set forth in the Amended Credit Agreement. Swing Line loans and Global Swing Line loans denominated in U.S. dollars will bear interest at the Base Rate plus the Applicable Rate, and Global Swing Line loans denominated in foreign currencies shall bear interest based on the overnight Eurocurrency Rate for loans denominated in such currency plus the Applicable Rate. The weighted average interest rate on outstanding borrowings under the Amended Credit Agreement at December 31, 2020 was 1.40%. 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.
10. INCOME TAXES
In general, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability on 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 expense of 72.3% and 31.8% for the three months ended December 31, 2020 and 2019, respectively. The effective income tax rate from continuing operations was expense of 154.3% and 25.0% for the six months ended December 31, 2020 and 2019, respectively. The effective income tax rates from continuing operations for the period ended December 31, 2020 were impacted by various discrete items including the tax impact of the U.K. Fruit business impairment, the enacted change in the United Kingdom's corporate income tax rate to 19% and a legal entity reorganization completed during the quarter ended September 30, 2020. In addition, the effective income tax rates from continuing operations for the three and six months ended December 31, 2020 and 2019 were impacted by provisions in the Tax Cuts and Jobs Act (the "Tax Act"), primarily related to Global Intangible Low Taxed Income ("GILTI") and limitations on the deductibility of executive compensation. The effective income tax rates in each period were also impacted by the geographical mix of earnings and state valuation allowance.
In August 2020, the Company received $25,033 including $1,227 of interest from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") refund claim filed in July 2020. In December 2020, the Company received $28,784 including $90 of interest from the CARES Act refund claim filed in July 2020.
The income tax expense from discontinued operations was expense of $11 and a benefit of $11,320 for the three and six months ended December 31, 2020, respectively, while the income tax from discontinued operations was a benefit of $1,835 and expense of $13,472 for the three and six months ended December 31, 2019, respectively. The benefit for income tax for the six months ended December 31, 2020 was impacted by a legal entity reorganization allowing the Company to reduce the U.S. GILTI tax impact on the sale of the Tilda entities. The expense for income taxes for the six months ended December 31, 2019 was impacted by $15,250 of tax related to the tax gain on the sale of the Tilda entities.
11. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the changes in accumulated other comprehensive loss (AOCL):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications (1)
|
$
|
46,043
|
|
|
$
|
48,655
|
|
|
$
|
78,819
|
|
|
$
|
9,713
|
|
Amounts reclassified into income (2)
|
—
|
|
|
—
|
|
|
1,181
|
|
|
95,120
|
|
Deferred gains (losses) on cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (loss) gain recognized in AOCL on derivatives (3)
|
(906)
|
|
|
84
|
|
|
(1,789)
|
|
|
—
|
|
Amount of loss reclassified from AOCL into Expense (3)
|
986
|
|
|
(42)
|
|
|
1,909
|
|
|
(26)
|
|
Deferred gains (losses) on net investment hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (loss) gain recognized in AOCL on derivatives (3)
|
(2,980)
|
|
|
—
|
|
|
(5,870)
|
|
|
—
|
|
Amount of gain reclassified from AOCL into income (3)
|
(99)
|
|
|
—
|
|
|
(201)
|
|
|
—
|
|
Net change in accumulated other comprehensive loss
|
$
|
43,044
|
|
|
$
|
48,697
|
|
|
$
|
74,049
|
|
|
$
|
104,807
|
|
(1) Foreign currency translation adjustments included intra-entity foreign currency transactions that were of a long-term investment nature and were a net gain of $0 and $613 for the three months ended December 31, 2020 and 2019, respectively. Foreign currency translation adjustments included intra-entity foreign currency transactions that were of a long-term investment nature and were a net loss of $0 and $250 for the six months ended December 31, 2020 and 2019, respectively.
(2) Foreign currency translation gains or losses of foreign subsidiaries related to divested businesses are reclassified into income once the liquidation of the respective foreign subsidiaries is substantially complete. At the completion of the sale of Tilda, the Company reclassified $95,120 of translation losses from accumulated comprehensive loss to the Company’s results of discontinued operations.
(3) See Note 15, Derivatives and Hedging Activities, for the amounts reclassified into income for deferred gains (losses) on cash flow hedging instruments recorded in the Consolidated Statements of Operations in the three and six months ended December 31, 2020 and 2019.
12. 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 shares 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. The Company's plans are described in Note 15, Stock-Based Compensation and Incentive Performance Plans, in the Notes to the Consolidated Financial Statements in the Form 10-K.
Compensation cost and related income tax benefits recognized in the Consolidated Statements of Operations for stock-based compensation plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Selling, general and administrative expense
|
$
|
3,823
|
|
|
$
|
3,083
|
|
|
$
|
8,190
|
|
|
$
|
5,820
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
544
|
|
Total compensation cost recognized for stock-based compensation plans
|
$
|
3,823
|
|
|
$
|
3,083
|
|
|
$
|
8,190
|
|
|
$
|
6,364
|
|
Related income tax benefit
|
$
|
199
|
|
|
$
|
297
|
|
|
$
|
1,006
|
|
|
$
|
670
|
|
Restricted Stock
Awards of restricted stock are either restricted stock awards ("RSAs") or restricted stock units ("RSUs") that are issued at no cost to the recipient. Performance-based or market-based RSUs are issued in the form of performance share units ("PSUs"). A summary of the restricted stock activity (including all RSAs, RSUs and PSUs) for the six months ended December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
and Units
|
|
Weighted
Average Grant
Date Fair
Value (per share)
|
Non-vested RSAs, RSUs and PSUs outstanding at June 30, 2020
|
2,049
|
|
|
$
|
15.85
|
|
Granted
|
180
|
|
|
$
|
33.83
|
|
Vested
|
(206)
|
|
|
$
|
25.05
|
|
Forfeited
|
(62)
|
|
|
$
|
16.62
|
|
Non-vested RSAs, RSUs and PSUs outstanding at December 31, 2020
|
1,961
|
|
|
$
|
16.49
|
|
At December 31, 2020 and June 30, 2020, the table above includes a total of 1,407 and 1,384 shares (including an inducement grant of 350 shares made to the Company's CEO as previously disclosed), respectively, that represent the target number of shares that may be earned based on pre-defined market conditions that are eligible to vest ranging from zero to 300% of target. Vested shares during the current period include a total of 20 shares under the 2018-2020 LTIP that actually vested at 150% of target based on achievement of the maximum relative TSR target.
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31,
|
|
2020
|
|
2019
|
Fair value of RSAs, RSUs and PSUs granted
|
$
|
6,101
|
|
|
$
|
8,963
|
|
Fair value of shares vested
|
$
|
5,150
|
|
|
$
|
4,276
|
|
Tax benefit recognized from restricted shares vesting
|
$
|
939
|
|
|
$
|
(58)
|
|
At December 31, 2020, there was $16,107 of unrecognized stock-based compensation expense related to non-vested restricted stock awards which is expected to be recognized over a weighted average period of 2.3 years.
13. INVESTMENTS
On October 27, 2015, the Company acquired a minority equity interest in Chop’t Creative Salad Company LLC, predecessor to Chop't Holdings, LLC (“Chop’t”). Chop’t develops and operates fast-casual, fresh salad restaurants in the Northeast and Mid-Atlantic United States. The investment is being accounted for as an equity method investment due to the Company’s representation on the Board of Directors of Chop’t. At December 31, 2020 and June 30, 2020, the carrying value of the Company’s investment in Chop’t was $11,424 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, a joint venture with Hutchison China Meditech Ltd., accounted for under the equity method of accounting, (b) Hain Future Natural Products Private Ltd., a joint venture with Future Consumer Ltd, accounted for under the equity method of accounting, and (c) Yeo Hiap Seng Limited, in which the Company holds a less than 1% equity ownership interest. The carrying value of these combined investments was $5,502 and $4,646 as of December 31, 2020 and June 30, 2020, respectively, and is included in the Consolidated Balance Sheets as a component of Investments and joint ventures.
14. 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 assets and liabilities measured at fair value on a recurring basis as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
$
|
602
|
|
|
$
|
—
|
|
|
$
|
602
|
|
|
$
|
—
|
|
Equity investment
|
544
|
|
|
544
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
1,146
|
|
|
$
|
544
|
|
|
$
|
602
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative financial instruments
|
16,608
|
|
|
—
|
|
|
16,608
|
|
|
—
|
|
Total
|
$
|
16,608
|
|
|
$
|
—
|
|
|
$
|
16,608
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
The following table presents 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
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
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 six months ended December 31, 2020 or 2019.
The carrying amount of cash and cash equivalents, accounts receivable, net, accounts payable and certain accrued expenses and other current liabilities approximate fair value due to the short-term maturities of these financial instruments. The Company’s debt approximates fair value due to the debt bearing fluctuating market interest rates (see Note 9, Debt and Borrowings).
In addition to the instruments named above, the Company makes fair value measurements in connection with its assets and liabilities classified as held for sale, as these balances represent the estimated fair value, less costs to sell (See Note 4, Assets Held for Sale and Discontinued Operations). The Company also makes fair value measurements in connection with its interim and annual goodwill and tradename impairment testing. These measurements fall into Level 3 of the fair value hierarchy (See Note 8, Goodwill and Other Intangible Assets).
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, the Company incorporates 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 December 31, 2020 and June 30, 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 December 31, 2020 and June 30, 2020. These estimates are not necessarily indicative of the amounts we could ultimately realize.
15. DERIVATIVES AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks 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 the three and six months ended December 31, 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 AOCL and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in AOCL related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate debt. During the remaining six months of fiscal 2021, the Company estimates that an additional $159 will be reclassified as an increase to interest expense.
As of December 31, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
|
|
|
|
|
|
|
|
|
Interest Rate Derivative
|
Number of Instruments
|
Notional Amount
|
Interest Rate Swap
|
4
|
$230,000
|
Cash Flow Hedges of Foreign Exchange Risk
The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. Dollar. The Company uses foreign currency derivatives including cross-currency swaps to manage its exposure to fluctuations in the USD-EUR exchange rates. Cross-currency swaps involve exchanging fixed-rate interest payments for fixed-rate interest receipts, both of which will occur at the USD-EUR forward exchange rates in effect upon entering into the instrument. The Company, at times, 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 AOCL 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 the remaining six months of fiscal 2021, the Company estimates that an additional $73 relating to cross-currency swaps will be reclassified as an increase to interest income.
As of December 31, 2020, the Company had the following outstanding foreign currency derivatives that were used to hedge its foreign exchange risks:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Derivative
|
Number of Instruments
|
Notional Sold
|
Notional Purchased
|
Cross-currency swap
|
1
|
€24,700
|
$26,775
|
|
|
|
|
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 December 31, 2020, the Company had the following outstanding foreign currency derivatives that were used to hedge its net investments in foreign operations:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Derivative
|
Number of Instruments
|
Notional Sold
|
Notional Purchased
|
Cross-currency swap
|
2
|
€76,969
|
$83,225
|
Non-Designated Hedges
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.
As of December 31, 2020, the Company had outstanding derivatives that were not designated as hedges in qualifying hedging relationships consisting of foreign currency forward contracts with a notional amount of $37,375.
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 December 31, 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
|
|
$
|
603
|
|
Cross-currency swaps
|
Prepaid expenses and other current assets
|
|
602
|
|
|
Other noncurrent liabilities
|
|
15,481
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
602
|
|
|
|
|
16,084
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
Prepaid expenses and other current assets
|
|
—
|
|
|
Accrued expenses and other current liabilities
|
|
524
|
|
Total derivative instruments
|
|
|
$
|
602
|
|
|
|
|
$
|
16,608
|
|
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 the three months ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
Amount of Gain (Loss) Recognized in OCI on Derivatives
|
Location of Gain (Loss) Reclassified from AOCL into Income
|
Amount of Gain (Loss) Reclassified from AOCL into Income
|
|
Three Months Ended December 31,
|
|
Three Months Ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Interest rate swaps
|
$
|
62
|
|
|
$
|
—
|
|
Interest and other financing expense, net
|
$
|
(72)
|
|
|
$
|
—
|
|
Cross-currency swaps
|
(1,209)
|
|
|
—
|
|
Interest and other financing expense, net / Other expense (income), net
|
(1,176)
|
|
|
—
|
|
Foreign currency forward contracts
|
—
|
|
|
104
|
|
Cost of sales
|
—
|
|
|
(52)
|
|
Total
|
$
|
(1,147)
|
|
|
$
|
104
|
|
|
$
|
(1,248)
|
|
|
$
|
(52)
|
|
The following table presents the pre-tax effect of cash flow hedge accounting on AOCL as of the six months ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
Amount of Gain (Loss) Recognized in OCI on Derivatives
|
Location of Gain (Loss) Reclassified from AOCL into Income
|
Amount of Gain (Loss) Reclassified from AOCL into Income
|
|
Six Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Interest rate swaps
|
$
|
123
|
|
|
$
|
—
|
|
Interest and other financing expense, net
|
$
|
(130)
|
|
|
$
|
—
|
|
Cross-currency swaps
|
(2,386)
|
|
|
—
|
|
Interest and other financing expense, net / Other expense (income), net
|
(2,359)
|
|
|
—
|
|
Foreign currency forward contracts
|
(2)
|
|
|
(6)
|
|
Cost of sales
|
73
|
|
|
26
|
|
Total
|
$
|
(2,265)
|
|
|
$
|
(6)
|
|
|
$
|
(2,416)
|
|
|
$
|
26
|
|
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 for the three months ended of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss) Recognized in the Consolidated Statement of Operations on Cash Flow Hedging Relationships
|
|
|
|
|
Three Months Ended December 31, 2020
|
|
Three Months Ended December 31, 2019
|
|
|
|
|
Cost of sales
|
|
Interest and other financing expense, net
|
|
Other expense/income, net
|
|
Cost of sales
|
|
Interest and other financing expense, net
|
|
Other expense/income, net
|
The effects of cash flow hedging:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (loss) gain reclassified from AOCL into income
|
$
|
—
|
|
|
$
|
(72)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from AOCL into income
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
(1,216)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (loss) gain reclassified from AOCL into income
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(52)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 for the six months ended of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss) Recognized in the Consolidated Statement of Operations on Cash Flow Hedging Relationships
|
|
|
|
|
Six Months Ended December 31, 2020
|
|
Six Months Ended December 31, 2019
|
|
|
|
|
Cost of sales
|
|
Interest and other financing expense, net
|
|
Other expense (income), net
|
|
Cost of sales
|
|
Interest and other financing expense, net
|
|
Other expense (income), net
|
The effects of cash flow hedging:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (loss) gain reclassified from AOCL into income
|
$
|
—
|
|
|
$
|
(130)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from AOCL into income
|
$
|
—
|
|
|
$
|
81
|
|
|
$
|
(2,440)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (loss) gain reclassified from AOCL into income
|
$
|
73
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the pre-tax effect of the Company’s net investment hedges on AOCL and the Consolidated Statements of Operations for the three months ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Net Investment Hedging Relationships
|
Amount of Gain (Loss) Recognized in OCI on Derivatives
|
Location of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)
|
Amount of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)
|
|
Three Months Ended December 31,
|
|
Three Months Ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Cross-currency swaps
|
$
|
(3,772)
|
|
|
$
|
—
|
|
Interest and other financing expense, net
|
$
|
125
|
|
|
$
|
—
|
|
The following table presents the pre-tax effect of the Company’s net investment hedges on AOCL and the Consolidated Statements of Operations for the six months ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Net Investment Hedging Relationships
|
Amount of Gain (Loss) Recognized in OCI on Derivatives
|
Location of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)
|
Amount of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)
|
|
Six Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Cross-currency swaps
|
$
|
(7,430)
|
|
|
$
|
—
|
|
Interest and other financing expense, net
|
$
|
254
|
|
|
$
|
—
|
|
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 for the three months ended December 31, 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
|
|
|
Three Months Ended December 31,
|
|
|
2020
|
|
2019
|
Foreign currency forward contracts
|
Other (income) expense, net
|
$
|
(523)
|
|
|
$
|
(336)
|
|
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 for the six months ended December 31, 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
|
|
|
Six Months Ended December 31,
|
|
|
2020
|
|
2019
|
Foreign currency forward contracts
|
Other (income) expense, net
|
$
|
(399)
|
|
|
$
|
(505)
|
|
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.
16. TERMINATION BENEFITS RELATED TO PRODUCTIVITY AND TRANSFORMATION INITIATIVES
As a part of the ongoing productivity and transformation initiatives related to the Company’s strategic objective to expand profit margins and cash flow, the Company initiated a reduction in workforce at targeted locations in the United States as well as at certain locations internationally. The reduction in workforce associated with these initiatives are expected to result in charges throughout fiscal 2021.
The following table displays the termination benefits and personnel realignment activities and liability balances relating to the reduction in workforce for the period ended as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
|
Charges (reversals)
|
|
Amounts Paid
|
|
Foreign Currency Translation & Other Adjustments
|
|
Balance at December 31, 2020
|
Termination benefits and personnel realignment
|
$
|
11,541
|
|
|
$
|
2,456
|
|
|
$
|
(7,186)
|
|
|
$
|
62
|
|
|
$
|
6,873
|
|
The liability balance as of December 31, 2020 and June 30, 2020 is included within Accrued expenses and other current liabilities on the Company’s Consolidated Balance Sheets.
17. COMMITMENTS AND CONTINGENCIES
Securities Class Actions Filed in Federal Court
On August 17, 2016, three securities class action complaints were filed in the Eastern District of New York against the Company alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The three complaints are: (1) Flora v. The Hain Celestial Group, Inc., et al. (the “Flora Complaint”); (2) Lynn v. The Hain Celestial Group, Inc., et al. (the “Lynn Complaint”); and (3) Spadola v. The Hain Celestial Group, Inc., et al. (the “Spadola Complaint” and, together with the Flora and Lynn Complaints, the “Securities Complaints”). On June 5, 2017, the court issued an order for consolidation, appointment of Co-Lead Plaintiffs and approval of selection of co-lead counsel. Pursuant to this order, the Securities Complaints were consolidated under the caption In re The Hain Celestial Group, Inc. Securities Litigation (the “Consolidated Securities Action”), and Rosewood Funeral Home and Salamon Gimpel were appointed as Co-Lead Plaintiffs. On June 21, 2017, the Company received notice that plaintiff Spadola voluntarily dismissed his claims without prejudice to his ability to
participate in the Consolidated Securities Action as an absent class member. The Co-Lead Plaintiffs in the Consolidated Securities Action filed a Consolidated Amended Complaint on August 4, 2017 and a Corrected Consolidated Amended Complaint on September 7, 2017 on behalf of a purported class consisting of all persons who purchased or otherwise acquired Hain Celestial securities between November 5, 2013 and February 10, 2017 (the “Amended Complaint”). The Amended Complaint 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 has not yet been scheduled.
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. Plaintiffs and Defendants filed a joint status report on December 7, 2020 requesting that the Court enter an order staying any applicable deadlines until January 15, 2021 to allow for the production of certain materials by the Board of Directors for review by Plaintiffs. On January 15, 2021, Plaintiffs and Defendants filed a joint status report requesting that the Court enter an order extending the stay of any applicable deadlines to February 26, 2021, which the Court so-ordered.
Other
In addition to the litigation described above, the Company is and may be a defendant in lawsuits from time to time in the normal course of business. While the results of litigation and claims cannot be predicted with certainty, the Company believes the reasonably possible losses of such matters, individually and in the aggregate, are not material. Additionally, the Company believes the probable final outcome of such matters will not have a material adverse effect on the Company’s consolidated results of operations, financial position, cash flows or liquidity.
18. SEGMENT INFORMATION
In accordance with ASC 280, Segment Reporting, the Company, based on economic similarity, defines its operating segments as the following five segments: the United States, United Kingdom (Hain Daniels), Ella's Kitchen UK, Europe and Canada. Similarly, under the same guidance, the Company operates under two reportable segments: North America and International.
Net sales and operating income are the primary measures used by the Company’s chief operating decision maker ("CODM") to evaluate segment operating performance and to decide how to allocate resources to segments. The CODM is the Company’s CEO. Expenses related to certain centralized administration functions that are not specifically related to an operating segment are included in Corporate and Other. Corporate and Other expenses are comprised mainly of the compensation and related expenses of certain of the Company’s senior executive officers and other selected employees who perform duties related to the entire enterprise, as well as expenses for certain professional fees, facilities and other items which benefit the Company as a whole. Additionally, certain Productivity and transformation costs are included in Corporate and Other. Expenses that are managed centrally, but can be attributed to a segment, such as employee benefits and certain facility costs, are allocated based on reasonable allocation methods. 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.
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 December 31,
|
|
Six Months Ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net Sales:
|
|
|
|
|
|
|
|
North America
|
$
|
282,612
|
|
|
$
|
280,693
|
|
|
$
|
563,280
|
|
|
$
|
552,394
|
|
International
|
245,806
|
|
|
226,091
|
|
|
463,765
|
|
|
436,466
|
|
|
|
|
|
|
|
|
|
|
$
|
528,418
|
|
|
$
|
506,784
|
|
|
$
|
1,027,045
|
|
|
$
|
988,860
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
North America
|
$
|
32,440
|
|
|
$
|
20,062
|
|
|
$
|
65,696
|
|
|
$
|
35,194
|
|
International
|
(2,741)
|
|
|
12,899
|
|
|
(18,630)
|
|
|
22,006
|
|
|
29,699
|
|
|
32,961
|
|
|
47,066
|
|
|
57,200
|
|
Corporate and Other (a)
|
(16,742)
|
|
|
(23,770)
|
|
|
(30,829)
|
|
|
(45,554)
|
|
|
$
|
12,957
|
|
|
$
|
9,191
|
|
|
$
|
16,237
|
|
|
$
|
11,646
|
|
(a) In addition to general Corporate and Other expenses as described above, for the three months ended December 31, 2020, Corporate and Other included $2,735 of Productivity and transformation costs. For the three months ended December 31, 2019, Corporate and Other included $9,835 of Productivity and transformation costs and tradename impairment charges of $1,889 (related to North America).
For the six months ended December 31, 2020, Corporate and Other included $3,538 of Productivity and transformation costs. For the six months ended December 31, 2019, Corporate and Other included $20,570 of Productivity and transformation costs and tradename impairment charges of $1,889 (related to North America), partially offset by a benefit of $2,562 of proceeds from insurance claim.
The Company's net sales by product category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Grocery
|
$
|
364,689
|
|
|
$
|
357,972
|
|
|
$
|
708,437
|
|
|
$
|
707,774
|
|
|
|
|
|
|
|
|
|
Snacks
|
74,714
|
|
|
72,274
|
|
|
155,873
|
|
|
148,673
|
|
Personal Care
|
44,628
|
|
|
37,493
|
|
|
93,611
|
|
|
71,930
|
|
Tea
|
44,387
|
|
|
39,045
|
|
|
69,124
|
|
|
60,483
|
|
Total
|
$
|
528,418
|
|
|
$
|
506,784
|
|
|
$
|
1,027,045
|
|
|
$
|
988,860
|
|
The Company’s net sales by geographic region, which are generally based on the location of the Company’s subsidiaries, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
United States
|
$
|
244,344
|
|
|
$
|
242,891
|
|
|
$
|
484,060
|
|
|
$
|
479,225
|
|
United Kingdom
|
179,475
|
|
|
171,014
|
|
|
336,644
|
|
|
332,595
|
|
All Other
|
104,599
|
|
|
92,879
|
|
|
206,341
|
|
|
177,040
|
|
Total
|
$
|
528,418
|
|
|
$
|
506,784
|
|
|
$
|
1,027,045
|
|
|
$
|
988,860
|
|
The Company’s long-lived assets, which primarily represent net property, plant and equipment, operating lease right-of-use assets and noncurrent other assets by geographic area were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
June 30,
2020
|
United States
|
$
|
154,441
|
|
|
$
|
146,633
|
|
United Kingdom
|
167,262
|
|
|
149,943
|
|
All Other
|
113,001
|
|
|
105,303
|
|
Total
|
$
|
434,704
|
|
|
$
|
401,879
|
|
19. RELATED PARTY TRANSACTIONS
The non-employee chair of the Company's Board of Directors is also the chair of the board of one of the Company’s suppliers, for which the Company incurs expenses in the ordinary course of business. The Company incurred expenses of $4,366 and $5,430 in the three months ended December 31, 2020 and 2019, respectively, to the supplier and affiliated entities. For the six months ended December 31, 2020 and 2019, the Company incurred expenses of $9,156 and $10,593, respectively, to the supplier and affiliated entities.
A former member of the Company's Board of Directors is a partner in a law firm which provides legal services to the Company. The Company incurred expenses of $777 and $1,745 in the three months ended December 31, 2020 and 2019, respectively, and $1,216 and $2,488 in the six months ended December 31, 2020 and 2019, respectively, to the law firm and affiliated entities. The director resigned from the Board in February 2020.
20. SUBSEQUENT EVENT
On January 13, 2021, the Company completed the sale of the Fruit business. As of December 31, 2020, all assets and liabilities related to the Fruit business were classified as held for sale within the Company's Consolidated Balance Sheet. See Note 4, Discontinued Operations and Assets Held for Sale, for additional information.