UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
È Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 2020
or
‘ Transition Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
for the transition period from
to
.
Commission File No. 0-22818
THE HAIN CELESTIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1111 Marcus Avenue
Lake Success, New York
(Address of principal executive offices)
22-3240619
(I.R.S. Employer
Identification No.)
11042
(Zip Code)
Registrant’s telephone number, including area code: (516) 587-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.01 per share
Trading Symbol(s)
HAIN
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange on which registered
The NASDAQ Global Select Market
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files).
Yes È No ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer È
Non-accelerated filer ‘
‘
Accelerated filer
Smaller reporting company ‘
Emerging growth company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. È
Yes ‘ No È
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based upon the closing price of the
registrant’s common stock, as quoted on the NASDAQ Global Select Market on December 31, 2019, the last business day of the registrant’s most
recently completed second fiscal quarter, was $2,156,022,599.
As of August 18, 2020, there were 101,886,315 shares outstanding of the registrant’s Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of The Hain Celestial Group, Inc. Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated by reference
into Part III of this Annual Report on Form 10-K.
THE HAIN CELESTIAL GROUP, INC.
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Exhibit Index
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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Cautionary Note Regarding Forward Looking Information
This Annual Report on Form 10-K for the fiscal year ended June 30, 2020 (the “Form 10-K”) contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995, relating to our business and financial
outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections about future
events only as of the date of this Form 10-K, and are not statements of historical fact. We make such forward-looking
statements pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.
Many of our forward-looking statements include discussions of trends and anticipated developments under the “Risk Factors”
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this Form 10-K. In
some cases, you can identify forward-looking statements by terminology such as the use of “may,” “will,” “should,” “expects,”
“plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” and similar
expressions, or the negative of those expressions. These forward-looking statements include, among other things, our beliefs or
expectations relating to our business strategy, growth strategy, market price, brand portfolio and product performance, the
seasonality of our business and our results of operations and financial condition. These forward-looking statements are not
guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict.
Therefore, our actual outcomes and results may differ materially from those expressed in these forward-looking statements.
You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement
speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. We undertake no
obligation to further update any such statement, or the risk factors described in Item 1A under the heading “Risk Factors,” to
reflect new information, the occurrence of future events or circumstances or otherwise.
The forward-looking statements in this filing do not constitute guarantees or promises of future performance. Factors that could
cause or contribute to such differences may include, but are not limited to, challenges and uncertainty resulting from the
COVID-19 pandemic, the impact of competitive products and changes to the competitive environment, changes to consumer
preferences, general economic and financial market conditions,
the United Kingdom’s exit from the European Union,
consolidation of customers or the loss of a significant customer, reliance on independent distributors, risks associated with our
international sales and operations, our ability to manage our supply chain effectively, volatility in the cost of commodities,
ingredients, freight and fuel, our ability to implement cost reduction initiatives, the impact of our debt covenants, the potential
discontinuation of LIBOR, our ability to manage our financial reporting and internal control system processes, potential
liabilities due to legal claims, government investigations and other regulatory enforcement actions, costs incurred due to
pending and future litigation, potential liability, including in connection with indemnification obligations to our former officers
and members of our Board of Directors that may not be covered by insurance, potential liability if our products cause illness or
physical harm, impairments in the carrying value of goodwill or other intangible assets, our ability to consummate divestitures,
the availability of organic ingredients, disruption of operations at our manufacturing facilities, loss of one or more independent
co-packers, disruption of our transportation systems, risks relating to the protection of intellectual property, the risk of liabilities
and claims with respect to environmental matters, the reputation of our brands, our reliance on independent certification for a
number of our products and other risks described in Part I, Item 1A, “Risk Factors” as well as in other reports that we file in the
future.
3
PART I
THE HAIN CELESTIAL GROUP, INC.
Item 1.
Business
Overview
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. The
Company continues to be a leading marketer, manufacturer and seller of organic and natural, “better-for-you” products by
anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience. The Company is
committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing
processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores,
mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 75 countries
worldwide.
The Company manufactures, markets, distributes and sells organic and natural products under brand names that are sold as
“better-for-you” products, providing consumers with the opportunity to lead A Healthier Way of Life®. Hain Celestial is a
leader in many organic and natural product categories, with many recognized brands in the various market categories it serves,
including Celestial Seasonings®, Clarks™, Cully & Sully®, Dream®, Earth’s Best®, Ella’s Kitchen®, Farmhouse Fare™, Frank
Cooper’s®, GG UniqueFiber®, Gale’s®, Garden of Eatin’®, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, Joya®,
Lima®, Linda McCartney® (under license), MaraNatha®, Natumi®, New Covent Garden Soup Co.®, Orchard House®,
Robertson’s®, Sensible Portions®, Spectrum®, Sun-Pat®, Sunripe®, Terra®, The Greek Gods®, William’s™, Yorkshire
Provender® and Yves Veggie Cuisine®. The Company’s personal care products are marketed under the Alba Botanica®, Avalon
Organics®, Earth’s Best®, JASON®, Live Clean®, One Step® and Queen Helene® brands.
The Company continues to execute the four key pillars of its strategy to: (1) simplify its portfolio; (2) strengthen its capabilities;
(3) expand profit margins and cash flow; and (4) reinvigorate profitable topline growth. The Company has executed this
strategy, with a focus on discontinuing uneconomic investment, realigning resources to coincide with brand importance,
reducing unproductive stock-keeping units (“SKUs”) and brands and reassessing current pricing architecture. As part of this
initiative, the Company reviewed its product portfolio within North America and divided it into “Get Bigger” and “Get Better”
brand categories.
The Company’s “Get Bigger” brands represent its strongest brands with higher margins, which compete in categories with
strong growth potential. The Company has concentrated its investment in marketing, innovation and other resources to
prioritize spending for these brands, in an effort to reinvigorate profitable topline growth, optimize assortment and increase
share of distribution.
The Company’s “Get Better” brands are the brands in which the Company is primarily focused on simplification and expansion
of profit margin. Some of these brands have historically been low margin, non-strategic brands that added complexity with
minimal benefit to the Company’s operations.
During the fourth quarter of fiscal 2019, the Company initiated a SKU rationalization that included the elimination of
approximately 350 low velocity and low profitability SKUs. These SKU rationalizations are expected to result in expanded
future profits and a remaining set of core SKUs that will maintain their shelf space in the store.
In addition, as part of the Company’s overall strategy, the Company may seek to dispose of businesses and brands that are less
profitable or are otherwise less of a strategic fit within our core portfolio. During fiscal 2019, for example, the Company
divested its Hain Pure Protein reportable segment and its WestSoy® tofu, seitan and tempeh businesses. In fiscal 2020, the
Company divested its Tilda business and its Arrowhead Mills®, SunSpire®, Europe's Best®, Casbah®, Rudi’s Gluten-Free
Bakery™, Rudi’s Organic Bakery® and Fountain of Truth™ brands. More recently, the Company divested its Danival® business
in July 2020. See Note 25, Subsequent Events, in the Notes to Consolidated Financial Statements included in Item 8 of this
Form 10-K for further discussion.
Productivity and Transformation Costs
As part of the Company’s historical strategic review, it focused on a productivity initiative, which it called “Project Terra.” A
key component of this project was the identification of global cost savings and the removal of complexity from the business. In
fiscal 2019, the Company announced a strategy that includes as one of its key pillars identifying areas of cost savings and
4
operating efficiencies to expand profit margins and cash flow. As part of this overall strategy and the key pillar of realizing
savings and efficiencies, during fiscal 2020, the Company began the integration of its United States and Canada operations in
alignment with the North America reportable segment structure. The Company will carry out additional productivity initiatives
under this strategy in fiscal 2021.
Productivity and transformation costs include costs, such as consulting and severance costs, relating to streamlining the
Company’s manufacturing plants, co-packers and supply chain, eliminating served categories or brands within those categories,
and product rationalization initiatives which are aimed at eliminating slow moving SKUs.
Discontinued Operations
On August 27, 2019, the Company and Ebro Foods S.A. (the “Purchaser”) entered into, and consummated the transactions
contemplated by, an agreement relating to the sale and purchase of the Tilda Group Entities and certain other assets. The
Company sold the entities comprising its Tilda operating segment and certain other assets of the Tilda business to the Purchaser
for an aggregate price of $341.8 million.
On February 15, 2019, the Company completed the sale of substantially all of the assets used primarily for the Plainville Farms
business, a component of the Company’s Hain Pure Protein Corporation (“HPPC”) operating segment. On June 28, 2019, the
Company completed the sale of the remainder of HPPC and Empire Kosher which included the FreeBird and Empire Kosher
businesses. These dispositions were undertaken to reduce complexity in the Company’s operations and simplify the Company’s
brand portfolio, in addition to allowing additional flexibility to focus on opportunities for growth and innovation in the
Company’s more profitable and faster growing core businesses. Collectively, these dispositions were reported in the aggregate
as the Hain Pure Protein reportable segment.
These dispositions represented strategic shifts that had a major impact on the Company’s operations and financial results and
therefore, the Company is presenting the operating results and cash flows of the Tilda operating segment and the Hain Pure
Protein reportable segment within discontinued operations in the current and prior periods. The assets and liabilities of the Tilda
operating segment are presented as assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of
June 30, 2019. See Note 5, Discontinued Operations and Assets Held for Sale, in the Notes to Consolidated Financial
Statements included in Item 8 of this Form 10-K for additional information.
Former Chief Executive Officer Succession Plan
On June 24, 2018, the Company entered into a succession plan, whereby the Company’s former Chief Executive Officer
(“CEO”), Irwin D. Simon, agreed to terminate his employment with the Company upon the hiring of a new CEO. On October
26, 2018, the Company’s Board of Directors appointed Mark L. Schiller as President and CEO, succeeding Mr. Simon. In
connection with the appointment, on October 26, 2018, the Company and Mr. Schiller entered into an employment agreement,
which was approved by the Board, with Mr. Schiller’s employment commencing on November 5, 2018. Accordingly, Mr.
Simon’s employment with the Company terminated on November 4, 2018. See Note 3, Former Chief Executive Officer
Succession Plan, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional
information.
Change in Reportable Segments
Historically, the Company had three reportable segments: United States, United Kingdom and Rest of World. Effective July 1,
2019, the Company reassessed its segment reporting structure and as a result, the Canada and Hain Ventures operating
segments, which were included within the Rest of World reportable segment, were moved to the United States reportable
segment and renamed the North America reportable segment. Additionally, the Europe operating segment, which was included
in the Rest of World reportable segment, was combined with the United Kingdom reportable segment and renamed the
International reportable segment. Accordingly, the Company now operates under two reportable segments: North America and
International. Prior period segment information contained herein has been adjusted to reflect the Company’s new operating and
reporting structure. See Note 22, Segment Information, in the Notes to Consolidated Financial Statements included in Item 8 of
this Form 10-K for additional information.
Headcount
As of June 30, 2020, we employed a total of 4,287 full-time employees.
5
Products
During fiscal 2020, we primarily sold our organic, natural, and “better-for-you” products in the following categories: tea;
snacks; personal care; and grocery. We continuously evaluate our existing products for quality, taste, nutritional value and cost
and make improvements where possible. We discontinue products or SKUs when sales of those items do not warrant further
production. Our product categories consist of the following:
Tea
Under the Celestial Seasonings® brand, we currently offer more than 100 varieties of herbal, green, black, wellness, rooibos and
chai tea. Tea products accounted for approximately 6% of our consolidated net sales in fiscal 2020 and 5% in each of fiscal
2019 and 2018.
Snacks
Our snack products include a variety of potato, root vegetable and other exotic vegetable chips, straws, tortilla chips, whole
grain chips, pita chips and puffs. Snack products accounted for approximately 15% of our consolidated net sales in fiscal 2020,
14% in fiscal 2019 and 13% in fiscal 2018.
Personal Care
Our personal care products cover a variety of personal care categories including hand, skin, hair and oral care, deodorants, baby
care items, body washes, sunscreens and lotions. Personal care products accounted for approximately 10% of our consolidated
net sales in each of fiscal 2020, 2019 and 2018.
Grocery
Grocery products include infant formula, infant, toddler and kids’ foods, plant-based beverages and frozen desserts (such as
soy, rice, oat, almond and coconut), condiments, cooking and culinary oils, cereal bars, canned, chilled fresh, aseptic and instant
soups, yogurts, nut butters, juices, hot-eating desserts, cookies, frozen fruit and vegetables, pre-cut fresh fruit, refrigerated and
frozen plant-based meat-alternative products, jams, fruit spreads, jelly, honey, natural sweeteners and marmalade products, as
well as other food products. Grocery products accounted for approximately 69% of our consolidated net sales in fiscal 2020,
72% in fiscal 2019 and 73% in fiscal 2018.
Seasonality
Certain of our product lines have seasonal fluctuations. Hot tea, hot-eating desserts and soup sales are stronger in colder
months, while sales of snack foods, sunscreen and certain of our prepared food and personal care products are stronger in the
warmer months. As such, our results of operations and our cash flows for any particular quarter are not indicative of the results
we expect for the full year, and our historical seasonality may not be indicative of future quarterly results of operations. In
recent years, net sales and diluted earnings per share in the first fiscal quarter have typically been the lowest of our four
quarters.
Working Capital
For information relating to our cash flows from operations and working capital items, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K.
Capital Expenditures
During fiscal 2020, our aggregate capital expenditures from continuing operations were $60.9 million. We expect to spend
approximately $80 million to $85 million for capital projects in fiscal 2021.
Segments
Prior to July 1, 2019, our operations were managed in seven operating segments: the United States, United Kingdom, Tilda,
Ella’s Kitchen UK, Europe, Canada and Hain Ventures. For segment reporting purposes, based on economic similarity as
outlined within Accounting Standards Codification ("ASC") 280, Segment Reporting, we elected to combine the United
6
Kingdom, Tilda and Ella’s Kitchen UK operating segments into one reportable segment known as United Kingdom.
Additionally, the Canada, Europe and Hain Ventures operating segments were combined as the Rest of World reportable
segment. Separately, the United States operating segment comprised its own reportablea
segment.
due to changes in how our Chief Operating Decision
Effective July 1, 2019, we reassessed our segment reporting structurett
Maker assesses our performance and allocates resources as a result of a change in our strategy, which includes creating
synergies among our United States and Canada businesses, as well as among our international businesses in the United
Kingdom and Europe. As a result, the Canada and Hain Ventures operating segments, which were included within the Rest of
segment and renamed the North America reportablea
World reportable segment, were moved to the United States reportablea
segment. Additionally, the Europe operating segment, which was included in the Rest of World reportable segment, was
combined with the United Kingdom reportable segment and renamed the International reportable segment. Accordingly, we
now operate under two reportable segments: North America and International.
Prior period segment information has been adjusted to reflect our new operating and reporting structure.
Additionally, the Tilda
operating segment was classified as discontinued operations as discussed in Note 5, Discontinued Operations and Assets Held
for Sale, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. Segment information
presented herein excludes the results of Tilda for all periods presented.
tt
We use segment net sales and operating income to evaluate perforff mance and to allocate resources. We believe these measures
are most relevant in order to analyze segment results and trends. Segment operating income excludes certain general corpor
ate
expenses (which are a component of selling, general and administrative expenses), impairment and acquisition related expenses,
restructuring, integration and other charges.
rr
The following tablea
2018 (amounts in thousands, other than percentages which may not add due to rounding):
presents the Company’s net sales by reportable segment for the fiscal years ended June 30, 2020, 2019 and
2020
Fiscal Year Ended June 30,
2019
2018
$
$
1,171,478
57 % $
1,195,979
57 % $
1,295,413
882,425
43 %
908,627
43 %
970,257
57 %
43 %
2,053,903
100 % $
2,104,606
100 % $
2,265,670
100 %
North America
International
Total
North Att merica SegSS megg
nt:
United StatSS
es
food
Our products are sold throughout the United States. Our customer base consists principally of specialty and natural
distributors, supermarkets, natural
food stores, mass-market and e-commerce retailers, food service channels and club, drug and
convenience stores. Our products are sold through a combination of direct sales people, brokers and distributors. We believe
that our direct sales people combined with brokers and distributors provide an effective means of reaching a broad and diverse
us within designated territories, usually on a non-exclusive basis, and receive
customer base. Food brokers act as agents forff
commissions. A portion of our direct sales force is organized into dedicated teams to serve our significant customers.
tt
tt
A significant portion of the products marketed by us are sold through independent food distributors. Food distributors purchase
products fromff
us for resale to retailers.
The brands sold by the United States operating segment include:
Tea
Our tea products are marketed under the Celestial Seasonings® brand and include more than 100 varieties of herbal, green,
black, wellness and rooibos teas, with well-known names and products such as Sleepytime®, Lemon Zinger®, Red Zinger®,
Cinnamon Apple Spice, Bengal Spice®, Country Peach Passion® and Tea Well®.
7
Snacks
Our snack food products include Terra® varieties of root vegetable chips, potato chips and other exotic vegetable chips, Garden
of Eatin’® tortilla chips, Sensible Portions® snack products including Garden Veggie Straws®, Garden Veggie Chips and Apple
Straws® and GG UniqueFiber™ crackers.
Personal Care
Our Personal Care products include hands, skin, hair and oral care products, deodorants and sun care and baby care items under
the Alba Botanica®, Avalon Organics®, Earth’s Best®, JASON®, Live Clean® and Queen Helene® brands.
Grocery
Our Grocery products include Yogurt, Baby Food and Pantry products.
Yogurt product includes The Greek Gods® Greek-style yogurt.
Baby Food products include infant and toddler formula, infant cereals, jarred baby food, baby food pouches, snacks and frozen
toddler and kids’ foods under the Earth’s Best® and Earth’s Best Sesame Street (under license).
Pantry products include the following natural and organic brands: Spectrum® culinary oils, vinegars and condiments, Spectrum
Essentials® nutritional oils and supplements, MaraNatha® nut butters, Imagine® broths, soups and gravies, Hain Pure Foods®
condiments, Health Valley® cereal bars and soups, Hollywood® oils, Westbrae® vegetarian products, Almond Dream®, Coconut
Dream®, Rice Dream®, Oat Dream®, Soy Dream® and other DreamTM brand plant-based beverages.
Canada
Our products are sold throughout Canada. Our customer base consists principally of grocery supermarkets, mass merchandisers,
club stores, natural food distributors, personal care distributors, drug store chains and food service distributors. Our products are
sold through our own retail direct sales force. We also utilize third-party brokers who receive commissions and sell to food
service and retail customers. We utilize a third-party merchandising team for retail execution. As in the United States, a portion
of the products marketed by us are sold through independent distributors.
The brands sold in our Canada operating segment include Yves Veggie Cuisine® refrigerated and frozen meat-alternative
products, vegetables and lentils, Earth’s Best® infant formula, MaraNatha® nut butters, Spectrum® cooking and culinary oils,
Imagine® aseptic soups, The Greek Gods® Greek-style yogurt and Robertson’s® marmalades. Our plant-based beverages include
Soy Dream®, Oat Dream®, Coconut Dream®, Almond Dream®, and Rice Dream®. Other food brands include Celestial
Seasonings® teas, Terra® chips and Sensible Portions® snack products. Our personal care products include skin, hair and oral
care products, sun care, deodorants and baby care items under the Avalon Organics®, Alba Botanica®, JASON®, Live Clean®
and One Step® brands.
International Segment:
United Kingdom
In the United Kingdom, our products include frozen and chilled products, including but not limited to soups, fruits and juices,
and plant-based and meat-free products as well as ambient products such as jams, fruit spreads, jellies, honey, marmalades, nut
butters, sweeteners, syrups and dessert sauces.
The brands sold by our United Kingdom operating segment include Ella’s Kitchen® infant and toddler foods, New Covent
Garden Soup Co.® and Yorkshire Provender® chilled soups, Farmhouse Fare™ hot-eating desserts, Johnson’s Juice Co.® juices,
Linda McCartney’s® chilled and frozen plant-based meals, Cully & Sully® chilled soups and ready meals, Hartley’s® jams, fruit
spreads and jellies, William’s™ conserves, Sun-Pat® nut butters, Gale’s® honey, Clarks™ natural sweeteners and Robertson’s®
and Frank Cooper’s® marmalades. We also provide a comprehensive range of private label products to many retailers,
convenience stores and food service providers in the following categories: fresh soup, pre-cut fresh fruit, juice, smoothies,
chilled desserts, meat-free meals and ambient grocery products.
8
Our products are principally sold throughout the United Kingdom and Ireland, but are also sold in other parts of the world as
well. Our customer base consists principally of retailers, convenience stores, food service providers, business to business,
natural food and ethnic specialty distributors, club stores and wholesalers.
Europe
Our products sold by the Europe operating segment include Dream®, Joya®, Lima® and Natumi®. The Lima® brand includes a
wide range of organic products such as soy sauce, plant-based beverages and grain cakes, as well as grains, pasta, cereals, miso,
snacks, sweeteners, spreads, soups and condiments. Our Natumi® and Dream® brands include plant-based beverages, including
rice, soy, oat and spelt. Our Joya® brand includes soy, oat, rice and nut-based drinks as well as plant-based yogurts, desserts,
creamers, tofu and private label products. We also sell our Hartley’s® jams, fruit spreads and jellies, Terra® varieties of root
vegetable and potato chips, and Celestial Seasonings® teas and Linda McCartney’s® chilled and frozen plant-based meals in
Europe.
Our products are sold in grocery stores and organic food stores throughout Europe, the Middle East and India. Our products are
sold using our own direct sales force and local distributors.
Customers
Two of our customers each accounted for more than 10% of our consolidated net sales in certain of the last three fiscal years,
respectively. United Natural Foods, Inc., a distributor of products to natural foods supermarkets, independent natural retailers
and other supermarkets and retailers, accounted for approximately 9%, 10% and 12% of our consolidated net sales for the fiscal
years ended June 30, 2020, 2019 and 2018, respectively, which were primarily related to the United States operating segment.
Likewise, Walmart Inc. and its affiliates, Sam’s Club and ASDA, together accounted for approximately 12%, 11% and 11% of
our consolidated net sales for the fiscal years ended June 30, 2020, 2019 and 2018, respectively, which were primarily related to
the United States and United Kingdom operating segments. No other customer accounted for more than 10% of our net sales in
the past three fiscal years.
Foreign Operations
We sell our products to customers in more than 75 countries. Sales outside of the United States represented approximately
51%, 50% and 50% of our consolidated net sales in fiscal 2020, 2019 and 2018, respectively.
Marketing
We aim to meet the consumer at multiple points in their journey, both pre-shop and during purchase, both in-store and online.
We use a combination of trade and consumer promotion and messaging. Trade advertising and promotion includes placement
fees, cooperative advertising, feature advertising in distribution catalogs and in-store merchandising in secondary locations.
Consumer advertising and promotion is used to build brand awareness and equity, drive trial to bring in new consumers and
increase consumption. Paid social and digital advertising and public relations programs are the main drivers of brand
awareness. Trial and conversion tactics include, but are not limited to, product search on Google and e-commerce sites, digital
coupons, in-store product sampling, direct mail and e-consumer relationship programs. Additionally, brand specific websites
and social media pages are used to engage consumers with lifestyle, product and usage information related to specific brands.
We also utilize partnerships to help create awareness and advocacy. We partner with various influencers to help increase brand
reach and relevance. For example, in the United States, our Earth’s Best® brand has an agreement with PBS Kids and Sesame
Workshop. In addition, several of our brands are proud supporters of Folds of Honor, a non-profit organization that provides
educational sponsorships to military families. There is no guarantee that these promotional investments will be successful.
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New Product Initiatives Through Research and Development
Innovation, including new product development, is a key component of our growth strategy. We continuously seek to
understand our consumers and develop products that address their desire for organic, natural and better-for-you alternatives to
conventional packaged foods and personal care products. We have a demonstrated track record of extending our product
offerings into other product categories. A team of professional product developers, including microbiologists, nutritionists, food
scientists, chefs and chemists, work to develop products to meet changing consumer needs. Our research and development staff
incorporates product ideas from all areas of our business in order to formulate new products. In addition to developing new
products, the research and development staff routinely reformulates and improves existing products based on advances in
ingredients, packaging and technology. In addition to our Company-sponsored research and development activities, in order to
quickly and economically introduce our new products to market, we may partner with contract manufacturers that make our
products according to our formulas or other specifications. The Company also partners with certain customers from time to time
on exclusive customer initiatives. The Company’s research and development expenditures do not include the expenditures on
such activities undertaken by co-packers and suppliers who develop numerous products on behalf of the Company and on their
own initiative with the expectation that the Company will accept their new product ideas and market them under the Company’s
brands.
Production
Manufacturing
During fiscal 2020, 2019 and 2018, approximately 59%, 58% and 59%, respectively, of our revenue was derived from products
manufactured at our own facilities.
Our North America reportable segment operates the following manufacturing facilities:
Boulder, Colorado, which produces Celestial Seasonings® teas;
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• Moonachie, New Jersey, which produces Terra® root vegetable and potato chips;
• Mountville, Pennsylvania, which produces Sensible Portions® snack products;
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Ashland, Oregon, which produces MaraNatha® nut butters;
Bell, California, which produces Alba Botanica®, Avalon Organics®, JASON® and Earth’s Best® personal care
products;
Trenton, Ontario, which produces Yves Veggie Cuisine® plant-based products;
Vancouver, British Columbia, which produces Yves Veggie Cuisine® plant-based products; and
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• Mississauga, Ontario, which produces our Live Clean® and other personal care products.
Our International reportable segment operates the following manufacturing facilities:
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Histon, England, which produces our ambient grocery products including Hartley’s®, Frank Cooper’s®, Robertson’s®,
Clarks™ and Gale’s®;
Grimsby, England, which produces our New Covent Garden Soup Co.® chilled soups;
Clitheroe, England, which produces our Farmhouse Fare® hot-eating desserts;
Fakenham, England, which produces Linda McCartney’s® meat-free frozen and chilled foods;
Corby, England (two facilities), which produces drinks and desserts and prepares fresh cut fruit;
Gateshead, England, which prepares fresh cut fruit;
North Yorkshire, England, which produces Yorkshire Provender® chilled soups;
Larvik, Norway, which produces our GG UniqueFiber™ products;
Troisdorf, Germany, which produces Natumi®, Rice Dream®, Lima®, Joya® and other plant-based beverages;
Oberwart, Austria, which produces our Dream®, Lima®, and Joya® plant-based foods and beverages; and
Schwerin, Germany, which also produces our Dream®, Lima®, and Joya® plant-based foods and beverages.
See “Item 2: Properties” of this Form 10-K for more information on the manufacturing facilities that we operate.
Co-Packers
In addition to the products manufactured in our own facilities, independent third-party contract manufacturers, who are referred
to in our industry as “co-packers,” manufacture many of our products.
In general, utilizing co-packers provides us with the
flexibility to produce a large variety of products and the ability to enter new categories quickly and economically. Our contract
manufacturers have been selected based on their production capabilities, capitalization and their specific product category
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expertise, and we expect to continue to partner with them to improve and expand our product offerings. During fiscal 2020,
2019 and 2018, approximately 41%, 42% and 41%, respectively, of our revenue was derived from products manufactured by
co-packers. We require that our co-packers comply with all applicable regulations and our quality and food safety program
requirements, and compliance is verified through auditing and other activities. Additionally, the co-packers are required to
ensure our products are manufactured in accordance with our finished good specifications to ensure we meet customer
expectations.
Suppliers of Ingredients and Packaging
Agricultural commodities and ingredients, including almonds, corn, dairy, fruit and vegetables, oils, rice, grains and soybeans
are the principal inputs used in our food products. Plant-based surfactants, glycerin and alcohols are the main inputs used in our
personal care products.
Our certified organic and natural raw materials as well as our packaging materials are obtained from various suppliers around
the world. The Company works with its suppliers to ensure the quality and safety of their ingredients and that such ingredients
meet our specifications and comply with applicable regulations. These assurances are supported by our purchasing contracts,
supplier expectations manual, supplier code of conduct, and technical assessments, including questionnaires, scientific data,
certifications, affidavits, certificates of analysis and analytical testing, where required. Our purchasers and quality team visit
major suppliers around the world to procure competitively priced, quality ingredients that meet our specifications.
We maintain long-term relationships with many of our suppliers. Purchase arrangements with ingredient suppliers are generally
made annually. Purchases are made through purchase orders or contracts, and price, delivery terms and product specifications
vary.
Competition
We operate in a highly competitive environment. Our products compete with both large mainstream conventional packaged
goods companies and natural and organic packaged foods companies. Many of these competitors enjoy significantly greater
resources. Large mainstream conventional packaged goods competitors include Campbell Soup Company, Conagra Brands,
Inc., Danone S.A., General Mills, Inc., The Hershey Company, The J.M. Smucker Company, Kellogg Company, Mondelez
International, Inc., Nestle S.A., PepsiCo, Inc. and Unilever, and conventional personal care products companies with whom we
compete include, but are not limited to, Colgate-Palmolive Company, Johnson & Johnson and The Proctor & Gamble
Company. Certain of these large mainstream conventional packaged foods and personal care companies compete with us by
selling both conventional products and natural and/or organic products. Natural and organic packaged foods competitors
include Amy’s Kitchen, Chobani LLC and Nature’s Bounty Inc. In addition to these competitors, in each of our categories we
compete with many regional and small, local niche brands. Given limited retailer shelf space and merchandising events,
competitors actively support their respective brands with marketing, advertising and promotional spending. In addition, most
retailers market similar items under their own private label, which compete for the same shelf space.
Competitive factors in the packaged foods industry include product quality and taste, brand awareness and loyalty, product
variety, interesting or unique product names, product packaging and package design, shelf space, reputation, price, advertising,
promotion and nutritional claims.
Trademarks
We believe that brand awareness is a significant component in a consumer’s decision to purchase one product over another in
highly competitive consumer products industries. We generally register our trademarks and brand names in the United States,
Canada, the European Union, and the United Kingdom and/or other foreign countries depending on the area of distribution of
the applicable products, and we intend to keep these filings current and seek protection for new trademarks to the extent
consistent with business needs. We also copyright certain of our artwork and package designs. We own registered trademarks
for our principal products, including Alba Botanica®, Almond Dream®, Avalon Organics®, Celestial Seasonings®, Coconut
Dream®, Cully & Sully®, Earth’s Best®, Ella’s Kitchen®, Frank Cooper’s®, Gale’s®, Garden of Eatin’®, Hain Pure Foods®,
Hartley’s®, Health Valley®, Imagine®, JASON®, Joya®, Lima®, Live Clean®, MaraNatha®, Natumi®, New Covent Garden Soup
Co.®, One Step®, Orchard House®, Queen Helene®, Rice Dream®, Robertson’s®, Sensible Portions®, Soy Dream®, Spectrum®,
Sun-Pat®, Terra®, The Greek Gods®, Yorkshire Provender® and Yves Veggie Cuisine®. We also have registered trademarks for
many of our best-selling Celestial Seasonings teas, including Country Peach Passion®, Lemon Zinger®, Mandarin Orange
Spice®, Raspberry Zinger®, Red Zinger®, Sleepytime®, Tension Tamer® and Wild Berry Zinger®.
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We also market products under brands licensed under trademark license agreements, including Linda McCartney’s®, the
Sesame Street name and logo and other Sesame Workshop intellectual property on certain of our Earth’s Best® products, as
well as the Paddington Bear image on certain of our Robertson’s® products.
Government Regulation
We are subject to extensive regulations in the United States by federal, state and local government authorities. In the United
States, the federal agencies governing the manufacture, marketing and distribution of our products include, among others, the
Federal Trade Commission (“FTC”), the United States Food & Drug Administration (“FDA”), the United States Department of
Agriculture (“USDA”), the United States Environmental Protection Agency (“EPA”) and the Occupational Safety and Health
Administration (“OSHA”). Under various statutes, these agencies prescribe and establish, among other things, the requirements
and standards for quality, safety and representation of our products to the consumer in labeling and advertising.
Internationally, we are subject to the laws and regulatory authorities of the foreign jurisdictions in which we manufacture and
sell our products, including the Food Standards Agency in the United Kingdom, the Canadian Food Inspection Agency in
Canada and the European Food Safety Authority which supports the European Commission, as well as individual country,
province, state and local regulations.
Quality Control
We utilize a comprehensive food safety and quality management program, which employs strict manufacturing procedures,
expert technical knowledge on food safety science, employee training, ongoing process innovation, use of quality ingredients
and both internal and independent auditing.
In the United States, each of our own food manufacturing facilities has a Food Safety Plan (“FSP”), which focuses on
preventing food safety risks and is compliant with the requirements set forth under the Food Safety and Modernization Act
(“FSMA”). In addition, each such facility has at least one Preventive Controls Qualified Individual (“PCQI”) who has
successfully completed training in the development and application of risk-based preventive controls at least equivalent to that
received under a standardized curriculum recognized by the FDA.
Substantially all of our Hain-owned manufacturing sites and a significant number of our co-packers are certified against a
standard recognized by the Global Food Safety Initiative (“GFSI”) including Safe Quality Foods (“SQF”) and British Retail
Consortium (“BRC”). These standards are integrated food safety and quality management protocols designed specifically for
the food sector and offer a comprehensive methodology to manage food safety and quality. Certification provides an
independent and external validation that a product, process or service complies with applicable regulations and standards.
In addition to third-party inspections of our co-packers, we have instituted audits to address topics such as allergen control;
ingredient, packaging and product specifications; and sanitation. Under FSMA, each of our contract manufacturers is required
to have a FSP, a Hazard Analysis Critical Control Plant (“HACCP”) plan or a hazard analysis critical control points plan that
identifies critical pathways for contaminants and mandates control measures that must be used to prevent, eliminate or reduce
relevant food-borne hazards.
Independent Certification
In the United States, our organic products are certified in accordance with the USDA’s National Organic Program through
Quality Assurance International (“QAI”), a third-party certifying agency. For products marketed as organic outside of the
United States, we use accredited certifying agencies to ensure compliance with country-specific government regulations for
selling organic products or reciprocity, where available.
Many of our products are certified kosher under the supervision of accredited agencies including The Union of Orthodox
Jewish Congregations and “KOF-K” Kosher Supervision.
We also work with other non-governmental organizations such as NSF International, which developed the NSF/ANSI 305
Standard for Personal Care Products Containing Organic Ingredients and provides third-party certification through QAI for our
personal care products in the absence of an established government regulation for these products.
In addition, we work with
other nongovernmental organizations such as the Gluten Free Intolerance Group, Whole Grain Council and the Non-GMO
Project.
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Currently all of our Hain-owned facilities are GFSI compliant and audited by external certification bodies. 90% of our FDA
regulated food facilities have achieved a GFSI certification.
Available Information
The following information can be found, free of charge, in the “Investor Relations” section of our corporate website at
http://www.hain.com:
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our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to
those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the
Securities and Exchange Commission (“SEC”);
our policies related to corporate governance, including our Code of Business Conduct and Ethics (“Code of Ethics”)
applying to our directors, officers and employees (including our principal executive officer and principal financial and
accounting officers) that we have adopted to meet the requirements set forth in the rules and regulations of the SEC
and Nasdaq; and
the charters of the Audit, Compensation, Corporate Governance and Nominating, and Strategy Committees of our
Board of Directors.
If the Company ever were to amend or waive any provision of its Code of Ethics that applies to the Company’s principal
executive officer, principal financial officer, principal accounting officer or any person performing similar functions, the
Company intends to satisfy its disclosure obligations, if any, with respect to any such waiver or amendment by posting such
information on its website set forth above rather than by filing a Current Report on Form 8-K.
Item 1A.
Risk Factors
Our business, operations and financial condition are subject to various risks and uncertainties. The most significant of these
risks include those described below; however, there may be additional risks and uncertainties not presently known to us or that
If any of the following risks and uncertainties develop into actual events, our business,
we currently consider immaterial.
financial condition or results of operations could be materially adversely affected.
In such case, the trading price of our
common stock could decline, and you may lose all or part of your investment. These risk factors should be read in conjunction
with the other information in this Annual Report on Form 10-K and in the other documents that we file from time to time with
the SEC.
The COVID-19 pandemic creates near-term and longer-term challenges and uncertainty, and our business and operating
results may be adversely affected if we do not manage our business effectively in response.
The COVID-19 pandemic and the measures being taken by governments, businesses and consumers to limit the spread of
COVID-19 have led to operational challenges in our business and may result in broader and longer-term challenges and
uncertainty that we will need to successfully manage, including but not limited to:
• Manufacturing and Supply Chain Challenges — We have faced disruptions and may have additional disruptions in
manufacturing our products and making them available to customers and consumers as a result of the COVID-19
pandemic. The implementation of extra employee and consumer health and safety precautions has led to temporary
disruptions at certain of our manufacturing facilities, and could lead to more prolonged disruptions or closures in the
future. Additionally, shelter-in-place and social distancing behaviors, which are being mandated or encouraged by
governments and practiced by businesses and individuals, create challenges for our workforce and our business. All of
these health and safety precautions and individual shelter-in-place and social distancing behaviors also impact third
parties on which we rely to make our products available to consumers, including our suppliers, contract manufacturers,
distributors, logistics providers and other business partners, as well as the retailers that ultimately sell our products to
consumers.
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Uncertain Future Consumer Demand Environment — While we experienced a net increase in the overall demand
for our products during the early phases of the COVID-19 pandemic, deteriorating economic conditions arising from
the COVID-19 pandemic could adversely affect future demand for our products. Factors such as increased
unemployment, decreases in disposable income and declines in consumer confidence could cause a decrease in
demand for our overall product set, particularly higher priced products. Additionally, demand for certain of our
product offerings, such as sun care products and the food service component of our business in the United Kingdom,
has been adversely impacted by the COVID-19 pandemic and may continue to be adversely impacted due to changed
consumer behavior and priorities.
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Increased Costs — We have incurred, and expect to continue to incur, additional costs to address the challenges
created by the COVID-19 pandemic. These include additional costs associated with overtime pay, appropriately
compensating employees for working under challenging conditions, hiring temporary contractors, temporary factory
closures, implementing increased safety measures, and procuring ingredients and managing our supply chain during a
global pandemic. Our operating results may be adversely affected if we experience significant unexpected costs in the
future.
Changed Business Environment and Priorities — The COVID-19 pandemic has resulted in dramatic changes to the
environment in which we operate, which may continue into the foreseeable future. Additionally. with much of our
focus centered on managing our business through the COVID-19 pandemic, we have made the decision to delay some
important initiatives. These changes to the overall business environment may include:
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Productivity challenges as many of our employees work from home and all of our employees face risks and
uncertainty while working during a global public health crisis;
The way customers communicate with us, establish their priorities and make product reset decisions;
Shifts in consumer shopping trends with an increased importance of e-commerce channels;
Cancellation of important internal and external conferences including our internal global sales conference and
industry and customer trade shows;
Delays and uncertainty in obtaining product certifications and undergoing quality audits; and
Decisions to delay capital expenditures, planned innovation and productivity initiatives.
Financial Impact on Third Parties and Equity Investments — Deteriorating economic conditions could jeopardize
the viability of some third parties and our business relationships with them and could cause us to incur losses or
increased costs in our dealings with those third parties. Additionally, we have equity investments in businesses and
joint ventures that have been impacted by the COVID-19 pandemic, and the value of those equity investments could
become impaired or lost if those businesses are unable to stabilize their operations.
In addition to the potential effects of the COVID-19 pandemic described above, the impacts of the COVID-19 pandemic could
exacerbate conditions in our other risk factors noted below. If we are unable to successfully manage our business through the
challenges and uncertainty created by the COVID-19 pandemic, some of which is not within our control, our business and
operating results could be materially adversely affected.
Our markets are highly competitive.
We operate in highly competitive geographic and product markets. Numerous brands and products compete for limited retailer
shelf space, where competition is based on product quality, brand recognition, brand loyalty, price, product innovation,
promotional activity, availability and taste among other things. Retailers also market competitive products under their own
private labels, which are generally sold at lower prices and compete with some of our products.
Some of our markets are dominated by multinational corporations with greater resources and more substantial operations than
us. We may not be able to successfully compete for sales to distributors or retailers that purchase from larger competitors that
have greater financial, managerial, sales and technical resources. Conventional food companies, including but not limited to
Campbell Soup Company, Conagra Brands, Inc., Danone S. A., General Mills, Inc., The Hershey Company, The J.M. Smucker
Company, Kellogg Company, Mondelez International, Inc., Nestle S.A., PepsiCo, Inc. and Unilever, and conventional personal
care products companies, including but not limited to Colgate-Palmolive Company, Johnson & Johnson and The Procter &
Gamble Company, may be able to use their resources and scale to respond to competitive pressures and changes in consumer
preferences by introducing new products or reformulating their existing products, reducing prices or increasing promotional
activities. We also compete with other organic and natural packaged food brands and companies, which may be more
innovative and able to bring new products to market faster and may be better able to quickly exploit and serve niche markets.
As a result of this competition, retailers may take actions that negatively affect us. Consequently, we may need to increase our
marketing, advertising and promotional spending to protect our existing market share, which may result in an adverse impact on
our profitability.
Our growth and continued success depend upon consumer preferences for our products, which could change.
Our business is primarily focused on sales of organic, natural and “better-for-you” products which, if consumer demand for
such categories were to decrease, could harm our business. During an economic downturn, factors such as increased
unemployment, decreases in disposable income and declines in consumer confidence could cause a decrease in demand for our
overall product set, particularly higher priced better-for-you products. While we continue to diversify our product offerings,
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developing new products entails risks, and demand for our products may not continue at current levels or increase in the future.
The success of our innovation and product improvement effort is affected by our ability to anticipate changes in consumers’
preferences, the level of funding that can be made available, the technical capability of our research and development staff in
developing, formulating and testing product prototypes, including complying with governmental regulations, and the success of
our management in introducing the resulting improvements in a timely manner.
In addition, we have seen a shift in consumption towards the e-commerce channel during the COVID-19 pandemic and may see
a more substantial shift in the future. Typically, products we sell via the e-commerce channel have lower margins than those
sold in traditional brick and mortar retailers and present unique challenges in order fulfillment. If we are unsuccessful in
implementing product improvements or introducing new products that satisfy the demands of consumers, our business could be
harmed.
In addition, we have other product categories that are subject to evolving consumer preferences. Consumer demand could
change based on a number of possible factors, including dietary habits and nutritional values, concerns regarding the health
effects of ingredients and shifts in preference for various product attributes. A significant shift in consumer demand away from
our products could reduce the sales of our brands or our market share, both of which could harm our business.
Disruptions in the worldwide economy and the financial markets may adversely impact our business and results of
operations.
Adverse and uncertain economic and market conditions, particularly in the locations in which we operate, may impact customer
and consumer demand for our products and our ability to manage normal commercial relationships with our customers,
suppliers and creditors. Consumers may shift purchases to lower-priced or other perceived value offerings during economic
downturns, which may adversely affect our results of operations. Consumers may also reduce the number of organic and
natural products that they purchase where there are conventional alternatives, given that organic and natural products generally
have higher retail prices than do their conventional counterparts. In addition, consumers may choose to purchase private label
products rather than branded products, which generally have lower retail prices than do their branded counterparts. Distributors
and retailers may also become more conservative in response to these conditions and seek to reduce their inventories.
Prolonged unfavorable economic conditions may have an adverse effect on any of these factors and, therefore, could adversely
impact our sales and profitability.
A significant portion of our business has exposure to continued uncertainty in the United Kingdom and the negotiation of a
possible trade agreement following its exit from the European Union, commonly referred to as “Brexit.”
In each of fiscal years 2020 and 2019, approximately 32% and 33%, respectively, of our consolidated net sales were generated
in the United Kingdom, which continues to experience economic and market uncertainty as it negotiates the terms of a possible
trade agreement with the European Union following Brexit. Brexit has caused and may continue to cause disruptions to and
create uncertainty surrounding our business, including affecting our relationships with our existing and future customers,
suppliers and employees, which could have an adverse effect on our business, financial results and operations. The effects of
Brexit will depend on any agreements the United Kingdom makes to retain access to European Union markets following the
transitional period which ends on December 31, 2020. The measures could potentially disrupt the markets we serve and the tax
jurisdictions in which we operate, adversely change tax benefits or liabilities in these or other jurisdictions and may cause us to
lose customers, suppliers and employees. In addition, Brexit could lead to legal uncertainty and potentially divergent national
laws and regulations as the United Kingdom determines which European Union laws to replace or replicate.
Consolidation of customers or the loss of a significant customer could negatively impact our sales and profitability.
Our growth and continued success depend upon, among other things, our ability to maintain and increase sales volumes with
existing customers, our ability to attract new customers, the financial condition of our customers and our ability to provide
products that appeal to customers at the right price. Customers, such as supermarkets and food distributors in North America,
the United Kingdom and the European Union, continue to consolidate. This consolidation has produced larger, more
sophisticated organizations with increased negotiating and buying power that are able to resist price increases or demand
increased promotional programs, as well as operate with lower inventories, decrease the number of brands that they carry and
increase their emphasis on private label products, which could negatively impact our business. The consolidation of retail
customers also increases the risk that a significant adverse impact on their business could have a corresponding material adverse
impact on our business.
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Two of our customers each accounted for more than 10% of our consolidated net sales in certain of the last three fiscal years,
respectively. United Natural Foods, Inc., a distributor of products to natural foods supermarkets, independent natural retailers
and other supermarkets and retailers, accounted for approximately 9%, 10% and 12% of our consolidated net sales for the fiscal
years ended June 30, 2020, 2019, and 2018, respectively, which were primarily related to the United States operating segment.
Likewise, WalMart Inc. and its affiliates, Sam’s Club and ASDA, together accounted for approximately 12%, 11%, and 11% of
our consolidated net sales for the fiscal years ended June 30, 2020, 2019 and 2018, respectively, which were primarily related to
the United States and United Kingdom operating segments.
The loss of any large customer, the reduction of purchasing levels or the cancellation of any business from a large customer for
an extended length of time could negatively impact our sales and profitability.
We rely on independent distributors for a substantial portion of our sales.
In our United States operating segment, we rely upon sales made by or through non-affiliated distributors to customers.
Distributors purchase directly for their own account for resale. The loss of, or business disruption at, one or more of these
distributors may harm our business.
If we are required to obtain additional or alternative distribution agreements or
arrangements in the future, we cannot be certain that we will be able to do so on satisfactory terms or in a timely manner. Our
inability to enter into satisfactory distribution agreements may inhibit our ability to implement our business plan or to establish
markets necessary to successfully expand the distribution of our products.
We are subject to risks associated with our international sales and operations, including foreign currency, compliance and
trade risks.
Operating in international markets involves exposure to movements in currency exchange rates, which are volatile at times.
The economic impact of currency exchange rate movements is complex because such changes are often linked to variability in
real growth, inflation, interest rates, governmental actions and other factors. Consequently, isolating the effect of changes in
currency does not incorporate these other important economic factors. These changes, if material, could cause adjustments to
our financing and operating strategies.
We hold assets, incur liabilities, earn revenue and pay expenses in a variety of currencies other than the United States Dollar,
primarily the British Pound, the Euro, the Canadian Dollar and the Indian Rupee. Our consolidated financial statements are
presented in United States Dollars, and therefore we must translate our assets, liabilities, revenue and expenses into United
States Dollars for external reporting purposes. As a result, changes in the value of the United States Dollar during a period may
unpredictably and adversely impact our consolidated operating results, our asset and liability balances and our cash flows in our
consolidated financial statements, even if their value has not changed in their original currency.
During fiscal 2020, 51% of our consolidated net sales were generated outside the United States, while such sales outside the
United States were 50% of net sales in both fiscal 2019 and fiscal 2018. Sales from outside our U.S. markets may continue to
represent a significant portion of our total net sales in the future. Our non-U.S. sales and operations are subject to risks inherent
in conducting business abroad, many of which are outside our control, including:
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including staffing, collecting accounts receivable and managing
periodic economic downturns and the instability of governments, including default or deterioration in the credit
worthiness of local governments, geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of
war, public corruption, expropriation and other economic or political uncertainties;
difficulties in managing a global enterprise,
distributors;
compliance with U.S. laws affecting operations outside of the United States, such as the U.S. Foreign Corrupt
Practices Act (“FCPA”) and the Office of Foreign Assets Control trade sanction regulations and anti-boycott
regulations;
difficulties associated with operating under a wide variety of complex foreign laws, treaties and regulations, including
compliance with antitrust and competition laws, anti-modern slavery laws, anti-bribery and anti-corruption laws, data
privacy laws, including the European Union General Data Protection Regulation (“GDPR”), and a variety of other
local, national and multi-national regulations and laws;
tariffs, quotas, trade barriers or sanctions, other trade protection measures and import or export licensing requirements
imposed by governments that might negatively affect our sales, including, but not limited to, Canadian and European
Union tariffs imposed on certain U.S. food and beverages;
pandemics, such as COVID-19 or the flu, which may adversely affect our workforce as well as our local suppliers and
customers;
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earthquakes, tsunamis, floods or other major disasters that may limit the supply of products that we purchase abroad;
varying regulatory, tax, judicial and administrative practices in the jurisdictions where we operate, including changes
in tax laws, interpretation of tax laws, tax audit outcomes and potentially burdensome taxation;
changes in capital controls, including price and currency exchange controls;
discriminatory or conflicting fiscal policies;
varying abilities to enforce intellectual property and contractual rights;
greater risk of uncollectible accounts and longer collection cycles;
design and implementation of effective control environment processes across our diverse operations and employee
base;
foreign currency exchange and transfer restrictions;
increased costs, disruptions in shipping or reduced availability of freight transportation; and
differing labor standards.
If we do not manage our supply chain effectively, our operating results may be adversely affected.
The success of our business depends, in part, on maintaining a strong sourcing and manufacturing platform. The inability of
any supplier of raw materials, independent co-packer or third-party distributor to deliver or perform for us in a timely or cost-
effective manner could cause our operating costs to increase and our profit margins to decrease, especially as it relates to our
products that have a short shelf life. We must continuously monitor our inventory and product mix against forecasted demand
or risk having inadequate supplies to meet consumer demand as well as having too much inventory on hand that may reach its
in particular, has created operating challenges in
expiration date and become unsaleable. The COVID-19 pandemic,
manufacturing our products and making them available to customers and consumers. If we are unable to manage our supply
chain efficiently and ensure that our products are available to meet consumer demand, our operating costs could increase, and
our profit margins could decrease.
Our future results of operations may be adversely affected by volatile commodity costs.
Many aspects of our business have been, and may continue to be, directly affected by volatile commodity costs, including fuel.
Agricultural commodities and ingredients, including almonds, corn, dairy, fruit and vegetables, oils, rice, grains and soybeans,
are the principal inputs used in our food products. These items are subject to price volatility which can be caused by
commodity market fluctuations, crop yields, seasonal cycles, weather conditions (including the potential effects of climate
change), temperature extremes and natural disasters (including floods, droughts, water scarcity, frosts, earthquakes and
hurricanes), pest and disease problems, changes in currency exchange rates, imbalances between supply and demand, and
government programs and policies among other factors. Volatile fuel costs translate into unpredictable costs for the products
and services we receive from our third-party providers including, but not limited to, distribution costs for our products and
packaging costs. While we seek to offset the volatility of such costs with a combination of cost savings initiatives, operating
efficiencies and price increases to our customers, we may be unable to manage cost volatility. If we are unable to fully offset
the volatility of such costs, our financial results could be adversely affected.
Our ability to achieve our business plans is partially dependent on our ability to implement and achieve targeted savings and
efficiencies from cost reduction initiatives.
In fiscal 2019, we implemented 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, we have implemented SKU rationalizations that included the elimination of approximately 350 low velocity and
low profitability SKUs during the fourth quarter of fiscal 2019. As another aspect of this strategy, during fiscal 2020, we began
the integration of our United States and Canada operations in alignment with the North America reportable segment structure.
We will carry out additional productivity initiatives under this strategy in fiscal 2021.
Our success depends on our ability to execute on our productivity initiatives and realize cost savings and efficiencies in our
operations. If we are unable to fully implement our productivity plans and realize our anticipated savings and efficiencies, our
profitability may be adversely impacted.
Any default under our debt agreements could have significant consequences.
Our credit agreement contains covenants imposing certain restrictions on our business. These restrictions may affect our ability
to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. The credit
agreement contains restrictive covenants including, with specified exceptions, limitations on our ability to engage in certain
business activities, incur debt and liens, make capital expenditures, pay dividends or make other distributions, enter into affiliate
17
transactions, consolidate, merge or acquire or dispose of assets, and make certain investments, acquisitions and loans. The
credit agreement also requires us to satisfy certain financial covenants, such as maintaining a minimum consolidated interest
coverage ratio and a maximum consolidated leverage ratio.
Our ability to comply with these covenants under the credit agreement may be affected by events beyond our control, including
prevailing economic, financial and industry conditions. The breach of any of these covenants could result in a default, which
would permit the lenders to declare all outstanding debt to be due and payable, together with accrued and unpaid interest. Our
obligations under the credit agreement are guaranteed by certain existing and future domestic subsidiaries of the Company and
are secured by liens on assets of the Company and its material domestic subsidiaries, including the equity interest in each of
their direct subsidiaries and intellectual property, subject to agreed upon exceptions. Any default by us under the credit
agreement could have a material adverse effect on our financial condition and our business.
We may be adversely impacted by the potential discontinuation of the London Interbank Offered Rate, or LIBOR.
We have loans under our credit facility and interest rate swap agreements that are indexed to LIBOR. The financial authority
that regulates LIBOR has announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after
2021. It is unclear if LIBOR will cease to exist or precisely how any alternative reference rates would be calculated and
published.
While we have sought to reduce future interest rate volatility by entering into floating rate to fixed rate swap agreements with
respect to a substantial portion of our outstanding indebtedness as of June 30, 2020, any transition from LIBOR may
nonetheless cause us to incur increased costs and additional risk. If LIBOR is discontinued or if the method of calculating
LIBOR changes from its current form, interest rates on our current or future indebtedness may be adversely affected. If LIBOR
is discontinued, interest rates will generally be based on an alternative variable rate specified in the documentation governing
our indebtedness or swaps or as otherwise agreed upon. The alternative variable rate could be higher and more volatile than
LIBOR prior to its discontinuance.
Certain risks arise in transitioning contracts to an alternative variable rate. The method of transitioning to an alternative rate
may be challenging and may require substantial negotiation with the counterparty to each contract. If a contract is not
transitioned to an alternative variable rate and LIBOR is discontinued, the impact is likely to vary by contract.
Ineffective internal controls could impact the Company’s business and financial results.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and for
evaluating and reporting on our system for internal control. Our management concluded in its most recent year-end assessment
that our internal control over financial reporting was effective as of June 30, 2020. However, such internal control has inherent
limitations and may not prevent or detect misstatements. Even effective internal controls can provide only reasonable assurance
with respect to the preparation and fair presentation of financial statements. If we fail to maintain adequate internal controls,
including any failure to implement required new or improved controls, or if we experience difficulties in their implementation,
we could fail to meet our financial reporting obligations and our business, financial results and reputation could be harmed.
Legal claims, government investigations or other regulatory enforcement actions could subject us to civil and criminal
penalties.
We operate in a highly regulated environment with constantly evolving legal and regulatory frameworks. Consequently, we are
subject to a heightened risk of legal claims, government investigations and other regulatory enforcement actions. We are subject
to extensive regulations in the United States, United Kingdom, Canada, Europe, Asia, including India, and any other countries
where we manufacture, distribute and/or sell our products. Our products are subject to numerous food safety and other laws
and regulations relating to the registration and approval, sourcing, manufacturing, storing, labeling, marketing, advertising and
distribution of these products. Enforcement of existing laws and regulations, changes in legal requirements and/or evolving
interpretations of existing regulatory requirements may result in increased compliance costs and create other obligations,
financial or otherwise, that could adversely affect our business, financial condition or operating results.
In addition, we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws, which generally
prohibit companies and their intermediaries from making improper payments to non-U.S. officials or other third parties for the
purpose of obtaining or retaining business. Although we have implemented policies and procedures designed to ensure
compliance with existing laws and regulations, we cannot provide any assurance that our employees, contractors or agents will
not violate our policies and procedures.
18
Moreover, a failure to maintain effective control processes could lead to violations, unintentional or otherwise, of laws and
regulations. Legal claims, government investigations or regulatory enforcement actions arising out of our failure or alleged
failure to comply with applicable laws and regulations could subject us to civil and criminal penalties that could materially and
adversely affect our product sales, reputation, financial condition, and operating results. In addition, the costs and other effects
of defending potential and pending litigation and administrative actions against us may be difficult to determine and could
adversely affect our financial condition and operating results.
Pending and future litigation may lead us to incur significant costs.
We are, or may become, party to various lawsuits and claims arising in the normal course of business, which may include
lawsuits or claims relating to contracts, intellectual property, product recalls, product liability, the marketing and labeling of
products, employment matters, environmental matters, data protection or other aspects of our business as well as any securities
class action and stockholder derivative litigation. For example, as discussed under Item 3, “Legal Proceedings”, we are
currently subject to class actions and derivative complaints arising out of or related to the Company’s internal accounting
review. Even when not merited, the defense of these lawsuits may divert our management’s attention, and we may incur
significant expenses in defending these lawsuits. The results of litigation and other legal proceedings are inherently uncertain,
and adverse judgments or settlements in some or all of these legal disputes may result in monetary damages, penalties or
injunctive relief against us, which could have a material adverse effect on our financial position, cash flows or results of
operations. Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more
difficult to compete effectively or to obtain adequate insurance in the future.
We may be subject to significant liability that is not covered by insurance, and our potential indemnification obligations and
limitations of our director and officer liability insurance could result in significant legal expenses or damages and cause our
business, financial condition, results of operations and cash flows to suffer.
While we believe that the extent of our insurance coverage is consistent with industry practice, any claim under our insurance
policies may be subject to certain exceptions as well as caps on amounts recoverable, may not be honored fully, in a timely
manner, or at all, and we may not have purchased sufficient insurance to cover all losses incurred. Separate from potential
indemnification obligations, if we were to incur substantial liabilities or if our business operations were interrupted for a
substantial period of time, we could incur costs and suffer losses. Such inventory and business interruption losses may not be
covered by our insurance policies. Additionally, in the future, insurance coverage may not be available to us at commercially
acceptable premiums, or at all.
In addition, former officers and members of our Board of Directors, as individual defendants, are the subject of lawsuits related
to the Company. Under Delaware law, our bylaws and certain indemnification agreements, we may have an obligation to
indemnify former officers and directors in relation to these matters, and our insurance coverage may not be adequate to cover
all of the costs associated with these claims. If the Company incurs significant uninsured indemnity obligations, our indemnity
obligations could result in significant legal expenses or damages and cause our business, financial condition, results of
operations and cash flow to suffer.
We may be subject to significant liability should the consumption of any of our products cause illness or physical harm.
The sale of products for human use and consumption involves the risk of injury or illness to consumers. Such injuries may
result from inadvertent mislabeling, tampering by unauthorized third parties or product contamination or spoilage. Under
certain circumstances, we may be required to recall or withdraw products, suspend production of our products or cease
In addition, customers may cancel orders for such
operations, which may lead to a material adverse effect on our business.
products as a result of such events. Even if a situation does not necessitate a recall or market withdrawal, product liability
claims might be asserted against us. While we are subject to governmental inspection and regulations and believe our facilities
and those of our co-packers and suppliers comply in all material respects with all applicable laws and regulations, if the
consumption of any of our products causes, or is alleged to have caused, a health-related illness, we may become subject to
claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative
publicity surrounding any assertion that our products caused illness or physical harm, could adversely affect our reputation with
existing and potential customers and consumers and our corporate and brand image. Moreover, claims or liabilities of this type
might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. Although
we maintain product liability and product recall insurance in an amount that we believe to be adequate, we may incur claims or
liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product liability judgment
against us or a product recall could have a material adverse effect on our business, consolidated financial condition, results of
operations or liquidity.
19
An impairment in the carrying value of goodwill or other acquired intangible assets could materially and adversely affect
our consolidated results of operations and net worth.
As of June 30, 2020, we had goodwill of $862.0 million and trademarks and other intangibles assets of $346.5 million, which in
the aggregate represented 55% of our total consolidated assets. The net carrying value of goodwill represents the fair value of
acquired businesses in excess of identifiable assets and liabilities as of the acquisition date (or subsequent impairment date, if
applicable). The net carrying value of trademarks and other intangibles represents the fair value of trademarks, customer
relationships and other acquired intangibles as of the acquisition date (or subsequent impairment date, if applicable), net of
accumulated amortization. Goodwill and other acquired intangibles expected to contribute indefinitely to our cash flows are not
amortized, but must be evaluated by management at least annually for impairment. Amortized intangible assets are evaluated
for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be
recoverable.
Impairments to goodwill and other intangible assets may be caused by factors outside our control, such as
increasing competitive pricing pressures, changes in discount rates based on changes in cost of capital (interest rates, etc.),
lower than expected sales and profit growth rates, changes in industry Earnings Before Interest Taxes Depreciation and
Amortization (“EBITDA”) multiples, the inability to quickly replace lost co-manufacturing business, or the bankruptcy of a
significant customer. We have in the past recorded, and may in the future be required to record, significant charges in our
consolidated financial statements during the period in which any impairment of our goodwill or intangible assets is determined.
The incurrence of impairment charges could negatively affect our results of operations and adversely impact our net worth and
our consolidated earnings in the period of such charge.
We may not be able to successfully consummate divestitures as part of our strategy to streamline our business.
As discussed under Item 1, “Business,” as part of the Company’s overall strategy, the Company may seek to dispose of
businesses and brands that are less profitable or are otherwise less of a strategic fit within our core portfolio. We may not be
able to negotiate such divestitures on terms acceptable to us. Also, our profitability may be impacted by gains or losses on the
sales of such businesses, or lost operating income or cash flows from such businesses. Additionally, we may be required to
record, and have in the past recorded, asset impairment or restructuring charges related to divested businesses. Similarly, we
may be obliged to indemnify buyers for liabilities, which may reduce our profitability and cash flows. Such potential
divestitures will require management resources and may divert management’s attention from our day-to-day operations. If we
are not successful in divesting such businesses, our business could be harmed.
Our future results of operations may be adversely affected by the availability of organic ingredients.
Our ability to ensure a continuing supply of organic ingredients at competitive prices depends on many factors beyond our
control, such as the number and size of farms that grow organic crops, climate conditions, increased demand for organic
ingredients by our competitors, changes in national and world economic conditions, currency fluctuations and forecasting
adequate need of seasonal ingredients.
The organic ingredients that we use in the production of our products (including, among others, fruits, vegetables, nuts and
grains) are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, water scarcity, temperature
extremes, frosts, earthquakes and pestilences. Natural disasters and adverse weather conditions (including the potential effects
of climate change) can lower crop yields and reduce crop size and crop quality, which in turn could reduce our supplies of
organic ingredients or increase the prices of organic ingredients. If our supplies of organic ingredients are reduced, we may not
be able to find enough supplemental supply sources on favorable terms, if at all, which could impact our ability to supply
products to our customers and adversely affect our business, financial condition and results of operations.
We also compete with other manufacturers in the procurement of organic product ingredients, which may be less plentiful in the
open market than conventional product ingredients. This competition may increase in the future if consumer demand for
organic products increases. This could cause our expenses to increase or could limit the amount of products that we can
manufacture and sell.
20
Interruption in, disruption of or loss of operations at one or more of our manufacturing facilities could harm our business.
For the fiscal years ended June 30, 2020, 2019 and 2018, approximately 59%, 58% and 59%, respectively, of our net sales was
derived from products manufactured at our own manufacturing facilities. An interruption in, disruption of or the loss of
operations at one or more of these facilities, which may be caused by work stoppages, governmental actions, disease outbreaks
or pandemics, acts of war, terrorism, fire, earthquakes, flooding or other natural disasters at one or more of these facilities,
could delay or postpone production of our products, which could have a material adverse effect on our business, results of
operations and financial condition until such time as the interruption of operations is resolved or an alternate source of
production is secured. In addition, if one or more of our manufacturing facilities are running at full capacity and we are unable
to keep up with customer demand, we may not be able to fulfill orders on time or at all which could adversely impact our
business.
Loss of one or more of our independent co-packers could adversely affect our business.
During fiscal 2020, 2019 and 2018, approximately 41%, 42% and 41%, respectively, of our net sales were derived from
products manufactured at independent co-packers. In some cases, an individual co-packer may produce all of our requirements
for a particular brand. We believe there are a limited number of competent, high-quality co-packers in the industry, and many
of our co-packers produce products for other companies as well. Therefore, if we lose or need to change one or more co-
packers, experience disruptions or delays at a co-packer or fail to retain co-packers for newly acquired products or brands,
production of our products may be delayed or postponed and/or the availability of some of our products may be reduced or
eliminated, which could have a material adverse effect on our business, results of operations and financial condition.
Disruption of our transportation systems could harm our business.
The success of our business depends, in large part, upon dependable and cost-effective transportation systems and a strong
distribution network. A disruption in transportation services could result in an inability to supply materials to our or our co-
packers’ facilities or finished products to our distribution centers or customers. We utilize distribution centers that are managed
by third parties. Activity at these distribution centers could be disrupted by a number of factors, including labor issues, failure
to meet customer standards, acts of war, terrorism, fire, earthquakes, flooding or other natural disasters or bankruptcy or other
financial issues affecting the third-party providers. Any extended disruption in the distribution of our products or an increase in
the cost of these services could have a material adverse effect on our business.
Our inability to use our trademarks could have a material adverse effect on our business.
We believe that brand awareness is a significant component in a consumer’s decision to purchase one product over another in
the highly competitive food, beverage and personal care industries. Although we endeavor to protect our trademarks and trade
names, these efforts may not be successful, and third parties may challenge our right to use one or more of our trademarks or
trade names. We believe that our trademarks and trade names are significant to the marketing and sale of our products and that
the inability to utilize certain of these names could have a material adverse effect on our business, results of operations and
financial condition.
In addition, we market products under brands licensed under trademark license agreements, including Linda McCartney’s®, the
Sesame Street name and logo and other Sesame Workshop intellectual property on certain of our Earth’s Best® products. We
believe that these trademarks have significant value and are instrumental in our ability to market and sustain demand for those
product offerings. We cannot assure you that these trademark license agreements will remain in effect and enforceable or that
In addition, any future disputes
any license agreements, upon expiration, can be renewed on acceptable terms or at all.
concerning these trademark license agreements may cause us to incur significant litigation costs or force us to suspend use of
the disputed trademarks and suspend sales of products using such trademarks.
We are subject to environmental laws and regulations relating to hazardous materials, substances and waste used in or
resulting from our operations. Liabilities or claims with respect to environmental matters could have a significant negative
impact on our business.
As with other companies engaged in similar businesses, the nature of our operations exposes us to the risk of liabilities and
claims with respect to environmental matters, including those relating to the disposal and release of hazardous substances.
Furthermore, our operations are governed by laws and regulations relating to workplace safety and worker health, which,
among other things, regulate employee exposure to hazardous chemicals in the workplace. Any material costs incurred in
connection with such liabilities or claims could have a material adverse effect on our business, consolidated financial condition,
results of operations or liquidity. Any environmental or health and safety legislation or regulations enacted in the future, or any
21
changes in how existing or future laws or regulations will be enforced, administered or interpreted, may lead to an increase in
compliance costs or expose us to additional risk of liabilities and claims, which could have a material adverse effect on our
business, consolidated financial condition, results of operations or liquidity.
If the reputation of one or more of our leading brands erodes significantly, it could have a material impact on our results of
operations.
Our financial success is directly dependent on the consumer perception of our brands. The success of our brands may suffer if
our marketing plans or product initiatives do not have the desired impact on a brand’s image or its ability to attract consumers.
Further, our results could be negatively impacted if one of our brands suffers substantial damage to its reputation due to real or
perceived quality issues or the Company is perceived to act in an irresponsible manner.
In addition, it is possible for such
information, misperceptions and opinions to be shared quickly and disseminated widely due to the use of social and digital
media.
We rely on independent certification for a number of our products.
We rely on independent third-party certification, such as certifications of our products as “organic,” “Non-GMO” or “kosher,”
to differentiate our products from others. We must comply with the requirements of independent organizations or certification
authorities in order to label our products as certified organic. For example, we can lose our “organic” certification if a
manufacturing plant becomes contaminated with non-organic materials, or if it is not properly cleaned after a production run. In
addition, all raw materials must be certified organic. Similarly, we can lose our “kosher” certification if a manufacturing plant
and raw materials do not meet the requirements of the appropriate kosher supervision organization. The loss of any
independent certifications could adversely affect our market position as an organic and natural products company, which could
harm our business.
A cybersecurity incident or other technology disruptions could negatively impact our business and our relationships with
customers.
We use computers in substantially all aspects of our business operations. We also use mobile devices, social networking and
other online activities to connect with our employees, suppliers, customers and consumers. Such uses give rise to cybersecurity
risks, including security breach, espionage, system disruption, theft and inadvertent release of information. We have become
more reliant on mobile devices, remote communication and other technologies during the COVID-19 pandemic, enhancing our
cybersecurity risk. Our business involves the storage and transmission of numerous classes of sensitive and/or confidential
information and intellectual property, including customers’ and suppliers' information, private information about employees,
and financial and strategic information about the Company and its business partners. Further, as we pursue new initiatives that
improve our operations and cost structure, we are also expanding and improving our information technologies, resulting in a
larger technological presence and increased exposure to cybersecurity risk. If we fail to assess and identify cybersecurity risks
associated with new initiatives, we may become increasingly vulnerable to such risks. Additionally, while we have
implemented measures to prevent security breaches and cyber incidents, our preventative measures and incident response
efforts may not be entirely effective. The theft, destruction, loss, misappropriation, or release of sensitive and/or confidential
information or intellectual property, or interference with our information technology systems or the technology systems of third
parties on which we rely, could result in business disruption, negative publicity, brand damage, litigation, violation of privacy
laws, loss of customers, potential liability and competitive disadvantage any of which could have a material adverse effect on
our business, financial condition or results of operations.
Our business operations could be disrupted if our information technology systems fail to perform adequately.
The efficient operation of our business depends on our information technology systems. We rely on our information
technology systems to effectively manage our business data, communications, supply chain, order entry and fulfillment, and
other business processes. The failure of our information technology systems to perform as we anticipate could disrupt our
business and could result in transaction errors, processing inefficiencies and the loss of sales and customers, causing our
business and results of operations to suffer. In addition, our information technology systems may be vulnerable to damage or
interruption from circumstances beyond our control, including fire, natural disasters, system failures and viruses. Any such
damage or interruption could have a material adverse effect on our business.
Compliance with data privacy laws may be costly, and non-compliance with such laws may result in significant liability.
Many jurisdictions in which the Company operates have laws and regulations relating to data privacy and protection of personal
information, including the European Union GDPR, which requires companies to satisfy requirements regarding the handling of
22
personal data. Failure to comply with GDPR requirements could result in litigation, adverse publicity and penalties of up to 4%
of worldwide revenue. The law in this area continues to develop, and the changing nature of privacy laws in the European
Union and elsewhere could impact the Company’s processing of personal information related to the Company’s employees,
consumers, customers and vendors. The enactment of more restrictive laws, rules or regulations or future enforcement actions
or investigations could impact us through increased costs or restrictions on our business, and noncompliance could result in
regulatory penalties and significant liability.
Joint ventures that we enter into present a number of risks and challenges that could have a material adverse effect on our
business and results of operations.
As part of our business strategy, we have made minority interest investments and established joint ventures. These transactions
typically involve a number of risks and present financial and other challenges, including the existence of unknown potential
disputes, liabilities or contingencies and changes in the industry, location or political environment in which these investments
are located, that may arise after entering into such arrangements. We could experience financial or other setbacks if these
transactions encounter unanticipated problems, including problems related to execution by the management of the companies
underlying these investments. Any of these risks could adversely affect our results of operations.
Global capital and credit market issues could negatively affect our liquidity, increase our costs of borrowing and disrupt the
operations of our suppliers and customers.
We depend on stable, liquid and well-functioning capital and credit markets to fund our operations. Although we believe that
our operating cash flows, financial assets, access to capital and credit markets and revolving credit agreement will permit us to
meet our financing needs for the foreseeable future, future volatility or disruption in the capital and credit markets and the state
of the economy, including the consumer staples industry, may impair our liquidity or increase our costs of borrowing. Such
disruptions could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements
or other funding for our business needs can be arranged. Our business could also be negatively impacted if our suppliers or
customers experience disruptions resulting from tighter capital and credit markets or a slowdown in the general economy.
Our acquisition history could expose us to risk, including our ability to continue to integrate the brands that we have
acquired.
We have historically grown our business in part through the acquisition of brands, both in the United States and internationally.
The success of our acquisitions will be dependent upon our ability to effectively integrate those brands, including our ability to
realize potentially available marketing opportunities and cost savings, some of which may involve operational changes. Despite
our due diligence investigation of each business that we have acquired, there may be liabilities of the acquired companies that
we failed to or were unable to discover during the diligence process and for which we, as a successor owner, may be
responsible.
Climate change may negatively affect our business and operations.
There is concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global
temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. In the event that such
climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable
pricing for certain commodities that are necessary for our products, such as corn, oats, rice, wheat and various fruits and
vegetables. As a result of climate change, we may also be subjected to decreased availability of water, deteriorated quality of
water or less favorable pricing for water, which could adversely impact our manufacturing and distribution operations.
23
The ownership of our common stock could be concentrated, and certain stockholders could have significant influence over
the outcome of corporate actions requiring stockholder approval.
As of August 25, 2020, based on information filed with the SEC and reported to us, Engaged Capital, LLC and certain of its
affiliates (“Engaged Capital”) beneficially owned an aggregate of approximately 16% of our outstanding common stock.
Engaged Capital and any other stockholders acquiring beneficial ownership of a significant amount of our outstanding common
stock could have significant influence over the outcome of corporate actions requiring stockholder approval, including the
election of directors, any merger, consolidation or sale of all or substantially all of our assets, and certain other significant
corporate transactions.
Our ability to issue preferred stock may deter takeover attempts.
Our Board of Directors is empowered to issue, without stockholder approval, preferred stock with dividends, liquidation,
conversion, voting or other rights, which could decrease the amount of earnings and assets available for distribution to holders
of our common stock and adversely affect the relative voting power or other rights of the holders of our common stock. In the
event of issuance, the preferred stock could be used as a method of discouraging, delaying or preventing a change in control.
Our amended and restated certificate of incorporation authorizes the issuance of up to 5 million shares of “blank check”
preferred stock with such designations, rights and preferences as may be determined from time to time by our Board of
Directors. Although we have no present intention to issue any shares of our preferred stock, we may do so in the future under
appropriate circumstances.
Item 1B.
Unresolved Staff Comments
None.
24
Item 2.
Properties
Our principal facff
ilities, which are leased except where otherwise indicated, are as follows:
Location
Approximate
Square Feet
Expiration of
Lease
Primary Use
North America:
Headquarters office
Manufacff
turing and offices (Tea)
Manufacturing (Snack products)
Lake Success, NY
Boulder, CO
Moonachie, NJ
Manufacturing and distribution center (Snack products)
Mountville, PA
Manufacturing (Nut butters)
Distribution center (Grocery, snacks, and personal care
products)
Distribution (Tea)
Manufacturing and distribution (Personal care)
Storage facility (Raw and packaging products)
Manufacturing (Plant-based foods)
ff
Manufacturing and offices (Personal care)
Distribution (Personal care)
Distribution (Dry goods)
Manufacturing (Plant-based foods)
International:
Manufacturing and offices (Ambient grocery products)
Manufacturing (Hot-eating desserts)
Manufacturing (Chilled soups)u
Manufacturing (Chilled soups)u
Manufacff
turing (Desserts and plant-based frozen products)
turing (Fresh prepared fruit
Manufacff
Distribution and offices (Packaging and ingredients)
products)
ff
Ashland, OR
Ontario, CA
Boulder, CO
Bell, CA
Ashland, OR
Vancouver, BC,
Canada
Mississauga, ON,
Canada
Mississauga, ON,
Canada
Mississauga, ON,
Canada
Trenton, ON, Canada
Histon, England
Clitheroe, England
Grimsby, England
North Yorkshire,
England
Fakenham, England
Corby, England
Corby, England
Manufacturing, distribution and offices (Fresh prepared
Corby, England
fruit products and drinks)
Manufacff
)
turing and offices (Fresh prepared fruit
ff
Manufacff
turing and distribution (Crackers)
Manufacff
turing, distribution and offices (Plant-based
beverages)
Gateshead, England
y
Larvik, Norwar
Troisdorf, Germany
86,000
158,000
75,000
160,000
13,000
375,000
57,000
125,000
13,000
76,000
61,000
81,000
136,000
47,000
303,000
38,000
54,000
14,000
101,000
45,000
22,500
89,500
46,000
20,000
131,000
2029
Owned
Owned
2030
Owned
2023
2030
2028
2020
Owned
2025
2022
2029
2028
Owned
2026
2029
Owned
Owned
2024
2030
Owned
2021
2027
2037
Manufacff
turing and offices (Plant-based foods and
beverages)
Manufacturing (Plant-based foods and beverages)
Manufacff
beverages)
turing and distribution (Plant-based foods and
Oberwar
rt, Austria
108,000
Unlimited
Schwerin, Germany
Loipersdorf, Austria
650,000
76,000
Owned
Unlimited
We also lease space for other smaller offices and facilities in the United States, United Kingdom, Canada, Europe and other
parts of the world.
In addition to the foregoing distribution facilities operated by us, we also utilize bonded public warehouses from which
deliveries are made to customers.
25
For further information regarding our lease obligations, see Note 9, Leases, in the Notes to Consolidated Financial Statements
included in Item 8 of this Form 10-K. For further information regarding the use of our properties by segments, see Item 1,
“Business - Production” of this Form 10-K.
Item 3.
Legal Proceedings
Securities Class Actions Filed in Federal Court
On August 17, 2016, three securities class action complaints were filed in the Eastern District of New York against the
Company alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The three complaints are: (1)
Flora v. The Hain Celestial Group, Inc., et al. (the “Flora Complaint”); (2) Lynn v. The Hain Celestial Group, Inc., et al. (the
“Lynn Complaint”); and (3) Spadola v. The Hain Celestial Group, Inc., et al. (the “Spadola Complaint” and, together with the
Flora and Lynn Complaints, the “Securities Complaints”). On June 5, 2017, the court issued an order for consolidation,
appointment of Co-Lead Plaintiffs and approval of selection of co-lead counsel. Pursuant to this order, the Securities
Complaints were consolidated under the caption In re The Hain Celestial Group, Inc. Securities Litigation (the “Consolidated
Securities Action”), and Rosewood Funeral Home and Salamon Gimpel were appointed as Co-Lead Plaintiffs. On June 21,
2017, the Company received notice that plaintiff Spadola voluntarily dismissed his claims without prejudice to his ability to
participate in the Consolidated Securities Action as an absent class member. The Co-Lead Plaintiffs in the Consolidated
Securities Action filed a Consolidated Amended Complaint on August 4, 2017 and a Corrected Consolidated Amended
Complaint on September 7, 2017 on behalf of a purported class consisting of all persons who purchased or otherwise acquired
Hain Celestial securities between November 5, 2013 and February 10, 2017 (the “Amended Complaint”). The Amended
Complaint named as defendants the Company and certain of its former officers (collectively, “Defendants”) and asserted
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegedly materially false or misleading
statements and omissions in public statements, press releases and SEC filings regarding the Company’s business, prospects,
financial results and internal controls. Defendants filed a motion to dismiss the Amended Complaint on October 3, 2017 which
the Court granted on March 29, 2019, dismissing the case in its entirety, without prejudice to replead. Co-Lead Plaintiffs filed a
Second Amended Consolidated Class Action Complaint on May 6, 2019 (the “Second Amended Complaint”). The Second
Amended Complaint again named as defendants the Company and certain of its former officers and asserts violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegations similar to those in the Amended
Complaint, including materially false or misleading statements and omissions in public statements, press releases and SEC
filings regarding the Company’s business, prospects, financial results and internal controls. Defendants filed a motion to
dismiss the Second Amended Complaint on June 20, 2019. Co-Lead Plaintiffs filed an opposition on August 5, 2019, and
Defendants submitted a reply on September 3, 2019. On April 6, 2020, the Court granted Defendants' motion to dismiss the
Second Amended Complaint in its entirety, with prejudice. Co-Lead Plaintiffs filed a notice of appeal on May 5, 2020
indicating their intent to appeal the Court’s decision dismissing the Second Amended Complaint to the United States Court of
Appeals for the Second Circuit. Co-Lead Plaintiffs filed their appellate brief on August 18, 2020. Defendants will submit a
scheduling request within 14 days after the filing of Co-Lead Plaintiffs’ appellate brief to schedule the filing of their opposition
brief.
Stockholder Derivative Complaints Filed in State Court
On September 16, 2016, a stockholder derivative complaint, Paperny v. Heyer, et al. (the “Paperny Complaint”), was filed in
New York State Supreme Court in Nassau County against the former Board of Directors and certain former officers of the
Company alleging breach of fiduciary duty, unjust enrichment, lack of oversight and corporate waste. On December 2, 2016
and December 29, 2016, two additional stockholder derivative complaints were filed in New York State Supreme Court in
Nassau County against the former Board of Directors and certain former officers under the captions Scarola v. Simon (the
“Scarola Complaint”) and Shakir v. Simon (the “Shakir Complaint” and, together with the Paperny Complaint and the Scarola
Complaint, the “Derivative Complaints”), respectively. Both the Scarola Complaint and the Shakir Complaint alleged breach of
fiduciary duty, lack of oversight and unjust enrichment. On February 16, 2017, the parties for the Derivative Complaints
entered into a stipulation consolidating the matters under the caption In re The Hain Celestial Group (the “Consolidated
Derivative Action”) in New York State Supreme Court in Nassau County, ordering the Shakir Complaint as the operative
complaint. On November 2, 2017, the parties agreed to stay the Consolidated Derivative Action. Co-Lead Plaintiffs requested
leave to file an amended consolidated complaint, and on January 14, 2019, the Court partially lifted the stay, ordering Co-Lead
Plaintiffs to file their amended complaint by March 7, 2019. Co-Lead Plaintiffs filed a Verified Amended Shareholder
Derivative Complaint on March 7, 2019. The Court continued the stay pending a decision on Defendants’ motion to dismiss in
the Consolidated Securities Action (referenced above). After the Court in the Consolidated Securities Action dismissed the
Amended Complaint, the Court in the Consolidated Derivative Action ordered Co-Lead Plaintiffs to file a second amended
complaint no later than July 8, 2019. Co-Lead Plaintiffs filed a Verified Second Amended Shareholder Derivative Complaint on
26
July 8, 2019 (the “Second Amended Derivative Complaint”). Defendants moved to dismiss the Second Amended Derivative
Complaint on August 7, 2019. Co-Lead Plaintiffs filed an opposition to Defendants’ motion to dismiss, and Defendants
submitted a reply on September 20, 2019. On May 18, 2020, the Court granted Defendants’ motion to dismiss the Second
Amended Derivative Complaint. Plaintiffs did not file notice of appeal, and their time to do so has run. Accordingly, the
Company considers this matter complete.
Additional Stockholder Class Action and Derivative Complaints Filed in Federal Court
On April 19, 2017 and April 26, 2017, two class action and stockholder derivative complaints were filed in the Eastern District
of New York against the former Board of Directors and certain former officers of the Company under the captions Silva v.
Simon, et al. (the “Silva Complaint”) and Barnes v. Simon, et al. (the “Barnes Complaint”), respectively. Both the Silva
Complaint and the Barnes Complaint allege violation of securities law, breach of fiduciary duty, waste of corporate assets and
unjust enrichment.
On May 23, 2017, an additional stockholder filed a complaint under seal in the Eastern District of New York against the former
Board of Directors and certain former officers of the Company. The complaint alleged that the Company’s former directors and
certain former officers made materially false and misleading statements in press releases and SEC filings regarding the
Company’s business, prospects and financial results. The complaint also alleged that the Company violated its by-laws and
Delaware law by failing to hold its 2016 Annual Stockholders Meeting and includes claims for breach of fiduciary duty, unjust
enrichment and corporate waste. On August 9, 2017, the Court granted an order to unseal this case and reveal Gary Merenstein
as the plaintiff (the “Merenstein Complaint”).
On August 10, 2017, the court granted the parties' stipulation to consolidate the Barnes Complaint, the Silva Complaint and the
Merenstein Complaint under the caption In re The Hain Celestial Group, Inc. Stockholder Class and Derivative Litigation (the
“Consolidated Stockholder Class and Derivative Action”) and to appoint Robbins Arroyo LLP and Scott+Scott as Co-Lead
Counsel, with the Law Offices of Thomas G. Amon as Liaison Counsel for Plaintiffs. On September 14, 2017, a related
complaint was filed under the caption Oliver v. Berke, et al. (the “Oliver Complaint”), and on October 6, 2017, the Oliver
Complaint was consolidated with the Consolidated Stockholder Class and Derivative Action. The Plaintiffs filed their
consolidated amended complaint under seal on October 26, 2017. On December 20, 2017, the parties agreed to stay
Defendants’ time to answer, move, or otherwise respond to the consolidated amended complaint through and including 30 days
after a decision was rendered on the motion to dismiss the Amended Complaint in the Consolidated Securities Action,
described above.
On March 29, 2019, the Court in the Consolidated Securities Action granted Defendants’ motion, dismissing the Amended
Complaint in its entirety, without prejudice to replead. Co-Lead Plaintiffs in the Consolidated Securities Action filed the Second
Amended Complaint on May 6, 2019. The parties to the Consolidated Stockholder Class and Derivative Action agreed to
continue the stay of Defendants’ time to answer, move, or otherwise respond to the consolidated amended complaint through 30
days after a decision on Defendants' motion to dismiss the Second Amended Complaint in the Consolidated Securities Action.
On April 6, 2020, the Court granted Defendants’ motion to dismiss the Second Amended Complaint in the Consolidated
Securities Action, with prejudice. Pursuant to the terms of the stay, Defendants in the Consolidated Stockholder Class and
Derivative Action had until May 6, 2020 to answer, move, or otherwise respond to the complaint in this matter. This deadline
was extended, and Defendants moved to dismiss the Consolidated Stockholder Class and Derivative Action Complaint on June
23, 2020, with Plaintiffs’ opposition due August 7, 2020. On July 24, 2020, Plaintiffs made a stockholder litigation demand on
the current Board containing overlapping factual allegations to those set forth in the Consolidated Stockholder Class and
Derivative Action. The Board of Directors will evaluate the demand and determine what, if any, actions to take in response. On
August 10, 2020, the Court vacated the briefing schedule on Defendants’ pending motion to dismiss in order to give the Board
of Directors time to consider the demand. The parties must provide the Court with an update on or before September 7, 2020.
Other
In addition to the litigation described above, the Company is and may be a defendant in lawsuits from time to time in the
normal course of business. While the results of litigation and claims cannot be predicted with certainty, the Company believes
the reasonably possible losses of such matters, individually and in the aggregate, are not material. Additionally, the Company
believes the probable final outcome of such matters will not have a material adverse effect on the Company’s consolidated
results of operations, financial position, cash flows or liquidity.
27
Item 4.
Mine Safety Disclosures
Not applicable.
28
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Outstanding shares of our common stock, par value $.01 per share, are listed on the Nasdaq Global Select Market under the
ticker symbol “HAIN”.
Holders
As of
gAugust 18,
2020 there were 249 holders of record of our common stock.
,
Dividends
We have not paid any cash dividends on our common stock to date. The payment of all dividends will be at the discretion of our
Board of Directors and will depend on, among other things, future earnings, operations, capita
al requirements, contractual
restrictions, including restrictions under our credit facility, our general financial condition and general business conditions.
Issuance of Unregistered Securities
None.
Issuer Purchases of Equity Securities
The tablea
indicated.
below sets forth information regarding repurchases by the Company of its common stock during
dd
the periods
Period
April 1, 2020 - April 30, 2020
May 1, 2020 - May 31, 2020
June 1, 2020 - June 30, 2020
Total
(1)
(2)
(a)
Total number
of shares
purchased (1)
(b)
Average
price paid
per share
118,945
$
1,595
1,097
121,637
$
25.06
25.63
31.34
25.12
(c)
Total number of
shares purchased
as part of
publicly
announced plans
(d)
Maximum
number of shares that
may yet be purchased
under the plans (in
millions) (2)
112,693
$
—
—
—
189.8
189.8
189.8
m
m
ther detdd ails.ll
issued and outstanding common stock. Repurchas
ation plans and shares repurchased under share repurchase programs approved by tb
taxes due on shares issi ued under stock-based
Board of Directors.
Includes shares surrendered for payment of emplm oyee payroll
compensm
See (2) below for furff
On June 21, 2017, the Company’s
Company’s
pursuant to preset trading plans, in private transactions or otherwise. TheTT
expiration datedd
the repurchase program for a total of $2.8 million, excluding commissions, at an average price of $o
During fiscal
$60.2 million, excluding commissions, at an average price of $o
$189.8 million of remaining authorizati
shares under this pi
the repurchase of up to $250 million of the
marketkk ,t
on does not have a stated
repurchased 112,693 shares pursuant to
24.97 per share.
repurchased 2,551,211 shares pursuant to the repurchase program for a total of
23.59 per share. As of Jo une
had
did not repurchase any
m
es may be made from time to time in the openo
ii
authorizati
Board of Directors authorizedii
e
on under the share repurchase program. The Company
. During the three months ended June
ii
2019 or 2018.
30, 2020, the Company
30, 2020, the Company
2020, the Company
rogram in fiscal
hett
m
m
m
JJ
JJ
i
i
29
Stock Performance Graph
The following graph compares the performanc
the S&P Packaged Foods & Meats Index (in which we are included) for the period from June 30, 2015 through June 30, 2020.
e of our common stock to the S&P 500 Index, the S&P Smallcap 600 Index and
ff
$200
$150
$100
$50
$0
6/15
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among the Hain Celestial Group, Inc., the S&P 500 Index,
the S&P Smallcap 600 Index and the S&P Packaged Foods & Meats Index
6/16
6/17
6/18
6/19
6/20
The Hain C(cid:286)(cid:367)(cid:286)(cid:400)(cid:415)(cid:258)l Group, Inc.
S&P 500
S&P Smallcap 600
S&P Packaged Foods & Meats
*$100 invested on 6/30/15 in stock or index, including reinvestment of dividends
Fiscal year ending June 30.
30
Item 6.
Selected Financial Data
ff
below is not
The following information has been summarized fromff
necessarily indicative of results of future
operations and should be read in conjunction with Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”, and the consolidated financial statements and related notes
thereto included in Item 8 of this Form 10-K to fully understand factors that may affect the comparability of the information
presented below, including the completion of several business combinations in recent years. Referff
to Note 6, Acquisitions, in
the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for additional information. Amounts are presented
in thousands except per share amounts.
our financial statements. The information set forth
ff
2020
Fiscal Year Ended June 30,
2018
2019
2017**
2016**
Operating results:
Net sales
Net income (loss) from continuing operations(a)
Net (loss) income fromff
discontinued operations,
net of tax(b)
Net (loss) income(a) (b)
))
Basic net (loss) income per common share:
From continuing operations
From discontinued operations
Net (loss) income per common share - basic
Diluted net (loss) income per common share:
From continuing operations
From discontinued operations
Net (loss) income per common share - diluted*
Financial position:
al(c)
Working capitaa
Total assets(c)
Long-term debt, less current portion
$ 2,053,903
$ 2,104,606
$ 2,265,670
$ 2,343,505
$ 2,392,864
$
25,634
$
(53,427) $
74,744
$
65,541
$ (106,041)
$ (129,887) $
(65,050) $
1,889
$
(80,407)
$ (183,314) $
9,694
$
67,430
$
$
$
$
0.25
(1.02)
(0.77)
0.25
(1.02)
(0.77)
$
$
$
$
(0.51) $
(1.25)
(1.76) $
(0.51) $
(1.25)
(1.76) $
0.72
(0.63)
0.09
0.72
(0.63)
0.09
$
$
$
$
0.63
0.02
0.65
0.63
0.02
0.65
$
$
$
$
$
$
$
27,571
19,858
47,429
0.27
0.19
0.46
0.26
0.19
0.46
$
260,657
$
240,285
$
354,101
$
534,287
$
543,206
$ 2,188,452
$ 2,582,620
$ 2,946,674
$ 2,931,104
$ 3,008,080
$
281,118
$
613,537
$
687,501
$
740,135
$
835,787
Stockholders’ equity
$ 1,443,554
$ 1,519,319
$ 1,737,049
$ 1,712,832
$ 1,664,514
* Net (lo(( ss) income per common share may not add in certain periods due to rounding
** Fiscal
i
operations of Hain Pure Protein. See Note 5, Discontinued Operati
and Hain Pure Protein discont
2017 and 2016 financial data include the discontinued operations of the Tildall
ons and Assets Htt
o
inued operat
ions.
O
i
business but exclude the discontinued
a discussion of the Tildall
Sale, forff
elHH d forff
imilllliion related to
(a) Net income from continuing operations and net loss for fiscal 2020 included impairment charges of $$9.5
imilllliion related to definite-lived intangible assets (customer
indefinite-lived intangible assets (trade names) and $$4.5
imilllliion relating to the Company’s anticipated divestiture of its Danival
relationships), a goodwill impairment charge of $$0.4
business and $$12.3
imilllliion of non-cash impairment charges primarily related to a write-down of building improvements,
machinery and equipment in the United States and Europe used to manufacture certain slow moving or low margin SKUs, held
for sale accounting of Danival and consolidation of certain office space and manufacturing facilities. Loss from continuing
operations and net loss for fiscal 2019 included Former Chief Executive Officer Succession Plan expense, net, of $30.2 million,
an impairment charge of $17.9 million related to certain of the Company’s trade names, impairments of long-lived assets of
$15.8 million associated primarily with facff
ilities closures in the United Kingdom and write downs of the value of certain
machinery and equipment in the United States no longer in use, some of which was used to manufacture certain slow moving
SKUs that were discontinued, and $4.3 million of accounting review costs, net of insurance proceeds. Income fromff
continuing
operations and net income forff
fiscal 2018 included a goodwill impairment charge of $7.7 million related to our former Hain
Ventures operating segment, an impairment charge of $8.4 million which related to long-lived assets associated with the closure
of manufacturing facilities in the United States and United Kingdom and discontinuation of certain slow moving SKUs in the
United States segment, an impairment charge of $5.6 million related to certain of the Company’s trade names and $9.3 million
31
of accounting review costs. Income from continuing operations and net income for fiscal 2017 included an impairment charge
of $26.4 million related primarily to long-lived assets associated with the exit of certain portions of our own-label chilled
desserts business in the United Kingdom segment and an impairment charge of $14.1 million related to certain of the
Company’s trade names. Additionally, income from continuing operations and net income for fiscal 2017 were impacted by
$29.6 million of accounting review costs. Income from continuing operations and net income for fiscal 2016 included a
goodwill impairment charge of $84.5 million and an impairment charge of $39.7 million related to certain of the Company’s
trade names.
(b) Loss from discontinued operations and net loss for fiscal 2020 included a reclassification of $95.1 million of cumulative
translation losses from accumulated comprehensive loss to the Company’s results of the Tilda business’ discontinued
operations and $4.5 million of adjustments to the sale of Tilda entities relating to post-closing adjustments. Loss from
discontinued operations and net loss for fiscal 2019 included a loss on sale of discontinued operations of $40.9 million.
Additionally, fiscal 2019 and 2018 included impairment charges of $109.3 million and $78.5 million, respectively, related to
assets held for sale. See Note 5, Discontinued Operations and Assets Held for Sale, in the Notes to Consolidated Financial
Statements included in Item 8 of this Form 10-K.
(c) Upon adoption of Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740): Balance Sheet Classification
of Deferred Taxes, deferred tax assets and liabilities for fiscal year 2016 previously classified as current are presented as non-
current.
32
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction
with Item 1A and the Consolidated Financial Statements and the related notes thereto for the period ended June 30, 2020
included in Item 8 of this Form 10-K. Forward-looking statements in this Form 10-K are qualified by the cautionary statement
included in this review under the sub-heading, “Cautionary Note Regarding Forward Looking Information,” at the beginning
of this Form 10-K.
Overview
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 Life™ and be a leading marketer, manufacturer and seller of organic and natural, “better-for-
you” products by anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience.
The Company is committed to growing sustainably while continuing to implement environmentally sound business practices
and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets,
natural food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over
75 countries worldwide.
The Company manufactures, markets, distributes and sells organic and natural products under brand names that are sold as
“better-for-you” products, providing consumers with the opportunity to lead A Healthier Way of Life®. Hain Celestial is a
leader in many organic and natural product categories, with many recognized brands in the various market categories it serves,
including Celestial Seasonings®, Clarks™, Cully & Sully®, Dream®, Earth’s Best®, Ella’s Kitchen®, Farmhouse Fare™, Frank
Cooper’s®, GG UniqueFiber®, Gale’s®, Garden of Eatin’®, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, Joya®,
Lima®, Linda McCartney® (under license), MaraNatha®, Natumi®, New Covent Garden Soup Co.®, Orchard House®,
Robertson’s®, Sensible Portions®, Spectrum®, Sun-Pat®, Sunripe®, Terra®, The Greek Gods®, William’s™, Yorkshire
Provender® and Yves Veggie Cuisine®. The Company’s personal care products are marketed under the Alba Botanica®, Avalon
Organics®, Earth’s Best®, JASON®, Live Clean®, One Step® and Queen Helene® brands.
The Company continues to execute the four key pillars of its strategy to: (1) simplify its portfolio; (2) strengthen its capabilities;
(3) expand profit margins and cash flow; and (4) reinvigorate profitable topline growth. The Company has executed this
strategy, with a focus on discontinuing uneconomic investment, realigning resources to coincide with brand importance,
reducing unproductive stock-keeping units (“SKUs”) and brands and reassessing current pricing architecture. As part of this
initiative, the Company reviewed its product portfolio within North America and divided it into “Get Bigger” and “Get Better”
brand categories.
The Company’s “Get Bigger” brands represent its strongest brands with higher margins, which compete in categories with
strong growth potential. The Company has concentrated its investment in marketing, innovation and other resources to
prioritize spending for these brands, in an effort to reinvigorate profitable topline growth, optimize assortment and increase
share of distribution.
The Company’s “Get Better” brands are the brands in which the Company is primarily focused on simplification and expansion
of profit margin. Some of these brands have historically been low margin, non-strategic brands that added complexity with
minimal benefit to the Company’s operations.
During the fourth quarter of fiscal 2019, the Company initiated a SKU rationalization that included the elimination of
approximately 350 low velocity and low profitability SKUs. These SKU rationalizations are expected to result in expanded
future profits and a remaining set of core SKUs that will maintain their shelf space in the store.
In addition, as part of the Company’s overall strategy, the Company may seek to dispose of businesses and brands that are less
profitable or are otherwise less of a strategic fit within our core portfolio. During fiscal 2019, for example, the Company
divested its Hain Pure Protein reportable segment and its WestSoy® tofu, seitan and tempeh businesses. In fiscal 2020, the
Company divested its Tilda business and its Arrowhead Mills®, SunSpire®, Europe's Best®, Casbah®, Rudi’s Gluten-Free
Bakery™, Rudi’s Organic Bakery® and Fountain of Truth™ brands. More recently, the Company divested its Danival®
business in July 2020. See Note 25, Subsequent Events, in the Notes to Consolidated Financial Statements included in Item 8 of
this Form 10-K for further discussion.
33
COVID-19
The COVID-19 pandemic has created challenging and unprecedented conditions, and we are committed to supporting the
global response to the crisis. We are proud of our employees who are giving extraordinary effort under difficult circumstances
to ensure we can supply the products our consumers depend on. We are pleased with our preparation and efforts through the
early stages of the pandemic, and we believe we are well positioned for the future as we continue to navigate the crisis and
prepare for an eventual return to a more normal operating environment. To date, we have successfully implemented
contingency plans overseen by crisis management teams to monitor the evolving needs of our business. While we have
managed the pandemic well with minimal disruption to our business thus far, the impact of the pandemic on our future
consolidated results of operations is uncertain.
We discuss below the actual and potential impact of the COVID-19 pandemic on our business as well as in Part I, Item 1A,
Risk Factors of this Form 10-K.
Employee and Consumer Health and Safety Precautions
From the outset of the pandemic, our first priority has been the well-being of our employees and consumers. We were early
adopters of guidance from global health authorities for preventing the spread of COVID-19, and we have consistently met or
exceeded government guidelines for addressing the health and safety of our employees, including global travel restrictions,
prohibitions against visitors, social distancing requirements, the use of thermal temperature scanners, and the provision of
personal protective equipment to our employees. We have also enabled the use of new technology to allow many of our office-
based employees to work from home effectively. While these important actions and initiatives have led to some increased costs,
the overall costs have not been material to our financial results and have been more than offset by the overall increase in our net
sales due to increased consumer demand.
Manufacturing Facilities and Supply Chain Challenges
We have experienced temporary disruptions at certain of our manufacturing facilities due to an abundance of caution and our
early adoption of best practices for addressing instances of an employee contracting COVID-19. We are proud of our efforts to
ensure the health and safety of our employees and consumers, and these temporary disruptions have not had a material impact
on our operations to date. We continue to monitor and comply with all applicable government orders, as many of the
jurisdictions in which we do business begin to transition to the next phase of re-opening and a more normal operating
environment.
We are facing, and will continue to face, operational challenges in manufacturing our products and making them available to
customers and consumers as a result of the COVID-19 pandemic. Shelter-in-place and social distancing behaviors, which are
being mandated or encouraged by governments and practiced by businesses and individuals, create challenges for our
manufacturing employees as well as for third parties on which we rely to make our products available to consumers. These third
parties include our suppliers, contract manufacturers, distributors, logistics providers and other business partners, as well as the
retailers that ultimately sell our products to consumers. We have experienced some increased volatility in the cost of ingredients
and increased logistics-related costs to manage our supply chain through the pandemic. To date, these increased costs have not
had a material impact on our financial results.
We believe our planning has us well positioned to continue to manage these supply chain challenges. When certain European
countries were among the first regions impacted by COVID-19, we learned the nature and scope of the resulting supply
disruptions and how to prepare for them. We made the decision to identify our most important products and secondary sources
of supply and manufacturing capabilities for those key products. We acquired extra raw materials, supplemented our inventory
levels and added temporary labor to support our extra manufacturing and health and safety initiatives. We also consolidated
product shipping orders to more efficiently meet the increased customer and consumer demand. The framework for these
supply chain measures remains in place to continue to meet any further surges in demand.
Consumer Demand
To date, shelter-in-place and social distancing behaviors have resulted in increased overall demand for our products, most
notably in our grocery, snacks, tea and certain personal care product categories. Other product offerings, such as sun care
products and the food service component of our business in the United Kingdom, have been adversely impacted due to changed
consumer behavior and priorities.
34
While we have experienced a net increase in the overall demand for our products during the early phases of the COVID-19
pandemic, the duration of that increased demand environment is uncertain. Additionally, deteriorating economic conditions
arising from the COVID-19 pandemic could adversely affect future demand for our products. Factors such as increased
unemployment, decreases in disposable income and declines in consumer confidence could cause a decrease in demand for our
overall product set, particularly higher priced products.
Our Financial Position
The COVID-19 pandemic has resulted in a net increase in overall demand for our products. Accordingly, to date, our financial
position has benefited from the COVID-19 pandemic, albeit to a limited extent. We finance our operations primarily with the
cash flows we generate from our operations and from borrowings available to us under our Third Amended and Restated Credit
Agreement (as amended, the “Amended Credit Agreement”). As of June 30, 2020, we had $710.3 million available under the
Amended Credit Agreement.
Business Priorities
While the current environment has caused us to delay certain planned innovation and productivity initiatives, our business
strategy of simplifying our portfolio and reinvigorating profitable sales growth remains unchanged.
Financial Impact on Third Parties and Equity Investments
Deteriorating economic conditions could jeopardize the viability of some third parties and our business relationships with them
and could cause us to incur losses or increased costs in our dealings with those third parties. We have taken measures to
minimize the impact of hardships faced by individual business partners, including by identifying secondary sources of supply
and manufacturing capabilities.
Productivity and Transformation Costs
As part of the Company’s historical strategic review, it focused on a productivity initiative, which it called “Project Terra.” A
key component of this project was the identification of global cost savings and the removal of complexity from the business. In
fiscal 2019, the Company announced a strategy that includes as one of its key pillars identifying areas of cost savings and
operating efficiencies to expand profit margins and cash flow. As part of this overall strategy and the key pillar of realizing
savings and efficiencies, during fiscal 2020, the Company began the integration of its United States and Canada operations in
alignment with the North America reportable segment structure. The Company will carry out additional productivity initiatives
under this strategy in fiscal 2021.
Productivity and transformation costs include costs, such as consulting and severance costs, relating to streamlining the
Company’s manufacturing plants, co-packers and supply chain, eliminating served categories or brands within those categories,
and product rationalization initiatives which are aimed at eliminating slow moving SKUs.
Discontinued Operations
On August 27, 2019, the Company and Ebro Foods S.A. (the “Purchaser”) entered into, and consummated the transactions
contemplated by, an agreement relating to the sale and purchase of the Tilda Group Entities and certain other assets. The
Company sold the entities comprising its Tilda operating segment and certain other assets of the Tilda business to the Purchaser
for an aggregate price of $341.8 million.
On February 15, 2019, the Company completed the sale of substantially all of the assets used primarily for the Plainville Farms
business, a component of the Company’s Hain Pure Protein Corporation (“HPPC”) operating segment. On June 28, 2019, the
Company completed the sale of the remainder of HPPC and Empire Kosher which included the FreeBird and Empire Kosher
businesses. These dispositions were undertaken to reduce complexity in the Company’s operations and simplify the Company’s
brand portfolio, in addition to allowing additional flexibility to focus on opportunities for growth and innovation in the
Company’s more profitable and faster growing core businesses. Collectively, these dispositions were reported in the aggregate
as the Hain Pure Protein reportable segment.
These dispositions represented strategic shifts that had a major impact on the Company’s operations and financial results and
therefore, the Company is presenting the operating results and cash flows of the Tilda operating segment and the Hain Pure
Protein reportable segment within discontinued operations in the current and prior periods. The assets and liabilities of the Tilda
35
operating segment are presented as assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of June
30, 2019.
See Note 5, Discontinued Operations and Assets Held for Sale, in the Notes to Consolidated Financial Statements included in
Item 8 of this Form 10-K for additional information.
Former Chief Executive Officer Succession Plan
On June 24, 2018, the Company entered into a succession plan, whereby the Company’s former CEO, Irwin D. Simon, agreed
to terminate his employment with the Company upon the hiring of a new CEO. On October 26, 2018, the Company’s Board of
Directors appointed Mark L. Schiller as President and CEO, succeeding Mr. Simon. In connection with the appointment, on
October 26, 2018, the Company and Mr. Schiller entered into an employment agreement, which was approved by the Board,
with Mr. Schiller’s employment commencing on November 5, 2018. Accordingly, Mr. Simon’s employment with the Company
terminated on November 4, 2018. See Note 3, Former Chief Executive Officer Succession Plan, in the Notes to Consolidated
Financial Statements included in Item 8 of this Form 10-K for additional information.
36
Results of Operations
Comparison of Fiscal Year Ended June 30, 2020 to Fiscal Year Ended June 30, 2019
Consolidate
i
d Results
The following tablea
fiscal years ended June 30, 2020 and 2019 (amounts in thousands, other than percentages which may not add due to rounding):
compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the
Fiscal Year Ended June 30,
Change in
2020
2019
Dollars
Percentage
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Amortization of acquired intangibles
Productivity and transformation costs
Former Chief Executive Officer Succession
Plan expense, net
Proceeds from insurance claims
Accounting review and remediation costs, net
of insurance proceeds
Goodwill impairment
Long-lived asset and intangibles impairment
Operating income (loss)
Interest and other finaff
ncing expense, net
Other expense, net
Income (loss) from continuing operations
before income taxes and equity in net loss of
equity-method investees
Provision (benefit) for income taxes
Equity in net loss of equity-method
investees
Net income (loss) from continuing operations
Net loss from discontinued operations, net of
tax
Net loss
Adjusted EBITDA
* Percentage is not meaningful
Net Sales
$ 2,053,903
1,588,133
100.0 % $ 2,104,606
1,706,109
77.3 %
100.0 % $ (50,703)
81.1 % (117,976)
465,770
324,376
11,638
48,789
22.7 %
15.8 %
0.6 %
2.4 %
398,497
314,000
13,134
40,107
18.9 %
14.9 %
0.6 %
1.9 %
(2.4)%
(6.9)%
16.9 %
3.3 %
67,273
10,376
(1,496)
(11.4)%
8,682
21.6 %
—
(2,962)
— %
(0.1)%
30,156
1.4 %
(30,156)
*
(4,460)
(0.2)%
1,498
(33.6)%
—
394
27,493
56,042
18,258
3,956
33,828
6,205
1,989
25,634
— %
— %
1.3 %
2.7 %
0.9 %
0.2 %
1.6 %
0.3 %
0.1 %
4,334
—
33,719
0.2 %
— %
1.6 %
(4,334)
394
(6,226)
*
*
(18.5)%
(32,493)
(1.5)%
88,535
(272.5)%
22,517
994
1.1 %
— %
(4,259)
(18.9)%
2,962
298.0 %
(56,004)
(3,232)
(2.7)%
(0.2)%
89,832
9,437
(160.4)%
(292.0)%
655
— %
1,334
203.7 %
1.2 % $
(53,427)
(2.5)% $ 79,061
(148.0)%
(106,041)
(5.2)%
(129,887)
(6.2)%
23,846
(18.4)%
(80,407)
(3.9)% $ (183,314)
(8.7)% $ 102,907
(56.1)%
199,993
9.7 % $
165,112
7.8 % $ 34,881
21.1 %
$
$
$
Net sales in fiscal 2020 were $2.05 billion, a decrease of $50.7 million, or 2.4%, from net sales of $2.10 billion in fiscal 2019.
Foreign currency exchange rates negatively impacted net sales by $27.5 million as compared to the prior year. On a constant
currency basis, net sales decreased approximately 1.1% from the prior year. Net sales decreased across both our North America
and International reportable segments, primarily driven by the strategic decision to no longer support certain lower margin and
unprofitable SKUs, a reduction in net sales in relation to divested brands and a decline in our fruit business as a result of
impacts from the COVID-19 pandemic. Further details of changes in net sales by segment are provided below.
37
Gross Profit
Gross profit in fiscal 2020 was $465.8 million, an increase of $67.3 million, or 16.9%, from gross profit of $398.5 million in
fiscal 2019. Gross profit margin was 22.7%, an increase of 380 basis points from the prior year. This increase was driven by a
favorable product mix as well as cost savings from the Company’s productivity and transformation initiatives. The year-over-
year increase was further due to an inventory write-down of $12.4 million in fiscal 2019, which did not recur in fiscal 2020, in
connection with the discontinuance of slow moving SKUs primarily in the United States as part of a product rationalization
initiative and increased freight and commodity costs primarily in the United States operating segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $324.4 million in fiscal 2020, an increase of $10.4 million, or 3.3%, from
$314.0 million in fiscal 2019. Selling, general and administrative expenses increased primarily due to higher marketing and
advertising spend as well as higher variable compensation costs in the current year period. Variable compensation costs include
stock-based compensation expense, which was higher in the current year period primarily due to the reversal in the prior year
period of previously accrued amounts under certain performance-based incentive plans of which achievement was no longer
probable. See Note 15, Stock-based Compensation and Incentive Performance Plans, in the Notes to the Consolidated Financial
Statements included in Item 8 of this Form 10-K for further discussion. Selling, general and administrative expenses as a
percentage of net sales was 15.8% in fiscal 2020 and 14.9% in the prior year, an increase of 90 basis points, primarily
attributable to the aforementioned items.
Amortization of Acquired Intangibles
Amortization of acquired intangibles was $11.6 million in fiscal 2020, a decrease of $1.5 million, or 11.4%, from $13.1 million
in fiscal 2019. The decrease was due to finite-lived intangibles from certain historical acquisitions becoming fully amortized
subsequent to June 30, 2019 as well as impairment of certain finite-lived intangibles taken during the fiscal 2020 year.
Productivity and Transformation Costs
Productivity and transformation costs were $48.8 million in fiscal 2020, an increase of $8.7 million from $40.1 million in
fiscal 2019. The increase was primarily due to increased North America integration costs incurred in connection with the
Company’s productivity and transformation initiative as well as increased severance costs in fiscal 2020 as compared to the
prior year period.
Former Chief Executive Officer Succession Plan Expense, Net
On June 24, 2018, the Company entered into a succession plan, whereby the Company’s former CEO, Irwin D. Simon, agreed
to terminate his employment with the Company upon the hiring of a new CEO. Net costs and expenses associated with the
Company’s former Chief Executive Officer succession plan were $30.2 million in fiscal 2019 with no expense incurred in fiscal
2020. See Note 3, Former Chief Executive Officer Succession Plan, in the Notes to the Consolidated Financial Statements
included in Item 8 of this Form 10-K.
Proceeds from Insurance Claims
In July of 2019, the Company received $7.0 million as partial payment from an insurance claim relating to business disruption
costs associated with a co-packer. Of this amount, $4.5 million was recognized in fiscal 2019 as it related to reimbursement of
costs already incurred, with the remaining $2.5 million recognized in the first quarter of fiscal 2020. The Company recorded an
additional $0.5 million of proceeds in fiscal year 2020.
Accounting Review and Remediation Costs, Net of Insurance Proceeds
Costs and expenses associated with the internal accounting review, remediation and other related matters were $4.3 million in
fiscal 2019 with no expense incurred in fiscal 2020. Included in accounting review and remediation costs for fiscal 2019 were
insurance proceeds of $0.2 million related to the reimbursement of costs incurred as part of the internal accounting review and
the independent review by the Audit Committee and other related matters.
38
Goodwill Impairment
In fiscal 2020, the Company recorded a goodwill impairment charge of $0.4 million related to the European reporting unit
within the International segment. There were no goodwill impairment charges recorded during fiscal 2019. See Note 10,
Goodwill and Other Intangible Assets, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form
10-K.
Long-Lived Asset and Intangibles Impairment
During fiscal 2020, the Company recorded $27.5 million of long-lived asset and intangibles impairment charges. This included
a pre-tax impairment charge of $9.5 million ($4.0 million related to the North America segment and $5.5 million related to the
International segment) related to certain trade names of the Company. The Company also recorded $4.5 million of pre-tax
impairment charges relating to customer relationships of certain brand divestitures within the North America segment.
Additionally, during fiscal 2020, the Company recorded a $12.3 million non-cash impairment charge primarily related to a
write-down of certain machinery and equipment in the United States and Europe used to manufacture certain slow moving or
low margin SKUs and the write-down of buildings, machinery and equipment related to the sale of our Danival business.
During fiscal 2019, the Company recorded $33.7 million of long-lived asset and intangibles impairment charges. This included
a pre-tax impairment charge of $17.9 million ($15.1 million related to the North America segment and $2.8 million related to
the International segment) related to certain trade names of the Company. Additionally, the Company recorded $6.1 million of
non-cash impairment charges primarily related to the Company’s decision to consolidate manufacturing of certain fruit-based
products in the United Kingdom. Moreover, the Company recorded a $9.7 million non-cash impairment charge to write down
the value of certain machinery and equipment no longer in use in the United States and United Kingdom, some of which was
used to manufacture certain slow moving SKUs that were discontinued.
See Note 8, Property, Plant and Equipment, Net and Note 10, Goodwill and Other Intangible Assets, in the Notes to the
Consolidated Financial Statements included in Item 8 of this Form 10-K for details regarding the aforementioned impairment
charges.
Operating Income (Loss)
Operating income in fiscal 2020 was $56.0 million compared to an operating loss of $32.5 million in fiscal 2019. The increase
in operating income resulted from the items described above.
Interest and Other Financing Expense, Net
Interest and other financing expense, net totaled $18.3 million in fiscal 2020, a decrease of $4.3 million, or 18.9%, from $22.5
million in the prior year. The decrease in Interest and other financing expense, net resulted primarily from lower interest
expense related to our revolving credit facility as a result of lower variable interest rates and a lower balance of borrowings
outstanding during fiscal 2020 compared to fiscal 2019. See Note 12, Debt and Borrowings, in the Notes to the Consolidated
Financial Statements included in Item 8 of this Form 10-K.
Other Expense, Net
Other expense, net totaled $4.0 million in fiscal 2020, an increase of $3.0 million from $1.0 million in the prior year. The
increase in the fiscal year ended June 30, 2020 resulted from losses related to the sale of the Arrowhead, SunSpire and Rudi’s
businesses, partially offset by higher net unrealized foreign currency gains due to the effect of foreign currency movements on
the remeasurement of foreign currency denominated loans.
Income (Loss) from Continuing Operations Before Income Taxes and Equity in Net Loss of Equity-Method Investees
Income before income taxes and equity in the net loss of our equity-method investees for fiscal 2020 was $33.8 million
compared to a loss of $56.0 million in fiscal 2019. The increase was due to the items discussed above.
Provision (Benefit) for Income Taxes
The provision (benefit) for income taxes includes federal, foreign, state and local income taxes. Our income tax from continuing
operations was an expense of $6.2 million and a benefit of $3.2 million for fiscal 2020 and 2019, respectively.
39
On March 27, 2020, H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into
legislation which includes business tax provisions that will impact taxes related to 2018, 2019 and 2020. Some of the
significant tax law changes in accordance with the CARES Act are to increase the limitation on deductible business interest
expense for 2019 and 2020, allow for the five-year carryback of net operating losses for 2018-2020, suspend the 80% limitation
of taxable income for net operating loss carryforwards for 2018-2020, provide for the acceleration of depreciation expense from
2018 and forward on qualified improvement property, and accelerate the ability to claim refunds of Alternative Minimum Tax
(“AMT”) credit carryforwards. The Company carried back net operating losses generated in the June 30, 2019 tax year for five
years, resulting in a net income tax benefit of $11.2 million. The $11.2 million income tax benefit represents the federal rate
differential between 35% and 21%, net of a reserve under ASC 740-10 and excludes the indirect tax benefit of $6.7 million
related to discontinued operations. The Company recorded a tax refund receivable of $52.5 million which is included as a
component of Prepaid expenses and other assets on the Consolidated Balance Sheets.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation pursuant to the Tax Cuts and Jobs Act (the
“Tax Act”), which significantly revised the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate
income tax rate from 35% to 21%, implementing a territorial tax system, imposing a one-time tax on foreign unremitted
earnings and setting limitations on deductibility of certain costs (e.g., interest expense and executive compensation), among
other things.
In accordance with SAB No. 118, the SEC's staff accounting bulletin issued to address complexities involved in accounting for
the Tax Act, the Company finalized the tax effects of the Tax Act during fiscal 2019. The Company recorded additional tax
expense of $6.8 million related to its transition tax liability due to finalizing the Company’s foreign earnings and profits study.
The net increase reflected newly issued tax laws, regulations, and notices from the U.S. Department of Treasury and Internal
Revenue Service tax authorities. The adjustment of the Company’s provisional tax expense was recorded as a change in
estimate in accordance with SAB No. 118.
The Tax Act also includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries. The FASB
Staff Q&A Topic No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting
policy election either to recognize deferred taxes for temporary differences that are expected to reverse as GILTI in future years
or provide for the tax expense related to GILTI resulting from those items in the year the tax is incurred. The Company has
elected to recognize the resulting tax on GILTI as a period expense in the period the tax is incurred. The Company has
computed the impact on our effective tax rate on a discrete basis.
The effective income tax rate from continuing operations was expense of 18.3% and a benefit of 5.8% of pre-tax income for the
twelve months ended June 30, 2020 and 2019, respectively. The effective income tax rate from continuing operations for the
twelve months ended June 30, 2020 was primarily impacted by the geographical mix of earnings, state taxes, provisions in the
CARES Act, GILTI and limitations on the deductibility of executive compensation.
The effective income tax rate from continuing operations for the twelve months ended June 30, 2019 was primarily impacted by
the Tax Act’s lowering of the corporate tax rate, the geographical mix of earnings, state taxes, GILTI, finalization of the
transition tax liability, and limitations on the deductibility of executive compensation. The effective income tax rate was also
impacted by a net increase in the Company’s valuation allowance primarily related to the Company’s state deferred tax assets
and state net operating loss carryforwards.
Our 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.
See Note 13, Income Taxes, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for
additional information.
Equity in Net Loss of Equity-Method Investees
Our equity in the net loss from our equity method investments for fiscal 2020 was $2.0 million compared to equity in net loss of
$0.7 million for fiscal 2019. See Note 16, Investments, in the Notes to Consolidated Financial Statements included in Item 8 of
this Form 10-K.
40
Net Income (Loss) from Continuing Operations
g p
(
)
Net income from continuing operations for fiscal 2020 was $25.6 million compared to net loss of $53.4 million for fiscal 2019.
Net income per diluted share was $0.25 in fiscal 2020 compared to net loss per diluted share of $0.51 in fiscal 2019.
.
The increase was attributable to the factors noted above
a
Net Loss from Discontinued Operations
p
Net loss from discontinued operations for fiscal 2020 and 2019 was $106.0 million and $129.9 million, respectively,
or $1.02 and $1.25 per diluted share, respectively. The net loss from discontinued operations for fiscal 2020 included a
imilllliion of cumulative translation losses from Accumulated comprehensive loss related to the Tilda
reclassification of $$95.1
business to discontinued operations, while in fiscal 2019 net loss from discontinued operations was primarily attributablea
to
asset impairment charges of $109.3 million and losses on sale in connection with the disposition of the Plainville Farms and
HPPC businesses of $40.2 million and $0.6 million, respectively. See Note 5, DDisci ontinued Operations and Assets Held for
Sale, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Net Loss
Net loss for fiscal 2020 was $80.4 million compared to net loss of $183.3 million for fiscal 2019. Net loss per diluted share was
$0.77 in fiscal 2020 compared to net loss per diluted share of $1.76 in 2019. The change was attributablea
to the factors noted
above.
Adjusted EBITDA
j
Our consolidated Adjusted EBITDA was $200.0 million and $165.1 million for fiscal 2020 and 2019, respectively, as a result
of the factors discussed above. See Reconciliation of Non-U.S.UU GAAP FinFF ancial Measures to U.S. GAAP MeasMM ures following
the discussion of our results of operations for definitions and a reconciliation of our net loss to Adjusted EBITDA.
Segment Resultsll
The following tablea
ended June 30, 2020 and 2019:
provides a summary of net sales and operating income (loss) by reportable segment for the fiscal years
(dollars in thousands)
Fiscal 2020 net sales
Fiscal 2019 net sales
$ change
% change
Fiscal 2020 operating income (loss)
Fiscal 2019 operating income (loss)
$ change
% change
Fiscal 2020 operating income margin
Fiscal 2019 operating income (loss) margin
* Percentage is not meaningful
North America
North America
International
Corporate and
Other
Consolidated
$
$
$
$
$
$
1,171,478
1,195,979
(24,501)
(2.0)%
95,934
32,682
63,252
$
$
$
$
$
$
882,425
908,627
(26,202)
(2.9)%
55,333
58,808
(3,475)
$
$
$
$
$
— $
2,053,903
— $
2,104,606
n/a $
n/a
(50,703)
(2.4)%
(95,225)
(123,983)
28,758
$
$
$
56,042
(32,493)
88,535
193.5 %
(5.9)%
23.2 %
*
8.2 %
2.7 %
6.3 %
6.5 %
n/a
n/a
2.7 %
(1.5)%
Our net sales in the North America reportablea
segment for fisff cal 2020 were $1.17 billion, a decrease of $24.5 million, or 2.0%,
from net sales of $1.20 billion in fiscal 2019. The decrease in net sales was primarily driven by the strategic decision to no
longer support certain lower margin SKUs in order to reduce complexity and increase gross margins as well as a reduction in
net sales in relation to divested brands such as our Rudi’s business, Arrowhead Mills®, Europe’s Best® and WestSoy®, partially
l
the second half of fisca
offset by increased overall demand forff
our products in reaction to the COVID-19 pandemic during
dd
ff
41
2020. Operating income in North America in fiscal 2020 was $95.9 million, an increase of $63.3 million, or 193.5%, from
$32.7 million in fiscal 2019. The increase in operating income was the result of increased gross profit in the United States
driven by a favorable product mix due to our efforts under the “Get Bigger” and “Get Better” strategy for our brands, efficient
trade spending and supply chain cost reductions in the United States as well as other productivity savings, offset in part by
increased marketing and advertising expense and variable compensation.
International
Our net sales in the International reportable segment for fiscal 2020 were $882.4 million, a decrease of $26.2 million, or 2.9%,
from net sales of $908.6 million in fiscal 2019. On a constant currency basis, net sales decreased 0.1% from the prior year
primarily due to a decline in our fruit business as a result of impacts from the COVID-19 pandemic and discontinued sales of
unprofitable SKUs, partially offset by growth in our plant-based food and beverage products. Operating income in our
International reportable segment for fiscal 2020 was $55.3 million, a decrease of $3.5 million, or 5.9%, from $58.8 million in
fiscal 2019. Excluding the impact of foreign currency movements of $1.8 million, operating income decreased 2.8% for fiscal
2020, compared to the prior year period, due to reductions in sales of certain fruit-based products and non-cash impairment
charges primarily related to a write-down of certain machinery and equipment in Europe, offset in part by increased gross profit
driven by a favorable product mix and increased overall demand for our products in reaction to COVID-19 in Europe.
Corporate and Other
Our Corporate and Other category consists of expenses related to the Company’s centralized administrative functions, which do
not specifically relate to an operating segment. Corporate and Other expenses are comprised mainly of the compensation and
related expenses of certain of the Company’s senior executive officers and other employees who perform duties related to our
entire enterprise, as well as expenses for certain professional fees, facilities and other items which benefit the Company as a
whole. Additionally, productivity and transformation costs, trade name impairment charges, and proceeds from insurance claim
included within Corporate and Other expenses were $32.7 million, $9.5 million and $3.0 million, respectively, for the fiscal
year ended June 30, 2020. Former Chief Executive Officer Succession Plan expense, net, Productivity and transformation costs
and Accounting review and remediation costs, net of insurance proceeds included within Corporate and Other expenses were
$30.2 million, $28.4 million and $4.3 million, respectively, for the fiscal year ended June 30, 2019.
Refer to Note 22, Segment Information, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form
10-K for additional details.
42
Comparison of Fiscal Year Ended June 30, 2019 to Fiscal Year Ended June 30, 2018
Consolidate
i
d Results
The following tablea
fiscal years ended June 30, 2019 and 2018 (amounts in thousands, other than percentages which may not add due to rounding):
compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the
Fiscal Year Ended June 30,
Change in
2019
2018
Dollars
Percentage
$ 2,104,606
100.0 % $ 2,265,670
100.0
$%
(161,064)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Amortization of acquired intangibles
Productivity and transformation costs
Former Chief Executive Officer Succession
Plan expense, net
Proceeds from insurance claim
Accounting review and remediation costs, net
of insurance proceeds
Goodwill impairment
Long-lived asset and intangibles impairment
Operating (loss) income
Interest and other finaff
ncing expense, net
Other expense (income), net
(Loss) income from continuing operations
before income taxes and equity in net loss
(income) of equity-method investees
Benefit forff
Equity in net loss (income) of equity-method
s
income taxe
investees
Net (loss) income fromff
Net loss from discontinued operations, net of
continuing operations $
x
ta
1,706,109
398,497
314,000
13,134
40,107
30,156
(4,460)
4,334
—
33,719
81.1 %
18.9 %
14.9 %
0.6 %
1.9 %
1.4 %
(0.2)%
0.2 %
— %
1.6 %
(32,493)
(1.5)%
22,517
994
1.1 %
— %
1,798,413
467,257
316,285
15,934
16,822
520
—
9,293
7,700
14,033
86,670
16,387
79.4
%
20.6
%
14.0
%
0.7
%
0.7
%
— %
—
%
0.4
%
0.3
0.6
%
%
3.8
%
0.7
%
(2,151)
(0.1)%
(
92,304)
(
68,760)
2,285)
(
2,800)
(
3,285
2
29,636
4,460)
(
4,959)
(
(
7,700)
9,686
1
(7.1)%
(5.1)%
(14.7)%
(0.7)%
(17.6)%
138.4 %
*
*
(53.4)%
(100.0)%
140.3 %
119,163)
(
(137.5)%
,130
6
3,145
37.4 %
(146.2)%
(56,004)
3,232)
(
(2.7)%
(0.2)%
72,434
(1,971)
3.2
%
(0.1)%
128,438)
(
(1,261)
(177.3)%
64.0 %
655
— %
(339)
— %
994
(293.2)%
(53,427)
(2.5)% $
74,744
3.3
$%
(128,171)
(171.5)%
129,887)
(
(6.2)%
(65,050)
(2.9)%
(64,837)
99.7 %
Net (loss) income
$
(183,314)
(8.7)% $
9,694
0.4
$%
(193,008)
*
Adjusted EBITDA
* Percentage is not meaningful
Net Sales
$165,112
7.8 % $228,893
10.1
$%
(63,781)
(27.9)%
Net sales in fiscal 2019 were $2.10 billion, a decrease of $161.1 million, or 7.1%, from net sales of $2.27 billion in fiscal 2018.
Foreign currency exchange rates negatively impacted net sales by $44.5 million as compared to the prior year. On a constant
currency basis, net sales decreased approximately 5.1% from the prior year. Net sales decreased across both our North America
and International reportable segments. Further details of changes in net sales by segment are provided below.
Gross Profit
Gross profit in fiscal 2019 was $398.5 million, a decrease of $68.8 million, or 14.7%, from gross profit of $467.3 million in
the prior year. Gross profit was unfavorablya
fiscal 2018. Gross profit margin was 18.9%, a decrease of 170 basis points fromff
impacted by an inventory write-down of $12.4 million in connection with the discontinuance of slow moving SKUs primarily
in North America as part of a product rationalization initiative, higher trade and promotional investments and increased freight
and commodity costs primarily in the United States operating segment. These increased costs were partially offset by
productivity and transformation initiative cost savings.
43
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $314.0 million, a decrease of $2.3 million, or 0.7%, in fiscal 2019 from
$316.3 million in fiscal 2018. Selling, general and administrative expenses decreased primarily due to lower marketing
investment costs in the United States and lower stock-based compensation expense due to the reversal of previously accrued
amounts under certain performance-based incentive plans of which achievement was no longer deemed probable. See Note 15,
Stock-based Compensation and Incentive Performance Plans, in the Notes to the Consolidated Financial Statements included in
Item 8 of this Form 10-K for further discussion. This decrease was offset in part by increased consulting costs in the United
States, as well as increased variable compensation costs. Selling, general and administrative expenses as a percentage of net
sales was 14.9% in fiscal 2019 and 14.0% in the prior year, an increase of 90 basis points, primarily attributable to the
aforementioned items.
Amortization of Acquired Intangibles
Amortization of acquired intangibles was $13.1 million in fiscal 2019, a decrease of $2.8 million, or 17.6%, from $15.9 million
in fiscal 2018. The decrease was due to finite-lived intangibles from certain historical acquisitions becoming fully amortized
subsequent to June 30, 2018.
Productivity and Transformation Costs
We incurred Productivity and transformation costs of $40.1 million in fiscal 2019, an increase of $23.3 million from $16.8
million in fiscal 2018. The increase was primarily due to increased consulting fees incurred in connection with the Company’s
productivity and transformation initiative as well as increased severance costs in fiscal 2019 as compared to the prior year
period.
Former Chief Executive Officer Succession Plan Expense, Net
On June 24, 2018, the Company entered into a succession plan, whereby the Company’s former CEO, Irwin D. Simon, agreed
to terminate his employment with the Company upon the hiring of a new CEO. Net costs and expenses associated with the
Company’s former Chief Executive Officer succession plan were $30.2 million in fiscal 2019 compared to $0.5 million in fiscal
2018. See Note 3, Former Chief Executive Officer Succession Plan, in the Notes to the Consolidated Financial Statements
included in Item 8 of this Form 10-K.
Proceeds from Insurance Claims
In July of 2019, the Company received $7.0 million as partial payment from an insurance claim relating to business disruption
costs associated with a co-packer. Of this amount $4.5 million was recognized in fiscal 2019 as it related to reimbursement of
costs already incurred. The Company recorded an additional $2.5 million in the first quarter of fiscal 2020.
Accounting Review and Remediation Costs, Net of Insurance Proceeds
Costs and expenses associated with the internal accounting review, remediation and other related matters were $4.3 million in
fiscal 2019, compared to $9.3 million in fiscal 2018. Included in accounting review and remediation costs for fiscal 2019 and
2018 were insurance proceeds of $0.2 million and $5.7 million, respectively, related to the reimbursement of costs incurred as
part of the internal accounting review and the independent review by the Audit Committee and other related matters.
Goodwill Impairment
In fiscal 2018, the Company recorded a goodwill impairment charge of $7.7 million related to our former Hain Ventures
reporting unit, 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 July 1, 2019. There were no
goodwill impairment charges recorded during fiscal 2019. See Note 10, Goodwill and Other Intangible Assets, in the Notes to
the Consolidated Financial Statements included in Item 8 of this Form 10-K.
Long-lived Asset and Intangibles Impairment
During fiscal 2019, the Company recorded a pre-tax impairment charge of $17.9 million ($15.1 million in the North America
segment and $2.8 million in the International segment) related to certain trade names of the Company. See Note 10, Goodwill
44
and Other Intangible Assets, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
Additionally, the Company recorded $6.2 million of non-cash impairment charges primarily related to the Company’s decision
to consolidate manufacturing of certain fruit-based products in the United Kingdom. Moreover, the Company recorded a $9.7
million non-cash impairment charge to write down the value of certain machinery and equipment no longer in use in the United
States and United Kingdom, some of which was used to manufacture certain slow moving SKUs that were discontinued.
During fiscal 2018, the Company recorded a pre-tax impairment charge of $5.6 million ($5.1 million in the North America
segment and $0.5 million in the International segment) related to certain trade names of the Company. Also during fiscal 2018,
the Company determined that it was more likely than not that certain fixed assets at three of its manufacturing facilities would
be sold or otherwise disposed of before the end of their estimated useful lives due to the Company’s decision to utilize third-
party manufacturers for two facilities in the United States and to the closure of one facility to consolidate manufacturing of
certain soup products in the United Kingdom. As such, the Company recorded a $6.3 million non-cash impairment charge
primarily related to the closures of these facilities. Additionally, the Company discontinued additional slow moving SKUs in
the United States as part of a product rationalization initiative. As a result, expected future cash flows are not expected to
support the carrying value of certain machinery and equipment used to manufacture these products. As such, the Company
recorded a $2.1 million non-cash impairment charge to write down the value of these assets to fair value.
Operating (Loss) Income
Operating loss in fiscal 2019 was $32.5 million compared to operating income of $86.7 million in fiscal 2018. The decrease in
operating income resulted from the items described above.
Interest and Other Financing Expense, Net
Interest and other financing expense, net totaled $22.5 million in fiscal 2019, an increase of $6.1 million, or 37.4%, from $16.4
million in the prior year. The increase in interest and other financing expense, net resulted primarily from higher interest
expense related to our revolving credit facility as a result of higher variable interest rates. See Note 12, Debt and Borrowings, in
the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
Other Expense (Income), Net
Other expense (income), net totaled $1.0 million of expense in fiscal 2019, a decrease of $3.1 million from $2.2 million of
income in the prior year. Included in other expense (income), net for the fiscal year ended June 30, 2019 were net unrealized
foreign currency losses, which were higher than the prior year period principally due to the effect of foreign currency
movements on the remeasurement of foreign currency denominated loans.
(Loss) Income from Continuing Operations Before Income Taxes and Equity in Net Loss (Income) of Equity-Method Investees
Loss before income taxes and equity in the net loss of our equity-method investees for fiscal 2019 was $56.0 million compared
to income of $72.4 million in fiscal 2018. The decrease was due to the items discussed above.
Benefit for Income Taxes
The provision for income taxes includes federal, foreign, state and local income taxes. Our income tax benefit from continuing
operations was $3.2 million and $2.0 million for fiscal 2019 and 2018, respectively.
On December 22, 2017,
to the Tax Act, which
the U.S. government enacted comprehensive tax legislation pursuant
significantly revised the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from
35% to 21%, implementing a territorial tax system, imposing a one-time tax on foreign unremitted earnings and setting
limitations on deductibility of certain costs (e.g., interest expense and executive compensation), among other things.
In accordance with SAB No. 118, the SEC's staff accounting bulletin issued to address complexities involved in accounting for
the Tax Act, the Company finalized the tax effects of the Tax Act during fiscal 2019. The Company recorded additional tax
expense of $6.8 million related to its transition tax liability due to finalizing the Company’s foreign earnings and profits study.
The net increase reflected newly issued tax laws, regulations, and notices from the U.S. Department of Treasury and Internal
Revenue Service tax authorities. The adjustment of the Company’s provisional tax expense was recorded as a change in
estimate in accordance with SAB No. 118.
45
The effective income tax rate from continuing operations was a benefit of 5.8% and a benefit of 2.7% of pre-tax income for the
twelve months ended June 30, 2019 and 2018, respectively. The effective income tax rate from continuing operations for the
twelve months ended June 30, 2019 was primarily impacted by the Tax Act’s lowering of the corporate tax rate, the
geographical mix of earnings, state taxes, GILTI, finalization of the transition tax liability, and limitations on the deductibility
of executive compensation. The effective income tax rate was also impacted by a net increase in the Company’s valuation
allowance primarily related to the Company’s state deferred tax assets and state net operating loss carryforwards.
The effective income tax rate from continuing operations for the twelve months ended June 30, 2018 was primarily impacted by
the enactment of the Tax Act on December 22, 2017.
Our 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.
See Note 13, Income Taxes, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for
additional information.
Equity in Net Loss (Income) of Equity-Method Investees
Our equity in the net loss from our equity method investments for fiscal 2019 was $0.7 million compared to equity in net
income of $0.3 million for fiscal 2018. See Note 16, Investments, in the Notes to the Consolidated Financial Statements
included in Item 8 of this Form 10-K.
Net (Loss) Income from Continuing Operations
Net loss from continuing operations for fiscal 2019 was $53.4 million compared to net income of $74.7 million for fiscal 2018.
Net loss per diluted share was $0.51 in fiscal 2019 compared to net income per diluted share of $0.72 in fiscal 2018.
The decrease was attributable to the factors noted above.
Net Loss from Discontinued Operations
Net loss from discontinued operations for fiscal 2019 and 2018 was $129.9 million and $65.1 million, respectively, or $1.25
and $0.63 per diluted share, respectively. The increase in net loss from discontinued operations was primarily attributable to
asset impairment charges of $109.3 million and losses on sale in connection with the disposition of the Plainville Farms and
HPPC businesses of $40.2 million and $0.6 million, respectively, in each case recorded in fiscal 2019 and discussed in Note 5,
Discontinued Operations and Assets Held for Sale, in the Notes to Consolidated Financial Statements included in Item 8 of this
Form 10-K.
Net (Loss) Income
Net loss for fiscal 2019 was $183.3 million compared to net income of $9.7 million for fiscal 2018. Net loss per diluted share
was $1.76 in fiscal 2019 compared to net income per diluted share of $0.09 in 2018. The change was attributable to the factors
noted above.
Adjusted EBITDA
Our consolidated Adjusted EBITDA was $165.1 million and $228.9 million for fiscal 2019 and 2018, respectively, as a result
of the factors discussed above. See Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures following
the discussion of our results of operations for definitions and a reconciliation of our net (loss) income to Adjusted EBITDA.
46
Segment Resultstt
The following tablea
June 30, 2019 and 2018:
provides a summary of net sales and operating income by reportable segment for the fiscal years ended
(dollars in thousands)
Fiscal 2019 net sales
Fiscal 2018 net sales
$ change
% change
Fiscal 2019 operating income (loss)
Fiscal 2018 operating income (loss)
$ change
% change
Fiscal 2019 operating income (loss) margin
Fiscal 2018 operating income margin
North America
$
$
$
$
$
$
North America
$
1,195,979
$
$
$
$
$
1,295,413
(99,434)
(7.7)%
32,682
104,025
(71,343)
(68.6)%
2.7 %
8.0 %
International
908,627
970,257
(61,630)
(6.4)%
58,808
57,630
1,178
2.0 %
6.5 %
5.9 %
Corporate and
Other
$
$
$
$
$
—
—
n/a
n/a
(123,983)
(74,985)
(48,998)
Consolidated
2,104,606
2,265,670
(161,064)
(7.1)%
(32,493)
86,670
(119,163)
$
$
$
$
$
$
(65.3)%
(137.5)%
n/a
n/a
(1.5)%
3.8 %
segment in fiscal 2019 were $1.20 billion, a decrease of $99.4 million, or 7.7%,
Our net sales in the North America reportablea
from net sales of $1.30 billion in fiscal 2018. The decrease in net sales was primarily driven by declines in our Pantry, Better-
For-You-Baby, Fresh Living and Personal Care platforms. In addition, the declines were also driven by the strategic decision to
no longer support certain lower margin SKUs in order to reduce complexity and increase gross margins. Operating income in
segment in fiscal 2019 was $32.7 million, a decrease of $71.3 million, or 68.6%, from $104.0
the North America reportablea
million in fiscal 2018. The decrease in operating income was the result of the aforementioned decrease in net sales, higher trade
investments to drive future period growth, increased freight and logistics costs, start-up costs incurred in connection with a new
manufacturing facility, inventory write-downs of $12.1 million in connection with the discontinuance of slow moving SKUs as
part of a product rationalization initiative and a $7.1 million non-cash impairment charge to write down the value of certain
machinery and equipment no longer in use in fiscal 2019, offset in part by productivity and transformation initiative cost
savings.
International
Our net sales in the International reportable segment in fiscal 2019 were $908.6 million, an decrease of $61.6 million, or 6.4%,
from net sales of $970.3 million in fiscal 2018. On a constant currency basis, net sales decreased 2.4% from the prior year
primarily due to discontinued sales of unprofitable SKUs, partially offset by growth in our beverage products. Operating
income in the International reportable segment for fiscal 2019 was $58.8 million, an increase of $1.2 million, or 2.0%,
from $57.6 million in fiscal 2018. Excluding the impact of foreign currency movements of $3.0 million, operating income
increased 7.2% for fiscal 2019. The increase in operating income was primarily due to increased gross profit driven by a
product mix, offset in part by the aforementioned decrease in sales and non-cash impairment charges associated with
favorablea
the consolidation of manufacturing
-based products in the United Kingdom in fiscal 2019.
of certain fruit
ff
tt
Corporate
rr
r
and Othett
Our Corporate and Other category consists of expenses related to the Company’s centralized administrative functions, which do
not specifically relate to an operating segment. Corporate and Other expenses are comprised mainly of the compensation and
related expenses of certain of the Company’s senior executive officers and other employees who perform duties related to our
entire enterprise, as well as expenses for certain professional fees, facilities, and other items which benefit the Company as a
whole. Additionally, Productivity and transformation costs included in Corporate and Other totaled $28.4 million and $10.1
million for the fiscal years ended June 30, 2019 and 2018, respectively. The Corporate and Other category also included
accounting review and remediation costs, net of $4.3 million and $9.3 million for the fiscal years ended June 30,
2019 and 2018, respectively, and Former Chief Executive Officer Succession Plan expense, net of $30.2 million for the fiscal
year ended June 30, 2019.
47
to Note 22, Segment Information, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form
Referff
10-K for additional details.
Liquidity and Capital Resources
We finance our operations and growth primarily with the cash flows we generate fromff
available to us under our Amended Credit Agreement. See Note
Financial Statements included in Item 8 of this Form 10-K.
our operations and from borrowings
,12 Debt and Borrowings, in the Notes to the Consolidated
Our cash and cash equivalents balance increased $6.8 million at June 30, 2020 to $37.8 million compared to $31.0 million at
June 30, 2019. Our working capitaa
al was $260.7 million at June 30, 2020, an increase of $20.4 million from $240.3 million at
the end of fiscal 2019, whihichh excl dludes current assets andd current lili babililiitiies of df diiscontiinuedd opera itions.
Liquidity is affected by many facff
tors, some of which are based on normal ongoing operations of the Company’s business and
some of which arise from fluctuations related to global economics and markets. Our cash balances are held in the United States,
United Kingdom, Canada, Europe and India. As of June 30, 2020,
lalll of thet Company’s total cash balance was held outside of
gn subsidiaries to be indefinitely
the United States. The Company historically considered the undistributed earnings of its forei
reinvested. To achieve its cash management objectives, during the fourth quarter of fiscal 2020, the Company reversed its
reinvestment assertion for certain international locations representing $93.4 million of foreign earnings. The Company
continues to reinvest $641.8 million of undistributed earnings of its forei
gn subsidiaries and may be subject to additional
foreign withholding taxes and U.S. state income taxes if it reverses its indefinite reinvestment assertion on these foreign
earnings in the futff ure.
ff
ff
tt
We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of June 30, 2020, all of our
in less than three months. Accordingly, we do not believe that our investments have
investments were expected to maturett
significant exposure to interest rate risk. Cash provided by (used in) operating, investing and financing activities is summarized
below.
(amounts in thousands)
Cash flows provided by (used in):
Operating activities from continuing operations
Investing activities fromff
Financing activities fromff
continuing operations
continuing operations
Increase (decrease) in cash from continuing operations
(Decrease) increase in cash from discontinued operations
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Fiscal Year Ended June 30,
2020
2019
2018
$
156,914
$
39,333
$
114,396
(45,128)
(104,466)
7,320
(8,509)
(566)
(68,647)
(22,846)
(52,160)
(19,809)
(1,522)
(81,086)
(75,421)
(42,111)
7,919
217
$
(1,755) $
(73,491)
$
(33,975)
al 2020 resulted primarily from an improvement of $141.5 million in net income adjusted forff
Cash provided by operating activities fromff
continuing operations was $156.9 million for the fiscal year ended June 30, 2020,
compared to $39.3 million in fiscal 2019 and $114.4 million in fiscal 2018. The increase in cash provided by operating
non-cash charges,
activities in fiscff
al in fiscal
offset in part by an increase of $23.9 million of cash used in working capita
to a tax refund receivable of $52.5 million (included as a component of Other current assets in the
2020 is mainly duedd
Consolidated Statement of Cash Flows) resulting from carryback of NOLs
aC sh provided by operating
continuing operations was $39.3 million for the fiscal year ended 2019, compared to $114.4 million in fiscal
activities fromff
l 2019 resulted primarily from a decrease of $120.1 million
2018. The decrease in cash provided by operating activities in fisca
in net income adjusted forff
al
accounts.
non-cash charges, offset in part by a decrease of $45.1 million of cash used in working capita
al accounts. The increase in working capita
dunder hthe CARES Act.
ff
continuing operations was $45.1 million for the fiscal year ended June 30, 2020, a
Cash used in investing activities fromff
decrease of $23.5 million from $68.6 million in fiscal 2019 primarily due to proceeds of $15.8 million from brand divestitures
and other investing activities and decreased capita
continuing operations
was $68.6 million for fiscal 2019, a decrease of $12.4 million from $81.1 million in fiscal 2018 primarily due to cash used in
connection with our Clarks UK Limited acquisition in fiscal 2018.
al expenditures. Cash used in investing activities fromff
tt
48
Cash used in financing activities from continuing operations was $104.5 million for the fiscal year ended June 30, 2020 and
included $345.9 million of net repayments of our term loan and revolving credit facility funded primarily with the proceeds
received from the sale of Tilda and $60.2 million of share repurchases, offset in part by $305.6 million primarily related to the
proceeds from the sale of Tilda. Cash used in financing activities from continuing operations was $22.8 million for fiscal 2019
and primarily included $73.8 million of net repayments of our term loan and revolving credit facility funded primarily through
proceeds received from the sale of HPPC and EK Holdings, Inc, offset in part by $56.6 million of proceeds received from
operations of discontinued operations. Cash used in financing activities from continuing operations was $75.4 million for fiscal
2018 and primarily included $39.7 million of net repayments of our term loan and revolving credit facility funded primarily
through cash flows from operations and $26.8 million to fund the operations of discontinued operations.
Operating Free Cash Flow from Continuing Operations
Our operating free cash flow was $96.0 million for the fiscal year ended June 30, 2020, an increase of $132.5 million from the
fiscal year ended June 30, 2019. The increase in operating free cash flow primarily resulted from an improvement in net
income adjusted for non-cash items of $141.5 million and a decrease in our capital expenditures of $14.9 million, offset in part
by cash provided within working capital accounts of $23.9 million. We refer the reader to the Reconciliation of Non-U.S.
GAAP Financial Measures to U.S. GAAP Measures following the discussion of our results of operations for definitions and a
reconciliation from our net cash provided by operating activities from continuing operations to operating free cash flow from
continuing operations.
Share Repurchase Program
On June 21, 2017, the Company's Board of Directors authorized the repurchase of up to $250.0 million of the Company’s
issued and outstanding common stock. Repurchases may be made from time to time in the open market, pursuant to pre-set
trading plans, in private transactions or otherwise. The authorization does not have a stated expiration date. The extent to which
the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate
considerations, including the Company’s historical strategy of pursuing accretive acquisitions. During the fiscal year ended
June 30, 2020, the Company repurchased 2.6 million shares under the repurchase program for a total of $60.2 million,
excluding commissions, at an average price of $23.59 per share. As of June 30, 2020, the Company had $189.8 million of
remaining authorization under the share repurchase program. The Company did not repurchase any shares under this program
in fiscal 2019 or 2018.
Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures
We have included in this report measures of financial performance that are not defined by U.S. GAAP. We believe that these
measures provide useful information to investors and include these measures in other communications to investors.
For each of these non-U.S. GAAP financial measures, we are providing below a reconciliation of the differences between the
non-U.S. GAAP measure and the most directly comparable U.S. GAAP measure, an explanation of why our management and
Board of Directors believes the non-U.S. GAAP measure provides useful information to investors and any additional purposes
for which our management and Board of Directors uses the non-U.S. GAAP measure. These non-U.S. GAAP measures should
be viewed in addition to, and not in lieu of, the comparable U.S. GAAP measure.
Constant Currency Presentation
this measure provides useful
We believe that
information to investors because it provides transparency to underlying
performance in our consolidated net sales by excluding the effect that foreign currency exchange rate fluctuations have on year-
to-year comparability given the volatility in foreign currency exchange markets. To present this information for historical
periods, current period net sales for entities reporting in currencies other than the U.S. Dollar are translated into U.S. Dollars at
the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual
average monthly exchange rate in effect during the current period of the current fiscal year. As a result, the foreign currency
impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate
between the current fiscal period and the corresponding period of the prior fiscal year.
49
A reconciliation between reported and constant currency net sales decrease in fiscal 2020 is as follow
ff
s:
(amounts in thousands)
North America
International
Hain Consolidated
Net sales - Fiscal 2020
Impact of foreign currency exchange
Net sales on a constant currency basis - Fiscal 2020
Net sales - Fiscal 2019
Net sales decrease on a constant currency basis
$
$
$
$
1,171,478
2,227
1,173,705
1,195,979
(1.9)%
$
$
$
$
882,425
25,244
907,669
908,627
(0.1)%
$
$
$
$
2,053,903
27,471
2,081,374
2,104,606
(1.1)%
A reconciliation between reported and constant currency net sales decrease in fiscal 2019 is as follow
ff
s:
(amounts in thousands)
Net sales - Fiscal 2019
Impact of foreign currency exchange
Net sales on a constant currency basis - Fiscal 2019
Net sales - Fiscal 2018
Net sales decrease on a constant currency basis
Adjusted EBIEE TDA
II
North America
International
Hain Consolidated
$
$
$
$
1,195,979
6,047
1,202,026
1,295,413
(7.2)%
$
$
$
$
908,627
38,477
947,104
970,257
(2.4)%
$
$
$
$
2,104,606
44,524
2,149,130
2,265,670
(5.1)%
Adjusted EBITDA is defined as net (loss) income before income taxes, net interest expense, depreciation and amortization,
impairment of long-lived and intangible assets, equity in the earnings of equity-method investees, stock-based compensation,
this
Productivity and transformation costs, and other non-recurring items. The Company’s management believes that
presentation provides useful information to management, analysts and investors regarding certain additional financial and
business trends relating to its results of operations and financial condition. In addition, management uses this measure for
reviewing the financial results of the Company and as a component of performance-based executive compensation. Adjusted
EBITDA is a non-U.S. GAAP measure and may not be comparable to similarly titled measures reported by other companies.
We do not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with
U.S. GAAP. The principal limitation of Adjusted EBITDA is that it excludes certain expenses and income that are required by
U.S. GAAP to be recorded in our consolidated financial statements. In addition, Adjusted EBITDA is subject to inherent
limitations as this metric reflects the exercise of judgment by management about which expenses and income are excluded or
included in determining Adjusted EBITDA. In order to compensate forff
these limitations, management presents Adjusted
EBITDA in connection with U.S. GAAP results.
50
A reconciliation of net income (loss) to Adjusted EBITDA is as follows:
(amounts in thousands)
e
Net (loss) incom
Net loss from discontinued operations
Net income (loss) from continuing operations
Provision (benefit) for income taxes
Interest expense, net
Depreciation and amortization
Equity in net loss (income) of equity-method investees
Stock-based compensation, net
Stock-based compensation expense in connection with Former Chief
Executive Officer Succession Plan
Goodwill impairment
Long-lived asset and intangibles impairment
Unrealized currency losses (gains)
Productivity and transformation costs
Former Chief Executive Officer Succession Plan expense, net
Proceeds from insurance claims
Accounting review and remediation costs, net of insurance proceeds
SKU rationalization and inventory write-down
Loss (gain) on sale of business
Warehouse/manufacturing facility start-up costs
Plant closure related costs
Litigation and related expenses
Realized currency loss on repayment of international loans
Losses on terminated chilled desserts contract
Co-packer disruption
Regulated packaging change
Toys “R” Us bad debt
Recall and other related costs
Machine break-down costs
Adjusted EBITDA
Operating Free CashCC
Flow from Continuing Operations
Fiscal Year Ended June 30,
2020
2019
2018
$
$
(80,407) $
(106,041)
(183,314) $
(129,887)
25,634
$
(53,427) $
9,694
(65,050)
74,744
6,205
14,351
52,088
1,989
13,078
—
394
27,493
543
47,596
—
(2,962)
—
4,175
3,564
3,440
2,357
48
—
—
—
—
—
—
(3,232)
19,450
50,898
655
9,471
429
—
33,719
(850)
39,958
29,727
(4,460)
4,334
12,381
(534)
17,636
4,734
1,517
2,706
—
—
—
—
—
(1,971)
13,910
54,277
(339)
13,380
(2,203)
7,700
14,033
(2,027)
16,833
2,723
—
9,293
4,913
—
4,179
5,513
1,015
—
6,553
3,566
1,007
897
580
—
199,993
$
—
165,112
$
317
228,893
$
continuing operations, which is the most comparablea
In our internal evaluations, we use the non-U.S. GAAP financial measure “operating free cash flow from continuing
from continuing operations and cash flow provided by or used in
operations.” The difference between operating free cash flowff
operating activities fromff
U.S. GAAP financial measure, is that operating
al expenditures. Since capital spending is essential to
free cash floff w fromff
maintaining our operational capabi
lities, we believe that it is a recurring and necessary use of cash. As such, we believe
investors should also consider capital spending when evaluating our cash provided by or used in operating activities. We view
continuing operations as an important measure because it is one factor in evaluating the amount
operating free cash floff w fromff
continuing operations in
of cash available forff
isolation or as an alternative to financial measures determined in accordance with U.S. GAAP.
discretionary investments. We do not consider operating free cash floff w fromff
continuing operations reflects the impact of capita
aa
51
A reconciliation from cash flow provided by operating activities to Operating free cash flow is as follows:
(amounts in thousands)
Cash flow provided by operating activities from continuing operations
Purchase of property, plant and equipment
Operating free cash flowff
continuing operations
Fiscal Year Ended June 30,
2020
2019
2018
$
$
156,914
(60,893)
96,021
$
$
$
39,333
(75,792)
(36,459) $
114,396
(69,456)
44,940
Contractual Obligations
Obligations for all debt instruments, capita
follows:
al and operating leases and other contractual obligations as of June 30, 2020 are as
(amounts in thousands)
Long-term debt obligations(1)
Operating lease obligations(1)
Operating leases not yet commenced
Finance lease obligations(1)
Purchase obligations(2)
Total contractual obligations
(1) Including principal
i
and interest.
Payments Due by Period
Total
Less than 1
year
1-3 years
3-5 years
5+ years
$
301,601
$
8,809
$
292,786
$
— $
6
113,419
14,781
9,797
632
576
308
212,649
171,380
26,631
1,778
300
41,269
20,462
51,545
1,839
24
—
5,604
—
—
$
638,098
$
195,854
$
362,764
$
22,325
$
57,155
(2) Excludes amounts that may be payable upon
u
termination to co-packers as we are not able to reasonably estimate such
amounts.
As of June 30, 2020, we had non-current unrecognized tax benefits of $20.9 million for which we are not able to reasonably
estimate the timing of future cash flows. As a result, this amount has not been included in the tablea
above.
We believe that our cash on hand of $37.8 million at June 30, 2020 as well as projected cash flows from operations and
al needs in the ordinary course of
availability under our Amended Credit Agreement are sufficient to fund our working capitaa
business, anticipated fiscal 2021 capitaa
and other expected cash requirements for at least the next 12 months.
al expenditures
tt
Off Balance Sheet Arrangements
At June 30, 2020, we did not have any off-balance sheet arrangements as defineff
had or are likely to have a material current or futurett
t on our consolidated finaff
effecff
ncial statements.
d in Item 303(a)(4) of Regulation S-K that have
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial
statements, which are prepared in accordance with accounting principles generally accepted in the United States. Our
significant accounting policies are described in Note 2, Summary of Signifii cant Accounting Policies and Practices, in the Notes
to the Consolidated Financial Statements included in Item 8 of this Form 10-K. The policies below have been identified as the
critical accounting policies we use which require us to make estimates and assumptim ons and exercise judgment that affect the
reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the
reporting periods presented. We believe in the quality and reasonableness of our critical accounting estimates; however,
materially different amounts might be reported under different conditions or using assumptim ons, estimates or making judgments
different from those that we have applied. Our critical accounting policies, including our methodology for estimates made and
assumptim ons used, are as follows:
Revenue Recognition
The Company sells its products through specialty and natural
foods stores, mass-market
and e-commerce retailers, food service channels and club, drug and convenience stores in over 75 countries worldwide. The
ty of our revenue contracts represent a single perforff mance obligation related to the fulfillment of customer orders for the
a
majori
food distributors, supermarkets, natural
tt
tt
52
purchase of our products. We recognize revenue as performance obligations are fulfilled when control passes to our customers.
Our customer contracts typically contain standard terms and conditions. In instances where formal written contracts are not in
place we consider the customer purchase orders to be contracts based on the criteria outlined in ASC 606, Revenue from
Contracts with Customers. Payment terms and conditions vary by customer and are based on the billing schedule established in
our contracts or purchase orders with customers, but we generally provide credit terms to customers ranging from 15-60 days;
therefore, we have determined that our contracts do not include a significant financing component.
Sales to customers generally do not include more than one performance obligation. When a contract does contain more than one
performance obligation, we allocate the contract’s transaction price to each performance obligation based on its relative
standalone selling price. The standalone selling price for each distinct good is generally determined by directly observable data.
We have determined that we satisfy our performance obligations related to our customer contracts at a point in time, as opposed
to over time, and, accordingly, revenue is recognized at a point in time. Therefore, we do not have any contract balances with
our customers recorded on our Consolidated Balance Sheets.
Sales includes shipping and handling charges billed to the customer and are reported net of discounts, trade promotions and
sales incentives, consumer coupon programs and other costs, including estimated allowances for returns, allowances and
discounts associated with aged or potentially unsalable product, and prompt pay discounts. Shipping and handling costs are
accounted for as a fulfillment activity of our promise to transfer products to our customers and are included in cost of sales line
item on the Consolidated Statements of Operations.
Variable Consideration
In addition to fixed contract consideration, many of our contracts include some form of variable consideration. We offer
various trade promotions and sales incentive programs to customers and consumers, such as price discounts, slotting fees, in-
store display incentives, cooperative advertising programs, new product introduction fees and coupons. The expenses associated
with these programs are accounted for as reductions to the transaction price of our products and are therefore deducted from our
sales to determine reported net sales. Trade promotions and sales incentive accruals are subject to significant management
estimates and assumptions. The critical assumptions used in estimating the accruals for trade promotions and sales incentives
include management’s estimate of expected levels of performance and redemption rates. Management exercises judgment in
developing these assumptions. These assumptions are based upon historical performance of the retailer or distributor customers
with similar types of promotions adjusted for current trends. The Company regularly reviews and revises, when deemed
necessary, estimates of costs to the Company for these promotions and incentives based on what has been incurred by the
customers. The terms of most of our promotion and incentive arrangements do not exceed a year and therefore do not require
highly uncertain long-term estimates. Settlement of these liabilities typically occurs in subsequent periods primarily through an
authorization process for deductions taken by a customer from amounts otherwise due to the Company. Differences between
estimated expense and actual promotion and incentive costs are recognized in earnings in the period such differences are
determined. Actual expenses may differ if the level of redemption rates and performance were to vary from estimates.
Costs to Obtain or Fulfill a Contract
As our contracts are generally shorter than one year, the Company has elected a practical expedient under ASU 2014-09 that
allows the Company to expense as incurred the incremental costs of obtaining a contract if the contract period is for one year or
less. These costs are included in the selling, general and administrative expense line item on the Consolidated Statements of
Operations.
Disaggregation of Net Sales
The Company does not disaggregate revenue below the segment revenues level disclosed in Note 22, Segment Information, as
all revenues are recognized at a point in time and the Company’s segment revenues depict how the economic factors affect the
nature, amount, and timing and uncertainty of cash flows.
Valuation of Accounts and Chargeback Receivable
We perform routine credit evaluations on existing and new customers. We apply reserves for delinquent or uncollectible trade
receivables based on a specific identification methodology and also apply an additional reserve based on the experience we
have with our trade receivables aging categories. Credit losses have been within our expectations in recent years. While
Walmart Inc. and its affiliates, Sam’s Club and ASDA, together represented approximately 13% of accounts receivable, net at
June 30, 2020, we believe there is no significant or unusual credit exposure at this time.
53
Based on cash collection history and other statistical analysis, we estimate the amount of unauthorized deductions that our
customers have taken that we expect will be collectible and repaid in the near future and record a chargeback receivable.
Differences between estimated collectible receivables and actual collections are recognized in earnings in the period such
differences are determined.
We may not have the same experience with our receivables during different economic conditions, or with changes in business
conditions, such as consolidation within the food industry and/or a change in the way we market and sell our products.
Valuation of Long-lived Assets
Fixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur
indicating that the carrying value of the asset may not be recoverable. Undiscounted cash flow analyses are used to determine if
impairment exists. If impairment is determined to exist, the loss is calculated based on estimated fair value.
Goodwill and Intangible Assets
Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually for
impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the
asset may not be recoverable.
Goodwill is tested for impairment at the reporting unit level. A reporting unit represents an operating segment or a component
of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a two-step
quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative
assessment for some or all reporting units and perform a two-step quantitative impairment test. The estimate of the fair values
of our reporting units are based on the best information available as of the date of the assessment. We generally use a blended
analysis of the present value of discounted cash flows and the market valuation approach. The discounted cash flow model uses
the present values of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of
operating and external economic factors in estimating our future cash flows. The assumptions we use in our evaluations include
projections of growth rates and profitability, our estimated working capital needs, as well as our weighted average cost of
capital. The market valuation approach indicates the fair value of a reporting unit based on a comparison to comparable publicly
traded firms in similar businesses. Estimates used in the market value approach include the identification of similar companies
with comparable business factors. Changes in economic and operating conditions impacting the assumptions we made could
result in additional goodwill impairment in future periods. If the carrying value of the reporting unit exceeds fair value,
goodwill is considered impaired. The amount of the impairment is the difference between the carrying value of the goodwill
and the “implied” fair value, which is calculated as if the reporting unit had just been acquired and accounted for as a business
combination.
Indefinite-lived intangible assets consist primarily of acquired trade names and trademarks. We first assess qualitative factors
to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. We measure the fair value of
these assets using the relief from royalty method. This method assumes that the trade names and trademarks have value to the
extent their owner is relieved from paying royalties for the benefits received. We estimate the future revenues for the associated
brands, the appropriate royalty rate and the weighted average cost of capital.
The Company completed its annual goodwill impairment analysis in the fourth quarter of fiscal 2020, in conjunction with its
budgeting and forecasting process for fiscal year 2021, and concluded that no indicators of impairment existed at any of its
reporting units.
As of June 30, 2020, the carrying value of goodwill was $862.0 million. For the fiscal 2020 impairment analysis, the Company
performed the qualitative assessment for all of its reporting units with the exception of the Hain Daniels reporting unit where a
two-step quantitative assessment was performed. The estimated fair value of each reporting unit exceeded its carrying value
based on the analysis performed. For the Hain Daniels reporting unit, the first step of the two-step analysis was performed, and
it was found that the estimated fair value of the reporting unit exceeded its carrying value by at least 20%. Holding all other
assumptions used in the 2020 fair value measurement constant, a 100-basis-point increase in the weighted average cost of
capital would not result in the carrying value of the reporting units to be in excess of the fair value. The fair values were based
on significant management assumptions including an estimate of future cash flows. If assumptions are not achieved or market
conditions decline, potential impairment charges could result. The Company will continue to monitor impairment indicators
and financial results in future periods.
54
For the fiscal year ended June 30, 2018, the Company recognized a goodwill impairment charge of $7.7 million primarily as a
result of lowered projected long-term revenue growth rates and profitability levels in its former Hain Ventures reporting unit,
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.
Indefinite-lived intangible assets are evaluated on an annual basis in conjunction with the Company’s evaluation of goodwill, or
on an interim basis if and when events or circumstances change that would more likely than not reduce the fair value of any of
In assessing fair value, the Company utilizes a “relief from
its indefinite-life intangible assets below their carrying value.
royalty payments” methodology. This approach involves two steps: (i) estimating the royalty rates for each trademark and (ii)
applying these royalty rates to a projected net sales stream and discounting the resulting cash flows to determine fair value. If
the carrying value of the indefinite-lived intangible assets exceeds the fair value of the asset, the carrying value is written down
to fair value in the period identified. During the second and third quarters of fiscal 2020, the Company determined that
indicators of impairment existed in certain of the Company’s indefinite-lived trade names in association with the sale or
discontinuation of certain businesses and brands. The Company performed interim impairment analyses during the year, and
determined that the fair value of certain of the Company’s trade names was below their carrying value, and therefore an
impairment charge of $9.5 million was recognized ($4.0 million in the North America segment and $5.5 million in the
International segment). The result of the annual assessment for the year ended June 30, 2020 indicated that the fair value of the
Company’s trade names exceeded their carrying values and no indicators of impairment were present. For the fiscal year ended
June 30, 2019, a trade name impairment charge of $17.9 million was recognized ($15.1 million in the North America segment
and $2.8 million in the International segment). For the fiscal year ended June 30, 2018, a trade name impairment charge of $5.6
million ($5.1 million in the North America segment and $0.5 million in the International segment) was recorded.
See also Note 10, Goodwill and Other Intangible Assets, in the Notes to Consolidated Financial Statements included in Item 8
of this Form 10-K, for additional information.
Stock-based Compensation
The Company uses the fair market value of the Company’s common stock on the grant date to measure fair value for service-
based and performance-based awards and a Monte Carlo simulation model to determine the fair value of market-based awards.
The use of the Monte Carlo simulation model requires the Company to make estimates and assumptions, such as expected
volatility, expected term and risk-free interest rate. The fair value of stock-based compensation awards is recognized as an
expense over the vesting period using the straight-line method. For awards that contain a market condition, expense is
recognized over the defined or derived service period using a Monte Carlo simulation model.
For restricted stock awards which include performance criteria, compensation expense is recorded when the achievement of the
performance criteria is probable and is recognized over the performance and vesting service periods. Compensation expense is
recognized for only that portion of stock-based awards that are expected to vest. Therefore, estimated forfeiture rates that are
derived from historical employee termination activity are applied to reduce the amount of compensation expense recognized. If
the actual forfeitures differ from the estimate, additional adjustments to compensation expense may be required in future
periods.
Valuation Allowances for Deferred Tax Assets
Deferred tax assets arise when we recognize expenses in our financial statements that will be allowed as income tax deductions
in future periods. Deferred tax assets also include unused tax net operating losses and tax credits that we are allowed to carry
forward to future years. Accounting rules permit us to carry deferred tax assets on the balance sheet at full value as long as it is
“more likely than not” that the deductions, losses or credits will be used in the future. A valuation allowance must be recorded
against a deferred tax asset if this test cannot be met. Our determination of our valuation allowances is based upon a number of
assumptions, judgments and estimates, including forecasted earnings, future taxable income and the relative proportions of
revenue and income before taxes in the various jurisdictions in which we operate. Concluding that a valuation allowance is not
required is difficult when there is significant negative evidence that is objective and verifiable, such as cumulative losses in
recent years.
We have deferred tax assets related to foreign net operating losses, primarily in the United Kingdom and to a lesser extent in
Belgium, against which we have recorded valuation allowances. The losses in the United Kingdom were recorded prior to the
acquisition of Daniels. Under current tax law in these jurisdictions, our carryforward losses have no expiration. During fiscal
2019, the Company released the valuation allowance on a majority of its U.K. net operating loss carryforwards as it is more
likely than not that the losses are realizable.
55
During fiscal 2020, we recorded a partial valuation allowance against our state deferred tax assets and state net operating loss
carryforwards as it is not more likely than not that the state tax attributes will be realized.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies and Practices, in the Notes to the Consolidated Financial Statements
included in Item 8 of this Form 10-K for information regarding recent accounting pronouncements.
Seasonality
Certain of our product lines have seasonal fluctuations. Hot tea, baking products, hot cereal, hot-eating desserts and soup sales
are stronger in colder months, while sales of snack foods, sunscreen and certain of our prepared food and personal care products
are stronger in the warmer months. As such, our results of operations and our cash flows for any particular quarter are not
indicative of the results we expect for the full year, and our historical seasonality may not be indicative of future quarterly
results of operations. In recent years, net sales and diluted earnings per share in the first fiscal quarter have typically been the
lowest of our four quarters.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Market Risk
The principal market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) to which the Company
is exposed are:
•
•
•
interest rates on debt and cash equivalents;
foreign exchange rates, generating translation and transaction gains and losses; and
ingredient inputs.
Interest Rates
We centrally manage our debt and cash equivalents, considering investment opportunities and risks, tax consequences and
overall financing strategies. Our cash equivalents consist primarily of money market funds or their equivalent. As of June 30,
2020, we had $280 million of variable rate debt outstanding under our Amended Credit Agreement. During fiscal 2020, the
Company used interest rate swaps to hedge a portion of the interest rate risk related its outstanding variable rate debt. As of
June 30, 2020, the notional amount of the interest rate swaps was $230 million for which we pay a weighted average fixed rate
of 1.62%. Assuming current cash equivalents, variable rate borrowings and the effects of the interest rate swaps, a hypothetical
change in average interest rates of one percentage point would impact net interest expense by approximately $0.1 million over
the next fiscal year.
Foreign Currency Exchange Rates
Operating in international markets involves exposure to movements in currency exchange rates, which are volatile at times, and
the impact of such movements, if material, could cause adjustments to our financing and operating strategies.
During fiscal 2020, approximately 51% of our consolidated net sales were generated from sales outside the United States, while
such sales outside the United States were 50% of net sales in fiscal 2019 and 50% of net sales in fiscal 2018. These revenues,
along with related expenses and capital purchases, were conducted primarily in British Pounds Sterling, Euros, Indian Rupees
and Canadian Dollars. Sales and operating income would have decreased by approximately $53.1 million and $3.3 million,
respectively, if average foreign exchange rates had been lower by 5% against the U.S. Dollar in fiscal 2020. These amounts
were determined by considering the impact of a hypothetical foreign exchange rate on the sales and operating income of the
Company’s international operations. To reduce that risk, the Company may enter into certain derivative financial instruments,
when available on a cost-effective basis, to manage such risk. We had approximately $143.5 million in notional amounts of
cross-currency swaps and foreign currency exchange contracts at June 30, 2020. See Note 17, Financial Instruments Measured
at Fair Value, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Fluctuations in currency exchange rates may also impact the Stockholders’ Equity of the Company. Amounts invested in our
non-United States subsidiaries are translated into United States Dollars at the exchange rates as of the last day of each reporting
period. Any resulting cumulative translation adjustments are recorded in Stockholders’ Equity as Accumulated Other
56
Comprehensive Income. The cumulative translation adjustments component of Accumulated Other Comprehensive Loss
decreased by $37.8 million during the fiscal year ended June 30, 2020.
Ingredient Inputs Price Risk
The Company purchases ingredient inputs such as almonds, coconut oil, corn, dairy, fruit and vegetables, oils, rice, soybeans,
oats and wheat, as well as packaging materials, to be used in its operations. These inputs are subject to price fluctuations that
may create price risk. We do not attempt to hedge against fluctuations in the prices of the ingredients by using future, forward,
option or other derivative instruments. As a result, the majority of our future purchases of these items are subject to changes in
price. We may enter into fixed purchase commitments in an attempt to secure an adequate supply of specific ingredients. These
agreements are tied to specific market prices. Market risk is estimated as a hypothetical 10% increase or decrease in the
weighted-average cost of our primary inputs as of June 30, 2020. Based on our cost of goods sold during the fiscal year ended
June 30, 2020, such a change would have resulted in an increase or decrease to cost of sales of approximately $106 million. We
attempt to offset the impact of input cost increases with a combination of cost savings initiatives and efficiencies and price
increases.
Item 8.
Financial Statements and Supplementary Data
The following consolidated financial statements of The Hain Celestial Group, Inc. and subsidiaries are included in Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - June 30, 2020 and 2019
Consolidated Statements of Operations - Fiscal Years ended June 30, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) - Fiscal Years ended June 30, 2020, 2019 and 2018
Consolidated Statements of Stockholders’ Equity - Fiscal Years ended June 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows - Fiscal Years ended June 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
The following consolidated financial statement schedule of The Hain Celestial Group, Inc. and subsidiaries is included in Item
15(a):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the
related instructions or are inapplicable and therefore have been omitted.
57
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
The Hain Celestial Group, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Hain Celestial Group, Inc. and subsidiaries (the
Company) as of June 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss),
stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2020, and the related notes and the
financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company at June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the
period ended June 30, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of June 30, 2020, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated August 25, 2020 expressed an unqualified opinion thereon.
Adoption of a New Accounting Standard
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases,
which generally requires all leases be recognized in the statement of financial position, in 2020 due to the adoption of ASU No.
2016-02, Leases (Topic 842).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
58
Valuation of Goodwill and Trademarks and Trade names
Description of
the Matter
At June 30, 2020, the Company’s goodwill and trademarks and trade names were $0.9 billion
and $0.3 billion, respectively. As discussed in Note 10 of the 2020 consolidated financial
statements, goodwill and trademarks and trade names are qualitatively or quantitatively tested
for impairment at least annually, or more frequently when necessary. If the fair value of the
intangible asset is less than its carrying amount, an impairment loss is recognized.
Auditing management’s annual goodwill and trademarks and trade names impairment tests was
complex as considerable management judgment was necessary to estimate fair values of the
reporting units and trademarks and trade names. For goodwill, significant assumptions used in
management’s evaluations included projections of revenue growth rates and profitability,
estimated working capital needs and the weighted average cost of capital. For trademarks and
trade names, significant assumptions used in management’s evaluations included projections of
future revenues for the associated brands, royalty rates, and the weighted average cost of
capital. The aforementioned assumptions are affected by expectations about future market or
economic conditions that materially impact the fair value of the reporting units as well as the
trademark and trade names.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of
controls over the Company’s goodwill and trademark and trade name impairment evaluation
process. For example, we tested controls over management’s review of the significant
assumptions used in the reporting unit and trademark and trade name valuations as well as
management’s review around the reasonableness of the data used in these valuations.
To test the estimated fair value of the Company’s reporting units and trademarks and trade
names, we performed audit procedures that included, among others, testing the significant
assumptions discussed above, testing the underlying data used by the Company in its analyses
by comparing to historical and other industry data, as well as validating certain assertions with
data internal to the Company and from other sources. We compared the significant assumptions
used by management to current industry and economic trends while also considering changes to
the Company’s business model, customer base and product mix. We assessed the historical
accuracy of management’s estimates and significant assumptions, such as projections of
revenue growth rates and profitability, and estimated working capital needs, by comparing
management’s past projections to actual performance. We used our valuation specialists to
independently compute a range of reasonableness for the weighted average cost of capital. We
also performed sensitivity analyses to evaluate the impact that changes in the significant
assumptions would have on the fair value of the reporting units and trademarks and trade
names. In addition, we tested the reconciliation of the fair value of the reporting units to the
market capitalization of the Company. We also involved a valuation specialist to assist in our
evaluation of the Company's model, valuation methodology and significant assumptions.
59
Description of
the Matter
Revenue Recognition
For the year ended June 30, 2020, the Company’s reported net sales from continuing operations
was $2.1 billion. As described in Note 2 of the 2020 consolidated financial statements, the
Company provides certain retailers and distributors with trade and promotional incentive
programs, which results in variable consideration and the Company having to estimate expected
levels of promotions that are typically settled in a period after the sale taking place. The
estimated costs of these trade promotions and sales incentives are recorded as a reduction to
revenue at the time a product is sold to the customer. The measurement of trade promotions and
sales incentive programs involves the use of judgment related to estimates of expected levels of
performance and redemption rates.
Auditing the estimate of trade promotions and sales incentives is complex because the revenue
recognized is determined based on significant management estimates. In particular, estimates
are made for price discounts, slotting fees, in-store display incentives, cooperative advertising
programs, new product introduction fees and coupons. These estimates are based on historical
performance of the retailer or distributor, types of promotions, and adjustments for current
trends, among other inputs. Changes in these estimates can have a significant impact on the
amount of the revenue recognized. The completeness of the trade promotions and sales
incentives estimate could also be impacted by any undisclosed side arrangements.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of
controls over the Company’s trade promotions and sales incentives estimation process. For
example, we tested controls over management’s review of the significant assumptions, such as
the historical rate and timing of deductions, management’s review of the completeness and
accuracy of the data used and other controls such as their retrospective review analysis.
Among other tests, we tested the results of the Company's retrospective review analysis of price
concessions claimed by distributors and retailers as compared to levels of performance and
redemption rates used in the estimate, evaluated the estimates used by comparing them to
significant
historical
assumptions. We also performed detailed transactional testing of customer deduction data
underlying the estimate to validate the nature,
timing and amount of deductions taken.
Additionally, we obtained confirmations from Company sales representatives in order to assess
the completeness of incentive programs.
trends, and performed sensitivity analyses over
the Company's
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1994.
Jericho, New York
August 25, 2020
60
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2020 AND JUNE 30, 2019
(In thousands, except par values)
Current assets:
Cash and cash equivalents
ASSETS
Accounts receivable, less allowance for doubtful accounts of $638 and $588,
respectively
Inventories
Prepaid expenses and other current assets
Current assets of discontinued operations
Total current assets
Property, plant and equipment, net
Goodwill
Trademarks and other intangible assets, net
Investments and joint ventures
Operating lease right-of-use assets
Other assets
Noncurrent assets of discontinued operations
tt
Total assets
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
Accrued expenses and other current liabilities
Current portion of long-term debt
Current liabilities of discontinued operations
Total current liabilities
Long-term debt, less current portion
Deferred income taxes
Operating lease liabilities, noncurrent portion
Other noncurrent liabilities
Noncurrent liabilities of discontinued operations
Total liabilities
Commitments and contingencies (Note 20)
Stockholders’ equity:
Preferred stock - $.01 par value, authorized 5,000 shares; issued and outstanding: none
Common stock - $.01 par value, authorized 150,000 shares; issued: 109,123 and
108,833 shares, respectively; outstanding: 101,885 and 104,219 shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Less: Treasury stock, at cost, 7,238 and 4,614 shares, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated finff ancial statements.
61
30,
2020
2019
$
37,771
$
31,017
170,969
248,170
104,024
—
560,934
289,256
861,958
346,462
17,439
88,165
24,238
—
2,188,452
171,009
127,612
1,656
—
300,277
281,118
51,849
82,962
28,692
—
744,898
$
$
209,990
299,341
51,391
110,048
701,787
287,845
875,881
380,286
18,890
—
58,764
259,167
2,582,620
219,957
114,265
17,232
31,703
383,157
613,537
34,757
—
14,489
17,361
1,063,301
—
—
1,092
1,171,875
614,171
(171,392)
1,615,746
(172,192)
1,443,554
2,188,452
$
1,088
1,158,257
695,017
(225,004)
1,629,358
(110,039)
1,519,319
2,582,620
$
$
$
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIRR
FISCAL YEARS ENDED JUNE 30, 2020, 2019 AND 2018
(In thousands, except per share amounts)
ONS
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Amortization of acquired intangibles
Productivity and transformation costs
Former Chief Executive Officff
Proceeds from insurance claim
er Succession Plan expense, net
Accounting review and remediation costs, net of insurance proceeds
Goodwill impairment
Long-lived asset and intangibles impairment
Operating income (loss)
Interest and other financing expense, net
Other expense (income), net
Income (loss) from continuing operations before income taxes and equity in
net loss (income) of equity-method investees
Provision (benefit) for income taxes
Equity in net loss (income) of equity-method investees
Net income (loss) fromff
continuing operations
Net loss from discontinued operations, net of tax
Net (loss) income
Net (loss) income per common share:
Basic net income (loss) per common share from continuing operations
Basic net loss per common share from discontinued operations
Basic net (loss) income per common share
Diluted net income (loss) per common share from continuing operations
Diluted net loss per common share from discontinued operations
Diluted net (loss) income per common share
Shares used in the calculation of net (loss) income per common share:
$
$
$
$
$
$
Fiscal Year Ended June 30,
2020
2019
2018
$
2,053,903
1,588,133
$
2,104,606
1,706,109
$
2,265,670
1,798,413
465,770
324,376
11,638
48,789
—
(2,962)
—
394
27,493
56,042
18,258
3,956
33,828
6,205
1,989
25,634
398,497
314,000
13,134
40,107
30,156
(4,460)
4,334
—
33,719
(32,493)
22,517
994
(56,004)
(3,232)
655
(53,427) $
$
(106,041)
(129,887)
(80,407) $
(183,314) $
0.25
$
(1.02)
(0.77) $
0.25
$
(1.02)
(0.77) $
(0.51) $
(1.25)
(1.76) $
(0.51) $
(1.25)
(1.76) $
467,257
316,285
15,934
16,822
520
—
9,293
7,700
14,033
86,670
16,387
(2,151)
72,434
(1,971)
(339)
74,744
(65,050)
9,694
0.72
(0.63)
0.09
0.72
(0.63)
0.09
Basic
Diluted
103,618
103,937
104,076
104,076
103,848
104,477
See notes to consolidated finff ancial statements.
62
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FISCAL YEARS ENDED JUNE 30, 2020, 2019 AND 2018
(In thousands)
Fiscal Year Ended June 30, 2020
Tax
(expense)
benefit
After-tax
amount
Pre-tax
amount
Fiscal Year Ended June 30, 2019
Tax
(expense)
benefit
After-tax
amount
Pre-tax
amount
Fiscal Year Ended June 30, 2018
Tax
(expense)
benefit
After-tax
amount
Pre-tax
amount
Net (loss) income
$ (80,407)
$ (183,314)
$
9,694
Other comprehensive income
(loss):
Foreign currency
translation adjustments
before reclassifications
Reclassification of
currency translation
adjustment included in Net
loss from discontinued
operations, net of tax
Change in deferred
(losses) gains on cash flow
hedging instruments
Change in deferred
(losses) gains on net
investment hedging
instruments
Change in unrealized
losses on equity
investment
Total other comprehensive
income (loss)
Total comprehensive (l
income
(loss)
)
$ (37,847) $
—
(37,847) $ (41,180) $
—
(41,180) $
11,497
$
—
11,497
95,120
—
95,120
(1,007)
211
(796)
(3,627)
762
(2,865)
—
—
—
—
83
—
—
—
(15)
—
—
—
68
—
—
—
(82)
—
—
15
—
—
(67)
—
(190)
(1)
(191)
$
52,639
$
973
$
53,612
$ (41,097) $
(15) $ (41,112) $
11,225
$
14
$
11,239
$ (26,795)
$ (224,426)
$
20,933
See notes to consolidated finff ancial statements.
63
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FISCAL YEARS ENDED JUNE 30 2020, 2019 AND 2018
(In thousands, except par values)
Balance at June 30, 2017
Net income
Other comprehensive loss
Issuance of common stock pursuant
to stock-based compensation
plans
Shares withheld for payment of
employee payroll taxes due on
shares issued under stock-based
compensation plans
Stock-based compensation
expense
Balance at June 30, 2018
Net income
Cumulative effeff ct of adoption of
ASU 2016-01
Cumulative effeff ct of adoption of
ASU 2014-09
Other comprehensive income
Issuance of common stock pursuant
to stock-based compensation
plans
Shares withheld for payment of
employee payroll taxes due on
shares issued under stock-based
compensation plans
Stock-based compensation
expense
Common Stock
Additional
Accumulated
Other
Shares
Amount
at $0.01
Paid-in
Capital
Retained
Earnings
Treasury Stock
Comprehensive
Shares
Amount
Income (Loss)
Total
107,989
$
1,080
$ 1,137,724
$ 868,822
4,287
$ (99,315) $
(195,479) $ 1,712,832
9,694
11,239
433
4
(4)
183
(7,192)
10,476
9,694
11,239
—
(7,192)
10,476
108,422
$
1,084
$ 1,148,196
$ 878,516
4,470
$ (106,507) $
(184,240) $ 1,737,049
(183,314)
(348)
163
411
4
(4)
144
(3,532)
10,065
348
(183,314)
—
163
(41,112)
(41,112)
—
(3,532)
10,065
Balance at June 30, 2019
108,833
$
1,088
$ 1,158,257
$ 695,017
4,614
$ (110,039) $
(225,004) $ 1,519,319
Continued on next page
64
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FISCAL YEARS ENDED JUNE 30 2020, 2019 AND 2018
(In thousands, except par values)
Continued fromff
previous page
Balance at June 30, 2019
Net loss
Cumulative effeff ct of adoption of
ASU 2016-02
Other comprehensive income
Issuance of common stock pursuant
to stock-based compensation
plans
Shares withheld for payment of
employee payroll taxes due on
shares issued under stock-based
compensation plans
Repurchases of common stock
Stock-based compensation
expense
Common Stock
Additional
Accumulated
Other
Shares
Amount
at $0.01
Paid-in
Capital
Retained
Earnings
Treasury Stock
Comprehensive
Shares
Amount
Income (Loss)
Total
108,833
$
1,088
$ 1,158,257
$ 695,017
4,614
$ (110,039) $
(225,004) $ 1,519,319
(80,407)
(439)
290
4
(4)
73
(1,931)
2,551
(60,222)
13,622
(80,407)
(439)
53,612
53,612
—
(1,931)
(60,222)
13,622
Balance at June 30, 2020
109,123
$
1,092
$ 1,171,875
$ 614,171
7,238
$ (172,192) $
(171,392) $ 1,443,554
See notes to consolidated finff ancial statements.
65
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JUNE 30, 2020, 2019 AND 2018
(In thousands)
Fiscal Year Ended June 30,
2020
2019
2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income
Net loss from discontinued operations
Net income (loss) from continuing operations
Adjustments to reconcile net income (loss) from continuing operations to net cash
provided by operating activities from continuing operations:
$
$
(80,407) $
(183,314) $
(106,041)
(129,887)
25,634
$
(53,427) $
Depreciation and amortization
Deferred income taxes
Equity in net loss (income) of equity-method investees
Stock-based compensation, net
Goodwill impairment
Long-lived asset and intangibles impairment
Other non-cash items, net
Increase (decrease) in cash attributable to changes in operating assets and liabilities, net of
amounts applicable to acquisitions:
Accounts receivable
Inventories
Other current assets
Other assets and liabilities
Accounts payable and accrued expenses
Net cash provided by operating activities from continuing operations
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment
Proceeds from sale of businesses and other
Acquisitions of businesses, net of cash acquired
Net cash used in investing activities from continuing operations
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under bank revolving credit facility
Repayments under bank revolving credit facility
Borrowings under term loan
Repayments under term loan
Repayments of other debt, net
Proceeds from (funding of) discontinued operations entities
Share repurchases
Shares withheld for payment of employee payroll taxes
Net cash used in financing activities from continuing operations
Effect of exchange rate changes on cash
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash (used in) provided by operating activities
Cash provided by (used in) investing activities
Cash (used in) provided by financing activities
Effect of exchange rate changes on cash - discontinued operations
Net cash (used in) provided by discontinued operations
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Less: cash and cash equivalents of discontinued operations
Cash and cash equivalents of continuing operations at end of year
52,088
36,160
1,989
13,078
394
27,493
3,906
33,856
33,236
(45,337)
5,986
(31,569)
156,914
(60,893)
15,765
—
(45,128)
262,000
(401,669)
—
(206,250)
(2,040)
305,645
(60,221)
(1,931)
(104,466)
(566)
(5,748)
297,592
(299,816)
(537)
(8,509)
(1,755)
39,526
50,898
(23,706)
655
9,900
—
33,719
1,193
26,658
30,550
(7,215)
3,635
(33,527)
39,333
(75,792)
7,145
—
(68,647)
285,000
(268,791)
—
(90,000)
(2,166)
56,643
—
(3,532)
(22,846)
(1,522)
1,936
36,605
(57,770)
(580)
(19,809)
(73,491)
113,017
$
$
$
37,771
$
— $
37,771
$
39,526
$
(8,509) $
31,017
$
9,694
(65,050)
74,744
54,335
(20,725)
(339)
11,177
7,700
14,033
(1,579)
(26,093)
(28,434)
(11,060)
(2,650)
43,287
114,396
(69,456)
738
(12,368)
(81,086)
65,000
(400,220)
299,245
(3,750)
(1,707)
(26,796)
—
(7,193)
(75,421)
217
(7,174)
(12,187)
27,300
(20)
7,919
(33,975)
146,992
113,017
(28,319)
84,698
See notes to consolidated financial statements.
66
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except par values and per share data)
1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
The Hain Celestial Group, Inc., a Delaware corporation, was founded in 1993 and is headquartered in Lake Success, New York.
The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet. The
Company continues to be a leading marketer, manufacturer and seller of organic and natural, “better-for-you” products by
anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience. The Company is
committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing
processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores,
mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 75 countries
worldwide.
The Company manufactures, markets, distributes and sells organic and natural products under brand names that are sold as
“better-for-you” products, with many recognized brands in the various market categories it serves, including Celestial
Seasonings®, Clarks™, Cully & Sully®, Dream®, Earth’s Best®, Ella’s Kitchen®, Farmhouse Fare™, Frank Cooper’s®, GG
UniqueFiber®, Gale’s®, Garden of Eatin’®, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, Joya®, Lima®, Linda
McCartney® (under license), MaraNatha®, Natumi®, New Covent Garden Soup Co.®, Orchard House®, Robertson’s®, Sensible
Portions®, Spectrum®, Sun-Pat®, Sunripe®, Terra®, The Greek Gods®, William’s™, Yorkshire Provender® and Yves Veggie
Cuisine®. The Company’s personal care products are marketed under the Alba Botanica®, Avalon Organics®, Earth’s Best®,
JASON®, Live Clean®, One Step® and Queen Helene® brands.
The Company continues to execute the four key pillars of its strategy to: (1) simplify its portfolio; (2) strengthen its capabilities;
(3) expand profit margins and cash flow; and (4) reinvigorate profitable topline growth. The Company has executed this
strategy, with a focus on discontinuing uneconomic investment, realigning resources to coincide with brand importance,
reducing unproductive stock-keeping units (“SKUs”) and brands and reassessing current pricing architecture. As part of this
initiative, the Company reviewed its product portfolio within North America and divided it into “Get Bigger” and “Get Better”
brand categories.
The Company’s “Get Bigger” brands represent its strongest brands with higher margins, which compete in categories with
strong growth potential. The Company has concentrated its investment in marketing, innovation and other resources to
prioritize spending for these brands, in an effort to reinvigorate profitable topline growth, optimize assortment and increase
share of distribution.
The Company’s “Get Better” brands are the brands in which the Company is primarily focused on simplification and expansion
of profit margin. Some of these brands have historically been low margin, non-strategic brands that added complexity with
minimal benefit to the Company’s operations.
During the fourth quarter of fiscal 2019, the Company initiated a SKU rationalization that included the elimination of
approximately 350 low velocity and low profitability SKUs. These SKU rationalizations are expected to result in expanded
future profits and a remaining set of core SKUs that will maintain their shelf space in the store.
In addition, as part of the Company’s overall strategy, the Company may seek to dispose of businesses and brands that are less
profitable or are otherwise less of a strategic fit within our core portfolio. During fiscal 2019, for example, the Company
divested its Hain Pure Protein reportable segment and its WestSoy® tofu, seitan and tempeh businesses. In fiscal 2020, the
Company divested its Tilda business and its Arrowhead Mills®, SunSpire®, Europe's Best®, Casbah®, Rudi’s Gluten-Free
Bakery™, Rudi’s Organic Bakery® and Fountain of Truth™ brands. More recently, the Company divested its Danival® business
in July 2020. See Note 25, Subsequent Events, for additional information.
Productivity and Transformation Costs
As part of the Company’s historical strategic review, it focused on a productivity initiative, which it called “Project Terra.” A
key component of this project was the identification of global cost savings, and the removal of complexity from the business.
In fiscal 2019, the Company announced a strategy that includes as one of its key pillars identifying areas of cost savings and
operating efficiencies to expand profit margins and cash flow. As part of this overall strategy and the key pillar of realizing
67
savings and efficiencies, during fiscal 2020, the Company began the integration of its United States and Canada operations in
alignment with the North America reportable segment structure. The Company will carry out additional productivity initiatives
under this strategy in fiscal 2021.
Productivity and transformation costs include costs, such as consulting and severance costs, relating to streamlining the
Company’s manufacturing plants, co-packers and supply chain, eliminating served categories or brands within those categories,
and product rationalization initiatives which are aimed at eliminating slow moving SKUs.
Discontinued Operations
On August 27, 2019, the Company and Ebro Foods S.A. (the “Purchaser”) entered into, and consummated the transactions
contemplated by, an agreement relating to the sale and purchase of the Tilda Group Entities and certain other assets.
On February 15, 2019, the Company completed the sale of substantially all of the assets used primarily for the Plainville Farms
business, a component of the Company’s Hain Pure Protein Corporation (“HPPC”) operating segment. On June 28, 2019, the
Company completed the sale of the remainder of HPPC and Empire Kosher which included the FreeBird and Empire Kosher
businesses. These dispositions were undertaken to reduce complexity in the Company’s operations and simplify the Company’s
brand portfolio, in addition to allowing additional flexibility to focus on opportunities for growth and innovation in the
Company’s more profitable and faster growing core businesses. Collectively, these dispositions were reported in the aggregate
as the Hain Pure Protein reportable segment.
These dispositions represented strategic shifts that had a major impact on the Company’s operations and financial results, and
therefore, the Company is presenting the operating results and cash flows of the Tilda operating segment and the Hain Pure
Protein reportable segment within discontinued operations in the current and prior periods. The assets and liabilities of the Tilda
operating segment are presented as assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of June
30, 2019. See Note 5, Discontinued Operations and Assets Held for Sale, for additional information.
Change in Reportable Segments
Historically, the Company had three reportable segments: United States, United Kingdom and Rest of World. Effective July 1,
2019, the Company reassessed its segment reporting structure and as a result, the Canada and Hain Ventures operating
segments, which were included within the Rest of World reportable segment, were moved to the United States reportable
segment and renamed the North America reportable segment. Additionally, the Europe operating segment, which was included
in the Rest of World reportable segment, was combined with the United Kingdom reportable segment and renamed the
International reportable segment. Accordingly, the Company now operates under two reportable segments: North America and
International. Prior period segment information contained herein has been adjusted to reflect the Company’s new operating and
reporting structure. See Note 22, Segment Information, for additional information.
Basis of Presentation
The Company’s consolidated financial statements include the accounts of the Company and its wholly-owned and majority-
owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Investments in affiliated
companies in which the Company exercises significant influence, but which it does not control, are accounted for under the
equity method of accounting. As such, consolidated net (loss) income includes the Company’s equity in the current earnings or
losses of such companies.
Unless otherwise indicated, references in these consolidated financial statements to 2020, 2019 and 2018 or “fiscal” 2020, 2019
and 2018 or other years refer to our fiscal year ended June 30 of that respective year and references to 2021 or “fiscal” 2021
refer to our fiscal year ending June 30, 2021.
Discontinued Operations
The financial statements separately report discontinued operations and the results of continuing operations (see Note 5). All
footnotes exclude discontinued operations unless otherwise noted.
68
Use of Estimates
The financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S.
GAAP”). The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods
presented. These estimates include, among others, revenue recognition, trade promotions and sales incentives, valuation of
accounts and chargeback receivables, accounting for acquisitions, valuation of long-lived assets, goodwill and intangible assets,
stock-based compensation, and valuation allowances for deferred tax assets. We believe in the quality and reasonableness of
our critical accounting estimates; however, materially different amounts may be reported under different conditions or using
assumptions different from those that we have consistently applied.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Cash and Cash Equivalents
The Company considers cash and cash equivalents to include cash in banks, commercial paper and deposits with financial
institutions that can be liquidated without prior notice or penalty. The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Revenue Recognition
The Company sells its products through specialty and natural food distributors, supermarkets, natural foods stores, mass-market
and e-commerce retailers, food service channels and club, drug and convenience stores in over 75 countries worldwide. The
majority of our revenue contracts represent a single performance obligation related to the fulfillment of customer orders for the
purchase of our products. We recognize revenue as performance obligations are fulfilled when control passes to our customers.
Our customer contracts typically contain standard terms and conditions. In instances where formal written contracts are not in
place we consider the customer purchase orders to be contracts based on the criteria outlined in ASC 606, Revenue from
Contracts with Customers. Payment terms and conditions vary by customer and are based on the billing schedule established in
our contracts or purchase orders with customers, but we generally provide credit terms to customers ranging from 15-60 days;
therefore, we have determined that our contracts do not include a significant financing component.
Sales includes shipping and handling charges billed to the customer and are reported net of discounts, trade promotions and
sales incentives, consumer coupon programs and other costs, including estimated allowances for returns, allowances and
discounts associated with aged or potentially unsalable product, and prompt pay discounts. Shipping and handling costs are
accounted for as a fulfillment activity of our promise to transfer products to our customers and are included in cost of sales line
item on the Consolidated Statements of Operations.
During the fourth quarter of fiscal 2016, the Company commenced an internal accounting review with respect to the timing of
recording revenue associated with concessions provided to distributors in the United States. The Audit Committee of the
Company’s Board of Directors separately conducted an independent review of these matters and retained independent counsel
to assist in their review. In November 2016, the Company announced that the independent review of the Audit Committee was
completed and that the review found no evidence of intentional wrongdoing in connection with the preparation of the
Company’s financial statements. In particular, the Company concluded that its historical accounting policy for recording
revenue and concessions related to distributors was appropriate. In December 2018, the Company and the Securities and
Exchange Commission (“SEC”) settled the SEC’s charges against the Company with respect to these matters without a
monetary penalty on the Company.
69
Variable Consideration
In addition to fixed contract consideration, many of our contracts include some form of variable consideration. We offer
various trade promotions and sales incentive programs to customers and consumers, such as price discounts, slotting fees, in-
store display incentives, cooperative advertising programs, new product introduction fees and coupons. The expenses associated
with these programs are accounted for as reductions to the transaction price of our products and are therefore deducted from our
net sales to determine reported net sales. Trade promotions and sales incentive accruals are subject to significant management
estimates and assumptions. The critical assumptions used in estimating the accruals for trade promotions and sales incentives
include management’s estimate of expected levels of performance and redemption rates. Management exercises judgment in
developing these assumptions. These assumptions are based upon historical performance of the retailer or distributor customers
with similar types of promotions adjusted for current trends. The Company regularly reviews and revises, when deemed
necessary, estimates of costs to the Company for these promotions and incentives based on what has been incurred by the
customers. The terms of most of our promotion and incentive arrangements do not exceed a year and therefore do not require
highly uncertain long-term estimates. Settlement of these liabilities typically occurs in subsequent periods primarily through an
authorization process for deductions taken by a customer from amounts otherwise due to the Company. Differences between
estimated expense and actual promotion and incentive costs are normally insignificant and are recognized in earnings in the
period such differences are determined. Actual expenses may differ if the level of redemption rates and performance were to
vary from estimates.
Costs to Obtain or Fulfill a Contract
As our contracts are generally shorter than one year, the Company has elected a practical expedient under ASC 606 that allows
the Company to expense as incurred the incremental costs of obtaining a contract if the contract period is for one year or less.
These costs are included in the selling, general and administrative expense line item on the Consolidated Statements of
Operations.
Disaggregation of Net Sales
The Company does not disaggregate revenue below the segment revenues level disclosed in Note 22, Segment Information, as
all revenues are recognized at a point in time and the Company’s segment revenues depict how the economic factors affect the
nature, amount, and timing and uncertainty of cash flows.
Valuation of Accounts and Chargebacks Receivable and Concentration of Credit Risk
The Company routinely performs credit evaluations on existing and new customers. The Company applies reserves for
delinquent or uncollectible trade receivables based on a specific identification methodology and also applies an additional
reserve based on the experience the Company has with its trade receivables aging categories. Credit losses have been within the
Company’s expectations in recent years. While one of the Company’s customers represented approximately 13% of trade
receivables balances as of both June 30, 2020 and 2019, the Company believes that there is no significant or unusual credit
exposure at this time.
Based on cash collection history and other statistical analysis, the Company estimates the amount of unauthorized deductions
customers have taken that we expect will be collected and repaid in the near future and records a chargeback receivable.
Differences between estimated collectible receivables and actual collections are recognized in earnings in the period such
differences are determined.
Sales to one customer and its affiliates approximated 12%, 11% and 11% of net sales during the fiscal years ended June 30,
2020, 2019 and 2018, respectively. Sales to a second customer and its affiliates approximated 9%, 10% and 12% of net sales
during the fiscal years ended June 30, 2020, 2019 and 2018, respectively.
In addition, cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed
the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand.
Inventory
Inventory is valued at the lower of cost or net realizable value, utilizing the first-in, first-out method. The Company provides
write-downs for finished goods expected to become non-saleable due to age and specifically identifies and provides for slow
moving or obsolete raw ingredients and packaging.
70
Property, Plant and Equipment
Property, plant and equipment is carried at cost and depreciated or amortized on a straight-line basis over the estimated useful
lives or lease term (for leasehold improvements), whichever is shorter. The Company believes the useful lives assigned to our
property, plant and equipment are within ranges generally used in consumer products manufacturing and distribution
businesses. The Company’s manufacturing plants and distribution centers, and their related assets, are reviewed when
impairment indicators are present by analyzing underlying cash flow projections. The Company believes no impairment of the
carrying value of such assets exists other than as disclosed under Note 8, Property, Plant and Equipment, Net and Note 5,
Discontinued Operations and Assets Held for Sale. Ordinary repairs and maintenance costs are expensed as incurred. The
Company utilizes the following ranges of asset lives:
Buildings and improvements
Machinery and equipment
Furniture and fixtures
10 - 40 years
3 - 20 years
3 - 15 years
Leasehold improvements are amortized over the shorter of the respective initial lease term or the estimated useful life of the
assets, and generally range from 3 to 15 years.
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill and other intangible assets with indefinite useful lives are not amortized but rather are tested at least annually for
impairment, or when circumstances indicate that the carrying amount of the asset may not be recoverable. The Company
performs its annual test for impairment at the beginning of the fourth quarter of its fiscal year.
Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or a component of an
operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a two-step quantitative
test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for
some or all reporting units and perform a two-step quantitative impairment test. The impairment test for goodwill requires the
Company to compare the fair value of a reporting unit to its carrying value, including goodwill. The Company uses a blended
analysis of a discounted cash flow model and a market valuation approach to determine the fair values of its reporting units. If
the carrying value of a reporting unit exceeds its fair value, the Company would then compare the carrying value of the
goodwill to its implied fair value in order to determine the amount of the impairment, if any.
Indefinite-lived intangible assets, which are not amortized, consist primarily of acquired trademarks and trade names.
Indefinite-lived intangible assets are evaluated on an annual basis in conjunction with the Company’s evaluation of goodwill, or
on an interim basis if and when events or circumstances change that would more likely than not reduce the fair value of any of
its indefinite-life intangible assets below their carrying value. In assessing fair value, the Company utilizes a “relief from
royalty” methodology. This approach involves two steps: (i) estimating the royalty rates for each trademark and (ii) applying
these royalty rates to a projected net sales stream and discounting the resulting cash flows to determine fair value. If the
carrying value of the indefinite-lived intangible assets exceeds the fair value of the asset, the carrying value is written down to
fair value in the period identified. This method includes significant management assumptions such as revenue growth rates,
weighted average cost of capital and assumed royalty rates.
See Note 10, Goodwill and Other Intangible Assets, for information on goodwill and intangibles impairment charges.
Transfer of Financial Assets
The Company accounts for transfers of financial assets, such as non-recourse accounts receivable factoring arrangements, when
the Company has surrendered control over the related assets. Determining whether control has transferred requires an
evaluation of relevant legal considerations, an assessment of the nature and extent of the Company’s continuing involvement
with the assets transferred and any other relevant considerations. The Company has a non-recourse factoring arrangement in
which eligible receivables are sold to a third-party buyer in exchange for cash. The Company transferred accounts receivables
in their entirety to the buyer and satisfied all of the conditions to report the transfer of financial assets in their entirety as a sale.
The principal amount of receivables sold under this arrangement was $108,928 during the year ended June 30, 2020, and no
amounts were sold in the years ended June 30, 2019 and 2018. The incremental cost of factoring receivables under this
arrangement is included in interest and other financing expense, net in the Company’s Consolidated Statements of Operations.
71
The proceeds from the sale of receivables are included in cash from operating activities in the accompanying Consolidated
Statements of Cash Flows.
Cost of Sales
Included in cost of sales are the cost of products sold, including the costs of raw materials and labor and overhead required to
produce the products, warehousing, distribution, supply chain costs, as well as costs associated with shipping and handling of
our inventory.
Foreign Currency Translation and Remeasurement
The assets and liabilities of international operations are translated at the exchange rates in effect at the balance sheet date.
Revenue and expense accounts are translated at the monthly average exchange rates. Adjustments arising from the translation of
the foreign currency financial statements of the Company’s international operations are reported as a component of
accumulated other comprehensive (loss) income in the Company’s Consolidated Balance Sheets. Gains and losses arising from
intercompany foreign currency transactions that are of a long-term nature are reported in the same manner as translation
adjustments.
Gains and losses arising from intercompany foreign currency transactions that are not of a long-term nature and certain
transactions of the Company’s subsidiaries which are denominated in currencies other than the subsidiaries’ functional currency
are recognized as incurred in other (income) expense, net in the Consolidated Statements of Operations.
Selling, General and Administrative Expenses
Included in selling, general and administrative expenses are advertising costs, promotion costs not paid directly to the
Company’s customers, salary and related benefit costs of the Company’s employees in the finance, human resources,
information technology, legal, sales and marketing functions, facility related costs of the Company’s administrative functions,
research and development costs, and costs paid to consultants and third party providers for related services.
Research and Development Costs
Research and development costs are expensed as incurred and are included in selling, general and administrative expenses in
the accompanying consolidated financial statements. Research and development costs amounted to $11,653 in fiscal 2020,
$11,120 in fiscal 2019 and $9,696 in fiscal 2018, consisting primarily of personnel related costs. The Company’s research and
development expenditures do not include the expenditures on such activities undertaken by co-packers and suppliers who
develop numerous products on behalf of the Company and on their own initiative with the expectation that the Company will
accept their new product ideas and market them under the Company’s brands.
Advertising Costs
Advertising costs, which are included in selling, general and administrative expenses, amounted to $19,455 in fiscal 2020,
$23,099 in fiscal 2019 and $30,463 in fiscal 2018. Such costs are expensed as incurred.
Proceeds from Insurance Claims
In July of 2019, the Company received $7,027 as partial payment from an insurance claim relating to business disruption costs
associated with a co-packer, $4,460 of which was recognized in fiscal 2019 as it related to reimbursement of costs incurred in
that fiscal year. The Company recorded an additional $2,567 in the first quarter of fiscal 2020 and received an additional $462
of proceeds in the third quarter of fiscal 2020.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under the liability method, deferred taxes are
determined based on the differences between the financial statement and tax bases of assets and liabilities at enacted rates in
effect in the years in which the differences are expected to reverse. Valuation allowances are provided for deferred tax assets to
the extent it is more likely than not that the deferred tax assets will not be recoverable against future taxable income.
The Company recognizes liabilities for uncertain tax positions based on a two-step process prescribed by the authoritative
guidance. The first step requires the Company to determine if the weight of available evidence indicates that the tax position has
72
met the threshold for recognition; therefore, the Company must evaluate whether it is more likely than not that the position will
be sustained on audit, including resolution of any related appeals or litigation processes. The second step requires the Company
to measure the tax benefit of the tax position taken, or expected to be taken, in an income tax return as the largest amount that is
more than 50% likely of being realized upon ultimate settlement. The Company reevaluates the uncertain tax positions each
period based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled
issues under audit, and new audit activity. Depending on the jurisdiction, such a change in recognition or measurement may
result in the recognition of a tax benefit or an additional charge to the tax provision in the period. The Company records
interest and penalties in the provision for income taxes.
Fair Value of Financial Instruments
The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction
between willing parties. At June 30, 2020 and 2019, the Company had $7 and $44, respectively, invested in money market
funds, which are classified as cash equivalents. At June 30, 2020 and 2019, the carrying values of financial instruments such as
accounts receivable, accounts payable, accrued expenses and other current liabilities, as well as borrowings under our credit
facility and other borrowings, approximated fair value based upon either the short-term maturities or market interest rates of
these instruments.
Derivative Instruments and Hedging Activities
Issued by the Financial Accounting Standards Board (“FASB”), ASC 815, Derivatives and Hedging (“ASC 815”), provides the
disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an
enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative
instruments and related hedged items and (c) how derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows. Further, qualitative disclosures are required that explain the Company’s
objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in
the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a
derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria
necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair
value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair
value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or
other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the
foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of
the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged
forecasted transactions in a cash flow hedge. The effective portion of changes in the fair value of derivative instruments that
qualify for cash flow hedge and net investment hedge accounting treatment are recognized in stockholders’ equity as a
component of accumulated other comprehensive (loss) income until the hedged item is recognized in earnings. Changes in the
fair value of fair value hedges, derivatives that do not qualify for hedge accounting treatment, as well as the ineffective portion
of any cash flow hedges, are recognized currently in earnings as a component of other (income) expense, net or interest and
other financing expense, net in the accompanying financial statements. The Company may enter into derivative contracts that
are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not
to apply hedge accounting.
Stock-Based Compensation
The Company uses the fair market value of the Company’s common stock on the grant date to measure fair value for service-
based and performance-based awards, and a Monte Carlo simulation model to determine the fair value of market-based awards.
The fair value of stock-based compensation awards is recognized as an expense over the vesting period using the straight-line
method. For awards that contain a market condition, expense is recognized over the defined or derived service period using a
Monte Carlo simulation model. Compensation expense is recognized for these awards on a straight-line basis over the service
period, regardless of the eventual number of shares that are earned based upon the market condition, provided that each grantee
remains an employee at the end of the performance period. Compensation expense on awards that contain a market condition is
reversed if at any time during the service period a grantee is no longer an employee.
73
For restricted stock awards which include performance criteria, compensation expense is recorded when the achievement of the
performance criteria is probable and is recognized over the performance and vesting service periods. Compensation expense is
recognized for only that portion of stock-based awards that are expected to vest. Therefore, estimated forfeiture rates that are
derived from historical employee termination activity are applied to reduce the amount of compensation expense recognized. If
the actual forfeitures differ from the estimate, additional adjustments to compensation expense may be required in future
periods.
The Company receives an income tax deduction in certain tax jurisdictions for restricted stock grants when they vest and for
stock options exercised by employees equal to the excess of the market value of the Company’s common stock on the date of
exercise over the option price. Excess tax benefits (tax benefits resulting from tax deductions in excess of compensation cost
recognized) are classified as a cash flow provided by operating activities in the accompanying Consolidated Statements of Cash
Flows.
Valuation of Long-Lived Assets
The Company periodically evaluates the carrying value of long-lived assets, other than goodwill and intangible assets with
indefinite lives, held and used in the business when events and circumstances occur indicating that the carrying amount of the
asset may not be recoverable. An impairment test is performed when the estimated undiscounted cash flows associated with the
asset or group of assets is less than their carrying value. Once such impairment test is performed, a loss is recognized based on
the amount, if any, by which the carrying value exceeds the estimated fair value for assets to be held and used.
See Note 8, Property, Plant and Equipment, Net, and Note 5, Discontinued Operations and Assets Held for Sale, for
information on long-lived asset impairment charges.
Leases
Effective July 1, 2019, arrangements containing leases are evaluated as an operating or finance lease at lease inception. For
operating leases, the Company recognizes an operating right-of-use ("ROU") asset and operating lease liability at lease
commencement based on the present value of lease payments over the lease term.
With the exception of certain finance leases, an implicit rate of return is not readily determinable for the Company's leases. For
these leases, an incremental borrowing rate is used in determining the present value of lease payments and is calculated based
on information available at the lease commencement date. The incremental borrowing rate is determined using a portfolio
approach based on the rate of interest the Company would have to pay to borrow funds on a collateralized basis over a similar
term. The Company references market yield curves which are risk-adjusted to approximate a collateralized rate in the currency
of the lease. These rates are updated on a quarterly basis for measurement of new lease obligations.
The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the option
will be exercised. Leases with an initial term of 12 months or less are not recognized on the Company's Consolidated Balance
Sheets. The Company has elected to separate lease and non-lease components.
Operating lease assets are presented as operating lease ROU assets, and corresponding operating lease liabilities are presented
within accrued expenses and other current liabilities (current portions), and as operating lease liabilities, noncurrent portion, on
the Company’s Consolidated Balance Sheet. Finance lease assets are included in property, plant and equipment, net, and
corresponding finance lease liabilities are included within current portion of long-term debt and long-term debt, less current
portion, on the Company’s Consolidated Balance Sheet.
Net (Loss) Income Per Share
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of common shares
outstanding for the period. Diluted net (loss) income per share reflects the potential dilution that would occur if securities or
other contracts to issue common stock were exercised or converted into common stock.
74
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers
(Topic 606). This guidance outlines a single, comprehensive model for accounting for revenue from contracts with customers,
providing a single five-step model to be applied to all revenue transactions. The guidance also requires improved disclosures to
assist users of the financial statements to better understand the nature, amount, timing and uncertainty of revenue that is
recognized. Subsequent to the issuance of ASU 2014-09, the FASB issued various additional ASUs clarifying and amending
this new revenue guidance. The Company adopted the new revenue standard on July 1, 2018 using the modified retrospective
transition method. The adoption did not materially impact our results of operations or financial position, and, as a result,
comparisons of revenues and operating profit between periods were not materially affected by the adoption of ASU 2014-09.
The Company recorded a net increase to beginning retained earnings of $163 on July 1, 2018 due to the cumulative impact of
adopting ASU 2014-09.
In January 2016,
the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires that most equity investments be measured at
fair value, with subsequent changes in fair value recognized in net income. The pronouncement also impacts financial liabilities
under the fair value option and the presentation and disclosure requirements for financial instruments. The Company adopted
ASU 2016-01 in the three months ended September 30, 2018, which resulted in a net decrease to beginning retained earnings of
$348 on July 1, 2018, representing the accumulated unrealized losses (net of tax) reported in accumulated other comprehensive
income (loss) for available-for-sale equity securities on June 30, 2018. The Company no longer classifies equity investments as
trading or available-for-sale and no longer recognizes unrealized holding gains and losses on equity securities previously
classified as available-for-sale in other comprehensive income (loss) as a result of adoption of ASU 2016-01.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The Company adopted ASU 2016-02 effective July 1,
2019, using a modified retrospective approach. As permitted by the new guidance, the Company elected the package of
practical expedients, which among other things, allowed historical lease classification to be carried forward. Excluding Tilda,
adoption of the new standard resulted in the recording of operating lease ROU assets and lease liabilities as of July 1, 2019 of
$87,414 and $92,982, respectively, with the difference largely due to prepaid and deferred rent that were reclassified to the
ROU asset value. In addition, the Company recorded a cumulative-effect adjustment to opening retained earnings of $439 at
adoption for the impairment of an abandoned ROU asset for a manufacturing facility in the United Kingdom that was
previously impaired and the remaining lease payments were accounted for under ASC Topic 420, Exit or Disposal Obligations.
The standard did not materially affect the Company’s consolidated net income (loss) or cash flows. See Note 9, Leases, for
further details.
Recently Issued Accounting Pronouncements Not Yet Effective
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which requires
measurement and recognition of expected versus incurred credit losses for most financial assets. The new guidance is effective
for annual periods beginning after December 15, 2019, and for interim periods within those fiscal years. The Company is
currently assessing the impact that this standard will have on its consolidated financial statements.
In January 2017, the FASB, issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which removes the second
step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be
the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
This guidance is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is
permitted for annual or any interim impairment tests with a measurement date on or after January 1, 2017. The adoption of this
standard is not expected to have a material impact to the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurement by
removing, modifying or adding certain disclosures. The new guidance is effective for annual periods beginning after December
15, 2019, and for interim periods within those fiscal years. The Company is currently assessing the impact that this standard
will have on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software, Customer's
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which aligns the
requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amended guidance
75
is effective for annual periods beginning after December 15, 2019, and for interim periods within those fiscal years. The
Company is currently assessing the impact that this standard will have on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,
which simplifies various aspects related to accounting for income taxes and eliminates certain exceptions related to the
approach for intra-period tax allocation, the methodology for calculating taxes during the quarters and the recognition of
deferred tax liabilities for outside basis differences. The new guidance is effective for annual periods beginning after December
15, 2021, and for interim periods within those fiscal years. The Company is currently assessing the impact that this standard
will have on its consolidated financial statements.
3.
FORMER CHIEF EXECUTIVE OFFICER SUCCESSION PLAN
On June 24, 2018, the Company entered into a CEO succession plan, whereby the Company’s former CEO, Irwin D. Simon,
agreed to terminate his employment with the Company upon the hiring of a new CEO (the “Succession Agreement”). The
Succession Agreement provided Mr. Simon with a cash separation payment of $34,295 payable in a single lump sum and cash
benefits continuation costs of $208. These costs were recognized from June 24, 2018 through November 4, 2018, at which time
the Company’s new CEO, Mark L. Schiller, commenced his employment. Expense recognized in connection with these
payments was $33,051 and $1,452 during the twelve months ended June 30, 2019 and June 30, 2018, respectively. The cash
separation payment was paid on May 6, 2019. Additionally, the Succession Agreement allowed for acceleration of vesting of all
service-based awards outstanding at the termination of Mr. Simon’s employment. In connection with these accelerations, the
Company recognized additional stock-based compensation expense of $429 ratably through November 4, 2018. The
aforementioned impacts were recorded in Former Chief Executive Officer Succession Plan expense, net in the Consolidated
Statements of Operations.
As further discussed in Note 15, Stock-based Compensation and Incentive Performance Plans, in the three months ended
September 30, 2018, the Company’s Compensation Committee determined that no awards would be paid or vested pursuant to
the 2016-2018 LTIP. Accordingly, the Company recorded a benefit of $5,065 associated with the reversal of previously accrued
amounts under the net sales portion of the 2016-2018 LTIP associated with Mr. Simon’s stock awards during the twelve months
ended June 30, 2019.
On October 26, 2018, the Company and Mr. Simon entered into a consulting agreement (the “Consulting Agreement”) in order
to, among other things, assist Mr. Schiller with his transition as the Company’s incoming CEO. The term of the Consulting
Agreement commenced on November 5, 2018 and continued until February 5, 2019. Mr. Simon received an aggregate
consulting fee of $975 as compensation for his services during the consulting term, which was fully recognized in the
Consolidated Statement of Operations as a component of Former Chief Executive Officer Succession Plan expense, net in the
twelve months ended June 30, 2019.
76
4.
EARNINGS (LOSS) PER SHARE
The following tablea
sets forth the computation of basic and diluted net (loss) income per share:
Numerator:
Net income (loss) from continuing operations
Net loss from discontinued operations, net of tax
Net (loss) income
Denominator:
Basic weighted average shares outstanding
Effect of dilutive stock options, unvested restricted stock and
unvested restricted share units
Diluted weighted average shares outstanding
Basic net (loss) income per common share:
Continuing operations
Discontinued operations
Basic net (loss) income per common share
Diluted net (loss) income per common share:
Continuing operations
Discontinued operations
Diluted net (loss) income per common share
scal Year Ended June 30,
2019
2018
2020
25,634
$
(53,427) $
74,744
(106,041) $
(129,887) $
(65,050)
(80,407) $
(183,314) $
9,694
103,618
104,076
103,848
319
103,937
—
104,076
629
104,477
0.25
$
(1.02)
(0.77) $
0.25
$
(1.02)
(0.77) $
(0.51) $
(1.25)
(1.76) $
(0.51) $
(1.25)
(1.76) $
0.72
(0.63)
0.09
0.72
(0.63)
0.09
$
$
$
$
$
$
$
Basic net (loss) income per share excludes the dilutive effects of stock options, unvested restricted stock and unvested restricted
share units.
Due to our net loss from continuing operations in the fiscal year ended June 30, 2019, all common stock equivalents such as
stock options and unvested restricted stock awards have been excluded fromff
the computation of diluted net loss per share
because the effect would have been anti-dilutive. Diluted earnings per share for the fiscal years ended June 30, 2020 and 2018
includes the dilutive effects of common stock equivalents such as stock options and unvested restricted stock awards.
There were 428, 769 and 4 restricted stock awards and stock options excluded fromff
our calculation of diluted net (loss) income
per share for the fiscal years ended June 30, 2020, 2019 and 2018, respectively, as such awards were anti-dilutive.
Additionally, there were 2,645, 3,625 and 560 stock-based awards excluded for the fiscal years ended June 30, 2020, 2019 and
2018, respectively, as such awards were contingently issuablea
based on market or performance conditions, and such conditions
had not been achieved during the respective periods.
5.
DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Discontinued Operations
p
Sale of Tildaii
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, consumablea
s, 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 finaff
l 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.
77
The Company also entered into certain ancillary agreements with the Purchaser and certain of the Tilda Group Entities in
connection with the sale, including a transitional services agreement (the "TSA") pursuant to which the Company and the
Purchaser provided transitional services to one another, and business transfer agreements pursuant to which the applicablea
Tilda
Group Entities would transfer certain non-Tilda assets and liabilities in India and the United Arab Ea mirates to subsidiaries of
the Company to be formed in those countries. Additionally, the Company distributed certain Tilda products in the United
States, Canada and Europe through the expiration of the TSA. The TSA expired during
the second quarter of fiscal 2020.
dd
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 tablea
tax” in our Consolidated Statements of Operations:
presents the majoa r classes of Tilda’s results within “Net income (loss) from discontinued operations, net of
Net sales
Cost of sales
Gros (s (lloss)) profit
ro
Selling, general and administrative expense
Amortization of acquired intangibles and other expense
Interest expense (1)
Translation loss (2)
Gain on sale of discontinued operations
Net (loss) income fromff
Provision for income taxes (3)
Net (loss) income fromff
discontinued operations, net of tax
discontinued operations before income taxes
Fiscal Year Ended June 30,
2019
2020
2018
$
30,399
$
197,862
$
26,648
3,751
5,185
1,172
2,432
95,120
(9,386)
(90,772)
12,909
151,146
46,716
26,949
2,189
13,561
—
—
4,017
535
$
(103,681) $
3,482
$
192,099
143,908
48,191
25,349
3,536
10,538
—
—
8,768
1,084
7,684
(1) Interest expex nse was allocated to discontinued operations based on borrowings repai
(2) At the completion of the sale of Tilda,dd
Accumulated other
(3) Includes a tax provision related to the tax gain on the sale of Tilda of $13,960 for the twett
comprehensive loss to discontinued operations, net of tax.a
m
the Company
e
tt
d with proceeds from the sale of Tilda.
reclassified $95,120 of related cumulative translation losses from
lve months ended June 30, 2020.
78
Assets and liabilities of discontinued operations associated with Tilda presented in the Consolidated Balance Sheet as of June
30, 2019 are included in the following tablea
. There were no assets or liabilities from discontinued operations associated with
Tilda as of June 30, 2020.
ASSETS
June 30, 2019
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts
Inventories
Prepaid expenses and other current assets
Total current assets of discontinued operations(1)
Property, plant and equipment, net
Goodwill
Trademarks and other intangible assets, net
Other assets
Total noncurrent assets of discontinued operations(1)
Total assets of discontinued operations
LIABILITIES
Accounts payablea
Accrued expenses and other current liabilities
Current portion of long-term debt
Total current liabilities of discontinued operations(1)
Deferred tax liabila
ities
Other noncurrent liabilities
Total noncurrent liabilities of discontinued operations(1)
Total liabilities of discontinued operations(1)
$
$
$
$
8,509
26,955
65,546
9,038
110,048
40,516
133,098
84,925
628
259,167
369,215
18,341
4,675
8,687
31,703
17,153
208
17,361
49,064
(1) Assets and liabilities fromff
ll
not meet the held-for-
sale criteria.
discontinued operations were clasl
sified as current and noncurrent at June 30, 2019 as they de
id
Sale of Hain Pii
ure Proteitt n Rii
eportable Sll
egSS megg
nt
In March 2018, the Company’s Board of Directors approved a plan to sell all of the operations of the Hain Pure Protein
Corporation (“HPPC”) operating segment, which included the Plainville Farms and FreeBird businesses, and the EK Holdings,
Inc. (“Empire Kosher” or “Empire”) operating segment, which were reported in the aggregate as the Hain Pure Protein
reportable segment. Collectively, these dispositions represented a strategic shift that had a major impact on the Company’s
operations and financial results and have been accounted for as discontinued operations.
The Company is presenting the operating results and cash flows of Hain Pure Protein within discontinued operations in the
current and prior periods.
The Company recorded reserves of $109,252 and $78,464 in fiscal years ended June 30, 2019 and 2018, respectively, to adjust
the carrying value of Hain Pure Protein and Empire Kosher to its fair value, less its cost to sell, which is reflected in net (loss)
income from discontinued operations, net of taxes in each respective period. The reserves were recorded dued
to negative market
conditions in the sector, resulting in the Company lowering the projected long-term growth rate and profitability levels of
HPPC and to adjust the carrying value of Hain Pure Protein to its estimated selling price.
Sale of Plainville Farms
FF
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
the issuance by the Company of an irrevocablea
entered into a Contingent Funding and Earnout Agreement, which provides forff
stand-by letter of credit (the “Letter of Credit”) of $10,000 which expires nineteen months after issuance. The Company is
79
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 freeff
l years ending on or prior to June 30, 2026. If a
subsequent change in control of Plainville occurs prior to June 30, 2026, the purchaser will pay the Company 120% of the
difference between the amount drawn on the Letter of Credit less the sum of all earnout payments made prior to such time up to
the net proceeds received by the purchaser. At June 30, 2020, the Company had not recorded an asset associated with the
earnout. As a result of the disposition, the Company recognized a pre-tax loss on sale of $40,223, or $29,685 net of tax, in the
twelve months ended June 30, 2019 to write down the assets and liabilities to the final sales price less costs to sell, inclusive of
the Letter of Credit.
cash floff w achieved forff
ff
all fisca
Sale of HPPC and Empirem
Kosher
On June 28, 2019, the Company completed the sale of the remainder of HPPC and EK Holdings, which included the FreeBird
and Empire Kosher businesses. The purchase price, net of customary adjustments based on the closing balance sheet of HPPC,
was $77,714. The Company used the proceeds from the sale to pay down outstanding borrowings under its term loan. As a
result of the disposition, the Company recognized a pre-tax loss of $636 in the twelve months ended June 30, 2019 to write
down the assets and liabilities to the final sales price less costs to sell.
The following tablea
discontinued operations, net of tax” in our Consolidated Statements of Operations:
classes of Hain Pure Protein’s line items constituti
presents the majora
tt
ng the “Net (loss) income from
Fiscal Year Ended June 30,
2019
2020
2018
Net sales
Cost of sales
Gros (s (lloss)) profit
ro
Asset impairments
Selling, general and administrative expense
Other expense
Loss on sale of discontinued operations
Net (loss) income from discontinued operations before income taxes
Benefit forff
income taxes
$
— $
408,109
$
—
—
—
—
—
3,043
(3,043)
(684)
409,433
(1,324)
109,252
16,384
9,088
40,859
(176,907)
(43,538)
Net (loss) income from discontinued operations, net of tax
$
(2,359) $
(133,369) $
509,475
486,023
23,452
78,464
18,743
4,699
—
(78,454)
(5,720)
(72,734)
There were no assets or liabia lities from discontinued operations associated with Hain Pure Protein as of June 30, 2020 or 2019.
Assets Held for Sale
f
The Company entered into a definitive stock purchase agreement on June 30, 2020 for the sale of its Danival business, and the
transaction was completed on July 21, 2020.
During fiscal 2020, the Company recorded a pre-tax noncash loss of $13,052 to reduce the carrying value of the Danival
r value, less costs to sell. This included the noncash impairment charge of the relative fair value of
business to its estimated faiff
goodwill allocated to the Danival business, a part of the International segment, of $394 included in Goodwill impairment in the
Company’s Consolidated Statement of Operations. Also included in the pre-tax noncash loss were noncash impairment charges
for intangibles consisting of trade name and customer lists, fixeff
d assets and inventory totaling $12,658 included in Long-lived
assets and intangibles impairment in the Company’s Consolidated Statement of Operations. The estimated fair value, less costs
to sell, reflects the amount of consideration the Company expected to receive upon closing of the transaction as of June 30,
2020.
As of June 30, 2020, the Company determined the held forff
for sale. Current assets held forff
expenses and other current assets and current liabilities held forff
as a component of Accrued expenses and other current liabilities.
sale criteria was met and classified the assets and liabilities to held
sale of $8,333 are included in the Consolidated Balance Sheet as a component of Prepaid
sale of $3,567 are included in the Consolidated Balance Sheet
80
The Company deconsolidated the net assets of the Danival business upon closing of sale, which occurred during the first quarter
of fiscal 2021.
6.
ACQUISITIONS
There were no acquisitions complem ted in the fiscal years ended June 30, 2020 and 2019.
tt
sweeteners under the ClarksTM brand, including mapleaa
sweetener
On December 1, 2017, the Company acquired Clarks UK Limited (“Clarks”), a leading maplea
syrup, honey and
brand in the United Kingdom. Clarks produces natural
carob, date and agave syrups, which are sold in leading retailers and used by food service and industrial customers in the United
Kingdom. Consideration for the transaction, inclusive of a subsequent working capitaa
al adjustment, consisted of cash, net of cash
acquired, totaling £9,179 (approximately $12,368 at the transaction date exchange rate). Additionally, contingent consideration
based on the achievement of specified operating results over an 18-month period
of up to a maximum of £1,500 was payablea
following completion of the acquisition; no contingent consideration amounts were paid, and the arrangement expired during
fiscal 2019. Clarks is included in our United Kingdom operating segment. Net sales and income before income taxes
attributablea
the fiscal year ended June 30, 2018 represented
less than 1% of our consolidated results.
to the Clarks acquisition included in our consolidated results forff
syrup and natural
tt
The costs related to all acquisitions have been expensed as incurred and are included in Productivity and transformation costs in
the Consolidated Statements of Operations. Acquisition-related costs of $409 were expensed in the fiscal years ended June 30,
2018. Acquisition-related costs for the fiscal year ended June 30, 2020 and 2019 were de minimis. The expenses incurred
primarily related to professional fees and other transaction-related costs associated with these acquisitions.
7.
INVENTORIES
Inventories consisted of the folff
lowing:
Finished goods
Raw materials, work-in-progress and packaging
June 30,
2020
June 30,
2019
$
$
158,162
90,008
248,170
$
$
199,754
99,587
299,341
In the twelve months ended June 30, 2020 and June 30, 2019, the Company recorded inventory write-downs of $4,175 and
$12,381, respectively, primarily related to the discontinuance of slow moving SKUs as part of product rationalization
initiatives.
8.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
Land
Buildings and improvements
Machinery and equipment
Computer hardware and software
ff
Furniturett
tt
and fixt
ures
ff
Leasehold improvements
Construction in progress
Less: Accumulated depreciation and impairment
June 30,
2020
June 30,
2019
$
13,866
$
74,325
288,466
60,391
20,044
40,876
16,489
514,457
225,201
$
289,256
$
14,240
83,151
274,554
48,984
17,325
32,264
35,786
506,304
218,459
287,845
Depreciation expense for the fiscal years ended June 30, 2020, 2019, and 2018 was $31,409, $28,922 and $29,849, respectively.
81
During fiscal 2020, the Company recorded $12,313 of non-cash impairment charges primarily related to a write-down of
building improvements, machinery and equipment in the United States and Europe used to manufacture certain slow moving or
low margin SKUs, held for sale accounting of Danival and consolidation of certain office space and manufacturing facilities.
In fiscal 2019, the Company determined that it was more likely than not that certain fixed assets of two of its manufacturing
facilities would be sold or otherwise disposed of before the end of their estimated useful lives due to the Company’s decision to
consolidate manufacturing of certain fruit-based and soup products in the United Kingdom. As such, the Company recorded a
$6,166 non-cash impairment charge related to the closures of these facilities. Additionally, the Company recorded non-cash
impairment charges of $9,653 to write down the value of certain machinery and equipment no longer in use in the United States
and United Kingdom, some of which was used to manufacture certain slow moving SKUs that were discontinued.
In fiscal 2018, the Company determined that it was more likely than not that certain fixed assets at three of its manufacturing
facilities would be sold or otherwise disposed of before the end of their estimated useful lives due to the Company’s decision to
utilize third-party manufacturers for two facilities in the United States and to consolidate manufacturing of certain soup
products in the United Kingdom. As such, the Company recorded a $6,344 non-cash impairment charge primarily related to the
closures of these facilities. Additionally, the Company recorded a $2,057 non-cash impairment charge to write down the value
of certain machinery and equipment used to manufacture certain slow moving SKUs in the United States that were
discontinued.
82
9.
LEASES
The Company leases office space, warehouse and distribution facilities, manufacturing equipment and vehicles primarily in
North America and Europe. The Company determines if an arrangement is or contains a lease at inception. Lease terms may
include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The
Company’s lease agreements generally do not contain residual value guarantees or material restrictive covenants. A limited
number of lease agreements include rental payments adjusted periodically for inflation.
Certain of the Company’s leases contain variable lease payments, which are expensed as incurred unless those payments are
based on an index or rate. Variablea
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 duedd
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 fisff cal year ended June 30, 2020 were as follows:
Operating lease expenses (a)
Finance lease expenses (a)
Variablea
lease expenses
Short-term lease expenses
Total lease expenses
Fiscal Year Ended
June 30, 2020
18,981
1,197
2,570
1,723
24,471
$
$
x
(a) Operating lease expens
respectively,ll
was recognizedii
tt
with t
he remainder recognizedii
m
as a component
associated with the Company’s
es and finance lease expee
enses include $1,505 and $251 of ROU asset impairment charges
,
ation costs initiatives. Of this amount, $929
of Long-lived asset and intangibles impairment on the Consolidated Statement of Operations
ongoing productivity and transforms
m
r
as a component of Cost of Sales.
Supplemental balance sheet information related to leases was as follows:
Leases
Assets
Classificaff
tion
June 30, 2020
Operating lease ROU assets
Operating lease right-of-use assets
Finance lease ROU assets, net
Property, plant and equipment, net
Total leased assets
Liabilities
Current
Operating
Finance
Non-current
Operating
Finance
Total lease liabilities
Accrued expenses and other current liabilities
Current portion of long-term debt
Operating lease liabia lities, noncurrent portion
Long-term debt, less current portion
$
$
$
$
88,165
691
88,856
12,338
308
82,962
316
95,924
83
Additional information related to leases is as follows:
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows fromff
operating leases
Operating cash flows fromff
finance leases
Financing cash flows from finance leases
ROU assets obtained in exchange for lease obligations (b):
Operating leases
Finance leases
Weighted average remaining lease term:
Operating leases
Finance leases
Weighted average discount rate:
Operating leases
Fiscal Year Ended
June 30, 2020
$
$
$
$
$
17,290
26
543
104,915
1,475
10.0 years
2.5 years
3.0 %
2.3 %
Finance leases
(b) ROU assets obtained in exchange for lease obligati
2019 (see NoteNN
i
2) and leases which commenced, were modifii ed or terminated during
ons includes thett
dd
impact of to he adoption of ASU 2016-02 effeff ctive JulJJ y 1ll
,
ff
the fiscal
year ended June 30, 2020.
Maturities of lease liabilities as of June 30, 2020 were as follows:
Fiscal Year
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: Imputed interest
Total lease liabila
ities
Operating leases
Finance leases
Total
$
14,781
$
13,798
12,833
10,941
9,521
51,545
113,419
18,119
$
308
205
95
18
6
—
632
8
$
95,300
$
624
$
15,089
14,003
12,928
10,959
9,527
51,545
114,051
18,127
95,924
84
The aggregate minimum future lease payments forff
as follows:
operating leases at June 30, 2019, adjusted forff
discontinued operations, were
Fiscal Year
2020
2021
2022
2023
2024
Thereafter
$
$
19,066
16,281
14,002
13,134
11,012
44,452
117,947
At June 30, 2020, the Company has additional operating leases that had not yet commenced. Obligations under these leases are
approximately $9,797 and the leases are expected to commence during the fiscal year ending June 30, 2021 with lease terms
ranging from 10 to 11 years, excluding renewal options.
85
10.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwillll
The following tablea
shows the changes in the carrying amount of goodwill by business segment:
Balance as of June 30, 2018(1)
Translation and other adjust
Balance as of June 30, 2019(1)
Divestiture
d ments, net
Impairment charge
Translation and other adjust
d ments, net
Balance as of June 30, 2020
North America
International
Total
$
$
612,457
$
273,206
$
133
612,590
(5,009)
—
(1,526)
(9,915)
263,291
—
(394)
(6,994)
606,055
$
255,903
$
885,663
(9,782)
875,881
(5,009)
(394)
(8,520)
861,958
(1) The total carrying value of goodwill is refle ected net of $134,277 of accumulated impairment charges
related to the Company’s
m
and $7,700 related to the Company’s
United KinKK gdom operating segme
o
nt, $29,219 related to the Company’s
former Hain Ventures operati
ng segment.
m
m
e
r
, of wo
Europe operating segme
hich $97,358
nt
e
During fiscal 2019, the Company’s reporting units were Hain Pure Personal Care, Grocery and Snacks and Celestial Tea in the
United States reportable segment, Hain Daniels, Ella’s Kitchen and Tilda in the United Kingdom reportable segment and Hain
Canada, Hain Europe and Hain Ventures within the Rest of World reportable segment. As discussed in Note
,22 Segment
due to changes in how the
Information, effective July 1, 2019, the Company changed its segment reporting structurett
Company’s Chief Operating Decision Maker (“CODM”) assesses the Company’s performance and allocates resources as a
result of a change in the Company’s strategy. In connection with these changes, the Company’s reporting units now consist of
the United States (as a single reporting unit) and Hain Canada within the North America reportablea
segment and Hain Daniels,
Ella’s Kitchen, Tilda (prior to its sale on August 27, 2019) and Hain Europe within the International reportable segment. The
brands constituti
ng the Hain Ventures reporting unit were combined within the United States and Hain Canada reporting units,
and its goodwill was reallocated to the United States and Canada operating segments on a relative fair value basis. The
Company completed an assessment for potential impairment of the goodwill both prior and subsequent to the aforementioned
changes and determined that no impairment indicators were present.
tt
On October 7, 2019, the Company completed the divestiture of its Arrowhead and SunSpire businesses, components of the
United States reporting unit, forff
a purchase price of $13,347 following post-closing adjustments, recognizing a loss on sale of
$2,037 during the fiscal year ended June 30, 2020. Goodwill of $4,357 was assigned to the divested businesses on a relative fair
value basis. An interim impairment analysis was performed for the United States reporting unit both before and after the sale,
noting no impairment indicators were present.
During March 2020, the Company completed the divestiture of its Europe's Best and Casbah businesses, components of the
Canada reporting unit. Goodwill of $440 was assigned to the divested businesses on a relative fair value basis. An interim
impairment analysis was performed for the Canada reporting unit both before and after the sale, noting no impairment
indicators were present. The gain/loss on sale recognized during the fiscal year ended June 30, 2020 as a result of the
transactions was insignificant.
During May 2020, the Company completed the divestiture of its Rudi’s
business, a component of the United States reporting
unit. Goodwill of $212 was assigned to the divested businesses on a relative fair value basis. An interim impairment analysis
was performed for the United States reporting unit both before and after the sale, noting no impairment indicators were present.
The gain/loss on sale recognized during the fiscal year ended June 30, 2020 as a result of the transaction was insignificant.
RR
During June 2020, in anticipation of the Company’s divestiturett
unit, the good iwillll of $$394 assigned
pricprice. See Note 5, DDiscontinuedd Operati
period.
of its Danival business, a component of the Europe reporting
signed to hthe b ibusiness on a r lelatiive f ifair v lalu be basiis wa is imp iairedred bbas ded on hthe expectedd s lellilingg
the fiscal 2020
a discussion of the sale completed after
dand Assets Htt
lSale, forff
ldeldHH
ons
forfor
O
ff
86
Beginning in the three months ended September 30, 2019, operations of Tilda have been classified as discontinued operations
as discussed in Note 5, Discontinued OperO ations and Assets Htt
Sale. Therefore, goodwill associated with Tilda is
presented within Noncurrent assets of discontinued operations in the Consolidated Balance Sheet as of June 30, 2019.
l
elHH d f
orff
The Company completed its annual goodwill impairment analysis in the fourth quarter of fiscal 2020, in conjunction with its
budgeting and forec
asting process for fiscal year 2021, and concl dludedd thhat n io impaiirment
dsted at anyy of if its
reporti gng
iunits.
iexi
ff
i
n
Other Intan
II
gibl
e All
ssets
The following tablea
intangible assets not subjeu
ct to amortization:
sets forth balance sheet information for intangible assets, excluding goodwill, subject to amortization and
Non-amortized intangible assets:
Trademarks and trade names(1)
Amortized intangible assets:
Other intangibles
Less: accumulated amortization and impairment
Net carrying amount
(1) The gross carrying value of trademarks akk
m
impairm
as of June 30, 2020 and 2019, respectively.
ent charges
nd trade names is r
r
i
ff
eflected
June 30,
2020
June 30,
2019
$
278,103
$
291,199
184,854
(116,495)
346,462
$
204,630
(115,543)
380,286
$
net of $93,273 and $83,734 of accumulated
hThe Compa yny com lpleted id its annuall assessment of iim ipairment for i dindefi i
2020. The assessment i di
iim ipairment exiist ded except as ddes ibcribed bd b lelow.
rrying
indicat ded hthat thhe f ifair v lalue of thhe Compa yny’s tradde names exceed dded htheiir carrying
finite li-li dved iintangi
angiblble assets ini
the fourth quarter of fiscal
dand no
lvalues
During the second and third quarters of fiscal 2020, in association with the sale or discontinuation of certain businesses and
brands, the Company determined that certain of its indefinite-lived trade names were impaired due to the carryirr ng value of the
trade names exceeding their fair values, and therefore an impairment charge of $9,539 was recognized ($4,007 in the North
America segment and $5,532 in the International segment).
In the second quarter of fiscal 2019, the Company determined that an indicator of impairment existed in certain of the
Company’s indefinite-lived tradenames. The result of this interim assessment indicated that the fair value of certain of the
Company’s tradenames was below their carrying value, and therefore an impairment charge of $17,900 was recognized
($15,113 in the North America segment and $2,787 in the International segment) during
the fisff cal year ended June 30, 2019.
dd
For the fiscal year ended June 30, 2018, a trade name impairment charge of $5,632 ($5,100 in the North America segment and
$532 in the International segment) was recorded.
intangible assets, which are deemed to have a finff
Amortizablea
ite life,ff primarily consist of customer relationships and are being
amortized over their estimated useful lives of 3 to 25 years. Amortization expense included in continuing operations was as
follows:
Fiscal Year Ended June 30,
2019
2020
2018
Amortization of intangible assets
$
11,638
$
13,134
$
15,934
Expected amortization expense over the next five fiscal years is as follows:
2021
Fiscal Year Ending June 30,
2023
2022
2024
2025
Estimated amortization expense
$
9,807
$
9,564
$
9,023
$
6,768
$
5,753
The weighted average remaining amortization period of amortized intangible assets is 9.1 yyea .rs
87
In the fourth quarter of fiscal 2020, the Company recognized impairment charges relating to customer relationships of certain
brand divestitures totaling $4,455, all within the North America segment.
11.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
s
Payroll, employee benefits and other administrative accrual
rr
Facility, freight and warehousing accruals
Selling and marketing related accrual
s
Other accruals(1)
rr
30, 2020
June 30, 2019
74,544
$
11,304
10,930
30,834
127,612
$
77,339
20,288
7,007
9,631
114,265
$
$
(1)Included within other accruals in fisci al 2020 are $12,338 of short-term operating lleas
$3,567 ofof current lli b labilitie hs h leld fd f
term dderivative lli b labilitie (s (se(( e NoteNN
lsale ((see NotNN e 5, Discontinuedd OperO ations
18, Derivatives a dnd Hedging
dging Instrume
dand Assets Htt
)nts).
orff
lll
tt
le liab lbilitie (s (se(( e NotNN e 9, L9
lSale)) ae
lelHH d fd forff
eases)),s
dnd $$263 ofof hshort-
12.
DEBT AND BORROWINGS
Debt and borrowings consisted of the following:
Revolving credit facility
Term loan
Less: Unamortized issuance costs
Other borrowings(1)
Short-term borrowings and current portion of long-term debt
June 30, 2020
June 30, 2019
$
280,000
$
—
—
2,774
282,774
1,656
420,575
206,250
(1,022)
4,966
630,769
17,232
613,537
Long-term debt, less current portion
281,118
(1) Included in other borrowings are $308 of short term finance lease obligations as discussed in NoteNN
$
$
9, Leases.
Credit Agreement
On February 6, 2018, the Company entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”).
a $1,000,000 revolving credit facility through February 6, 2023 and provides forff
The Credit Agreement provides forff
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.
al, finaff
nce capita
al expenditures and permitted
Borrowings under the Credit Agreement may be used to provide working capita
acquisitions, refinance certain existing indebtedness and for other lawful corporate purposes. The Credit Agreement provides
for multicurrency borrowings in Euros, British Pounds Sterling and Canadian Dollars as well as other currencies which may be
designated. In addition, certain wholly-owned foreign subsidiaries of the Company may be designated as co-borrowers. The
Credit Agreement contains restrictive covenants, which are usual and customary for facilities of its type, and include, with
specified exceptions, limitations on the Company’s ability to engage in certain business activities, incur debt, have liens, make
capital expenditures, pay dividends or make other distributions, enter into affiliate transactions, consolidate, merge or acquire or
dispose of assets, and make certain investments, acquisitions and loans. The Credit Agreement also requires the Company to
satisfy certain financial covenants. Obligations under the Credit Agreement are guaranteed by certain existing and future
domestic subsidiaries of the Company. As of June 30, 2020, there were $280,000 of borrowings outstanding under the
revolving credit facility and $9,698 letters of credit outstanding under the Credit Agreement. During fiscal 2020, the Company
used the proceeds from the sale of Tilda, net of transaction costs, to prepay the entire principal amount of term loan outstanding
under its credit facility and to partially pay down its revolving credit facility. In connection with the prepayment, the Company
wrote off unamortized deferred debt issuance costs of $973, recorded in interest and other finaff
ncing 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
88
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
property,
Company and its material domestic subsidiaries, including stock of each of their direct subsidiaries and intellectual
subject to agreed upon exceptions.
tt
As of June 30, 2020, $710,302 was availablea
all associated covenants, as amended by the Amended Credit Agreement.
under the Amended Credit Agreement, and the Company was in compliance with
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
Rate. The Applicable
Agreement, plus a rate ranging from 0.00% to 1.50% per annum, the relevant rate being the Applicablea
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 forei
gn currencies shall bear interest based on the overnight Eurocurrency
loans denominated in such currency plus the Applicable Rate. The weighted average interest rate on outstanding
Rate forff
borrowings under the Amended Credit Agreement at June 30, 2020 was 1.89%. Additionally, the Amended Credit Agreement
contains a Commitment Fee, as defined in the Amended Credit Agreement, on the amount unused under the Amended Credit
Agreement ranging from 0.20% to 0.45% per annum, and such Commitment Fee is determined in accordance with a leverage-
based pricing grid.
ff
Maturities of all debt instruments at June 30, 2020, are as follows:
Due in Fiscal Year
Amount
2021
2022
2023
2024
2025
Thereafter
$
1,656
916
280,172
18
6
6
$
282,774
Interest paid during
respectively.
dd
the fiscal years ended June 30, 2020, 2019 and 2018 amounted to $15,514,
$13,745
$15,514 $$20,396 and $13,745,
89
13.
INCOME TAXES
The components of income (loss) from continuing operations before income taxes and equity in net loss (income) of equity-
method investees were as follows:
Domestic
Foreign
Total
The provision (benefit) forff
income taxes consisted of the folff
lowing:
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Total
Fiscal Year Ended June 30,
2020
(29,339)
63,167
33,828
$
$
2019
(120,969)
64,965
(56,004)
$
$
2018
(3,379)
75,813
72,434
$
$
Year Ended June 30,
2020
2019
2018
$
(44,595)
$
3,639
$
(312)
619
14,021
(29,955)
33,007
3,414
(261)
36,160
760
16,075
20,474
(21,538)
1,188
(3,356)
(23,706)
$
6,205
$
(3,232)
$
1,383
17,683
18,754
(22,612)
1,973
(86)
(20,725)
(1,971)
For the fiscal year ended June 30, 2020, the Company paid cash forff
$16,162 Cash paid forff
income taxes, net of (refunds), during the fiscal years ended June 30, 2019 and 2018 amounted to $22,535 and $24,284,
respectively.
income taxes, net of refunds, of $16,162.
The reconciliation of the U.S. federal statutory rate to our effective rate on income before provision (benefit) forff
was as follows:
income taxes
Expected United States federal income tax at
statutory rate
State income taxes, net of federal (benefit)
provision
Foreign income at differe
ff
nt rates
Impairment of goodwill and intangibles
Change in valuation allowance
Change in reserves for uncertain tax positions
Tax Act’s transition tax (a)
Tax Act’s impact of deferre
ff
d taxes (b)
U.S. tax (benefit) on foreign earnings
CARES Act
Other
Provision (benefit) for income taxes
$
2020
%
2019
%
2018
%
Fiscal Year Ended June 30,
$
7,104
21.0 % $
(11,761)
21.0 % $
20,354
28.1 %
(668)
(1.9)%
(8,922)
15.9 %
382
—
4,499
7,925
—
—
1.1 %
— %
13.3 %
23.4 %
— %
— %
7,449
22.0 %
(25,668)
(75.9)%
763
—
8,938
841
6,834
—
3,872
—
5,182
6,205
15.3 %
18.3 % $
(3,797)
(3,232)
(1.4)%
— %
(16.0)%
(1.5)%
(12.2)%
— %
(6.9)%
— %
6.9 %
5.8 % $
2,774
(3,825)
1,816
119
(3,859)
7,054
3.8 %
(5.3)%
2.5 %
0.2 %
(5.3)%
9.7 %
(25,006)
(34.5)%
—
—
(1,398)
(1,971)
— %
— %
(1.9)%
(2.7)%
(a) For the year ended June 30, 2018, the Company accrued a provisional estimate of $7,054 of tax expense for the Tax Cuts
and Jobs Act’s (the “Tax Act”) one-time transition tax on the foreign subsidiaries’ accumulated, unremitted earnings in
90
accordance with U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB No.118”). Additionally, during
u
fiscal year 2019, the Company recorded $6,834 of tax expense upon
finalizing its analysis of the impact fromff
the Tax Act.
(b) For the year ended June 30, 2018, the Company accrued $25,006 in provisional tax benefit related to the net change in
the Tax Act’s reduction of the U.S. federal tax rate from 35% to 21% and disallowance
deferred tax liabia lities stemming fromff
of certain incentive based compensation tax deductibility under Internal Revenue Code 162(m). There was an immaterial tax
benefit recorded for fiscal 2019 related to returntt
to provision adjust
d ments.
With the effective date of January 1, 2018, the Tax Act also introduced a provision to tax global intangible low-taxed income
(“GILTI”) of foreign subsidiaries and a measure to tax certain intercompany payments under the base erosion anti-abuse
tax
“BEAT” regime. For the fiscal years ended June 30, 2020 and 2019, the Company did not generate intercompany transactions
that met the BEAT threshold but did generate GILTI tax. The Company elected to account for GILTI tax as a current period
cost and recorded an expense of $3,850 during the fiscal year ended June 30, 2020. The GILTI of $3,850 is included in U.S. tax
(benefit) on forei
gn earnings in the effective tax rate which also includes tax expense related to Subpart F Income and
unremitted earnings in the total.
a
ff
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts for income tax purposes. Deferred tax assets and liabilities consisted of the
following:
June 30, 2020
June 30, 2019
Noncurrent deferred tax assets (liabilities):
Basis difference on inventory
Reserves not currently deductible
Basis difference on intangible assets
Basis difference on property and equipment
Other comprehensive income
Net operating loss and tax credit carryforwards
Stock-based compensation
Unremitted earnings of foreign subsidiaries
Lease liability
Lease ROU assets
Other
Valuation allowances
$
6,724
$
21,173
(76,746)
(2,627)
1,737
34,393
1,417
(1,212)
14,096
(12,807)
4,006
(41,941)
Noncurrent deferred tax liabila
ities, net(1)
$
(51,787) $
9,128
23,518
(78,638)
(3,195)
502
73,500
827
—
—
—
3,995
(34,912)
(5,275)
(1) Includes $62 and $29,482 of non-current deferff
Sheets.
Consolidated Balance
l
red tax assets included within Other Assets ott
n the June 30, 2020 and 2019
At June 30, 2020 and 2019, the Company had U.S. federal net operating loss (“NOL”) carryfr orff war
rds of approximately $$19,141
and $201,242, respectively, certain of which will not expire until 2036. Certain of these federal loss carryforwards are subject to
Internal Revenue Code Section 382 which imposes limitations on utilization following certain changes in ownership of the
entity generating the loss carryforward. The Company had foreign NOL carryforwards
of approximately $$12,587 and $23,761
rr
at June 30, 2020 and 2019, respectively, the majority of which are indefinite lived.
i
Coronavirus
i
i i
lalllow for hthe fifive y-year carrybac
iwithh thhe CARES Act are to iincrease hthe lili
dand Ec
idAid, Relilief,
rovisions htha it impacts taxes
hiwhi hch iincl dlude bs b iusiness tax p
dcordance
onomic Sec iurityy Act (( hthe “CARES Act )”) was isignedgned iinto
On Ma hrch 27, 2020, H.R. 748, hthe
significant
llegislgislatiion
imita ition on d ddeduc itiblble b ibusines is interest expense forff
ta lx law hcha gnges iin ac
ie income for net
imita ition of ta blxabl
2018-2020, suspe dnd hthe 80% lili
2019
dand 2020,
dand forwa drd on
provide for hthe accellera ition of df depre iciatiion expense from 2018
opera iti gng lloss carryyfr orff war
(x (“AM )T”) cr diedit
lqualifiifi ded iimprovement propertyy a dnd accellerate thhe bilabiliityy to lcl iaim r f
ca yrryforwa drds. hThe Compa yny ca irried bd backk net opera iti gng llosses ggenerat ded iin hthe June 30, 2019 ta yx year forff
fifive yyears, resul iltingg
iin an iincome ta bx benefiitff of $$18,949. hThe $$18,949 iincome tax bbenefifit represents hthe Fedderall rat de diffifferentiial bl between 35% dand
dnued opera itions ddue to hthe CARES Act.
21%. In ddi
dunder ASC 740-10.
Accordingly, the gross benefit recorded under the CARES Act in fisca
rybackk of NOLs forff
id
l 2020 is $$25,668 prior to hthe reserve
lrelat ded to didisc
ff
in i dindirect tax bbenefifit of $$6,719
dand 2020. Some of hthe signifi
addi ition, hthere was a
lrelat ded to 2018, 2019
drds for 2018-2020,
i iMinimum Ta
lAlternatiive
efunds of
d
ionti
91
hTh be benefifit of $$18,949
$$52,500 hiwhi hch iis iincl dludedd as a component of Pre
dand reversall of thhe d fdeferr ded tax asset on f dfede lral NOLs of $$33,551 res lul dted iin a tax
ipaidd expenses a dnd
hother current assets on hthe C
f
onsoliddat ded Ballance Shheets.
refund rec iei blvable of
li
d
gn subsidiaries to be indefinitely reinvested and as a
The Company historically considered the undistributed earnings of its forei
taxes on such earnings. To achieve its cash management objectives, during the fourth quarter of
result has not provided forff
fiscal 2020, the Company reversed its reinvestment assertion on $$93,359 of foreign earnings and recorded a deferred tax
liability of $1,212.
gn subsidiaries and may
be subject to additional foreign withholding taxes and U.S. state income taxes if it reverses its indefinite reinvestment assertion
s not related to earnings were impractical to account for
on these foreign earnings in the future. All other outside basis difference
at this period of time and are currently considered as being permanent in duration.
$1,212 The Company continues to reinvest $$641,841 of undistributed earnings of its forei
ff
ff
ff
As required by the authoritative guidance on accounting for income taxes, the Company evaluates the realizabia lity of deferred
tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes requires that a valuation allowance be
shed when it is more likely than not that all or a portion of the deferred tax assets will not be realized. In circumstances
establia
where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizablea
, the
Company establia
shes a valuation allowance. The Company has recorded valuation allowances in the amounts of $$41,941 and
$34,912 at June 30, 2020 and 2019, respectively. During fiscal 2019, the Company recorded a partial valuation allowance
rds as it is not more likely than not that the state tax
against state deferred tax assets and state net operating loss carryfrr orff warr
attributes will be realized. The partial state valuation allowance was retained for fiscal 2020.
The changes in valuation allowances against deferred income tax assets were as foll
ff
ows:
Balance at beginning of year
Additions charged to income tax expense
Reductions credited to income tax expense
Currency translation adjustments
Balance at end of year
Fiscal Year Ended June 30,
2020
2019
34,912
$
7,391
3
5
(397)
41,941
$
20,831
17,773
3,231)
(
(461)
34,912
$
$
Unrecognized tax benefits activity, including interest and penalties, is summarized below:
Balance at beginning of year
Additions based on tax positions related to the current year
Additions based on tax positions related to prior years
Reductions due to lapsa
Balance at end of year
e in statute of limitations and settlements
Fiscal Year Ended June 30,
2020
2019
2018
$
11,869
$
6,730
$
11,602
636
8,499
(105)
20,899
$
248
5,446
(555)
11,869
$
118
—
(4,990)
6,730
$
As of June 30, 2020, the Company had $$20,899 of unrecognized tax benefits, of which $$17,087 represents the amount that, if
recognized, would impact the effective tax rate in future
ny had $11,869 and
$6,730, respectively, of unrecognized tax benefits of which $8,057 and $2,917, respectively, would impact the effective income
periods. Accrued liabilities for interest and penalties were $$2,166 and $275 at June 30, 2020 and 2019,
tax rate in future
respectively. Interest and penalties (expense and/or benefit) are recorded as a component of the provision (benefit) forff
income
taxes in the consolidated financial statements.
periods. As of June 30, 2019
dand 2018, thhe ompa
C
ff
ff
ff
The Company and its subsidiaries filff e income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and
gn jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-
several forei
years prior to fiscal 2014. However, to the extent we generated NOLs or
U.S. income tax examinations by tax authorities forff
tax credits in closed tax years, future use of the NOL or tax credit carryfr orff war
rd balance would be subject to examination within
the relevant statute of limitations for the year in which utilized. The Company is no longer subject to tax examinations in the
United Kingdom for years prior to fiscal 2017. Given the uncertainty regarding when tax authorities will complete their
examinations and the possible outcomes of their examinations, a current estimate of the range of reasonably possible significant
increases or decreases of income tax that may occur within the next twelve months cannot be made. Although there are various
92
tax audits currently ongoing, the Company does not believe the ultimate outcome of such audits will have a material impact on
the Company’s consolidated financial statements.
14.
STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue “blank check” preferred stock of up tu
preferences as may be determined fromff
empowered to issue, without stockholder approva
rights which could decrease the amount of earnings and assets available forff
stock. At June 30, 2020 and 2019, no preferred stock was issued or outstanding.
o 5,000 shares with such designations, rights and
time to time by the Board of Directors. Accordingly, the Board of Directors is
l, preferred stock with dividends, liquidation, conversion, voting or other
a
distribution to holders of the Company’s common
Accumulated Other Comprehensive Income (Loss)
The following tabla e presents the changes in accumulated other comprehensive income (loss):
Foreign currency translation adjustments:
Other comprehensive loss before reclassifications (1)
Amounts reclassified into income (2)
Deferred gains (losses) on cash flow hedging instruments:
Other comprehensive (loss) income before reclassifications
into income (3)
Amounts reclassifiedff
Deferred gains (losses) on net investment hedging instruments:
Other comprehensive loss before reclassifications
Amounts reclassified into income (4)
Cumulative effect
ff
of adoption of ASU 2016-01
Other comprehensive income (loss)
Fiscal Year Ended June 30,
2020
2019
$
(37,847) $
(41,180)
95,120
(1,413)
617
(2,788)
(77)
—
—
94
(26)
—
—
348
$
53,612
$
(40,764)
(1) Foreigni
currency translation adjustmett
nts included intra-e
tt
investment nature and were a loss of $898 and a gain of $619 for the fiscal
respectively.ll
ntity foreign currency transactions that were of a long-term
30, 2020 and 2019,
years ended June
JJ
i
(2) Foreigni
currency translation gains or losses of fo orei
gni
income once the liquidation of the resps ective foreigni
sale of Tilda, the Company
Company’s
reclassified $95,120 of translati
nued operations.
results of disconti
(3) Amounts reclassified into income for deferre
d gains (losses) os
m
i
m
ff
ff
subsidiaries related to divested businesses are reclassified into
completion of the
subsidiaries is si
accumulated comprehensive loss to the
omplete. At thett
on losses fromff
ubstantially cll
l
n cash flow hedging instruments are recorded in the
Consolidated Statements of Operations as follows:
Cost of so ales
Interest and other
tt
financing expens
x
e, net
Other expens
x
e (in(( come), net
Fiscal Year Ended June 30,
2020
2019
$
$
$
103
77
72
((
(959)
$
$
$
32
—
—
(4) Amounts reclassifii ed into income for deferff
“Interest and other finff ancing expense,
i
the fiscal
years err
x
nded June 30, 2020 and 2019, respectively
red gains (losses) os
net” in the Consolidation Statements ott
n net investment hedging instrume
O
f Oo
nts are recognized in
ons and were $98 and $0 for
perati
tt
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
93
outstanding common stock. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans,
in private transactions or otherwise. The authorization does not have a stated expiration date. The extent to which the Company
repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate
considerations, including the Company’s historical strategy of pursuing accretive acquisitions. During the fiscal year ended
June 30, 2020, the Company repurchased 2,551 shares under the repurchase program for a total of $60,171, excluding
commissions, at an average price of $23.59 per share. As of June 30, 2020, the Company had $189,829 of remaining
authorization under the share repurchase program. The Company did not repurchase any shares under this program in fiscal
2019 or 2018.
15.
STOCK-BASED COMPENSATION AND INCENTIVE PERFORMANCE PLANS
The Company has one stockholder approved plan, the Amended and Restated 2002 Long-Term Incentive and Stock Award
Plan (the “2002 Plan”), under which the Company’s officers, senior management, other key employees, consultants and
directors may be granted equity-based awards. The Company also grants equity awards under its 2019 Equity Inducement
Award Program (the “2019 Inducement Program”) to induce selected individuals to become employees of the Company. The
2002 Plan and 2019 Inducement Program are collectively referred to as the “Stock Award Plans”. In conjunction with the Stock
Award Plans, the Company maintains a long-term incentive program (the “LTI Program”) that provide for performance and
market equity awards that can be earned over defined performance periods.
There were 990, 2,106 and 685 shares underlying restricted stock awards (“RSAs”) or restricted share units (“RSUs”) granted
under the Stock Award Plans during fiscal years 2020, 2019 and 2018, respectively, of which 554, 1,610 and 307, respectively,
were granted under the LTI Program and are subject to the achievement of minimum performance goals or market conditions,
with the remaining being service-based awards. For performance awards and market awards, the foregoing share figures are
stated at target levels, and the awards generally provide for vesting at 150% or 300% of the target level. There were no options
granted under the Stock Award Plans during fiscal years 2020, 2019 and 2018. At June 30, 2020, there were 5,473 and 1,886
shares available forff
grant under the 2002 Plan and 2019 Inducement Program, respectively.
Apart from the Stock Award Plans, the Company granted an award of performance share units to the Company’s CEO in fiscal
year 2019. The award has a target payout of 350 shares of common stock and a maximum payout of 1,050 shares of common
stock. See “Restricted Stock – CEO Inducement Grant” below.
Restricted Stock
Awards of restricted stock are either RSAs or RSUs that are issued at no cost to the recipient. RSA holders have all rights of a
stockholder at the grant date, subject to certain restrictions on transferability and a risk of forfeiture. Shares underlying RSUs
are not issued until vesting. Both award types are subject to continued employment and vesting conditions in accordance with
award agreements. The Company also grants market-based RSUs that vest contingent on
provisions set forth in the applicablea
meeting specific Total Shareholder Returntt
(“TSR”) targets over a specified time period, and performance-based RSUs that vest
contingent on meeting specific financial results within a specified time period. Performance-based and market-based RSUs are
issued in the form of performance share units (“PSUs”).
A summary of the restricted stock activity (includes all RSAs, RSUs and PSUs) for the last three fiscal years ended June 30 is
as follows:
Non-vested - beginning of period
Granted
Vested
Forfeited
Non-vested - end of period
Weighted
Average
Grant
Date Fair
Value
(per share)
$12.94
$17.36
$23.28
$8.80
$15.85
2020
2,729
990
(291)
(1,379)
2,049
Weighted
Average
Grant
Date Fair
Value
(per share)
$22.29
$11.84
$27.36
$18.33
$12.94
2019
1,057
2,457
(411)
(374)
2,729
Weighted
Average
Grant
Date Fair
Value
(per share)
$27.59
$26.13
$36.68
$31.15
$22.29
2018
992
685
(433)
(187)
1,057
At June 30, 2020 and 2019, the tablea
above includes a total of 918 and 1,964 shares, respectively, that represent the target
number of shares that may be earned under non-vested performance equity awards that are eligible to vest at 300% of target
94
above
depending on the achievement of pre-defined performance criteria. Additionally, at June 30, 2020 and 2019, the tablea
includes a total of 29 and 42 shares, respectively, that represent the target number of shares that may be earned under non-
vested performance equity awards that are eligible to vest at 150% of target depending on the achievement of pre-defined
performance criteria.
A summary of the fair value of restricted stock (includes all RSAs, RSUs and PSUs) granted and vested, and the tax benefitff
recognized from restricted stock vesting, for the last three fisff cal years ended June 30 is as follows:
Fair value of restricted stock granted
Fair value of restricted stock vested
Tax benefit recognized from restricted stock vesting
Fiscal Year Ended June 30,
2020
2019
2018
$
$
$
17,179
6,775
939
$
$
$
29,067
11,232
3,241
$
$
$
17,898
15,736
5,235
At June 30, 2020, $18,713 of unrecognized stock-based compensation expense, net of estimated forfei
vested restricted stock awards was expected to be recognized over a weighted-average period of approximately 2.1 years.
tures, related to non-
ff
Long-Term Incentive Program
The participants of the LTI Program include certain of the Company’s executive officers and other key executives. The LTI
among other items, selecting the specific
Program is administered by the Compensation Committee which is responsible for,
performance measures for awards, setting the target perforff mance required to receive an award after the completion of the
performance period, and determining the specific payout to the participants. Any stock-based awards issued under the LTI
Program are generally issued pursuant to and are subject to the terms and conditions of the 2002 Plan and 2019 Inducement
Program, as applicablea
. The CEO Inducement Grant (discussed below) was granted outside of the Stock Award Plans.
ff
The LTI Program consists of certain performance-based long-term incentive plans that provide for PSUs that can be earned
over defined performance periods.
•
•
•
2019-2021 LTIP - Vesting is pursuant to the achievement of pre-established three-year compound annual TSR targets
over the period from November 6, 2018 to November 6, 2021. The TSR levels are aligned with the CEO Inducement
Grant (discussed below), with total shares eligible to vest ranging from zero to 300% of the target award amount.
Certain shares are subject to a holding period of one year after the vesting date, resulting in an illiquidity discount
value for such shares. There were 554 and 912 PSUs granted during fiscal years
being applied to the grant date fair
2020 and 2019, respectively, relating to the 2019-2021 LTIP plan. Grant date faiff
r values ranged from $5.95 to $25.86
r values ranged from $5.26 to $10.65 per unit for PSUs
per unit for PSUs granted during fiscal 2020. Grant date faiff
dd
granted during fiscal year 2019. No such awards were granted during
fiscal 2018.
ff
2018-2020 LTIP - Vesting is pursuant to a defined calculation of relative TSR over the period from January 24, 2019
to June 30, 2020, with total shares eligible to vest ranging from zero to 150% of the grant. There were 45 PSUs
value of $18.32 per unit. No such awards were granted during
granted during fiscal year 2019 with a grant date fair
fiscal 2020 or 2018. In the first quarter of fiscal 2021, the Compensation Committee determined that all outstanding
awards under the 2018-2020 LTIP vested at 150% as a result of the maximum relative TSR target having been met.
ff
2016-2018 and 2017-2019 LTIP - Vesting was dependent upon achievement of specified net sales growth targets, and
a defined calculation of relative TSR over the period from July 1, 2015 to June 30, 2018 and from July 1, 2017 to June
30, 2019, for the 2016-2018 LTIP and 2017-2019 LTIP, respectively. In the first quarter of fiscal 2019, the
Compensation Committee determined that no awards would be paid or vested pursuant to the 2016-2018 LTIP or
2017-2019 LTIP as a result of the failure to meet the performance conditions. Accordingly, the awards were forfeited,
and in the first quarter of fiscal 2019, the Company recorded a benefit of $6,482 associated with the reversal of
previously accrued amounts under the net sales portion of the 2016-2018 LTIP, of which $5,065 was recorded in
Former Chief Executive Officer Succession Plan expense, net on the Consolidated Statements of Operations.
Additionally, the Company recorded benefits of $1,129 and $1,867 associated with the reversal of previously accrued
amounts under the portions of the 2017-2019 LTIP that were dependent on the achievement of pre-determined
performance measures of net sales and relative TSR.
95
CEO Inducement Grant
On November 6, 2018, the Company’s CEO, Mark L. Schiller received a market-based PSU award with a target payout of 350
shares of common stock and a maximum payout of 1,050 shares of common stock. The award will vest pursuant to the
achievement of pre-established three-year compound annual TSR levels over the period from November 6, 2018 to November
6, 2021. No PSUs will vest if the three-year compound annual TSR is below 15%. These PSUs are subject to a holding period
of one year after the vesting date. As such, an illiquidity discount was appli
value. The total grant date
fair value of the award was estimated to be $7,571, or $21.63 per target share. Total compensation cost related to this award
recognized in the fiscal year ended June 30, 2020 and 2019 was $2,526 and $1,636, respectively. This PSU award was granted
outside of the Stock Award Plans. Separately, the Company also issued 79 three-year service-based RSAs to Mr. Schiller in
November 2018 under the 2002 Plan.
ed to the grant date fair
a
ff
Other Grantstt
In the twelve months ended June 30, 2019, the Company issued 173 PSUs to certain key executives vesting over a period of one
to two years based upon the achievement of certain market and/or performance based metrics being met.
Summary of Stock-Based Compensation
Compensation cost and related income tax benefitsff
compensation plans were as follows:
recognized in the Consolidated Statements of Operations for stock-based
Selling, general and administrative expense
Former Chief Executive Officff er Succession Plan expense, net
Discontinued operations
Total compensation cost recognized forff
stock-based compensation plans
Related income tax benefit
Fiscal Year Ended June 30,
2020
2019
2018
$
$
$
13,078
—
544
13,622
1,518
$
$
$
9,471
$
429
165
10,065
1,189
$
$
13,380
(2,203)
—
11,177
2,165
In the fiscal year ended June 30, 2018, the Company recorded a net benefit of $2,203 primarily in connection with the
modification of Irwin D. Simon’s TSR perfoff rmance based awards granted on September 26, 2017. Refer to Note 3, Former
EE
Chief Ee
tive Officer Succession Plan,
for further discussion.
xecu
l
Stock Options
The Company did not grant any stock options in fiscal years 2020, 2019 or 2018, and there were no stock options exercised
during these periods. There were no stock options outstanding under the Stock Award Plans at June 30, 2020. There were 122
options outstanding at June 30, 2020, 2019 and 2018, relating to a grant under a prior Celestial Seasonings plan. Although no
further awards can be granted under the prior Celestial Seasonings plan, the options outstanding continue in accordance with
the terms of the plan and grant.
For options outstanding and exercisable at June 30, 2020, the aggregate intrinsic value (the difference
between the closing stock
price on the last day of trading in the year and the exercise price) was $3,567, and the weighted average remaining contractual
life was 11.0 years. The weighted average exercise price of these options was $2.26. At June 30, 2020, there was no
unrecognized compensation expense related to stock option awards.
ff
96
16.
INVESTMENTS
On October 27, 2015, the Company acquired a minority equity interest in Chop’t Creative Salad Company LLC, predecessor to
Chop't Holdings, LLC (“Chop’t”). Chop’t develops and operates fasff
h salad restaurants in the Northeast and Mid-
Atlantic United States. The investment is being accounted for as an equity method investment due to the Company’s
representation on the Board of Directors of Chop’t. At June 30, 2020 and 2019, the carryir ng value of the Company’s investment
in Chop’t was $12,793 and $14,632, respectively, and is included in the Consolidated Balance Sheets as a component of
Investments and joint ventures.
t-casual, fresff
The Company also holds the following investments: (a) Hutchison Hain Organic Holdings Limited (“HHO”) with Hutchison
under the equity method of accounting, (b) Hain Future Natural Products
China Meditech Ltd., a joint venturett
accounted for under the equity method of accounting and (c)
Private Ltd. (“HFN”) with Future Consumer Ltd, a joint venturett
under the equity method of accounting. The
Yeo Hiap Seng Limited (“YHS”), a 1% equity ownership interest accounted forff
carrying value of these combined investments was $4,646 and $4,258 as of June 30, 2020 and 2019, respectively, and is
included in the Consolidated Balance Sheets as a component of Investments and joint ventures.
accounted forff
17.
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The Company’s financial assets and liabilities measured at fair value are required to be grouped in one of three levels. The
levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:
•
•
•
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date forff
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 liabila
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).
identical,
ity; and
The following tablea
basis as of June 30, 2020:
presents by level within the fair value hierarchy, assets and liabilities measured at fair value on a recurring
Assets:
Cash equivalents
Derivative financial instruments
Equity investment
Liabilities:
Derivative financial instruments
Total
Quoted
prices in
active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total
$
$
$
7
$
7
$
— $
1,014
562
1,583
$
6,405
6,405
$
—
562
569
1,014
—
$
1,014
$
—
— $
6,405
6,405
$
—
—
—
—
—
—
97
lowing tablea
The folff
basis as of June 30, 2019:
presents by level within the fair value hierarchy, assets and liabilities measured at fair value on a recurring
Assets:
Cash equivalents
Derivative financial instruments
Equity investment
Liabilities:
Derivative financial instruments
Total
Quoted
prices in
active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total
$
$
$
$
4
4
626
621
1,291
$
103
103
$
44
—
621
665
$
$
—
— $
— $
626
—
626
$
103
103
$
—
—
—
—
—
—
The equity investment consists of the Company’s less than 1% investment in Yeo Hiap Sa
a
manufacturer and distributor based in Singapore.
The Company utilizes the income approa
ch to measure fair value for its forei
approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates and forwa
prices.
and beverage
Fair value is measured using the market approach based on quoted prices.
gn currency forward contracts. The income
rd
eng Limited, a foodff
a
ff
ff
The Company estimates the original fair value of the contingent consideration as the present value of the expected contingent
payments, determined using the weighted probabilities of the possible payments. The Company reassesses the fair value of
contingent payments on a periodic basis. Although the Company believes its estimates and assumptim ons are reasonable,
different assumptions, including those regarding the operating results of the respective businesses, or changes in the future may
result in different estimated amounts.
In connection with the acquisition of Clarks during fiscal 2018, payment of a portion of the purchase price was contingent upon
the achievement of certain operating results. Contingent consideration of up to a maximum of £1,500 was payablea
based on the
achievement of specified operating results over an 18-month period following completion of the acquisition; no contingent
consideration amounts were paid, and the arrangement expired during fiscal 2019.
The following tablea
summarizes the Level 3 activity:
Balance at beginning of year
Fair value of initial contingent consideration
Contingent consideration adjust
Translation adjustment
d ment(1)
Balance at end of year
Fiscal Year Ended June 30,
2020
2019
$
$
— $
—
—
—
— $
1,909
—
(1,870)
(39)
—
(1) The change in the fair value of contingent consideration is included in Productivity and transforms
Company’s
Consolidated StatSS
ements ott
perati
O
f Oo
ons.
m
ation costs in the
In the fiscal year ended June 30, 2019, the Company recorded a net benefit $1,870, with no corresponding amount in fiscal
to a decrease in the fair value of contingent consideration
2020. The net benefit in the fiscal year ended June 30, 2019 was dued
ity of achievement of specified operating results.
related to Clarks. The decrease in the period was due to lower probabila
There were no transfers of financial instruments between the three levels of faiff
June 30, 2020 or 2019.
r value hierarchy during the fiscal years ended
The carrying amount of cash and cash equivalents, accounts receivable, net, accounts payablea
other current liabilities approximate faiff
debt approximates faiff
and certain accrued expenses and
r value due to the short-term maturities of these financial instruments. The Company’s
ing market interest rates (See Note 12, Debt and Borrowings).
r value due to the debt bearing fluctuat
tt
98
Derivative Instruments
The Company uses interest rate swaps to manage its interest rate risk and cross-currency swaps and foreign currency exchange
contracts to manage its exposure to fluctuations in foreign currency exchange rates. The valuation of these instruments is
determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of
each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses
observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are
determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the
discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation
of future interest rates (forward curves) derived from observable market interest rate curves.
In accordance with the provisions of ASC 820, Fair Value Measurements, we incorporate credit valuation adjustments to
appropriately reflect both the Company’s nonperformance risk and the respective counterparty’s nonperformance risk in the fair
value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the
Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds,
mutual puts and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair
value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of
current credit spreads to evaluate the likelihood of default by the Company and its counterparties. The Company has
determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which
determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result,
all of the derivatives held as of June 30, 2020 and 2019 were classified as Level 2 of the fair value hierarchy.
The fair value estimates presented in the fair value hierarchy tables above are based on information available to management as
of June 30, 2020 and 2019. These estimates are not necessarily indicative of the amounts we could ultimately realize.
18.
DERIVATIVES AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company
principally manages its exposures to a wide variety of business and operational risks through management of its core business
activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the
amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the
Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the
receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The
Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the
Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s
receivables and borrowings.
Certain of the Company’s foreign operations expose the Company to fluctuations of foreign exchange rates. These fluctuations
may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The
Company enters into derivative financial instruments to protect the value or fix the amount of certain assets and liabilities in
terms of its functional currency, the U.S. Dollar.
Accordingly, the Company uses derivative financial instruments to manage and mitigate such risks. The Company does not use
derivatives for speculative or trading purposes.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to
interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate
risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a
counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the
underlying notional amount. During fiscal 2020, such derivatives were used to hedge the variable cash flows associated with
existing variable rate debt.
99
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded
in Accumulated other comprehensive loss and subsequently reclassified into interest expense in the same period during which
the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive loss related to derivatives will
be reclassified to interest expense as interest payments are made on the Company’s variable rate debt. During fiscal 2021, the
Company estimates that an additional $$272 will be reclassified as an iincrease t
io interest expense.
As of June 30, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flowff
hedges of interest rate risk:
Interest Rate Derivative
Number of Instruments
Interest Rate Swap
4
Notional Amount
$230,000
Cash FlowFF
Hedges of Foreign Exchangen Riskii
ff
gn currency derivatives including cross-currency swapsaa
ional currency, the U.S. Dollar. The
The Company is exposed to fluctuations in various foreign currencies against its funct
to manage its exposure to fluctuations in the USD-
Company uses forei
EUR exchange rates. Cross-currency swapsa
te interest receipts,
both of which will occur at the USD-EUR forward exchange rates in effect upon entering into the instrument. The Company
also uses forward contracts to manage its exposure to fluctuations in the GBP-EUR exchange rates. The Company designates
these derivatives as cash flow hedges of foreign
involve exchanging fixed-rate interest payments for fixed-ra
exchange risks.
ff
ff
ff
For derivatives designated and that qualify as cash floff w hedges of forei
gn exchange risk, the gain or loss on the derivative is
recorded in Accumulated Other Comprehensive Income and subsequently reclassified in the period(s) during which the hedged
transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During
fiscal 2021, the Company estimates that an additional $$181 relating to cross-currency swapsaa will be reclassified as an iincrease
to iinteres it income.
ff
As of June 30, 2020, the Company had the following outstanding foreign currency derivatives that were used to hedge its
foreign exchange risks:
Foreign Currency
Derivative
Number of Instruments
Notional Sold
Notional Purchased
Cross-currency swap
a
Foreign currency forwa
ff
rd
contract
1
1
€24,700
£850
$26,775
€1,000
Net InvII
estment
tt
Hedgedd s
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
rd agreements are
delivery of a specified amount of foreign currency on a specified date. The currency forwa
exchange rate forff
typically cash settled in U.S. Dollars for their fair value at or close to their settlement date. Cross-currency swapsa
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.
ff
For derivatives designated as net investment hedges, the gain or loss on the derivative is reported in Accumulated other
comprehensive loss as part of the cumulative translation adjustment. Amounts are reclassifiedff
out of Accumulated other
comprehensive loss into earnings when the hedged net investment is either sold or substantially liquidated.
100
As of June 30, 2020, the Company had the following outstanding foreign currency derivatives that were used to hedge its net
investments in forei
gn operations:
ff
Foreign Currency
Derivative
a
Cross-currency swap
Non-Designated HedHH gesdd
Number of Instruments
Notional Sold
Notional Purchased
2
€76,969
$83,225
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
y hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded
a
elected to appl
directly in earnings.
As of June 30, 2020, the Company had outstanding derivatives that were not designated as hedges in qualifying hedging
relationships consisting of foreign currency forward contracts with a notional amount of $32,386.
The following tablea
the Consolidated Balance Sheet as of June 30, 2020:
presents the fair value of the Company’s derivative financial instruments as well as their classification on
Derivatives designated as hedging
g g
g
instruments:
Interest rate swapsa
Cross-currency swapsaa
Foreign currency forwa
ff
rd contracts
Total derivatives designated as hedging
instruments
Derivatives not designated as hedging
g g
instruments:
g
Foreign currency forwa
ff
rd contracts
Asset Derivatives
Liability Derivatives
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
$
Prepaid expenses and
other current assets
Prepaid expenses and
other current assets
Prepaid expenses and
other current assets
Accrued expenses and
other current
liabilities / Other
noncurrent liabilities
Other noncurrent
liabilities
Other noncurrent
liabilities
—
746
75
821
$
856
5,475
—
6,331
Prepaid expenses and
other current assets
193
Accrued expenses and
other current liabilities
74
Total derivative instruments
$
1,014
$
6,405
101
lowing tablea
The folff
the Consolidated Balance Sheet as of June 30, 2019:
presents the fair value of the Company’s derivative financial instruments as well as their classification on
Asset Derivatives
Liability Derivatives
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Derivatives designated as hedging
g g
g
instruments:
Foreign currency forwa
ff
rd contracts
Total derivatives designated as hedging
instruments
Derivatives not designated as hedging
g g
instruments:
g
Foreign currency forwa
ff
rd contracts
Prepaid expenses and
other current assets
$
Prepaid expenses and
other current assets
Total derivative instruments
$
83
83
543
626
Other noncurrent
liabilities
$
Accrued expenses and
other current liabilities
103
103
—
$
103
The following tablea
June 30, 2020, 2019 and 2018:
presents the pre-tax effect of cash flow hedge accounting on Accumulated other comprehensive loss as of
Derivatives in Cash Flow
Hedging Relationships
Amount of Gain (Loss)
Recognized in OCI on
Derivatives
Fiscal Year Ended June 30,
2020
2019
2018
Location of Gain (Loss)
Reclassified from
Accumulated OCL into
Income
Amount of Gain (Loss)
Reclassified froff m Accumulated
OCL into Income
Fiscal Year Ended June 30,
2020
2019
2018
Interest rate swapsa
$
(817) $
— $
—
Interest and other
financing expense, net
$
(40) $
— $
—
Cross-currency swapsaa
Foreign currency forwa
contracts
ff
rd
(1,069)
95
Total
$ (1,791) $
Interest and other
financing expense, net /
Other expense (income),
net
—
45 Cost of sales
927
(103)
—
(30)
$
45
$
784
$
(30) $
—
113
113
—
(127)
(127)
102
lowing tablea
The folff
accounting on the Consolidated Statements of Operations as of June 30, 2020 and 2019:
presents the pre-tax effect of the Company’s derivative financial instruments electing cash flow hedge
Location and Amount of Gain (Loss) Recognized in the Consolidated Statement of
Operations on Cash Flow Hedging Relationships
Fiscal Year Ended June 30, 2020
Fiscal Year Ended June 30, 2019
Interest
and other
financing
expense,
net
Other
expense
(income),
net
Cost of
sales
Interest
and other
financing
expense,
net
Other
expense
(income),
net
Cost of
sales
g g
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships
Interest rate swaps
Amount of gain (loss) reclassified from
accumulated OCL into income
Cross-currency swaps
Amount of gain (loss) reclassified from
accumulated OCL into income
Foreign currency forward contracts
Amount of gain (loss) reclassified from
accumulated OCL into income
$
$
$
— $
40
$
— $
— $
— $
— $
32
$
(959)
$
— $
— $
103
$
— $
— $
30
$
— $
—
—
—
The following tablea
loss and the Consolidated Statements of Operations as of June 30, 2020, 2019 and 2018:
presents the pre-tax effect of the Company’s net investment hedges on Accumulated other comprehensive
Derivatives in Net
Investment Hedging
Relationships
Amount of Gain (Loss)
Recognized in OCI on
Derivatives
Fiscal Year Ended June 30,
2020
2019
2018
Location of Gain (Loss)
Recognized in Income
on Derivatives
(Amount Excluded
tiveness
from Effecff
Testing)
Amount of Gain (Loss)
Recognized in Income on
Derivatives (Amount Excluded
from Effecff
tiveness Testing)
Fiscal Year Ended June 30,
2020
2019
2018
Cross-currency swapsaa
$ (3,529) $
— $
—
Interest and other
financing expense, net
$
98
$
— $
—
The following tablea
instruments on the Consolidated Statements Operations as of June 30, 2020, 2019 and 2018:
presents the effect of the Company’s derivative financial instruments that are not designated as hedging
Derivatives Not Designated as
Hedging Instruments
Location of Gain (Loss)
Recognized in Income on
Derivative
Amount of Gain (Loss) Recognized in Income on
Derivatives
Fiscal Year Ended June 30,
2020
2019
2018
Foreign currency forwa
ff
rd contracts
Other expense (income), net
$
119
$
440
$
337
CCr
iedit-Riisk-Relate Cd C iontinggent 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.
u
103
19.
TERMINATION BENEFITS RELATED TO PRODUCTIVITY AND TRANSF
RR
ORMATION INITIATIVES
As a part of the ongoing productivity and transformation initiatives as a part of the Company’s strategic objective to expand
profit margins and cash flow, the Company initiated a reduction in workforce at targeted locations in the United States as well
as at certain locations internationally. The reduction in workforce associated with these initiatives may result in additional
charges throughout fiscal 2021.
The following tablea
reduction in workforce for the year ended as of June 30, 2020:
displays the termination benefits and personnel realignment activities and liability balances relating to the
Balance at
June 30, 2019
Charges
(reversals)
Amounts Paid
Foreign
Currency
Translation &
Other
Adjustments
Balance at
June 30, 2020
Termination benefits and personnel
realignment
$
5,603 $
22,143 $
(16,346) $
141 $
11,541
The liability balance as of June 30, 2020 and 2019 is included within Accrued expenses and other current liabilities on the
Company’s Consolidated Balance Sheets. Additional non-cash impairment charges related to the Company’s productivity and
transformation costs initiative have been incurred and are discussed within Note 8, Property, Pyy
Net, and
Note 9, Leases.
lant and Equipment,
i
20.
COMMITMENTS AND CONTINGENCIES
Off Balance SheSS et Arrangementstt
At June 30, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have
had, or are likely to have, a material current or futurett
t on our consolidated financial statements.
effecff
e
Legal
Proceedings
Securities Class Actions Filed in Federal Court
On August 17, 2016, three securities class action complaints were filff ed 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
on In re The Hain Celestial Group, Inc. Securities Litigation (the “Consolidated
Complaints were consolidated under the captia
Securities Action”), and Rosewood Funeral Home and Salamon Gimpel were appointed as Co-Lead Plaintiffs. On June 21,
padola voluntarily dismissed his claims without prejudice to his ability to
2017, the Company received notice that plaintiff Sff
participate in the Consolidated Securities Action as an absent class member. The Co-Lead Plaintiffsff
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 forme
r officers (collectively, “Defendants”) and asserted
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegedly materially falff se 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 forme
r 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 falff se 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
ff
ff
104
Defendants submitted a reply on September 3, 2019. On April 6, 2020, the Court granted Defendants' motion to dismiss the
Second Amended Complaint in its entirety, with prejudice. Co-Lead Plaintiffs filed a notice of appeal on May 5, 2020
indicating their intent to appeal the Court’s decision dismissing the Second Amended Complaint to the United States Court of
Appeals for the Second Circuit. Co-Lead Plaintiffs filed their appellate brief on August 18, 2020. Defendants will submit a
scheduling request within 14 days after the filing of Co-Lead Plaintiffs’ appellate brief to schedule the filing of their opposition
brief.
Stockholder Derivative Complaints Filed in State Court
On September 16, 2016, a stockholder derivative complaint, Paperny v. Heyer, et al. (the “Paperny Complaint”), was filed in
New York State Supreme Court in Nassau County against the former Board of Directors and certain former officers of the
Company alleging breach of fiduciary duty, unjust enrichment, lack of oversight and corporate waste. On December 2, 2016
and December 29, 2016, two additional stockholder derivative complaints were filed in New York State Supreme Court in
Nassau County against the former Board of Directors and certain former officers under the captions Scarola v. Simon (the
“Scarola Complaint”) and Shakir v. Simon (the “Shakir Complaint” and, together with the Paperny Complaint and the Scarola
Complaint, the “Derivative Complaints”), respectively. Both the Scarola Complaint and the Shakir Complaint alleged breach of
fiduciary duty, lack of oversight and unjust enrichment. On February 16, 2017, the parties for the Derivative Complaints
entered into a stipulation consolidating the matters under the caption In re The Hain Celestial Group (the “Consolidated
Derivative Action”) in New York State Supreme Court in Nassau County, ordering the Shakir Complaint as the operative
complaint. On November 2, 2017, the parties agreed to stay the Consolidated Derivative Action. Co-Lead Plaintiffs requested
leave to file an amended consolidated complaint, and on January 14, 2019, the Court partially lifted the stay, ordering Co-Lead
Plaintiffs to file their amended complaint by March 7, 2019. Co-Lead Plaintiffs filed a Verified Amended Shareholder
Derivative Complaint on March 7, 2019. The Court continued the stay pending a decision on Defendants’ motion to dismiss in
the Consolidated Securities Action (referenced above). After the Court in the Consolidated Securities Action dismissed the
Amended Complaint, the Court in the Consolidated Derivative Action ordered Co-Lead Plaintiffs to file a second amended
complaint no later than July 8, 2019. Co-Lead Plaintiffs filed a Verified Second Amended Shareholder Derivative Complaint on
July 8, 2019 (the “Second Amended Derivative Complaint”). Defendants moved to dismiss the Second Amended Derivative
Complaint on August 7, 2019. Co-Lead Plaintiffs filed an opposition to Defendants’ motion to dismiss, and Defendants
submitted a reply on September 20, 2019. On May 18, 2020, the Court granted Defendants’ motion to dismiss the Second
Amended Derivative Complaint. Plaintiffs did not file notice of appeal, and their time to do so has run. Accordingly, the
Company considers this matter complete.
Additional Stockholder Class Action and Derivative Complaints Filed in Federal Court
On April 19, 2017 and April 26, 2017, two class action and stockholder derivative complaints were filed in the Eastern District
of New York against the former Board of Directors and certain former officers of the Company under the captions Silva v.
Simon, et al. (the “Silva Complaint”) and Barnes v. Simon, et al. (the “Barnes Complaint”), respectively. Both the Silva
Complaint and the Barnes Complaint allege violation of securities law, breach of fiduciary duty, waste of corporate assets and
unjust enrichment.
On May 23, 2017, an additional stockholder filed a complaint under seal in the Eastern District of New York against the former
Board of Directors and certain former officers of the Company. The complaint alleged that the Company’s former directors and
certain former officers made materially false and misleading statements in press releases and SEC filings regarding the
Company’s business, prospects and financial results. The complaint also alleged that the Company violated its by-laws and
Delaware law by failing to hold its 2016 Annual Stockholders Meeting and includes claims for breach of fiduciary duty, unjust
enrichment and corporate waste. On August 9, 2017, the Court granted an order to unseal this case and reveal Gary Merenstein
as the plaintiff (the “Merenstein Complaint”).
On August 10, 2017, the court granted the parties' stipulation to consolidate the Barnes Complaint, the Silva Complaint and the
Merenstein Complaint under the caption In re The Hain Celestial Group, Inc. Stockholder Class and Derivative Litigation (the
“Consolidated Stockholder Class and Derivative Action”) and to appoint Robbins Arroyo LLP and Scott+Scott as Co-Lead
Counsel, with the Law Offices of Thomas G. Amon as Liaison Counsel for Plaintiffs. On September 14, 2017, a related
complaint was filed under the caption Oliver v. Berke, et al. (the “Oliver Complaint”), and on October 6, 2017, the Oliver
Complaint was consolidated with the Consolidated Stockholder Class and Derivative Action. The Plaintiffs filed their
consolidated amended complaint under seal on October 26, 2017. On December 20, 2017, the parties agreed to stay
Defendants’ time to answer, move, or otherwise respond to the consolidated amended complaint through and including 30 days
after a decision was rendered on the motion to dismiss the Amended Complaint in the Consolidated Securities Action,
described above.
105
On March 29, 2019, the Court in the Consolidated Securities Action granted Defendants’ motion, dismissing the Amended
Complaint in its entirety, without prejudice to replead. Co-Lead Plaintiffs in the Consolidated Securities Action filed the Second
Amended Complaint on May 6, 2019. The parties to the Consolidated Stockholder Class and Derivative Action agreed to
continue the stay of Defendants’ time to answer, move, or otherwise respond to the consolidated amended complaint through 30
days after a decision on Defendants' motion to dismiss the Second Amended Complaint in the Consolidated Securities Action.
On April 6, 2020, the Court granted Defendants’ motion to dismiss the Second Amended Complaint in the Consolidated
Securities Action, with prejudice. Pursuant to the terms of the stay, Defendants in the Consolidated Stockholder Class and
Derivative Action had until May 6, 2020 to answer, move, or otherwise respond to the complaint in this matter. This deadline
was extended, and Defendants moved to dismiss the Consolidated Stockholder Class and Derivative Action Complaint on June
23, 2020, with Plaintiffs’ opposition due August 7, 2020. On July 24, 2020, Plaintiffs made a stockholder litigation demand on
the current Board containing overlapping factual allegations to those set forth in the Consolidated Stockholder Class and
Derivative Action. The Board of Directors will evaluate the demand and determine what, if any, actions to take in response. On
August 10, 2020, the Court vacated the briefing schedule on Defendants’ pending motion to dismiss in order to give the Board
of Directors time to consider the demand. The parties must provide the Court with an update on or before September 7, 2020.
Other
In addition to the litigation described above, the Company is and may be a defendant in lawsuits from time to time in the
normal course of business. While the results of litigation and claims cannot be predicted with certainty, the Company believes
the reasonably possible losses of such matters, individually and in the aggregate, are not material. Additionally, the Company
believes the probable final outcome of such matters will not have a material adverse effect on the Company’s consolidated
results of operations, financial position, cash flows or liquidity.
21.
DEFINED CONTRIBUTION PLANS
We have a 401(k) Employee Retirement Plan (the “Plan”) to provide retirement benefits for eligible employees. All full-time
employees of the Company and its wholly-owned domestic subsidiaries are eligible to participate upon completion of 30 days
of service. On an annual basis, we may, in our sole discretion, make certain matching contributions. For the fiscal years ended
June 30, 2020 and 2018, we made contributions to the Plan of $2,464 and $1,371, respectively, including with respect to
employees of Hain Pure Protein in 2018. There were no contributions made in fiscal 2019. In addition, while certain of our
international subsidiaries maintain separate defined contribution plans for their employees, the amounts are not significant to
the Company’s consolidated financial statements.
22.
SEGMENT INFORMATION
Prior to July 1, 2019, the Company’s operations were managed in seven operating segments: the United States, United
Kingdom, Tilda, Ella’s Kitchen UK, Europe, Canada and Hain Ventures. For segment reporting purposes, based on economic
similarity as outlined within ASC 280, Segment Reporting, the Company elected to combine the United Kingdom, Tilda and
Ella’s Kitchen UK operating segments into one reportable segment known as United Kingdom. Additionally, the Canada,
Europe and Hain Ventures operating segments were combined as the Rest of World reportable segment. Separately, the United
States operating segment comprised its own reportable segment.
Effective July 1, 2019, the Company reassessed its segment reporting structure due to changes in how the Company’s CODM
assesses the Company’s performance and allocates resources as a result of a change in the Company’s strategy, which includes
creating synergies among the Company’s United States and Canada businesses, as well as among the Company’s international
businesses in the United Kingdom and Europe. As a result, the Canada and Hain Ventures operating segments, which were
included within the Rest of World reportable segment, were moved to the United States reportable segment and renamed the
North America reportable segment. Additionally, the Europe operating segment, which was included in the Rest of World
reportable segment, was combined with the United Kingdom reportable segment and renamed the International reportable
segment. Accordingly, the Company now operates under two reportable segments: North America and International.
information has been adjusted to reflect
the Company’s new operating and reporting structure.
Prior period segment
Additionally, the Tilda operating segment was classified as discontinued operations as discussed in Note 5, Discontinued
Operations and Assets Held for Sale. Segment information presented herein excludes the results of Tilda for all periods
presented.
106
lowing tables set forth finaff
The folff
ncial information about each of the Company’s reportable segments. Information about total
assets by segment is not disclosed because such information is not reported to or used by the Company’s CODM for purposes
of assessing segment performance or allocating resources. Transactions between reportable segments were insignificant for all
periods presented.
Net Sales: (1)
North America
International
)
Operating Income (Loss):
p
g
(
North America
International
Corporate and Other (2)
Fiscal Year Ended June 30,
2019
2020
2018
$ 1,171,478
$ 1,195,979
$ 1,295,413
882,425
908,627
970,257
$ 2,053,903
$ 2,104,606
$ 2,265,670
$
$
95,934
55,333
151,267
(95,225)
32,682
58,808
91,490
(123,983)
$
104,025
57,630
161,655
(74,985)
$
56,042
$
(32,493)
$
86,670
(1) One of our customers accounted forff
approximately 1ll
the fisci al years
30, 2020, 2019 and 2018, respectively,ll which were primarily related to the United States and United Kingdom
KK
approximately, 9yy %, 10% and 12% of our consolidated net sales forff
e
nded June 30, 2020, 2019 and 2018, respectively,ll which were primarily related to the United States
2%, 11%, and 11% of our consolidated net sales forff
nts. A second customer accounted forff
ended June
JJ
operating segme
the fisci al years err
operating segment.
i
(2) For the fiscal
transforms
to International), partially oll
year ended June
ation costs and trade name impairment charges
ff
2,962 of proc
t by ab
benefie t of $o
ffo seff
JJ
r
30, 2020, Corporate and Other included expenses
nd
of $9,539 ($4,007 related to North America and $5,532 related
of $32,664 related to Productivity att
x
eeds from insurance claim.
i
x
expense
year ended June 30, 2019, Corporate
For the fiscal
Succession Planl
remediation costs. Corporate
charges of $17,900 ($15,113 related to North America and $2,787 related to International) al
proceeds received in connection with an insurance recovery.
and Other included $30,156 of Former Chief Executive Officer
ation costs and $4,334 of accounting review and
year ended June 30, 2019 also included trade name impairment
nd a $4,460 benefie t forff
28,443 of Productivity and transforms
i
and Other for the fiscal
, net, $t
rr
rr
ff
i
JJ
year ended June
For the fiscal
and $9,293 of Accounting review and remediation costs, net of insurance proceeds. Corporate
ended June 30, 2018 also included trade name impairment charges
related to International).l
ion costs
year
of $5,632 ($5,100 related to North Att merica and $532
nd transformat
ff
i
and Other for the fiscal
and Other included $10,118 of Productivity att
30, 2018, Corporate
rr
r
r
The Company’s net sales by product category are as follows:
Fiscal Year Ended June 30,
2019
2018
2020
Grocery
Snacks
Personal Care
Tea
Total
$ 1,423,761
309,261
$ 1,512,868
296,123
$ 1,650,336
302,859
192,875
128,006
180,141
115,474
196,195
116,280
$ 2,053,903
$ 2,104,606
$ 2,265,670
107
The Company’s net sales by geographic
follows:
aa
region, which are generally based on the location of the Company’s subsidiary, are as
United States
United Kingdom
All Other
Total
Fiscal Year Ended June 30,
2019
$ 1,052,930
704,524
2018
$ 1,138,749
762,706
2020
$ 1,016,230
650,416
387,257
347,152
364,215
$ 2,053,903
$ 2,104,606
$ 2,265,670
The Company’s long-lived assets, which primarily represent net property, plant and equipment, by geographic
follows:
aa
region are as
United States
United Kingdom
All Other
Total
Fiscal Year Ended June 30,
2020
2019
$
$
115,211
136,845
78,815
115,866
132,876
87,277
$
330,871
$
336,019
108
23.
QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of the Company’s consolidated quarterly results of operations is as follows. The sum of the net income per share
from continuing operations for each of the four quarters may not equal the net income per share for the full year, as presented,
due to rounding.
Three Months Ended
Net sales
Gross profit
Operating income
Income (loss) before income taxes and equity in earnings of
equity-method investees
Net income (loss) from continuing operations
Net loss from discontinued operations, net of tax
Net income (loss)
Net income (loss) per common share:
Basic net income (loss) per common share from continuing
operations
$
$
$
$
$
$
$
$
Basic net loss per common share fromff
Basic net income (loss) per common share
discontinued operations $
$
Diluted net income (loss) per common share from continuing
operations
Diluted net loss per common share from discontinued
operations
Diluted net income (loss) per common share
$
$
$
June 30,
2020
511,746
March 31,
2020
553,297
$
December
31, 2019
September
30, 2019
$
$
$
$
132,395
19,135
15,358
25,036
$
(697) $
24,339
$
506,784
105,607
9,191
3,210
$
$
$
$
1,852
$
(2,816) $
482,076
97,831
2,455
(5,167)
(4,953)
(102,068)
(964) $
(107,021)
129,937
25,261
20,427
$
$
$
3,699
$
(460) $
3,239
$
0.04
$
— $
$
0.04
0.24
$
(0.01) $
$
0.23
0.02
$
(0.03) $
(0.01) $
(0.05)
(0.98)
(1.03)
0.04
$
0.24
$
0.02
$
(0.05)
— $
$
0.04
(0.01) $
$
0.23
(0.03) $
(0.01) $
(0.98)
(1.03)
Net income from continuing operations in the quarter ended June 30, 2020 was impacted by a goodwill impairment charge of
$394 relating to the Company’s anticipated divestiture of its Danival business and by $6,438 ($5,897 net of tax) of non-cash
impairment charges primarily related to a write-down of building improvements, machinery and equipment in the United States
and Europe used to manufacture certain slow moving or low margin SKUs, held forff
sale accounting of Danival and
consolidation of certain office space and manufacturing facilities. The current period charge also includes $4,455 ($3,274 net of
tax) of intangible impairment relating to the divestiture of certain brands.
Net income from continuing operations in the quarter ended March 31, 2020 was impacted by impairment charges of $7,650
($5,706 net of tax) related to indefinite-lived intangible assets (trade names) and $5,875 ($5,265 net of tax) of non-cash
impairment charges primarily related to a write-down of certain machinery and equipment in the United States and Europe used
to manufacture certain slow moving or low margin SKUs. Additionally, in the quarter ended March 31, 2020, there was an
inventory write-down of $1,362 ($1,005 net of tax) in connection with the discontinuance of slow moving SKUs as part of a
product rationalization initiative. Net loss frff om discontinued operations in the quarter ended March 31, 2020 was impacted by
a $540 ($362 net of tax) adjustmd
ent to the sale of Tilda entities relating to post-closing adjustments.
Net income from continuing operations in the quarter ended December 31, 2019 was impacted by impairment charges of $1,889
($1,389 net of tax) related to indefinite-lived intangible assets (trade names) and an inventory write-down of $3,927 ($2,896 net
of tax) in connection with the discontinuance of slow moving SKUs as part of a product rationalization initiative. Net loss frff om
discontinued operations in the quarter ended December 31, 2019 was impacted by a $3,752 ($2,720 net of tax) adjustment to
the sale of Tilda entities relating to post-closing adjustmd
ents.
Net loss from discontinued operations in the quarter ended September 30, 2019 was primarily impacted by a reclassification of
accumulated comprehensive loss to the Company’s results of the Tilda business’
$95,120 of cumulative translation losses fromff
discontinued operations. The expense for income taxes for the three months ended September 30, 2019 was impacted by
$16,500 of tax related to the tax gain on the sale of the Tilda entities.
109
Net sales
Gross profit
Operating (loss) income
(Loss) income before income taxes and equity in
earnings of equity-method investees
Net (loss) income fromff
continuing operations
Net loss from discontinued operations, net of tax
Net loss
Net (loss) income per common share:
Basic net (loss) income per common share from
continuing operations
Basic net loss per common share from discontinued
operations
Basic net loss per common share
Diluted net (loss) income per common share from
continuing operations
Diluted net loss per common share from discontinued
operations
Diluted net loss per common share
Three Months Ended
June 30,
2019
March 31,
2019
December
31, 2018
September
30, 2018
$
$
$
$
$
$
$
$
$
$
$
$
$
505,305
95,030
(2,641)
(8,378)
(7,336)
(6,215)
(13,551)
(0.07)
(0.06)
(0.13)
(0.07)
(0.06)
(0.13)
$
$
$
$
$
$
$
$
$
$
$
$
$
547,257
113,208
18,992
11,931
8,783
(74,620)
(65,837)
0.08
(0.72)
(0.63)
0.08
(0.72)
(0.63)
$
$
$
$
$
$
$
$
$
$
$
$
$
533,566
101,351
(20,880)
(26,679)
(31,787)
(34,714)
(66,501)
(0.31)
(0.33)
(0.64)
(0.31)
(0.33)
(0.64)
$
$
$
$
$
$
$
$
$
$
$
$
$
518,478
88,908
(27,964)
(32,878)
(23,087)
(14,338)
(37,425)
(0.22)
(0.14)
(0.36)
(0.22)
(0.14)
(0.36)
Net loss from continuing operations in the quarter ended June 30, 2019 was impacted by $4,393 ($3,558 net of tax) and $5,617
($4,143 net of tax) non-cash impairment charges in the United Kingdom and United States, respectively, primarily associated
with a write down of the value of certain machinery and equipment no longer in use, some of which was used to manufacture
certain slow moving SKUs that were discontinued. Additionally, the Company recorded an inventory write-down of $10,346
($7,606 net of tax) related to the discontinuation of additional slow moving SKUs in the United States as part of an ongoing
product rationalization initiative.
Net loss from discontinued operations in the quarter ended March 31, 2019 included a pre-tax loss on sale on the disposition of
the Plainville Farms business of $40,223 ($29,511 net of tax) to write down the assets and liabilities to the final sales price less
costs to sell and asset impairments of $51,348 ($37,532 net of tax), each as a component of net loss on discontinued operations,
net of tax.
The quarter ended December 31, 2018 was impacted by $10,148 ($7,484 net of tax) of Former Chief Executive Officer
Succession Plan expense, net, $920 ($678 net of tax) related to professional fees associated with our internal accounting review
and the independent review by the Audit Committee and other related matters, impairment charges of $17,900 ($13,374 net of
tax) related to indefinite-lived intangible assets (trade names) and asset impairment charges in discontinued operations of
$54,946 ($40,314 net of tax).
The quarter ended September 30, 2018 was impacted by $19,553 ($14,420 net of tax) of Former Chief Executive Officer
Succession Plan expense, net, $3,414 ($2,518 net of tax) related to professional fees associated with our internal accounting
review and the independent review by the Audit Committee and other related matters, $4,243 ($3,436 net of tax) primarily
related to the closure of a manufacturing facility of fruit
-based products in the United Kingdom and asset impairment charges in
discontinued operations of $2,958 ($2,170 net of tax).
ff
24.
RELATED PARTY TRANSACTIONS
A membber of our Boa drd of
iincurs expense is in hthe
yyears 2020, 2019
iDirectors iis lalso hthe h i
chair of thhe b
diordina yry course of bf b iusiness. hThe Compa yny iinc
d
board of one of hthe Compa yny’s
suppliers, forff
li
urred expenses of $$19,551, $$21,633
d
hi hwhich hthe Compa yny
dand $$22,400 iin fifiscall
dand 2018, respec iti
lvelyy, to hthe s
upplier andd affiffililiat ded en iti ities.
li
110
A former member of our Board of Directors is a partner in a law firm which provides legal services to the Company. The
Company incurred expenses of $4,242, $2,592 and $1,700 in fiscal years 2020, 2019 and 2018, respectively, to the law firm and
affiliated entities. The director resigned from the Board in February 2020.
25.
SUBSEQUENT EVENT
On July 21, 2020, the Company completed the sale of the Danival business. As of June 30, 2020, all assets and liabilities related
to Danival were classified as held for sale within the Company’s Consolidated Balance Sheet. See Note 5, Discontinued
Operations and Assets Held for Sale, for additional information on the transaction.
111
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”)) are designed to ensure that information required to be disclosed in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is
accumulated and communicated to management, including our principal executive and financial officers, to allow timely
decisions regarding disclosure. Any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives. The Chief Executive Officer (“CEO”) and the Chief Financial
Officer (“CFO”), with assistance from other members of management, have reviewed the effectiveness of our disclosure
controls and procedures as of June 30, 2020 and, based on their evaluation, have concluded that the disclosure controls and
procedures were effective as of June 30, 2020.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets of the Company that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision, and with the participation, of our management, including the CEO and CFO, we conducted an
evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2020. In making this assessment,
management used the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management, including our
CEO and CFO, has concluded that our internal control over financial reporting was effective as of June 30, 2020.
The effectiveness of the Company’s internal control over financial reporting as of June 30, 2020 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their report which appears herein.
112
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2020 that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
113
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
The Hain Celestial Group, Inc. and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited The Hain Celestial Group, Inc. and subsidiaries’ internal control over financial reporting as of June 30, 2020,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, The Hain Celestial Group, Inc. and
subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of June 30,
2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of June 30, 2020 and 2019, the related consolidated statements of
operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended
June 30, 2020, and the related notes and schedule (collectively referred to as the “consolidated financial statements”) and our
report dated August 25, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Jericho, New York
August 25, 2020
114
Item 9B.
Other Information
Not applicable.
115
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information required by this item is incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of
Stockholders of the Company to be filed with the SEC within 120 days of the fiscal year ended June 30, 2020.
Item 11.
Executive Compensation
The information required by this item is incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of
Stockholders of the Company to be filed with the SEC within 120 days of the fiscal year ended June 30, 2020.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of
Stockholders of the Company to be filed with the SEC within 120 days of the fiscal year ended June 30, 2020.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of
Stockholders of the Company to be filed with the SEC within 120 days of the fiscal year ended June 30, 2020.
Item 14.
Principal Accountant Fees and Services
The information required by this item is incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of
Stockholders of the Company to be filed with the SEC within 120 days of the fiscal year ended June 30, 2020.
Item 15.
Exhibits and Financial Statement Schedules
PART IV
(a)(1)
Financial Statements. The following consolidated financial statements of The Hain Celestial Group, Inc. are filed as
part of this report under Part II, Item 8 - Financial Statements and Supplementary Data:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - June 30, 2020 and 2019
Consolidated Statements of Operations - Fiscal Years ended June 30, 2020, 2019 and 2018
Consolidated Statements of Comprehensive (Loss) Income - Fiscal Years ended June 30, 2020, 2019 and 2018
Consolidated Statements of Stockholders’ Equity - Fiscal Years ended June 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows - Fiscal Years ended June 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
(a)(2)
Financial Statement Schedules. The following financial statement schedule should be read in conjunction with the
consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K. All other financial
schedules are not required under the related instructions, or are not applicable and therefore have been omitted.
116
The Hain Celestial Group, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
Column A
Fiscal Year Ended June 30, 2020
Allowance forff
doubtful accounts
Valuation allowance for deferred tax assets
Fiscal Year Ended June 30, 2019
Allowance for doubtful accounts
Valuation allowance for deferred tax assets
Fiscal Year Ended June 30, 2018
Allowance for doubtful accounts
Valuation allowance for deferred tax assets
Column B
Balance at
beginning
of
period
$
$
$
$
$
$
588
34,912
2,086
20,831
1,447
20,712
Column C
Additions
Column D
Column E
Charged to
costs and
expenses
Charged to
other
accounts -
describe (i)
Deductions
- describe
(ii)
Balance at
end of
period
$
$
$
$
$
$
454
7,391
553
17,773
1,880
1,251
$
$
$
$
$
$
— $
— $
(404)
(362)
(1,016)
$
— $
(1,035)
(3,692)
49
$
(1,290)
— $
(1,132)
$
$
$
$
$
$
638
41,941
588
34,912
2,086
20,831
Amounts att
bove are inclusive of oo
ur Tilda and Hain Pure Protein reporting segments ctt
lassifii ed as discont
i
inued opero
ations
(i) Repree
(ii) Ai
mounts written offo and changes in excee hange rates
sents the allowance for doubtful
t
accounts of the business acquired or disposed of during the fiscal
i
year
(a)(3)
following Item 16. “Form 10-K Summary,” which is incorporated herein by reference.
Exhibits. The exhibits filff ed as part of this Annual Report on Form 10-K are listed on the Exhibit Index immediately
Item 16.
Form 10-K Summary
None.
117
Exhibit
Number
2.1
3.1
3.2
3.3
4.1
4.2
10.1.1
10.1.2
10.1.3
10.1.14
10.1.5
10.1.6
EXHIBIT INDEX
Description
Agreement relating to the sale and purchase of the Tilda Group Entities and certain other assets dated August
27, 2019, between the Company and Ebro Foods S.A. (incorporated by reference to Exhibit 2.1 of the
Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019, filed with the SEC on
August 29, 2019).
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of Amendment
No. 1 to the Company’s Registration Statement on Form S-4 filed with the SEC on April 24, 2000).
Certificate of Amendment to Amended and Restated Certificate of Incorporation of The Hain Celestial Group,
Inc. (incorporated by reference to Exhibit 3.2(b) of the Company’s Current Report on Form 8-K filed with the
SEC on November 26, 2014).
The Hain Celestial Group, Inc. Amended and Restated By-Laws (incorporated by reference to Exhibit 3.1 of
the Company’s Current Report on Form 8-K filed with the SEC on December 7, 2018).
Specimen of common stock certificate (incorporated by reference to Exhibit 4.1 of Amendment No. 1 to the
Company’s Registration Statement on Form S-4 filed with the SEC on April 24, 2000).
Description of Registrant’s Securities (incorporated by reference to Exhibit 4.2 of the Company’s Annual
Report on Form 10-K for the fiscal year ended June 30, 2019, filed with the SEC on August 29, 2019).
Third Amended and Restated Credit Agreement, dated February 6, 2018, among the Company, Hain Pure
Protein Corporation, certain other wholly-owned Subsidiaries of the Company, Bank of America, N.A., as
Administrative Agent, U.S. Swing Line Lender and L/C Issuer, Bank of America Merrill Lynch International
Limited and Bank of America, N.A., Canada Branch, as Global Swing Line Lenders, Wells Fargo Bank, N.A.
and Citizens Bank, N.A., as Co-Syndication Agents, Farm Credit East, ACA and JP Morgan Chase Bank,
N.A., as Co-Documentation Agents, and the other lenders party thereto (incorporated by reference to Exhibit
10.1 of the Company’s Current Report on Form 8-K filed with the SEC on February 12, 2018).
First Amendment to Third Amendment and Restated Credit Agreement, dated November 7, 2018, by and
among the Company, Hain Pure Protein Corporation, certain wholly-owned subsidiaries of the Company party
thereto from time to time, and Bank of America, N.A. as administrative agent (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2018).
Second Amendment to Third Amended and Restated Credit Agreement, dated February 6, 2019, by and
among the Company, Hain Pure Protein Corporation, certain wholly-owned subsidiaries of the Company party
thereto from time to time, and Bank of America, N.A., as administrative agent (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2019).
Third Amendment to Third Amended and Restated Credit Agreement, dated May 8, 2019, by and among the
Company, certain wholly-owned subsidiaries of the Company party thereto from time to time, the Lenders
party thereto and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of
the Company’s Current Report on Form 8-K filed with the SEC on May 9, 2019).
Fourth Amendment to Third Amended and Restated Credit Agreement, dated November 6, 2019, by and
among the Company,
the Lenders party thereto and Bank of America, N.A., as administrative agent
(incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 2019, filed with the SEC on February 6, 2020).
Security and Pledge Agreement, dated May 8, 2019, by and among the Company, certain wholly-owned
subsidiaries of the Company party thereto from time to time, and Bank of America, N.A., as administrative
agent (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the
SEC on May 9, 2019).
10.2.1*
The Hain Group, Inc. Amended and Restated Long Term Incentive and Stock Award Plan (incorporated by
reference to Exhibit 10.2.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30,
2019, filed with the SEC on August 29, 2019).
118
10.2.2*
10.2.3*
10.2.4*
10.2.5*
10.2.6*
10.3*
10.4.1*
10.4.2*
Form of Restricted Stock Agreement under The Hain Celestial Group, Inc. Amended and Restated 2002 Long
Term Incentive and Stock Award Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current
Report on Form 8-K/A filed with the SEC on April 7, 2008).
Form of Notice of Grant of Restricted Stock Award under The Hain Celestial Group, Inc. Amended and
Restated 2002 Long Term Incentive and Stock Award Plan (incorporated by reference to Exhibit 10.6 to the
Company’s Current Report on Form 8-K/A filed with the SEC on April 7, 2008).
Form of Performance Units Agreement under The Hain Celestial Group, Inc. Amended and Restated 2002
Long Term Incentive and Stock Award Plan (2019-2021 Long Term Incentive Plan) (incorporated by
reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2019, filed with the SEC on May 9, 2019).
Form of Restricted Share Units Agreement under The Hain Celestial Group, Inc. Amended and Restated 2002
Long Term Incentive and Stock Award Plan.
Form of Notice of Grant of Restricted Share Units under The Hain Celestial Group, Inc. Amended and
Restated 2002 Long Term Incentive and Stock Award Plan.
The Hain Celestial Group, Inc. Inducement Grant Performance Units Agreement, dated November 6, 2018,
between the Company and Mark L. Schiller (incorporated by reference to Exhibit 10.1 of the Company’s
Registration Statement on Form S-8 filed with the SEC on November 6, 2018).
The Hain Celestial Group, Inc. 2019 Equity Inducement Award Program (incorporated by reference to Exhibit
10.1 of the Company’s Registration Statement on Form S-8 filed with the SEC on February 19, 2019).
Form of Performance Units Agreement under The Hain Celestial Group, Inc. 2019 Equity Inducement Award
Program (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2019, filed with the SEC on May 9, 2019).
10.4.3*
Form of Restricted Share Units Agreement under The Hain Celestial Group, Inc. 2019 Equity Inducement
Award Program.
10.4.4*
Form of Notice of Grant of Restricted Share Units under The Hain Celestial Group, Inc. 2019 Equity
Inducement Award Program.
10.5*
The Hain Celestial Group, Inc. Amended and Restated Executive Incentive Plan (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on November 1, 2019).
10.6*
10.7*
10.8*
Employment Agreement, dated as of October 26, 2018, by and between the Company and Mark L. Schiller
(incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC
on October 29, 2018).
Offer Letter, dated October 31, 2019, between the Company and Javier H. Idrovo (incorporated by reference to
Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31,
2019, filed with the SEC on February 6, 2020).
Offer Letter, dated January 3, 2019, between the Company and Christopher Boever (incorporated by reference
to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019,
filed with the SEC on May 9, 2019).
10.9*
Offer Letter, dated April 13, 2019, between the Company and Jeryl Wolfe.
10.10*
10.11*
Succession Agreement dated as of June 24, 2018, by and between the Company and Irwin D. Simon
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC
on June 25, 2018).
Separation Agreement, dated August 30, 2019, between the Company and Denise Faltischek (incorporated by
reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2019, filed with the SEC on November 7, 2019).
119
10.12*
10.13*
10.14*
10.15*
10.16*
21.1
23.1
31.1
31.2
32.1
32.2
101
Separation Agreement, dated as of December 31, 2019, between the Company and James M. Langrock
(incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 2019, filed with the SEC on February 6, 2020).
Separation Agreement, dated as of February 7, 2020, between the Company and Kevin McGahren
(incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 2020, filed with the SEC on May 7, 2020).
Form of Change in Control Agreement (incorporated by reference to Exhibit 10.12 of the Company’s Annual
Report on Form 10-K for the fiscal year ended June 30, 2019, filed with the SEC on August 29, 2019).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2020, filed with the SEC on May 7, 2020).
Form of Confidentiality, Non-Interference, and Invention Assignment Agreement (incorporated by reference
to Exhibit 10.8 of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019,
filed with the SEC on May 9, 2019).
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm - Ernst & Young LLP.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended.
Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
32.2 Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended June 30,
2020, formatted in inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance
Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive
Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash
Flows, (vi) Notes to Consolidated Financial Statements, and (vii) Financial Statement Schedule.
104
Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101).
*
Indicates management contract or compensatory plan or arrangement.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other
disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on
them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents
were made solely within the specific context of the relevant agreement or document and may not describe the actual state of
affairs as of the date they were made or at any other time.
120
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: August 25, 2020
Date: August 25, 2020
THE HAIN CELESTIAL GROUP, INC.
/s/ Mark L. Schiller
Mark L. Schiller,
President, Chief Executive Officer
and Director
/s/
Javier H. Idrovo
Javier H. Idrovo,
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
121
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Mark L. Schiller
Mark L. Schiller
/s/ Javier H. Idrovo
Javier H. Idrovo
/s/ Dean Hollis
Dean Hollis
/s/ Richard A. Beck
Richard A. Beck
/s/ Celeste A. Clark
Celeste A. Clark
/s/ Shervin J. Korangy
Shervin J. Korangy
/s/ Michael B. Sims
Michael B. Sims
/s/ Glenn W. Welling
Glenn W. Welling
/s/ Dawn M. Zier
Dawn M. Zier
President, Chief Executive Officer and
Director
August 25, 2020
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
August 25, 2020
Chair of the Board
August 25, 2020
August 25, 2020
August 25, 2020
August 25, 2020
August 25, 2020
August 25, 2020
August 25, 2020
Director
Director
Director
Director
Director
Director
122