UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
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ý☒ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Fiscal Yearfiscal year ended June 30, 20172022
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¨☐ | 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
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THE HAIN CELESTIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
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| Delaware | | 22-3240619 |
Delaware | | 22-3240619 |
(State or other jurisdiction of
incorporation or organization)
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Identification No.)
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1111 Marcus Avenue Lake Success, New York | | 11042 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (516) 587-5000
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Classeach class | Trading Symbol(s) | Name of Each Exchangeeach exchange on which registered |
Common Stock, par value $.01$0.01 per share | HAIN | The NASDAQ® Global SelectNasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨☒ No ý☐
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 ý☒
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 ý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes ý☒ No ¨☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to Form 10-K. ý
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.
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| Large accelerated filer | ý☒ | | Accelerated filer | ¨ | | ☐ |
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Non-accelerated filer (Do not check if a smaller reporting company)
| ¨☐ | | Smaller reporting company | ¨☐ |
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| | | Emerging growth company | ¨☐
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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.☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No ý☒
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 Selectby The Nasdaq Stock Market LLC on December 31, 2016,2021, the last business day of the registrant’s most recently completed second fiscal quarter, was $3,970,465,000.$3,875,927,081.
As of September 6, 2017,August 18, 2022, there were 103,719,173 shares89,299,252 shares outstanding of the registrant’s Common Stock, par value $.01$0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of The Hain Celestial Group, Inc. Definitive Proxy Statement for the 2022 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
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| PART I | | |
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PART I | | |
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| Item 1A. | | |
| Item 1B. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| PART II | | |
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| Item 5. | | |
| Item 6. | | |
| Item 7. | | |
| Item 7A. | | |
| Item 8. | | |
| Item 9. | | |
| Item 9A. | | |
| Item 9B. | | |
| Item 9C. | | |
PART III | | |
| PART III | | |
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| Item 10. | | |
| Item 11. | | |
| Item 12. | | |
| Item 13. | | |
| Item 14. | | |
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| PART IV | |
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| Item 15. | | |
| Item 16. | | |
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Forward-Looking Statements
Cautionary Note Regarding Forward Looking Information
This Annual Report on Form 10-K for the fiscal year ended June 30, 2017 (the2022 (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”safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Many Such statements involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of ourThe Hain Celestial Group, Inc. (collectively with its subsidiaries, the “Company,” “Hain Celestial,” “we,” “us” or “our”) may differ materially from those expressed or implied by such 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 ofstatements. The words “believe,” “expect,” “anticipate,” “may,” “will,” “should,” “expects,“plan,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,“intend,” “potential,” or “continue”“will” and similar expressions or the negative of those expressions. Theseare intended to identify such forward-looking statements. Forward-looking statements include, among other things, our beliefs or expectations relating to our business strategy, growth strategy, market price, brand portfolio and productfuture performance, the seasonality of our business, our results of operations and financial condition,condition; foreign exchange rates; our Securitiesstrategic initiatives, business strategy, supply chain, brand portfolio, pricing actions and Exchange Commission (“SEC”) filings, enhancing internal controlsproduct performance; current or future macroeconomic trends; and remediating material weaknesses. These forward-looking statements are not guarantees of our future performancecorporate acquisitions or dispositions.
Risks and involve risks, uncertainties estimates and assumptions that are difficultmay cause actual results 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,include: challenges and uncertainty resulting from the impact of competitive products, changescompetition; our ability to manage our supply chain effectively; input cost inflation; supply chain disruptions, cybersecurity risks and other risks arising from the competitive environment,Russia-Ukraine war; disruption of operations at our manufacturing facilities; reliance on independent contract manufacturers; challenges and uncertainty resulting from the COVID-19 pandemic; changes to consumer preferences, general economicpreferences; customer concentration; reliance on independent distributors; the availability of natural and financial market conditions, our ability to introduce new products and improve existing products, changes in relationships with customers, suppliers, strategic partners and lenders,organic ingredients; risks associated with our international sales and operations, legal proceedings and government investigations (including any potential action by the Division of Enforcement of the SEC and securities class action and stockholder derivative litigation),operations; risks associated with outsourcing arrangements; our ability to manageexecute our financial reportingcost reduction initiatives and internal control systems and processes, the Company’s non-compliance with certain Nasdaq Stock Market LLC listing rules, identifying material weaknesses in our internal control over financial reporting, the expected sales of our products,related strategic initiatives; our ability to identify and complete acquisitions or divestitures and integrate acquisitions, changesour level of success in raw materials, commodity costs and fuel, the availabilityintegrating acquisitions; our reliance on independent certification for a number of organic and natural ingredients, risks relating to the protection of intellectual property,our products; the reputation of our brands, changesCompany and our brands; our ability to use and protect trademarks; general economic conditions; foreign currency exchange risk; the interpretationUnited Kingdom’s exit from the European Union; cybersecurity incidents; disruptions to information technology systems; the impact of governmental regulations, unanticipated expenditures,climate change; liabilities, claims or regulatory change with respect to environmental matters; potential liability if our products cause illness or physical harm; the highly regulated environment in which we operate; pending and future litigation; compliance with data privacy laws; compliance with our credit agreement; the discontinuation of LIBOR; our ability to issue preferred stock; the adequacy of our insurance coverage; impairments in the carrying value of goodwill or other intangible assets; and other risks and matters described in Part I, Item 1A, “Risk Factors” and elsewhere in this Form 10-K as well as in other reports that we file in the future.
We undertake no obligation to update forward-looking statements to reflect actual results or changes in assumptions or circumstances, except as required by applicable law.
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 — To Create and Inspire A Healthier Way of LifeTM andtenet. The Company continues to be thea 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.
With a proven track record of strategic growth and profitability, 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 LifeTM. Hain Celestial is a leader in many organic and natural products categories, with many recognized brands in the various market categories it serves, including Almond Dream®, Arrowhead Mills®, Bearitos®, Better BeanTM, BluePrint®, Celestial Seasonings®, Coconut Dream®, Cully & Sully®, Danival®, DeBoles®, Earth’s Best®, Ella’s Kitchen®, Empire®, Europe’s Best®, Farmhouse Fare®, Frank Cooper’s®, FreeBird®, Gale’s®, Garden of Eatin’®, GG UniqueFiberTM, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, Johnson’s Juice Co.®, Joya®, Kosher Valley®, Lima®, Linda McCartney’s® (under license), MaraNatha®, Natumi®, New Covent Garden Soup Co.®, Plainville Farms®, Rice Dream®, Robertson’s®, Rudi’s Gluten-Free Bakery®, Rudi’s Organic Bakery®, Sensible Portions®, Spectrum Organics®, Soy Dream®, Sun-Pat®, SunSpire®, Terra®, The Greek Gods®, Tilda®, WestSoy®, Yorkshire ProvenderTM and Yves Veggie Cuisine®. The Company’s personal care products are marketed under the Alba Botanica®, Avalon Organics®, Earth’s Best®, JASON®, Live Clean® and Queen Helene® brands.
The Company sells its products through specialty and natural food distributors, supermarkets, natural foodsfood stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 8075 countries worldwide.
Project Terra
During fiscal 2016, theThe Company commenced a strategic review, which it called “Project Terra,” that resulted in the Company redefining its core platforms startingmanufactures, markets, distributes and sells organic and natural products providing consumers with the United States segment for future growth based upon consumer trendsopportunity to create and inspirelead A Healthier Way of Life™Life®. The core platforms are defined by common consumer need, route-to-market or internal advantageCompany’s food and are aligned with thebeverage brands include Celestial Seasonings®, Clarks™, Cully & Sully®, Earth’s Best®, Ella’s Kitchen®, Frank Cooper’s®, Garden of Eatin’®, Hartley’s®, Health Valley®, Imagine®, Joya®, Lima®, Linda McCartney’s® (under license), MaraNatha®, Natumi®, New Covent Garden Soup Co.®, ParmCrisps®,Robertson’s®, Rose’s® (under license), Sensible Portions®, Spectrum®, Sun-Pat®, Terra®, The Greek Gods®, Thinsters®, Yorkshire Provender® and Yves Veggie Cuisine®. The Company’s strategic roadmap to continue its leadership position in the organicpersonal care brands include Alba Botanica®, Avalon Organics®, JASON®, Live Clean®, and natural, “better-for-you” products industry. Beginning in fiscal 2017, those core platforms within our United States segment are:Queen Helene®.
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• | Better-for-You Baby, which includes infant foods, infant and toddler formula, toddler and kids foods, diapers and wipe products that nurture and care for babies and toddlers, under the Earth’s Best® and Ella’s Kitchen® brands.
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• | Better-for-You Pantry, which includes core consumer staples, such as MaraNatha®, Arrowhead Mills®, Imagine® and Spectrum Organics® brands.
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• | Better-for-You Snacking, which includes wholesome products for in-between meals, such as Terra®, Sensible Portions® and Garden of Eatin’® brands.
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• | Fresh Living, which includes yogurt, plant-based proteins and other refrigerated products, such as The Greek Gods® yogurt and Dream™ plant-based beverage brands.
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• | Pure Personal Care, which includes personal care products focused on providing consumers with cleaner and gentler ingredients, such as JASON®, Live Clean®, Avalon Organics® and Alba Botanica® brands.
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• | Tea, which includes tea products marketed under the Celestial Seasonings® brand.
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Beginning in fiscal 2017,Acquisition
On December 28, 2021, the Company launched Cultivate Ventures (“Cultivate”acquired all outstanding stock of Proven Brands, Inc. (and its subsidiary That's How We Roll LLC) and KTB Foods Inc., collectively doing business as "That's How We Roll" ("THWR"), a venture unit with a threefold purpose: (i) to strategically invest in the Company’s smaller brands in high potential categories such as BluePrint® cold-pressed juices, SunSpire® chocolatesproducer and DeBolesmarketer of ParmCrisps® pasta by giving and Thinsters®. See Note 4, Acquisitions and Dispositions, for details.
Discontinued Operations
The Company completed the sale of the former Tilda operating segment and the Hain Pure Protein reportable segment; these brands a dedicated, creative focus for refresh and relaunch; (ii) to incubate and grow small acquisitions until they reach the scale required to migrate to the Company’s core platforms; and (iii) to invest in concepts, products and technologydispositions represented strategic shifts that focus on health and wellness. Cultivate also includes Tilda® and Yves® Veggie Cuisine, global brands that have a growing presence in the United States.
Another key initiative from Project Terra was the identification of global cost savings expected over the next three fiscal years, a portion of which the Company intends to reinvest into its brands. Additionally, the Company identified certain brands for divestment, which no longer fit into its core strategy for future growth. The disposal of these brands does not represent a strategic shift and
is not expected to havehad a major effectimpact on the Company's operations or financial results, as defined by ASC 205-20, Discontinued Operations; as a result, the disposals do not meet the criteria to be classified as discontinued operations.
Finally, in connection with Project Terra, the Company, with the assistance of outside consultants, engaged in an evaluation of its trade investment in the United States segment. Based on this assessment, the Company determined that its trade investment could be utilized more effectively, and therefore, beginning in fiscal 2017, the Company developed plans to shift from a model of investing in trade at the non-consumer facing level to more consumer facing activities.
Changes in Segments
Prior to July 1, 2016, the Company’s operations were managed in sevenand financial results. Accordingly, the Company is presenting the operating segments:results and cash flows of the United States, United Kingdom, Tilda operating segment and the Hain Pure Protein Corporation (“HPPC”), EK Holdings, Inc. (“Empire”), Canada and Europe. The United States operatingreportable segment was also a reportable segment. The United Kingdom and Tilda operating segments were reportedwithin discontinued operations in the aggregate as “United Kingdom”, while HPPCprior periods (see Note 4, Acquisitions and Empire were reported in the aggregate as “Hain Pure Protein,” and Canada and Europe were combined and reported as “Rest of World.”
Effective July 1, 2016, due to changes to the Company’s internal management and reporting structure resulting from the formation of Cultivate, certain brands previously included within the United States operating segment were moved to the Cultivate operating segment. As a result, the Company is now managed in eight operating segments: the United States (excluding Cultivate), United Kingdom, Tilda, HPPC, Empire, Canada, Europe and Cultivate. The United States, excluding Cultivate, is its own reportable segment. Cultivate is now aggregated with Canada and Europe and reported within the Rest of World. There were no changes to the United Kingdom (which includes Tilda) and Hain Pure Protein (which includes HPPC and Empire) reportable segments. The prior period segment information contained below has been adjusted to reflect the Company’s new operating and reporting structure. See Note 1, Description ofBusiness and Basis of Presentation, Dispositions, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K). All footnotes exclude discontinued operations unless otherwise noted.
Environmental, Social and Governance
We are focused on growing our business sustainably by delivering long-term value for additional details surroundingour customers, suppliers, stockholders, employees and the formationcommunities where we live and work. As part of Cultivate.our vision to maximize stakeholder value, we are committed to incorporating environmental, social and related governance (“ESG”) principles into our business strategies and organizational culture. The “Healthier Way” framework (Healthier Planet, Products, and People) set out in our most recent ESG Report (available at hain.com/company/impact) provides our guiding principles for ESG initiatives.
Additionally, effective July 1, 2017, due to changes toOur ESG Reports and the Company’s internal managementother information available at hain.com/company/impact are not, and reporting structure, the United Kingdom operations of the Ella’s Kitchen® brand, which was previously included within the United States reportable segment, willshall not be moved to the United Kingdom reportable segment.
Acquisitions and Investments
We have acquired numerous companies and brands since our formation and intend to seek future growth through internal expansion as well as the acquisition of complementary brands. We consider the acquisition of organic, natural and “better-for-you” product companies or product linesdeemed to be, a part of our business strategy. During fiscal 2017, we acquired The Yorkshire Provender Ltd. (“Yorkshire Provender”), a leading provider of premium branded chilled soups in the United Kingdom for $16.1 million and Sonmundo, Inc. d/b/a The Better Bean Company (“Better Bean”), a company that offers prepared beans and bean-based dips sold in refrigerated tubs under the Better BeanTM brand, for $3.4 million. See Note 4, Acquisitions, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Our business strategy is to integrate our brands under one management team within each operating segment and employ uniform marketing, sales and distribution programs when attainable. We believe that, by integrating our various brands, we will continue to achieve economies of scale and enhanced market penetration. We seek to capitalize on the equity10-K or incorporated into any of our brandsother filings made with the Securities and the distribution achieved through each of our acquired businesses with strategic introductions of new products that complement existing lines to enhance revenues and margins.Exchange Commission (the “SEC”).
HeadcountHuman Capital Resources
As of June 30, 2017,2022, we employedhad approximately 3,078 employees, with approximately 49% located in North America and approximately 51% located outside of North America. Approximately 65% of our employees in North America and approximately 60% of our employees outside of North America were based in our production facilities. Substantially all of our employees are full-time, permanent employees.
Our employees are critical to our success. The following programs, initiatives and principles encompass some of the human capital objectives and measures that we focus on in managing our business and in seeking to attract and retain a totaltalented workforce.
Our Culture and Our Vision, Mission and Values
Our culture is shaped by our vision, mission and values. Our vision is to inspire healthier living for all. To achieve this aspiration, our mission is to build enduring health and wellness brands that are known and loved by consumers and enrich the lives of 7,825 full-timeemployees and all of our stakeholders. We live by our values of teamwork, integrity and entrepreneurship – we think and act with a broad company perspective, we do the right thing, and we think in an innovative way and challenge the status quo.
Diversity and Inclusion
People have always been our greatest asset. They are the very heart of our Company, and we believe everyone should feel encouraged, respected and welcomed in our workplace.
Diversity and inclusion drives success, and we believe that our employees’ diverse backgrounds and experiences are essential to helping us all to continue to thrive internally and deliver innovative products to our customers. We promote fairness by practicing equal opportunity in all decisions about hiring, compensation, training, promotions and every other aspect of employment.
We maintain a Diversity & Inclusion (“D&I”) Council in North America to create and foster a workplace that reflects and contributes to the diverse, global communities in which we do business. We are continuing to work to build our D&I efforts into recruitment, retention and internal mobility.
As of June 30, 2022, our global workforce was 59% male and 41% female. In the United States, on an employee self-reported basis, the racial/ethnic composition of our workforce was approximately 42% Hispanic or Latino, 38% White, 12% Black or African American, 5% Asian and 3% other. We make additional workforce demographic data available at hain.com/impact. The information available at hain.com/impact is not a part of this Form 10-K or incorporated into any of our other filings made with the SEC.
Employee Health and Safety
Employee safety is always front and center. We invest in the health, safety, development and well-being of our employees. In an effort to ensure workplace safety, we train employees on how to follow our detailed, written safety standards and procedures, and the law, and to watch for and report anything potentially harmful. Our safety key performance indicators are reviewed weekly, monthly and annually to ensure quick feedback and to address safety issues as soon as they arise.
Learning and Development
We offer a number of programs that help our employees progress in their careers. These programs include access to online learning and development tools as well as many additional local initiatives across our global locations to support employees on their career paths and develop leadership qualities and career skills in our global workforce.
Benefits
Our employee benefits vary by region but generally include:
•Medical, Dental, and Vision Benefits;
•Retirement Savings and Pension Plans;
•Commuter Benefits;
•Wellness Initiatives;
•Tuition Reimbursement; and
•Paid Parental Leave including births, adoptions or placements of foster children.
Employee Satisfaction and Engagement
We aim to foster a culture of open communications and have implemented a global systematic employee engagement process in which employees are surveyed periodically. Our Executive Leadership Team regularly reviews the results and considers and implements action items to address areas that need improvement. We have additional regional programs and policies in place to
encourage open communications with management and Human Resources about employees’ ideas, concerns and how they are doing.
Products
During fiscal 2017,Our brand portfolio focuses on growing global brands in categories where we primarily sold our organic, natural, and “better-for-you” products inbelieve we have the following categories: grocery; poultry/protein; snacks; personal care; and tea.most potential. We continuously evaluate our existing products for quality, taste, nutritional value and cost and make improvements where possible. WeConversely, we discontinue products or stock keeping units (“SKUs”) when sales of those items do not warrant further production. Our productThe categories consistwe have identified are called Turbocharge, Targeted Investment, Fuel and Simplify:
•The Turbocharge brands are leading-share brands in what we believe to be very high-growth categories. The Turbocharge brands are made up of the following:
Grocery
Grocery products include infant formula, infant, toddler and kids foods, diapers and wipes, rice and grain-based products, plant-based beverages and frozen desserts (such as soy, rice, oat, almond and coconut), flour and baking mixes, breads, hot and cold cereals, pasta, condiments, cooking and culinary oils, granolas, cereal bars, canned, chilled fresh, aseptic and instant soups, yogurts, chilis, packaged grains, chocolate, nut butters, juices including cold-pressed juice, hot-eating, chilled and frozen desserts, cookies, crackers, frozen fruit and vegetables, pre-cut fresh fruit, refrigerated and frozen plant-based meat-alternative products, tofu, seitan and tempeh products, jams, fruit spreads, jelly, honey, marmalade productssnacks as well as other food products. Grocery products accounted for approximately 61% ofplant-based meat and non-dairy beverages. Our snacks businesses include brands both within the United States and in our consolidated net sales in 2017, 62% in 2016International segment (“International”), while our meat and 66% in 2015.
Poultry/Protein
Our poultry and protein productsdairy alternatives businesses are manufactured and marketed as antibiotic-free or organic, vegetarian fed and humanely raised. We manufacture and market kosher products underconcentrated outside the Empire® and Kosher Valley® brands. A full range of turkey and chicken products are offered for fresh meat, deli, prepared and frozen foods. Poultry products accounted for approximately 18% of our consolidated net sales in 2017, 17% in 2016 and 13% in 2015.
Snacks
United States. Our snack products include a variety of potato, root vegetable and other exotic vegetable chips, straws, tortilla chips, whole grain
chips, pita chips puffs and popcorn. Snack productspuffs. The Turbocharge brands accounted for approximately 11%39% of our consolidated net sales in eachfiscal 2022, 36% in fiscal 2021 and 32% in fiscal 2020.
•The Targeted Investment brands are made up of 2017, 2016leading-share brands in lower-growth categories. To date, we have demonstrated our ability to drive market share and 2015.
Personal Care
Ourreinvigorate these categories, and we expect that we can continue to do this in the future. The Targeted Investment brands are made up of tea, baby, yogurt, and personal care products cover a variety of personal care categories including skin, hair and oral care, deodorants, baby care items, body washes, sunscreens and lotions. Personal care productsproducts. The Targeted Investment brands accounted for approximately 6%35% of our consolidated net sales in eachfiscal 2022, 34% in fiscal 2021 and 32% in fiscal 2020.
•The Fuel brands are stable brands that will be leveraged to fuel investment in the Turbocharge and Targeted Investment categories. Fuel brands are made up of 2017premium pantry brands with scale, in categories such as soup, cooking oils and 2016 and 5% in 2015.
Tea
Under the Celestial Seasonings® brand, we currently offer more than 70 varieties of herbal, green, black, wellness, rooibos and chai tea. Tea productsnut butters. The Fuel brands accounted for approximately 4%21% of our consolidated net sales in eachfiscal 2022, 20% in fiscal 2021 and 19% in fiscal 2020.
•The Simplify brands are subscale declining businesses that we believe have limited long-term potential for the Company, and therefore will be managed for profit until they are potentially divested, likely over the course of 2017the next several years. Simplify brands accounted for approximately 5% of our consolidated net sales in fiscal 2022, 10% in fiscal 2021 and 201617% in fiscal 2020.
We refer to the Turbocharge brands and 5% in 2015.Targeted Investment brands together as our Growth brands.
Seasonality
Certain of our product lines have seasonal fluctuations.fluctuations in demand. 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. Additionally, due to the nature of our acquisitions of HPPC, Empire and Tilda businesses, our net sales and earnings may further fluctuate based on the timing of holidays throughout the year. 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 2017, our aggregate capital expenditures were $63.1 million. We expect to spend approximately $75.0 million for capital projects in fiscal 2018 and we may incur additional costs in connection with Project Terra.
Segments
We principally manage our business by geography in eight operating segments: the United States, United Kingdom, Tilda, HPPC, Empire, Canada, and Europe. In addition, we have threeOur organization structure consists of two geographic based reportable segments: United States, United Kingdom,North America and Hain Pure Protein. We have aggregated (based on economic similarities, the nature of their products, end-user markets and methods of
distribution) the operating segments of the United Kingdom and Tilda into the United KingdomInternational. Our North America reportable segment and the operating segmentsconsists of HPPC and Empire into the Hain Pure Protein reportable segment. Additionally, Canada, Europe and Cultivate do not currently meet the quantitative thresholds for segment reporting and are therefore combined and reported as Rest of World.
Each segment includes the results of operations attributable to its geographic location except for Cultivate, which primarily conducts business in the United States and Canada andas operating segments. The International reportable segment is included in Restmade of World. Additionally, thethree operating segments: United States segment includes the results of operations of theKingdom, Ella’s Kitchen brand, which primarily conducts businessUK and Europe. This structure is in the United Statesline with how our Chief Operating Decision Maker assesses our performance and United Kingdom. The products included in the Hain Pure Protein segment are sold in the United States. allocates resources.
We use segment net sales and operating income to evaluate segment performance and to allocate resources. We believe this measure isthese measures are most relevant in order to analyze segment results and trends. Segment operating income excludes certain general corporate
expenses (which are a component of selling, general and administrative expenses), impairment and acquisition related expenses, restructuring, integration and integrationother charges.
The following table presents the Company’s net sales by reportable segment for the fiscal years ended June 30, 2017, 2016,2022, 2021 and 2015 (in thousands)2020 (amounts in thousands, other than percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
| North America | $ | 1,163,132 | | 61 | % | | $ | 1,104,128 | | 56 | % | | $ | 1,171,478 | | 57 | % |
| International | 728,661 | | 39 | % | | 866,174 | | 44 | % | | 882,425 | | 43 | % |
| Total | $ | 1,891,793 | | 100 | % | | $ | 1,970,302 | | 100 | % | | $ | 2,053,903 | | 100 | % |
|
| | | | | | | | | | | | | | | | | |
| | Fiscal Year ended June 30, |
| | 2017 | | 2016 | | 2015 |
| United States | $ | 1,191,262 |
| 42 | % | | $ | 1,249,123 |
| 43 | % | | $ | 1,253,156 |
| 48 | % |
| United Kingdom | 768,301 |
| 27 | % | | 774,877 |
| 27 | % | | 722,830 |
| 28 | % |
| Hain Pure Protein | 509,606 |
| 18 | % | | 492,510 |
| 17 | % | | 337,197 |
| 13 | % |
| Rest of World | 383,942 |
| 13 | % | | 368,864 |
| 13 | % | | 296,430 |
| 11 | % |
| Total | $ | 2,853,111 |
| 100 | % | | $ | 2,885,374 |
| 100 | % | | $ | 2,609,613 |
| 100 | % |
North America Segment:
See Note 1, Description of Business and Basis of Presentation, and Note 17, Segment Information, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details surrounding the formation of Cultivate.
United States Segment:
Our products are sold throughout the United States. Our customer base consists principally of specialty and natural food 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,salespeople, brokers and distributors. We believe that our direct sales peoplesalespeople combined with brokers and distributors provide an effective means of reaching a broad and diverse customer base. Food brokersBrokers act as agents for us within designated territories usually on a non-exclusive basis, and receive commissions. A portion of our direct sales force is organized into dedicated teams to serve our significant customers.
A significant portion of the products marketed by us are sold through independent food distributors. Food distributors purchase products from us for resale to retailers.
The brands sold by the United States operating segment by platform are:include:
Better-for-You BabyTurbocharge
The Turbocharge brands are leading-share brands in what we believe to be very high-growth categories and they include snacks. Our Better-for-You snack food products include Sensible Portions® snack products including Garden Veggie Straws®, Garden Veggie Chips and Apple Straws®,Terra® varieties of root vegetable chips, potato chips, and other exotic vegetable chips, Garden of Eatin’® tortilla chips, and ParmCrisps®.
Targeted Investment
The Targeted Investment brands are made up of leading-share brands in lower-growth categories and they include tea, baby food, yogurt, and personal care.
Our tea products are marketed under the Celestial Seasonings® brand and include more than 100 varieties of herbal, green, black, wellness, rooibos and chai 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®.
Baby food products include infant and toddler formula, infant cereals, jarred baby food, baby food pouches, snacks and frozen toddler and kidskids’ foods and diapers and wipes under the Earth’s Best®,Best® and Earth’s Best Sesame Street (under license) and Ella’s Kitchen® brands.
Better-for-You Pantry
Our Better-for-You PantryYogurt products include The Greek Gods® Greek-style yogurt products.
Our personal care products include hand, skin, hair and oral care products, sun care products and deodorants under the following naturalAlba Botanica®, Avalon Organics®, JASON® and organic brands: Spectrum®Queen Helene® brands.
Fuel and Simplify
The Fuel brands are stable brands that will be leveraged to fuel investment in the Turbocharge and Targeted Investment categories. Fuel brands are made up of premium pantry brands with scale, in categories such as soup, cooking oils and nut butters. The Simplify brands are subscale declining businesses that have limited long-term potential for the Company, and therefore will be managed for profit until they are potentially divested, likely over the course of the next several years. Fuel and Simplify brands include the following: Spectrum® culinary oils, vinegars and condiments, Spectrum Essentials®Essentials® nutritional oils
and supplements, MaraNatha®MaraNatha® nut butters, Imagine®Imagine® broths, soups and gravies, Rudi’s Gluten Free Bakery® and Rudi’s Organic Bakery® breads, buns, bagels and tortillas, Arrowhead Mills® flours, mixes and cereals, Hain Pure Foods®Foods® condiments, Health Valley® cereal bars and Westbrae® vegetarian products.
Better-for-You Snacking
Our Better-for-You 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®, and Garden Veggie Chips, Apple Straws and Pita Bites® and Bearitos® and other snacks.
Fresh Living
Our Fresh Living products include The Greek Gods® Greek-style yogurt and kefir, Almond Dream®,Coconut Dream®,Rice Dream® and Soy Dream® and DreamTM non-dairy beverages, yogurt, and frozen desserts.
Pure Personal Care
Our Pure Personal Care products include skin, hair and oral care, deodorants and baby care items under the Alba Botanica®, Avalon Organics®, Earth’s Best®, JASON®, Live Clean® and Queen Helene® brands.
Tea
Our tea products are marketed under the Celestial Seasonings® brand and include more than 70 varieties of herbal, green, black, wellness, rooibos and chai tea lattes, with well-known names and products such as Sleepytime®, Lemon Zinger®, Red Zinger®,Cinnamon Apple Spice, Bengal Spice® and Country Peach Passion®. We offer a selection of Celestial Seasonings® teas in K-Cup® portion packs for the Keurig® Single-Cup Brewing system (K-Cup® and Keurig® are registered trademarks of Keurig Green Mountain, Inc.).
United Kingdom Segment:
In the United Kingdom, our products include frozen and chilled products, including but not limited to soups, fruits and juices, as well as jams, fruit spreads, jellies, honey, marmalades, nut butters, and plant-based products and premium rice and grain-based products.
The brands sold by our United Kingdom segment include New Covent Garden Soup Co.® and Yorkshire ProvenderTM chilled soups (acquired in fiscal 2017), 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’sHollywood® jams, fruit spreads and jellies, Sun-Pat® nut butters, Gale’s® honey, Robertson’s® and Frank Cooper’s® marmalades and Tilda® rice and grain-based products. We also provide a comprehensive range of private label and own-label products to many retailers, convenience stores and foodservice providers in the following categories: fresh soup, pre-cut fresh fruit, juice, smoothies, chilled and frozen desserts, meat-free meals and ambient grocery products. oils.
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, foodservice providers, business to business, natural food and ethnic specialty distributors, club stores and wholesalers.Canada
Hain Pure Protein Segment:
Our Hain Pure Protein segment includes a full range of antibiotic-free, hormone-free and organic poultry products, including whole birds, fresh tray packs, frozen, deli, fully cooked and gluten-free products sold under the FreeBird®, Plainville Farms®, Empire® and Kosher Valley® brands. A range of private label and ingredient products are also provided to many customers.
Our products are sold in the United States through a combination of direct sales people, brokers and distributors. Our customer base consists principally of grocery and natural food retailers and certain club stores, as well as food service outlets including fast casual and white tablecloth venues, which feature food that is grown sustainably and without genetically modified organisms.
Rest of World (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 foodservicefood 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 foodservicefood service and clubretail customers. We utilize a third partythird-party merchandising team for retail execution. As in the United States, a portion of the products marketed by us are sold through independent distributors.
Our majorThe brands sold in our Canada by category are:
Grocery
Our grocery productsoperating segment include Yves Veggie Cuisine® refrigerated and frozen meat-alternative products, vegetables and lentils, Europe’s Best® frozen fruits and vegetables, Earth’s Best® infant and toddler food, Casbahformula, MaraNatha® packaged grains, MaraNatha® nut butters, Spectrum Essentials® cooking and culinary oils, Imagine® aseptic soups, Arrowhead Mills® pasta, Health Valley® cereal, cereal bars and canned soups, The Greek Gods® Greek-style yogurt and Robertson’s® marmalades, BluePrint® cold-pressed juice drinks and Tilda® rice and grain-based products. Our plant-based beveragesmarmalades. Other food brands include Rice Dream®, Soy Dream®, Oat Dream®, Coconut Dream® and Almond Dream®, Rice Dream® and Coconut Dream® in refrigerated format and Rice Dream® and Almond Dream® plant-based frozen desserts.
Tea
Our tea products are marketed under the Celestial Seasonings® brand and include more than 30 varieties of herbal and wellness teas, with familiar names like SleepytimeTerra®, Lemon Zinger® and Cinnamon Apple Spice.
Snacks
Our snack food products consist of Terra® varieties of root vegetable chips and other exotic vegetable chips, Garden of Eatin’® tortilla chips and Sensible Portions® Garden Veggie Straws® and Pita Bites®.
Personal Care
snack products. Our personal care products include skin, hair and oral care deodorantsproducts, sun care products and baby care itemsdeodorants under the Alba Botanica®, Avalon Organics®, Alba
Botanica®, JASON®, and Live Clean® brands.
RestInternational Segment:
United Kingdom
In the United Kingdom, our products include soups, 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 products sold by our United Kingdom operating segment include New Covent Garden Soup Co.® and Yorkshire Provender® chilled soups, private label and Farmhouse Fare™ hot-eating desserts, Linda McCartney’s® (under license) chilled and frozen plant-based meals, Hartley’s® jams, fruit spreads and jellies, Sun-Pat® nut butters, Clarks™ natural sweeteners and Robertson’s®, Frank Cooper’s® and Rose’s® (under license) marmalades. We also provide a comprehensive range of World (Europe):private label products to many retailers, convenience stores and food service providers in the following categories: fresh soup, chilled desserts, meat-free meals and ambient grocery products.
Our products are principally sold throughout the United Kingdom and Ireland, but are also sold in other parts of the world. 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.
Ella’s Kitchen UK
Ella's Kitchen UK is a manufacturer and distributor of premium organic infant and toddler foods under the Ella's Kitchen® brand. Our products are mostly sold in grocery stores and organic food stores throughout the United Kingdom and Europe.
Europe
Our products sold by the Europe operating segment include, Danivalamong others, products sold under the Joya®, Dream®, Joya®, Lima® and Natumi®.brands. The DanivalLima®brand includes organic cooked vegetables, prepared meals, sauces, fruit spreads and desserts. 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® produce and sell brand includes 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.tofu. We also sell our Hartley’s® jams, fruit spreads and jellies, Terra®varieties of root vegetable and potato chips, and Celestial Seasonings®teas, Linda McCartney’s® (under license) chilled and Tildafrozen plant-based meals, Cully & Sully® dry rice chilled soups and ready-to-heatready meals, and private label products in Europe as well.Europe.
Our products are sold in grocery stores and organic food stores throughout Europe. Europe, the Middle East and India. Our products are sold using our own direct sales force and local distributors.
Rest of World (Cultivate):
Beginning in fiscal 2017, the Company launched Cultivate Ventures, a venture unit with a threefold purpose: (i) to strategically invest in the Company’s smaller brands in high potential categories such as BluePrint® cold-pressed juices, SunSpire® chocolates and DeBoles® pasta by giving these brands a dedicated, creative focus for refresh and relaunch; (ii) to incubate and grow small acquisitions until they reach the scale required to migrate to the Company’s core platforms; and (iii) to invest in concepts, products and technology that focus on health and wellness. Cultivate also includes Tilda® and Yves® Veggie Cuisine, global brands that have a growing presence in the United States.
Our products include BluePrint® cold-pressed juice drinks, DeBoles® pasta, Health Valley® cereal, cereal bars and soups, GG Unique Fiber® crackers, SunSpire® chocolates, Tilda® rice and grain-based products, Walnut Acres® juice drinks and pasta sauces, WestSoy® plant-based beverages, brand tofu, seitan and tempeh products and Yves Veggie Cuisine® plant-based products.
Cultivate products are sold throughout the United States and Canada. Our customer base consists principally of grocery supermarkets, mass merchandisers, Direct Store Delivery (“DSD”) distributors and natural food distributors. We utilize third-party brokers who receive commissions and sell to grocery supermarkets and natural food stores. A portion of our BluePrint® products are sold through our own DSD sales force as well as through our Direct to Consumer business.
During fiscal 2017, Cultivate acquired Better Bean, which offers prepared beans and bean-based dips sold in refrigerated tubs.
Customers
Two of our customers each accounted for 10% or more of our consolidated net sales in each of the last three fiscal years, respectively. Wal-Mart Stores,Walmart Inc. and its affiliates Sam’s Club and ASDA, together accounted for approximately 10%15%, 11% and 12% of our consolidated net sales for each of the fiscal years ended June 30, 2017, 20162022, 2021 and 2015,2020, respectively, which were primarily related to the United States, Canada and United Kingdom operating segments. Likewise, United Natural Foods, Inc., a distributor, accounted for approximately 9%, 10% and 11% of our consolidated net sales for the fiscal years ended June 30, 2017, 2016 and 2015, respectively, which were primarily related to the United States segment. No other customer accounted for more thanat least 10% of our net sales in any of the past three fiscal years.
Foreign Operations
We sell our products to customers in more than 80 countries. International salesthan 75 countries. Sales outside of the United States represented approximately 41%45%, 40%52% and 39%51% of our consolidated net sales in fiscal 2017, 20162022, 2021 and 2015,2020, 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 promotions to market our products. We use tradeadvertising and promotion. Trade advertising and promotion includingincludes placement fees, cooperative advertising, and feature advertising in distribution catalogs. catalogs and in-store merchandising in prominent and secondary locations.
Consumer advertising and sales promotionspromotion 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 also made via social mediathe main drivers of brand awareness. Trial and trial use programs. We utilize in-store product demonstrations and sampling in the club store channel. Our investments in consumer spending are aimed at enhancing brand equity and increasing consumption. These consumer spending categoriesconversion tactics include, but are not limited to, product search on Google and e-commerce sites, digital coupons, product sampling, direct mailing,mail and e-consumer relationship programs and other forms of promotions.programs. Additionally, we maintain separatebrand specific websites and social media pages for many of our brands featuringare used to engage consumers with lifestyle, product and usage information regarding the particular brand.related to specific brands.
We also utilize sponsorship programspartnerships to help create awareness and advocacy. We partner with various influencers to help increase brand awareness. In the United States,reach and relevance. For example, one of our personal care brands, Alba Botanica®, had a full year partnership with USA Olympic and World Tour Surfer, Caroline Marks. Also, our Earth’s Best® brand has an agreement
with PBS Kids and Sesame Workshop in the United States, leveraging popular characters for on and our Terra Blues® are the official snack of JetBlue Airways. Terra® and Sensible Portions® snacks are Official Partners of the New York Knicks along with other Hain Celestial brands featured at Madison Square Garden. In addition, Sensible Portions® products, Yves Veggie Cuisine® plant-based burgers and Terra® chips are advertised and sold at Citi Field. There is no guarantee that these promotional investments are or will be successful.off packaging communications.
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. We incurred approximately $10.1 million in company-sponsored research and development activities, consisting primarily of personnel-related costs, in 2017, $11.4 million in 2016 and $10.3 million in 2015. In addition to our company-sponsoredCompany-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-timetime 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 2017, 2016fiscal 2022, 2021 and 2015,2020, approximately 64%51%, 65%61% and 61%59%, respectively, of our revenue was derived from products manufactured at our own facilities.
Our United StatesNorth America reportable segment operates the following manufacturing facilities:
| |
• | Boulder, Colorado, (four facilities) which produce Celestial Seasonings® specialty teas, Celestial Seasonings® Kombucha, WestSoy® fresh tofu, seitan and tempeh products, and Rudi’s Organic Bakery® organic breads, buns, bagels, tortillas,
|
•Boulder, Colorado, which produces Celestial Seasonings® teas;
•Mountville, Pennsylvania, which produces Sensible Portions® and Terra® snack products;
•Bell, California, which produces Alba Botanica®, Avalon Organics®, and JASON® personal care products;
•Lancaster, Pennsylvania, which produces snack products;
•York, Pennsylvania, which produces ParmCrisps®;
•Trenton, Ontario, which produces Yves Veggie Cuisine® plant-based products;
•Vancouver, British Columbia, which produces Yves Veggie Cuisine® plant-based products; and
•Mississauga, Ontario, which produces our Live Clean® and other personal care products.
wraps and soft pretzels and Rudi’s Gluten-Free Bakery gluten-free products including breads, buns, pizza crusts, tortillas, snack bars and stuffing;
| |
• | Moonachie, New Jersey, which produces Terra® root vegetable and potato chips;
|
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• | Mountville, Pennsylvania, which produces Sensible Portions® snack products;
|
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• | Hereford, Texas, which produces Arrowhead Mills® cereals, flours and baking ingredients;
|
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• | Shreveport, Louisiana, which produces DeBoles® organic and gluten-free pastas;
|
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• | West Chester, Pennsylvania, which produces Earth’s Best® and Ella’s Kitchen® pouches, and BluePrint® cold-pressed juice drinks;
|
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• | Ashland, Oregon, which produces MaraNatha® nut butters; and
|
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• | Culver City, California, which produces Alba Botanica®, Avalon Organics®, JASON®, and Earth’s Best® personal care products.
|
Our United KingdomInternational reportable segment operates the following manufacturing facilities:
| |
• | •Histon, England, which produces our ambient grocery products including Hartley’s®, Frank Cooper’s®, Robertson’s® and Gale’s®; |
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• | Rainham, England, (two facilities) which produce our classic and ready-to-heat Tilda® rice and grain-based products;
|
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• | Grimsby, England, which produces our New Covent Garden Soup Co.® chilled soups;
|
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• | Peterborough, England, which also produces New Covent Garden Soup Co.® chilled soups;
|
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• | Clitheroe, England, which produces our Farmhouse Fare® hot-eating desserts;
|
Leeds, England, which preparesproduces our fresh fruit products;ambient grocery products including Hartley’s®, Frank Cooper’s®, Robertson’s® and Clarks™;
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• | Fakenham,•Grimsby, England, which produces Linda McCartney’s® meat-free frozen foods, as well as chilled dessert products; |
Corby, England, (two facilities) which produces drinksour New Covent Garden Soup Co.® and desserts and prepares fresh cut fruit;Yorkshire Provender®chilled soups;
Gateshead,•Clitheroe, England, which prepares fresh cut fruit;produces our private label and
| |
• | North Yorkshire, England, which produces Yorkshire ProvenderTM chilled soups; and
|
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• | Larvik, Norway, which produces our GG UniqueFiberTM products.
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Farmhouse FareTM hot-eating desserts;
Our Hain Pure Protein segment operates the following manufacturing facilities:
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• | Mifflintown, Pennsylvania, which produces Empire® and Kosher Valley® poultry products;
|
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• | New Oxford, Pennsylvania, which produces Plainville Farms® poultry products;
|
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• | Fredericksburg, Pennsylvania (two facilities), which produces FreeBird® poultry products; and
|
Liverpool, New York,•Fakenham, England, which produces prepared poultryLinda McCartney’s® (under license) meat-free frozen and chilled foods;
•Troisdorf, Germany, which produces Natumi®, Lima®, Joya® and relatedother plant-based beverages and private label products;
•Oberwart, Austria, which produces our Lima® and Joya® plant-based foods and beverages, creamers, cooking creams and private label products; and
•Schwerin, Germany, which also produces our Lima® and Joya® plant-based foods and beverages and private label products.
Rest of World operates the following manufacturing facilities:
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• | Vancouver, British Columbia, which produces Yves Veggie Cuisine® plant-based products;
|
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• | Mississauga, Ontario, which produces our Live Clean® and other personal care products;
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• | Troisdorf, Germany, which produces Natumi®, Rice Dream®, Lima® and other plant-based beverages;
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• | Andiran, France, which produces our Danival® organic food products;
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• | Oberwart, Austria, which produces our Joya® plant-based foods and beverages; and
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• | Schwerin, Germany, which also produces our Joya® plant-based foods and beverages.
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See “Item 2: Properties” of this Form 10-K for more information on the manufacturing facilities that we operate.
Co-PackersContract Manufacturers
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,”co-manufacturers or 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 expertise, and we expect to continue to partner with them to improve and expand our product offerings. During 2017, 2016fiscal 2022, 2021 and 2015,2020, approximately 36%49%, 35%39% and 39%41%, respectively,respectively, of our revenue wassales were derived from products manufactured by co-packers. OurWe require that our co-packers are audited forcomply with allapplicable regulations and our quality assurance purposesand food safety program requirements, and compliance with Good Manufacturing Practices.is verified through auditing and other activities. Additionally, the co-packers are required to ensure our products are manufactured in accordance with our quality and safetyfinished goods specifications and that they are compliant with all relevant regulations.to ensure we meet customer expectations.
Suppliers of Ingredients and Packaging
Agricultural commodities and ingredients, including almonds, corn,vegetables, fruits, oils, grains, beans, nuts, tea and herbs, spices, and dairy fruit and vegetables, oils, rice, soybeans and wheat,products, are the principal inputs used in our food and beverage products. Plant-based surfactants, glycerin and alcohols are the main inputs used in our personal care products. Our certified organicprimary packaging supplies are cartons, pouches, printed film, paper, paperboard and naturaljars. We strive to maintain a global supplier base that provides innovative ideas and sustainable packaging alternatives.
Our raw materials as well as ourand 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 quality assurance specification packets,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.
Agricultural commodities and ingredients are subject to price volatility which can be caused by a variety of factors. Our input costs began to increase significantly beginning in the latter part of fiscal 2021. That inflationary environment extended in fiscal 2022, and we expect the inflationary environment to continue throughout fiscal 2023. We attempt to mitigate the input price volatility by negotiating and entering into purchase arrangements with our suppliers and by adjusting the sale price of our products.
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 goodsfoods competitors include Campbell Soup Company, Mondelez International,Conagra Brands, Inc., Danone S.A., General Mills, Inc., Groupe Danone,The Hershey Company, The J.M. Smucker Company, Kellogg Company, The Kraft Heinz Company,Mondelez International, Inc., Nestle S.A.,
PepsiCo, Inc. and Unilever PLC, andPLC. Large conventional personal care products companies includingwith whom we compete include, but are not limited to, The Proctor & GambleClorox Company, Colgate-Palmolive Company, Johnson & Johnson, The Procter & Gamble Company, S. C. Johnson & Son, Inc. and Colgate-Palmolive Company.Unilever PLC. 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 Chobani LLC, Nature’s Bounty Inc., Clif Bar & Company and Amy’s Kitchen. 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. We believe that we currently compete effectively with respect to each of these factors.
Trademarks
We believe that brand awareness is a significant component in a consumer’s decision to purchase one product over another in the highly competitive consumer products industries. Ourpackaged goods industry. We generally register our trademarks and brand names for the product lines referred to herein are registered in the United States, Canada, the United Kingdom and European Union, and a number ofthe United Kingdom and/or other foreign countries and wedepending on the area of distribution of the applicable products. We intend to keep these filings current and seek protection for new trademarks to the extent consistent with business needs. We also copyrightmonitor trademark registers worldwide and take action to enforce our rights as we deem appropriate. We believe that our trademarks are significant to the marketing and sale of our products and that the inability to utilize certain of these names and marks, and/or the inability to prevent third parties from using similar names or marks, could have a material adverse effect on our artwork and package designs. We own the trademarks for our principal products, including Alba Botanica®, Arrowhead Mills®, Avalon Organics®, Bearitos®, Better Bean®, BluePrint®, Casbah®, Celestial Seasonings®, Coconut Dream®, Cully & Sully®, Danival®, DeBoles®, Earth’s Best®, Earth’s Best TenderCare®, Ella’s Kitchen®, Empire®, Farmhouse Fare®, Frank Cooper’s®, FreeBird®, Gale’s®, Garden of Eatin’®, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, JASON®, Johnson’s Juice Co.®, Joya®, Kosher Valley®,Lima®, Live Clean®, MaraNatha®, Natumi®, New Covent Garden Soup Co.®,Nile Spice®, Plainville Farms®, Queen Helene®, Rice Dream®, Robertson’s®, Rudi’s Organic Bakery®, Sensible Portions®, Soy Dream®, Spectrum Organics®, Sun-Pat®, SunSpire®, Terra®, The Greek Gods®, Tilda®, Walnut Acres Organic®, Westbrae®, WestSoy®, Yorkshire ProvenderTM and Yves Veggie Cuisine®. We also have 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®.business.
We also market products under brands licensed under trademark license agreements, including Linda McCartney’s®, Rose’s®, the Sesame Street name and logo and other Sesame Workshop intellectual property on certain of our Earth’s Best® products, Cadburyas well as the Paddington Bear image on certain of our Robertson’s® and Rose’s® brands. 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 Canadian Food Inspection Agency, Health Canada, Food Standards Agency in the United Kingdom, and the Canadian Food Inspection Agency in Canada and European Food Safety Authority which supports the European Commission, as well as individual country, province, state and local regulations.Authority.
Quality Control
We utilize a comprehensive foodproduct 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 individualPreventive 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.
A significant numberWe conduct audits 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 auditscontract manufacturers 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 food safetyFSP, 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 CertificationCertifications
Substantially all of our Hain-owned manufacturing sites and a significant number of our contract manufacturers are certified against a recognized standard such as the Global Food Safety Initiative (“GFSI”), which includes Safe Quality Foods (“SQF”) and British Retail Consortium (“BRC”), or ISO 9001 Quality Management Systems and ISO 22716 GMP Cosmetic and Personal Care. All facilities where our food products are manufactured are GFSI compliant. These standards are integrated product safety and quality management protocols designed specifically for the food and personal care sectors and offer a comprehensive methodology to manage product safety and quality. Certification provides an independent and external validation that a product, process or service complies with applicable regulations and standards.
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 partythird-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 The Organized Kashruth Laboratories, The K’hal Adath Jeshurun,and “KOF-K” Kosher Supervision, Star K Kosher Certification and Circle K.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 partythird-party certification through QAI for certain of 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 CouncilFair Trade USA, Environmental Working Group, The Skin Cancer Foundation, Coalition for Consumer Information on Cosmetics/Leaping Bunny, The Roundtable on Sustainable Palm Oil and the Non-GMO Project.
We are working with GFSI to certify all of our company-owned manufacturing facilities under accredited programs, including SQF (Safe Quality Foods), BRC (British Retail Consortium)
Company Website and ISO (International Organization for Standardization).
We are also working with accredited Certification Bodies to certify all of our company-owned manufacturing facilities against the GFSI-recognized scheme of SQF. Of the 15 Hain owned facilities in North America, nine are SQF Level-III (the highest level) and two are SQF Level II.
Available Information
The following information can be found, free of charge, in the “Investor Relations” section of our corporate website at http://www.hain.comir.hain.com:
•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”);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;The Nasdaq Stock Market LLC; and
•the charters of the Audit, Compensation, and 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.
The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s investor relations website at ir.hain.com. In addition, copiesyou may automatically receive email alerts and other information about the Company when you enroll your email address by visiting “E-mail Alerts” under the "IR Resources" section of our investor relations website. Information on the Company’s annual report will be made available, freewebsite is not incorporated by reference herein and is not a part of charge, upon written request.this Form 10-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 we currently consider immaterial. If any of the following risks and uncertainties develop into actual events, our business, 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-timetime to time with the SEC.
Risks Related to Our Business, Operations and Industry
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, Mondelez International,Conagra Brands, Inc., Danone S. A., General Mills, Inc., Groupe Danone,The Hershey Company, The J.M. Smucker Company, Kellogg Company, The Kraft Heinz Company,Mondelez International, Inc., Nestle S.A., PepsiCo, Inc. and Unilever PLC, and conventional personal care products companies, including but not limited to The Clorox Company, Colgate-Palmolive Company, Johnson & Johnson, The Procter & Gamble Company, S. C. Johnson & JohnsonSon, Inc. and Colgate-Palmolive Company,Unilever PLC, 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 actual or perceived conflicts resulting from 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.
ConsumerIf we do not manage our supply chain effectively or if there are disruptions in our supply chain, our business and results of operations may be adversely affected.
The success of our business depends, in part, on maintaining a strong sourcing and manufacturing platform and efficient distribution channels. The inability of any supplier of raw materials, independent contract manufacturer 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 expiration date and become unsaleable.
We must also manage our third-party distribution, warehouse and transportation providers to ensure they are able to support the efficient distribution of our products to retailers. A disruption in transportation services could result in an inability to supply materials to our or our co-manufacturers’ facilities or finished products to our distribution centers or customers. Activity at third-party distribution centers could be disrupted by a number of factors, including labor issues, failure to meet customer standards, natural disasters or financial issues affecting the third-party providers. In particular, the Russia-Ukraine war and recent labor market shortages impacting our industry have created operating challenges in making our products available to customers and consumers, and such challenges may persist. See “The Russia-Ukraine war could continue to cause challenges and create risks for our business.”
If we are unable to manage our supply chain efficiently and ensure that our products are available to meet consumer demand and customer orders, our sales and profitability could be materially adversely impacted.
Our future results of operations may be adversely affected by input cost inflation.
Many aspects of our business have been, and may continue to be, directly affected by volatile commodity costs and other inflationary pressures. Our input costs began to increase significantly beginning in the latter part of fiscal 2021. That inflationary environment extended through fiscal 2022, and we expect the inflationary environment to continue throughout fiscal 2023.
Agricultural commodities and ingredients are subject to price volatility which can be caused by commodity market fluctuations, crop yields, seasonal cycles, weather conditions, temperature extremes and natural disasters (including due to the effects of climate change), 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 increased input costs with a combination of price increases to our customers, purchasing strategies, cost savings initiatives and operating efficiencies, we may be unable to fully offset our increased costs or unable to do so in a timely manner. If we are unable to fully offset such cost increases, our financial results could be materially adversely affected.
The Russia-Ukraine war could continue to cause challenges and create risks for our business.
Although we have no material assets in Russia, Belarus or Ukraine, our supply chain has been, and may continue to be, adversely impacted by the Russia-Ukraine war, and we continue to face other challenges and risks arising from the war. In particular, the war has added significant costs to existing inflationary pressures through increased fuel and raw material prices and labor costs. Further, beyond increased costs, labor challenges and other factors have led to supply chain disruptions. While, to date, we have been able to identify replacement raw materials where necessary, we have incurred increased costs in doing so. For example, the supply of sunflower oil has become constrained, compelling us to identify and procure alternative oils. The war has also negatively impacted consumer sentiment, particularly in Europe, with some consumers shifting to lower-priced products, which has affected demand for our products. Additionally, we face increased cybersecurity risks, as companies based in the United States and its allied countries have become targets of malicious cyber activity. Although we are continuing to monitor and manage the impacts of the war on our business, the war and the related economic impact could continue to have a material adverse effect on our business and operating results.
Disruption or loss of operations at one or more of our manufacturing facilities could harm our business.
For the fiscal years ended June 30, 2022, 2021 and 2020, approximately 51%, 61% and 59%, respectively, of our sales were derived from products manufactured at our own manufacturing facilities. A disruption of or the loss of operations at one or more of these facilities, which may be caused by disease outbreaks or pandemics, labor issues, natural disasters or governmental actions, could delay or postpone production of our products, which could have a material adverse effect on our business, results of operations and financial condition. Recent labor market shortages have impacted, and may continue to impact, operations at our manufacturing facilities.
Loss of one or more of our independent contract manufacturers could adversely affect our business.
During fiscal 2022, 2021 and 2020, approximately 49%, 39% and 41%, respectively, of our sales were derived from products manufactured at independent contract manufacturers, or co-manufacturers. In some cases, an individual co-manufacturer may produce all of our requirements for a particular brand. We believe there are a limited number of competent, high-quality co-manufacturers in the industry, and many of our co-manufacturers produce products for other companies as well. Therefore, if we lose or need to change one or more co-manufacturers or fail to retain co-manufacturers for newly acquired or developed 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.
The COVID-19 pandemic continues to have societal and economic effects that create 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 continues to contribute to challenging and unprecedented conditions. The impacts of the pandemic could exacerbate conditions in our other risk factors noted in this Item 1A, “Risk Factors.” Challenges exacerbated by the ongoing effects of the pandemic include but are not limited to:
•manufacturing and supply chain challenges, including labor market shortages;
•a shifting demand environment as a result of changing consumer behaviors amid uncertain economic conditions; and
•increased costs of operating our business and managing our supply chain.
If we are unable to successfully manage our business through the continued challenges and uncertainty related to the COVID-19 pandemic, our business and operating results could be materially adversely affected.
Our growth and continued success depend upon consumer preferences for our products, are difficult to predict and maywhich 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. As noted above, other factors can and have adversely impacted consumer demand for our products, including the Russia-Ukraine war, which has prompted consumers, particularly in
Europe to shift to lower-priced products, affecting demand for our products. While we continue to diversify our product offerings, 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, over the past several years, we have seen a shift in consumption towards the e-commerce channel and may see a more substantial shift in the future. Some 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 and environmental 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.
ConsolidationA significant percentage of our sales is concentrated among a small number of customers, and consolidation of customers or the loss of a significant customer could negatively impact our sales and profitability.
Customers, such as supermarketsOur growth and food distributors in North America and the European Union, continuecontinued success depend upon, among other things, our ability 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 carrymaintain and increase their emphasis on private label products, which could negatively impactsales volumes with existing customers, our business. The consolidation of retailability to attract new customers, also increases the risk that a significant adverse impact on their business could have a corresponding material adverse impact on our business.
Twofinancial condition of our customers each accounted for 10% or moreand our ability to provide products that appeal to customers at the right price.
A significant percentage of our consolidated net sales in eachis concentrated among a small number of the last three fiscal years, respectively. United Natural Foods,customers. For example, sales to Walmart Inc. and its affiliates approximated 15%, a distributor11% and 12% of products to natural foods supermarkets, independent natural retailers and other supermarkets and retailers, accounted for approximately 9%, 10% and 11% of our consolidated net sales forduring the fiscal years ended June 30, 2017, 2016,2022, 2021 and 2015, respectively, which were primarily related to the United States segment. Likewise, Wal-Mart Stores, Inc. and its affiliates, Sam’s Club and ASDA, together accounted for approximately 10% of our consolidated net sales for each of the fiscal years ended June 30, 2017, 2016 and 2015, respectively, which were primarily related to the United States and United Kingdom segments. No other customer accounted for more than 10% of our net sales in the past three fiscal years.
2020, respectively. 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 a group of 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 successfully.products.
Our growth is dependentfuture results of operations may be adversely affected by the availability of natural and organic ingredients.
Our ability to ensure a continuing supply of natural and organic ingredients at competitive prices depends on many factors beyond our control, such as the number and size of farms that grow natural and organic crops, climate conditions, increased demand for natural and organic ingredients by our competitors, changes in national and world economic conditions, currency fluctuations and forecasting adequate need of seasonal ingredients.
The natural and organic ingredients that we use in the production of our products (including, among others, vegetables, fruits, nuts and grains) are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, water scarcity, temperature extremes, wildfires, frosts, earthquakes and pestilences. Natural disasters and adverse weather conditions can lower crop yields and reduce crop size and crop quality, which in turn could reduce our supplies of natural and organic ingredients or increase the prices of those ingredients. Such natural disasters and adverse weather conditions can be caused or exacerbated by climate change, and the spate of recent extreme weather events, including historic droughts, heatwaves, extreme cold and flooding, presents an alarming trend. If our supplies of natural and 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 introduce newsupply products to our customers and improve existing products.adversely affect our business, financial condition and results of operations.
We also compete with other manufacturers in the procurement of natural and 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 natural and organic products increases. This could cause our expenses to increase or could limit the amount of products that we can manufacture and sell.
We are subject to risks associated with our international sales and operations, including foreign currency, compliance and trade risks.
For the fiscal years ended June 30, 2022, 2021 and 2020, approximately 45%, 52% and 51%, respectively, of our consolidated sales were generated outside the United States. Sales from outside our U.S. markets may continue to represent a significant portion of our consolidated sales in the future.
Our growthnon-U.S. sales and operations are subject to risks inherent in conducting business abroad, many of which are outside our control, including:
•difficulties in managing a global enterprise, including differing labor standards and design and implementation of effective control environment processes across our diverse operations and employee base;
•compliance with U.S. laws affecting operations outside of the United States, such as the U.S. Foreign Corrupt Practices Act 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”), tax laws and regulations 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;
•currency exchange rate fluctuations;
•pandemics, such as COVID-19 or the flu, which may adversely affect our workforce as well as our local suppliers and customers;
•varying abilities to enforce intellectual property and contractual rights;
•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; and
•greater risk of uncollectible accounts and longer collection cycles.
We have outsourced certain functions in our North American business to third-party service providers, and any service failures or disruptions related to these outsourcing arrangements could adversely affect our business.
We recently completed the process of outsourcing certain functions in our North American business, including order management, billing, accounts receivable and accounts payable, to third-party service providers. We also implemented new procurement technology solutions as part of this initiative.
We face risks associated with third parties managing these functions for us. For example, we have diminished control over the quality and timeliness of the outsourced services, including the cyber security protections implemented by these third parties. As a result of these outsourcing arrangements, we may experience interruptions or delays in our order-to-cash and procure-to-pay processes, loss or theft of sensitive data or other cyber security issues, compliance issues, challenges in maintaining and reporting financial and operational information, and increased costs to remediate any unanticipated issues that arise, any of which could materially and adversely affect our business, financial condition and results of operations.
We may not be successful in achieving savings and efficiencies from cost reduction initiatives and related strategic initiatives.
Our strategy includes identifying areas of cost savings and operating efficiencies to expand profit margins and cash flow. As part of our identification of operating efficiencies, we may continue to 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 successful in fully implementing our productivity plans or realizing our anticipated savings and efficiencies, including potentially as a result of factors outside our control. Additionally, we may not be able to identify or negotiate divestiture opportunities on terms acceptable to us. If we are unable to fully realize the anticipated savings and efficiencies of our cost reduction initiatives and related strategic initiatives, our profitability may be materially and adversely impacted.
Our business, operating results and financial condition may be adversely affected by the failure to successfully execute acquisitions or dispositions or to successfully integrate completed acquisitions.
From time to time, we evaluate potential acquisitions or dispositions that align with our strategic objectives. The success of those initiatives depends in part, onupon our ability to generateidentify suitable acquisition targets or buyers and implement improvements tosuccessfully negotiate contract terms, among other factors. These initiatives may present operational risks, including diversion of management’s attention from other matters, difficulties integrating acquired businesses into our existing productsoperations or separating businesses from our operations, and to introduce new products to consumers. The successchallenges presented by acquisitions that may not achieve intended results. If we are not successful in executing acquisitions or divestitures or in integrating completed acquisitions, our business, operating results and financial condition could be adversely affected.
We rely on independent certifications for a number 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 capabilityproducts.
We rely on independent third-party certifications, such as certifications of our researchproducts 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 development staff in developing, formulatingraw 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 testingnatural products company, which could harm our business.
Risks Related to Our Reputation, Brands and Intellectual Property
If the reputation of our Company or our brands erodes significantly, including as a result of concerns regarding product prototypes, including complying with governmental regulations,quality or safety or perceptions about our ESG practices, it could have a material impact on our business.
Our financial success is directly dependent on the perception of our Company and our brands among our customers, consumers, employees and other constituents. Our results could be negatively impacted if our Company or one or more of our brands suffers substantial damage to its reputation due to real or perceived issues related to the quality or safety of our products. Further, the success of our managementbrands 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.
In addition, customers and consumers are increasingly expressing their expectations that companies and brands act responsibly in introducingtheir ESG practices. Any failure to meet such customer or consumer expectations, or any negative publicity regarding our ESG practices, could impact our reputation with customers, consumers and other constituents, which could have a material impact on our business.
Our inability to use our trademarks or the resulting improvementstrademarks we license from third parties could have a material adverse effect on our business.
We believe that brand awareness is a significant component in a timely manner. Ifconsumer’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 tradenames, these efforts may not be successful, and third parties may challenge our right to use one or more of our trademarks or tradenames. We believe that our trademarks and tradenames are unsuccessful in implementing product improvements significant to the marketing and sale of our products and that the inability to utilize certain of these names and marks, and/or introducing new products that satisfy the demands of consumers,inability to prevent third parties from using similar names or marks, could have a material adverse effect on our business, couldresults of operations and financial condition.
In addition, we market products under brands licensed under trademark license agreements, including Linda McCartney’s®, Rose’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. These trademark license agreements may not remain in effect or be harmed.enforceable, and our license agreements, upon expiration, may not be renewed on acceptable terms or at all.
Risks Related to Economic and Political Considerations
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. Our results of operations 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 consumers at the right price.
Prolonged unfavorable economic conditions may have an adverse effect on any of these factors and, therefore, could adversely impact our sales and profitability.
Currency exchange rate fluctuations could adversely affect our consolidated financial results and condition.
We are subject to risks associated with our international sales and operations, including foreign currency risks.
Operating in international markets involves exposurerelated to movementsfluctuations 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 and incur liabilities, earn revenue and pay expenses in a variety of currencies other than the United States dollar, primarily the British Pound, Canadian Dollar, Indian Rupee and the Euro.rates. Our consolidated financial statements are presented in United States dollars, and therefore we mustDollars, requiring us to translate our assets, liabilities, revenue and expenses into United States dollars for external reporting purposes.Dollars. As a result, changes in the valuevalues of the United States dollar during a periodcurrencies 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 2017, 41% of our consolidated net sales were generated outside the United States, while such sales outside the United States were 40% of net sales in 2016 and 39% in 2015. Sales from outside our U.S. markets may continue to represent aA significant portion of our total net salesbusiness has exposure to continued uncertainty and burdens in the future, especially as we look to expand our operations into new countries. Our non-U.S. sales and operations are subject to risks inherent in conducting business abroad, many of which are outside our control, including:
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, including staffing, collecting accounts receivable and managing distributors;
compliance with United States laws affecting operations outside of the United States, such as the Foreign Corrupt Practices Act and the Office of Foreign Asset Control trade sanction regulations and anti-boycott regulations;
compliance with antitrust and competition laws, data privacy laws and a variety of other local, national and multi-national regulations and laws in multiple regimes;
pandemics, such as the flu, which may adversely affect our workforce as well as our local suppliers and customers;
earthquakes, tsunamis, floods or other major disasters that may limit the supply of products that we purchase abroad;
changes in tax laws, interpretation of tax laws, tax audit outcomes and potentially burdensome taxation;
fluctuations in currency values, especially in emerging markets;
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;
tariffs, quotas, trade barriers, other trade protection measures and import or export licensing requirements imposed by governments that might negatively affect our sales;
foreign currency exchange and transfer restrictions;
increased costs, disruptions in shipping or reduced availability of freight transportation;
differing labor standards;
difficulties and costs associated with complying with United States laws and regulations applicable to entities with overseas operations;
varying regulatory, tax, judicial and administrative practices in the jurisdictions where we operate; and
difficulties associated with operating under a wide variety of complex foreign laws, treaties and regulations.
In addition, the results of the referendum relating to the membership of the United Kingdom (U.K.) infollowing its exit from the European Union, (E.U.) (“Brexit”)commonly referred to as “Brexit.”
In fiscal years 2022 and 2021, approximately 26% and 31%, advising forrespectively, of our consolidated sales were generated in the exit of the U.K. from the E.U.,United Kingdom, which continues to experience economic and market uncertainty 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,suppliers, which could have an adverse effect on our business, financial results and operations. The effectsIn addition to ongoing general market uncertainty caused by Brexit, the importing and exporting of Brexit willgoods and ingredients now involves additional administrative burdens, adding friction and cost to trade between the United Kingdom and member countries of the European Union.
Risks Related to Information Security and Technology
A cybersecurity incident or other technology disruptions could negatively impact our business and our relationships with customers.
We depend on any agreementsinformation systems and technology, including public websites and cloud-based services, in substantially all aspects of our business, including communications among our employees and with suppliers, customers and consumers. Such uses of information systems and technology give rise to cybersecurity risks, including system disruption, security breach, ransomware, theft, espionage and inadvertent release of information. We have become more reliant on mobile devices, remote communication and other technologies as part of the U.K. makesrecent change in office working patterns, 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 retain accesscybersecurity risk. If we fail to E.U. markets either duringassess and identify cybersecurity risks associated with new initiatives, we may become increasingly vulnerable to such risks.
We have experienced cyber security threats and vulnerabilities in our systems and those of our third party providers. Although, to date, such prior events have not had a transitional period or more permanently. 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 U.K. determines which E.U. laws to replace or replicate.
Government investigations may require significant management time and attention, result in significant legal expenses or damages and causematerial impact on our business, financial condition, results of operations or financial condition, the potential consequences of a future material cybersecurity attack could be significant and cash flowscould include reputational damage, litigation with third parties, government enforcement actions, penalties, disruption to suffer.systems, unauthorized release of confidential or otherwise protected information, corruption of data and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness, results of operations and financial condition. Due to the evolving nature of such security threats, the potential impact of any future incident cannot be predicted.
In August 2016, we voluntarily contacted the SECOur business operations could be disrupted if our information technology systems fail to advise itperform adequately.
The efficient operation of our delay in the filingbusiness 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 periodic reports and the performance of the independent review conducted by the Company’s Audit Committee. We have continuedinformation technology systems to provide information to the SEC on an ongoing basis, including, among other things, the results of the independent review of the Audit Committee,perform as well as information in connection with the Company’s internal accounting review. On January 31, 2017, the SEC issued a subpoena to us seeking documents relevant to its investigation. We have cooperated with the SEC and expect to continue to do so. The amount of time needed to resolve this investigation is uncertain, and we cannot predict the outcome of this investigation or whether we will face additional government investigations, inquiries or other actions related toanticipate could disrupt our accounting review, our delay in filing our periodic reports or otherwise. These matters could require us to expend significant management time and incur significant legal and other expensesbusiness and could result in civil and criminal actions seeking, among other things, injunctions against ustransaction errors, processing inefficiencies and the paymentloss of significant finessales and penalties by us, whichcustomers, 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 financial condition,business.
Risks Related to ESG Considerations
Climate change may negatively affect our business results of operations and cash flow.operations.
Lawsuits arising out of or related toThere is concern that carbon dioxide and other greenhouse gases in the independent review of the Audit Committee, the Company’s internal accounting reviewatmosphere may have an adverse impact on global temperatures, weather patterns and the delayed filingfrequency and severity of our periodic reports could adversely affectextreme weather and natural disasters. The spate of recent extreme weather events, including historic droughts, heatwaves, extreme cold and flooding, presents an alarming trend.
In the Company.
The matters which led to our Audit Committee’s independent review and our internal accounting review, as disclosed in our fiscal 2016 Form 10-K, have exposed us to greater risks associated with litigation, regulatory proceedings and government enforcement actions. The Company, along with some of its current and former officers and directors, have been named as parties to various lawsuits arising out of or related to these matters, andevent that such climate change has a negative effect on agricultural productivity, we cannot predict the outcome of this litigation. Furthermore, we and our officers and directors may in the future, be subject to additional litigationdecreased availability or less favorable pricing for certain commodities that are necessary for our products, such as vegetables, fruits, grains, beans and nuts. 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.
Liabilities, claims or new laws or regulations 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 matters. These lawsuits, and any other
similar litigation that may be brought against usliabilities or our current or former officers and directors, could be time-consuming, result in significant expense and divert the attention and resources of our management and other key employees. Any unfavorable outcomeclaims could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, we could be requiredfinancial condition.
The increasing global focus on climate change and the need for corporate change may lead to pay damages or additional penalties or have other remedies imposed against us, ornew environmental laws and regulations that impact our current or former directors or officers, which could harm our reputation, business, financial condition, resultsbusiness. For example, there are a growing number of operations or cash flows.
Our potential indemnification obligationslaws and limitations of our director and officer liability insurance could resultregulations regarding product packaging, particularly in significant legal expenses or damages and cause our business, financial condition, results of operations and cash flows to suffer.
Both current and 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 both current and former officers and directors in relation to these matters. 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 have not been inEurope. Our compliance with the Nasdaq Global Select Stock Market’s requirements for continued listingsuch existing laws and may continue to face compliance issues in the future. If we are unable to maintain compliance with applicable listing requirements, our common stock may be delisted from trading on the Nasdaq Global Select Stock Market, which could haveregulations and a material adverse effect on us and our stockholders.
As a result of our inability to timely hold our 2016 Annual Meeting of Stockholders within the time period required under Nasdaq rules, we are not in compliance with the continued listing requirements of the Nasdaq Global Select Stock Market (“Nasdaq”) and were notified by Nasdaq that we would be subject to delisting unless we were able to regain compliance. If our common stock is delisted, the market price of our common stock, the ability of our stockholders to trade our stock and our ability to raise capital could be materially adversely affected.
The delayed filing of some of our periodic SEC reports has made us currently ineligible to use a registration statement on Form S-3 to register the offer and sale of securities, which could adversely affect our ability to raise future capitalny new laws or complete acquisitions.
As a result of the delayed filing of some of our periodic reports with the SEC, we will not be eligible to register the offer and sale of our securities using a registration statement on Form S-3 until June 2018, at the earliest. Should we wish to register the offer and sale of our securities to the public prior to the time we are eligible to use Form S-3, both our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to execute any such transaction successfully and potentially harming our financial condition.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we experience additional material weaknesses or deficienciesregulations enacted in the future, or otherwise failany changes in how existing laws or regulations will be enforced, administered or interpreted, may lead to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial results,increase in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports and the price of our common stock may decline.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on our system of internal control. Our 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 U.S. GAAP. As a public company, we are required to comply with the Sarbanes-Oxley Act and other rules that govern public companies. In particular, we are required to certify our compliance with Section 404 of the Sarbanes-Oxley Act, which requirescosts, cause us to furnish annually a report by management onchange the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm is required to report on the effectiveness of our internal control over financial reporting.
In connection with our most recent year-end assessment of internal control over financial reporting,way we identified material weaknesses in our internal control over financial reporting as of June 30, 2017. For a discussion of our internal control over financial reporting and a description of the identified material weaknesses, see Part II, Item 9A, “Controls and Procedures.”
As further described in Item 9A “Controls and Procedures - Management’s Report on Internal Control Over Financial Reporting and Remediation of the Material Weaknesses in Internal Control Over Financial Reporting,” we have undertaken steps to improve our internal control over financial reporting. We expect that we will need to improve existing operational and financial systems, procedures and controls, and implement new ones, to manage our future business effectively. However, we may not be successful
in making the improvements necessary to remediate the material weaknesses identified by managementoperate or be able to do so in a timely manner, or be able to identify and remediate additional control deficiencies or material weaknesses in the future. Any implementation delays, or disruption in the transition to new or enhanced system, procedures or controls, could harm our ability to forecast sales, manage our supply chain and record and report financial and management information on a timely and accurate basis.
Pending and future litigation may leadexpose us to incur significant costs.
We are, or may become, party to various lawsuitsadditional risk of liabilities 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 or other aspects of our business as well as any securities class action and stockholder derivative litigation. 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 adverse monetary damages, penalties or injunctive relief against us, which could have a material adverse effect on our financial position, cash flows orbusiness, results of operations. Anyoperations and financial condition.
Risks Related to Litigation, Government Regulation and Compliance
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 operations, which may lead to a material adverse effect on our business. In addition, customers may cancel orders for such 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-manufacturers 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, an illness or physical harm, we may become subject to claims or litigation, even if fully indemnified or insured, could damage our reputationlawsuits relating to such matters. For example, as discussed in Note 18, Commitments and make it more difficult to compete effectively or to obtain adequate insuranceContingencies, in the future.
Furthermore, whileNotes to the Consolidated Financial Statements included in Item 8 of this Form 10-K, we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and isare subject to various exclusions as well as caps on amounts recoverable.consumer class actions, and other lawsuits alleging some form of personal injury, relating to our Earth’s Best® baby food products. Even if we believe a claim is covered byunsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products were mislabeled, unsafe or caused illness or physical harm could adversely affect our reputation with existing and potential customers and consumers and our corporate and brand image. Although we maintain product liability and product recall insurance insurersin an amount that we believe to be adequate, we may dispute our entitlement to recoveryincur claims or liabilities for a variety of potential reasons, which may affect the timing and, if they prevail,we are not insured or that exceed the amount of our recovery.insurance coverage. A product liability judgment against us or a product recall could have a material adverse effect on our business, results of operations and financial condition.
Legal claims, government investigations or other regulatory enforcement actionsGovernment regulation could subject us to civil and criminal penalties.penalties, and any changes in the legal and regulatory frameworks in which we operate could make it more costly or challenging to manufacture and sell our products.
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 orand other regulatory enforcement actions. AlthoughWe are subject
to extensive regulations in the United States, United Kingdom, Canada, Europe, Asia, including India, and any other countries where we have implemented policiesmanufacture, distribute and/or sell our products. Our products are subject to numerous product safety and procedures designedother laws and regulations relating to ensure compliance withthe registration and approval, sourcing, manufacturing, storing, labeling, marketing, advertising and distribution of these products. Enforcement of existing laws and regulations, there can be no assurance thatchanges in legal or regulatory requirements and/or evolving interpretations of existing requirements may result in increased compliance costs or otherwise make it more costly or challenging to manufacture and sell our employees, contractors,products, which could materially adversely affect our business, financial condition or agents will not violate our policies and procedures. operating results.
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.
Ineffective internal controls could impactPending 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 in Note 18, Commitments and Contingencies, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K, we are currently subject to class actions and derivative complaints arising out of or related to the Company’s business and financial results.
Ourprior internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. 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.
We are dependent upon the servicesaccounting review. Certain of our Chief Executive Officerformer officers and senior management team.
We are highly dependent upon the services of Irwin D. Simon, our Founder, Chairman of the Board, President and Chief Executive Officer. We believe Mr. Simon’s reputation as our Founder and his expertise and knowledge in the organic and natural products industry are critical factors in our continuing growth. His relationships with customers and suppliers are not easily found elsewhere in the organic and natural products industry. The loss of the services of Mr. Simon could harm our business.
Additionally, if we lose one or moreformer members of our senior management team,Board of Directors, as individual defendants, are also subject to lawsuits related to such accounting review, and we may have an obligation to indemnify them in relation to these matters. Additionally, as discussed further in Note 18, we are subject to consumer class actions, and other lawsuits alleging some form of personal injury, relating to our business, financial position,Earth’s Best® baby food products.
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 operationslitigation and other legal proceedings are inherently uncertain, and adverse judgments or cash flows could be harmed.
We may be subject to significant liability should the consumptionsettlements in some or all 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 injuriesthese legal disputes may result from inadvertent mislabeling, tampering by unauthorized third partiesin monetary damages, penalties or product contamination or spoilage. Under certain
circumstances, we may be required to recall or withdraw products, suspend production of our products or cease operations,injunctive relief against us, which may lead tocould have a material adverse effect on our business. In addition, customersresults of operations and financial condition. 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.
Compliance with data privacy laws may cancel orders forbe costly, and non-compliance with such products as alaws may 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 applicablesignificant liability.
Many jurisdictions in which the Company operates have laws and regulations ifrelating to data privacy and protection of personal information, including the consumptionEuropean Union GDPR and the California Consumer Privacy Act of 2018 (“CCPA”). Other U.S. states have, in recent years, begun to adopt their own omnibus, industry-neutral privacy statutes, such as Colorado, Connecticut, Utah and Virginia. Failure to comply with GDPR or CCPA requirements or other data privacy laws could result in litigation, adverse publicity and significant penalties and damages. The law in this area continues to develop, and the changing nature of privacy laws 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.
Risks Related to Our Credit Agreement
Any default under our credit agreement 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 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 our products causes, or is allegedthese covenants could result in a default, which would permit the lenders to have caused, a health-related illness, we may becomedeclare 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 claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued,agreed upon exceptions. Any default by us under 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 cannot be sure that we will not 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 recallcredit agreement could have a material adverse effect on our business consolidatedand financial condition, results of operations or liquidity.condition.
Outbreaks of avian disease, such as avian influenza, or food-borne illnesses, could adversely affect our results of operations.
Demand for our poultry products canWe may be adversely impacted by outbreaksthe discontinuation of avian diseases, including avian influenza,the London Interbank Offered Rate, or food-borne illnesses, suchLIBOR.
We have loans under our credit facility and interest rate swap agreements that are indexed to LIBOR, which is being replaced.
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, the transition away from LIBOR may nonetheless cause us to incur increased costs and additional risk. Following the transition, interest rates will generally be based on an alternative variable rate specified in the documentation governing our indebtedness or swaps or as E.coliotherwise 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, the impact is likely to vary by contract.
Risks Related to Corporate Governance
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 salmonella,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 ano present intention to issue any shares of our preferred stock, we may do so in the future under appropriate circumstances.
General Risk Factors
We may be subject to significant impact onliability that is not covered by insurance.
While we believe that the extent of our financial results. We take reasonable precautionsinsurance coverage is consistent with industry practice, such coverage does not cover all losses we may incur, even in areas for which we have coverage. Our insurance policies are subject to ensure thatcoverage exclusions, deductibles and caps, and any claim we make under our poultry flocks are healthy and that our processing plants and other facilities operateinsurance policies may be subject to such limitations. Any claim we make may not be honored fully, in a sanitarytimely manner, or at all, and environmentally sound manner. Nevertheless, outbreakswe may not have purchased sufficient insurance to cover all losses incurred. If we were to incur substantial liabilities or if our business operations were interrupted for a substantial period of diseasestime, we could incur costs and food-borne illnesses, whichsuffer losses. Additionally, in the future, insurance coverage may not be beyond our control, could significantly affect demand for and the price of our poultry products, consumer perceptions of certain of our poultry products, the availability of poults for purchase byavailable to us and our ability to conduct our Hain Pure Protein segment. Moreover, an outbreak of disease could have a significant effect on the poultsat commercially acceptable premiums, or poultry flocks we own by requiring us to, among other things, destroy any affected poults or poultry flocks.at all.
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, 2017,2022, we had goodwill of $1.06 billion$933.8 million and trademarks and other intangibles assets of $573.3$477.5 million, which in the aggregate represented 56%57% 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. For example, as noted in Note 7, Goodwill and Other Intangible Assets, in the Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K, after completing its annual goodwill impairment analysis in the fourth quarter of fiscal 2016, the Company recognized a goodwill impairment charge of $84.5 million. Additionally, the Company recognized impairment charges of $14.1 million and $39.7 million on certain of the Company’s tradenames in fiscal 2017 and 2016, respectively. 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 customercustomer. We have in the past recorded, and could resultmay 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 negativelyadversely impact our net worth and our consolidated earnings in the period of such charge.
Our acquisition strategy exposes us to risk, including our ability to integrate the brands that we acquire.
We intend to continue to grow our business in part through the acquisition of brands, both in the United States and internationally. Our acquisition strategy is based on identifying and acquiring brands with products that complement our existing product mix and identifying and acquiring brands in new categories and in new geographies for purposes of expanding our business internationally. We may not be able to successfully identify suitable acquisition candidates, negotiate acquisitions of identified candidates on terms acceptable to us or integrate acquisitions that we complete.
We may encounter increased competition for acquisitions in the future, which could result in acquisition prices we do not consider acceptable. We are unable to predict whether or when any prospective acquisition candidate will become available or the likelihood that any acquisition will be completed. Furthermore, acquisition-related costs are required to be expensed as incurred even though the acquisition may not be completed.
The success of acquisitions we make 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 acquire, there may be liabilities of the acquired companies that we fail to or are unable to discover during the diligence process and for which we, as a successor owner, may be responsible. We cannot be certain:
as to the timing or number of marketing opportunities or amount of cost savings that may be realized as the result of our integration of an acquired brand;
that a business combination will enhance our competitive position and business prospects;
that we will be successful if we enter categories or markets in which we have limited or no prior experience;
that we will be able to coordinate a greater number of diverse businesses and businesses located in a greater number of geographic locations;
that we will not experience difficulties with customers, personnel or other parties as a result of a business combination;
that disputes with sellers will not arise; or
that, with respect to our acquisitions outside the United States, we will not be affected by, among other things, exchange rate risk and risks associated with local regulatory regimes.
Companies or brands acquired may not achieve the level of sales or profitability that justify the investment made. We may determine to discontinue products if, among other reasons, they do not meet our standards for quality or profitability or both, which may have a material adverse effect on sales relating to such acquisition.
We may not be successful in:
integrating an acquired brand’s distribution channels with our own;
coordinating sales force activities of an acquired brand or in selling the products of an acquired brand to our customer base; or
integrating an acquired brand into our management information systems or integrating an acquired brand’s products into our product mix.
Additionally, integrating an acquired brand into our existing operations will require management resources and may divert management’s attention from our day-to-day operations. We may not respond quickly enough to the changing demands that acquired companies or brands will impose on management and our existing infrastructure, and changes to our operating structure may result in increased costs or inefficiencies that we cannot currently anticipate. Changes as a result of our growth may have a negative impact on the operation of our business, and cost increases resulting from our inability to effectively manage our growth could adversely impact our profitability. If we are not successful in integrating the operations of acquired brands, our business could be harmed.
We may not be able to successfully consummate proposed divestitures.
We may, from time to time, divest businesses that become less of a strategic fit within our core portfolio. 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 asset impairment or restructuring charges related to divested businesses, or indemnify buyers for liabilities, which may reduce our profitability and cash flows. We may also not be able to negotiate such divestitures on terms acceptable to us. 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, 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 product 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 product that we can manufacture and sell.
If we do not manage our supply chain effectively, our operating results may be adversely affected.
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 expiration date and become unsaleable. 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, soybeans and wheat, are the principal inputs used in our 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, natural disasters 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 offset the impact of cost input inflation on our operations is partially dependent on our ability to implement and achieve targeted savings and efficiencies from cost reduction initiatives.
We continuously seek to put in place initiatives that are designed to control or reduce costs or that increase operating efficiencies in order to improve our profitability and offset many of the input cost increases that are outside of our control. For example, as discussed above, during fiscal 2016, the Company commenced a strategic review called “Project Terra,” which identified global cost savings over the next three fiscal years. Our success depends on our ability to execute and realize cost savings and efficiencies from our operations. If we are unable to identify and fully implement our productivity plans and achieve our anticipated efficiencies, including with respect to Project Terra, our profitability may be adversely impacted.
Our profit margins also depend on our ability to manage our inventory efficiently. As part of our effort to manage our inventory more efficiently, we carry out SKU rationalization programs from time-to-time, which may result in the discontinuation of numerous lower-margin or low-turnover SKUs. However, a number of factors, such as changes in customers’ inventory levels, access to shelf space and changes in consumer preferences, may lengthen the number of days we carry certain inventories, hence impeding our effort to manage our inventory efficiently and thereby increasing our costs.
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, 2017, 2016 and 2015, approximately 64%, 65% and 61%, 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 2017, 2016 and 2015, approximately 36%, 35% and 39%, 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. The success of our business depends, in part, on maintaining a strong sourcing and manufacturing platform. 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. If we were required to obtain additional or alternative co-packing agreements or arrangements in the future, we may not be able to do so on satisfactory terms or in a timely manner. 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 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.
We may face difficulties as we expand our operations into countries in which we have no prior operating experience.
We intend to continue to expand our global footprint in order to enter into new markets. This may involve expanding into countries other than those in which we currently operate. It may involve expanding into less developed countries, which may have less political, social or economic stability and less developed infrastructure and legal systems. It is costly to establish, develop and maintain international operations and develop and promote our brands in international markets. As we expand our business into new countries, we may encounter regulatory, personnel, technological and other difficulties that increase our expenses or delay our ability to become profitable in such countries, which may 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, Cadbury® and Rose’s® brands. We believe that these trademarks have significant value and are instrumental in our ability to create and sustain demand for and to market those products offerings. We cannot assure you that these trademark license agreements will remain in effect and enforceable or that any license agreements, upon expiration, can be renewed on acceptable terms or at all. In addition, any future disputes 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.
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 continued growing use of social and digital media.
We are subject to U.S. and international regulations that could adversely affect our business and results of operations.
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 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, with our expanding international operations, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act (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. While our policies mandate compliance with these anti-bribery laws, our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees, joint-venture partners or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations, cash flows and financial condition.
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 expose 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 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.
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. 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 our strategy to grow through acquisitions and to 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 corresponding exposure to cybersecurity risk. If we fail to assess and identify cybersecurity risks associated with acquisitions and 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, violation of privacy laws, loss of customers, potential liability and competitive disadvantage all 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.
We may be subject to significant liability that is not covered by insurance.
Although 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, 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. 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.
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.
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.
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.
Item 2. Properties
Our principal facilities, which are leased except where otherwise indicated, are as follows:
| | | | | | | | | | | | | | | | | | | | |
| Primary Use | | Location | | Approximate Square Feet | | Expiration of Lease |
| North America: | | | | | | |
| Headquarters office | | Lake Success, NY | | 86,000 | | | 2029 |
| Distribution - All brands | | Allentown, PA | | 497,000 | | | 2032 |
| Distribution center (Grocery, snacks, and personal care products) | | Ontario, CA | | 373,000 | | | 2023 |
| Manufacturing and distribution center (Snack products) | | Mountville, PA | | 161,000 | | | 2040 |
| Manufacturing and offices (Tea) | | Boulder, CO | | 158,000 | | | Owned |
| Distribution (Dry goods) | | Mississauga, ON, Canada | | 136,000 | | | 2029 |
| Manufacturing and distribution (Personal care) | | Bell, CA | | 125,000 | | | 2028 |
| Manufacturing and distribution (Snack products) | | Lancaster, PA | | 119,000 | | | 2031 |
| Distribution (Personal care) | | Mississauga, ON, Canada | | 81,000 | | | 2029 |
| Manufacturing (Plant-based foods) | | Vancouver, BC, Canada | | 76,000 | | | Owned |
| Manufacturing and distribution (Snack products) | | York, PA | | 71,000 | | | 2030 |
| Manufacturing and offices (Personal care) | | Mississauga, ON, Canada | | 61,000 | | | 2025 |
| Distribution (Tea) | | Boulder, CO | | 57,000 | | | 2031 |
| Manufacturing (Plant-based foods) | | Trenton, ON, Canada | | 47,000 | | | 2028 |
| | | | | | |
| International: | | | | | | |
| Manufacturing and offices (Ambient grocery products) | | Histon, England | | 303,000 | | | Owned |
| Manufacturing, distribution and offices (Plant-based beverages) | | Troisdorf, Germany | | 131,000 | | | 2037 |
| Manufacturing | | Oberwart, Austria | | 117,000 | | | At will |
| Distribution | | Loipersdorf, Austria | | 74,000 | | | At will |
| Distribution | | Gent, Belgium | | 64,000 | | | At will |
| Distribution | | Niederziers, Germany | | 54,000 | | | At will |
| Manufacturing (Chilled soups) | | Grimsby, England | | 54,000 | | | 2029 |
| Manufacturing (Plant-based frozen and chilled products) | | Fakenham, England | | 52,000 | | | Owned |
| Distribution (Soups, hot desserts, chilled products, grocery) | | Peterborough, England | | 43,000 | | | 2024 |
| Manufacturing (Hot-eating desserts) | | Clitheroe, England | | 42,000 | | | 2031 |
| Manufacturing and distribution (Plant-based foods and beverages) | | Schwerin, Germany | | 36,000 | | | Owned |
|
| | | | | | | |
| Primary Use | | Location | | Approximate Square Feet | | Expiration of Lease |
| United States: | | | | | | |
| Headquarters office | | Lake Success, NY | | 86,000 |
| | 2029 |
| Manufacturing and offices (Tea) | | Boulder, CO | | 158,000 |
| | Owned |
| Manufacturing and distribution (Flours and grains) | | Hereford, TX | | 136,000 |
| | Owned |
| Manufacturing (Frozen foods, pouches and cold-pressed juice drinks) | | West Chester, PA | | 105,000 |
| | Owned |
| Manufacturing (Snack products) | | Moonachie, NJ | | 75,000 |
| | Owned |
| Manufacturing and distribution center (Snack products) | | Mountville, PA | | 100,000 |
| | 2024 |
| Manufacturing and distribution (Pasta) | | Shreveport, LA | | 37,000 |
| | Owned |
| Manufacturing (Personal care) | | Culver City, CA | | 24,000 |
| | 2018 |
| Manufacturing (Meat-alternatives) | | Boulder, CO | | 21,000 |
| | Owned |
| Manufacturing (Nut butters) | | Ashland, OR | | 13,000 |
| | Owned |
| Distribution center (Grocery, snacks, and personal care products) | | Ontario, CA | | 375,000 |
| | 2018 |
| Manufacturing and distribution (Tea) | | Boulder, CO | | 100,000 |
| | 2020 |
| Distribution center (Meat-alternatives) | | Boulder, CO | | 45,000 |
| | Month to month |
| Manufacturing and distribution (Breads, buns, and related products) | | Boulder, CO | | 69,000 |
| | 2020 |
| | | | | | | |
| United Kingdom: | | | | | | |
| Manufacturing and offices (Ambient grocery products) | | Histon, England | | 303,000 |
| | Owned |
| Manufacturing and offices (Classic rice products) | | Rainham, England | | 80,000 |
| | Owned |
| Manufacturing and offices (Ready-to-heat rice products) | | Rainham, England | | 69,000 |
| | Owned |
| Manufacturing (Hot-eating desserts) | | Clitheroe, England | | 38,000 |
| | 2026 |
| Manufacturing (Fresh fruit and salads) | | Leeds, England | | 34,000 |
| | 2022 |
| Manufacturing (Chilled soups) | | Grimsby, England | | 61,000 |
| | 2029 |
| Manufacturing (Chilled soups) | | Peterborough, England | | 54,000 |
| | 2020 |
| Manufacturing (Chilled soups) | | North Yorkshire, England | | 14,000 |
| | Owned |
| Manufacturing (Desserts and plant-based frozen products) | | Fakenham, England | | 101,000 |
| | Owned |
| Manufacturing (Fresh prepared fruit products) | | Corby, England | | 45,000 |
| | 2024 |
| Distribution and offices (Packaging and ingredients) | | Corby, England | | 22,500 |
| | 2019 |
Manufacturing, distribution and offices (Fresh prepared fruit products and drinks)
| | Corby, England | | 89,500 |
| | Owned |
| Manufacturing and offices (Fresh prepared fruit) | | Gateshead, England | | 46,000 |
| | 2020 |
| Manufacturing and distribution (Crackers) | | Larvik, Norway | | 16,000 |
| | 2019 |
|
| | | | | | | |
| Primary Use | | Location | | Approximate Square Feet | | Expiration of Lease |
| Hain Pure Protein: | | | | | | |
| Manufacturing and offices (Poultry products) | | Fredericksburg, PA | | 58,000 |
| | Owned |
| Manufacturing and offices (Poultry products) | | Fredericksburg, PA | | 60,000 |
| | Owned |
| Distribution and offices (Poultry products) | | New Oxford, PA | | 92,000 |
| | Owned |
| Manufacturing and offices (Poultry products) | | New Oxford, PA | | 130,000 |
| | Owned |
| Manufacturing and offices (Poultry products) | | Liverpool, NY | | 15,000 |
| | Owned |
| Manufacturing, distribution and offices (Kosher poultry products) | | Mifflintown, PA | | 280,000 |
| | Owned |
| Manufacturing, distribution and offices (Feed mill) | | Sellinsgrove, PA | | 10,000 |
| | Owned |
| Manufacturing and offices (Poultry hatchery) | | Beaver Springs, PA | | 35,000 |
| | Owned |
| | | | | | | |
| Rest of World: | | | | | | |
| Manufacturing (Plant-based foods) | | Vancouver, BC, Canada | | 76,000 |
| | Owned |
| Manufacturing and offices (Personal care) | | Mississauga, ON, Canada | | 61,000 |
| | 2020 |
| Distribution (Personal care) | | Mississauga, ON, Canada | | 80,500 |
| | 2022 |
| Manufacturing, distribution and offices (Plant-based beverages) | | Troisdorf, Germany | | 131,000 |
| | 2027 |
| Manufacturing and offices (Organic food products) | | Andiran, France | | 39,000 |
| | Owned |
| Distribution (Organic food products) | | Nerrac, France | | 18,000 |
| | Owned |
| Manufacturing and offices (Plant-based foods and beverages) | | Oberwart, Austria | | 108,000 |
| | Unlimited |
| Manufacturing (Plant-based foods and beverages) | | Schwerin, Germany | | 650,000 |
| | Owned |
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.
For further information regarding our lease obligations, see Note 15, Commitments and ContingenciesNote 7,Leases, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K. For further information regarding the use of our properties by segments, see “ItemItem 1, Business“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 filedThe information called for by this item is incorporated herein by reference to Note 18, Commitments and Contingencies, 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. PursuantNotes 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. On August 4, 2017, Co-Lead PlaintiffsFinancial Statements included in the Consolidated Securities Action filed an amended complaint on behalfPart II, Item 8 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 names as defendants the Company and certain of its current and former officers (collectively, the “Defendants”) and asserts violations of Sections 10(b) and 20(a) of thethis Form 10-K.
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. On August 9, 2017, the court approved the Defendants’ proposed briefing schedule and ordered that the Defendants move to dismiss the Amended Complaint by October 3, 2017.
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 Board of Directors and certain 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 Board of Directors and certain 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 allege 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, and the parties agreed to stay the Consolidated Derivative Action until November 2, 2017.
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 Board of Directors and certain 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 Board of Directors and certain officers of the Company. The complaint alleges that the Company’s directors and certain 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 alleges 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.
On August 10, 2017, the court granted the parties stipulation to consolidate the Barnes Compliant, the Silva Complaint and the Merenstein Compliant 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. The parties agreed that the defendants in the Stockholder Class and Derivative Action shall have 60 days to answer or otherwise move to dismiss after the plaintiffs file a consolidated complaint with the court or designate an already filed complaint as the operative complaint.
SEC Investigation
As previously disclosed, the Company voluntarily contacted the SEC in August 2016 to advise it of the Company’s delay in the filing of its periodic reports and the performance of the independent review conducted by the Audit Committee. The Company has continued to provide information to the SEC on an ongoing basis, including, among other things, the results of the independent review of the Audit Committee as well as other information pertaining to its internal accounting review relating to revenue recognition. On January 31, 2017, the SEC issued a subpoena to the Company seeking documents relevant to its investigation. The Company is in the process of responding to the SEC’s requests for information and intends to cooperate fully with the SEC.
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.
Item 4. Mine Safety Disclosures
Not applicable.
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$0.01 per share, are listed on theThe Nasdaq Global SelectStock Market LLC under the ticker symbol “HAIN”. The following table sets forth the reported high and low sales prices for our common stock for each fiscal quarter from July 1, 2015 through June 30, 2017.
|
| | | | | | | | | | | | | | | |
| | Common Stock |
| | Fiscal Year 2017 | | Fiscal Year 2016 |
| | High | | Low | | High | | Low |
| First Quarter | $ | 55.35 |
| | $ | 34.57 |
| | $ | 70.65 |
| | $ | 51.19 |
|
| Second Quarter | $ | 39.90 |
| | $ | 34.38 |
| | $ | 54.46 |
| | $ | 38.12 |
|
| Third Quarter | $ | 40.99 |
| | $ | 34.46 |
| | $ | 41.78 |
| | $ | 33.12 |
|
| Fourth Quarter | $ | 38.82 |
| | $ | 31.60 |
| | $ | 53.03 |
| | $ | 40.50 |
|
Holders
As of September 6, 2017,of August 18, 2022, there were 265222 holders ofof record of our common stock.
Dividends
We have not paid any cash dividends on our common stock to date. We intend to retain all future earnings for use in the development of our business and do not anticipate declaring or paying any dividends in the foreseeable future. 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, capital 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 table below sets forth information regarding repurchases by the Company of its common stock during the periods indicated. |
| | | | | | | | | | | | |
| Period | (a) Total number of shares purchased (1) | | (b) Average price paid per share | | (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 of dollars) (2) |
| April 1, 2017 - April 30, 2017 | 86 |
| | $ | 37.09 |
| | — |
| | — |
|
| May 1, 2017 - May 31, 2017 | 4,870 |
| | 37.31 |
| | — |
| | — |
|
| June 1, 2017 - June 30, 2017 | 3,063 |
| | 36.56 |
| | — |
| | 250 |
|
| Total | 8,019 |
| | $ | 37.02 |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Period | (a)
Total number
of shares
purchased (1) | | (b)
Average
price paid
per share | | (c)
Total number of
shares purchased
as part of
publicly
announced plans | | (d)
Approximate dollar value of shares that may yet be purchased under the plans (in millions) (2) |
| April 1, 2022 - April 30, 2022 | 213 | | | $ | 33.54 | | | — | | | $ | 186.6 | |
| May 1, 2022 - May 31, 2022 | 292 | | | 24.78 | | | — | | | 186.6 | |
| June 1, 2022 - June 30, 2022 | 500,713 | | | 26.13 | | | 500,000 | | | 173.5 | |
| Total | 501,218 | | | $ | 28.15 | | | 500,000 | | | |
| |
(1) | Shares surrendered for payment of employee payroll taxes due on shares issued under stockholder approved stock-based compensation plans. |
| |
(2) | On June 21, 2017, the Company’s Board of Directors authorized the repurchase of up to $250 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. |
(1)Includes shares surrendered for payment of employee payroll taxes due on shares issued under stock-based compensation plans and shares repurchased under share repurchase programs approved by the Board of Directors. See (2) below for further details.
(2)In June 2017, August 2021 and January 2022, the Company's Board of Directors authorized the repurchase of up to $250 million, $300 million and $200 million of the Company’s issued and outstanding common stock, respectively. Share repurchases under each of the 2021 and 2022 authorizations commenced after the previous authorizations were fully utilized. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The current 2022 authorization does not have a stated expiration date. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations. During the quarter ended June 30, 2022, the Company repurchased 500,000 shares under the repurchase program for a total of $13 million, excluding commissions, at an average price of $26.13 per share. As of June 30, 2022, the Company had $174 million of remaining authorization under the share repurchase program.
Stock Performance Graph
The following graph compares the performance of our common stock to the S&P 500 Index, the S&P Smallcap 600 Index and the S&P Packaged Foods & Meats Index (in which we are included) for the period from June 30, 20122017 through June 30, 2017. The comparison assumes $100 invested on June 30, 2012.2022.
Item 6. [Reserved]
Item 6. Selected Financial Data
The following information has been summarized from our financial statements. The information set forth below is not 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. Refer to Note 4, 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.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year ended June 30, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Operating results: | | | | | | | | | | |
| Net sales | | $ | 2,853,111 |
| | $ | 2,885,374 |
| | $ | 2,609,613 |
| | $ | 2,107,822 |
| | $ | 1,705,975 |
|
Income from continuing operations (a) | | $ | 67,430 |
| | $ | 47,429 |
| | $ | 164,962 |
| | $ | 131,551 |
| | $ | 109,081 |
|
| Loss from discontinued operations, net of tax | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1,629 | ) | | $ | (5,137 | ) |
Net income(a) | | $ | 67,430 |
| | $ | 47,429 |
| | $ | 164,962 |
| | $ | 129,922 |
| | $ | 103,944 |
|
| | | | | | | | | | | |
Basic net income (loss) per common share (b): | | | | | | | | | | |
| From continuing operations | | $ | 0.65 |
| | $ | 0.46 |
| | $ | 1.62 |
| | $ | 1.35 |
| | $ | 1.18 |
|
| From discontinued operations | | — |
| | — |
| | — |
| | (0.02 | ) | | (0.06 | ) |
| Net income per common share - basic | | $ | 0.65 |
| | $ | 0.46 |
| | $ | 1.62 |
| | $ | 1.33 |
| | $ | 1.13 |
|
| | | | | | | | | | | |
Diluted net income (loss) per common share (b): | | | | | | | | | | |
| From continuing operations | | $ | 0.65 |
| | $ | 0.46 |
| | $ | 1.60 |
| | $ | 1.32 |
| | $ | 1.15 |
|
| From discontinued operations | | — |
| | — |
| | ��� |
| | (0.02 | ) | | (0.05 | ) |
Net income per common share - diluted* | | $ | 0.65 |
| | $ | 0.46 |
| | $ | 1.60 |
| | $ | 1.30 |
| | $ | 1.09 |
|
| | | | | | | | | | | |
| Financial position: | | | | | | | | | | |
Working capital (c) | | $ | 534,287 |
| | $ | 543,206 |
| | $ | 537,440 |
| | $ | 358,345 |
| | $ | 271,355 |
|
Total assets (c) | | $ | 2,931,104 |
| | $ | 3,008,080 |
| | $ | 3,099,408 |
| | $ | 2,943,814 |
| | $ | 2,242,098 |
|
| Long-term debt, less current portion | | $ | 740,304 |
| | $ | 836,171 |
| | $ | 812,608 |
| | $ | 767,827 |
| | $ | 653,464 |
|
| Stockholders’ equity | | $ | 1,712,832 |
| | $ | 1,664,514 |
| | $ | 1,727,667 |
| | $ | 1,580,825 |
| | $ | 1,170,659 |
|
* Net income/(loss) per common share may not add in certain periods due to rounding
(a) 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 on certain of the Company’s tradenames. 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 on certain of the Company’s tradenames. See Note 7, Goodwill and Other Intangible Assets, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
(b) On December 29, 2014, we effected a two-for-one stock split of our common stock in the form of a 100% stock dividend to shareholders of record as of December 12, 2014. All per share information has been retroactively adjusted to reflect the stock split.
(c) Upon adoption of Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, in fiscal year 2016 deferred tax assets and liabilities previously classified as current are presented as non-current. Fiscal years 2015, 2014, and 2013 have not been adjusted.
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 (this “MD&A”) should be read in conjunction with Item 1A and the Consolidated Financial Statements and the related notes thereto for the period ended June 30, 20172022 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,”heading, “Forward-Looking Statements” at the beginning of this Form 10-K.
This MD&A generally discusses fiscal 2022 and fiscal 2021 items and year-to-year comparisons between fiscal 2022 and fiscal 2021. Discussions of fiscal 2020 items and year-to-year comparisons between fiscal 2021 and fiscal 2020 that are not included in this Form 10-K can be found in “Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations” of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2021, which was filed with the SEC on August 26, 2021 and is available on the SEC’s website at www.sec.gov.
Overview
The Hain Celestial Group, Inc., a Delaware corporation and (collectively, along with its subsidiaries, (collectively, the “Company,” and herein referred to as “Hain Celestial,” “we,” “us,”“us” and “our”), was founded in 1993 and is headquartered in Lake Success, New York. The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet — To Create and Inspire A Healthier Way of LifeTM andtenet. The Company continues to be thea leading marketer, manufacturermanufacturer 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 clubs, andclub, drug and convenience stores in over 8075 countries worldwide.
With a proven track record of strategic growth and profitability, theThe 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 LifeTM®. Hain Celestial is a leader in many organicThe Company’s food and natural products categories, with many recognizedbeverage brands in the various market categories it serves, including Almond Dream®, Arrowhead Mills®, Bearitos®, Better BeanTM, BluePrint®,include Celestial Seasonings®, Coconut Dream®Clarks™, Cully & Sully®, Danival®, DeBoles®, Earth’s Best®, Ella’s Kitchen®, Empire®, Europe’s Best®, Farmhouse Fare®, Frank Cooper’s®, FreeBird®, Gale’s®, Garden of Eatin’®, GG UniqueFiberTM, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, Johnson’s Juice Co.®, Joya®, Kosher Valley®, Lima®, Linda McCartney’s® (under license), MaraNatha®, Natumi®, New Covent Garden Soup Co.®, Plainville FarmsParmCrisps®, Rice Dream®, Robertson’s®, Rudi’s Gluten-Free BakeryRose’s®, Rudi’s Organic Bakery® (under license), Sensible Portions®, Spectrum Organics®, Soy Dream®, Sun-Pat®, SunSpire®, Terra®, The Greek Gods®, TildaThinsters®, WestSoy®, Yorkshire ProvenderTM,® and Yves Veggie CuisineCuisine®. The Company’s personal care products are marketed under thebrands include Alba Botanica®, Avalon Organics®, Earth’s Best®, JASON®, Live Clean®, and Queen Helene® brands. .
Project Terra
During fiscal 2016,Our previous strategy, which we refer to as Hain 2.0, was executed under four key pillars—(1) simplify our portfolio; (2) strengthen our capabilities; (3) expand profit margins and cash flow; and (4) reinvigorate profitable topline growth. This strategy has laid the Company commencedfoundation for Hain 3.0, our vision and strategy for the next several years, which is about building a strategic review, which it called “Project Terra,” that resultedglobal healthy food and beverage company with industry-leading top line growth. We believe Hain 3.0 positions us as an advantaged and differentiated company, as compared to others in the Company redefining its core platforms startingfood industry, for several reasons:
•we are primarily focused on health and wellness,
•we are a global company in high-growth categories with opportunities for expansion in existing and new channels and geographies,
•we have unique and advantaged brands with strong points of difference, and
•given our size, small wins can drive material incremental growth.
We have re-segmented the United States segment for futurebrand portfolio with a more global view to where we have the most growth based upon consumer trendspotential. As a result, we have migrated from a strategy focused on rejuvenating North America behind a construct of “Get Bigger" and "Get Better” brand categories to createone that focuses on growing global brands in categories where we think we have the most potential. The categories we have identified are called Turbocharge, Targeted Investment, and inspire A Healthier WayFuel:
•The Turbocharge brands are leading-share brands in what we believe to be very high-growth categories. The Turbocharge brands are made up of Life™. The core platforms are defined by common consumer need, route-to-market or internal advantagesnacks as well as plant-based meat and are aligned with the Company’s strategic roadmap to continue its leadership position in the organic and natural, “better-for-you” products industry. Beginning in fiscal 2017, those core platformsnon-dairy beverages. Our snacks businesses include brands both within the United States segment are:and in International, while our meat and dairy alternatives are concentrated outside the United States.
| |
• | Better-for-You Baby, which includes infant foods, infant and toddler formula, toddler and kids foods, diapers and wipe products that nurture and care for babies and toddlers, under the Earth’s Best® and Ella’s Kitchen® brands.
|
| |
• | Better-for-You Pantry, which includes core consumer staples, such as MaraNatha®, Arrowhead Mills®, Imagine® and Spectrum Organics® brands.
|
| |
• | Better-for-You Snacking, which includes wholesome products for in-between meals, such as Terra®, Sensible Portions® and Garden of Eatin’® brands.
|
| |
• | Fresh Living, which includes yogurt, plant-based proteins and other refrigerated products, such as The Greek Gods® yogurt and Dream™ plant-based beverage brands.
|
| |
• | Pure Personal Care, which includes personal care products focused on providing consumers with cleaner and gentler ingredients, such as JASON®, Live Clean®, Avalon Organics® and Alba Botanica® brands.
|
| |
• | Tea, which includes tea products marketed under the Celestial Seasonings® brand.
|
Beginning•The Targeted Investment brands are made up of leading-share brands in fiscal 2017, the Company launched Cultivate Ventures (“Cultivate”), a venture unit with a threefold purpose: (i)lower-growth categories. To date, we have demonstrated our ability to strategically investdrive market share and reinvigorate these categories, and we expect that we can continue to do this in the Company’s smallerfuture. The Targeted Investment brands are made up of tea, baby, yogurt, and personal care products.
•The Fuel brands are stable brands that will be leveraged to fuel investment in high potentialthe Turbocharge and Targeted Investment categories. Fuel brands are made up of premium pantry brands with scale, in categories such as BluePrint® cold-pressed juices, SunSpire® chocolatessoup, cooking oils and DeBoles® pasta by giving thesenut butters.
We refer to the Turbocharge brands a dedicated, creative focusand Targeted Investment brands together as our Growth brands.
Additionally, as part of Hain 3.0, we will continue to simplify our brand portfolio as we continue to identify brands that are declining and have low margins, which we refer to as Simplify brands. We view Simplify brands to be subscale declining businesses that have limited long-term potential for refreshthe Company, and relaunch; (ii) to incubate and grow small acquisitionstherefore will manage such brands for profit until they reachare potentially divested, likely over the scale requiredcourse of the next several years. Acquisitions are expected to migrate to the Company’s core platforms;play a role in Hain 3.0, and (iii) to invest in concepts, products and technology that focuspart of our capital allocation strategy is focused on health and wellness. Cultivate also includes Tilda® and Yves Veggie Cuisine®, global brands that have a growing presenceactively looking for appropriate targets in the United States.market. As we continue to simplify and stabilize the organization and consolidate sales into fewer priority categories, we believe we are well-positioned and expect to make targeted acquisitions supported by our borrowing capacity to help us further strengthen our position in those categories.
Increased Supply Chain Disruptions
34
Russia-Ukraine War
Another key initiativeAlthough we have no material assets in Russia, Belarus or Ukraine, our supply chain was adversely impacted by the Russia-Ukraine war during the fiscal year ended June 30, 2022, and we continue to face other challenges and risks arising from Project Terra was the identificationwar. In particular, the war has added significant costs to existing inflationary pressures through increased fuel and raw material prices and labor costs. Further, beyond increased costs, labor challenges and other factors have led to supply chain disruptions. While, to date, we have been able to identify replacement raw materials where necessary, we have incurred increased costs in doing so. For example, the supply of global cost savings expected over the next three fiscal years, a portion ofsunflower oil has become constrained, compelling us to identify and procure alternative oils. The war has also negatively impacted consumer sentiment, particularly in Europe, with some consumers shifting to lower-priced products, which the Company intends to reinvest into its brands.has somewhat affected demand for our products. Additionally, the Company identified certain brands for divestment, which no longer fit into its core strategy for future growth. The disposal of these brands does not represent a strategic shift and is not expected to have a major effect on the Company's operations or financial results,we face increased cybersecurity risks, as defined by ASC 205-20, Discontinued Operations; as a result, the disposals do not meet the criteria to be classified as discontinued operations.
Finally, in connection with Project Terra, the Company, with the assistance of outside consultants, engaged in an evaluation of its trade investmentcompanies based in the United States segment. Basedand its allied countries have become targets of malicious cyber activity. While we are continuing to monitor and manage the impacts of the war on this assessment,our business, the extent to which the Russia-Ukraine war and the related economic impact may affect our financial condition or results of operations remains uncertain.
COVID-19
The COVID-19 pandemic continues to contribute to challenging and unprecedented conditions. Challenges exacerbated by the ongoing effects of the pandemic include but are not limited to:
•manufacturing and supply chain challenges, including labor market shortages;
•a shifting demand environment as a result of changing consumer behaviors amid uncertain economic conditions; and
•increased costs of operating our business and managing our supply chain.
If we are unable to successfully manage our business through the continued challenges and uncertainty related to the COVID-19 pandemic, our business and operating results could be materially adversely affected.
Acquisition
On December 28, 2021, the Company determined thatacquired all outstanding stock of Proven Brands, Inc. (and its trade investment could be utilized more effectively,subsidiary That's How We Roll LLC) and therefore, beginningKTB Foods Inc., collectively doing business as "That's How We Roll" ("THWR"), the producer and marketer of ParmCrisps® and Thinsters®. We believe the acquisition of these two fast-growing, better-for-you brands deepens the Company's position in fiscal 2017,the snacking category and represents a significant step in establishing the Company developed plans to shift fromas a model of investing in trade at the non-consumer facing level to more consumer facing activities.
Change in Segments
Prior to July 1, 2016, the Company’s operations were managed in seven operating segments: the United States, United Kingdom, Tilda, Hain Pure Protein Corporation (“HPPC”), EK Holdings, Inc. (“Empire”), Canada and Europe. The United States operating segment was also a reportable segment. The United Kingdom and Tilda operating segments were reported in the aggregate as “United Kingdom”, while HPPC and Empire were reported in the aggregate as “Hain Pure Protein,” and Canada and Europe were combined and reported as “Rest of World.”
Effective July 1, 2016, due to changes to the Company’s internal management and reporting structure resulting from the formation of Cultivate, certain brands previously included within the United States operating segment were moved to the Cultivate operating segment called Cultivate. As a result, the Company is now managed in eight operating segments: the United States (excluding Cultivate), United Kingdom, Tilda, HPPC, Empire, Canada, Europe and Cultivate. The United States, excluding Cultivate, is its own reportable segment. Cultivate is now combined with Canada and Europe and reported as Rest of World. There were no changes to the United Kingdom (which includes Tilda) and Hain Pure Protein (which includes HPPC and Empire) reportable segments. The prior period segment information contained below has been adjusted to reflect the Company’s new operating and reporting structure.high-growth, global, healthy food company. See Note 1, Description of Business4, Acquisitions and Basis of Presentation, Dispositions, in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-Kfor additional details surroundingdetails.
Discontinued Operations
On August 27, 2019, the formation of Cultivate.
Additionally, effective July 1, 2017, due to changesCompany and Ebro Foods S.A. (the “Purchaser”) entered into, and consummated the transactions contemplated by, an agreement relating to the Company’s internal managementsale and reporting structure, the United Kingdom operationspurchase of the Ella’s Kitchen® brand, which was previously included withinentities comprising the United States reportable segment, will be moved to the United Kingdom reportable segment.
Acquisitions and Investments
We have acquired numerous companies and brands since our formation and intend to seek future growth through internal expansion as well as the acquisition of complementary brands. We consider the acquisition of organic, natural and “better-for-you” product companies or product lines to be a part of our business strategy. During fiscal 2017, we acquired The Yorkshire Provender Ltd. (“Yorkshire Provender”), a leading provider of premium branded chilled soups in the United Kingdom for $16.1 million and Sonmundo, Inc. d/b/a The Better Bean Company (“Better Bean”), which offers prepared beans and bean-based dips sold in refrigerated tubs under the Better BeanTM brand, for $3.4 million.
Our business strategy is to integrate our brands under one management team within eachCompany’s Tilda operating segment and employ uniform marketing, sales and distribution programs when attainable. We believe that, by integrating our various brands, we will continue to achieve economies of scale and enhanced market penetration. We seek to capitalize on the equity of our brands and the distribution achieved through each of our acquired businesses with strategic introductions of new products that complement existing lines to enhance revenues and margins.
See Note 4, Acquisitions, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Share Repurchase Program
On June 21, 2017, the Company's Board of Directors authorized the repurchase of up to $250 millioncertain other assets 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. The Company did not repurchase any shares underTilda business.
this program in fiscal 2017, and accordingly, as of the end of fiscal 2017, we had $250 million of remaining capacity under our share repurchase program.
Results of Operations
Comparison of Fiscal Year endedYear Ended June 30, 20172022 to Fiscal Year endedYear Ended June 30, 20162021
Consolidated Results
The following table compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the fiscal years ended June 30, 20172022 and 20162021 (amounts in thousands, other than percentages which may not add due to rounding):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended June 30, | | Change in |
| | 2022 | | 2021 | | Dollars | | Percentage |
| Net sales | $ | 1,891,793 | | | 100.0 | % | | $ | 1,970,302 | | | 100.0 | % | | $ | (78,509) | | | (4.0) | % |
| Cost of sales | 1,464,352 | | | 77.4 | % | | 1,478,687 | | | 75.0 | % | | (14,335) | | | (1.0) | % |
| Gross profit | 427,441 | | | 22.6 | % | | 491,615 | | | 25.0 | % | | (64,174) | | | (13.1) | % |
| Selling, general and administrative expenses | 300,665 | | | 15.9 | % | | 302,368 | | | 15.3 | % | | (1,703) | | | (0.6) | % |
| Amortization of acquired intangible assets | 10,214 | | | 0.5 | % | | 8,931 | | | 0.5 | % | | 1,283 | | | 14.4 | % |
| Productivity and transformation costs | 10,174 | | | 0.5 | % | | 15,608 | | | 0.8 | % | | (5,434) | | | (34.8) | % |
| Proceeds from insurance claims | (196) | | | — | % | | (592) | | | — | % | | 396 | | | (66.9)% |
| Long-lived asset and intangibles impairment | 1,903 | | | 0.1 | % | | 57,920 | | | 2.9 | % | | (56,017) | | | (96.7) | % |
| Operating income | 104,681 | | | 5.5 | % | | 107,380 | | | 5.4 | % | | (2,699) | | | (2.5) | % |
| Interest and other financing expense, net | 12,570 | | | 0.7 | % | | 8,654 | | | 0.4 | % | | 3,916 | | | 45.3 | % |
| Other income, net | (11,380) | | | (0.6) | % | | (10,067) | | | (0.5) | % | | (1,313) | | | 13.0% |
| Income from continuing operations before income taxes and equity in net loss of equity-method investees | 103,491 | | | 5.5 | % | | 108,793 | | | 5.5 | % | | (5,302) | | | (4.9) | % |
| Provision for income taxes | 22,716 | | | 1.2 | % | | 41,093 | | | 2.1 | % | | (18,377) | | | (44.7) | % |
Equity in net loss of equity-method
investees | 2,902 | | | 0.2 | % | | 1,591 | | | 0.1 | % | | 1,311 | | | 82.4 | % |
| Net income from continuing operations | $ | 77,873 | | | 4.1 | % | | $ | 66,109 | | | 3.4 | % | | $ | 11,764 | | | 17.8 | % |
| Net income from discontinued operations, net of tax | — | | | — | % | | 11,255 | | | 0.6 | % | | (11,255) | | | (100.0)% |
| Net income | $ | 77,873 | | | 4.1 | % | | $ | 77,364 | | | 3.9 | % | | $ | 509 | | | 0.7% |
| | | | | | | | | | | |
| Adjusted EBITDA | $ | 200,616 | | | 10.6 | % | | $ | 258,938 | | | 13.1 | % | | $ | (58,322) | | | (22.5) | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year ended June 30, | | Change in |
| | 2017 | | 2016 | | Dollars | | Percentage |
| Net sales | $ | 2,853,111 |
| | 100.0 | % | | $ | 2,885,374 |
| | 100.0 | % | | $ | (32,263 | ) | | (1.1 | )% |
| Cost of sales | 2,311,739 |
| | 81.0 | % | | 2,271,243 |
| | 78.7 | % | | 40,496 |
| | 1.8 | % |
| Gross profit | 541,372 |
| | 19.0 | % | | 614,131 |
| | 21.3 | % | | (72,759 | ) | | (11.8 | )% |
| Selling, general and administrative expenses | 331,763 |
| | 11.6 | % | | 303,763 |
| | 10.5 | % | | 28,000 |
| | 9.2 | % |
| Amortization of acquired intangibles | 18,402 |
| | 0.6 | % | | 18,869 |
| | 0.7 | % | | (467 | ) | | (2.5 | )% |
| Acquisition related expenses, restructuring and integration charges | 10,388 |
| | 0.4 | % | | 13,391 |
| | 0.5 | % | | (3,003 | ) | | (22.4 | )% |
| Accounting review costs | 29,562 |
| | 1.0 | % | | — |
| | — |
| | 29,562 |
| | n/a |
|
| Goodwill impairment | — |
| | — |
| | 84,548 |
| | 2.9 | % | | (84,548 | ) | | n/a |
|
| Long-lived asset and intangibles impairment | 40,452 |
| | 1.4 | % | | 43,200 |
| | 1.5 | % | | (2,748 | ) | | (6.4 | )% |
| Operating income | 110,805 |
| | 3.9 | % | | 150,360 |
| | 5.2 | % | | (39,555 | ) | | (26.3 | )% |
| Interest and other financing expense, net | 21,274 |
| | 0.7 | % | | 25,161 |
| | 0.9 | % | | (3,887 | ) | | (15.4 | )% |
| Other (income)/expense, net | 388 |
| | — |
| | 16,543 |
| | 0.6 | % | | (16,155 | ) | | (97.7 | )% |
| Gain on fire insurance recovery | — |
| | — |
| | (9,752 | ) | | (0.3 | )% | | 9,752 |
| | n/a |
|
| Income before income taxes and equity in earnings of equity-method investees | 89,143 |
| | 3.1 | % | | 118,408 |
| | 4.1 | % | | (29,265 | ) | | (24.7 | )% |
| Provision for income taxes | 21,842 |
| | 0.8 | % | | 70,932 |
| | 2.5 | % | | (49,090 | ) | | (69.2 | )% |
Equity in net loss (income) of equity-method investees | (129 | ) | | — |
| | 47 |
| | — |
| | (176 | ) | | 374.5 | % |
| Net income | $ | 67,430 |
| | 2.4 | % | | $ | 47,429 |
| | 1.6 | % | | $ | 20,001 |
| | 42.2 | % |
| | | | | | | | | | | | |
| Adjusted EBITDA | $ | 275,405 |
| | 9.7 | % | | $ | 379,062 |
| | 13.1 | % | | $ | (103,657 | ) | | (27.3 | )% |
Net Sales
Net sales in fiscal 2017 were $2.852022 were $1.89 billion, a decrease of $32.3$78.5 million, or 1.1%4.0%, from net sales of $2.89$1.97 billion in fiscal 2016. Foreign currency exchange rates negatively impacted net2021 as a result of a decrease in sales in the International reportable segment partially offset by $124.3 million as compared toan increase in sales in the prior year.North America reportable segment. On a constant currency basis, adjusted for the impact of acquisitions, divestitures and discontinued brands, net sales increased 3.2%decreased approximately 0.4% from the prior year. Thecomparable period. On an adjusted basis, net sales decreased in the International reportable segment, which was partially offset by an increase in the North America reportable segment. Further details of changes in adjusted net sales on a constant currency basis resulted primarily from the acquisition of Orchard House in December 2015, which accounted for approximately $163.9 million of net sales in fiscal 2017, as compared to $88.6 millionby segment are provided below in the prior year, as well as growth in the United Kingdom segment and RestSegment Results section.
Gross Profit
Gross profit in fiscal 2017 was $541.42022 was $427.4 million, a decrease of $72.8$64.2 million, or 11.8%13.1%, from last year’s gross profit of $614.1 million. Foreign exchange rates resulted$491.6 million in decreased cost of goods sold of $101.2 million as compared to the prior year.fiscal 2021. Gross profit margin was 19.0%, a decrease22.6% of 230 basis points fromnet sales, compared to 25.0% in the prior year. Gross profit was unfavorably impacted by pricing, trade investments, and customer sales mix, margin dilution from the acquisition of Orchard House, increased production costs in the United Kingdom, increased costs of purchases in non-functional currencies and increased startup costs in connection with our
new FreeBird manufacturing facility at HPPC. Additionally, the prior year was impacted by a supply shortage within poultry farms in the Midwest, which favorably impacted sales volume and pricing at HPPC. The decrease in gross profit margin was due to both the North America and International reportable segments. The North America reportable segment had a decrease in gross profit mainly due to inflationary and supply chain challenges, such as continued industry-wide distribution and warehousing cost pressures driven by labor shortages, freight carrier availability and other freight cost issues, as well as lower net sales in the Canada operating segment when compared with the prior year. The decrease in the International reportable segment was mainly due to lower net sales in the United Kingdom and Europe operating segments, coupled with higher energy and supply chain costs when compared to the prior year, partially offset by higher net sales in part by increased sales andthe Ella's Kitchen UK operating efficiencies at our plant-based manufacturing facilities in Europe.segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $331.8 million, an increase of $28.0 million, or 9.2%, in fiscal 2017 from $303.8$300.7 million in fiscal 2016. Selling, general and administrative expenses were favorably impacted2022, a decrease of $1.7 million, or 0.6%, from $302.4 million in the prior yearfiscal 2021. The decrease was mainly due to reduced incentive compensation, savings from headcount reductions and other benefit cost savings that did not recur in fiscal 2017. Additionally, selling, general and administrative expenses in fiscal 2017 increasedthe International reportable segment as a result of additional marketing spendlower people-related expenses in the Europe and United Kingdom operating segments, partially offset by higher selling expenses in the Ella’s Kitchen UK operating segment. The decrease was partially offset by an increase in the North America reportable segment due to the acquisition of THWR in the United States operating segment as well as an increase in Corporate and increased professional fees at Corporate. Lastly, selling, general and administrative expenses also increasedOther as a result of ourhigher transaction costs incurred in fiscal year 2022 including costs related to the acquisition of Orchard House, which we acquired atTHWR, advisory costs related to the enddivestiture by affiliates of Engaged Capital, LLC of their shares of the second quarterCompany's common stock, as well as higher litigation expenses related to the baby food litigation described in fiscal 2016,Note 18, Commitments and incremental costs associated with the closure of our Luton manufacturing facility Contingencies, in the United Kingdom.Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Selling, general and administrative expenses as a percentage of net sales was 11.6%15.9% in fiscal 2017 and 10.5%the twelve months ended June 30, 2022 compared to 15.3% in the prior year, an increase of 110 basis points, primarily attributable to the aforementioned items.
Amortization of Acquired Intangibles
Amortization of acquired intangibles was $18.4$10.2 million in fiscal 2017, a decrease2022, an increase of $0.5$1.3 million, or 2.5%14.4%, from $18.9$8.9 million in fiscal 2016. The decrease in amortization expense was primarily2021 due to the impact acquisition of foreign currency exchange rates,THWR in the current fiscal year, partially offset by lower amortization related to intangibles acquiredexpense in the current year as a result of prior year dispositions that occurred in the Company’s recent acquisitions. Seelatter part of fiscal 2021.
Productivity and Transformation Costs
Productivity and transformation costs were $10.2 million in fiscal 2022, a decrease of $5.4 million or 34.8% from $15.6 million in fiscal 2021. The decrease was due to reduced spending related to productivity and transformation initiatives as the current transformation effort approaches its conclusion.
Proceeds from Insurance Claims
During fiscal 2021, the Company received $0.6 million as payment from an insurance claim related to a litigation described in Note 7, 18, Commitments and Contingencies, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. During fiscal year 2022, the Company received $0.2 million as payment from an insurance claim.
Long-Lived Asset and Intangibles Impairment
During fiscal 2022, the Company recorded an impairment of $1.6 million related to an indefinite-lived intangible asset as described in Note 8, Goodwill and Other Intangible Assets,in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. During fiscal 2021, the Company recorded a pre-tax impairment charge of $57.9 million, of which $56.1 million related to the reserve recorded against the assets of the Company's United Kingdom Fruit business (see Note 4, Acquisitions and Dispositions, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K) and $1.6 million related to impairment of property, plant and equipment and other non-current assets.
Operating Income
Operating income in fiscal 2022 was $104.7 million compared to operating income of $107.4 million in fiscal 2021 due to the items described above.
Interest and Other Financing Expense, Net
Interest and other financing expense, net totaled $12.6 million in fiscal 2022, an increase of $3.9 million, or 45.3%, from $8.7 million in the prior year. The increase resulted primarily from a higher outstanding debt balance driven primarily by the acquisition of THWR in the current fiscal year as well as share repurchase activity and an increase in interest rates. See Note 10, Debt and Borrowings, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
Acquisition Related Expenses, Restructuring and Integration ChargesOther Income, Net
We incurred acquisition related expenses, restructuring and integration charges of $10.4Other income, net totaled $11.4 million in fiscal 2017, which primarily related to professional fees associated with recent acquisitions, consulting fees incurred in connection with our execution2022, an increase of Project Terra and severance with respect to the United States segment and Corporate.
We incurred acquisition related expenses, restructuring and integration charges aggregating to $13.4$1.3 million in fiscal 2016, which consisted primarily of stamp duty and professional fees associated with the Orchard House and Mona acquisitions, severance costs for a recent internal restructuring, most of which occurred in the United States, and additional contingent consideration expense for our Belvedere acquisition.
Accounting Review Costs
Costs and expenses associated with the internal accounting review and the independent review by the Audit Committee and other related matters were $29.6 million in fiscal 2017, which related primarily to professional fees.
Goodwill Impairment
There were no goodwill impairment charges recorded during fiscal 2017. During the fourth quarter of fiscal 2016, we recorded a goodwill impairment charge of $82.6 million related to our Hain Daniels reporting unit in the United Kingdom. Additionally, as part of the acquisition of Orchard House and the related divestiture of certain portions of the Company’s own-label juice business, a goodwill impairment charge of $1.9 million was recorded during fiscal 2016. See Note 7, 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 the fourth quarter of fiscal 2017, we recorded a pre-tax impairment charge of $14.1 million ($7.6 million related to the United Kingdom segment and $6.5 million related to the United States segment) related to certain tradenames of the Company. Similarly, during the fourth quarter of fiscal 2016, we recorded a pre-tax impairment charge of $39.7 million ($20.9 million related to the United Kingdom segment and $18.8 million related to the United States segment) related to certain tradenames of the Company. See Note 7, Goodwill and Other Intangible Assets, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Additionally, during the fourth quarters of fiscal 2017 and 2016, the Company recorded long-lived asset impairment charges of $26.4 million and $3.5 million, respectively. The long-lived asset impairment charge of $26.4 million in fiscal 2017 primarily related to the decision to exit of certain portions of our own-label chilled desserts business in the United Kingdom. In fiscal 2016, the long-lived asset impairment charge of $3.5 million related to the divestiture of certain portions of our own-label juice business in connection with our acquisition of Orchard House in the United Kingdom (see Note 4, Acquisitions).
Operating Income
Operating income in fiscal 2017 was $110.8 million, a decrease of $39.6 million, or 26.3%, from $150.4 million in fiscal 2016. Operating income as a percentage of net sales was 3.9% in fiscal 2017 compared with 5.2% in fiscal 2016. The decrease in operating income as a percentage of net sales resulted from the items described above.
Interest and Other Financing Expense, net
Interest and other financing expense, net totaled $21.3 million in fiscal 2017, a decrease of $3.9 million, or 15.4%, from $25.2$10.1 million in the prior year. The decrease in interest and other financing expense, net resultedchange was primarily from the conversionattributable to a higher gain on sale of our $150.0 million senior notes to our revolving credit facility in the fourth quarter of fiscal 2016. See Note 9, Debt and Borrowings, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
Other (Income)/Expense, net
Other (income)/expense, net totaled $0.4 million in fiscal 2017, a decrease of $16.2 million, or 97.7% from $16.5 million in the prior year. Included in other expense, net are net unrealized foreign currency losses, which were lowerassets in the current year than in the prior year principally due to the effect of foreign currency movements on the remeasurement of foreign currency denominated intercompany loans, offset by realized foreign currency gains related to the repayment of foreign currency denominated third-party debt.year.
Gain on Fire Insurance Recovery
The gain on fire insurance recovery of $9.8 million in fiscal 2016 was the result of fixed assets purchased with insurance proceeds that exceeded the net book value of fixed assets destroyed in the fire that occurred at our Tilda rice milling facility in the second quarter of fiscal 2015. See Note 2, Summary of Significant Accounting Policies and Practices, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Income from Continuing Operations Before Income Taxes and Equity in EarningsNet Loss of Equity-Method Investees
Income before income taxes and equity in the after tax earningsnet loss of our equity-method investees for the fiscal years ended June 30, 2017 and 20162022 was $89.1$103.5 million and $118.4compared to $108.8 million respectively.in fiscal 2021. The decrease was due to the items discussed above.
Provision for Income Taxes
The provision forfor income taxes includes federal, foreign, state and local income taxes. Our income tax expense from continuing operations was $21.8 $22.7 million inand $41.1 million for fiscal 2017 compared to $70.9 million in fiscal 2016.2022 and 2021, respectively.
OurThe effective income tax rate from continuing operations was 24.5%21.9% and 37.8% of pre-tax income in fiscal 2017 compared to 59.9% in fiscal 2016. for the twelve months ended June 30, 2022 and 2021, respectively. The effective income tax rate in fiscal 2017from continuing operations for the twelve months ended June 30, 2022 was favorablyprimarily impacted by reversal of uncertain tax position accruals based on filing and approval of certain elections by taxing authorities, deductions related to stock-based compensation, non-deductible transaction costs related to the geographical mixacquisition of earningsTHWR (see Note 4, Acquisitions and Dispositions), the reversal of a reduction invaluation allowance due to the statutoryutilization of a capital loss carryover, and the finalization of prior fiscal year income tax returns.
The effective income tax rate from continuing operations for the twelve months ended June 30, 2021 was primarily impacted by various discrete items including the tax impact of the Fruit business impairment and disposal, and the enacted change in the United Kingdom enacted in the first quarter of fiscal 2017, which resulted in a $1.8 million decrease to the carrying balance of net deferred tax liabilities. The effectiveKingdom’s corporate income tax rate for fiscal 2017 was also favorably impacted by a $4.6 million benefit relatingfrom 19% to the release of a portion of the Company’s uncertain tax positions as a result of the expiration of the statute of limitation. The25%.
Our effective tax rate in fiscal 2016 was unfavorably impacted primarily by the impairment of goodwill related to our Hain Daniels reporting unit in the United Kingdom for which there is no income tax benefit, net valuation allowances for intangibles and net operating losses, nondeductible unrealized foreign exchange losses, offset by the geographical mix of earnings. The effective tax rate for fiscal 2016 was favorably impacted by a reduction in the U.K. statutory tax rate enacted in the second quarter of 2016 resulting in a $4.9 million decrease in U.K. deferred tax liabilities, as well as a $4.2 million decrease for the reversal of prior year foreign exchange losses on the restructure of our U.K. debt obligations.
Our effective 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 11, 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 2022 was $2.9 million compared to $1.6 million for fiscal 2021. See Note 10, Income Taxes14, Investments, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Net Income from Continuing Operations
Equity in Net Loss (Income) of Equity-Method Investees
Our equity in the net loss (income) from our equity method investmentsNet income from continuing operations for the fiscal year ended June 30, 20172022 was $0.1$77.9 million compared to a lossnet income of $0.05$66.1 million for fiscal 2021. Net income per diluted share was $0.83 in fiscal 2022 compared to net income per diluted share of $0.65 in fiscal 2021. The increase was attributable to the factors noted above as well as the year-over-year reduction in outstanding shares.
Net Income from Discontinued Operations, Net of Tax
Net income from discontinued operations, net of tax, was nil for fiscal year2022 and $11.3 million or $0.11 per diluted share for fiscal 2021.
During the twelve months ended June 30, 2016.2021, the Company recognized an $11.3 million adjustment to the Tilda business primarily related to the recognition of a deferred tax benefit. See Note 13, Investments4, Acquisitions and Joint VenturesDispositions, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Net Income
Net income for the fiscal years ended June 30, 2017 and 20162022 was $67.4$77.9 million and $47.4compared to $77.4 million or $0.65 and $0.46for fiscal 2021. Net income per diluted share respectively.was $0.83 in fiscal 2022 compared to $0.76 in 2021. The change was attributable to the factors noted above.above as well as the year-over-year reduction in shares.
Adjusted EBITDA
Our consolidated Adjusted EBITDA was $275.4$200.6 million and $379.1$258.9 million for the fiscal years ended June 30, 20172022 and 2016,2021, 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 fromof our net income to Adjusted EBITDA.
Segment Results
The following table provides a summary of net sales and operating income (loss) by reportable segment for the fiscal years ended June 30, 20172022 and 2016:2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | North America | | International | | Corporate and Other | | Consolidated |
| Fiscal 2022 net sales | $ | 1,163,132 | | | $ | 728,661 | | | $ | — | | | $ | 1,891,793 | |
| Fiscal 2021 net sales | $ | 1,104,128 | | | $ | 866,174 | | | $ | — | | | $ | 1,970,302 | |
| $ change | $ | 59,004 | | | $ | (137,513) | | | n/a | | $ | (78,509) | |
| % change | 5.3 | % | | (15.9) | % | | n/a | | (4.0) | % |
| | | | | | | |
| Fiscal 2022 operating income (loss) | $ | 93,732 | | | $ | 79,076 | | | $ | (68,127) | | | $ | 104,681 | |
| Fiscal 2021 operating income (loss) | $ | 129,010 | | | $ | 38,036 | | | $ | (59,666) | | | $ | 107,380 | |
| $ change | $ | (35,278) | | | $ | 41,040 | | | $ | (8,461) | | | $ | (2,699) | |
| % change | (27.3) | % | | 107.9 | % | | (14.2) | % | | (2.5) | % |
| | | | | | | |
| Fiscal 2022 operating income margin | 8.1 | % | | 10.9 | % | | n/a | | 5.5 | % |
| Fiscal 2021 operating income margin | 11.7 | % | | 4.4 | % | | n/a | | 5.4 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | | United States | | United Kingdom | | Hain Pure Protein | | Rest of World | | Corporate and Other | | Consolidated |
| Fiscal 2017 net sales | | $ | 1,191,262 |
| | $ | 768,301 |
| | $ | 509,606 |
| | $ | 383,942 |
| | $ | — |
| | $ | 2,853,111 |
|
| Fiscal 2016 net sales | | $ | 1,249,123 |
| | $ | 774,877 |
| | $ | 492,510 |
| | $ | 368,864 |
| | $ | — |
| | $ | 2,885,374 |
|
| $ change | | $ | (57,861 | ) | | $ | (6,576 | ) | | $ | 17,096 |
| | $ | 15,078 |
| | n/a |
| | $ | (32,263 | ) |
| % change | | (4.6 | )% | | (0.8 | )% | | 3.5 | % | | 4.1 | % | | n/a |
| | (1.1 | )% |
| | | | | | | | | | | | | |
Fiscal 2017 operating income (loss) | | $ | 157,506 |
| | $ | 39,749 |
| | $ | 1,382 |
| | $ | 32,010 |
| | $ | (119,842 | ) | | $ | 110,805 |
|
Fiscal 2016 operating income (loss) | | $ | 203,481 |
| | $ | 56,000 |
| | $ | 31,558 |
| | $ | 27,898 |
| | $ | (168,577 | ) | | $ | 150,360 |
|
| $ change | | $ | (45,975 | ) | | $ | (16,251 | ) | | $ | (30,176 | ) | | $ | 4,112 |
| | $ | 48,735 |
| | $ | (39,555 | ) |
| % change | | (22.6 | )% | | (29.0 | )% | | (95.6 | )% | | 14.7 | % | | (28.9 | )% | | (26.3 | )% |
| | | | | | | | | | | | | |
Fiscal 2017 operating income margin | | 13.2 | % | | 5.2 | % | | 0.3 | % | | 8.3 | % | | n/a |
| | 3.9 | % |
Fiscal 2016 operating income margin | | 16.3 | % | | 7.2 | % | | 6.4 | % | | 7.6 | % | | n/a |
| | 5.2 | % |
North America
United States
Our net sales in the United States inNorth America reportable segment for fiscal 20172022 were $1.19$1.16 billion, a decreasean increase of $57.9$59.0 million, or 4.6%5.3%, from net sales of $1.25$1.10 billion in fiscal 2016. Foreign2021. On a constant currency exchange rates negatively impactedbasis, adjusted for the impact of acquisitions, divestitures and discontinued brands, net sales increased by $14.0 million3.5%. The increase of 3.5% was mainly due to price increases that occurred in the latter half of the fiscal year as well as stronger sales in snacks, baby, personal care and other product categories in the United States operating segment. In the Canada operating segment, adjusted sales decreased compared to the prior year due to the United Kingdom operations of Ella’s Kitchen, which is included in the United States segment. The sales decrease was primarily due to lower sales in personal care and meat-free product categories. Operating income in North America in fiscal 2022 was $93.7 million, a realignmentdecrease of customer inventories,$35.3 million, or 27.3%, from $129.0 million in fiscal 2021. The decrease was driven by inflationary and supply chain challenges such as continued industry-wide distribution and warehousing cost pressures driven by labor shortages, freight carrier availability and other freight cost issues, as well as lower net sales in the discontinuance of certain unprofitable SKUs as part of a product rationalization initiative implemented atCanada operating segment when compared with the beginning ofprior year; this is partially offset by incremental operating income generated by THWR, which was acquired in the current fiscal 2017, trade investments, and competitive pricing actions on certain products. year.
International
Net sales in the prior year benefited from certain concessions provided to our largest distributors, including payment terms beyond the customer’s standard terms, rights of return of product and post-sale concessions, most of whichInternational reportable segment for fiscal 2022 were associated with sales that occurred at the end of the period. Operating income in the United States in fiscal 2017 was $157.5$728.7 million, a decrease of $46.0$137.5 million, or 22.6%, from operating income of $203.5 million in fiscal 2016. The decrease in operating income was the result of the aforementioned items, as well as increased cost of purchases in non-functional currencies, incremental marketing spend and unfavorable customer sales mix.
United Kingdom
Our net sales in the United Kingdom in fiscal 2017 were $768.3 million, a decrease of $6.6 million, or 0.8%15.9%, from net sales of $774.9$866.2 million in fiscal 2016. Foreign currency exchange rates negatively impacted net sales by $106.7 million as compared to the prior year. The increase in net sales on2021. On a constant currency basis, and adjusted for the impact of divestitures and discontinued brands, net sales decreased by 5.6% from fiscal 2021.The decrease in adjusted net sales was due to net sales related to our acquisition of Orchard House, acquireda decline in the second quarter of fiscal 2016, which accounted for $75.3 million of additional net sales in current year, as well as strong sales performance within the grocery and meat-free categories, offset in part by the sale of our own-label juice business in the first quarter of 2017. Operating income in the United Kingdom segment for fiscal 2017 was $39.7 million, a decrease of $16.3 million, or 29.0%, from $56.0 million in fiscal 2016. The decrease in operating income was due to the aforementioned items as well as the adverse impact of foreign currency exchange rates on certain raw materials costs and increased production costs caused by insufficient crop yields at Orchard House.
Hain Pure Protein
Our net sales in the Hain Pure Protein segment were $509.6 million in fiscal 2017,Europe and United Kingdom operating segments, partially offset by an increase of $17.1 million, or 3.5%, fromin sales in the Ella's Kitchen UK operating segment. The net sales of $492.5 million in fiscal 2016. The increase in net sales was primarily due to increased volume and the mix of products sold, offset in part by price declines at HPPC as a result of our competitors recovering from a supply shortage within poultry farmsdecrease in the Midwest, for which HPPC was not affected, which favorably impacted volume and pricing of turkey breast meat sales at HPPC in the prior year, as well as supply disruptions and production constraints at our turkey manufacturing facility at HPPC. Operating income in theEurope operating segment for fiscal 2017 was $1.4 million, a decrease of $30.2 million, or 95.6%, from operating income of $31.6 million in the prior year. The decrease in operating income was primarily due to the aforementionedloss of a large non-dairy co-manufacturing customer. The net sales decrease in the United Kingdom was due to lower sales volume and the impact of shipment halts during the price increase negotiations with certain customers. The net sales increase in the Ella's Kitchen UK operating segment was due to higher sales coming out of the COVID-19 pandemic, since Ella's Kitchen UK sales were
negatively impacted in the prior year supply shortage, production inefficiencies, and increased start-up costsdue to a slow-down in connection with our new FreeBird manufacturing facility.
Rest of World
Our net sales in the Rest of World were $383.9 million in fiscal 2017, an increase of $15.1 million, or 4.1%, from net sales of $368.9 million in fiscal 2016. Foreign currency exchange rates negatively impacted net sales by $3.6 million as compared to the prior year. The increase in net sales was primarily the result of increased sales in Europe related to our plant-based, private label beverage businessconsumer demand for baby food as a result of our acquisition of Mona in the first quarter of fiscal 2016, as well as strong growth across many of our brands in Europe and Canada. This increase was partially offset by a decrease in net sales from the prior year period related to Cultivate sales. COVID-19 pandemic stay-at-home requirements.Operating income in theour International reportable segment forin fiscal 20172022 was $32.0$79.1 million, an increase of $4.1$41.0 million or 14.7%, from $27.9operating income of $38.0 millionin fiscal 2016. Operating income increased primarily due to2021. The increase mainly reflected non-recurring charges associated with the aforementioned items above, as well as operating efficiencies achieved at our plant-based manufacturing facilitiesFruit business impairment that were recognized in Europe, offset by a decline in operating income related to Cultivate, driven by investments in brandingthe prior year period. In addition, the International reportable segment incurred lower selling, general and personnel.administrative expenses for the reasons noted above.
Corporate and Other
TheOur Corporate and Other category consists of expenses related to the Company’s centralized administrative functionfunctions, which do not specifically relate to an operating segment. Such 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 aslitigation expense and expenses for certain professional fees, facilities, and other items which benefit the Company as a whole. Additionally, acquisition related expenses, restructuring and integration charges are included in Corporate and Other.Our Corporate and Other included $10.4expenses for fiscal 2022 were $68.1 million, and $12.1an increase of $8.5 million, of acquisitionor 14.2%, from $59.7 million in fiscal 2021. This change was primarily related expenses, restructuring and integration charges for the fiscal years ended June 30, 2017 and 2016, respectively. Additionally, the Corporate and Other category included accounting reviewto higher transaction costs of $29.6 million for theincurred in fiscal year ended June 30, 20172022 including costs related to the acquisition of THWR and impairment chargesadvisory costs related to the divestiture by affiliates of $40.5 millionEngaged Capital, LLC of their shares of the Company's common stock, as well as higher litigation expenses related to the baby food litigation described in Note 18, Commitments and $127.7 million for theContingencies, partially offset by lower executive bonus payout related to fiscal years ended June 30, 2017 and 2016, respectively. 2022.
Refer to Note 17, Segment 20, Segment Information, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details.
Comparison of Fiscal Year ended June 30, 2016 to Fiscal Year ended June 30, 2015
Consolidated Results
The following table compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the fiscal years ended June 30, 2016 and 2015 (amounts in thousands, other than percentages which may not add due to rounding):
|
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year ended June 30, | | Change in |
| | 2016 | | 2015 | | Dollars | | Percentage |
| Net sales | $ | 2,885,374 |
| | 100.0 | % | | $ | 2,609,613 |
| | 100.0 | % | | $ | 275,761 |
| | 10.6 | % |
| Cost of sales | 2,271,243 |
| | 78.7 | % | | 2,046,758 |
| | 78.4 | % | | 224,485 |
| | 11.0 | % |
| Gross profit | 614,131 |
| | 21.3 | % | | 562,855 |
| | 21.6 | % | | 51,276 |
| | 9.1 | % |
| Selling, general and administrative expenses | 303,763 |
| | 10.5 | % | | 302,827 |
| | 11.6 | % | | 936 |
| | 0.3 | % |
| Amortization of acquired intangibles | 18,869 |
| | 0.7 | % | | 17,846 |
| | 0.7 | % | | 1,023 |
| | 5.7 | % |
| Acquisition related expenses, restructuring and integration charges | 13,391 |
| | 0.5 | % | | 7,316 |
| | 0.3 | % | | 6,075 |
| | 83.0 | % |
| Goodwill impairment | 84,548 |
| | 2.9 | % | | — |
| | — |
| | 84,548 |
| | n/a |
|
| Long-lived asset and intangibles impairment | 43,200 |
| | 1.5 | % | | 1,004 |
| | — |
| | 42,196 |
| | 4,202.8 | % |
| Operating income | 150,360 |
| | 5.2 | % | | 233,862 |
| | 9.0 | % | | (83,502 | ) |
| (35.7 | )% |
| Interest and other financing expense, net | 25,161 |
| | 0.9 | % | | 25,973 |
| | 1.0 | % | | (812 | ) | | (3.1 | )% |
| Other (income)/expense, net | 16,543 |
| | 0.6 | % | | 4,689 |
| | 0.2 | % | | 11,854 |
| | 252.8 | % |
| Gain on sale of business | — |
| | — |
| | (9,669 | ) | | (0.4 | )% | | 9,669 |
| | n/a |
|
| Gain on fire insurance recovery | (9,752 | ) | | (0.3 | )% | | — |
| | — |
| | (9,752 | ) | | n/a |
|
| Income before income taxes and equity in earnings of equity-method investees | 118,408 |
| | 4.1 | % | | 212,869 |
| | 8.2 | % | | (94,461 | ) | | (44.4 | )% |
| Provision for income taxes | 70,932 |
| | 2.5 | % | | 48,535 |
| | 1.9 | % | | 22,397 |
| | 46.1 | % |
Equity in net loss (income) of equity- method investees | 47 |
| | — |
| | (628 | ) | | — |
| | 675 |
| | 107.5 | % |
| Net income | $ | 47,429 |
| | 1.6 | % | | $ | 164,962 |
| | 6.3 | % | | $ | (117,533 | ) | | (71.2 | )% |
| | | | | | | | | | | | |
| Adjusted EBITDA | $ | 379,062 |
| | 13.1 | % | | $ | 371,747 |
| | 14.2 | % | | $ | 7,315 |
| | 2.0 | % |
Net Sales
Net sales in fiscal 2016 were $2.89 billion, an increase of $275.8 million, or 10.6%, from net sales of $2.61 billion in fiscal 2015.
Foreign currency exchange rates negatively impacted net sales by $69.2 million as compared to the prior year. On a constant currency basis, net sales increased 13.2% from the prior year. The sales increase primarily resulted from the acquisitions of Orchard House in December 2015, Mona in July 2015, Empire in March 2015 and Belvedere in February 2015, which collectively accounted for approximately $317.5 million of net sales in fiscal 2016 and $57.1 million in the prior year. Additionally, in the prior year period, sales were negatively impacted by $15.8 million of sales returns related to the voluntary nut butter recall announced in August 2014, which did not impact net sales in fiscal 2016.
Gross Profit
Gross profit in fiscal 2016 was $614.1 million, an increase of $51.3 million, or 9.1%, from gross profit of $562.9 million. The increase in gross profit in fiscal 2016 was due to the increased sales resulting from the aforementioned acquisitions as well as gross profit in fiscal 2015 being negatively impacted by $15.8 million of sales returns and $13.6 million of inventory write-offs and other cost of goods sold charges related to the voluntary nut butter recall in August 2014. Gross profit margin was 21.3% of sales, a decrease of 30 basis points year-over-year, when compared to gross profit margin in fiscal 2015 of 21.6%, which included the negative effect of the nut butter recall. Gross profit margin in fiscal 2016 was negatively impacted by foreign currency exchange rates, lower gross margins on acquisitions, competitive pricing on Spectrum coconut oils, BluePrint and certain HPPC products, factory start-up and chiller breakdown costs within our HPPC, as well as increased trade spending. This decline was partially
offset by reduced start-up costs of $0.7 million with respect to certain lines in our chilled desserts factory in the United Kingdom in fiscal 2016 compared to $10.7 million in the prior year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $303.8 million, an increase of $0.9 million, or 0.3%, in fiscal 2016 from $302.8 million in fiscal 2015. Selling, general and administrative expenses increased primarily due to the incremental costs of $17.4 million brought on by the acquisitions of Orchard House, Mona and Empire and $4.7 million of incremental spend related to our packaging launch and transition of K-cup products from Keurig Green Mountain, as well as an increase in selling expenses at Tilda of $2.7 million. These increases were offset by $15.2 million of reduced incentive compensation, savings from current and prior years headcount reductions and other benefit cost savings. Additionally, the prior year included costs related to the nut butter voluntary recall of $4.9 million as well as $5.7 million of charges related to a legal settlement. Selling, general and administrative expenses as a percentage of net sales was 10.5% in fiscal 2016 and 11.6% in the prior year, a decrease of 110 basis points, primarily attributable to the aforementioned items, as well as the achievement of additional operating leverage with the impact of acquisitions.
Amortization of Acquired Intangibles
Amortization of acquired intangibles in fiscal 2016 was $18.9 million, an increase of $1.0 million, or 5.7%, from $17.8 million in fiscal 2015. The increase in amortization expense was due to the intangibles acquired as a result of the Company’s recent acquisitions.
Acquisition Related Expenses, Restructuring and Integration Charges
We incurred acquisition related expenses, restructuring and integration charges aggregating to $13.4 million in fiscal 2016, which consisted primarily of stamp duty and professional fees associated with the Orchard House and Mona acquisitions, $6.7 million of severance costs for a recent internal restructuring, most of which occurred in the United States, and additional contingent consideration expense for our Belvedere acquisition of $1.5 million.
We incurred acquisition related expenses, restructuring and integration charges aggregating to $7.3 million in fiscal 2015, which primarily related to professional fees, severance and other transaction costs associated with the three acquisitions completed in fiscal 2015, as well as a portion of the total costs incurred to complete the acquisition of Mona, which occurred in July 2015. Additionally, we incurred $1.7 million of severance charges associated with the relocation of our BluePrint manufacturing facility, as well as for the outsourcing of our natural channel merchandising function.
Goodwill Impairment
During the fourth quarter of fiscal 2016, we recorded a goodwill impairment charge of $82.6 million related to our Hain Daniels reporting unit in the United Kingdom. Additionally, as part of the acquisition of Orchard House and the related divestiture of certain portions of the Company’s own-label juice business, a goodwill impairment charge of $1.9 million was recorded during fiscal 2016. See Note 7, 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 the fourth quarter of fiscal 2016, we recorded a pre-tax impairment charge of $39.7 million ($20.9 million related to the United Kingdom segment and $18.8 million related to the United States segment) related to certain tradenames of the Company. There were no tradename impairment charges recorded in fiscal 2015. See Note 7, Goodwill and Other Intangible Assets, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Additionally, during fiscal 2016 and 2015, the Company recorded long-lived asset impairment charges of $3.5 million and $1.0 million, respectively.
Operating Income
Operating income in fiscal 2016 was $150.4 million, a decrease of $83.5 million, or 35.7%, from $233.9 million in fiscal 2015. Operating income as a percentage of net sales was 5.2% in fiscal 2016 compared with 9.0% in fiscal 2015. The decrease in operating income as a percentage of net sales resulted from the items described above.
Interest and Other Financing Expense, net
Interest and other financing expense, net totaled $25.2 million in fiscal 2016, a decrease of $0.8 million, or 3.1%, from $26.0 million in the prior year. Interest and other financing expense, net decreased primarily as a result of lower average borrowings under Tilda’s short-term borrowing arrangements, the redemption of our senior notes in the fourth quarter of fiscal 2016, as well as lower average interest rate on borrowings under our Credit Agreement starting in December 2014, when our Credit Agreement was amended.
Other (Income)/Expense, net
Other (income)/expense, net totaled $16.5 million in fiscal 2016, an increase of $11.9 million, or 252.8% from $4.7 million of expense in the prior year. Included in other expense, net were net unrealized foreign currency losses, which were higher in the current year than the prior year principally due to the effect of foreign currency movements on the remeasurement of foreign currency denominated intercompany balances.
Gain on Sale of Business
The gain on sale of business for fiscal 2015 was the result of a $9.7 million non-cash gain on the Company’s pre-existing ownership interests in HPPC and Empire. See Note 4, Acquisitions, and Note 9, Debt and Borrowings, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. There were no such gains recorded during fiscal 2016.
Gain on Fire Insurance Recovery
The gain on fire insurance recovery of $9.8 million in fiscal 2016 was the result of fixed assets purchased with insurance proceeds that exceeded the net book value of fixed assets destroyed in the fire that occurred at our Tilda rice milling facility in the second quarter of fiscal 2015. See Note 2, Summary of Significant Accounting Policies and Practices, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Income Before Income Taxes and Equity in Earnings of Equity-Method Investees
Income before income taxes and equity in the after-tax earnings of our equity-method investees for the fiscal years ended June 30, 2016 and 2015 was $118.4 million and $212.9 million, respectively. The year-over-year decrease was due to the items discussed above.
Provision for Income Taxes
The provision for income taxes includes federal, foreign, state and local income taxes. Our income tax expense was $70.9 million in fiscal 2016 compared to $48.5 million in fiscal 2015.
Our effective income tax rate from continuing operations was 59.9% of pre-tax income in fiscal 2016 compared to 22.8% in fiscal 2015. The effective tax rate in fiscal 2016 was unfavorably impacted primarily by the impairment of goodwill related to our Hain Daniels reporting unit in the United Kingdom for which there is no income tax benefit, net valuation allowances for intangibles and net operating losses, non-deductible unrealized foreign exchange losses, offset by the geographical mix of earnings. The effective tax rate for fiscal 2016 was favorably impacted by a reduction in the U.K. statutory tax rate enacted in the second quarter of 2016 resulting in a $4.9 million decrease in U.K. deferred tax liabilities, as well as a $4.2 million decrease for the reversal of prior year foreign exchange losses on the restructure of our U.K. debt obligations. The effective tax rate for fiscal 2015 was favorably impacted by $20.7 million for a tax restructuring completed at the end of fiscal 2015 whereby we changed the United States tax status of our Canadian subsidiary. The effective rate for fiscal 2015 was also favorably impacted by $2.8 million for the non-taxable gain recorded on the pre-existing ownership interests in HPPC and Empire.
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 10, Income Taxes, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Equity in Net Loss (Income) of Equity-Method Investees
Our equity in the net loss (income) from our equity-method investments for the fiscal year ended June 30, 2016 was essentially break-even compared to $0.6 million for the fiscal year ended June 30, 2015. See Note 13, Investments and Joint Ventures, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
Net Income
Net income for the fiscal years ended June 30, 2016 and 2015 was $47.4 million and $165.0 million, or $0.46 and $1.60 per diluted share, respectively. The change was attributable to the factors noted above.
Adjusted EBITDA
Our consolidated Adjusted EBITDA was $379.1 million and $371.7 million in the fiscal years ended June 30, 2016 and 2015, 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 from our net income to Adjusted EBITDA.
Segment Results
The following table provides a summary of net sales and operating income by reportable segment for the fiscal years ended June 30, 2016 and 2015:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | | United States | | United Kingdom | | Hain Pure Protein | | Rest of World | | Corporate and Other | | Consolidated |
| Fiscal 2016 net sales | | $ | 1,249,123 |
| | $ | 774,877 |
| | $ | 492,510 |
| | $ | 368,864 |
| | $ | — |
| | $ | 2,885,374 |
|
| Fiscal 2015 net sales | | $ | 1,253,156 |
| | $ | 722,830 |
| | $ | 337,197 |
| | $ | 296,430 |
| | $ | — |
| | $ | 2,609,613 |
|
| $ change | | $ | (4,033 | ) | | $ | 52,047 |
| | $ | 155,313 |
| | $ | 72,434 |
| | n/a |
| | $ | 275,761 |
|
| % change | | (0.3 | )% | | 7.2 | % | | 46.1 | % | | 24.4 | % | | n/a |
| | 10.6 | % |
| | | | | | | | | | | | | |
| Fiscal 2016 operating income | | $ | 203,481 |
| | $ | 56,000 |
| | $ | 31,558 |
| | $ | 27,898 |
| | $ | (168,577 | ) | | $ | 150,360 |
|
| Fiscal 2015 operating income | | $ | 180,937 |
| | $ | 44,985 |
| | $ | 28,685 |
| | $ | 22,327 |
| | $ | (43,072 | ) | | $ | 233,862 |
|
| $ change | | $ | 22,544 |
| | $ | 11,015 |
| | $ | 2,873 |
| | $ | 5,571 |
| | $ | (125,505 | ) | | $ | (83,502 | ) |
| % change | | 12.5 | % | | 24.5 | % | | 10.0 | % | | 25.0 | % | | 291.4 | % | | (35.7 | )% |
| | | | | | | | | | | | | |
| Fiscal 2016 operating income margin | | 16.3 | % | | 7.2 | % | | 6.4 | % | | 7.6 | % | | n/a |
| | 5.2 | % |
| Fiscal 2015 operating income margin | | 14.4 | % | | 6.2 | % | | 8.5 | % | | 7.5 | % | | n/a |
| | 9.0 | % |
United States
Our net sales in the United States in fiscal 2016 were $1.25 billion, a decrease of $4.0 million, or 0.3%, from net sales of $1.25 billion in fiscal 2015. The sales decrease was principally driven by increased competition for our Rudi’s Organic Bakery, Inc. (“Rudi’s”), Spectrum and Earth’s Best brands, lower tea consumption related to a packaging change at Celestial Seasonings, as well as increased trade spend. Net sales were also negatively impacted by foreign currency exchange rates of $5.2 million as compared to the prior year. Sales decreases were partially offset by continued consumption growth in our Sensible Portions®, Terra® and Garden of Eatin’® snacking brands and Avalon Organics®, Alba Botanica®, and JASON® personal care brands. Both fiscal 2016 and fiscal 2015 net sales benefited from certain concessions provided to our largest distributors, including payment terms beyond the customer’s standard terms, rights of return of product and post-sale concessions, most of which were associated with sales that occurred at the end of each respective quarter. Operating income in the United States in fiscal 2016 was $203.5 million, an increase of $22.5 million, or 12.5%, from operating income of $180.9 million in fiscal 2015. Fiscal 2015 was negatively
impacted by charges totaling $34.3 million for the voluntary nut butter recall. During fiscal 2016, due to increased competition, we experienced competitive pricing with both Spectrum coconut oils and BluePrint juices, margin compression at Rudi’s due to sales mix, additional costs related to packaging changes at Celestial Seasonings and restructuring charges. These increases in expenses in 2016 were partially offset by $10.7 million of savings from reductions in headcount and incentive compensation as well as reduced amortization charges.
United Kingdom
Our net sales in the United Kingdom in fiscal 2015 were $774.9 million, an increase of $52.0 million, or 7.2%, from net sales of $722.8 million in fiscal 2015. Foreign currency exchange rates negatively impacted net sales by $41.5 million as compared to the prior year. The increase in net sales was primarily due to the acquisition of Orchard House, acquired in the second quarter of
fiscal 2016, which accounted for $88.6 million of net sales in current year, as well as growth in our chilled desserts business and incremental business in fruit and hot eating desserts, which was partially offset by decreased sales of a secondary rice brand. Operating income in the United Kingdom segment for fiscal 2016 was $56.0 million, an increase of $11.0 million, or 24.5%, from $45.0 million in fiscal 2015. The increase in operating income was due to the acquisition of Orchard House and a $9.9 million reduction of factory start-up costs at our chilled desserts facility in fiscal 2016 as compared to the prior year. Additionally, operating income increased at Tilda as a result of improved procurement of raw materials as compared to the prior year period.
Hain Pure Protein
Our net sales in the Hain Pure Protein segment were $492.5 million in fiscal 2016, an increase of $155.3 million, or 46.1%, from
net sales of $337.2 million in fiscal 2015. The sales increase was primarily the result of our acquisition of Empire in March 2015, which accounted for $140.4 million of net sales in fiscal 2016, as compared to $46.6 million in the prior year. Additionally, our sales volume increased at HPPC due to a shortage of supply within poultry farms in the Midwest, for which HPPC was not affected. Operating income in the segment for fiscal 2016 was $31.6 million, an increase of $2.9 million, or 10.0%, from $28.7 million in the prior year. The increase in operating income was the result of the aforementioned items, lower commodity prices and productivity initiatives, partially offset by $3.5 million related to a chiller breakdown and resultant temporary stop in production at one of our HPPC turkey facilities.
Rest of World
Our net sales in the Rest of World were $368.9 million in fiscal 2016, an increase of $72.4 million, or 24.4%, from fiscal 2015. Foreign currency exchange rates negatively impacted net sales by $22.5 million as compared to the prior year. The sales increase was primarily the result of the acquisitions of Mona and Belvedere, which collectively accounted for $88.5 million of net sales in the period, as compared to $10.4 million in the prior year. Operating income in the segment for fiscal 2016 was $27.9 million, an increase of $5.6 million, or 25.0%, from $22.3 million in fiscal 2015. Operating income increased primarily as a result of the acquisitions of Mona in fiscal 2016 and Belvedere, which was acquired in the third quarter of fiscal 2015, offset by an increase in product costs of our United States dollar denominated purchases and the negative impact of foreign currency.
Corporate and Other
The Corporate and Other category consists of expenses related to the Company’s centralized administrative function which do not specifically relate to an operating segment. Such 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, acquisition related expenses, restructuring and integration charges are included in Corporate and Other. Corporate and Other included $12.1 million and $7.2 million of acquisition related expenses, restructuring and integration charges for the fiscal years ended June 30, 2016 and 2015, respectively. Additionally, the Corporate and Other category included $127.7 million and $1.0 million of impairment charges for the fiscal years ended June 30, 2016 and 2015, respectively. Refer to Note 17, Segment Information, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details.
Liquidity and Capital Resources
We finance our operations and growth primarily with the cash flows we generate from our operations and from both long-term fixed-rate borrowings and borrowings available to us under our Amended Credit Agreement. See Note 10, Debt and Borrowings, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
Amended and Restated Credit Agreement
On December 22, 2021, the Company refinanced its revolving credit agreement.facility by entering into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for senior secured financing of $1.1 billion in the aggregate, consisting of (1) $300.0 million in aggregate principal amount of term loans (the "Term Loans") and (2) an $800.0 million senior secured revolving credit facility (which includes borrowing capacity available for letters of credit, and is comprised of a $440.0 million U.S. revolving credit facility and $360.0 million global revolving credit facility) (the "Revolver"). Both the Revolver and the Term Loans mature on December 22, 2026.
Our cash and cash equivalents balance increased $19.1decreased by $10.4 million at June 30, 20172022 to $147.0$65.5 million compared to $127.9$75.9 million at June 30, 2016.2021. Our working capital, which excludes assets held for sale, was $534.3$329.0 million at June 30, 2017, a decrease2022, an increase of $8.9$44.2 million from $543.2$284.7 million at the end of fiscal 2016.2021.
Liquidity is affected by many factors, 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. The Company’sOur cash balances are held in the United States, the United Kingdom, Canada, Europe, the Middle East, and India. It is the Company’s current intentThe Company continues to indefinitely reinvest $809.2 million of undistributed earnings of its foreign earnings outside the United States. As of June 30, 2017, approximately 77.2% ($113.4 million) of the Company’s total cash balance was held outside of the United States. Although the majority of our consolidated cash balances are maintained outside of the United States, the Company’s current plans do not demonstrate a needsubsidiaries and may be subject to repatriateadditional foreign withholding taxes and U.S. state income taxes if it reverses its indefinite reinvestment assertion on these balances to fund its U.S. operations. If these funds were to be needed for the Company’s operationsforeign earnings in the United States, the Company may be requiredfuture. All other outside basis differences not related to recordearnings were impractical to account for at this point in time and pay significant U.S. income taxes to repatriate these funds.are currently considered as being permanent in duration.
We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of June 30, 2017,2022, all of our investments were expected to mature in less than three months. Accordingly, we do not believe that our investments have significant exposure to interest rate risk. Cash provided by (used in) operating, investing and financing activities is summarized below.
| | | | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| (amounts in thousands) | 2022 | | 2021 | | |
| Cash flows provided by (used in): | | | | | |
| Operating activities from continuing operations | $ | 80,241 | | | $ | 196,759 | | | |
| Investing activities from continuing operations | (288,309) | | | (2,364) | | | |
| Financing activities from continuing operations | 212,787 | | | (162,443) | | | |
| Increase in cash from continuing operations | 4,719 | | | 31,952 | | | |
| | | | | |
| Effect of exchange rate changes on cash | (15,078) | | | 6,148 | | | |
| Net (decrease) increase in cash and cash equivalents | $ | (10,359) | | | $ | 38,100 | | | |
|
| | | | | | | | | | | |
| | Fiscal Year ended June 30 |
| (amounts in thousands) | 2017 | | 2016 | | 2015 |
| Cash flows provided by (used in): | | | | | |
| Operating activities | $ | 216,624 |
| | $ | 206,575 |
| | $ | 185,482 |
|
| Investing activities | (76,245 | ) | | (234,345 | ) | | (151,300 | ) |
| Financing activities | (118,199 | ) | | 69 |
| | 17,167 |
|
| Effect of exchange rate changes on cash | (3,114 | ) | | (11,295 | ) | | (8,178 | ) |
| Net increase (decrease) in cash and cash equivalents | $ | 19,066 |
| | $ | (38,996 | ) | | $ | 43,171 |
|
Net cashCash provided by operating activities from continuing operations was $216.6$80.2 million for the fiscal year ended June 30, 2017,2022, compared to $206.6 million provided in fiscal 2016 and $185.5$196.8 million in fiscal 2015.2021. The increasedecrease in cash provided by operating activities in fiscal 20172022 compared to fiscal 2021 resulted primarily resulted from an increase in cash provided by working capital, partially offset by a decreasereduction of $49.6 million in net income adjusted for non-cash charges.charges in the current year and lower cash generation of $66.9 million from our working capital accounts which was mainly due to a refund of $53.8 million received by the Company in the prior year from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").
In the fiscal year ended June 30, 2017, $76.2 million of cash wasCash used in investing activities. We used $19.5 million, net, of cash acquired in connection with our acquisitions, whichactivities from continuing operations was principally associated with the acquisitions of Better Bean and Yorkshire Provender and $63.1 million for capital expenditures as discussed further below. We used cash in investing activities of $234.3 million during the fiscal year ended June 30, 2016, which was principally for the acquisitions of Orchard House and Mona, our investment in Chop’t and for capital expenditures. We used cash in investing activities of $151.3 million during the fiscal year ended June 30, 2015, principally for the acquisitions of HPPC, Empire and Belvedere and for capital expenditures.
Net cash of $118.2 million was used in financing activities for the fiscal year ended June 30, 2017. We had net repayments of $110.7 million funded primarily through cash flows from operations. Additionally, we paid $8.3 million during fiscal 2017 for stock repurchases to satisfy employee payroll tax withholdings and recognized $3.3 million of excess tax benefits from stock based compensation. Net cash of $0.1 million was provided by financing activities for the fiscal year ended June 30, 2016. We had net borrowings of $165.8 million which was primarily used to repay our $150 million of senior notes outstanding, as well as partially fund the acquisitions of Orchard House and Mona and our investment in Chop’t. Additionally, we paid $25.5 million during fiscal 2016 for stock repurchases to satisfy employee payroll tax withholdings and recognized $11.3 million of excess tax benefits from stock based compensation. During fiscal 2015, net cash of $17.2 million was provided by financing activities. We also had net borrowings of $49.0 million under our Credit Agreement, which was primarily used to fund the acquisition of Empire as well as subsequently repay HPPC’s acquired borrowings. We had net short-term borrowing repayments of $54.9 million, which were principally related to the aforementioned repayment of HPPC’s acquired borrowings as well as net repayments related to the timing of rice purchases. We had proceeds from exercises of stock options and restricted stock awards of $18.6 million and related excess tax benefits of $25.7 million. In addition, we paid $18.1 million during fiscal 2015 for stock repurchases to satisfy employee payroll tax withholdings.
Operating Free Cash Flow
Our operating free cash flow was $153.5$288.3 million for the fiscal year ended June 30, 2017,2022, an increase of $24.2$285.9 million from $2.4 million in fiscal 2021 primarily due to the acquisition of THWR in the current year, partially offset by $12.3 million in proceeds from the sale of assets in the current year, which was primarily related to the sale of undeveloped land plots in Boulder, Colorado.
Cash provided by financing activities from continuing operations was $212.8 million for the fiscal year ended June 30, 2016.2022 and included $659.3 million of net borrowings of our Revolver and Term Loans, $410.5 million of share repurchases and $32.7 million of employee shares withheld for taxes. Cash used in financing activities from continuing operations was $162.4 million for fiscal 2021 and primarily included net repayments of $50.0 million on our revolving credit facility, $106.1 million of share repurchases and $4.3 million of employee shares withheld for taxes.
Operating Free Cash Flow from Continuing Operations
Our operating free cash flow was $40.3 million for fiscal 2022, a decrease of $84.9 million from fiscal 2021. The increasedecrease in operating free cash flow primarily resulted from lower net income adjusted for non-cash items of $49.6 million and cash used within working capital accounts of $66.9 million, due to a tax refund receivable of $52.5 million that was received in fiscal 2021; the receivable resulted from the carryback of net operating losses (“NOLs”) under the CARES Act. This was partially offset by a decrease in our capital expenditures of $14.2$31.6 million. This increase was also driven by a decrease in cash used to support working capital requirements of $129.1 million, offset in part by a decrease in net income adjusted for non-cash items. We expect that our capital spending for the next fiscal year will be approximately $75.0 million, and we may incur additional costs in connection with Project Terra. We refer the readerRefer to the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measuresfollowing the discussiondiscussion of
our results of operations for definitions and a reconciliation from our net cash provided by operatingoperating activities from continuing operations to operating free cash flow.flow from continuing operations.
Credit AgreementCapital Expenditures
On December 12, 2014, we entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) which provides us with a $1.0 billion revolving credit facility which may be increased by an additional uncommitted $350.0 million provided certain conditions are met. The Credit Agreement expires in December 2019. Loans under the Credit Agreement bear interest at a Base Rate or a Eurocurrency Rate (both of which are defined in the Credit Agreement) plus an applicable margin, which is determined in accordance with a leverage-based pricing grid, as set forth in the Credit Agreement. Borrowings may be used to provide working capital, financeDuring fiscal 2022, our aggregate capital expenditures and permitted acquisitions, refinance certain existing indebtedness and for other corporate purposes.
The Credit Agreement is guaranteed by substantially all of our current and future direct and indirect domestic subsidiaries. We are required by the terms of the Credit Agreement to comply with certain financial and other customary affirmative and negative covenants for facilities of this nature.
On May 2, 2016, the Company utilized capacity under its existing revolving credit facility to redeem the $150.0used in continuing operations were $40.0 million, of senior notes outstanding. As of June 30, 2017, there were $739.9 million of borrowings and letters of credit outstanding under the Credit Agreement and $260.1 million available, and the Companywhich was deemed to be in compliance with all associated covenantslower than expected primarily due to certain limited waiverssupply chain challenges and extensions received by the Companylabor availability. We expect to spend approximately 3% of net sales for capital projects in connection with its obligation to deliver timely financial information.fiscal 2023.
Tilda Short-Term Borrowing Arrangements
Tilda maintains short-term borrowing arrangements primarily used to fund the purchase of rice from India and other countries. The maximum borrowings permitted under all such arrangements are £52.0 million. Outstanding borrowings are collateralized by the current assets of Tilda, typically have six-month terms and bear interest at variable rates typically based on LIBOR plus a margin (weighted average interest rate of approximately 2.7% at June 30, 2017). As of June 30, 2017, there was $7.8 million of borrowings outstanding under these arrangements.
Other Borrowings
Other borrowings primarily relate to a cash pool facility in Europe. The cash pool facility provides our Europe operating segment with sufficient liquidity to support the Company’s growth objectives within this segment. The maximum borrowings permitted under the cash pool arrangement is €12.5 million. Outstanding borrowings bear interest at variable rates typically based on EURIBOR plus a margin of 1.1% (weighted average interest rate of approximately 1.1% at June 30, 2017).
Share Repurchase Program
OnIn June 21, 2017, August 2021 and January 2022, the Company's Board of Directors authorized the repurchase of up to $250$250.0 million, $300.0 million and $200.0 million of the Company’s issued and outstanding common stock.stock, respectively. Share repurchases under each of the 2021 and 2022 authorizations commenced after the previous authorizations were fully utilized. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The current 2022 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 includingconsiderations. In
November 2021, the Company entered into a share repurchase agreement with affiliates of Engaged Capital, LLC (collectively, the “Selling Stockholders”), pursuant to which the Company repurchased 1.7 million shares directly from the Selling Stockholders at a price of $45.00 per share (see Note 21, Related Party Transactions). During fiscal 2022, the Company repurchased 10.6 million shares under the repurchase program, inclusive of the shares repurchased from the Selling Stockholders, for a total of $408.9 million, excluding commissions, at an average price of $38.48 per share. As of June 30, 2022, the Company had $173.5 million of remaining authorization under the share repurchase program. During fiscal 2021, the Company repurchased 3.1 million shares under the repurchase program for a total of $107.4 million, excluding commissions, at an average price of $34.87 per share. Of that amount, $1.4 million is included in accrued expenses and other current liabilities on the Company’s historical strategyConsolidated Balance Sheet as of pursuing accretive acquisitions.
We believe that our cash on hand of $147.0 million at June 30, 2017 as well as projected cash flows from operations and availability under our Credit Agreement are sufficient to fund our working capital needs in the ordinary course2021 pending settlement of business, anticipated fiscal 2017 capital expenditures and other expected cash requirements for at least the next twelve months.trade.
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.Generally Accepted Accounting Principles (“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.
Net Sales - Constant Currency Presentation
We believe that this measure provides useful 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. dollarDollar are translated into U.S. dollarsDollars 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.
Net Sales - Acquisitions, Divestitures and Discontinued Brands
We also exclude the impact of acquisitions, divestitures and discontinued brands when comparing net sales to prior periods, which results in the presentation of certain non-U.S. GAAP financial measures. The Company's management believes that excluding the impact of acquisitions, divestitures and discontinued brands when presenting period-over-period results of net sales aids in comparability.
A reconciliation between reported and constant currencyadjusted net sales growthincrease (decrease) in fiscal 2022 is as follows:
| | | | | | | | | | | | | | | | | |
| (amounts in thousands) | North America | | International | | Hain Consolidated |
| Net sales - Twelve months ended 6/30/22 | $ | 1,163,132 | | | $ | 728,661 | | | $ | 1,891,793 | |
| Acquisitions, divestitures and discontinued brands | (55,393) | | | — | | | (55,393) | |
| Impact of foreign currency exchange | (1,454) | | | 17,318 | | | 15,864 | |
| Net sales on a constant currency basis adjusted for acquisitions, divestitures and discontinued brands - Twelve months ended 6/30/22 | $ | 1,106,285 | | | $ | 745,979 | | | $ | 1,852,264 | |
| | | | | |
| Net sales - Twelve months ended 6/30/21 | $ | 1,104,128 | | | $ | 866,174 | | | $ | 1,970,302 | |
| Divestitures and discontinued brands | (35,314) | | | (75,543) | | | (110,857) | |
| Net sales adjusted for divestitures and discontinued brands - Twelve months ended 6/30/21 | $ | 1,068,814 | | | $ | 790,631 | | | $ | 1,859,445 | |
| | | | | |
| Net sales increase (decrease) | 5.3 | % | | (15.9) | % | | (4.0) | % |
| Impact of acquisitions, divestitures and discontinued brands | (1.7) | % | | 8.3 | % | | 2.8 | % |
| Impact of foreign currency exchange | (0.1) | % | | 2.0 | % | | 0.8 | % |
| Net sales increase (decrease) on a constant currency basis adjusted for acquisitions, divestitures and discontinued brands | 3.5 | % | | (5.6) | % | | (0.4) | % |
|
| | | | | | | | | | | | | |
| | Fiscal Year ended June 30, |
| (amounts in thousands) | 2017 | | 2016 |
| Change in consolidated net sales | $ | (32,263 | ) | | (1.1 | )% | | $ | 275,761 |
| | 10.6 | % |
| Impact of foreign currency exchange | 124,319 |
| | 4.3 | % | | 69,219 |
| | 2.6 | % |
| Change in consolidated net sales on a constant-currency basis | $ | 92,056 |
| | 3.2 | % | | $ | 344,980 |
| | 13.2 | % |
Adjusted EBITDA
Adjusted EBITDA is defined as net income (loss) before income taxes, net interest expense, depreciation and amortization, impairment of long livedlong-lived and intangible assets, equity in the earnings of equity-method investees, stock basedstock-based compensation, unrealized net foreign currency gainsproductivity and losses, acquisition-related expenses, including integration and restructuring charges, reserves for litigation matters, start-uptransformation costs, and other non-recurring items.items such as litigation related to a specific non-recurring matter. The Company’s management believes that this 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 for these limitations, management presents Adjusted EBITDA in connection with U.S. GAAP results.
A reconciliation of net income (loss) to Adjusted EBITDA is as follows: |
| | | | | | | | | | | |
| | Fiscal Year ended June 30 |
| (amounts in thousands) | 2017 | | 2016 | | 2015 |
| Net income | $ | 67,430 |
| | $ | 47,429 |
| | $ | 164,962 |
|
| Provision for income taxes | 21,842 |
| | 70,932 |
| | 48,535 |
|
| Interest expense, net | 18,446 |
| | 22,231 |
| | 23,174 |
|
| Depreciation and amortization | 68,697 |
| | 65,622 |
| | 57,380 |
|
| Equity in net loss (income) of equity-method investees | (129 | ) | | 47 |
| | (628 | ) |
| Stock-based compensation | 9,658 |
| | 12,688 |
| | 12,197 |
|
| Long-lived asset and tradename impairment | 40,452 |
| | 43,200 |
| | 1,004 |
|
| Goodwill impairment | — |
| | 84,548 |
| | — |
|
| Unrealized currency loss | 12,570 |
| | 14,831 |
| | 5,324 |
|
| EBITDA | 238,966 |
| | 361,528 |
| | 311,948 |
|
| | | | | | |
| Acquisition, restructuring, integration, severance, and other charges | 9,694 |
| | 13,904 |
| | 11,631 |
|
| Chilled desserts contract related termination costs | 2,583 |
| | — |
| | — |
|
HPPC production interruption related to chiller breakdown and factory start-up costs | — |
| | 4,705 |
| | — |
|
| Inventory costs for products discontinued or with redesigned packaging | 5,359 |
| | 3,050 |
| | |
| Costs incurred due to co-packer default | — |
| | 770 |
| | — |
|
| U.K. deferred synergies due to CMA Board decision | 918 |
| | 949 |
| | — |
|
| U.K. factory start-up costs | — |
| | 743 |
| | 11,407 |
|
| U.S. warehouse consolidation project | — |
| | 623 |
| | — |
|
| Recall and other related costs | 809 |
| | — |
| | 30,110 |
|
| Accounting review costs | 29,562 |
| | — |
| | — |
|
| Litigation expenses | — |
| | 1,200 |
| | 7,203 |
|
| Celestial Seasonings marketing support and Keurig transition | — |
| | 1,000 |
| | — |
|
| Tilda fire insurance recovery costs and other start-up/integration costs | — |
| | 342 |
| | 1,666 |
|
| Luton closure costs | 1,804 |
| | — |
| | — |
|
| Gain on Tilda fire related fixes assets | — |
| | (9,752 | ) | | — |
|
| Realized currency gain on repayment of GBP denominated debt | (14,290 | ) | | — |
| | — |
|
| European non-dairy beverage withdrawal | — |
| | — |
| | 2,187 |
|
| Ashland factory and related expenses | — |
| | — |
| | 4,146 |
|
| Fakenham inventory allowance for fire | — |
| | — |
| | 900 |
|
| Foxboro roof collapse | — |
| | — |
| | 532 |
|
| Gain on pre-existing investment in HPPC and Empire | — |
| | — |
| | (9,669 | ) |
| Gain on disposal of investment held for sale | — |
| | — |
| | (314 | ) |
| Adjusted EBITDA | $ | 275,405 |
| | $ | 379,062 |
| | $ | 371,747 |
|
| | | | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| (amounts in thousands) | 2022 | | 2021 | | |
| Net income | $ | 77,873 | | | $ | 77,364 | | | |
| Net income from discontinued operations, net of tax | — | | | 11,255 | | | |
| Net income from continuing operations | $ | 77,873 | | | $ | 66,109 | | | |
| | | | | |
| Depreciation and amortization | 46,849 | | | 49,569 | | | |
| Equity in net loss of equity-method investees | 2,902 | | | 1,591 | | | |
| Interest expense, net | 10,226 | | | 5,880 | | | |
| Provision for income taxes | 22,716 | | | 41,093 | | | |
| Stock-based compensation, net | 15,611 | | | 15,659 | | | |
| Unrealized currency (gains) losses | (2,259) | | | 752 | | | |
| Litigation and related costs | | | | | |
| Litigation expenses | 7,883 | | | 1,587 | | | |
| Proceeds from insurance claims | (196) | | | (592) | | | |
| Restructuring activities | | | | | |
| Plant closure related costs, net | 929 | | | 58 | | | |
| Productivity and transformation costs | 8,803 | | | 12,572 | | | |
| Warehouse/manufacturing consolidation and other costs | 2,721 | | | 11,374 | | | |
| Acquisitions, divestitures and other | | | | | |
| Transaction and integration costs, net | 14,055 | | | 3,291 | | | |
| Gain on sale of assets | (9,049) | | | (4,900) | | | |
| Gain on sale of businesses | — | | | (2,604) | | | |
| Impairment charges | | | | | |
| Inventory write-down | (351) | | | (421) | | | |
| | | | | |
| Long-lived asset and intangible impairments | 1,903 | | | 57,920 | | | |
| Adjusted EBITDA | $ | 200,616 | | | $ | 258,938 | | | |
Operating Free Cash Flow from Continuing Operations
In our internal evaluations, we use the non-U.S. GAAP financial measure “operating free cash flow.flow from continuing operations.” The difference between operating free cash flow from continuing operations and cash flow provided by or used in operating activities from continuing operations, which is the most comparable U.S. GAAP financial measure, is that operating free cash flow from continuing operations reflects the impact of capital expenditures. Since capital spending is essential to maintaining our operational capabilities, 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 operating free cash flow from continuing operations as an important measure because it is one factor in evaluating the amount of cash available for discretionary investments. We do not consider operating free cash flow from continuing operations in isolation or as an alternative to financial measures determined in accordance with U.S. GAAP.
A reconciliation from Cash flownet cash provided by operating activities to operating free cash flow is as follows: | | | | Fiscal Year ended June 30, | | Fiscal Year Ended June 30, |
| (amounts in thousands) | 2017 | | 2016 | | 2015 | (amounts in thousands) | 2022 | | 2021 | |
| Cash flow provided by operating activities | $ | 216,624 |
| | $ | 206,575 |
| | $ | 185,482 |
| |
| Purchase of property, plant and equipment | (63,120 | ) | | (77,284 | ) | | (51,217 | ) | |
| Net cash provided by operating activities | | Net cash provided by operating activities | $ | 80,241 | | | $ | 196,759 | | |
| Purchases of property, plant and equipment | | Purchases of property, plant and equipment | (39,965) | | | (71,553) | | |
| Operating free cash flow | $ | 153,504 |
| | $ | 129,291 |
| | $ | 134,265 |
| Operating free cash flow | $ | 40,276 | | | $ | 125,206 | | |
Contractual Obligations
Obligations for all debt instruments, capital and operating leases and other contractual obligations asAs of June 30, 20172022, we had non-current unrecognized tax benefits of $21.9 million for which we are as follows:not able to reasonably estimate the timing of future cash flows. As a result, this amount has not been included in the table above.
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| (amounts in thousands) | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | 5+ years |
| Long-term debt obligations (1) | $ | 793,753 |
| | $ | 27,609 |
| | $ | 763,449 |
| | $ | 2,397 |
| | $ | 298 |
|
| Operating lease obligations | 101,836 |
| | 18,771 |
| | 27,446 |
| | 17,917 |
| | 37,702 |
|
| Purchase obligations (2) | 420,133 |
| | 360,512 |
| | 59,615 |
| | 6 |
| | — |
|
| Other contractual obligations (3) | 6,366 |
| | 1,850 |
| | 4,516 |
| | — |
| | — |
|
| Total contractual obligations | $ | 1,322,088 |
| | $ | 408,742 |
| | $ | 855,026 |
| | $ | 20,320 |
| | $ | 38,000 |
|
| |
(1) | Including debt and interest. |
| |
(2) | Excludes amounts that may be payable upon termination to co-packers as we are not able to reasonably estimate such amounts. |
| |
(3) | Amounts primarily include contingent consideration arrangements and employment contracts. Additionally, as of June 30, 2017, we had non-current unrecognized tax benefits of $11.6 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 table above. |
We believe that our cash on hand of $147.0$65.5 million at June 30, 20172022 as well as projected cash flows from operations and availability under our Credit Agreement are sufficient to fund our working capital needs in the ordinary course of business, anticipated fiscal 20182023 capital expenditures and other expected cash requirements for at least the next 12 months.
Off Balance Sheet ArrangementsContractual Obligations
At June 30, 2017, we did not have any off-balance sheet arrangements as definedWe are party to contractual obligations involving commitments to make payments to third parties, which impact our short-term and long-term liquidity and capital resource needs. Our contractual obligations primarily consist of long-term debt and related interest payments, purchase commitments and operating leases. See Note 7, Leases, and Note 10, Debt and Borrowings,in the Notes to the Consolidated Financial Statements included in Item 303(a)(4)8 of Regulation S-K that have had or are likely to have a material current or future effect on our consolidated financial statements.this Form 10-K.
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 Significant 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 assumptions 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 assumptions, estimates or making judgments different from those that we have applied. Our critical accounting policies, including our methodology for estimates made and assumptions used, are as follows:
Revenue RecognitionVariable Consideration
Sales are recognized when the earnings process is complete, which occurs when products are shipped in accordance with terms of agreements, title and risk of loss transferIn addition to customers, collection is probable and pricing is fixed or determinable. 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.
During the fourth quarter of fiscal 2016, the Company identified the practice of granting additional concessions to certain distributors in the United States and commenced an internal accounting review in order to (i) determine whether the revenue associated with those concessions was accounted for in the correct period and (ii) evaluate its internal control over financial reporting. The Audit Committeecontract consideration, many of the Company’s Boardcontracts include some form of Directors separately conducted an independent review of these matters and retained independent counsel to assist in their review. On November 16, 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.
Management’s accounting review included consideration of certain side agreements and concessions provided to distributors in the United States in fiscal 2015 and 2016, including payment terms beyond the customer’s standard terms, rights of return of product and post-sale concessions, most of which were associated with sales that occurred at the end of the quarter. It had been the Company’s policy to record revenue related to these distributors when title of the product transfers to the distributor.variable consideration. The Company concluded that its historical accounting policy for these distributors is appropriate as the sales price is fixed or determinable at the time ownership transfers to these distributors, based on the Company’s ability to make a reasonable estimate of future returns and certain concessions at the time of shipment.
Trade Promotions and Sales Incentives
We offeroffers 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 products and are therefore deducted from sales to determine reported net sales. Trade promotions and sales incentive accruals are subject to significant management estimates and assumptions, changes which could materially impact our financial condition or operating performance if actual results differ from such estimates and assumptions. The critical assumptions used in estimating the accruals for trade promotions and sales incentives include management’sthe Company’s estimate of customer costs. Actual costs incurred by the customer may differ significantly if factors such as the successexpected levels of the customers’ programs, as well as customer participation levels differ from management estimatesperformance and expectations. Managementredemption rates. The Company 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 ourthe 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. However, actualActual expenses may differ if the level of redemption rates and performance were to vary from estimates.During the year ended June 30, 2022, the Company revised its estimates for trade promotion expense incurred in the prior year based on new information that was not available at the time that the June 30, 2021 accrual was established. This change in estimate was due to unique circumstances, such as the implementation of bracket pricing in North America and less expense incurred from retail resets, both leading to lower-than-expected customer deductions on the outstanding promotional accrual. This change in estimate caused an increase in net sales of 0.2%.
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 agingaging categories. CreditAs credit losses have been within our expectations in recent years. While Wal-Mart Stores, Inc.years and its affiliates, Sam’s Club and ASDA, togetheras only one customer represented approximately 11%more than 10% of accounts receivable, net at June 30, 2017,2022, we believe there is no significant or unusual credit exposure at this time.
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 recordsrecord 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.
Accounting for Acquisitions
Our growth strategy has included the acquisition of numerous brands and businesses. The purchase price of these acquisitions has been determined after due diligence of the acquired business, market research, strategic planning and the forecasting of expected future results and synergies. Estimated future results and expected synergies are subject to judgment as we integrate each acquisition and attempt to leverage resources.
The accounting for the acquisitions we have made requires that the assets and liabilities acquired, as well as any contingent consideration that may be part of the agreement, be recorded at their respective fair values at the date of acquisition. This requires management to make significant estimates in determining the fair values, especially with respect to intangible assets, including estimates of expected cash flows, expected cost savings and the appropriate weighted average cost of capital. As a result of these significant judgments to be made, we occasionally obtain the assistance of independent valuation firms. We complete these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Because the fair value and the estimated useful life of an intangible asset is a subjective estimate, it is reasonably likely that circumstances may cause the estimate to change. See Note 4, Acquisitions, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
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 namestradenames 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 namestradenames 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 asin the fourth quarter of April 1, 2017,fiscal 2022, in conjunction with its budgeting and forecasting process for fiscal year 2018,2023, and concluded that no indicators of impairment existed at any of its reporting units.
As of June 30, 2022, the carrying value of goodwill was $933.8 million. For the fiscal 2022 impairment analysis, the Company performed the qualitative assessment for all of its reporting units except for its Hain Daniels reporting unit, which is included inwith the exception of the United Kingdom segment. Based on the step one analysis performed, the Company concluded that theand Europe
reporting units where a quantitative assessment was performed. The estimated fair value of the Hain Danielseach reporting unit was belowexceeded its carrying value indicating thatbased on the second stepanalysis performed. For the United Kingdom and Europe reporting units, the quantitative analysis was performed. Holding all other assumptions used in the 2022 fair value measurement constant, a 100-basis-point increase in the weighted average cost of the impairment test was necessary. Under the second step,capital would not result in the carrying value of the Hain Daniels reporting unit’s goodwill was comparedunits to the implied fair valuebe in excess of that goodwill. The implied fair value of goodwill was determined by allocating the fair valuevalue. The fair values were based on significant management assumptions including an estimate of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill. As a result of the allocation, less value was attributed to the other identifiable tangible and intangible assets, while the residual fair value of goodwill exceeded its carrying value by 20%. Accordingly, no goodwillfuture cash flows. If assumptions are not achieved or market conditions decline, potential impairment was recognized.
For the fiscal year ended June 30, 2016, the Company recognized a goodwill impairment charge of $82.6 million in its Hain Daniels reporting unit primarily as a result of lowered projected long-term revenue growth rates and profitability levels resulting from increased competition, changes in market trends and the mix of products sold.
As indicators of impairment existed within the Hain Daniels reporting unit, the Company performed an assessment of the recoverability for other long-lived assets, such as property, plant and equipment and finite-lived intangibles assets, namely customer relationships.charges could result. The Company performed an assessment of the recoverabilitywill continue to monitor impairment indicators and financial results in accordance with the general valuation requirements set forth under ASC Topic 360 - Accounting for the Impairment of Long-Lived Assets. The result of this assessment indicated that no impairment existed for these assets.future periods.
Additionally, a goodwill impairment charge of $1.9 million was recognized during the fiscal year ended June 30, 2016, related to the divestiture of certain portions of the Company’s own-label juice business in connection with the Orchard House acquisition, which was sold in the first quarter of fiscal 2017. See Note 4, Acquisitions, for details.
Indefinite-lived intangible assets are evaluated on an annual basis in conjunction with the Company’s evaluation of goodwill.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 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,assets, the carrying value is written down to fair value in the period identified. The result of thisthe annual assessment for the year ended June 30, 2022 indicated that the fair value of certain of the Company’s tradenames was belowexceeded their carrying value,values and therefore anno indicators of impairment charge of $14.1 million ($7.6 millionwith one exception that is discussed in Note 8, Goodwill and Other Intangible Assets, in the United Kingdom segment and $6.5 millionNotes to Consolidated Financial Statements included in the United States segment) was recorded at June 30, 2017. For the fiscal year ended June 30, 2016, the Company recognized a tradename impairment chargeItem 8 of $39.7 million ($20.9 million in the United Kingdom segment and $18.8 million in the United States segment).this Form 10-K.
As of June 30, 2017, the carrying value of goodwill was $1.1 billion, of which $192.7 million related to the Hain Daniels reporting unit. As of the 2017 measurement, excluding the Hain Daniels reporting unit, the estimated fair value of each reporting unit exceeded its carrying value by at least 40%, with the exception of the Tilda reporting unit, whose fair value exceeded its carrying value by 12%. Holding all other assumptions used in the 2017 fair value measurement constant, a 100-basis-point increase in the weighted average cost of capital would not result in the carrying value of any reporting unit, other than the Hain Daniels reporting unit (which in this hypothetical example, would not result in an impairment in a step 2 analysis), to be in excess of the fair value. The fair value was based on significant management assumptions. If assumptions are not achieved or market conditions decline, potential impairment charges could result.
See also Note 7, 8, Goodwill and Other IntangiblesIntangible Assets, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K, for additional information.
There were no impairment charges were recorded during fiscal 2015.Business Combinations
During the year ended June 30, 2022, the Company completed the acquisition of THWR for total consideration of $260.4 million, net of cash acquired. The transaction was accounted for under the acquisition method of accounting whereby the total purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair value of such assets and liabilities.
Accounting for the acquisition of THWR required estimation in determining the fair value of identified intangible assets for acquired customer relationships and tradenames. Estimation was utilized as it relates to inputs to the valuation techniques used to measure the fair value of these intangible assets as well as the sensitivity of the respective fair values to the underlying assumptions. The significant assumptions used to estimate the fair value of the acquired intangible assets included discount rates, revenue growth rates, and operating margins. These assumptions are forward-looking and could be affected by future economic and market conditions.
Stock-based Compensation
The Company records share-based payment awards exchanged for employee and non-employee directors services atuses the fair value on the date of grant and expenses the awards in the consolidated statements of income over the requisite employee service period. Stock-based compensation expense related to awards with a market or performance condition, which cliff vest, are recognized over the vesting period on a straight line basis. Stock-based compensation awards with service conditions only are also recognized on a straight-line basis. The fair value of stock option awards is estimated on the date of grant using the Black-Scholes option pricing model and is recognized in expense over the vesting period of the options using the straight-line method. The Black-Scholes option pricing model requires various assumptions, including the expected volatility of our stock, the expected term of the option, the risk-free interest rate and the expected dividend yield. Expected volatility is based on historical volatility of our common stock. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The fair value of restricted stock awards is equal to the 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 grantmarket-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 inas 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. We recognize
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. We utilize historical employee termination behavior to determine our estimated forfeiture rates. If the actual forfeitures differ from those estimated by management, adjustments to compensation expense will be made 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 areis 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. The Company reversed its valuation allowance against its German net operating losses during fiscal 2017, as there is no longer sufficient negative evidence supporting the need for a valuation allowance and it is “more likely than not” that the Company will utilize such losses in the future. Under current tax law in these jurisdictions, our carryforward losses have no expiration. We also have
During fiscal 2020, we recorded a valuation allowance against a majority of our state deferred tax assets related to U.S. foreignand state net operating loss carryforwards as it was not more likely than not that the state tax creditsattributes will be realized. In fiscal 2021, the Company had positive results in the United States and, thus, state-level taxable income. This resulted in an expected utilization of certain U.K. intangibles and otherof the state deferred tax assets which are capitalwere previously reserved. Valuation allowances reversed were based on this positive evidence, in nature, againstaddition to other positive evidence, which we have recorded valuation allowances. Ifjustified the Company is able to realize any of these tax attributes in the future, the provision for income taxes will be reduced by a release of an additional amount of the correspondingstate valuation allowance.
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. Additionally, with our acquisitions of HPPC, Empire and Tilda, our net sales and earnings may further fluctuate based on the timing of holidays throughout the year. 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, 2017, 2022, we had $733.7$889 million of variable rate debt outstanding under our Credit Agreement. During fiscal 2021, 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, 2022, the notional amount of the interest rate swaps was $630 million. Of this amount, $230 million has a weighted average fixed rate of 1.77% with a maturity date in February 2023. The remaining amount of $400 million relates to derivatives for which fixed rate payments of 4.85% will start from February 2023. Assuming current cash equivalents, and variable rate borrowings and the effects of the interest rate swaps, a hypothetical change in average interest rates of one percentage point would have no impact to net interest expense by approximately $5.9 million over the next fiscal year.expense.
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 2017,2022, approximately 41%45% of our consolidated net sales were generated from sales outside the United States, while such sales outside the United States were 40%52% of net sales in 2016fiscal 2021 and 39%51% of net sales in 2015.fiscal 2020. 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 $58.0approximately $42.3 million and $2.1$4.2 million, respectively,respectively, if average foreign exchange rates had been lower by 5% against the United States dollarU.S. Dollar in fiscal 2017.2022. 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 $7.9 million in notional amounts of forward contracts at June 30, 2017. See Note 14, 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 dollarsDollars 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 Comprehensive Income.Loss. The cumulative translation adjustments component of Accumulated Other Comprehensive Loss increaseddecreased by $23.0$102.1 million during the fiscal year ended June 30, 2017.2022.
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 $131.8 million in notional amounts of cross-currency swaps and foreign currency exchange contracts at June 30, 2022. See Note 16, Derivatives and Hedging Activities, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Ingredient Inputs Price Risk
The Company purchases ingredient inputs such as almonds, coconut oil, corn,vegetables, fruits, oils, grains, beans, nuts, tea and herbs, spices, dairy fruitproducts, plant-based surfactants, glycerin and vegetables, oils, rice, soybeans, oats and wheat,alcohols, 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 toAlthough we sometimes hedge against fluctuations in the prices of the ingredients by using future or forward optioncontracts or other derivative instruments. As a result,similar instruments, the majoritymajority 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-averageweighted average cost of our primary inputs as of June 30, 2017.2022. Based on our cost of goods sold duringduring the fiscal year ended June 30, 2017,2022, such a change would have resulted in an increase or decrease to cost of sales of approximately $160$101 million. WeWe 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 (PCAOB ID: 42)
Consolidated Balance Sheets - June 30, 20172022 and June 30, 20162021
Consolidated Statements of IncomeOperations - Fiscal Years ended June 30, 2017, 20162022, 2021 and 20152020
Consolidated Statements of Comprehensive Income (Loss) - Fiscal Years ended June 30, 2017, 20162022, 2021 and 20152020
Consolidated Statements of Stockholders’ Equity - Fiscal Years ended June 30, 2017, 20162022, 2021 and 20152020
Consolidated Statements of Cash Flows - Fiscal Years ended June 30, 2017, 20162022, 2021 and 20152020
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)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.
Report of Independent Registered Public Accounting Firm
TheTo 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”)Company) as of June 30, 20172022 and 2016, and2021, the related consolidated statements of income,operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2017. Our audits also included2022, 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”). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Hain Celestial Group, Inc. and Subsidiariesthe Company at June 30, 20172022 and 2016,2021, and the consolidated results of theirits operations and theirits cash flows for each of the three years in the period ended June 30, 2017,2022, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), The Hain Celestial Group, Inc. and Subsidiaries’the Company's internal control over financial reporting as of June 30, 2017,2022, 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 September 13, 2017August 25, 2022 expressed an adverseunqualified opinion thereon.
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.
| | | | | |
| Revenue Recognition |
| |
| Description of the Matter | For the year ended June 30, 2022, the Company’s reported net sales was $1.9 billion. As described in Note 2 of the 2022 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 the expected costs of these programs that are often settled in a period after the sale taking place. The estimated costs of these programs 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 expected levels of performance and redemption rates. These estimates are based on historical performance of the retailer or distributor, types and levels of promotions, and expected deviations from historical trends. Changes in these assumptions 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 with customers. |
| 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 and promotional incentive program process. For example, we tested controls over management’s review of significant assumptions, such as expected sales and consumption activity, management’s validation of the completeness and accuracy of the data used in making their estimates, and other controls such as their retrospective review analysis.
Among other tests, we tested the results of the Company's retrospective review analyses performed on their prior year and current year trade and promotional incentive program reserves, evaluated the assumptions used by comparing them to historical trends and third-party source information, and performed detailed transactional testing of customer deduction data. Additionally, we obtained confirmations from Company sales representatives to assess the completeness of incentive programs. |
| | | | | |
| Valuation of Intangible Assets from the That’s How We Roll Acquisition |
| |
| Description of the Matter | As described in Note 4 to the consolidated financial statements, during the year ended June 30, 2022, the Company completed the acquisition of Proven Brands, Inc. (and its subsidiary That's How We Roll LLC) and KTB Foods Inc., collectively doing business as "That's How We Roll" for total consideration of $260.4 million, net of cash acquired. The transaction was accounted for under the acquisition method of accounting whereby the total purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair value of such assets and liabilities.
Auditing the Company's accounting for its acquisition of That’s How We Roll required complex auditor judgment due to the significant estimation uncertainty inherent in determining the fair value of identified intangible assets for acquired customer relationships and trade names. The significant estimation uncertainty was primarily due to the judgmental nature of the inputs to the valuation techniques used to measure the fair value of these intangible assets as well as the sensitivity of the respective fair values to the underlying significant assumptions. The significant assumptions used to estimate the fair value of the acquired intangible assets included discount rates, revenue growth rates, and operating margins. These significant assumptions are forward-looking and could be affected by future economic and market conditions. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over the valuation of intangible assets from the That’s How We Roll acquisition. For example, we tested controls over management’s review of the valuation models and significant assumptions described above.
To test the estimated fair value of the acquired customer relationships and trade names, we performed audit procedures that included, among others, assessing the appropriateness of the valuation methodologies and testing the significant assumptions discussed above and the completeness and accuracy of the underlying data used by the Company. For example, we compared the revenue growth rates and operating margins to the historical results of the acquired business. We further performed sensitivity analyses to evaluate the changes in the fair value of the acquired intangible assets that would result from changes in the significant assumptions. In addition, we involved internal valuation specialists to assist us in our evaluation of the valuation methodologies and certain significant assumptions used by the Company. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1994.
Jericho, New York
August 25, 2022
September 13, 2017
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 20172022 AND JUNE 30, 20162021
(In thousands, except par values)
| | | | June 30, | | June 30, |
| | 2017 | | 2016 | | 2022 | | 2021 |
| ASSETS | | | | ASSETS | | | |
| Current assets: | | | | Current assets: | |
| Cash and cash equivalents | $ | 146,992 |
| | $ | 127,926 |
| Cash and cash equivalents | $ | 65,512 | | | $ | 75,871 | |
| Accounts receivable, less allowance for doubtful accounts of $1,447 and $936, respectively | 248,436 |
| | 278,933 |
| |
| Accounts receivable, less allowance for doubtful accounts of $1,731 and $1,314, respectively | | Accounts receivable, less allowance for doubtful accounts of $1,731 and $1,314, respectively | 170,661 | | | 174,066 | |
| Inventories | 427,308 |
| | 408,564 |
| Inventories | 308,034 | | | 285,410 | |
| Prepaid expenses and other current assets | 52,045 |
| | 84,811 |
| Prepaid expenses and other current assets | 54,079 | | | 39,834 | |
| Assets held for sale | | Assets held for sale | 1,840 | | | 1,874 | |
| Total current assets | 874,781 |
| | 900,234 |
| Total current assets | 600,126 | | | 577,055 | |
| Property, plant and equipment, net | 370,511 |
| | 389,841 |
| Property, plant and equipment, net | 297,405 | | | 312,777 | |
| Goodwill | 1,059,981 |
| | 1,060,336 |
| Goodwill | 933,796 | | | 871,067 | |
| Trademarks and other intangible assets, net | 573,268 |
| | 604,787 |
| Trademarks and other intangible assets, net | 477,533 | | | 314,895 | |
| Investments and joint ventures | 18,998 |
| | 20,244 |
| Investments and joint ventures | 14,456 | | | 16,917 | |
| Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | 114,691 | | | 92,010 | |
| Other assets | 33,565 |
| | 32,638 |
| Other assets | 20,377 | | | 21,187 | |
| | Total assets | $ | 2,931,104 |
| | $ | 3,008,080 |
| Total assets | $ | 2,458,384 | | | $ | 2,205,908 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | | Current liabilities: | |
| Accounts payable | $ | 222,136 |
| | $ | 251,712 |
| Accounts payable | $ | 174,765 | | | $ | 171,947 | |
| Accrued expenses and other current liabilities | 108,514 |
| | 78,803 |
| Accrued expenses and other current liabilities | 86,833 | | | 117,957 | |
| Current portion of long-term debt | 9,844 |
| | 26,513 |
| Current portion of long-term debt | 7,705 | | | 530 | |
| | Total current liabilities | 340,494 |
| | 357,028 |
| Total current liabilities | 269,303 | | | 290,434 | |
| Long-term debt, less current portion | 740,304 |
| | 836,171 |
| Long-term debt, less current portion | 880,938 | | | 230,492 | |
| Deferred income taxes | 121,475 |
| | 131,507 |
| Deferred income taxes | 95,044 | | | 42,639 | |
| Operating lease liabilities, noncurrent portion | | Operating lease liabilities, noncurrent portion | 107,481 | | | 85,929 | |
| Other noncurrent liabilities | 15,999 |
| | 18,860 |
| Other noncurrent liabilities | 22,450 | | | 33,531 | |
| | Total liabilities | 1,218,272 |
| | 1,343,566 |
| Total liabilities | 1,375,216 | | | 683,025 | |
| Commitments and contingencies (Note 15) |
| |
| |
| Commitments and contingencies (Note 18) | | Commitments and contingencies (Note 18) | 0 | | 0 |
| Stockholders’ equity: | | | | Stockholders’ equity: | |
| Preferred stock - $.01 par value, authorized 5,000 shares; issued and outstanding: none | — |
| | — |
| Preferred stock - $.01 par value, authorized 5,000 shares; issued and outstanding: none | — | | | — | |
| Common stock - $.01 par value, authorized 150,000 shares; issued: 107,989 and 107,479 shares, respectively; outstanding: 103,702 and 103,461 shares, respectively | 1,080 |
| | 1,075 |
| |
| Common stock - $.01 par value, authorized 150,000 shares; issued: 111,090 and 109,507 shares, respectively; outstanding: 89,302 and 99,069 shares, respectively | | Common stock - $.01 par value, authorized 150,000 shares; issued: 111,090 and 109,507 shares, respectively; outstanding: 89,302 and 99,069 shares, respectively | 1,111 | | | 1,096 | |
| Additional paid-in capital | 1,137,724 |
| | 1,123,206 |
| Additional paid-in capital | 1,203,126 | | | 1,187,530 | |
| Retained earnings | 868,822 |
| | 801,392 |
| Retained earnings | 769,098 | | | 691,225 | |
| Accumulated other comprehensive loss | (195,479 | ) | | (172,111 | ) | Accumulated other comprehensive loss | (164,482) | | | (73,011) | |
| | 1,812,147 |
| | 1,753,562 |
| | 1,808,853 | | | 1,806,840 | |
| Less: Treasury stock, at cost, 4,287 and 4,018 shares, respectively | (99,315 | ) | | (89,048 | ) | |
| Less: Treasury stock, at cost, 21,788 and 10,438 shares, respectively | | Less: Treasury stock, at cost, 21,788 and 10,438 shares, respectively | (725,685) | | | (283,957) | |
| Total stockholders’ equity | 1,712,832 |
| | 1,664,514 |
| Total stockholders’ equity | 1,083,168 | | | 1,522,883 | |
| Total liabilities and stockholders’ equity | $ | 2,931,104 |
| | $ | 3,008,080 |
| Total liabilities and stockholders’ equity | $ | 2,458,384 | | | $ | 2,205,908 | |
See notes to consolidated financial statements.
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
FISCAL YEARS ENDED JUNE 30, 2017, 20162022, 2021 AND 20152020
(In thousands, except per share amounts)
| | | | Fiscal Year Ended June 30, | | Fiscal Year Ended June 30, |
| | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | | 2020 |
| Net sales | $ | 2,853,111 |
| | $ | 2,885,374 |
| | $ | 2,609,613 |
| Net sales | $ | 1,891,793 | | | $ | 1,970,302 | | | $ | 2,053,903 | |
| Cost of sales | 2,311,739 |
| | 2,271,243 |
| | 2,046,758 |
| Cost of sales | 1,464,352 | | | 1,478,687 | | | 1,588,133 | |
| Gross profit | 541,372 |
| | 614,131 |
| | 562,855 |
| Gross profit | 427,441 | | | 491,615 | | | 465,770 | |
| Selling, general and administrative expenses | 331,763 |
| | 303,763 |
| | 302,827 |
| Selling, general and administrative expenses | 300,665 | | | 302,368 | | | 324,376 | |
| Amortization of acquired intangibles | 18,402 |
| | 18,869 |
| | 17,846 |
| |
| Acquisition related expenses, restructuring and integration charges | 10,388 |
| | 13,391 |
| | 7,316 |
| |
| Accounting review costs | 29,562 |
| | — |
| | — |
| |
| Amortization of acquired intangible assets | | Amortization of acquired intangible assets | 10,214 | | | 8,931 | | | 11,638 | |
| Productivity and transformation costs | | Productivity and transformation costs | 10,174 | | | 15,608 | | | 48,789 | |
| Proceeds from insurance claims | | Proceeds from insurance claims | (196) | | | (592) | | | (2,962) | |
Goodwill impairment
| — |
| | 84,548 |
| | — |
| Goodwill impairment | — | | | — | | | 394 | |
| Long-lived asset and intangibles impairment | 40,452 |
| | 43,200 |
| | 1,004 |
| Long-lived asset and intangibles impairment | 1,903 | | | 57,920 | | | 27,493 | |
| Operating income | 110,805 |
| | 150,360 |
| | 233,862 |
| Operating income | 104,681 | | | 107,380 | | | 56,042 | |
| Interest and other financing expense, net | 21,274 |
| | 25,161 |
| | 25,973 |
| Interest and other financing expense, net | 12,570 | | | 8,654 | | | 18,258 | |
| Other (income)/expense, net | 388 |
| | 16,543 |
| | 4,689 |
| |
| Gain on sale of business | — |
| | — |
| | (9,669 | ) | |
| Gain on fire insurance recovery | — |
| | (9,752 | ) | | — |
| |
| Income before income taxes and equity in earnings of equity-method investees | 89,143 |
| | 118,408 |
| | 212,869 |
| |
| Other (income) expense, net | | Other (income) expense, net | (11,380) | | | (10,067) | | | 3,956 | |
| Income from continuing operations before income taxes and equity in net loss of equity-method investees | | Income from continuing operations before income taxes and equity in net loss of equity-method investees | 103,491 | | | 108,793 | | | 33,828 | |
| Provision for income taxes | 21,842 |
| | 70,932 |
| | 48,535 |
| Provision for income taxes | 22,716 | | | 41,093 | | | 6,205 | |
| Equity in net loss (income) of equity-method investees | (129 | ) | | 47 |
| | (628 | ) | |
| Net income | $ | 67,430 |
| | $ | 47,429 |
| | $ | 164,962 |
| |
| Equity in net loss of equity-method investees | | Equity in net loss of equity-method investees | 2,902 | | | 1,591 | | | 1,989 | |
| Net income from continuing operations | | Net income from continuing operations | $ | 77,873 | | | $ | 66,109 | | | $ | 25,634 | |
| Net income (loss) from discontinued operations, net of tax | | Net income (loss) from discontinued operations, net of tax | — | | | 11,255 | | | (106,041) | |
| Net income (loss) | | Net income (loss) | $ | 77,873 | | | $ | 77,364 | | | $ | (80,407) | |
| | | | | | | | | | | | |
| Net income per common share: | | | | | | |
| Net income (loss) per common share: | | Net income (loss) per common share: | |
| Basic net income per common share from continuing operations | | Basic net income per common share from continuing operations | $ | 0.84 | | | $ | 0.66 | | | $ | 0.25 | |
| Basic net income (loss) per common share from discontinued operations | | Basic net income (loss) per common share from discontinued operations | — | | | 0.11 | | | (1.02) | |
| Basic net income (loss) per common share | | Basic net income (loss) per common share | $ | 0.84 | | | $ | 0.77 | | | $ | (0.77) | |
| | Diluted net income per common share from continuing operations | | Diluted net income per common share from continuing operations | $ | 0.83 | | | $ | 0.65 | | | $ | 0.25 | |
| Diluted net income (loss) per common share from discontinued operations | | Diluted net income (loss) per common share from discontinued operations | — | | | 0.11 | | | (1.02) | |
| Diluted net income (loss) per common share | | Diluted net income (loss) per common share | $ | 0.83 | | | $ | 0.76 | | | $ | (0.77) | |
| | Shares used in the calculation of net income (loss) per common share: | | Shares used in the calculation of net income (loss) per common share: | |
| Basic | $ | 0.65 |
| | $ | 0.46 |
| | $ | 1.62 |
| Basic | 92,989 | | | 100,235 | | | 103,618 | |
| Diluted | $ | 0.65 |
| | $ | 0.46 |
| | $ | 1.60 |
| Diluted | 93,345 | | | 101,322 | | | 103,937 | |
| | | | | | | |
| Shares used in the calculation of net income per common share: | | | | | | |
| Basic | 103,611 |
| | 103,135 |
| | 101,703 |
| |
| Diluted | 104,248 |
| | 104,183 |
| | 103,421 |
| |
See notes to consolidated financial statements.
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FISCAL YEARS ENDED JUNE 30, 2017, 20162022, 2021 AND 20152020
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended June 30, 2017 | | Fiscal Year Ended June 30, 2016 | | Fiscal Year Ended June 30, 2015 |
| | Pre-tax amount | | Tax (expense) benefit | | After-tax amount | | Pre-tax amount | | Tax (expense) benefit | | After-tax amount | | Pre-tax amount | | Tax (expense) benefit | | After-tax amount |
| Net income | | | | | $ | 67,430 |
| | | | | | $ | 47,429 |
| | | | | | $ | 164,962 |
|
| | | | | | | | | | | | | | | | | | |
| Other comprehensive income (loss): | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustments | $ | (22,951 | ) | | $ | — |
| | (22,951 | ) | | $ | (129,874 | ) | | $ | — |
| | (129,874 | ) | | $ | (106,790 | ) | | $ | 4,416 |
| | (102,374 | ) |
| Change in deferred gains (losses) on cash flow hedging instruments | (411 | ) | | 32 |
| | (379 | ) | | (788 | ) | | 261 |
| | (527 | ) | | 2,093 |
| | (512 | ) | | 1,581 |
|
| Change in unrealized gain (loss) on available for sale investment | (53 | ) | | 15 |
| | (38 | ) | | (129 | ) | | 50 |
| | (79 | ) | | (1,575 | ) | | 669 |
| | (906 | ) |
| Total other comprehensive (loss) income | $ | (23,415 | ) | | $ | 47 |
| | $ | (23,368 | ) | | $ | (130,791 | ) | | $ | 311 |
| | $ | (130,480 | ) | | $ | (106,272 | ) | | $ | 4,573 |
| | $ | (101,699 | ) |
| | | | | | | | | | | | | | | | | | |
| Total comprehensive income (loss) | | | | | $ | 44,062 |
| | | | | | $ | (83,051 | ) | | | | | | $ | 63,263 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended June 30, 2022 | | Fiscal Year Ended June 30, 2021 | | Fiscal Year Ended June 30, 2020 |
| | Pre-tax
amount | | Tax (expense) benefit | | After-tax amount | | Pre-tax
amount | | Tax (expense) benefit | | After-tax amount | | Pre-tax
amount | | Tax benefit | | After-tax amount |
| Net income (loss) | | | | | $ | 77,873 | | | | | | | $ | 77,364 | | | | | | | $ | (80,407) | |
| | | | | | | | | | | | | | | | | |
| Other comprehensive (loss) income: | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustments before reclassifications | $ | (102,113) | | | $ | — | | | (102,113) | | | $ | 85,581 | | | $ | — | | | 85,581 | | | $ | (37,847) | | | $ | — | | | (37,847) | |
| Reclassification of currency translation adjustment included in net income (loss) | — | | | — | | | — | | | 16,073 | | | — | | | 16,073 | | | 95,120 | | | — | | | 95,120 | |
| Change in deferred gains (losses) on cash flow hedging instruments | 946 | | | (146) | | | 800 | | | 608 | | | (128) | | | 480 | | | (1,007) | | | 211 | | | (796) | |
| Change in deferred gains (losses) on fair value hedging instruments | 633 | | | (133) | | | 500 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Change in deferred gains (losses) on net investment hedging instruments | 11,827 | | | (2,485) | | | 9,342 | | | (4,751) | | | 998 | | | (3,753) | | | (3,627) | | | 762 | | | (2,865) | |
| Total other comprehensive (loss) income | $ | (88,707) | | | $ | (2,764) | | | $ | (91,471) | | | $ | 97,511 | | | $ | 870 | | | $ | 98,381 | | | $ | 52,639 | | | $ | 973 | | | $ | 53,612 | |
| Total comprehensive (loss) income | | | | | $ | (13,598) | | | | | | | $ | 175,745 | | | | | | | $ | (26,795) | |
See notes to consolidated financial statements.
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FISCAL YEARS ENDED JUNE 30, 2017, 20162022, 2021 AND 20152020
(In thousands, except par values)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional | | | | | | | | Accumulated Other | | |
| | | | Amount | | Paid-in | | Retained | | Treasury Stock | | Comprehensive | | |
| | Shares | | at $0.01 | | Capital | | Earnings | | Shares | | Amount | | (Loss) Income | | Total |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance at June 30, 2019 | 108,833 | | | $ | 1,088 | | | $ | 1,158,257 | | | $ | 695,017 | | | 4,614 | | | $ | (110,039) | | | $ | (225,004) | | | $ | 1,519,319 | |
| Net loss | | | | | | | (80,407) | | | | | | | | | (80,407) | |
| Cumulative effect of adoption of ASU 2016-02 | | | | | | | (439) | | | | | | | | | (439) | |
| | | | | | | | | | | | | | | |
| Other comprehensive income | | | | | | | | | | | | | 53,612 | | | 53,612 | |
| Issuance of common stock pursuant to stock-based compensation plans | 290 | | | 4 | | | (4) | | | | | | | | | | | — | |
| | | | | | | | | | | | | | | |
| Employee shares withheld for taxes | | | | | | | | | 73 | | | (1,931) | | | | | (1,931) | |
| Repurchases of common stock | | | | | | | | | 2,551 | | | (60,222) | | | | | (60,222) | |
Stock-based compensation
expense | | | | | 13,622 | | | | | | | | | | | 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 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional | | | | | | | | Accumulated Other | | |
| | | | Amount | | Paid-in | | Retained | | Treasury Stock | | Comprehensive | | |
| | Shares | | at $.01 | | Capital | | Earnings | | Shares | | Amount | | Income (Loss) | | Total |
| Balance at June 30, 2014 | 103,143 |
| | $ | 1,031 |
| | $ | 970,817 |
| | $ | 589,001 |
| | 2,906 |
| | $ | (40,092 | ) | | $ | 60,068 |
| | $ | 1,580,825 |
|
| Net income | | | | | | | 164,962 |
| | | | | | | | 164,962 |
|
| Other comprehensive income | | | | | | | | | | | | | (101,699 | ) | | (101,699 | ) |
| Issuance of common stock pursuant to compensation plans | 1,968 |
| | 20 |
| | 26,065 |
| | | | | | | | | | 26,085 |
|
| Issuance of common stock in connection with acquisitions | 730 |
| | 7 |
| | 34,129 |
| | | | | | | | | | 34,136 |
|
| Stock based compensation income tax effects | | | | | 29,219 |
| | | | | | | | | | 29,219 |
|
| Shares withheld for payment of employee payroll taxes due on shares issued under stock based compensation plans | | | | | | | | | 323 |
| | (18,058 | ) | | | | (18,058 | ) |
Stock based compensation expense | | | | | 12,197 |
| | | | | | | | | | 12,197 |
|
| Balance at June 30, 2015 | 105,841 |
| | $ | 1,058 |
| | $ | 1,072,427 |
| | $ | 753,963 |
| | 3,229 |
| | $ | (58,150 | ) | | $ | (41,631 | ) | | $ | 1,727,667 |
|
| Net income | | | | | | | 47,429 |
| | | | | | | | 47,429 |
|
| Other comprehensive loss | | | | | | | | | | | | | (130,480 | ) | | (130,480 | ) |
| Issuance of common stock pursuant to compensation plans | 1,398 |
| | 14 |
| | 9,749 |
| | | | 151 |
| | (5,363 | ) | | | | 4,400 |
|
| Issuance of common stock in connection with acquisitions | 240 |
| | 3 |
| | 16,305 |
| | | | | | | | | | 16,308 |
|
| Stock based compensation income tax effects | | | | | 12,037 |
| | | | | | | | | | 12,037 |
|
| Shares withheld for payment of employee payroll taxes due on shares issued under stock based compensation plans | | | | | | | | | 638 |
| | (25,535 | ) | | | | (25,535 | ) |
Stock based compensation expense | | | | | 12,688 |
| | | | | | | | | | 12,688 |
|
| Balance at June 30, 2016 | 107,479 |
| | $ | 1,075 |
| | $ | 1,123,206 |
| | $ | 801,392 |
| | 4,018 |
| | $ | (89,048 | ) | | $ | (172,111 | ) | | $ | 1,664,514 |
|
Continued on next page
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FISCAL YEARS ENDED JUNE 30, 2017, 20162022, 2021 AND 20152020
(In thousands, except par values)
Continued from previous page
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional | | | | | | | | Accumulated
Other | | |
| | | | Amount | | Paid-in | | Retained | | Treasury Stock | | Comprehensive | | |
| | Shares | | at $0.01 | | Capital | | Earnings | | Shares | | Amount | | (Loss) Income | | Total |
| Balance at June 30, 2020 | 109,123 | | | $ | 1,092 | | | $ | 1,171,875 | | | $ | 614,171 | | | 7,238 | | | $ | (172,192) | | | $ | (171,392) | | | $ | 1,443,554 | |
| Net income | | | | | | | 77,364 | | | | | | | | | 77,364 | |
| Cumulative effect of adoption of ASU 2016-13 | | | | | | | (310) | | | | | | | | | (310) | |
| Other comprehensive income | | | | | | | | | | | | | 98,381 | | | 98,381 | |
| Issuance of common stock pursuant to stock-based compensation plans | 384 | | | 4 | | | (4) | | | | | | | | | | | — | |
| Employee shares withheld for taxes | | | | | | | | | 120 | | | (4,282) | | | | | (4,282) | |
| Repurchases of common stock | | | | | | | | | 3,080 | | | (107,483) | | | | | (107,483) | |
Stock-based compensation
expense | | | | | 15,659 | | | | | | | | | | | 15,659 | |
| Balance at June 30, 2021 | 109,507 | | | $ | 1,096 | | | $ | 1,187,530 | | | $ | 691,225 | | | 10,438 | | | $ | (283,957) | | | $ | (73,011) | | | $ | 1,522,883 | |
| Net income | | | | | | | 77,873 | | | | | | | | | 77,873 | |
| | | | | | | | | | | | | | | |
| Other comprehensive loss | | | | | | | | | | | | | (91,471) | | | (91,471) | |
| Issuance of common stock pursuant to stock-based compensation plans | 1,583 | | | 15 | | | (15) | | | | | | | | | | | — | |
| Employee shares withheld for taxes | | | | | | | | | 724 | | | (32,663) | | | | | (32,663) | |
| Repurchases of common stock | | | | | | | | | 10,626 | | | (409,065) | | | | | (409,065) | |
Stock-based compensation
expense | | | | | 15,611 | | | | | | | | | | | 15,611 | |
| Balance at June 30, 2022 | 111,090 | | | $ | 1,111 | | | $ | 1,203,126 | | | $ | 769,098 | | | 21,788 | | | $ | (725,685) | | | $ | (164,482) | | | $ | 1,083,168 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional | | | | | | | | Accumulated Other | | |
| | | | Amount | | Paid-in | | Retained | | Treasury Stock | | Comprehensive | | |
| | Shares | | at $.01 | | Capital | | Earnings | | Shares | | Amount | | Income (Loss) | | Total |
| Balance at June 30, 2016 | 107,479 |
| | $ | 1,075 |
| | $ | 1,123,206 |
| | $ | 801,392 |
| | 4,018 |
| | $ | (89,048 | ) | | $ | (172,111 | ) | | $ | 1,664,514 |
|
| Net income | | | | | | | 67,430 |
| | | | | | | | 67,430 |
|
| Other comprehensive loss | | | | | | | | | | | | | (23,368 | ) | | (23,368 | ) |
| Issuance of common stock pursuant to compensation plans | 510 |
| | 5 |
| | 1,995 |
| | | | 52 |
| | (1,999 | ) | | | | 1 |
|
| Stock based compensation income tax effects | | | | | 2,865 |
| | | | | | | | | | 2,865 |
|
| Shares withheld for payment of employee payroll taxes due on shares issued under stock based compensation plans | | | | | | | | | 217 |
| | (8,268 | ) | | | | (8,268 | ) |
Stock based compensation expense | | | | | 9,658 |
| | | | | | | | | | 9,658 |
|
| Balance at June 30, 2017 | 107,989 |
| | $ | 1,080 |
| | $ | 1,137,724 |
| | $ | 868,822 |
| | 4,287 |
| | $ | (99,315 | ) | | $ | (195,479 | ) | | $ | 1,712,832 |
|
Note: The common stock and additional paid-in capital amounts and the treasury shares for the fiscal year ended June 30, 2014 have been retroactively adjusted to reflect a two-for-one stock split of the Company’s common stock in the form of a 100% stock dividend.
See notes to consolidated financial statements.
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JUNE 30, 20172022, 20162021 AND 20152020
|
| | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2017 | | 2016 | | 2015 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 67,430 |
| | $ | 47,429 |
| | $ | 164,962 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 68,697 |
| | 65,622 |
| | 57,380 |
|
| Deferred income taxes | (10,456 | ) | | 33,093 |
| | (2,667 | ) |
| Equity in net (income) loss of equity-method investees | (129 | ) | | 47 |
| | (628 | ) |
| Stock based compensation | 9,658 |
| | 12,688 |
| | 12,197 |
|
| Contingent consideration expense | — |
| | 1,511 |
| | (253 | ) |
| Gains on fire insurance recovery and other, net | — |
| | (8,058 | ) | | — |
|
| Gains on pre-existing ownership interests in HPPC and Empire | — |
| | — |
| | (9,669 | ) |
| Impairment charges | 40,452 |
| | 127,748 |
| | — |
|
| Other non-cash items, net | 459 |
| | 15,038 |
| | (1,434 | ) |
| Increase (decrease) in cash attributable to changes in operating assets and liabilities, net of amounts applicable to acquisitions: | | | | | |
| Accounts receivable | 27,675 |
| | (12,886 | ) | | (19,582 | ) |
| Inventories | (20,968 | ) | | (15,739 | ) | | (30,465 | ) |
| Other current assets | 32,637 |
| | (22,534 | ) | | (15,308 | ) |
| Other assets and liabilities | (5,637 | ) | | 3,281 |
| | (3,964 | ) |
| Accounts payable and accrued expenses | 6,806 |
| | (40,665 | ) | | 34,913 |
|
| Net cash provided by operating activities | 216,624 |
| | 206,575 |
| | 185,482 |
|
| | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Acquisitions of businesses, net of cash acquired | (19,544 | ) | | (157,061 | ) | | (104,633 | ) |
| Purchases of property and equipment | (63,120 | ) | | (77,284 | ) | | (51,217 | ) |
| Proceeds from sale of assets and other | 6,419 |
| | — |
| | 4,550 |
|
| Net cash used in investing activities | (76,245 | ) | | (234,345 | ) | | (151,300 | ) |
| | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from exercises of stock options | — |
| | — |
| | 18,643 |
|
| Borrowings under bank revolving credit facility | 90,000 |
| | 323,904 |
| | 92,000 |
|
| Repayments under bank revolving credit facility | (181,203 | ) | | (145,053 | ) | | (43,049 | ) |
| Repayments of senior notes | — |
| | (150,000 | ) | | — |
|
| Repayments of other debt, net | (19,528 | ) | | (13,017 | ) | | (54,853 | ) |
| Excess tax benefits from stock based compensation | 3,298 |
| | 11,317 |
| | 25,701 |
|
| Acquisition related contingent consideration | (2,498 | ) | | (1,547 | ) | | (3,217 | ) |
| Shares withheld for payment of employee payroll taxes | (8,268 | ) | | (25,535 | ) | | (18,058 | ) |
| Net cash (used in) provided by financing activities | (118,199 | ) | | 69 |
| | 17,167 |
|
| | | | | | |
| Effect of exchange rate changes on cash | (3,114 | ) | | (11,295 | ) | | (8,178 | ) |
| | | | | | |
| Net increase/(decrease) in cash and cash equivalents | 19,066 |
| | (38,996 | ) | | 43,171 |
|
| Cash and cash equivalents at beginning of year | 127,926 |
| | 166,922 |
| | 123,751 |
|
| Cash and cash equivalents at end of year | $ | 146,992 |
| | $ | 127,926 |
| | $ | 166,922 |
|
| | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2022 | | 2021 | | 2020 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income (loss) | $ | 77,873 | | | $ | 77,364 | | | $ | (80,407) | |
| Net income (loss) from discontinued operations | — | | | 11,255 | | | (106,041) | |
| Net income from continuing operations | $ | 77,873 | | | $ | 66,109 | | | $ | 25,634 | |
| Adjustments to reconcile net income from continuing operations to net cash provided by operating activities from continuing operations: | | | | | |
| Depreciation and amortization | 46,849 | | | 49,569 | | | 52,088 | |
| Deferred income taxes | 9,020 | | | 9,884 | | | 36,160 | |
| Equity in net loss of equity-method investees | 2,902 | | | 1,591 | | | 1,989 | |
| Stock-based compensation, net | 15,611 | | | 15,659 | | | 13,078 | |
| Goodwill impairment | — | | | — | | | 394 | |
| Long-lived asset and intangibles impairment | 1,903 | | | 57,920 | | | 27,493 | |
| Gain on sale of assets | (8,588) | | | (4,900) | | | — | |
| (Gain) loss on sale of businesses | — | | | (2,680) | | | 3,564 | |
| Other non-cash items, net | (1,608) | | | 429 | | | 342 | |
| (Decrease) increase in cash attributable to changes in operating assets and liabilities: | | | | | |
| Accounts receivable | (5,347) | | | (2,890) | | | 33,856 | |
| Inventories | (25,272) | | | (38,522) | | | 33,236 | |
| Other current assets | (10,459) | | | 55,172 | | | (45,337) | |
| Other assets and liabilities | (2,704) | | | (220) | | | 5,986 | |
| Accounts payable and accrued expenses | (19,939) | | | (10,362) | | | (31,569) | |
| Net cash provided by operating activities from continuing operations | 80,241 | | | 196,759 | | | 156,914 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Purchases of property, plant and equipment | (39,965) | | | (71,553) | | | (60,893) | |
| Acquisitions of businesses, net of cash acquired | (259,985) | | | — | | | — | |
| Investment in joint venture | (694) | | | (813) | | | — | |
| Proceeds from sale of assets | 12,335 | | | 10,395 | | | — | |
| Proceeds from sale of businesses, net and other | — | | | 59,607 | | | 15,765 | |
| Net cash used in investing activities from continuing operations | (288,309) | | | (2,364) | | | (45,128) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Borrowings under bank revolving credit facility | 759,000 | | | 241,000 | | | 262,000 | |
| Repayments under bank revolving credit facility | (396,000) | | | (291,000) | | | (401,669) | |
| Borrowings under term loan | 300,000 | | | — | | | — | |
| Repayments under term loan | (3,750) | | | — | | | (206,250) | |
| Proceeds from funding of discontinued operations | — | | | — | | | 305,645 | |
| Payments of other debt, net | (3,320) | | | (2,094) | | | (2,040) | |
| Share repurchases | (410,480) | | | (106,067) | | | (60,221) | |
| Employee shares withheld for taxes | (32,663) | | | (4,282) | | | (1,931) | |
| Net cash provided by (used in) financing activities from continuing operations | 212,787 | | | (162,443) | | | (104,466) | |
| Effect of exchange rate changes on cash from continuing operations | (15,078) | | | 6,148 | | | (566) | |
| CASH FLOWS FROM DISCONTINUED OPERATIONS | | | | | |
| Cash used in operating activities | — | | | — | | | (5,748) | |
| Cash provided by investing activities | — | | | — | | | 297,592 | |
| Cash used in financing activities | — | | | — | | | (299,816) | |
| Effect of exchange rate changes on cash - discontinued operations | — | | | — | | | (537) | |
| Net cash used in discontinued operations | — | | | — | | | (8,509) | |
| Net (decrease) increase in cash and cash equivalents | (10,359) | | | 38,100 | | | (1,755) | |
| Cash and cash equivalents at beginning of year | 75,871 | | | 37,771 | | | 39,526 | |
| | | | | |
| | | | | |
| Cash and cash equivalents of continuing operations at end of year | $ | 65,512 | | | $ | 75,871 | | | $ | 37,771 | |
See notes to consolidated financial statements.
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 and(collectively, along with its subsidiaries, (collectively, the “Company,” and herein referred to as “Hain Celestial,” “we,” “us,” and“us” or “our”), was founded in 1993 and is headquartered in Lake Success, New York. The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet — To Create and Inspire A Healthier Way of LifeTM andtenet. The Company continues to be thea leading marketer, manufacturer and seller of organic and natural, “better-for-you” products by anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience. The Company is committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 80 countriesover 75 countries worldwide. The Company operates under 2 reportable segments: North America and International.
With a proven track record of strategic growth and profitability, 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 LifeTM. Hain Celestial is a leader in many organic and natural products categories, with many recognized brands in the various market categories it serves, including Almond Dream®, Arrowhead Mills®, Bearitos®, Better BeanTM, BluePrint®, Celestial Seasonings®, Coconut Dream®, Cully & Sully®, Danival®, DeBoles®, Earth’s Best®, Ella’s Kitchen®, Empire®, Europe’s Best®, Farmhouse Fare®, Frank Cooper’s®, FreeBird®, Gale’s®, Garden of Eatin’®, GG UniqueFiberTM, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, Johnson’s Juice Co.®, Joya®, Kosher Valley®, Lima®, Linda McCartney’s® (under license), MaraNatha®, Natumi®, New Covent Garden Soup Co.®, Plainville Farms®, Rice Dream®, Robertson’s®, Rudi’s Gluten-Free Bakery®, Rudi’s Organic Bakery®, Sensible Portions®, Spectrum Organics®, Soy Dream®, Sun-Pat®, SunSpire®, Terra®, The Greek Gods®, Tilda®, Walnut Acres®, WestSoy®, Yorkshire ProvenderTM and Yves Veggie Cuisine®. The Company’s personal care products are marketed under the Alba Botanica®, Avalon Organics®, Earth’s Best®, JASON®, Live Clean® and Queen Helene® brands.
During fiscal year 2016, the Company commenced a strategic review, which it called “Project Terra,” that resulted in the Company redefining its core platforms, starting with the United States segment, for future growth based upon consumer trends to create and inspire A Healthier Way of Life™. In addition, beginning in fiscal year 2017, the Company launched Cultivate Ventures (“Cultivate”), a venture unit with a threefold purpose: (i) to strategically invest in the Company’s smaller brands in high potential categories such as BluePrint® cold-pressed juices, SunSpire® chocolates and DeBoles® pasta by giving those products a dedicated, creative focus for refresh and relaunch; (ii) to incubate small acquisitions until they reach the scale for the Company’s core platforms; and (iii) to invest in concepts, products and technology that focus on health and wellness. Cultivate also includes Tilda® and Yves Veggie Cuisine®, which are global brands that have a growing presence in the United States. See Note 17, SegmentInformation, for information on the Company’s operating and reportable segments and the effect the formation of Cultivate had thereon.
Basis of Presentation
The Company’s consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Investments in affiliated companies in which the Company exercises significant influence, but which it does not control, are accounted for under the equity method of accounting. As such, consolidated net income (loss) includes the Company’s equity in the current earnings or losses of such companies.
Unless otherwise indicated, references in these consolidated financial statements to 2017, 20162022, 2021 and 20152020 or “fiscal” 2017, 20162022, 2021 and 20152020 or other years refer to ourthe fiscal year ended June 30 of that respective year and references to 20182023 or “fiscal” 20182023 refer to ourthe fiscal year ending June 30, 2018.2023.
ReclassificationsAcquisition
Certain prior year amounts have been reclassified to conform with current year presentation.On December 28, 2021, the Company acquired all outstanding stock of Proven Brands, Inc. (and its subsidiary That's How We Roll LLC) and KTB Foods Inc., collectively doing business as "That's How We Roll" ("THWR"), the producer and marketer of ParmCrisps® and Thinsters®. See Note 4, Acquisitions and Dispositions, for details.
Discontinued Operations
The financial statements separately report discontinued operations and the results of continuing operations (see Note 4, Acquisitions and Dispositions). All footnotes exclude discontinued operations unless otherwise noted.
Use of Estimates
The financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The accounting principles we use require usused required the Company 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. Actual results could differ from those estimates. These estimates include, among others, variable consideration related to revenue recognition for trade promotions and sales incentives, valuation of accounts and chargeback receivables, accounting for acquisitions, valuation of long-lived assets, goodwill and intangible assets (acquired in business combinations and analysis of impairment), stock-based compensation, and valuation allowances for deferred tax assets. We believe in the quality and reasonableness
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.
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.
Revenue Recognition
Sales are recognized whenThe 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 the earnings process is complete, which occurs when the product is shipped in accordance with the terms of agreements, title and risk of loss transfersCompany’s revenue contracts represent a single performance obligation related to the fulfillment of customer collection is probableorders for the purchase of products. The Company recognizes revenue as performance obligations are fulfilled when control passes to customers. Customer contracts typically contain standard terms and pricing is fixedconditions. In instances where formal written contracts are not in place, the Company considers the customer purchase orders to be contracts based on the criteria outlined in Accounting Standard Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). Payment terms and conditions vary by customer and are based on the billing schedule established in contracts or determinable. Net salespurchase orders with customers, but the Company generally provides credit terms to customers ranging from 10-90 days. Therefore, the Company has concluded that 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.
During the fourth quarter Shipping and handling costs are accounted for as a fulfillment activity of fiscal 2016, the Company identified the practice of granting additional concessionspromise to certain distributorstransfer products to customers and are included in the United States and commenced an internal accounting review in ordercost of sales line item on the Consolidated Statements of Operations.
Variable Consideration
In addition to (i) determine whether the revenue associated with those concessions was accounted for in the correct period and (ii) evaluate its internal control over financial reporting. The Audit Committeefixed contract consideration, many of the Company’s Boardcontracts include some form of Directors separately conducted an independent review of these matters and retained independent counsel to assist in their review. On November 16, 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.
Management’s accounting review included consideration of certain side agreements and concessions provided to distributors in the United States in fiscal 2015 and 2016, including payment terms beyond the customer’s standard terms, rights of return of product and post-sale concessions, most of which were associated with sales that occurred at the end of the quarter. It had been the Company’s policy to record revenue related to these distributors when title of the product transfers to the distributor.variable consideration. The Company concluded that its historical accounting policy for these distributors was appropriate as the sales price is fixed or determinable at the time ownership transfers to these distributors, based on the Company’s ability to make a reasonable estimate of future returns and certain concessions at the time of shipment.
Trade Promotions and Sales Incentives
Tradeoffers various trade promotions and sales incentives includeincentive programs to customers and consumers, such as price discounts, slotting fees, in-store display incentives, cooperative advertising programs, new product introduction fees and couponscoupons. The expenses associated with these programs are accounted for as reductions to the transaction price of the products and are used to support sales of the Company’s products. These incentives aretherefore 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 recognitioncritical assumptions used in estimating the accruals for trade promotions and sales incentives include the Company’s estimate of expense for these programs involves the useexpected levels of judgment related to performance and redemption estimates. Differences between estimated expenserates. The Company 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 actual redemptions are normally insignificant and recognized as a change in estimate in the period such change occurs.
Trade Promotions. Accruals for trade promotions are recorded primarily at the time a product is soldrevises, when deemed necessary, estimates of costs to the customerCompany for these promotions and incentives based on expected levelswhat has been incurred by the customers. The terms of performance.most of the 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.
Coupon Redemption. Coupon redemptionCompany. Differences between estimated expense and actual promotion and incentive costs are accruedrecognized in earnings in the period in whichsuch differences are determined. Actual expenses may differ if the coupons are offered, based on estimateslevel of redemption rates that are developed by management. Managementand performance were to vary from estimates. During the year ended June 30, 2022, the Company revised its estimates arefor trade promotion expense incurred in the prior year based on recommendationsnew information that was not available at the time that the June 30, 2021 accrual was established. This change in estimate was due to unique circumstances, such as the implementation of bracket pricing in North America and less expense incurred from independent coupon redemption clearing-housesretail resets, both leading to lower-than-expected customer deductions on the outstanding promotional accrual. This change in estimate caused an increase in net sales of 0.2%.
Costs to Obtain or Fulfill a Contract
As the Company’s contracts are generally shorter than one year, the Company has elected a practical expedient under ASC 606 that allows the Company to expense as well asincurred the incremental costs of obtaining a contract if the contract period is for one year or less. These costs are included in selling, general and administrative expenses on historical information. Should actual redemption rates vary from amounts estimated, adjustments to accruals may be required.
the Consolidated Statements of Operations.
Valuation of Accounts and Chargebacks Receivable and Concentration of Credit Risk
The Company routinely performs credit evaluations on existing and new customers. The Company applies reservescustomers and maintains an allowance for delinquent orexpected uncollectible accounts receivable which is recorded as an offset to trade receivables basedaccounts receivable on the Consolidated Balance Sheets. Effective July 1, 2020, collectability of accounts receivable is assessed by applying a specific identificationhistorical loss-rate methodology and also applies an additional reservein accordance with ASC Topic 326, Financial Instruments - Credit Losses, adjusted as necessary based on the Company's review of accounts receivable on an individual basis, specifically identifying customers with known disputes or collectability issues, and experience the Company has with its trade receivablesreceivable aging categories. The Company also considers market conditions and current and expected future economic conditions to inform adjustments to historical loss data. Changes to the allowance, if any, are classified as bad debt provisions within selling, general and administrative expenses on the Consolidated Statements of Operations. Credit losses have been within the Company’s expectations in recent years. While one of the Company’s customers represented approximately 11%15% and 10%6% of trade receivables balances as of June 30, 20172022 and 2016,2021, respectively, the Company believes that there is no significant or unusual credit exposure at this time.
Based on cash collection history and other statistical analysis, the Company estimates the amount of unauthorized deductions customers have taken that we expectthe Company expects will be collected and repaid in the near future and records a chargeback receivable.receivable which is a component of trade receivables. Differences between estimated collectible receivables and actual collections are recognized in earnings in the period such differences are determined.
During the fiscal years ended June 30, 2017, 2016 and 2015, salesSales to one customer and its affiliates approximated 10%15%, 11% and 12% of consolidated net sales. Sales to a second customer and its affiliates approximated 9%, 10% and 11%sales during the fiscal years ended June 30, 2017, 2016,2022, 2021 and 2015,2020, 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 market,net realizable value, utilizing the first-in, first-out method. The Company provides write-downs for finished goods expected to become non-saleable due to age and specifically identifies and provides for slow moving or obsolete raw ingredients and packaging.
Property, Plant and Equipment
Property, plant and equipment is carried at cost and depreciated or amortized on a straight-line basis over the estimated useful lives or lease term (for leasehold improvements), whichever is shorter. The Company believes the useful lives assigned to ourthe Company’s 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 what isas disclosed inunder Note 4, Acquisitions and Dispositions,and Note 6, Property, Plant and Equipment, Net. Ordinary repairs and maintenance costs are expensed as incurred. The Company utilizes the following ranges of asset lives:
|
| | | | | | | |
| Buildings and improvements | | 10 - 40 years |
| Machinery and equipment | | 3 - 20 years |
| Furniture and fixtures | | 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 1520 years.
Software that is developed for internal use is recorded as a component of property, plant and equipment. Qualifying costs incurred to develop internal-use software are capitalized when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project and (iii) it is probable that the project will be completed and perform as intended. These capitalized costs include compensation for employees who develop internal-use software and external costs related to development of internal use software. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Once placed into service, internally developed software is amortized on a straight-line basis over its estimated useful life. All other expenditures, including those incurred in order to maintain the asset’s current level of performance, are expensed as incurred. The net book value of internally developed software as of June 30, 2022 is $19,874 and it is included as a component of Computer Hardware and Software in Note 6, Property, Plant and Equipment, Net.
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. WeThe Company 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.
acquired trademarks and tradenames. Indefinite-lived intangible assets are testedevaluated 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 impairment by comparingeach 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 toassets, the carrying value. Fair value is determined based on a relief from royaltywritten down to fair value in the period identified. This method that includeincludes significant management assumptions such as revenue growth rates, weighted average cost of capital and assumed royalty rates. If the fair value is less than the carrying value, the asset is reduced to fair value.
See Note 7, 8, 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 non-recourse factoring arrangements in which eligible receivables are sold to third-party buyers in exchange for cash. The Company transferred accounts receivables in their entirety to the buyers 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 these arrangements was $170,737 during the year ended June 30, 2022, $96,788 during the year ended June 30, 2021 and $108,928 were sold in the year ended June 30, 2020. The incremental cost of factoring receivables under these arrangements is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations. The proceeds from the sale of receivables are included in cash from operating activities on the 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'sCompany’s international operations are reported as a component of Accumulatedaccumulated other comprehensive loss inon the Company’s consolidated balance sheets.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 Otherother (income)/expense, net inon the Consolidated Statements of Income.Operations.
Gain on Recovery of Insurance Proceeds
On October 25, 2014, a fire occurred at our Tilda rice milling facility in the United Kingdom. As a result, the Company recognized a gain of $9,752, representing the excess of the insurance proceeds over the net book value of fixed assets destroyed in the fire. As of June 30, 2016, the Company recorded a receivable of $4,234, representing the final settlement of the claim. The receivable is included in “Prepaid Expenses and Other Current Assets” on the Company’s Consolidated Balance Sheet, and the amount was collected in the first quarter of fiscal 2017. The milling facility was fully functional at the end of the third quarter of fiscal 2016.
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 inon the accompanying consolidated financial statements.Consolidated Statement of Operations. Research and development costs amounted to $10,149$9,416 in fiscal 2017, $11,3542022, $10,372 in fiscal 20162021 and $10,271$11,653 in fiscal 2015,2020, 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 $33,053$15,393 in fiscal 2017, $26,9682022, $20,706 in fiscal 20162021 and $26,061$19,455 in fiscal 2015.2020. Such costs are expensed as incurred.
Proceeds from Insurance Claims
In July 2019, the Company received $7,027 as partial payment from an insurance claim relating to business disruption costs associated with a co-packer, $4,460 of which was recognized in fiscal 2019 as it related to reimbursement of costs incurred in that fiscal year. The Company recorded an additional $2,567 in the first quarter of fiscal 2020 and received an additional $462 of proceeds in the third quarter of fiscal 2020. In fiscal 2021 and fiscal 2022, the Company received $592 and $196 of proceeds from insurance claims, respectively.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities at enacted rates in effect in the years
in which the differences are expected to reverse. Valuation allowances are provided for deferred tax assets to the extent it is more likely than not that the deferred tax assets will not be recoverable against future taxable income.
The Company recognizes liabilities for uncertain tax positions based on a two-step process prescribed by the authoritative guidance. The first step requires the Company to determine if the weight of available evidence indicates that the tax position has met the threshold for recognition; therefore, the Company must evaluate whether it is more likely than not that the position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step requires the Company to measure the tax benefit of the tax position taken, or expected to be taken, in an income tax return as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company reevaluates the uncertain tax positions each period based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Depending on the jurisdiction, such a change in recognition or measurement may result in the recognition of a tax benefit or an additional charge to the tax provision in the period. The Company records interest and penalties in the provision for income taxes.
Fair Value of Financial Instruments
The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. At June 30, 20172022 and 2016, the Company had $21,800 and $20,706, respectively, invested in money market funds, which are classified as cash equivalents. At June 30, 2017 and 2016,2021, the carrying values of financial instruments such as accounts receivable, accounts payable, accrued expenses and other current liabilities, as well as borrowings under ourthe Company’s 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
The Company utilizes derivative instruments, principally foreign exchange forward contracts, to manage certain exposures to changes in foreign exchange rates. The Company’s contracts are hedges for transactions with notional balances and periods consistent with the related exposures and do not constitute investments independent
ASC 815, Derivatives and Hedging. Exposure (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to counterparty credit risk is considered low because these agreements have been entered intoprovide users of financial statements with high quality financial institutions.
Allan 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 recognizedrequired 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.
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 Accumulatedaccumulated other comprehensive income (loss)loss until the hedged item is recognized in earnings. Changes in the fair value of fair value hedges, derivatives that do not qualify for hedge accounting treatment, as well as the ineffective portion of any cash flow hedges, are recognized currently in earnings as a component of Other (Income)/Expense, net.other (income) expense, net or interest and other financing expense, net on the Consolidated Statement of Operations. 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 has employee and director stock-based compensation plans. Theuses the fair value of employee stock options is determined on the date of grant using the Black-Scholes option pricing model. The Company has used historical volatility in its estimate of expected volatility. The expected life represents the period of time (in years) for which the options granted are expected to be outstanding. The risk-free interest rate is based on the United States Treasury yield curve. The fair value of restricted stock awards is equal to the market value of the Company’s common stock on the grant date of grant or is estimated usingto measure fair value for service-based and performance-based awards, and a Monte Carlo simulation ifmodel to determine the award contains a market condition.
fair value of market-based awards. The fair value of stock-based compensation awards is recognized as an expense over the vesting period using the straight-line method. For awards that contain a market condition, expense is recognized over the defined or derived service period using a Monte Carlo simulation model. Compensation expense is recognized for these awards on a straight-line basis over the service period, regardless of the eventual number of shares that are earned based upon the market condition, provided that each grantee remains an employee at the end of the performance period. Compensation expense on awards that contain a market condition is reversed if at any time during the service period a grantee is no longer an employee.
For restricted stock awards which include performance criteria, compensation expense is recorded when the achievement of the performance criteria is probable and is recognized over the performance and vesting service periods. Compensation expense is recognized for only that portion of stock basedstock-based awards that are expected to vest. Therefore, estimated forfeiture rates
The Company recognizes forfeitures as they occur at which time compensation cost previously recognized for an award that are derived from historical employee termination activity are appliedis forfeited because of failure to reducesatisfy a condition is reversed in the amountperiod of compensation expense recognized. If the actual forfeitures differ from the estimate, additional adjustments to compensation expense may be required in future periods.forfeiture.
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 ourthe 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 financingoperating activities inon 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 4, Acquisitions and Dispositions,and Note 6, Property, Plant and Equipment, Net,for information on long-lived asset impairment charges.
Leases
Arrangements containing leases are evaluated as an operating or finance lease at lease inception. For operating leases, the Company recognizes an operating lease right-of-use ("ROU") asset and operating lease liability at lease commencement based on the present value of lease payments over the lease term.
With the exception of certain finance leases, an implicit rate of return is not readily determinable for the Company's leases. For these leases, an incremental borrowing rate is used in determining the present value of lease payments and is calculated based on information available at the lease commencement date. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest the Company would have to pay to borrow funds on a collateralized basis over a similar term. The Company references market yield curves which are risk-adjusted to approximate a collateralized rate in the currency of the lease. These rates are updated on a quarterly basis for measurement of new lease obligations.
The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Leases with an initial term of 12 months or less are not recognized on the Consolidated Balance Sheets. The Company has elected to separate lease and non-lease components.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-averageweighted average number of common shares outstanding for the period. Diluted net income (loss) per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.
Recently Adopted Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination on the acquisition date in accordance with ASC 606 as if it had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The Company adopted ASU 2021-08 during the second quarter of fiscal year 2022, and the adoption did not have an impact on the Company's consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. ASU 2020-04 is currently effective and may be applied prospectively to contract modifications made on or before December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies certain provisions in Topic 848, if elected by an entity, to apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. During the first quarter of fiscal year 2022, the Company adopted the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company is currently assessing the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
Recently Issued Accounting Pronouncements Not Yet Effective
In May 2017, the FASB (“Financial Accounting Standards Board”)There are no recently issued Accounting Standards Update (“ASU”) 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements havepronouncements not yet been issued. Theeffective that the Company is currently evaluating the potential effects of adopting the provisions of ASU 2017-09.
In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The ASU was issued to clarify the scope of the previous standard and to add guidance for partial sales of nonfinancial assets. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2017-05.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). The amendments in this update simplify the test for goodwill impairment by eliminating Step 2 from the impairment test, which required the entity to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining fair value of assets acquired and liabilities assumed in a business combination. The amendments in this update are effective for public companies for annual or any interim goodwill impairments tests in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2017-04.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2017-01.
In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties that are Under Common Control. ASU 2016-17 changes how a reporting entity considers indirect interests held by related parties under common control when evaluating whether it is the primary beneficiary of a variable interest entity (“VIE”). ASU 2016-17 is effective on a retrospective basis for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The adoption of the provisions of ASU 2016-17 is not expected tobelieves will have a materialsignificant impact on the Company’sits consolidated financial position or results of operations.statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Currently, U.S. GAAP prohibits recognizing current and deferred income tax consequences for an intra-entity asset transfer until the asset has been sold to an outside party. ASU 2016-16 states that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new standard is effective for public companies
in fiscal years beginning after December 15, 2017. Early adoption is permitted. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.
The Company is currently evaluating the potential effects of adopting the provisions of ASU 2016-16.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (A Consensus of the Emerging Issues Task Force). ASU 2016-15 provides guidance on the classification of certain cash receipts and payments in the statement of cash flows. The guidance must be applied retrospectively to all periods presented but may be applied prospectively if retrospective application would be impracticable. The new standard is effective for public companies in fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2016-15.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses, which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, companies will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, companies will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. Companies will have to disclose significantly more information, including information they use to track credit quality by year of origination for most financing receivables. Companies will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. This standard is effective for years beginning after December 15, 2019, and interim periods therein. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2016-13.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees’ maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. The standard will be effective for the first interim period within annual periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2016-09.
In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. ASU 2016-07 eliminates the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The equity method investor is required to add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. ASU 2016-07 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of the provisions of ASU 2016-07 is not expected to have a material impact on the Company’s consolidated financial position or results of operations.
In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. Under ASU 2016-05, the novation of a derivative contract (i.e., a change in the counterparty) in a hedge accounting relationship does not, in and of itself, require dedesignation of that hedge accounting relationship. The hedge accounting relationship could continue uninterrupted if all of the other hedge accounting criteria are met, including the expectation that the hedge will be highly effective when the creditworthiness of the new counterparty to the derivative contract is considered. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods therein. Early adoption is permitted. Entities may apply the guidance prospectively or on a modified retrospective basis. The adoption of the provisions of ASU 2016-05 is not expected to have a material impact on the Company’s consolidated financial position or results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability to make lease payments and an asset representing its right to use the underlying asset for the lease term in the balance sheet. The standard is effective for the first interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2016-02.
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. ASU 2016-01 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2016-01.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 requires inventory measured using any method other than last-in, first out or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. ASU 2015-11 is effective for annual reporting periods beginning after December 15, 2016 and for interim periods within such annual period. Early application is permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2015-11.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under ASU 2014-09, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Subsequent to the issuance of ASU 2014-09, the FASB has issued various additional ASUs clarifying and amending this new revenue guidance. These ASUs apply to all companies that enter into contracts with customers to transfer goods or services and are effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted. Entities have the choice to apply these ASUs either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying these standards at the date of initial application and not adjusting comparative information. The Company is currently evaluating the provisions of ASU No. 2014-09 and assessing the impact on its financial statements. As part of our assessment work-to-date, we have formed an implementation work team, begun training on the new ASU’s revenue recognition model and are beginning to review our customer contracts. We are also evaluating the impact of the new standard on certain common practices currently employed by the Company and by other manufacturers of consumer products, such as slotting fees, co-operative advertising, rebates and other pricing allowances, merchandising funds and consumer coupons. We have not yet determined if the full retrospective or modified retrospective method will be applied.
3. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earningsnet income per share:
|
| | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2017 | | 2016 | | 2015 |
| Numerator: | | | | | |
| Net income | $ | 67,430 |
| | $ | 47,429 |
| | $ | 164,962 |
|
| | | | | | |
| Denominator: | | | | | |
| Basic weighted average shares outstanding | 103,611 |
| | 103,135 |
| | 101,703 |
|
Effect of dilutive stock options, unvested restricted stock and unvested restricted share units | 637 |
| | 1,048 |
| | 1,718 |
|
| Diluted weighted average shares outstanding | 104,248 |
| | 104,183 |
| | 103,421 |
|
| | | | | | |
| Net income per common share: |
|
| |
|
| | |
| Basic | $ | 0.65 |
| | $ | 0.46 |
| | $ | 1.62 |
|
| Diluted | $ | 0.65 |
| | $ | 0.46 |
| | $ | 1.60 |
|
Basicshare utilized to calculate earnings per share excludeson the dilutive effectsConsolidated Statements of Operations:
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
| Numerator: | | | | | |
| Net income from continuing operations | $ | 77,873 | | | $ | 66,109 | | | $ | 25,634 | |
| Net income (loss) from discontinued operations, net of tax | — | | | 11,255 | | | (106,041) | |
| Net income (loss) | $ | 77,873 | | | $ | 77,364 | | | $ | (80,407) | |
| | | | | |
| Denominator: | | | | | |
| Basic weighted average shares outstanding | 92,989 | | | 100,235 | | | 103,618 | |
Effect of dilutive stock options, unvested restricted stock and unvested restricted share units | 356 | | | 1,087 | | | 319 | |
| Diluted weighted average shares outstanding | 93,345 | | | 101,322 | | | 103,937 | |
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| | | | | |
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There were 316, 137 and 428 restricted stock awards and stock options unvested restricted stock and unvested restricted share units. Diluted earningsexcluded from the Company’s calculation of diluted net income (loss) per share includes the dilutive effects of common stock equivalents such as stock options and unvested restricted stock awards. The Company used income from continuing operations as the control number in determining whether potential common shares were dilutive or anti-dilutive. The same number of potential common shares used in computing the diluted per share amount from continuing operations was also used in computing the diluted per share amounts from discontinued operations even if those amounts were anti-dilutive.
There were 271, 282 and 107 stock based awards excluded from our diluted earnings per share calculationsshare for the fiscal years ended June 30, 2017, 20162022, 2021 and 2015,2020, respectively, as such awards were anti-dilutive.
Additionally 214, 721 and 2,645 stock-based awards outstanding at June 30, 2022, 2021 and 2020, respectively, were excluded from the calculation of diluted net income (loss) per share for the fiscal years ended June 30, 2022, 2021 and 2020, respectively, as such awards were contingently issuable based on market or performance
conditions, and such conditions had not been achieved during the respective periods. Additionally, 12 restricted
4. ACQUISITIONS AND DISPOSITIONS
That's How We Roll
On December 28, 2021, the Company acquired all outstanding stock awardsof THWR, the producer and marketer of ParmCrisps® and Thinsters®, deepening the Company's position in the snacking category. Consideration for the transaction, net of cash acquired, totaled $260,424. Of the total consideration, $259,985 was paid with the remaining $439 payable as of June 30, 2022. The acquisition was funded with borrowings under the Credit Agreement (as defined in Note 10, Debt and Borrowings). The Company incurred, $5,103 of transaction costs in connection with the acquisition, which were excluded from our diluted earnings per share calculationexpensed as incurred and are included as a component of selling, general and administrative expenses on the Consolidated Statements of Operations for the fiscal year ended June 30, 2017, as such awards were antidilutive. There were no antidilutive awards excluded from our diluted earnings per share calculations for the fiscal years ended June 30, 2016 and 2015.2022.
Share Repurchase Program
On June 21, 2017,The following table summarizes the Company's Board of Directors authorized the repurchase of up to $250,000 of the Company’s issued and
outstanding common stock. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The authorization does not have a stated expiration date. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations, including the Company’s historical strategy of pursuing accretive acquisitions. The Company did not repurchase any shares under this program in fiscal 2017, and accordingly, as of the end of fiscal 2017, we had $250,000 of remaining capacity under our share repurchase program.
4. ACQUISITIONS
The Company accounts for acquisitions in accordance with ASC 805, Business Combinations. The results of operations of the acquisitions have been included in the consolidated results from their respective dates of acquisition. The purchase price of each acquisition is allocated to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. Acquisitions may include contingent consideration, the fair value of which is estimated on the acquisition date as the present value of the expected contingent payments, determined using weighted probabilities of possible payments. The fair values assigned to identifiable intangible assets acquired were determined primarily by using an income approach which was based on assumptions and estimates made by management. Significant assumptions utilized in the income approach were based on company specific information and projections which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance. The excessallocation of the purchase price overto the fair value of the identified assets acquired and liabilities has been recorded as goodwill.
The costs related to all acquisitions have been expensed as incurred and are included in “Acquisition related expenses, restructuring and integration charges” in the Consolidated Statements of Income. Acquisition-related costs of $2,035, $3,724 and $5,731 were expensed in the fiscal years ended June 30, 2017, 2016 and 2015, respectively. The expenses incurred primarily related to professional fees and other transaction related costs associated with our recent acquisitions.
Fiscal 2017
On June 19, 2017, the Company acquired Sonmundo, Inc. d/b/a The Better Bean Company (“Better Bean”), which offers prepared beans and bean-based dips sold in refrigerated tubs under the Better BeanTM brand. Consideration for the transaction consisted of cash, net of cash acquired, totaling $3,434. Additionally, contingent consideration of up to a maximum of $4,000 is payableassumed based on the achievement of specified operating results over the three year period following the closing date. Better Bean is included in our Cultivate operating segment, which is part of Rest of World. Net sales and income before income taxes attributable to the Better Bean acquisition and included in our consolidated results were less than 1% of consolidated results.
On April 28, 2017, the Company acquired The Yorkshire Provender Limited (“Yorkshire Provender”), a producer of premium branded soups based in North Yorkshire in the United Kingdom. Yorkshire Provender supplies leading retailers, on-the-go food outlets and food service providers in the United Kingdom. Consideration for the transaction consisted of cash, net of cash acquired, totaling £12,465 (approximately $16,110 at the transaction date exchange rate). Additionally, contingent consideration of up to a maximum of £1,500 is payable basedtheir respective estimated fair values on the achievementacquisition date.
| | | | | |
| June 30, |
| 2022 |
| |
| |
| Accounts receivable, net | $ | 5,107 | |
| Inventory | 9,871 | |
| Prepaid expenses and other current assets | 542 | |
| Property, plant and equipment | 9,198 | |
| Goodwill | 95,645 | |
| Identifiable intangible assets | 193,800 | |
| Operating lease right-of-use assets | 3,676 | |
| Other assets | 163 | |
| Accounts payable and accrued expenses | (9,082) | |
| Deferred income taxes | (44,271) | |
| Operating lease liabilities | (4,225) | |
| Total assets | $ | 260,424 | |
The fair values assigned to identifiable intangible assets acquired were based on assumptions and estimates made by management. IdentifiableOf the $193,800 of identifiable intangible assets acquired, consisted of$70,800 was assigned to customer relationships valued at $7,045 with a weighted average estimated useful life of 1417 years, and trade names valued at $3,673$123,000 was assigned to tradenames with indefinite lives. The acquisition resulted in goodwill, which represents the future economic benefits expected to arise that could not be individually identified and separately recognized, including use of the Company’s existing infrastructure to expand sales of the acquired business’ products and to expand sales of the Company’s existing products into new regions. The goodwill recorded as a result of these acquisitionsthis acquisition is not expected to be deductible for tax purposes.
Fiscal 2016
On December 21, 2015, the Company acquired Orchard House Foods Limited (“Orchard House”), a leader in pre-cut fresh fruit, juices, fruit desserts and ingredients with facilities in Corby and Gateshead in the United Kingdom. Orchard House supplies leading retailers, on-the-go food outlets, food service providers and manufacturers in the United Kingdom. Consideration for the transaction consisted of cash, net of cash acquired, totaling £76,923 (approximately $114,113 at the transaction date exchange rate). The acquisition was funded with borrowings under the Credit Agreement (as defined in Note 9, Debt and Borrowings). Additionally, contingent consideration of up to £3,000 was potentially payable to the sellers based on the outcome of a review by the Competition and Markets Authority (“CMA”) in the United Kingdom. As a result of this review, the Company agreed to divest certain portions of its own-label juice business in the fourth quarter of fiscal 2016. On September 15, 2016, the contingent consideration obligation referenced above was settled in the amount of £1,500. Orchard House isTHWR are included in the United KingdomStates operating andsegment, a component of the North America reportable segment. NetTHWR's net sales and net income before income taxes attributable to the Orchard House acquisition and included in ourthe Company’s consolidated results were $88,5802.9% of consolidated net sales and $4,622,3.7% of net income, respectively, for the fiscal year ended June 30, 2016.2022.
On July 24, 2015, the Company acquired Formatio Beratungs- und Beteiligungs GmbH and its subsidiaries (“Mona”), a leader in plant-based foods and beverages with facilities in Germany and Austria. Mona offers a wide range of organic and natural products under the Joya® and Happy® brands, including soy, oat, rice and nut based drinks as well as plant-based yogurts, desserts, creamers, tofu and private label products, sold to leading retailers in Europe, primarily in Austria and Germany and eastern European countries. Consideration for the transaction consisted of cash, net of cash acquired, totaling €22,753 (approximately $24,948 at the transaction date exchange rate) and 240 shares of the Company’s common stock valued at $16,308. Also included in the acquisition was the assumption of net debt totaling €16,252. The cash portion of the purchase price was funded with borrowings under our Credit Agreement. Mona is included in the Europe operating segment which is part of Rest of World. Net sales and income before income taxes attributable to the Mona acquisition and included in our consolidated results were $58,767 and $3,464, respectively, for the fiscal year ended June 30, 2016.
The fair values assigned to identifiable intangible assets acquired were based on assumptions and estimates made by management. Identifiable intangible assets acquired consisted of customer relationships valued at $58,726 with a weighted average estimated useful life of 15 years and trade names valued at $10,965 with indefinite lives. The acquisition resulted in goodwill, which represents the future economic benefits expected to arise that could not be individually identified and separately recognized, including use of the Company’s existing infrastructure to expand sales of the acquired business’ products and to expand sales of the Company’s existing products into new regions. The goodwill recorded as a result of these acquisitions is not expected to be deductible for tax purposes.
The following table provides unaudited pro forma results of continuing operations forhad the fiscal years ended June 30, 2016 and 2015, as if the acquisitions of Orchard House, Mona, Hain Pure Protein Corporation (“HPPC”), Belvedere International, Inc. (“Belvedere”), and EK Holdings, Inc. (“Empire”) hadacquisition been completed at the beginning of fiscal 2015 (see below for acquisitions2021. The proforma information reflects certain adjustments related to the acquisition but does not reflect any potential operating efficiencies or cost savings that occurred in fiscal 2015). Themay result from the acquisition. Accordingly, this information has been provided for illustrative purposes only and does not purport to be indicative of the actual results that would have been achieved by the Company for the periods presented or that will be achieved by the combined company in the future. The pro forma information has been adjusted to give effect to items that are directly attributable to the transactions and are expected to have a continuing impact on the combined results.
|
| | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2016 | | 2015 |
| Net sales from continuing operations | $ | 2,973,872 |
| | $ | 2,947,536 |
|
| Net income from continuing operations | $ | 51,270 |
| | $ | 177,435 |
|
| Net income per common share from continuing operations - diluted | $ | 0.49 |
| | $ | 1.71 |
|
Fiscal 2015
On July 17, 2014, the Company acquired the remaining 51.3% of HPPC that it did not already own, at which point HPPC became a wholly-owned subsidiary. HPPC processes, markets and distributes antibiotic-free, organic and other poultry products. HPPC held a 19% interest in Empire, which grows, processes and sells kosher poultry and other products. Consideration in the transaction consisted of cash totaling $20,310, net of cash acquired, and 463 shares of the Company’s common stock valued at $19,690. The cash consideration paid was funded with then-existing cash balances. Additionally, HPPC’s existing bank borrowings were repaid on September 30, 2014 with proceeds from borrowings under the Credit Agreement . The carrying amount of the pre-existing 48.7% investment in HPPC as of June 30, 2014 was $29,327. Due to the acquisition of the remaining 51.3% of HPPC, the Company adjusted the carrying amount of its pre-existing investment to its fair value. This resulted in a gain of $6,747 recorded in “Gain on sale of business” in the Consolidated Statements of Income. HPPC is its own operating segment which is part of the Hain Pure
| | | | | | | | | | | |
| Fiscal Year Ended |
| June 30,
2022 | | June 30,
2021 |
| Net sales | $ | 1,945,564 | | | $ | 2,065,957 | |
Net income from continuing operations(1) | $ | 84,913 | | | $ | 68,142 | |
| Diluted net income per common share from continuing operations | $ | 0.91 | | | $ | 0.67 | |
Protein reportable segment. Net sales(1) The pro forma adjustments include the elimination of transaction costs totaling $5,103 from the fiscal year ended June 30, 2022 and income before income taxes attributable torecognition of those costs in the HPPC acquisitionfiscal year ended June 30, 2021. Additionally, the pro forma adjustments include the elimination of integration costs and included in our consolidated results were $290,593 and $26,649 respectively,a fair value inventory adjustment totaling $1,800 for the fiscal year ended June 30, 2015.2022 and recognition of those costs in the fiscal period ended June 30, 2021.
GG UniqueFiber®
On February 20, 2015,June 28, 2021, the Company acquired Belvedere, a leadercompleted the divestiture of its crispbread crackers business, GG UniqueFiber (“GG”) for total cash consideration of $336. The sale of GG is consistent with the Company’s transformation and portfolio simplification process. GG operated in health and beauty care products including the Live Clean® brand with approximately 200 baby, body and hair care products as well as several mass market brands sold primarily in Canada and manufactured in a company facility in Mississauga, Ontario, Canada. Consideration in the transaction consisted of cash totaling C$17,454 ($13,988 at the transaction date exchange rate), net of cash acquired, which included debt that was repaid at closing,Norway and was funded with then-existing cash balances. Additionally, contingent considerationpart of up to a maximumthe Company’s International reportable segment. The Company deconsolidated the net assets of C$4,000 was payable based on the achievement of specified operating resultsGG during the two consecutive one-year periods following the closing date. In bothtwelve months ended June 30, 2021, recognizing a pre-tax loss on sale of $3,753 in the fourth quarter of fiscal 20172021.
Dream® and 2016,WestSoy®
On April 15, 2021, the Company paid C$2,000 in settlementcompleted the divestiture of its North America non-dairy beverages business, consisting of the Belvedere contingentDream® and WestSoy® brands (“Dream”), for total cash consideration obligation. Belvedere is included inof $33,000, subject to customary post-closing adjustments. The final purchase price was $31,320. The non-dairy beverage business was considered to be non-core within our broader North American business, and the sale aligns with the Company’s portfolio simplification process. The business operated out of the United States and Canada operating segment, which isand was part of Rest of World. Net sales and income before income taxes attributable to the Belvedere acquisition and included in our consolidated results were less than 1% of consolidated results.
On March 4, 2015,Company’s North America reportable segment. The Company deconsolidated the Company acquired the remaining 81% of Empire that it did not already own, at which point Empire became a wholly-owned subsidiary. Consideration in the transaction consisted of cash totaling $57,595, net of cash acquired, which included debt that was repaid at closing. The acquisition was funded with borrowings under the Credit Agreement. The carrying amountassets of the pre-existing 19% investment in Empire as of March 4, 2015 was $6,864. Due toNorth American non-dairy beverage business during the acquisition of the remaining 81% of Empire, the Company adjusted the carrying amount of its pre-existing investment to its fair value. This resulted intwelve months ended June 30, 2021, recognizing a pre-tax gain of $2,922 recorded in “Gain on sale of business”$7,519 in the Consolidated Statementsfourth quarter of Income. Empire isfiscal 2021.
Fruit
In August 2020, the Company's Board of Directors approved a plan to sell its own operating segment which isprepared fresh fruit, fresh fruit drinks and fresh fruit desserts division ("Fruit"), primarily consisting of the Orchard House® Foods Limited business and associated brands. This decision supported the Company's overall strategy as the Fruit business did not align, and had limited synergies with the rest of the Company's businesses. The Fruit business operated in the U.K. and was part of the Hain Pure ProteinCompany’s International reportable segment. Net salesThe Company determined that the held for sale criteria was met and income before income taxes attributableclassified the assets and liabilities of the Fruit business as held for sale as of September 30, 2020 and December 31, 2020, recognizing a pre-tax non-cash loss to reduce the Empire acquisition and included in our consolidated results were $46,604 and $4,752 respectively, forcarrying value to its estimated fair value less costs to sell of $56,093 during the fiscal year ended June 30, 2015.2021. The sale was completed on January 13, 2021 for a total cash consideration of $38,547, recognizing a pre-tax loss on sale of $1,904.
Danival®
The fair values assignedCompany entered into a definitive stock purchase agreement on June 30, 2020 for the sale of its Danival® business, a component of the International reportable segment, and the transaction closed on July 21, 2020. The Company deconsolidated the net assets of the Danival® business upon closing of the sale during the quarter ended September 30, 2020, recognizing a pre-tax gain on sale of $611 during the first quarter of fiscal 2021.
Discontinued Operations
Sale of Tilda Business
On August 27, 2019, the Company sold the entities comprising the former Tilda operating segment and certain other assets of the Tilda business for an aggregate price of $342,000 in cash, subject to identifiable intangible assets acquired werecustomary post-closing adjustments based on assumptions and estimates made by management. Identifiable intangible assets acquired consisted of customer relationships valued at $15,903 with a weighted average estimated useful life of 11 years, a patent valued at $1,700 with an estimated life of 9 years, and trade names valued at $43,747 with indefinite lives. The acquisition resulted in goodwill, which represents the future economic benefits expected to arise that could not be individually identified and separately recognized, including usebalance sheets of the Company’s existing infrastructure to expand salesTilda business. The disposition of the acquired business’ products. The goodwill recordedTilda 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 a resultdiscontinued operations. Net income (loss) from discontinued operations, net of these acquisitions is not expected to be deductibletax on the Consolidated Statements of Operations was nil for tax purposes.
the year ended June 30, 2022. The following table provides unaudited pro formapresents the major classes of Tilda’s results within net income (loss) from discontinued operations, net of continuing operationstax on the Consolidated Statements of Operations for the fiscal years ended June 30, 2015, as if2021 and 2020:
| | | | | | | | | | | |
| |
| 2021 | | 2020 |
| Net sales | $ | — | | | $ | 30,399 | |
| Cost of sales | — | | | 26,648 | |
Gross profit | — | | | 3,751 | |
| | | |
| Selling, general and administrative expense | — | | | 5,185 | |
| Other expense | 75 | | | 1,172 | |
Interest expense (1) | — | | | 2,432 | |
Translation loss (2) | — | | | 95,120 | |
| Gain on sale of discontinued operations | — | | | (9,386) | |
| Loss income from discontinued operations before income taxes | (75) | | | (90,772) | |
(Benefit) provision for income taxes (3) | (11,320) | | | 12,909 | |
| Net income (loss) from discontinued operations, net of tax | $ | 11,245 | | | $ | (103,681) | |
(1) Interest expense was allocated to discontinued operations based on borrowings repaid with proceeds from the acquisitions completed in fiscal 2015 (HPPC, Belvedere and Empire) had been completed atsale of Tilda.
(2) At the beginning of fiscal year 2015. The information has been provided for illustrative purposes only and does not purport to be indicativecompletion of the actual results that would have been achieved bysale of Tilda, the Company reclassified $95,120 of related cumulative translation losses from accumulated other comprehensive loss to discontinued operations, net of tax.
(3) Includes $11,320 of tax benefit related to the legal entity reorganization for the periods presentedtwelve months ended June 30, 2021, as well as a tax provision related to the tax gain on the sale of Tilda of $13,960 for the twelve months ended June 30, 2020.
There were no assets or that will be achieved byliabilities from discontinued operations associated with Tilda as of June 30, 2022 and June 30, 2021.
Sale of Hain Pure Protein Reportable Segment
Sale of Hain Pure Protein Corporation and EK Holdings, Inc.
On June 28, 2019, the combined companyCompany completed the sale of the remainder of Hain Pure Protein and EK Holdings, Inc. which included the FreeBirdand Empire Kosher businesses. Other portions of the business were sold prior to June 28, 2019. 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 future. The pro forma information has been adjustedtwelve months ended June 30, 2019 to give effect to items that are directly attributablewrite down the assets and liabilities to the transactions and are expectedfinal sales price less costs to have a continuing impactsell. The following table presents the major classes of Hain Pure Protein’s line items constituting the loss from discontinued operations, net of tax on the combined results, which include amortization expenseConsolidated Statements of Operations:
| | | | | |
| June 30, |
| 2020 |
| |
| |
| |
| |
| |
| |
| Loss on sale of discontinued operations | 3,043 | |
| Net loss from discontinued operations before income taxes | (3,043) | |
| Benefit for income taxes | (684) | |
| Net loss from discontinued operations, net of tax | $ | (2,359) | |
There were no assets or liabilities from discontinued operations associated with acquired identifiable intangible assets and the impactHain Pure Protein as of reversing our previously recorded equity in HPPC’s net income as prior to the dateJune 30, 2022 or 2021.
|
| | | |
| | Fiscal Year Ended June 30, 2015 |
| Net sales from continuing operations | $ | 2,718,466 |
|
| Net income from continuing operations | $ | 168,196 |
|
| Net income per common share from continuing operations - diluted | $ | 1.63 |
|
5. INVENTORIES
Inventories consisted of the following:
| | | | | | | | | | | |
| June 30,
2022 | | June 30,
2021 |
| Finished goods | $ | 202,544 | | | $ | 187,884 | |
| Raw materials, work-in-progress and packaging | 105,490 | | | 97,526 | |
| $ | 308,034 | | | $ | 285,410 | |
|
| | | | | | | |
| | June 30, 2017 | | June 30, 2016 |
| Finished goods | $ | 264,148 |
| | $ | 238,184 |
|
| Raw materials, work-in-progress and packaging | 163,160 |
| | 170,380 |
|
| | $ | 427,308 |
| | $ | 408,564 |
|
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
| | | | | | | | | | | |
| June 30,
2022 | | June 30,
2021 |
| Land | $ | 11,216 | | | $ | 13,666 | |
| Buildings and improvements | 51,849 | | | 58,143 | |
| Machinery and equipment | 296,398 | | | 306,811 | |
| Computer hardware and software | 65,680 | | | 65,132 | |
| Furniture and fixtures | 23,522 | | | 23,546 | |
| Leasehold improvements | 54,999 | | | 54,360 | |
| Construction in progress | 27,200 | | | 21,633 | |
| 530,864 | | | 543,291 | |
| Less: Accumulated depreciation and impairment | 233,459 | | | 230,514 | |
| $ | 297,405 | | | $ | 312,777 | |
Depreciation expense for the fiscal years ended June 30, 2022, 2021 and 2020 was $31,235, $34,291 and $31,409, respectively.
During fiscal year 2022, the Company completed the sale of undeveloped land plots in Boulder, Colorado in the United States for total cash proceeds of $10,005, net of brokerage and other fees, resulting in a gain in the amount of $8,656, which is included as a component of other (income) expense, net on the Consolidated Statement of Operations. The Company recognized a non-cash impairment charge of $303 during the fiscal year ended June 30, 2022 relating to a facility in the United Kingdom. Further, a facility in the United States was held for sale as of June 30, 2022 with a net carrying amount of $1,840.
During fiscal year 2021, the Company recorded $1,333 of non-cash impairment charges related to the write-down of building improvements. Additionally, during fiscal year 2021, the Company completed the sale of its manufacturing facility in Moonachie, NJ in the United States which resulted in a gain in the amount of $4,900. In connection with the sale, property, plant and equipment, net in the amount of $5,502 was written off. In addition to the aforementioned items, a non-cash impairment charge of $244 was recorded related to a facility in the United Kingdom which was held for sale as of June 30, 2021; the remaining property, plant and equipment, net of $1,874 was classified as held for sale on the Consolidated Balance Sheets as of June 30, 2021.
During fiscal 2020, the Company recorded $12,313 of non-cash impairment charges primarily related to a write-down of building improvements, machinery and equipment in the United States and Europe used to manufacture certain slow moving or low margin SKUs, held for sale accounting of Danival and consolidation of certain office space and manufacturing facilities.
|
| | | | | | | |
| | June 30,
2017 | | June 30,
2016 |
| Land | $ | 33,930 |
| | $ | 35,825 |
|
| Buildings and improvements | 116,723 |
| | 102,086 |
|
| Machinery and equipment | 350,689 |
| | 358,362 |
|
| Computer hardware and software | 51,486 |
| | 48,829 |
|
| Furniture and fixtures | 15,993 |
| | 14,165 |
|
| Leasehold improvements | 29,296 |
| | 28,471 |
|
| Construction in progress | 16,119 |
| | 14,495 |
|
| | 614,236 |
| | 602,233 |
|
| Less: Accumulated depreciation and amortization | 243,725 |
| | 212,392 |
|
| | $ | 370,511 |
| | $ | 389,841 |
|
Depreciation7. LEASES
The Company leases office space, warehouse and amortizationdistribution facilities, manufacturing equipment and vehicles primarily in North America and Europe. The Company determines if an arrangement is or contains a lease at inception. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company’s lease agreements generally do not contain residual value guarantees or material restrictive covenants. A limited number of lease agreements include rental payments adjusted periodically for inflation.
Certain of the Company’s leases contain variable lease payments, which are expensed as incurred unless those payments are based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and included in the measurement of the lease liability; thereafter, changes to lease payments due to rate or index changes are recorded as variable lease expense in the period incurred. The Company does not have any related party leases, and sublease transactions are de minimis.
The components of lease expenses for the fiscal years ended June 30, 2017, 2016,2022, 2021 and 2015 was $40,824, $38,1242020 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year Ended |
| | 2022 | | 2021 | | 2020 |
Operating lease expenses (a) | | $ | 15,911 | | | $ | 16,403 | | | $ | 18,981 | |
Finance lease expenses (a) | | 251 | | | 391 | | | 1,197 | |
| Variable lease expenses | | 1,010 | | | 1,423 | | | 2,570 | |
| Short-term lease expenses | | 3,394 | | | 2,387 | | | 1,723 | |
| Total lease expenses | | $ | 20,566 | | | $ | 20,604 | | | $ | 24,471 | |
(a) For the fiscal year ended June 30, 2020, operating lease expenses and $32,293, respectively.
In the fourth quarterfinance lease expenses included $1,505 and $251, respectively, of fiscal 2017, the Company determined that it was more likely than not that certain fixed assets at one of its manufacturing facilities in the United Kingdom would be sold or otherwise disposed of before the end of their estimated useful lives due to the Company’s decision to exit its own-label chilled desserts business over the next twelve months. As such, the Company recorded a $23,712 non-cashROU asset impairment charge related to the long-lived assetscharges associated with the own-label chilled desserts business to their estimated fair values, whichCompany’s ongoing productivity and transformation initiatives. Of this amount, $929 was equal to its salvage value. Additionally,recognized as a component of long-lived asset and intangibles impairment on the Company recordedConsolidated Statement of Operations with the remainder recognized as a $2,661 non-cash impairment chargecomponent of cost of sales.
Supplemental balance sheet information related to fixed assets in the United States.leases is as follows:
In fiscal 2016, the Company recorded a $3,476 non-cash impairment charge | | | | | | | | | | | | | | | | | | | | |
| Leases | | Classification | | June 30, 2022 | | June 30, 2021 |
| Assets | | | | | | |
| Operating lease ROU assets | | Operating lease right-of-use assets | | $ | 114,691 | | | $ | 92,010 | |
| Finance lease ROU assets, net | | Property, plant and equipment, net | | 413 | | | 547 | |
| Total leased assets | | | | $ | 115,104 | | | $ | 92,557 | |
| | | | | | |
| Liabilities | | | | | | |
| Current | | | | | | |
| Operating | | Accrued expenses and other current liabilities | | $ | 13,154 | | | $ | 10,870 | |
| Finance | | Current portion of long-term debt | | 149 | | | 229 | |
| Non-current | | | | | | |
| Operating | | Operating lease liabilities, noncurrent portion | | 107,481 | | | 85,929 | |
| Finance | | Long-term debt, less current portion | | 278 | | | 326 | |
| Total lease liabilities | | | | $ | 121,062 | | | $ | 97,354 | |
Additional information related to long-livedleases is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | 2022 | | 2021 | | 2020 |
| Supplemental cash flow information | | | | | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
| Operating cash flows from operating leases | | $ | 15,462 | | | $ | 16,738 | | | $ | 17,290 | |
| Operating cash flows from finance leases | | $ | 20 | | | $ | 17 | | | $ | 26 | |
| Financing cash flows from finance leases | | $ | 226 | | | $ | 338 | | | $ | 543 | |
ROU assets obtained in exchange for lease obligations (b): | | | | | | |
| Operating leases | | $ | 35,337 | | | $ | 25,446 | | | $ | 104,915 | |
| Finance leases | | $ | 116 | | | $ | 690 | | | $ | 1,475 | |
| ROU assets obtained in connection with an acquisition (See Note 4): | | | | | | |
| Operating leases | | $ | 4,098 | | | $ | — | | | $ | — | |
| Weighted average remaining lease term: | | | | | | |
| Operating leases | | 9.3 years | | 9.8 years | | 10.0 years |
| Finance leases | | 4.1 years | | 4.0 years | | 2.5 years |
| Weighted average discount rate: | | | | | | |
| Operating leases | | 3.9 | % | | 3.3 | % | | 3.0 | % |
| Finance leases | | 4.1 | % | | 3.9 | % | | 2.3 | % |
(b) ROU assets associated withobtained in exchange for lease obligations includes the divestitureimpact of certain portionsthe adoption of its own-label juice business in connection with its acquisitionASU 2016-02 effective July 1, 2019 (see Note 2) and leases which commenced, were modified or terminated during the fiscal year ended June 30, 2020.
Maturities of Orchard House in the United Kingdom and $1,004 in fiscal 2015 related to leasehold improvements due to the relocationlease liabilities as of our New York based BluePrint manufacturing facility.June 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | |
| Fiscal Year | Operating leases | | Finance leases | | Total |
| 2023 | $ | 17,039 | | | $ | 162 | | | $ | 17,201 | |
| 2024 | 17,886 | | | 80 | | | 17,966 | |
| 2025 | 15,850 | | | 80 | | | 15,930 | |
| 2026 | 15,306 | | | 67 | | | 15,373 | |
| 2027 | 15,012 | | | 53 | | | 15,065 | |
| Thereafter | 65,768 | | | 25 | | | 65,793 | |
| Total lease payments | 146,861 | | | 467 | | | 147,328 | |
| Less: Imputed interest | 26,226 | | | 40 | | | 26,266 | |
| Total lease liabilities | $ | 120,635 | | | $ | 427 | | | $ | 121,062 | |
7.
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table shows the changes in the carrying amountamount of goodwill by businessreportable segment:
| | | | | | | | | | | | | | | | | |
| North America | | International | | Total |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Balance as of June 30, 2020 | $ | 606,055 | | | $ | 255,903 | | | $ | 861,958 | |
| Divestiture | (8,429) | | (14,362) | | | (22,791) | |
| Translation and other adjustments, net | 3,186 | | 28,714 | | 31,900 | |
| Balance as of June 30, 2021 | 600,812 | | | 270,255 | | | 871,067 | |
| | | | | |
| Acquisition activity (See Note 4) | 95,645 | | — | | | 95,645 | |
| | | | | |
| Translation and other adjustments, net | (742) | | (32,174) | | (32,916) | |
| Balance as of June 30, 2022 | $ | 695,715 | | | $ | 238,081 | | | $ | 933,796 | |
|
| | | | | | | | | | | | | | | | | | | |
| | United States | | United Kingdom | | Hain Pure Protein | | Rest of World | | Total |
| Balance as of June 30, 2015 (a): | $ | 610,745 |
| | $ | 420,721 |
| | $ | 41,970 |
| | $ | 62,242 |
| | $ | 1,135,678 |
|
| Acquisitions | — |
| | 57,019 |
| | (881) |
| | 20,674 |
| | 76,812 |
|
| Impairment charge | — |
| | (84,548 | ) | | — |
| | — |
| | (84,548 | ) |
| Translation and other adjustments, net | (5,043 | ) | | (60,631 | ) | | — |
| | (1,932 | ) | | (67,606 | ) |
| Balance as of June 30, 2016 (b): | 605,702 |
| | 332,561 |
| | 41,089 |
| | 80,984 |
| | 1,060,336 |
|
| Acquisitions | 3,083 |
| | 6,962 |
| | — |
| | — |
| | 10,045 |
|
| Reallocation of goodwill between reporting units | (16,377 | ) | | — |
| | — |
| | 16,377 |
| | — |
|
| Translation and other adjustments, net | (992 | ) | | (10,388 | ) | | — |
| | 980 |
| | (10,400 | ) |
| Balance as of June 30, 2017 (b): | $ | 591,416 |
| | $ | 329,135 |
| | $ | 41,089 |
| | $ | 98,341 |
| | $ | 1,059,981 |
|
(a) The total carrying value of goodwill is reflected net of $42,029 of accumulated impairment charges, of which $12,810 related to the Company’s United Kingdom operating segment and $29,219 related to the Company’s Europe operating segment.
(b) The total carrying value of goodwill is reflected net of $126,577 of accumulated impairment charges, of which $97,358 related to the Company’s United Kingdom operating segment and $29,219 related to the Company’s Europe operating segment.
The Company completed its annual goodwill impairment analysis in the fourth quarter of fiscal 2017, in conjunction with its budgeting2022 and forecasting process for fiscal year 2018, and concluded that no indicators of impairment existed at any of its reporting units except forunits.
During April 2021, the Company completed the divestiture of its Hain Daniels reporting unit, which is included inDream business, a component of the United Kingdom segment. BasedStates and Canada reporting units. Goodwill of $8,429 was assigned to the divested business on the step one analysis performed,a relative fair value basis.
During January 2021, the Company concluded thatcompleted the fair valuedivestiture of its Fruit business, a component of the Hain Daniels reporting unitunit. Goodwill of $14,362 was below its carrying value, indicating that the second step of the impairment test was necessary. Under the second step, the carrying value of the Hain Daniels reporting unit’s goodwill was comparedassigned to the implieddivested business on a relative fair value of that goodwill. The implied fair value of goodwill was determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill. As a result of the allocation, less value was attributed to the other identifiable tangible and intangible assets, and the residual fair value of goodwill exceeded its carrying value by 20%. Accordingly, no goodwill impairment was recognized.basis.
As indicators of impairment existed within the Hain Daniels reporting unit, the Company performed an assessment of the recoverability for other long-lived assets, such as property, plant and equipment and finite-lived intangibles assets, namely customer relationships. The Company performed an assessment of the recoverability in accordance with the general valuation requirements set forth under ASC Topic 360 - Accounting for the Impairment of Long-Lived Assets. The result of this assessment indicated that no impairment existed for these assets.
For the fiscal year ended June 30, 2016, the Company recognized a goodwill impairment charge of $82,614 in its Hain Daniels reporting unit primarily as a result of lowered projected long-term revenue growth rates and profitability levels resulting from increased competition, changes in market trends and the mix of products sold. Additionally, a goodwill impairment charge of $1,934 was recognized during the fiscal year ended June 30, 2016 related to the divestiture of certain portions of the Company’s own-label juice business in connection with the Orchard House acquisition, which was sold in the first quarter of fiscal 2017. See Note 4, Acquisitions, for details.
Additions during the fiscal year ended June 30, 2017 were due to the acquisitions of Better Bean and Yorkshire Provender on June 19, 2017 and April 28, 2017, respectively. The additions during fiscal year ended June 30, 2016 were due to the acquisitions of Orchard House and Mona on December 21, 2015 and July 24, 2015, respectively.
Other Intangible Assets
The following table sets forth balance sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:
| | | | | | | | | | | |
| June 30,
2022 | | June 30,
2021 |
| Non-amortized intangible assets: | | | |
Trademarks and tradenames(1) | $ | 379,466 | | | $ | 273,471 | |
| Amortized intangible assets: | | | |
| Other intangibles | 199,448 | | | 146,856 | |
| Less: accumulated amortization and impairment | (101,381) | | | (105,432) | |
| Net carrying amount | $ | 477,533 | | | $ | 314,895 | |
|
| | | | | | | |
| | June 30, 2017 | | June 30, 2016 |
| Non-amortized intangible assets: | | | |
| Trademarks and tradenames (a) | $ | 424,817 |
| | $ | 441,140 |
|
| Amortized intangible assets: | | | |
| Other intangibles | 247,712 |
| | 245,040 |
|
| Less: accumulated amortization | (99,261 | ) | | (81,393 | ) |
| Net carrying amount | $ | 573,268 |
| | $ | 604,787 |
|
(a)(1) The gross carrying value of trademarks and tradenamestrade names is reflected net of $60,202$94,873 and $46,123$93,273 of accumulated impairment charges for the fiscal years endedas of June 30, 20172022 and 2016,2021, respectively.
Indefinite-lived intangible assets, which are not amortized, consist primarilyThe Company completed its annual assessment of acquired trade names and trademarks. Indefinite-lived intangible assets are evaluated on an annual basis in conjunction with the Company’s evaluation of goodwill. In assessing fair value, the Company utilizes a “relief from royalty” methodology. This approach involves two steps: (i) estimating the royalty ratesimpairment 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 exceedsin the fair valuefourth quarter of the asset, the carrying value is written down to fair value in the period identified.fiscal 2022. The result of this assessment for the year ended June 30, 2017 indicated that the fair value of certainthe Company’s indefinite-lived intangible assets exceeded their carrying values and no impairment existed.
See Note 4, Acquisitions and Dispositions, for details surrounding the acquisition of THWR, including $193,800 of identifiable intangible assets acquired on December 28, 2021.
During fiscal 2022, the Company recorded an impairment of $1,600 related to an indefinite-lived intangible asset that has been deemed worthless. The amount of the Company’s tradenames was below theirimpairment recorded represents the remaining carrying value, and therefore an impairment charge of $14,079 ($7,579 in the United Kingdom segment and $6,500 in the United States segment) was recognized during the fiscal year ended June 30, 2017. During the fiscal year ended June 30, 2016, an impairment charge of $39,724 ($20,932 in the United Kingdom segment and $18,792 in the United States segment) related to certainamount of the Company’s tradenames was recognized. There were no impairment charges recorded in fiscal 2015 related to indefinite-lived intangible assets.asset. The impairment loss is recorded within long-lived asset and intangibles impairment on the Consolidated Statements of Operations. The asset was part of the North America reportable segment.
In the fourth quarter of fiscal 2021, the Company completed the divestiture of its Dream and GG businesses. Other intangible assets totaling $7,833 and $729, consisting primarily of trademarks, were assigned to the divested businesses, respectively.
Amortizable intangible assets, which are deemed to have a finite life, primarily consist of customer relationships and are being amortized over their estimated useful lives of 37 to 25 years. Amortization expense included in continuing operations was as follows:$10,214, $8,931 and $11,638 for the years ended June 30, 2022, 2021 and 2020, respectively.
|
| | | | | | | | | | | |
| | Fiscal Year ended June 30, |
| | 2017 | | 2016 | | 2015 |
| Amortization of intangible assets | $ | 18,402 |
| | $ | 18,869 |
| | $ | 17,846 |
|
Expected amortization expense over the next five fiscal years is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ending June 30, |
| 2023 | | 2024 | | 2025 | | 2026 | | 2027 |
| Estimated amortization expense | $ | 11,463 | | | $ | 8,748 | | | $ | 7,893 | | | $ | 7,509 | | | $ | 7,277 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year ending June 30, |
| | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| Estimated amortization expense | $ | 18,385 |
| | $ | 16,129 |
| | $ | 14,748 |
| | $ | 14,306 |
| | $ | 14,210 |
|
The weighted average remaining amortization period of amortized intangible assets is 10.313.7 years.
8.9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
| | | | | | | | | | | |
| June 30, 2022 | | June 30, 2021 |
| Payroll, employee benefits and other administrative accruals | $ | 44,756 | | | $ | 71,229 | |
| Facility, freight and warehousing accruals | 10,922 | | | 15,197 | |
| Selling and marketing related accruals | 9,548 | | | 9,988 | |
Short-term operating lease liabilities | 13,154 | | | 10,870 | |
| Other accruals | 8,453 | | | 10,673 | |
| $ | 86,833 | | | $ | 117,957 | |
|
| | | | | | | |
| | June 30,
2017 | | June 30, 2016 |
| Payroll, employee benefits and other administrative accruals | $ | 70,740 |
| | $ | 43,774 |
|
| Freight and warehousing accruals | 20,294 |
| | 16,007 |
|
| Selling and marketing related accruals | 9,785 |
| | 9,826 |
|
| Other accruals | 7,695 |
| | 9,196 |
|
| | $ | 108,514 |
| | $ | 78,803 |
|
9.10. DEBT AND BORROWINGS
Debt and borrowings consisted of the following:
| | | | | | | | | | | |
| June 30, 2022 | | June 30, 2021 |
| Revolving credit facility | $ | 593,000 | | | $ | 230,000 | |
| Term loans | 296,250 | | | — | |
| Less: Unamortized issuance costs | (1,105) | | | — | |
Other borrowings(1) | 498 | | | 1,022 | |
| 888,643 | | | 231,022 | |
Short-term borrowings and current portion of long-term debt(2) | 7,705 | | | 530 | |
| Long-term debt, less current portion | $ | 880,938 | | | $ | 230,492 | |
|
| | | | | | | |
| | June 30,
2017 | | June 30,
2016 |
| Credit Agreement borrowings payable to banks | $ | 733,715 |
| | $ | 827,860 |
|
| Tilda short-term borrowing arrangements | 7,761 |
| | 19,121 |
|
| Other borrowings | 8,672 |
| | 15,703 |
|
| | 750,148 |
| | 862,684 |
|
| Short-term borrowings and current portion of long-term debt | 9,844 |
| | 26,513 |
|
| Long-term debt, less current portion | $ | 740,304 |
| | $ | 836,171 |
|
(2) Included in short-term borrowings are $149 (2021: $229) of short-term finance lease obligations as discussed in Note 7, Leases.
Amended and Restated Credit Agreement
On December 12, 2014,22, 2021, the Company enteredrefinanced its revolving credit facility by entering into the Seconda Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) which provides for a $1,000,000 unsecured revolving credit facility which may be increased by an additional uncommitted $350,000, provided certain conditions are met. The Credit Agreement expires in December 2019. Borrowings under the Credit Agreement may be used to provide working capital, finance capital expenditures and permitted acquisitions, refinance certain existing indebtedness and for other lawful corporate purposes.. The Credit Agreement provides for multicurrency borrowings in Euros, Pounds Sterling and Canadian Dollars as well as other currencies which may be designated. In addition, certain wholly-owned foreign subsidiariessenior secured financing of the Company may be designated as co-borrowers. The Credit Agreement contains restrictive covenants usual and customary for facilities of its type, which include, with specified exceptions, limitations on the Company’s ability to engage in certain business activities, incur debt, have liens, make capital expenditures, pay dividends or make other distributions, enter into affiliate transactions, consolidate, merge or acquire or dispose of assets, and make certain investments, acquisitions and loans. The Credit Agreement also requires the Company to satisfy certain financial covenants, such as maintaining a consolidated interest coverage ratio (as defined$1,100,000 in the Credit Agreement)aggregate, consisting of no less than 4.0 to 1.0(1) $300,000 in aggregate principal amount of term loans (the "Term Loans") and (2) an $800,000 senior secured revolving credit facility (which includes borrowing capacity available for letters of credit, and is comprised of a $440,000 U.S. revolving credit facility and a consolidated leverage
ratio (as defined in the Credit Agreement)June 30, 2022, there were $593,000 of no more than 3.5 to 1.0. The consolidated leverage ratio is subject to a step-up to 4.0 to 1.0 for the four full fiscal quarters following an acquisition. Obligationsloans under the Credit Agreement are guaranteed by certain existingRevolver, $296,250 of Term Loans, and future domestic subsidiaries of the Company. As of June 30, 2017, there were $733,715 of borrowings and $6,180$6,769 of letters of credit outstanding under the Credit Agreement and $260,105 available, and the Company was in compliance with all associated covenants.Agreement.
The Credit Agreement provides that loans will bear interest at rates based on (a) the EurocurrencyEurodollar Rate as defined in the Credit Agreement, plus a rate ranging from 0.875% to 1.70%1.750% per annum;annum or (b) the Base Rate as defined in the Credit Agreement, plus a rate ranging from 0.00%—% to 0.70%0.750% per annum, the relevant rate being the Applicable Rate. The Applicable Rate will be determined in accordance with a leverage-based pricing grid, as set forth in
the Credit Agreement. Swing line loansLine Loans and Global Swing Line loansLoans denominated in United States dollarsU.S. Dollars will bear interest at the Base Rate plus the Applicable Rate, and Global Swing Line loansLoans denominated in foreign currencies shall bear interest based on (a) the overnight EurocurrencyEuro Short Term Rate, foror €STR, in the case of such loans denominated in Euros plus the Applicable Rate, (b) the Sterling Overnight Index Average Reference Rate, or SONIA, in the case of such currencyloans denominated in Sterling plus the Applicable Rate or (c) the Canadian Prime Rate plus the Applicable Rate. The weighted average interest rate on outstanding borrowings under the Credit Agreement atJune 30, 20172022 was 2.93%3.10%. Additionally, the Credit Agreement contains a Commitment Fee as defined in the Credit Agreement, on the amount unused under the Credit Agreement ranging from 0.20%0.150% to 0.30%0.250% per annum. Suchannum, and such Commitment Fee is determined in accordance with a leverage-based pricing grid, as set forthgrid.
The Credit Agreement includes maintenance covenants that will require compliance with a consolidated interest coverage ratio, a consolidated secured leverage ratio and a consolidated leverage ratio. As of June 30, 2022, $203,981 was available under the Credit Agreement, and the Company was in compliance with all associated covenants.
In connection with the Credit Agreement, the Company and its material domestic subsidiaries entered into an Amended and Restated Security and Pledge Agreement (the “Security Agreement”), pursuant to which all of the obligations under the Credit Agreement will be secured by liens on assets of the Company and its material domestic subsidiaries, including the equity interests in each of their direct subsidiaries and intellectual property, subject to agreed-upon exceptions.
Credit Agreement Issuance Costs
Based on the Company's evaluation of the borrowing capacity associated with the creditors participating in the previous facility compared to those in the Credit Agreement.
Tilda Short-Term Borrowing Arrangements
Tilda maintains short-term borrowing arrangements primarily used to fundAgreement, $1,762 of the purchase$2,036 of rice from Indiaunamortized deferred financing costs at December 22, 2021 were deferred and the remaining $274 were expensed as a component of interest and other countries. The maximum borrowings permitted under all such arrangements are £52,000. Outstanding borrowings are collateralized byfinancing expense, net on the current assetsConsolidated Statement of Tilda, typically have six-month terms and bear interest at variable rates typically based on LIBOR plus a margin (weighted average interest rateOperations. Additionally, the Company incurred debt issuance costs of approximately 2.7% at June 30, 2017).$2,764 in connection with the Credit Agreement. Of the total $4,526 of deferred debt issuance costs, $3,292 were associated with the Revolver and are being amortized on a straight-line basis within other assets on the Consolidated Balance Sheets, and $1,234 are being amortized on a straight-line basis, which approximates the effective interest method, as an adjustment to the carrying amount of the Term Loans as a component of interest and other financing expense, net on the Consolidated Statement of Operations over the term of the Credit Agreement.
Other Borrowings
Other borrowings primarily relate to a cash pool facility in Europe. The cash pool facility provides our Europe operating segment with sufficient liquidity to support the Company’s growth objectives within this segment. The maximum borrowings permitted under the cash pool arrangement are €12,500. Outstanding borrowings bear interest at variable rates typically based on EURIBOR plus a margin of 1.1% (weighted average interest rate of approximately 1.1% at June 30, 2017).
Maturities of all debt instruments at June 30, 2017,2022, are as follows:
| | | | | | | | |
| Due in Fiscal Year | | Amount |
| 2023 | | $ | 7,705 | |
| 2024 | | 7,595 | |
| 2025 | | 7,580 | |
| 2026 | | 7,561 | |
| 2027 | | 7,557 | |
| Thereafter | | 850,645 | |
| | $ | 888,643 | |
|
| | | | |
| Due in Fiscal Year | | Amount |
| 2018 | | $ | 9,844 |
|
| 2019 | | 1,829 |
|
| 2020 | | 735,865 |
|
| 2021 | | 1,891 |
|
| 2022 | | 426 |
|
| Thereafter | | 293 |
|
| | | $ | 750,148 |
|
Interest paid during the fiscal years ended June 30, 2017, 20162022, 2021 and 20152020 amounted to $18,873, $24,288$9,926, $5,903 and $22,865,$15,514, respectively.
10.11. INCOME TAXES
The components of income (loss) from continuing operations before income taxes and equity in earningsnet loss of equity-method investees were as follows:
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
| Domestic | $ | 24,541 | | | $ | 60,215 | | | $ | (29,339) | |
| Foreign | 78,950 | | | 48,578 | | | 63,167 | |
| Total | $ | 103,491 | | | $ | 108,793 | | | $ | 33,828 | |
|
| | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2017 | | 2016 | | 2015 |
| Domestic | $ | 49,046 |
| | $ | 158,025 |
| | $ | 170,884 |
|
| Foreign | 40,097 |
| | (39,617 | ) | | 41,985 |
|
| Total | $ | 89,143 |
| | $ | 118,408 |
| | $ | 212,869 |
|
The provision (benefit) for income taxes consisted of the following:
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
| Current: | | | | | |
| Federal | $ | (197) | | | $ | 2,243 | | | $ | (44,595) | |
| State and local | 179 | | | 1,735 | | | 619 | |
| Foreign | 13,714 | | | 27,253 | | | 14,021 | |
| 13,696 | | | 31,231 | | | (29,955) | |
| Deferred: | | | | | |
| Federal | 6,237 | | | 14,266 | | | 33,007 | |
| State and local | (463) | | | (10,064) | | | 3,414 | |
| Foreign | 3,246 | | | 5,660 | | | (261) | |
| 9,020 | | | 9,862 | | | 36,160 | |
| Total | $ | 22,716 | | | $ | 41,093 | | | $ | 6,205 | |
|
| | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2017 | | 2016 | | 2015 |
| Current: | | | | | |
| Federal | $ | 14,448 |
| | $ | 21,304 |
| | $ | 32,910 |
|
| State and local | 2,966 |
| | 1,798 |
| | 8,311 |
|
| Foreign | 14,884 |
| | 14,737 |
| | 9,981 |
|
| | 32,298 |
| | 37,839 |
| | 51,202 |
|
| Deferred: | | | | | |
| Federal | (3,199 | ) | | 30,711 |
| | (912 | ) |
| State and local | 961 |
| | 5,017 |
| | (1,069 | ) |
| Foreign | (8,218 | ) | | (2,635 | ) | | (686 | ) |
| | (10,456 | ) | | 33,093 |
| | (2,667 | ) |
| Total | $ | 21,842 |
| | $ | 70,932 |
| | $ | 48,535 |
|
Cash paid for income taxes, net of (refunds), during the fiscal years ended June 30, 2022 amounted to $19,235. For the fiscal year ended June 30, 2017,2021, the Company received net cash income tax refunds of $2,900.$32,998 including a $53,817 tax loss carryback claim under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") which allowed for, among other provisions, a five-year carryback of net operating losses (“NOLs”) for 2018-2020 offset by taxes paid in other jurisdictions. Cash paid for income taxes, net of refunds, during the fiscal yearsyear ended June 30, 2016 and 20152020 amounted to $44,225 and $47,317, respectively.$16,162.
The reconciliation of the U.S. federal statutory rate to ourthe Company’s effective rate on income before provision for income taxes wasis as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| 2022 | | % | | 2021 | | % | | 2020 | | % |
| Expected United States federal income tax at statutory rate | $ | 21,733 | | | 21.0 | % | | $ | 22,847 | | | 21.0 | % | | $ | 7,104 | | | 21.0 | % |
| State income taxes, net of federal provision (benefit) | 1,227 | | | 1.2 | % | | 1,150 | | | 1.1 | % | | (668) | | | (1.9) | % |
| | | | | | | | | | | |
| Foreign income at different rates | (576) | | | (0.6) | % | | 4,756 | | | 4.4 | % | | 382 | | | 1.1 | % |
| Impairment of intangible assets | — | | | — | % | | 13,466 | | | 12.4 | % | | — | | | — | % |
Change in valuation allowance(a) | (220) | | | (0.2) | % | | (5,921) | | | (5.4) | % | | 4,499 | | | 13.3 | % |
| | | | | | | | | | | |
| Change in reserves for uncertain tax positions | (997) | | | (1.0) | % | | 1,971 | | | 1.8 | % | | 7,925 | | | 23.4 | % |
Change in foreign tax rate(b) | (341) | | | (0.3) | % | | 1,840 | | | 1.7 | % | | — | | | — | % |
| Loss on disposal of subsidiary | 0 | | — | % | | 1,073 | | | 1.0 | % | | — | | | — | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| U.S. tax (benefit) on foreign earnings | 2,404 | | | 2.3 | % | | (50) | | | (0.1) | % | | 7,449 | | | 22.0 | % |
| | | | | | | | | | | |
CARES Act(c) | 0 | | — | % | | (1,116) | | | (1.0) | % | | (25,668) | | | (75.9) | % |
| Other | (514) | | | (0.4) | % | | 1,077 | | | 1.0 | % | | 5,182 | | | 15.3 | % |
| Provision for income taxes | $ | 22,716 | | | 21.9 | % | | $ | 41,093 | | | 37.8 | % | | $ | 6,205 | | | 18.3 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2017 | | % | | 2016 | | % | | 2015 | | % |
| Expected United States federal income tax at statutory rate | $ | 31,200 |
| | 35.0 | % | | $ | 41,443 |
| | 35.0 | % | | $ | 74,504 |
| | 35.0 | % |
| State income taxes, net of federal benefit | 3,034 |
| | 3.4 | % | | 5,447 |
| | 4.6 | % | | 4,795 |
| | 2.2 | % |
| Domestic manufacturing deduction | (1,691 | ) | | (1.9 | )% | | (1,233 | ) | | (1.0 | )% | | (1,210 | ) | | (0.6 | )% |
| Foreign income at different rates | (6,539 | ) | | (7.3 | )% | | (4,051 | ) | | (3.4 | )% | | (9,515 | ) | | (4.5 | )% |
| Impairment of goodwill and intangibles | — |
| | — | % | — |
| 23,172 |
| — |
| 19.6 | % | | — |
| | — | % |
| Change in valuation allowance | (60 | ) | | (0.1 | )% | | 5,067 |
| | 4.3 | % | | 963 |
| | 0.5 | % |
| Corporate tax reorganization | — |
| | — | % | | (4,173 | ) | | (3.5 | )% | | (20,670 | ) | | (9.7 | )% |
| Unrealized foreign exchange losses | 807 |
| | 0.9 | % | | 7,056 |
| | 6.0 | % | | — |
| | — | % |
| Change in reserves for uncertain tax positions | (4,417 | ) | | (5.0 | )% | | 1,448 |
| | 1.2 | % | | (635 | ) | | (0.3 | )% |
| Non-taxable gains on acquisition of pre-existing ownership interests in HPPC and Empire | — |
| | — | % | | — |
| | — | % | | (2,793 | ) | | (1.3 | )% |
| Reduction of deferred tax liabilities resulting from change in United Kingdom tax rate | (1,841 | ) | | (2.1 | )% | | (4,942 | ) | | (4.2 | )% | | — |
| | — | % |
| Other | 1,349 |
| | 1.6 | % | | 1,698 |
| | 1.3 | % | | 3,096 |
| | 1.5 | % |
| Provision for income taxes | $ | 21,842 |
| | 24.5 | % | | $ | 70,932 |
| | 59.9 | % | | $ | 48,535 |
| | 22.8 | % |
(a) The Company estimated that it would utilize certain of its state tax loss carryovers in the year ended June 30, 2021. This positive evidence, in addition to other positive evidence, resulted in the Company releasing the valuation allowance on its state deferred assets of $9,774. Further, in fiscal 2021, there was a release of a valuation allowance of $1,600 related to Danival; an increase in the valuation allowance of $5,051 related to the UK rate change; and a valuation allowance increase of $402 related to capital leases.
(b) In fiscal year 2021, the U.K. enacted into law a tax rate increase from 17% to 19% and on June 10, 2021, the U.K. enacted an increase in the corporate income tax rate to 25% effective April 1, 2023. The rate change impact in fiscal 2021 was primarily for the re-measurement of deferred tax liabilities on indefinite lived intangible assets.
(c) In fiscal 2020, the Company carried back NOLs generated in the June 30, 2019 tax year for five years, resulting in an income tax benefit of $18,949. The $18,949 income tax benefit represents the federal rate differential between 35% and 21%. In addition, there was an indirect tax benefit of $6,719 related to discontinued operations due to the CARES Act. Accordingly, the gross benefit recorded under the CARES Act in fiscal 2020 was $25,668 prior to the reserve under ASC 740-10. In fiscal 2021, the Company received the full refund with interest, with the net adjustment resulting in a benefit of $1,116.
With the effective date of January 1, 2018, the Tax Act also introduced a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a measure to tax certain intercompany payments under the base erosion anti-abuse tax “BEAT” regime. For the fiscal years ended June 30, 2022, 2021 and 2020, the Company did not generate intercompany transactions that met the BEAT threshold but does have to include GILTI tax relating to the Company’s foreign subsidiaries.
The Company elected to account for GILTI tax as a current period cost and recorded expense of $1,119 during the fiscal year ended June 30, 2022. The GILTI of $1,119 is included in the U.S. tax benefit on foreign earnings in the effective tax rate which also includes tax expense related to Subpart F income and unremitted earnings in total.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Deferred tax assets and liabilities consisted of the following:
| | | | | | | | | | | |
| June 30, 2022 | | June 30, 2021 |
| Noncurrent deferred tax assets (liabilities): | | | |
| Basis difference on inventory | $ | 6,395 | | | $ | 6,213 | |
| Reserves not currently deductible | 11,675 | | | 15,261 | |
| Basis difference on intangible assets | (119,109) | | | (70,482) | |
| Basis difference on property and equipment | (15,049) | | | (11,643) | |
| Other comprehensive income | (726) | | | 2,792 | |
| Net operating loss and tax credit carryforwards | 50,077 | | | 43,960 | |
| Stock-based compensation | 1,516 | | | 1,797 | |
| Unremitted earnings of foreign subsidiaries | (2,232) | | | (1,172) | |
| Operating lease liability | 25,423 | | | 14,165 | |
| Lease ROU assets | (23,905) | | | (12,971) | |
| Other | 7,782 | | | 7,048 | |
| Valuation allowances | (36,891) | | | (37,453) | |
Noncurrent deferred tax liabilities, net(1) | $ | (95,044) | | | $ | (42,485) | |
|
| | | | | | | |
| | June 30, 2017 | | June 30, 2016 |
| Noncurrent deferred tax assets/(liabilities): | | | |
| Basis difference on inventory | $ | 10,933 |
| | $ | 11,232 |
|
| Reserves not currently deductible | 23,757 |
| | 17,652 |
|
| Basis difference on intangible assets | (145,558 | ) | | (145,673 | ) |
| Basis difference on property and equipment | (20,137 | ) | | (25,933 | ) |
| Other comprehensive income | (768 | ) | | (4,623 | ) |
| Net operating loss and tax credit carryforwards | 22,197 |
| | 25,340 |
|
| Stock based compensation | 3,996 |
| | 4,632 |
|
| Other | (616 | ) | | 1,176 |
|
| Valuation allowances | (14,850 | ) | | (15,310 | ) |
| Noncurrent deferred tax liabilities, net | (121,046 | ) | | (131,507 | ) |
| | | | |
| Total net deferred tax liabilities | $ | (121,046 | ) | | $ | (131,507 | ) |
| |
(1) | The June 30, 2017 balance sheet includes $429 of non-current deferred tax assets in Other Assets. |
(1) Includes $0 and $154 of non-current deferred tax assets included within other assets on the June 30, 2022 and 2021 Consolidated Balance Sheets, respectively.
At June 30, 20172022 and 2016,2021, the Company had U.S. federal net operating loss (“NOL”)NOL carryforwards of approximately $33,177$79,890 and $38,433,$59,514, respectively, the majoritycertain of which will not expire until 2033.2036. 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. WeThe Company had foreign NOL carryforwards of approximately $43,306$12,108 and $42,573 in the same respective years,$15,441 at June 30, 2022 and 2021, respectively, the majority of which are indefinite lived.
AtFor the year ended June 30, 2017 and 2016,2022, the Company had U.S. federalrepresents that $149,252 of foreign earnings are not permanently reinvested with a corresponding deferred tax credit carryforwardsliability of approximately $877. These credit carryforwards have various expiration dates through 2020.
As$2,232. The Company continues to reinvest $809,196 of June 30, 2017, the Company has not provided for deferred taxes on the excessundistributed earnings of financial reporting over the tax basis of investments in certainits foreign subsidiaries and may be subject to additional foreign withholding taxes and U.S. state income taxes if it reverses its
indefinite reinvestment assertion on these foreign earnings in the amount of $156,405 as the Company plansfuture. All other outside basis differences not related to reinvest such earnings indefinitely outside the United States. If these earnings were repatriatedimpractical to account for at this period of time and are currently considered as being permanent in the future, additional income and withholding tax expense would be incurred. Due to complexities in the laws of the U.S. and foreign jurisdictions and the assumptions that would have to be made, it is not practicable to estimate the total amount of income taxes that would have to be provided on such earnings.duration.
As required by the authoritative guidance on accounting for income taxes, the Company evaluates the realizability of deferred tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred tax assets will not be realized. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, we establishthe Company establishes a valuation allowance. We haveThe Company has recorded valuation allowances in the amounts of $14,850$36,891 and $15,310$37,453 at June 30, 20172022 and 2016, respectively.2021, respectively.
The changes in valuation allowances against deferred income tax assets were as follows:
| | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| 2022 | | 2021 |
| Balance at beginning of year | $ | 37,453 | | | $ | 41,941 | |
| Additions charged to income tax expense | 784 | | | 5,601 | |
| Reductions credited to income tax expense | (1,004) | | | (11,520) | |
| THWR purchase accounting | 1,743 | | | — | |
| Currency translation adjustments | (2,085) | | | 1,431 | |
| Balance at end of year | $ | 36,891 | | | $ | 37,453 | |
|
| | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2017 | | 2016 |
| Balance at beginning of year | $ | 15,310 |
| | $ | 10,926 |
|
| Additions charged to income tax expense | 1,862 |
| | 7,484 |
|
| Reductions credited to income tax expense | (1,922 | ) | | (2,417 | ) |
| Currency translation adjustments | (400 | ) | | (683 | ) |
| Balance at end of year | $ | 14,850 |
| | $ | 15,310 |
|
Unrecognized tax benefits activity, including interest and penalties, is summarized below:
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
| Balance at beginning of year | $ | 22,870 | | | $ | 20,899 | | | $ | 11,869 | |
| Additions based on tax positions related to the current year | 273 | | | 343 | | | 636 | |
| Additions based on tax positions related to prior years | 304 | | | 3,045 | | | 8,499 | |
| Reductions due to lapse in statute of limitations and settlements | (1,546) | | | (1,417) | | | (105) | |
| Balance at end of year | $ | 21,901 | | | $ | 22,870 | | | $ | 20,899 | |
|
| | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2017 | | 2016 | | 2015 |
| Balance at beginning of year | $ | 16,019 |
| | $ | 10,759 |
| | $ | 11,058 |
|
| Additions based on tax positions related to the current year | 217 |
| | 4,276 |
| | 1,089 |
|
| Additions based on tax positions related to prior years | — |
| | 1,404 |
| | 202 |
|
| Reductions due to lapse in statute of limitations and settlements | (4,634 | ) | | (420 | ) | | (1,590 | ) |
| Balance at end of year | $ | 11,602 |
| | $ | 16,019 |
| | $ | 10,759 |
|
As of June 30, 2017,2022, the Company had $11,602 $21,901 of unrecognized tax benefits, of which $6,409$18,089 represents an amount that, if recognized, would impact the effective tax rate in future periods. As of June 30, 2021, the Company had $22,870 of unrecognized tax benefits, of which $19,058 represents the amount that, if recognized, would impact the effective tax rate in future periods. As of June 30, 2016 and 2015,2020, the CompanyCompany had $16,019 and $10,759, respectively,$20,899 of unrecognized tax benefits of which $10,826 and $9,375, respectively,$17,087 would impact the effective income tax rate in future periods. Accrued liabilities for interest and penalties were $460 and $650were $2,952 and $2,549 at June 30, 20172022 and 2016,2021, respectively. Interest and penalties (expense and/or benefit) are recorded as a component of the provision (benefit) for income taxes in the consolidated financial statements. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $3,754 by June 30, 2018 due to settlements and expirations of statutes of limitations, all of which would reduce the income tax provision for continuing operations.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and several foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to fiscal 2014. However, to the extent we generated NOLs or tax credits in closed tax years, future use of the NOL or tax credit carry forwardcarryforward 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 2014.2021. Given the uncertainty regarding when tax authorities will complete their examinations and the possible outcomes of their examinations, a current estimate of the range of reasonably possible significant increases or decreases of income tax that may occur within the next twelve months cannot be made. Although there are various tax audits currently ongoing, the Company does not believe the ultimate outcome of such audits will have a material impact on the Company’s consolidated financial statements.
11.12. STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue “blank check” preferred stock of up to 5,000 shares with such designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered to issue, without stockholder approval, preferred stock with dividends, liquidation, conversion, voting or other rights which could decrease the amount of earnings and assets available for distribution to holders of the Company’s Common Stock.common stock. At June 30, 20172022 and 2016,2021, no preferredpreferred stock was issued or outstanding.
Common Stock Issued
See Note 4, Acquisitions, for details surrounding issuance of the Company’s common stock in connection with recent acquisitions.
Accumulated Other Comprehensive Loss
The following tables presenttable presents the changes in accumulated other comprehensive loss:loss (“AOCL”):
| | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| 2022 | | 2021 |
| Foreign currency translation adjustments: | | | |
| Other comprehensive (loss) income before reclassifications | $ | (102,113) | | | $ | 85,581 | |
Amounts reclassified into income (1) | — | | | 16,073 | |
| Deferred gains (losses) on cash flow hedging instruments: | | | |
| Amount of gain (loss) recognized in AOCL on derivatives | 3,511 | | | (810) | |
Amount of gain (loss) reclassified from AOCL into income (expense) (2) | (2,711) | | | 1,290 | |
| Deferred gains (losses) on fair value hedging instruments: | | | |
| Amount of gain recognized in AOCL on derivatives | 559 | | | — | |
| Amount of gain reclassified from AOCL into income | (59) | | | — | |
| Deferred gain (losses) on net investment hedging instruments: | | | |
| Amount of gain (loss) recognized in AOCL on derivatives | 9,954 | | | (3,359) | |
Amount of gain reclassified from AOCL into income (3) | (612) | | | (394) | |
| Net change in AOCL | $ | (91,471) | | | $ | 98,381 | |
(1)Foreign currency translation gains or losses of foreign subsidiaries related to divested businesses are reclassified into income once the liquidation of the respective foreign subsidiaries is substantially complete. At the completion of the sales of Danival, Fruit and GG UniqueFiber®, the Company reclassified 16,073 of translations from AOCL to the Company's results of operations.
(2)Amounts reclassified into income (expense) for deferred gains (losses) on cash flow hedging instruments are recorded on the Consolidated Statements of Operations as follows:
| | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| 2022 | | 2021 |
| Cost of sales | $ | 108 | | | $ | 68 | |
| Interest and other financing expense, net | $ | 105 | | | $ | (150) | |
| Other expense (income), net | $ | 3,218 | | | $ | (1,556) | |
(3)Amounts reclassified into income for deferred gains on net investment hedging instruments are recognized in “interest and other financing expense, net” in the Consolidated Statements of Operations and were $772 and $498 for the fiscal years ended June 30, 2022and 2021,respectively.
Share Repurchase Program
In June 2017, August 2021 and January 2022, the Company's Board of Directors authorized the repurchase of up to $250,000, $300,000 and $200,000 of the Company’s issued and outstanding common stock, respectively. Share repurchases under each of the 2021 and 2022 authorizations commenced after the previous authorizations were fully utilized. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The current 2022
|
| | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2017 | | 2016 |
| Foreign currency translation adjustments: | | | |
Other comprehensive loss before reclassifications (1) | $ | (22,951 | ) | | $ | (129,874 | ) |
| Deferred gains/(losses) on cash flow hedging instruments: | | | |
| Other comprehensive income before reclassifications | 196 |
| | 4,666 |
|
Amounts reclassified into income (2) | (575 | ) | | (5,193 | ) |
| Unrealized gain on available for sale investment: | | | |
| Other comprehensive loss before reclassifications | (51 | ) | | (79 | ) |
Amounts reclassified into income (3) | 13 |
| | — |
|
| Net change in accumulated other comprehensive loss | $ | (23,368 | ) | | $ | (130,480 | ) |
| |
(1) | Foreign currency translation adjustments included intra-entity foreign currency transactions that were of a long-term investment nature of $18,385and $107,221 for the fiscal years ended June 30, 2017and 2016,respectively.
|
| |
(2) | Amounts reclassified into income for deferred gains on cash flow hedging instruments are recorded in “Cost of sales” in the Consolidated Statements of Income and, before taxes, were $1,233 and $6,788 for the fiscal years ended June 30, 2017 and 2016, respectively. |
| |
(3) | Amounts reclassified into income for gains on sale of available for sale investments were based on the average cost of the shares held (See Note 13, Investments and Joint Ventures). Such amounts are recorded in “Other (income)/expense, net” in the Consolidated Statements of Income and was $21 before taxes for the fiscal year ended June 30, 2017. There were no amounts reclassified into income for the fiscal year ended June 30, 2016. |
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. In November 2021, the Company entered into a share repurchase agreement with affiliates of Engaged Capital, LLC (collectively, the “Selling Stockholders”), pursuant to which the Company repurchased 1,700 shares directly from the Selling Stockholders at a price of $45.00 per share (see Note 21, Related Party Transactions). During the fiscal year ended June 30, 2022, the Company repurchased 10,626 shares under the repurchase program, inclusive of the shares repurchased from the Selling Stockholders, for a total of $408,886, excluding commissions, at an average price of $38.48 per share. As of June 30, 2022, the Company had $173,514 of remaining authorization under the share repurchase program. During the fiscal year ended June 30, 2021, the Company repurchased 3,080 shares under the repurchase program for a total of $107,421, excluding commissions, at an average price of $34.87 per share. Of that amount, $1,415 was included in accrued expenses and other current liabilities on the Consolidated Balance Sheet as of June 30, 2021 pending settlement of trade.
12. STOCK BASED
13. STOCK-BASED COMPENSATION AND INCENTIVE PERFORMANCE PLANS
The CompanyCompany has two shareholder-approved plans,a stockholder-approved plan, the AmendedAmended and Restated 2002 Long-Term Incentive and Stock Award Plan and the 2000 Directors Stock Plan,(the “2002 Plan”), under which the Company’s officers, senior management, other key employees, consultants and directors may be granted optionsequity-based awards. The Company also grants shares under its 2019 Equity Inducement Award Program (the “2019 Inducement Program”) to purchaseinduce selected individuals to become employees of the Company’s common stock or other forms of equity-based awards.
Company. The 2002 Long-Term IncentivePlan and 2019 Inducement Program are collectively referred to as the “Stock Award Plans”. In conjunction with the Stock Award Plan, as amended
In November 2002, our stockholders approvedPlans, the 2002 Long-Term Incentive and Stock Award Plan. An aggregate of 3,200 shares of common stock were originally reserved for issuance under this plan. At various Annual Meetings of Stockholders, including the 2014 Annual Meeting, the plan was amended to increase the number of shares issuable to 31,500 shares. The planCompany maintains a long-term incentive program (the “LTIP”) that provides for the granting ofequity awards, including performance and market-based equity awards that can be earned over defined performance periods.
There were 873, 237 and 990 shares underlying restricted stock options, stock appreciation rights, restricted stock,awards (“RSAs”) or restricted share units performance shares, performance share units and other equity awards to employees, directors and consultants. Awards denominated in shares of common stock other than options and stock appreciation rights will be counted against the available share limit as two and seven hundredths shares for every one share covered by such award. All of the options granted to date under the plan have been incentive or non-qualified stock options providing for the exercise price equal to the fair market price at the date of grant. Stock option awards(“RSUs”) granted under the plan expire sevenStock Award Plans during fiscal years after2022, 2021 and 2020, respectively, of which 249, 51 and 554, respectively, were granted under the LTIP 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 outstanding at June 30, 2022 generally provide for vesting at 0% to 200% of the target level. There were no options granted under the Stock Award Plans during fiscal years 2022, 2021 and 2020. At June 30, 2022, there were 6,355 and 2,635 shares available for grant under the 2002 Plan and 2019 Inducement Program, respectively.
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 grant. Optionsforfeiture. There were 0 RSAs outstanding at June 30, 2022. Shares underlying RSUs are not issued until vesting. Both award types are subject to continued employment and other stock-based awards vestvesting conditions in accordance with provisions set forth in the applicable award agreements. No awards shall be granted under this plan after November 20, 2024.
There were no options granted under this planThe Company also grants market-based RSUs that vest contingent on meeting specific Total Shareholder Return (“TSR”) targets over a specified time period, and performance-based RSUs that vest contingent on meeting specific financial results within a specified time period. Performance-based or market-based RSUs are issued in fiscal years 2017, 2016 or 2015.
There were 195, 498 and 440 sharesthe form of restricted stock and restrictedperformance share units granted under this plan during fiscal years 2017, 2016 and 2015, respectively. Included in these grants during fiscal years 2016 and 2015 were 366 and 365, respectively, of restricted stock and restricted share units granted under the Company’s long-term incentive programs, of which 284 and 109, respectively, are subject to the achievement of minimum performance goals established under those programs (see “Long-term Incentive Plan,” in this Note 12) or market conditions.(“PSUs”).
At June 30, 2017, 988 unvested restricted stock and restricted share units were outstanding under this plan, and there were 11,523 shares available for grant under this plan. At June 30, 2017, there were no options outstanding under this plan.
2000 Directors Stock Plan, as amended
In May 2000, our stockholders approved the 2000 Directors Stock Plan. The plan originally provided for the granting of stock options to non-employee directors to purchase up to an aggregate of 1,500 shares of our common stock. In December 2003, the plan was amended to increase the number of shares issuable to 1,900 shares. In March 2009, the plan was amended to permit the granting of restricted stock, restricted share units and dividend equivalents and was renamed. All of the options granted to date under this plan have been non-qualified stock options providing for the exercise price equal to the fair market price at the date of grant. Stock option awards granted under the plan expire seven years after the date of grant. No awards shall be granted under this plan after December 1, 2015.
There were no options granted under this plan in fiscal years 2017, 2016, or 2015.
There were no shares of restricted stock granted under this plan during fiscal years 2017 and 2016. During fiscal year 2015, 20 shares of restricted stock were granted under this plan. At June 30, 2017, 4 unvested restricted shares were outstanding, and there will be no further restricted shares or options granted under this plan.
Other Plans
At June 30, 2017, there were 122 options outstanding that were granted under the prior Celestial Seasonings plan.
Although no further awards can be granted under the 2000 Directors Stock Plan, as amended, or the prior Celestial Seasonings plan, the options and restricted stock outstanding continue in accordance with the terms of the respective plans and grants.
There were 12,643 shares of common stock reserved for future issuance in connection with stock-based awards as of June 30, 2017.
Compensation cost and related income tax benefits recognized in the Consolidated Statements of Income for stock based compensation plans were as follows:
|
| | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| | 2017 | | 2016 | | 2015 |
| Compensation cost (included in selling, general and administrative expense) | $ | 9,658 |
| | $ | 12,688 |
| | $ | 12,197 |
|
| Related income tax benefit | $ | 3,622 |
| | $ | 4,758 |
| | $ | 4,695 |
|
Stock Options
A summary of the restricted stock option activity (including all RSAs, RSUs and PSUs) for the last three fiscal years ended June 30 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Weighted
Average
Grant
Date Fair
Value
(per share) | | 2021 | | Weighted
Average
Grant
Date Fair
Value
(per share) | | 2020 | | Weighted
Average
Grant
Date Fair
Value
(per share) |
| Non-vested - RSAs, RSUs and PSUs | 1,780 | | | $16.55 | | 2,050 | | | $15.85 | | 2,729 | | | $12.94 |
| Granted | 873 | | | $43.55 | | 237 | | | $36.13 | | 990 | | | $17.36 |
| Vested | (1,583) | | | $15.61 | | (375) | | | $25.21 | | (290) | | | $23.28 |
| Forfeited | (280) | | | $32.98 | | (132) | | | $17.18 | | (1,379) | | | $8.80 |
| Non-vested - RSAs, RSUs and PSUs | 790 | | | $42.44 | | 1,780 | | | $16.55 | | 2,050 | | | $15.85 |
At June 30, 2022, the table above includes a total of 163 shares that represent the target number of shares that may be earned based on pre-defined market conditions that are eligible to vest ranging from 0% to 200% of target. All such shares relate to the 2022-2024 LTIP as further described below. Granted shares also include 56 shares that may be earned based on certain performance-based metrics being met, all of which remained outstanding at June 30, 2022. Vested shares during the year ended
|
| | | | | | | | | | | | | | | | | | | | |
| | 2017 | | Weighted Average Exercise Price | | 2016 | | Weighted Average Exercise Price | | 2015 | | Weighted Average Exercise Price |
| Outstanding at beginning of year | 342 |
| | $ | 6.66 |
| | 1,249 |
| | $ | 6.12 |
| | 2,674 |
| | $ | 9.83 |
|
| Exercised | (220 | ) | | $ | 9.10 |
| | (907 | ) | | $ | 5.91 |
| | (1,425 | ) | | $ | 13.08 |
|
| Outstanding at end of year | 122 |
| | $ | 2.26 |
| | 342 |
| | $ | 6.66 |
| | 1,249 |
| | $ | 6.12 |
|
| | | | | | | | | | | | |
| Options exercisable at end of year | 122 |
| | $ | 2.26 |
| | 342 |
| | $ | 6.66 |
| | 1,249 |
| | $ | 6.12 |
|
The fair value of RSAs, RSUs and PSUs granted and of shares vested, and the tax benefit recognized from restricted shares vesting, for the last three fiscal years ended June 30 was as follows:
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
| Fair value of restricted stock granted | $ | 38,005 | | | $ | 8,551 | | | $ | 17,179 | |
| Fair value of restricted stock vested | $ | 71,376 | | | $ | 15,847 | | | $ | 6,775 | |
| Tax benefit recognized from restricted stock vesting | $ | 3,658 | | | $ | 1,597 | | | $ | 939 | |
At June 30, 2022, $22,706 of unrecognized stock-based compensation expense related to non-vested restricted stock was expected to be recognized over a weighted average period of approximately 1.9 years.
Long-Term Incentive Program
The participants of the LTIP include certain of the Company’s executive officers and other key executives. The LTI Program is administered by the Compensation Committee which is responsible for, among other items, selecting the specific performance measures for awards, setting the target performance required to receive an award after the completion of the performance period, and determining the specific payout to the participants.
•2022-2024 LTIP
During the fiscal year ended June 30, 2022, the Company granted 242 RSUs under the LTIP which vest over a three year period subject to continued employment. At June 30, 2022, 202 RSUs were outstanding under the LTI Program.
During the fiscal year ended June 30, 2022, the Company granted market-based PSU awards under the LTIP with a total target payout of 193 shares of common stock. At June 30, 2022, 163 of such shares were outstanding. Vesting is pursuant to a defined calculation of either relative TSR or absolute TSR (as defined in the award agreement) over the period from November 18, 2021 through the earlier of (i) November 17, 2024; (ii) the date the participant’s employment is terminated due to death or Disability (as defined); or (iii) the effective date of a Change in Control (as defined in the award agreement) (the “TSR Performance Period”). Vesting of 109 target shares of the outstanding PSU awards is pursuant to a defined calculation of relative TSR over the TSR Performance Period (the “Relative TSR PSUs”). Vesting of 54 target shares of the outstanding PSU awards is pursuant to the achievement of pre-established three-year compound annual TSR targets over the TSR Performance Period (the “Absolute TSR PSUs”). Total shares eligible to vest for both the Relative TSR PSUs and Absolute TSR PSUs range from 0% to 200% of the target amount. Grant date fair values are calculated using a Monte Carlo simulation model with weighted average grant date fair values per target share and related valuation assumptions as follows:
| | | | | | | | | | | |
| Absolute TSR PSUs | | Relative TSR PSUs |
| Grant date fair value (per target share) | $39.00 | | $60.09 |
| Risk-free interest rate | 0.89 | % | | 0.89 | % |
| Expected dividend yield | — | | — |
| Expected volatility | 36.93 | % | | 24.46 | % |
| Expected term | 2.99 years | | 2.99 years |
•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 with total shares eligible to vest ranging from 0% to 300% of the target award amount. Certain shares are subject to a holding period of one year after the vesting date, resulting in an illiquidity discount being applied to the grant date fair value for such shares. There were 51 and 554 PSUs granted during fiscal years 2021 and 2020, respectively. No such awards were granted during fiscal year 2022. Grant date fair
|
| | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2017 | | 2016 | | 2015 |
| Intrinsic value of options exercised | $ | 6,507 |
| | $ | 27,147 |
| | $ | 62,213 |
|
| Cash received from stock option exercises | $ | — |
| | $ | — |
| | $ | 18,643 |
|
| Tax benefit recognized from stock option exercises | $ | 2,538 |
| | $ | 10,587 |
| | $ | 24,213 |
|
| | | | | | | | | | | | | |
| Fiscal Year ended June 30, |
| 2021 | | 2020 | | |
| Grant date fair value (per target share) | $32.13 | | $10.92 | | |
| Risk-free interest rate | 0.13% | | 1.54% | | |
| Expected dividend yield | — | | — | | |
| Expected volatility | 40.37% | | 36.28% | | |
| Expected term | 1.17 years | | 1.85 years | | |
In the second quarter of fiscal 2022, the Compensation Committee determined that all outstanding awards under the 2019-2021 LTIP vested at 100% as a result of the TSR targets having been met.
•2018-2020 LTIP
Vesting was 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 0% to 150% of the grant. No such awards were granted during fiscal 2021 or 2020. In the first quarter of fiscal 2021, the Compensation Committee determined that all outstanding awards under the 2018-2020 LTIP vested at 150% as a result of the maximum relative TSR target having been met.
CEO Inducement Grant
On November 6, 2018, the Company’s CEO, Mark L. Schiller received a market-based PSU award with a target payout of 350 shares of common stock and a maximum payout of 1,050 shares of common stock (the “CEO Inducement Grant”). Vesting was pursuant to the achievement of pre-established three-year compound annual TSR levels over the period from November 6, 2018 to November 6, 2021. These PSUs were subject to a holding period of one year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value. The grant date fair value per target share and related valuation assumptions used in the Monte Carlo simulation to value this award were as follows:
| | | | | |
| Grant date fair value (per target share) | $21.63 |
| Risk-free interest rate | 2.99 | % |
| Expected dividend yield | — |
| Expected volatility | 35.17 | % |
| Expected term | 3.00 years |
The total grant date fair value of the award was $7,571. This PSU award was granted outside of the Stock Award Plans. In the second quarter of fiscal 2022, the Compensation Committee determined that the CEO Inducement Grant vested at 100% as a result of the TSR targets having been met.
Other Grants
Additionally, from time to time, the Company grants other awards that can be RSUs or PSUs to certain employees. RSUs generally vest over periods of one to three years based upon continued employment. PSUs generally vest over periods of one to three years based upon continued employment and the achievement of certain performance-based metrics being met. As of June 30, 2022, there were 369 and 56 of such RSUs and PSUs outstanding, respectively.
Summary of Stock-Based Compensation
Compensation cost and related income tax benefits recognized on the Consolidated Statements of Operations for stock-based compensation plans were as follows:
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended June 30, |
| | 2022 | | 2021 | | 2020 |
| Selling, general and administrative expense | $ | 15,611 | | | $ | 15,659 | | | $ | 13,078 | |
| Discontinued operations | — | | | — | | | 544 | |
| Total compensation cost recognized for stock-based compensation plans | $ | 15,611 | | | $ | 15,659 | | | $ | 13,622 | |
| Related income tax benefit | $ | 1,574 | | | $ | 1,296 | | | $ | 1,518 | |
Stock Options
The Company did not grant any stock options in fiscal years 2022, 2021 or 2020, and there were no stock options exercised during these periods. There were 122 options outstanding at each of June 30, 2022, 2021 and 2020, relating to a grant under a prior plan. Although no further awards can be granted under the prior plan, the options outstanding continue in accordance with the terms of the plan and grant.
For options outstanding and exercisable at June 30, 2017,2022, the aggregate intrinsic value (the difference between the closing stock price on the last day of trading in the year and the exercise price) was $4,458,$2,578, and the weighted average remaining contractual life was 14.09.0 years. The weighted average exercise price of these options was $2.26. At June 30, 2017,2022, there was no unrecognized compensation expense related to stock option awards.
Restricted Stock
14. INVESTMENTS
Awards of restricted stock may be either grants of restricted stock or restricted share units that are issued at no cost to the recipient. For restricted stock grants, at the date of grant the recipient has all rights of a stockholder, subject to certain restrictions on transferability and a risk of forfeiture. For restricted share units, legal ownership of the shares is not transferred to the employee until the unit vests. Restricted stock and restricted share unit grants vest in accordance with provisions set forth in the applicable award agreements, which may include performance criteria for certain grants. The compensation cost of these awards is determined using the fair market value of the Company’s common stock on the date of the grant. Compensation expense for restricted stock awards with a service condition is recognized on a straight-line basis over the vesting term. Compensation expense for restricted stock awards with a performance condition is recorded when the achievement of the performance criteria is probable and is recognized over the performance and vesting service periods.
A summary of the restricted stock and restricted share units activity for the three fiscal years ended June 30 is as follows:
|
| | | | | | | | | | | | | | |
| | 2017 | | Weighted Average Grant Date Fair Value (per share) | | 2016 | | Weighted Average Grant Date Fair Value (per share) | | 2015 | | Weighted Average Grant Date Fair Value (per share) |
| Non-vested restricted stock and restricted share units - beginning of year | 1,121 |
| | $28.24 | | 1,145 |
| | $32.30 | | 1,259 |
| | $25.44 |
| Granted | 195 |
| | $33.68 | | 416 |
| | $24.54 | | 311 |
| | $54.11 |
| Vested | (290 | ) | | $33.89 | | (408 | ) | | $35.13 | | (402 | ) | | $26.86 |
| Forfeited | (34 | ) | | $29.88 | | (32 | ) | | $45.83 | | (23 | ) | | $40.65 |
| Non-vested restricted stock and restricted share units - end of year | 992 |
| | $27.59 | | 1,121 |
| | $28.24 | | 1,145 |
| | $32.30 |
|
| | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2017 | | 2016 | | 2015 |
| Fair value of restricted stock and restricted share units granted | $ | 6,567 |
| | $ | 10,203 |
| | $ | 16,462 |
|
| Fair value of shares vested | $ | 9,866 |
| | $ | 18,917 |
| | $ | 21,481 |
|
| Tax benefit recognized from restricted shares vesting | $ | 3,768 |
| | $ | 7,139 |
| | $ | 8,364 |
|
On July 3, 2012, the Company entered into a Restricted Stock Agreement (the “Agreement”) with Irwin D. Simon, the Company’s Chairman, President and Chief Executive Officer. The Agreement provides for a grant of 800 shares of restricted stock (the “Shares”), the vesting of which is both market and time-based. The market condition is satisfied in increments of 200 Shares upon the Company’s common stock achieving four share price targets. On the last day of any forty-five consecutive trading day period during which the average closing price of the Company’s common stock on the Nasdaq Global Select Market equals or exceeds the following prices: $31.25, $36.25, $41.25 and $50.00, respectively, the market condition for each increment of 200 Shares will be satisfied. The market conditions were required to be satisfied prior to June 30, 2017. Once each market condition has been satisfied, a tranche of 200 Shares will vest in equal amounts annually over a five-year period. Except in the case of a change of control, termination without cause, death or disability (each as defined in Mr. Simon’s Employment Agreement), the unvested Shares are subject to forfeiture unless Mr. Simon remains employed through the applicable market and time vesting periods. The grant date fair value for each tranche was separately estimated based on a Monte Carlo simulation that calculated the likelihood of goal attainment and the time frame most likely for goal attainment. The total grant date fair value of the Shares was estimated to be $16,151, which was expected to be recognized over a weighted-average period of approximately 4.0 years. On September 28, 2012, August 27, 2013, December 13, 2013 and October 22, 2014, the four respective market conditions were satisfied. As such, the four tranches of 200 Shares each are expected to vest in equal amounts over the five-year period commencing on the first anniversary of the date the market condition for the respective tranche was satisfied.
At June 30, 2017, $12,117 of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested restricted stock awards, inclusive of the Shares, was expected to be recognized over a weighted-average period of approximately 1.9 years.
Long-Term Incentive Plan
The Company maintains a long-term incentive program (the “LTI Plan”). The LTI Plan currently consists of a two-year performance-based long-term incentive plan (the “2015-2016 LTIP”) and a three-year performance-based long-term incentive plan (the “2016-2018 LTIP”) that provide for a combination of equity grants and performance awards that can be earned over the respective performance period. Participants in the LTI Plans include the Company’s executive officers, including the Chief Executive Officer, and certain other key executives.
The Compensation Committee administers the LTI Plans and is responsible for, among other items, establishing the target values of awards to participants and selecting the specific performance factors for such awards. The Compensation Committee determines the specific payout to the participants. Such awards may be paid in cash and/or unrestricted shares of the Company’s common stock at the discretion of the Compensation Committee, provided that any such stock-based awards shall be issued pursuant to and be subject to the terms and conditions of the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan, as in effect and as amended from time to time.
Upon the adoption of the 2015-2016 LTIP, the Compensation Committee granted an initial award to each participant in the form of equity-based instruments (restricted stock or restricted share units), for a portion of the individual target awards (the “Initial Equity Grants”). These Initial Equity Grants are subject to time vesting requirements, and a portion are also subject to the achievement of minimum performance goals. The 2015-2016 LTIP awards contain an additional year of time-based vesting. The Initial Equity Grants are expensed over the respective vesting periods on a straight-line basis. The payment of the actual awards earned at the end of the applicable performance period, if any, will be reduced by the value of the Initial Equity Grants.
Upon adoption of the 2016-2018 LTIP, the Compensation Committee granted performance units to each participant, the achievement of which is dependent upon a defined calculation of relative total shareholder return over the period from July 1, 2015 to June 30, 2018 (the “TSR Grant”). The grant date fair value for these awards was separately estimated based on a Monte Carlo simulation that calculated the likelihood of goal attainment. Each performance unit translates into one unit of common stock. The TSR grant represents half of each participant’s target award. The other half of the 2016-2018 LTIP is based on the Company’s achievement of specified net sales growth targets over this three-year period and, if achieved, may be paid in cash and/or unrestricted shares of the Company’s common stock at the discretion of the Compensation Committee.
In October 2015, although the target values previously set under the LTI Plan covering 2014 and 2015 fiscal years (the “2014-2015 LTIP”) were fully achieved, the Compensation Committee exercised its discretion to reduce the awards due to the challenges faced by the Company in connection with the nut butter voluntary recall during fiscal year 2015. After deducting the value of the Initial Equity Grants, the reduced awards to participants related to the 2014-2015 LTIP totaled $4,400 (which were settled by the issuance of 82 unrestricted shares of the Company’s common stock in October 2015).
The Company has recorded expense (in addition to the stock based compensation expense associated with the Initial Equity Grants and the TSR Grant) of $4,044 and $4,967, for the fiscal years ended June 30, 2017 and 2015, respectively, related to the LTI plans. In the fiscal year ended June 30, 2016, the Company recorded a reversal of expense of $2,037 related to the LTI plans.
13. INVESTMENTS AND JOINT VENTURES
Equity method investments
In October 2009, the Company formed a joint venture, Hutchison Hain Organic Holdings Limited (“HHO”), with Hutchison China Meditech Ltd. (“Chi-Med”), a majority-owned subsidiary of CK Hutchison Holdings Limited, to market and distribute certain of the Company’s brands in Hong Kong, China and other surrounding markets. Voting control of the joint venture is shared equally between the Company and Chi-Med, although, in the event of a deadlock, Chi-Med has the ability to cast the deciding vote, and therefore, the investment is being accounted for under the equity method of accounting. At June 30, 2017 and June 30, 2016, the carrying value of the Company’s 50.0% investment in and advances to HHO were $1,629 and $1,729, respectively, and are included in the Consolidated Balance Sheet as a component of “Investments and joint ventures.”
On October 27, 2015, the Company acquired a 14.9%minority equity interest in Chop’t Creative Salad Company LLC, predecessor to Founders Table Restaurant Group, LLC (“Chop’t”Founders Table”). Chop’t developsFounders Table owns and operates the fast-casual fresh salad restaurants in the Northeastrestaurant chains Chop’t Creative Salad Co. and Mid-Atlantic United States. Chop’t markets and sells certain of the Company’s branded products and provides consumer insight and feedback.Dos Toros Taqueria. The investment is being accounted for as an equity method investment due to the Company’s representation on the Board of Directors.Directors of Founders Table. At June 30, 20172022 and June 30, 2016,2021, the carrying value of the Company’s investment in Chop’tFounders Table was $16,487$9,491 and $17,448,$10,699, respectively, and is included inon the Consolidated Balance SheetSheets as a component of “Investmentsinvestments and joint ventures.” The Company’s current ownership percentage may be diluted in the future to 11.9%, pending the distribution of additional ownership interests.
Available-For-Sale Securities
The Company hasalso holds the following investments: (a) Hutchison Hain Organic Holdings Limited, a less than 1%joint venture with HUTCHMED (China) Limited, accounted for under the equity ownership interest in Yeo Hiap Seng Limited (“YHS”)method of accounting, and (b) Hain Future Natural Products Private Ltd., a Singapore-based natural foodjoint venture with Future Consumer Ltd, accounted for under the equity method of accounting.
During fiscal year 2022, the Company concluded that the carrying value of its investment in Hain Future Natural Products Private Ltd. exceeded the estimated fair value of the investment and beverage company listed ondeemed the Singapore Exchange,decline to be other-than-temporary. This resulted in the Company recording an impairment charge totaling $1,203, which is accounted for as an available-for-sale security. The Company sold 102 of its YHS shares during the fiscal year ended June 30, 2017, which resulted in a pre-tax loss of $21 on the sales, and is recognizedincluded as a component of “Other (income)/expense, net.” No shares were sold duringequity in net loss of equity-method investees on the fiscal year endedConsolidated Statement of Operations. The carrying value of the remaining investments was $4,965 and $6,218 as of June 30, 2016. The remaining shares held at June 30, 2017 totaled 933. The fair value of these shares held was $882 (cost basis of $1,164) at June 30, 20172022 and $1,067 (cost basis of $1,291) at June 30, 20162021, respectively, and is included in “Investments and joint ventures,” with the related unrealized gain or loss, net of tax, included in “Accumulated other comprehensive loss” inon the Consolidated Balance Sheet. The company concluded that the decline in its YHS investment below its cost basis is temporarySheets as a component of Investments and accordingly, has not recognized a loss in the Consolidated Statements of Operations. In making this determination, the company considered its intent and ability to hold the investment until the cost is recovered, the financial condition and near-term prospects of YHS, the magnitude of the loss compared to the investment’s cost, and publicly available information about the industry and geographic region in which YHS operates.joint ventures.
14.15. FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The Company’s financial assets and liabilities measured at fair value are required to be grouped in one of three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:
•Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
•Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
•Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following table presents by level within the fair value hierarchy, assets and liabilities measured at fair value on a recurring basis as of June 30, 2017:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | | Quoted
prices in
active
markets
(Level 1) | | Significant
other
observable
inputs
(Level 2) | | Significant
unobservable
inputs
(Level 3) |
| Assets: | | | | | | | |
| | | | | | | |
| Derivative financial instruments | $ | 7,476 | | | $ | — | | | $ | 7,476 | | | $ | — | |
| Equity investment | 560 | | | 560 | | | — | | | — | |
| Total | $ | 8,036 | | | $ | 560 | | | $ | 7,476 | | | $ | — | |
| Liabilities: | | | | | | | |
| Derivative financial instruments | $ | 3,184 | | | $ | — | | | $ | 3,184 | | | $ | — | |
| Total | $ | 3,184 | | | $ | — | | | $ | 3,184 | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| | Total | | Quoted prices in active markets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) |
| Assets: | | | | | | | |
| Cash equivalents | $ | 21,800 |
| | $ | 21,800 |
| | $ | — |
| | $ | — |
|
| Forward foreign currency contracts | 99 |
| | — |
| | 99 |
| | — |
|
| Available for sale securities | 882 |
| | 882 |
| | — |
| | — |
|
| | $ | 22,781 |
| | $ | 22,682 |
| | $ | 99 |
| | $ | — |
|
| Liabilities: | | | | | | | |
| Forward foreign currency contracts | $ | 53 |
| | $ | — |
| | $ | 53 |
| | $ | — |
|
| Contingent consideration, noncurrent | 2,656 |
| | — |
| | — |
| | 2,656 |
|
| Total | $ | 2,709 |
| | $ | — |
| | $ | 53 |
| | $ | 2,656 |
|
The following table presents by level within the fair value hierarchy, assets and liabilities measured at fair value on a recurring basis as of June 30, 2016:2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | | Quoted
prices in
active
markets
(Level 1) | | Significant
other
observable
inputs
(Level 2) | | Significant
unobservable
inputs
(Level 3) |
| Assets: | | | | | | | |
| | | | | | | |
| Derivative financial instruments | 699 | | | — | | | 699 | | | — | |
| Equity investment | 646 | | | 646 | | | — | | | — | |
| Total | $ | 1,345 | | | $ | 646 | | | $ | 699 | | | $ | — | |
| Liabilities: | | | | | | | |
| Derivative financial instruments | $ | 11,968 | | | $ | — | | | $ | 11,968 | | | $ | — | |
| Total | $ | 11,968 | | | $ | — | | | $ | 11,968 | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| | Total | | Quoted prices in active markets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) |
| Assets: | | | | | | | |
| Cash equivalents | $ | 20,706 |
| | $ | 20,706 |
| | $ | — |
| | $ | — |
|
| Forward foreign currency contracts | 531 |
| | — |
| | 531 |
| | — |
|
| Available for sale securities | 1,067 |
| | 1,067 |
| | — |
| | — |
|
| | $ | 22,304 |
| | $ | 21,773 |
| | $ | 531 |
| | $ | — |
|
| Liabilities: | | | | | | | |
| Contingent consideration, current | 3,553 |
| | — |
| | — |
| | 3,553 |
|
| Total | $ | 3,553 |
| | $ | — |
| | $ | — |
| | $ | 3,553 |
|
Available for sale securities consist of the Company’s investment in YHS (see Note 13, Investments and Joint Ventures). Fair value is measured using the market approach based on quoted prices. The Company utilizes the income approach to measure fair value for its foreign currency forward contracts. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates and forward prices.
The Company estimates the original fair value of the contingent consideration as the present value of the expected contingent payments, determined using the weighted probabilities of the possible payments. The Company reassesses the fair value of contingent payments on a periodic basis. Although the Company believes its estimates and assumptions are reasonable, different assumptions, including those regarding the operating results of the respective businesses, or changes in the future may result in different estimated amounts.
In connection with the acquisition of Belvedere in February 2015, payment of a portion of the respective purchase price was contingent upon the achievement of certain operating results. Contingent consideration of up to a maximum of C$4,000 related to the Belvedere acquisition was payable based on the achievement of specified operating results during the two consecutive one-year periods following the closing date. In both the fourth quarter of fiscal 2017 and 2016, the Company paid C$2,000 in each quarter in settlement of the Belvedere contingent consideration obligation.
In connection with the acquisition of Orchard House during fiscal 2016, contingent consideration of up to £3,000 was potentially payable to the sellers based on the outcome of a review by the CMA in the United Kingdom. As a result of this review, the Company agreed to divest certain portions of its own-label juice business in the fourth quarter of fiscal 2016, and on September 15, 2016, the Company settled the contingent consideration related to this acquisition for £1,500.
In connection with the acquisitions of Better Bean and Yorkshire Provender during fiscal 2017, payments of a portion of the respective purchase prices were contingent upon the achievement of certain operating results. Contingent consideration of up to a maximum of $4,000 related to the Better Bean acquisition is payable based on the achievement of specified operating results over the three years following the closing date. Contingent consideration of up to a maximum of £1,500 related to the Yorkshire Provender acquisition is payable based on the achievement of specified operating results at the end of the three year period following the closing date.
The following table summarizes the Level 3 activity:
|
| | | | | | | |
| | Fiscal Year ended June 30, |
| | 2017 | | 2016 |
| Balance at beginning of year | $ | 3,553 |
| | $ | 1,636 |
|
| Fair value of initial contingent consideration | 2,652 |
| | 2,225 |
|
| Contingent consideration adjustments | 526 |
| | 1,511 |
|
| Contingent consideration paid | (3,969 | ) | | (1,547 | ) |
| Translation adjustment | (106 | ) | | (272 | ) |
| Balance at end of year | $ | 2,656 |
| | $ | 3,553 |
|
The change in fair value of contingent consideration is included in acquisition related expenses, restructuring and integration charges in the Company’s Consolidated Statement of Income.
There were no transfers of financial instruments between the three levels of fair value hierarchy during the fiscal years ended June 30, 20172022 or 2016.2021.
Derivative Instruments
The carryingCompany 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.
The Company incorporates credit valuation adjustments to appropriately reflect both the Company’s nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the derivatives held as of June 30, 2022 and 2021 were classified as Level 2 of the fair value hierarchy.
16. 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 2022 and 2021, such derivatives were used to hedge the variable cash flows associated with existing variable rate debt.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate debt. During fiscal 2023, the Company estimates that an additional $4,233 will be reclassified as a decrease to interest expense.
As of June 30, 2022, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
| | | | | | | | |
| Interest Rate Derivative | Number of Instruments | Notional Amount |
| Interest Rate Swap | 8 | $630,000 |
As of June 30, 2022, the notional amount of the interest rate swaps was $630 million. Of this amount, $230 million has a maturity date in February 2023. The remaining amount of $400 million relates to derivatives that have an effective date in February 2023.
Cash Flow Hedges of Foreign Exchange Risk
The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. Dollar. The Company uses foreign currency derivatives including cross-currency swaps to manage its exposure to fluctuations in the USD-EUR exchange rates. Cross-currency swaps involve exchanging fixed-rate interest payments for fixed-rate interest receipts, both of which will occur at the USD-EUR forward exchange rates in effect upon entering into the instrument. The Company also uses forward contracts to manage its exposure to fluctuations in the GBP-EUR exchange rates. The Company designates these derivatives as cash flow hedges of foreign exchange risks.
For derivatives designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified in the period(s) during which the hedged transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During fiscal 2023, the Company estimates that an additional $277 relating to cross-currency swaps will be reclassified as an increase to interest expense.
As of June 30, 2022, the Company had no outstanding foreign currency derivatives that were used to hedge its foreign exchange risks.
Net Investment Hedges
The Company is exposed to fluctuations in foreign exchange rates on investments it holds in its European foreign entities and their exposure to the Euro. The Company uses fixed-to-fixed cross-currency swaps to hedge its exposure to changes in the foreign exchange rate on its foreign investment in Europe. Currency forward agreements involve fixing the USD-EUR exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in U.S. Dollars for their fair value at or close to their settlement date. Cross-currency swaps involve the receipt of functional-currency-fixed-rate amounts from a counterparty in exchange for the Company making foreign-currency-fixed-rate payments over the life of the agreement.
For derivatives designated as net investment hedges, the gain or loss on the derivative is reported in AOCL as part of the cumulative translation adjustment. Amounts are reclassified out of AOCL into earnings when the hedged net investment is either sold or substantially liquidated.
As of June 30, 2022, the Company had the following outstanding foreign currency derivatives that were used to hedge its net investments in foreign operations:
| | | | | | | | | | | |
| Foreign Currency Derivative | Number of Instruments | Notional Sold | Notional Purchased |
| Cross-currency swap | 4 | €100,300 | $105,804 |
Fair Value Hedges
The Company is exposed to changes in the fair value of certain of its foreign denominated intercompany loans due to changes in foreign exchange spot rates. The Company uses fixed-to-fixed cross-currency swaps to hedge its exposure to changes in foreign exchange rates affecting gains and losses on intercompany loan principal and interest. Cross-currency swaps involve the receipt of functional-currency-fixed-rate amounts from a counterparty in exchange for the Company making foreign-currency-fixed-rate payments over the life of the agreement.
For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in unrealized exchange gains/losses.
Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with the Company’s accounting policy election. The earnings recognition of excluded components is presented in the same
income statement line item as the earnings effect of the hedged transaction. During fiscal 2023, the Company estimates that an additional $481 relating to cross-currency swaps will be reclassified as a decrease to interest expense.
As of June 30, 2022, the Company had the following outstanding foreign currency derivatives that were used to hedge changes in fair value attributable to foreign exchange risk:
| | | | | | | | | | | |
| Foreign Currency Derivative | Number of Instruments | Notional Sold | Notional Purchased |
| Cross-currency swap | 1 | €24,700 | $26,021 |
As of June 30, 2022, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges:
| | | | | | | | | | | | | | | | | |
| Carrying Amount of the Hedged Asset | |
Cumulative Amount of Fair Value Hedge Adjustment Included in the Carrying Amount of the Hedged Asset |
| 2022 | 2021 | | 2022 | 2021 |
| Intercompany loan receivable | $ | 25,899 | | $ | — | | | $ | 122 | | $ | — | |
| Total | $ | 25,899 | | $ | — | | | $ | 122 | | $ | — | |
Non-Designated Hedges
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of June 30, 2022, the Company had no outstanding derivatives that were not designated as hedges in qualifying hedging relationships.
Designated Hedges
The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives |
| Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
| Derivatives designated as hedging instruments: | | | | | | | |
| Interest rate swaps | Prepaid expenses and other current assets | | $ | 4,230 | | | Accrued expenses and other current liabilities / Other non-current liabilities | | $ | 3,184 | |
| Cross-currency swaps | Prepaid expenses and other current assets / Other non-current assets | | 3,246 | | | Other non-current liabilities | | — | |
| Total derivatives designated as hedging instruments | | | $ | 7,476 | | | | | $ | 3,184 | |
| | | | | | | |
The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of June 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives |
| Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
| Derivatives designated as hedging instruments: | | | | | | | |
| Interest rate swaps | Prepaid expenses and other current assets | | $ | 43 | | | Accrued expenses and other current liabilities / Other noncurrent liabilities | | $ | 312 | |
| Cross-currency swaps | Prepaid expenses and other current assets | | 656 | | | Other noncurrent liabilities | | 11,656 | |
| | | | | | | |
| Total derivatives designated as hedging instruments | | | $ | 699 | | | | | $ | 11,968 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The following table presents the pre-tax effect of cash flow hedge accounting on AOCL as of June 30, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives in Cash Flow Hedging Relationships | Amount of Gain (Loss) Recognized in AOCL on Derivatives | Location of Gain (Loss) Reclassified from AOCL into Income | Amount of Gain (Loss) Reclassified from AOCL into Income |
| Fiscal Year Ended June 30, | | Fiscal Year Ended June 30, |
| 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| Interest rate swaps | $ | 1,341 | | | $ | 279 | | | $ | (817) | | Interest and other financing expense, net | $ | 27 | | | $ | (308) | | | $ | (40) | |
| Cross-currency swaps | 3,129 | | | (1,366) | | | (1,069) | | Interest and other financing expense, net / Other expense (income), net | 3,296 | | | (1,398) | | | 927 | |
| Foreign currency forward contracts | (93) | | | (78) | | | 95 | | Cost of sales | 108 | | | (67) | | | (103) | |
| Total | $ | 4,377 | | | $ | (1,165) | | | $ | (1,791) | | | $ | 3,431 | | | $ | (1,773) | | | $ | 784 | |
The following table presents the pre-tax effect of the Company’s derivative financial instruments electing cash flow hedge accounting on the Consolidated Statements of Operations as of June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Location and Amount of Gain (Loss) Recognized in the Consolidated Statements of Operations on Cash Flow Hedging Relationships |
| | | | Fiscal Year Ended June 30, 2022 | | Fiscal Year Ended June 30, 2021 |
| | | | Cost of sales | | Interest and other financing expense, net | | Other expense (income), net | | Cost of sales | | Interest and other financing expense, net | | Other expense (income), net |
| The effects of cash flow hedging: | | | | | | | | | | | |
| Gain (loss) on cash flow hedging relationships | | | | | | | | | | | |
| | Interest rate swaps | | | | | | | | | | | |
| | | Amount of gain (loss) reclassified from AOCL into income | 0 | | $ | 27 | | | 0 | | $ | — | | | $ | (308) | | | $ | — | |
| | | | | | | | | | | | | | |
| | Cross-currency swaps | | | | | | | | | | | |
| | | Amount of gain (loss) reclassified from AOCL into income | 0 | | $ | 78 | | | $ | 3,218 | | | $ | — | | | $ | 158 | | | $ | (1,556) | |
| | | | | | | | | | | | | | |
| | Foreign currency forward contracts | | | | | | | | | | | |
| | | Amount of gain (loss) reclassified from AOCL into income | $ | 108 | | | 0 | | 0 | | $ | (67) | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | |
The following table presents the pre-tax effect of fair value hedge accounting on AOCL as of June 30, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives in Cash Flow Hedging Relationships | Amount of Gain Recognized in AOCL on Derivatives | Location of Gain Reclassified from AOCL into Income on Derivatives (Amount Excluded from Effectiveness Testing) | Amount of Gain Reclassified from AOCL into Income on Derivatives (Amount Excluded from Effectiveness Testing) |
| Fiscal Year Ended June 30, | | Fiscal Year Ended June 30, |
| 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| Cross-currency swaps | $ | 708 | | | $ | — | | | $ | — | | Interest and other financing expense, net | $ | 75 | | | $ | — | | | $ | — | |
| Total | $ | 708 | | | $ | — | | | $ | — | | | $ | 75 | | | $ | — | | | $ | — | |
The following table presents the pre-tax effect of the Company’s derivative financial instruments electing fair value hedge accounting on the Consolidated Statements of Operations as of June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Location and Amount of Gain (Loss) Recognized in the Consolidated Statements of Operations on Fair Value Hedging Relationships |
| | | | Fiscal Year Ended June 30, 2022 | | Fiscal Year Ended June 30, 2021 |
| | | | Cost of sales | | Interest and other financing expense, net | | Other expense (income), net | | Cost of sales | | Interest and other financing expense, net | | Other expense (income), net |
| The effects of fair value hedging: | | | | | | | | | | | |
| Gain on fair value hedging relationships | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Cross-currency swaps | | | | | | | | | | | |
| | | Amount of gain reclassified from AOCL into income | $ | — | | | $ | 75 | | | $ | 122 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
The following table presents the pre-tax effect of the Company’s net investment hedges on Accumulated other comprehensive loss and the Consolidated Statements of Operations as of June 30, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives in Net Investment Hedging Relationships | Amount of Gain (Loss) Recognized in AOCL on Derivatives | Location of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing) | Amount of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing) |
| Fiscal Year Ended June 30, | | Fiscal Year Ended June 30, |
| 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| Cross-currency swaps | $ | 12,599 | | | $ | (4,251) | | | $ | (3,529) | | Interest and other financing expense, net | $ | 772 | | | $ | 498 | | | $ | 98 | |
The following table presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements Operations as of June 30, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | |
| 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, |
| | 2022 | | 2021 | | 2020 |
| Foreign currency forward contracts | Other expense (income), net | $ | — | | | $ | (399) | | | $ | 119 | |
Credit-Risk-Related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision providing that upon certain defaults by the Company on any of its indebtedness, the Company could also be declared in default on its derivative obligations.
17. TERMINATION BENEFITS RELATED TO PRODUCTIVITY AND TRANSFORMATION INITIATIVES
As a part of the ongoing productivity and transformation initiatives related to the Company’s strategic objective to expand profit margins and cash equivalents, accounts receivable, net, accounts payableflow, 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 2023.
The following table displays the termination benefits and certainpersonnel realignment activities and liability balances relating to the reduction in workforce for the year ended as of June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at June 30, 2021 | | Charges, net | | Amounts Paid | | Foreign Currency Translation & Other Adjustments | | Balance at June 30, 2022 |
| Termination benefits and personnel realignment | $ | 4,448 | | | $ | 3,450 | | | $ | (5,985) | | | $ | (26) | | | $ | 1,887 | |
The liability balance as of June 30, 2022 and 2021 is included within accrued expenses and other current liabilities approximate fair value dueon the Company’s Consolidated Balance Sheets. Additional non-cash impairment charges related to the short-term maturities of these financial instruments. The Company’s debt approximates fair value due to the debt bearing fluctuating market interest rates (Seeproductivity and transformation initiatives have been incurred and are discussed within Note 9, Debt6, Property, Plant and Borrowings)Equipment, Net, and Note 7, Leases.
Derivative Instruments
The Company primarily has exposure to changes in foreign currency exchange rates relating to certain anticipated cash flows and firm commitments from its international operations. To reduce that risk, the Company may enter into certain derivative financial instruments, when available on a cost-effective basis, to manage such risk. Certain derivative instruments are designated at inception as hedges and measured for effectiveness both at inception and on an ongoing basis. Derivative instruments not designated as hedges are marked-to-market each reporting period with any unrealized gains or losses recognized in earnings. Derivative financial instruments are not used for speculative purposes.
The Company utilizes foreign currency contracts to hedge forecasted transactions, including intercompany transactions, on certain foreign currencies and designates these derivative instruments as foreign currency cash flow hedges when appropriate. The notional and fair value amounts of the Company’s cash flow hedges at June 30, 2017 were $1,828 and $84 of net assets, respectively. There were $6,000 of notional amount and $531 of net assets of cash flow hedges at June 30, 2016. The fair value of these derivatives is included in prepaid expenses and other current assets and accrued expenses and other current liabilities in the Consolidated Balance Sheet. For these derivatives, which qualify as hedges of probable forecasted cash flows, the effective portion of changes
in fair value is temporarily reported in accumulated other comprehensive income and recognized in earnings when the hedged item affects earnings. These foreign exchange contracts have maturities over the next two months.
The Company assesses effectiveness at the inception of the hedge and on a quarterly basis. These assessments determine whether derivatives designated as qualifying hedges continue to be highly effective in offsetting changes in the cash flows of hedged items. Any ineffective portion of change in fair value is not deferred in accumulated other comprehensive income and is included in current period results. The Company will discontinue cash flow hedge accounting when the forecasted transaction is no longer probable of occurring on the originally forecasted date or when the hedge is no longer effective. There were no discontinued foreign exchange hedges for the fiscal years ended June 30, 2017 and 2016.
There were $6,114 of notional amount and $38 of net liabilities of derivatives not designated as hedges as of June 30, 2017.
Gains and losses related to both designated and non-designated foreign currency exchange contracts are recorded in the Company's consolidated statements of operations based upon the nature of the underlying hedged transaction and were not material in the fiscal years ended June 30, 2017 and 2016.
15.18. COMMITMENTS AND CONTINGENCIES
Lease commitments and rent expense
The Company leases office, manufacturing and warehouse space. These leases provide for additional payments of real estate taxes and other operating expenses over a base period amount.
The aggregate minimum future lease payments for these operating leases at June 30, 2017 are as follows:
|
| | | |
| Fiscal Year | |
| 2018 | $ | 18,771 |
|
| 2019 | 14,831 |
|
| 2020 | 12,615 |
|
| 2021 | 9,401 |
|
| 2022 | 8,516 |
|
| Thereafter | 37,702 |
|
| | $ | 101,836 |
|
Rent expense charged to operations for the fiscal years ended June 30, 2017, 2016 and 2015 was $34,028, $33,803 and $29,560, respectively.
Off Balance Sheet Arrangements
At June 30, 2017, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have had, or are likely to have, a material current or future effect on our consolidated financial statements.
Legal Proceedings
Securities Class Actions Filed in Federal Court
On August 17, 2016, three3 securities class action complaints were filed in the Eastern District of New York (the "District Court") against the Company alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The three3 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 courtDistrict 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 (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. On August 4, 2017,The Co-Lead Plaintiffs in the Consolidated Securities Action filed an amended complainta 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 namesnamed as defendants the Company and certain of its current and former officers (collectively, the “Defendants”) and assertsasserted 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. On August 9, 2017, the Court approved the Defendants’ proposed briefing schedule and ordered that the Defendants movefiled a motion to dismiss the Amended Complaint byon October 3, 2017.
Stockholder Derivative Complaints Filed2017 which the District Court granted on March 29, 2019, dismissing the case in State Court
On September 16, 2016,its entirety, without prejudice to replead. Co-Lead Plaintiffs filed a stockholder derivative complaint, Paperny v. Heyer, et al.Second Amended Consolidated Class Action Complaint on May 6, 2019 (the “Paperny“Second Amended Complaint”), was filed in New York State Supreme Court in Nassau County against. The Second Amended Complaint again named as defendants the Board of DirectorsCompany and certain of its former officers and asserts violations of Sections 10(b) and 20(a) of the Company alleging breachSecurities Exchange Act of fiduciary duty, unjust enrichment, lack1934 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. On April 6, 2020, the District Court granted Defendants’ motion to dismiss the Second Amended Complaint in its entirety, with prejudice. Co-Lead Plaintiffs appealed the District Court’s decision dismissing the Second Amended Complaint to the United States Court of oversightAppeals for the Second Circuit (the "Second Circuit"). By decision dated December 17, 2021, the Second Circuit vacated the District Court’s judgment and corporate waste.remanded the case for further proceedings. On December 2, 2016 and December 29, 2016, two additional stockholder derivative complaints were filed in New York State SupremeApril 6, 2022, the District Court in Nassau County against the Board of Directors and certain 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 allege breach of fiduciary duty, lack of oversight and unjust enrichment. On February 16, 2017,issued an order directing the parties to submit position papers outlining their views regarding: (a) the scope of the Court's reconsideration of Defendants’ Motion to Dismiss the Second Amended Complaint; and (b) the appropriate procedure the Court should follow in light of the Second Circuit's opinion. On April 14,
2022, the District Court entered an order setting the schedule for, and determining the Derivative Complaints entered into a stipulation consolidatingscope of, supplemental briefing on Defendants’ Motion to Dismiss the matters under the caption In reSecond Amended Complaint. 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,parties submitted supplemental briefing between May 12, 2022 and the parties agreed to stay the Consolidated Derivative Action until November 2, 2017.June 23, 2022.
Additional Stockholder Class Action and Derivative Complaints Filed in Federal Court
On April 19, 2017 and April 26, 2017, two2 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(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 allegesalleged 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 allegesalleged 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 District Court granted an order to unseal this case and reveal Gary Merenstein as the plaintiff.plaintiff (the “Merenstein Complaint”).
On August 10, 2017, the courtDistrict Court granted the partiesparties’ stipulation to consolidate the Barnes Compliant,Complaint, the Silva Complaint and the Merenstein CompliantComplaint 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 District 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 agreed thatto the defendants in theConsolidated Stockholder Class and Derivative Action shall have 60agreed 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 District Court granted Defendants’ motion to dismiss the Second Amended Complaint in the Consolidated Securities Action, with prejudice. Pursuant to the terms of the stay, Defendants in the Consolidated Stockholder Class and Derivative Action had until May 6, 2020 to answer, move, or otherwise respond to the complaint in this matter. This deadline was extended, and Defendants moved to dismiss the Consolidated Stockholder Class and Derivative Action Complaint on June 23, 2020, with Plaintiffs’ opposition due August 7, 2020.
On July 24, 2020, Plaintiffs made a stockholder litigation demand on the current Board containing overlapping factual allegations to those set forth in the Consolidated Stockholder Class and Derivative Action. On August 10, 2020, the District Court vacated the briefing schedule on Defendants’ pending motion to dismiss in order to give the Board of Directors time to consider the demand. On each of September 8 and October 8, 2020, the District Court extended its stay of any applicable deadlines for 30 days to answergive the Board of Directors additional time to complete its evaluation of the demand. On November 3, 2020, Plaintiffs were informed that the Board of Directors had finished investigating and resolved, among other things, that the demand should be rejected. On November 6, 2020, Plaintiffs and Defendants notified the District Court that Plaintiffs were evaluating the rejection of the demand, sought certain additional information and were assessing next steps, and requested that the District Court extend the stay for an additional 30 days, to on or otherwise movearound December 7, 2020. The Parties then filed a number of additional joint status reports, requesting that the District Court continue the stay of applicable deadlines through December 30, 2021. In light of the Second Circuit vacating the District Court’s judgment in the Consolidated Securities Action referenced above and remanding the case for further proceedings, the Parties submitted a joint status report on December 29, 2021, requesting that the District Court continue the temporary stay pending the District Court’s reconsideration of the Defendants’ motion to dismiss after the plaintiffsSecond Amended Complaint in the Consolidated Securities Action. The District Court has extended the temporary stay through December 30, 2022.
Baby Food Litigation
Since February 2021, the Company has been named in numerous consumer class actions alleging that the Company’s Earth’s Best baby food products (the “Products”) contain unsafe and undisclosed levels of various naturally occurring heavy metals, namely lead, arsenic, cadmium and mercury. These actions have now been transferred and consolidated as a single lawsuit in the U.S. District Court for the Eastern District of New York into a proceeding captioned In re Hain Celestial Heavy Metals Baby Food Litigation, Case No. 2:21-cv-678 (the "Consolidated Proceeding"), which generally alleges that the Company violated various state consumer protection laws and asserts other state and common law warranty and unjust enrichment claims related to the alleged failure to disclose the presence of these metals, arguing that consumers would have either not purchased the Products or would have paid less for them had the Company made adequate disclosures. The Court appointed interim class counsel for Plaintiffs in the Consolidated Proceeding, and Plaintiffs filed a Consolidated Amended Class Action Complaint on March 18, 2022. The Company intends to file a consolidated complaint withmotion to dismiss the courtConsolidated Amended Class Action Complaint, but no briefing schedule has been set. One consumer class action is pending in New York Supreme Court, Nassau County. The Company has moved to stay or designate an alreadytransfer this case to the Consolidated Proceeding and that motion is pending. An additional consumer class action (Kathryn Gavula, et al. v. Beech-Nut Nutrition Co., et al.), was filed complaint asin the operative complaint.
SEC Investigation
As previously disclosed,U.S. District Court for the District of Oregon, alleging that the Company violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”) by conspiring with other baby food manufacturers to conceal the presence of these heavy metals in our respective products. This lawsuit has been voluntarily contacteddismissed by Plaintiffs. The Company denies the SECallegations in August 2016these lawsuits and contends that its baby foods are safe and properly labeled.
The claims raised in these lawsuits were brought in the wake of a highly publicized report issued by the U.S. House of Representatives Subcommittee on Economic and Consumer Policy on Oversight and Reform, dated February 4, 2021 (the “House Report”), addressing the presence of heavy metals in baby foods made by certain manufacturers, including the Company. Since the publishing of the House Report, the Company has also received information requests with respect to advise itthe advertising and quality of its baby foods from certain governmental authorities, as such authorities investigate the claims made in the House Report. The Company is fully cooperating with these requests and is providing documents and other requested information. The Company has been named in one civil government enforcement action, State of New Mexico ex rel. Balderas v. Nurture, Inc., et al., which was filed by the New Mexico Attorney General against the Company and several other manufacturers based on the alleged presence of heavy metals in their baby food products. The Company and several other manufacturers moved to dismiss the New Mexico Attorney General’s lawsuit, which motion the Court denied. The Company filed its answer to the New Mexico Attorney General’s amended complaint on April 23, 2022. The Company denies the New Mexico Attorney General’s allegations and maintains that its baby foods are safe, properly labeled, and compliant with New Mexico law.
In addition to the consumer class actions discussed above, the Company is currently named in 5 lawsuits in state and federal courts alleging some form of personal injury from the ingestion of the Company’s delay in the filingProducts, purportedly due to unsafe and undisclosed levels of its periodic reportsvarious naturally occurring heavy metals. NaN of these lawsuits name multiple plaintiffs alleging claims of physical injuries. These lawsuits generally allege injuries related to neurological development disorders such as autism and the performance of the independent review conducted by the Audit Committee.attention deficit hyperactivity disorder. The Company has continueddenies that its Products led to provide information toany of these injuries and will defend the SEC on an ongoing basis, including, among other things, the results of the independent review of the Audit Committee as well as other information pertaining to its internal accounting review relating to revenue recognition. On January 31, 2017, the SEC issued a subpoena to the Company seeking documents relevant to its investigation. The Company is in the process of responding to the SEC’s requests for information and intends to cooperate fully with the SEC.cases vigorously.
Other
In addition to the litigation described above, the Company is and may be a defendant in lawsuits from time to time in the normal course of business. While the results of
With respect to all litigation and claims cannot be predicted with certainty,related matters, the Company records a liability when the Company believes it is probable that a liability has been incurred and the amount can be reasonably possible losses of suchestimated. For the matters individually anddisclosed in the aggregate, are not material. Additionally,this note, if the Company believesdetermines that a liability is probable and the probable final outcomeloss can be reasonably estimated, the Company discloses the liability recorded. As of suchthe end of the period covered by this report, the Company has not recorded a liability for any of the matters willdisclosed in this note. It is possible that some matters could require the Company to pay damages, incur other costs or establish accruals in amounts that could not have a material adverse effect onbe reasonably estimated as of the Company’s consolidated resultsend of operations, financial position, cash flows or liquidity.the period covered by this report.
16.19. 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, wethe Company may, in ourits sole discretion, make certain matching contributions. For the fiscal years ended June 30, 2017, 20162022, 2021 and 2015,2020, we made contributions to the Plan of $1,367, $1,236$2,091, $2,025 and $1,090,$2,464, and recorded retirement plan expense in the amount of $2,141, $2,482 and $1,362, respectively.
In addition, while certain of ourthe Company’s international subsidiaries maintain separate defined contribution plans for their employees, howeverexcept for the United Kingdom operating segment, the amounts are not significant to the Company’s consolidated financial statements.
The United Kingdom operating segment offers an auto-enrollment defined contribution plan to all employees. Employees must be aged 22 or over but under the State Pension age and have earned over £10. Employees outside of this criteria have the option to opt-in. Employees must contribute a minimum percentage to the plan and the United Kingdom operating segments makes matching contributions. For the fiscal years ended June 30, 2022, 2021 and 2020, there were contributions and retirement plan expense recorded in the amount of $2,379, $3,487 and $3,523, respectively.
17.20. SEGMENT INFORMATION
Prior to July 1, 2016, the Company’s operations were managed in seven operatingOur organizational structure consists of 2 geographic based reportable segments: North America and International. Our North America reportable segment consists of the United States and Canada as operating segments. Our International reportable segment is comprised of 3 operating segments: United Kingdom,
Tilda, Hain Pure Protein Corporation (“HPPC”), EK Holdings, Inc. (“Empire”), Canada Ella’s Kitchen UK and Europe. The United States operating segment was also a reportable segment. The United Kingdom and Tilda operating segments were reportedThis structure is in the aggregate as “United Kingdom”, while HPPC and Empire were reported in the aggregate as “Hain Pure Protein,” and Canada and Europe were combined and reported as “Rest of World.”
Effective July 1, 2016, due to changes to the Company’s internal management and reporting structure resulting from the formation of Cultivate, certain brands previously included within the United States operating segment were moved to a new operating segment called Cultivate. As a result, the Company is now managed in eight operating segments: the United States (excluding Cultivate), United Kingdom, Tilda, HPPC, Empire, Canada, Europe and Cultivate. The United States, excluding Cultivate, is its own reportable segment. Cultivate is now combinedline with Canada and Europe and reported within Rest of World. There were no changes to the United Kingdom and Hain Pure Protein reportable segments. The prior period segment information contained below has been adjusted to reflect the Company’s new operating and reporting structure. See Note 1, Description of Business and Basis of Presentation, for additional details surrounding the formation of Cultivate.
Net sales and operating income are the primary measures used byhow the Company’s Chief Operating Decision Maker (“CODM”) assesses the Company’s performance and allocates resources.
We use segment net sales and operating income to evaluate segment operating performance and to decide howallocate resources. We believe these measures are most relevant in order to allocate resources to segments. The CODM is the Company’s Chief Executive Officer. Expenses related toanalyze segment results and trends. Segment operating income excludes certain centralized administration functions thatgeneral corporate expenses (which are not specifically related to an operating segment are included in “Corporatea component of selling, general and Other.” Corporateadministrative expenses), impairment and Other expenses are comprised mainly of the compensation and related expenses of certain of the Company’s senior executive officers and other selected employees who perform duties related to the entire enterprise, as well as expenses for certain professional fees, facilities, and other items which benefit the Company as a whole. Additionally, acquisition related expenses, restructuring, integration and integration charges, impairment charges,other charges.
The Tilda operating segment was classified as discontinued operations as discussed in Note 4, Acquisitions and accounting review costs are included in “Corporate and Other.” Expenses that are managed centrally but can be attributed to a segment, such as employee benefits and certain facility costs, are allocated based on reasonable allocation methods. Assets are reviewed byDispositions. Segment information presented herein excludes the CODM on a consolidated basis and therefore are not reported by operating segment.results of Tilda for all periods presented.
The following tables set forth financial information about each of the Company’s reportable segments. Information about total assets by segment is not disclosed because such information is not reported to or used by the Company’s CODM for purposes of assessing segment performance or allocating resources. Transactions between reportable segments were insignificant for all periods presented.
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2022 | | 2021 | | 2020 |
Net Sales: (1) | | | | | | |
| North America | | $ | 1,163,132 | | | $ | 1,104,128 | | | $ | 1,171,478 | |
| International | | 728,661 | | | 866,174 | | | 882,425 | |
| | $ | 1,891,793 | | | $ | 1,970,302 | | | $ | 2,053,903 | |
| | | | | | |
| Operating Income (Loss): | | | | | | |
| North America | | $ | 93,732 | | | $ | 129,010 | | | $ | 95,934 | |
| International | | 79,076 | | | 38,036 | | | 55,333 | |
| | 172,808 | | | 167,046 | | | 151,267 | |
Corporate and Other (2) | | (68,127) | | | (59,666) | | | (95,225) | |
| | $ | 104,681 | | | $ | 107,380 | | | $ | 56,042 | |
|
| | | | | | | | | | | | |
| | | Fiscal Years ended June 30, |
| | 2017 | | 2016 | | 2015 |
Net Sales: (1) | | | | | | |
| United States | | $ | 1,191,262 |
| | $ | 1,249,123 |
| | $ | 1,253,156 |
|
| United Kingdom | | 768,301 |
| | 774,877 |
| | 722,830 |
|
| Hain Pure Protein | | 509,606 |
| | 492,510 |
| | 337,197 |
|
| Rest of World | | 383,942 |
| | 368,864 |
| | 296,430 |
|
| | | $ | 2,853,111 |
| | $ | 2,885,374 |
| | $ | 2,609,613 |
|
| | | | | | | |
| Operating Income: | | | | | | |
| United States | | $ | 157,506 |
| | $ | 203,481 |
| | $ | 180,937 |
|
| United Kingdom | | 39,749 |
| | 56,000 |
| | 44,985 |
|
| Hain Pure Protein | | 1,382 |
| | 31,558 |
| | 28,685 |
|
| Rest of World | | 32,010 |
| | 27,898 |
| | 22,327 |
|
| | | 230,647 |
| | 318,937 |
| | 276,934 |
|
Corporate and Other (2) | | (119,842 | ) | | (168,577 | ) | | (43,072 | ) |
| | | $ | 110,805 |
| | $ | 150,360 |
| | $ | 233,862 |
|
| |
(1) | One of our customers accounted for approximately 10% of our consolidated net sales for the fiscal years ended June 30, 2017, 2016 and 2015, respectively, which were primarily related to the United States and United Kingdom segments. A second customer accounted for approximately, 9%, 10% and 11% of our consolidated net sales for the fiscal years ended June 30, 2017, 2016 and 2015, respectively, which were primarily related to the United States segment. |
(1)One customer accounted for approximately 15%, 11%, and 12% of consolidated sales for the fiscal years ended June 30, 2022, 2021 and 2020, respectively, which were primarily related to the United States, Canada and United Kingdom operating segments.
(2)For the fiscal year ended June 30, 2022, Corporate and Other primarily included $3,629 related to Productivity and transformation costs and $59,974 of selling general and administrative costs.
| |
(2) | Corporate and Other includes $10,388, $12,065 and $7,244 of acquisition related expenses, restructuring and integration charges for the fiscal years ended June 30, 2017, 2016 and 2015, respectively. Corporate and Other also includes an impairment charge of $14,079 ($7,579 related to the United Kingdom segment and $6,500 related to the United States segment) related to certain of the Company’s tradenames, a $26,373 impairment charge primarily related to long-lived assets associated with the exit of certain portions of our own-label chilled desserts business in the United Kingdom segment and $29,562 of accounting review costs for the fiscal year ended June 30, 2017. Additionally, Corporate and Other includes goodwill impairment charges of $84,548 for the fiscal year ended June 30, 2016 related to the United Kingdom segment, an impairment charge of $39,724 ($20,932 related to the United Kingdom segment and $18,792 related to the United States segment) related to certain of the Company’s tradenames and a $3,476 impairment charge related to long-lived assets associated with the divestiture of certain portions of our own-label juice business in the United Kingdom. Lastly, Corporate and Other includes a long-lived asset impairment charge of $1,004 related to leasehold improvements due to the relocation of our New York based BluePrint manufacturing facility for the fiscal year ended June 30, 2015.
|
For the fiscal year ended June 30, 2021, Corporate and Other primarily included $10,576 related to Productivity and transformation costs and $49,353 of selling general and administrative costs.
For the fiscal year ended June 30, 2020, Corporate and Other included $32,664 related to Productivity and transformation costs and tradename impairment charges of $13,994 ($8,462 related to North America and $5,532 related to International), partially offset by a benefit of $2,962 of proceeds from insurance claim.
The Company’s net sales by product category are as follows:
|
| | | | | | | | | | | | |
| | | Fiscal Year ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| Grocery | | $ | 1,743,860 |
| | $ | 1,800,640 |
| | $ | 1,724,675 |
|
| Poultry/Protein | | 509,606 |
| | 492,510 |
| | 337,197 |
|
| Snacks | | 312,784 |
| | 307,797 |
| | 291,719 |
|
| Personal Care | | 176,408 |
| | 171,669 |
| | 135,627 |
|
| Tea | | 110,453 |
| | 112,758 |
| | 120,395 |
|
| Total | | $ | 2,853,111 |
| | $ | 2,885,374 |
| | $ | 2,609,613 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2022 | | 2021 | | 2020 |
| Turbocharge | | $ | 735,637 | | | $ | 717,596 | | | $ | 656,345 | |
| Targeted Investment | | 662,268 | | | 666,442 | | | 658,119 | |
| Fuel | | 395,824 | | | 396,644 | | | 391,229 | |
| Simplify | | 98,064 | | | 189,620 | | | 348,210 | |
| Total | | $ | 1,891,793 | | | $ | 1,970,302 | | | $ | 2,053,903 | |
The Company’s net sales by geographic region, which are generally based on the location of the Company’s subsidiary, are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2022 | | 2021 | | 2020 |
| United States | | $ | 1,037,082 | | | $ | 954,415 | | | $ | 1,016,230 | |
| United Kingdom | | 500,949 | | | 607,674 | | | 650,416 | |
| All Other | | 353,762 | | | 408,213 | | | 387,257 | |
| Total | | $ | 1,891,793 | | | $ | 1,970,302 | | | $ | 2,053,903 | |
|
| | | | | | | | | | | | |
| | | Fiscal Year ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| United States | | $ | 1,677,294 |
| | $ | 1,729,751 |
| | $ | 1,582,553 |
|
| United Kingdom | | 851,757 |
| | 859,183 |
| | 803,470 |
|
| All Other | | 324,060 |
| | 296,440 |
| | 223,590 |
|
| Total | | $ | 2,853,111 |
| | $ | 2,885,374 |
| | $ | 2,609,613 |
|
The Company’s long-lived assets, which primarily represent net property, plant and equipment, net and operating lease right-of-use assets, net by geographic region are as follows:
| | | | | | | | | | | | | | |
| | Fiscal Year Ended June 30, |
| | 2022 | | 2021 |
| United States | | $ | 182,038 | | | $ | 148,950 | |
| United Kingdom | | 133,213 | | | 142,973 | |
| All Other | | 96,845 | | | 112,864 | |
| Total | | $ | 412,096 | | | $ | 404,787 | |
|
| | | | | | | | |
| | | Fiscal Year ended June 30, |
| | | 2017 | | 2016 |
| United States | | $ | 194,348 |
| | $ | 193,192 |
|
| United Kingdom | | 165,396 |
| | 196,271 |
|
| All Other | | 63,330 |
| | 53,260 |
|
| Total | | $ | 423,074 |
| | $ | 442,723 |
|
21. RELATED PARTY TRANSACTIONS
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
A summaryOn November 9, 2021, the Company entered into a share repurchase agreement with the Selling Stockholders, which are affiliates of Engaged Capital, LLC, pursuant to which the Company agreed to repurchase, directly from the Selling Stockholders, 1,700 shares of the Company’s consolidated quarterly resultscommon stock for $45.00 per share (the "Share Repurchase"), which equaled the price at which the Underwriter (as defined below) purchased shares from the Selling Stockholders, net of operations is as follows. underwriting commissions and discounts, in an underwritten public offering that launched on November 10, 2021, whereby the Selling Stockholders sold certain other shares of common stock (the “Offering”). The sumlast reported sale price of the net incomeCompany’s common stock on the NASDAQ Global Select Market on November 9, 2021 was $47.95 per shareshare. In connection with the Offering, on November 10, 2021, the Company entered into an underwriting agreement with Morgan Stanley & Co. LLC, as underwriter (the “Underwriter”), and the Selling Stockholders. The Share Repurchase and the Offering were completed on November 15, 2021. The aggregate price paid by the Company for the Share Repurchase was $76,500 (see Note 12, Stockholders’ Equity), which the Company funded with borrowings under the Credit Agreement. The Company did not receive any proceeds from continuing operations for eachthe Offering. The Founder and Chief Investment Officer of Engaged Capital, LLC is a member of the four quarters may not equal the net income per share for the full year, as presented, due to rounding.Company's Board of Directors.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended |
| | June 30, 2017 | | March 31, 2017 | | December 31, 2016 | | September 30, 2016 |
| Net sales | $ | 725,085 |
| | $ | 706,563 |
| | $ | 739,999 |
| | $ | 681,464 |
|
| Gross profit | $ | 149,719 |
| | $ | 143,393 |
| | $ | 138,393 |
| | $ | 109,867 |
|
| Operating income | $ | 8,587 |
| | $ | 47,067 |
| | $ | 41,400 |
| | $ | 13,751 |
|
| Income before income taxes and equity in earnings of equity-method investees | $ | 2,749 |
| | $ | 39,556 |
| | $ | 37,656 |
| | $ | 9,182 |
|
| Net income | $ | 313 |
| | $ | 31,328 |
| | $ | 27,185 |
| | $ | 8,604 |
|
| | | | | | | | |
| Net income per common share: | | | | | | | |
| Basic | $ | — |
| | $ | 0.30 |
| | $ | 0.26 |
| | $ | 0.08 |
|
| Diluted | $ | — |
| | $ | 0.30 |
| | $ | 0.26 |
| | $ | 0.08 |
|
The quarter ended June 30, 2017 was impacted by impairment charges of $14,079 ($10,733 net of tax) related to indefinite-lived intangible assets (tradenames), as well as a $26,373 ($20,877 net of tax) impairment charge primarily related to long-lived assets associated with the exit of certain portions of our own-label chilled desserts business in the United Kingdom. Additionally, the quarter ended June 30, 2017 was impacted by $9,473 ($6,773 net of tax) related to professional fees associated with our internal accounting review.
The quarters ended March 31, 2017, December 31, 2016 and September 30, 2016 were impacted by $7,124 ($5,029 net of tax), $7,005 ($5,050 net of tax), and $5,960 ($4,112 net of tax), respectively, related to professional fees associated with our internal accounting review.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended |
| | June 30, 2016 | | March 31, 2016 | | December 31, 2015 | | September 30, 2015 |
| Net sales | $ | 737,547 |
| | $ | 736,663 |
| | $ | 743,437 |
| | $ | 667,727 |
|
| Gross profit | $ | 150,081 |
| | $ | 159,908 |
| | $ | 166,261 |
| | $ | 137,881 |
|
| Operating income (loss) | $ | (65,138 | ) | | $ | 71,148 |
| | $ | 90,078 |
| | $ | 54,272 |
|
| Income/(loss) before income taxes and equity in earnings of equity-method investees | $ | (77,572 | ) | | $ | 72,863 |
| | $ | 80,713 |
| | $ | 42,404 |
|
| Net income (loss) | $ | (88,597 | ) | | $ | 48,788 |
| | $ | 58,080 |
| | $ | 29,158 |
|
| | | | | | | | |
| Net income (loss) per common share: | | | | | | | |
| Basic | $ | (0.86 | ) | | $ | 0.47 |
| | $ | 0.56 |
| | $ | 0.28 |
|
| Diluted | $ | (0.86 | ) | | $ | 0.47 |
| | $ | 0.56 |
| | $ | 0.28 |
|
The quarter ended June 30, 2016 was impacted by goodwill impairment charges recorded of $84,548 in the United Kingdom, impairment charges of $39,724 ($30,772 net of tax) related to indefinite-lived intangible assets (tradenames), as well as a $3,476 ($2,855 net of tax) impairment charge related to long-lived assets associated with the divestiture of certain portions of our own-label juice business in connection with our acquisition of Orchard House in the United Kingdom.
The quarter ended March 31, 2016 was impacted by a $9,013 ($6,231 net of tax) gain on fire insurance recovery as a result of fixed assets purchased with insurance proceeds that exceeded the net book value of fixed assets destroyed in the fire that occurred at our Tilda rice milling facility in the second quarter of fiscal 2015.
Item 9. Changes in and Disagreements withWith 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, 20172022 and, based on their evaluation, have concluded that the disclosure controls and procedures were not effective as of such date due to the material weaknesses in internal control over financial reporting described below.
While the material weaknesses described below did not result in a material misstatement to the Company’s consolidated financial statements for any period in the three-year period ended June 30, 2017, they did represent material weaknesses as of June 30, 2017, since there existed2022.
Consistent with guidance issued by the Securities and Exchange Commission that an assessment of internal controls over financial reporting of a reasonable possibility that a material misstatementrecently acquired business may be omitted from management's evaluation of disclosure controls and procedures, management is excluding an assessment of such internal controls of Proven Brands, Inc. (and its subsidiary That's How We Roll LLC) and KTB Foods Inc. (collectively doing business as "That's How We Roll" ("THWR")) from its evaluation of the Company’s annual or interim financial statements would not have been prevented or detectedeffectiveness of the Company's disclosure controls and procedures. The Company acquired all outstanding stock of THWR on a timely basis. NotwithstandingDecember 28, 2021. THWR, which is included in the identified material weaknesses, management, including our CEO and CFO, believes the2022 consolidated financial statements included in this Form 10-K fairly represent in all material respects our financial condition, results of operationsthe Company, constituted approximately 1% of the Company's consolidated total assets, excluding THWR goodwill and cash flows asintangible assets, net at June 30, 2022 and 3% of andnet sales for the periods presented in accordance with U.S. GAAP. In addition, as discussed below, the Company has taken steps to remediate the material weaknesses.year then ended.
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, 2017.2022. 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 ourthe Company’s CEO and CFO, has concluded that our internal control over financial reporting was not effective as of June 30, 2017 due to material weaknesses in our internal control over financial reporting, which are disclosed below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the assessment of our internal control over financial reporting described above, management identified the following deficiencies that individually, or in the aggregate, constituted material weaknesses in our internal control over financial reporting as of June 30, 2017:
Ineffective Control Environment - The Company’s control environment did not sufficiently promote effective internal control over financial reporting, which contributed to the other material weaknesses described below. Principal contributing factors included: (i) an insufficient number of personnel appropriately qualified to perform control design, execution and monitoring activities; (ii) an insufficient number of personnel with an appropriate level of U.S. GAAP knowledge and experience and ongoing training in the application of U.S. GAAP commensurate with our financial reporting requirements; (iii) in certain instances, insufficient documentation or basis to support accounting estimates; and (iv) insufficient design and operating effectiveness of management review controls including the appropriate level of precision required to mitigate the potential for a material misstatement within key subjective analyses supporting significant financial statement accounts.
Ineffective Information Technology General Controls and IT Dependent Controls - The Company’s information technology general controls over certain key IT systems were not designed and did not operate effectively. Specifically: (i) user access controls did not restrict users’ access privileges commensurate with their assigned authority and responsibility; (ii) program change controls did not ensure that modifications to reports were appropriately tested before being released into the production environment; and (iii) end-user computing controls over certain reports and spreadsheets were not adequately designed and did not operate effectively. As a result of these deficiencies, the related process-level IT dependent manual and automated application controls for certain key IT systems were also ineffective. In addition, the Company did not have effective controls over the existence, completeness, and accuracy of data used to support accounts related to revenue, trade and promotional allowances and accruals, accounts receivable, inventory and cost of sales, selling general and administrative expense, goodwill and intangibles, others assets, accounts payable and accruals, income taxes and other accounts included within the financial statement close process, as well as financial reporting and disclosures.
Revenue Recognition - As previously disclosed, management had previously identified that the Company’s internal controls to identify, accumulate and assess the accounting impact of certain concessions or side agreements on whether the Company’s revenue recognition criteria had been met were not adequately designed and did not operate effectively. In response, the Company has designed a suite of controls to address the risk that side agreements, including concessions, exist but are not appropriately evaluated from an accounting standpoint. The Company concluded, however, that it had an insufficient period of time to evaluate the effectiveness of these controls and that they were, in part, impacted by the ineffective controls around IT systems discussed above.
As the control deficiencies discussed above create a reasonable possibility that a material misstatement to our consolidated financial statements will not be prevented or detected on a timely basis, we concluded that the deficiencies represented material weaknesses in our internal control over financial reporting as of June 30, 2017.
The Company acquired Sonmundo, Inc. d/b/a The Better Bean Company (“Better Bean”) on June 19, 2017 and The Yorkshire Provender Limited (“Yorkshire Provender”) on April 28, 2017. We have excluded Better Bean and Yorkshire Provender from our assessment of and conclusion on the effectiveness of the Company’s internal control over financial reporting was effective as of June 30, 2017. Together,2022. As reported above, on December 28, 2021, the Company acquired businesses accounted for approximately one percentall outstanding stock of total assets, net assets, revenuesTHWR. As a result, the Company is currently integrating THWR’s operations into its overall system of internal control over financial reporting and, net income, respectively,if necessary, will make appropriate changes as of June 30, 2017.it integrates THWR into the Company's overall internal control over financial reporting process.
The effectiveness of the Company’s internal control over financial reporting as of June 30, 20172022 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Remediation of the Material Weaknesses in Internal Control Over Financial Reporting
Management is committed to the planning and implementation of remediation efforts to address the material weaknesses. These remediation efforts, summarized below, which have been implemented or are in process of implementation, are intended to both address the identified material weaknesses and to enhance our overall financial control environment. In this regard, our initiatives include:
Organizational Enhancements - The Company has identified and implemented several organizational enhancements as follows: (i) the creation of a new position, Global Revenue Controller, which has been filled and is responsible for all aspects of the Company's revenue recognition policies, procedures and the proper application of accounting to the Company’s sales arrangements; (ii) the identification and hiring of a new Controller for the Company’s United States segment, which has been filled, who is responsible for all accounting functions in the United States segment; (iii) the establishment of an internal audit function that reports directly to the Audit Committee; (iv) the identification and hiring of a new Chief Compliance Officer (which has been filled), who is focused on establishing standards and implementing procedures to ensure that the compliance programs throughout the Company are effective and efficient in identifying,
preventing, detecting and correcting noncompliance with applicable rules and regulations; and (v) the enhancement of the Company’s organizational structure over all finance functions and an increase of the Company’s accounting personnel with people that have the knowledge, experience, and training in U.S. GAAP to ensure that a formalized process for determining, documenting, communicating, implementing and monitoring controls over the period-end financial reporting and disclosure processes is maintained.
Information Technology General Controls and IT Dependent Controls -The Company has identified and begun to implement several enhancements including (i) the identification and hiring of a new Chief Information Officer, which has been filled; (ii) the centralization of the management of certain key IT systems under the corporate IT organization to provide consistent user access and change management controls; (iii) the establishment of a more comprehensive review and approval process for authorizing and monitoring user access to key systems; and (iv) the evaluation of the design and implementation of the process-level controls over the, existence, completeness, and accuracy of data included in various reports and spreadsheets that support the financial statements.
Revenue Practices - The Company has evaluated its revenue practices and has implemented improvements in those practices, including: (i) the development of more comprehensive revenue recognition policies and improved procedures to ensure that such policies are understood and consistently applied; (ii) better communication among all functions involved in the sales process (e.g., sales, legal, accounting, finance); (iii) increased standardization of contract documentation and revenue analyses for individual transactions; and (iv) the development of a more comprehensive review process and monitoring controls over contracts with customers, customer payments and incentives, including corporate review of related accruals and presentation of trade promotions and incentives.
Training Practices - The Company has developed a comprehensive revenue recognition and contract review training program. This training is focused on senior-level management and customer-facing employees as well as finance, sales and marketing personnel.
While this remediation plan is being executed, the Company has also engaged additional external resources to support and supplement the Company’s existing internal resources.
When fully implemented and operational, we believe the measures described above will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. The material weaknesses in our internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We are working to have these material weaknesses remediated as soon as possible and significant progress has been made to date. We are committed to continuing to improve our internal control processes and will continue to diligently and vigorously review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, our management may determine to take additional measures.
Changes in Internal Control over Financial Reporting
Other than the ongoing remediation efforts described above, thereThere was no change in our internal control over financial reporting that occurred during the fourth fiscal quarter of the period covered by this reportended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
The Company’s management, including the Company’s CEO and CFO, recognizes that the Company’s disclosure controls and procedures and the Company’s internal control over financial reporting cannot prevent or detect all errors and all fraud. A control system, regardless of how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the following:
Judgments in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes.
Controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override.
The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Report of Independent Registered Public Accounting Firm
TheTo 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’Subsidiaries internal control over financial reporting as of June 30, 2017,2022, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)(the (the COSO criteria). In our opinion, The Hain Celestial Group, Inc. and Subsidiaries’Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the acquired businesses, Proven Brands, Inc. (and its subsidiary That's How We Roll LLC) and KTB Foods Inc., collectively doing business as "That's How We Roll", which is included in the 2022 consolidated financial statements of the Company and constituted 1% of total assets as of June 30, 2022 and 3% of net sales for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of That’s How We Roll.
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 Companyas of June 30, 2022 and 2021, 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, 2022, and the related notes and schedule and our report dated August 25, 2022 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 accompanyingManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’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 Public Company Accounting Oversight Board (United States).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.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of The Better Bean Company (“Better Bean”), acquired on June 19, 2017, and The Yorkshire Provender Limited (“Yorkshire Provender”), acquired on April 28, 2017, which are included in the fiscal 2017 consolidated financial statements of The Hain Celestial Group, Inc. and Subsidiaries and constituted approximately one percent of total assets, net assets, revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of The Hain Celestial Group, Inc. and Subsidiaries also did not include an evaluation of the internal control over financial reporting of Better Bean and Yorkshire Provender.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment:
Ineffective Control Environment - The Company’s control environment did not sufficiently promote effective internal control over financial reporting, which contributed to the other material weaknesses described below. Principal contributing factors included: (i) an insufficient number of personnel appropriately qualified to perform control design, execution and monitoring activities; (ii) an insufficient number of personnel with an appropriate level of U.S. GAAP knowledge and experience and ongoing training in the application of U.S. GAAP commensurate with our financial reporting requirements; (iii) in certain instances, insufficient documentation or basis to support accounting estimates; and (iv) insufficient design and operating effectiveness of management review controls including the appropriate level of precision required to mitigate the potential for a material misstatement within key subjective analyses supporting significant financial statement accounts.92
Ineffective Information Technology General Controls and IT Dependent Controls - The Company’s information technology general controls over certain key IT systems were not designed and did not operate effectively. Specifically: (i) user access controls did not restrict users’ access privileges commensurate with their assigned authority and responsibility; (ii) program change controls did not ensure that modifications to reports were appropriately tested before
being released into the production environment; and (iii) end-user computing controls over certain reports and spreadsheets were not adequately designed and did not operate effectively. As a result of these deficiencies, the related process-level IT dependent manual and automated application controls for certain key IT systems were also ineffective. In addition, the Company did not have effective controls over the existence, completeness, and accuracy of data used to support accounts related to revenue, trade and promotional allowances and accruals, accounts receivable, inventory and cost of sales, selling general and administrative expense, goodwill and intangibles, others assets, accounts payable and accruals, income taxes and other accounts included within the financial statement close process, as well as financial reporting and disclosures.
Revenue Recognition - As previously disclosed, management had previously identified that the Company’s internal controls to identify, accumulate and assess the accounting impact of certain concessions or side agreements on whether the Company’s revenue recognition criteria had been met were not adequately designed and did not operate effectively. In response, the Company has designed a suite of controls to address the risk that side agreements, including concessions, exist but are not appropriately evaluated from an accounting standpoint. The Company concluded, however, that it had an insufficient period of time to evaluate the effectiveness of these controls and that they were, in part, impacted by the ineffective controls around IT systems discussed above.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Hain Celestial Group, Inc. and Subsidiaries as of June 30, 2017 and 2016, and the related consolidated statements of income, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2017. These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the June 30, 2017 financial statements, and this report does not affect our report dated September 13, 2017, which expressed an unqualified opinion on those financial statements.
In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, The Hain Celestial Group, Inc. and Subsidiaries has not maintained effective internal control over financial reporting as of June 30, 2017, based on the COSO criteria.
/s/ Ernst & Young LLP
Jericho, New York
August 25, 2022
September 13, 2017
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference to ourthe Company’s Proxy Statement for the 2022 Annual Meeting of Stockholders of the Company to be filed with the SEC within 120 days of the fiscal year ended June 30, 2017.2022.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to ourthe Company’s Proxy Statement for the 2022 Annual Meeting of Stockholders of the Company to be filed with the SEC within 120 days of the fiscal year ended June 30, 2017.2022.
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 ourthe Company’s Proxy Statement for the 2022 Annual Meeting of Stockholders of the Company to be filed with the SEC within 120 days of the fiscal year ended June 30, 2017.2022.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to ourthe Company’s Proxy Statement for the 2022 Annual Meeting of Stockholders of the Company to be filed with the SEC within 120 days of the fiscal year ended June 30, 2017.2022.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to ourthe Company’s Proxy Statement for the 2022 Annual Meeting of Stockholders of the Company to be filed with the SEC within 120 days of the fiscal year ended June 30, 2017.2022.
PART IV
Item 15. ExhibitsExhibit and Financial Statement Schedules
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(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:
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(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, 20172022 and 20162021
Consolidated Statements of IncomeOperations - Fiscal Years ended June 30, 2017, 20162022, 2021 and 20152020
Consolidated Statements of Comprehensive Income (Loss) - Fiscal Years ended June 30, 2017, 20162022, 2021 and 20152020
Consolidated Statements of Stockholders’ Equity - Fiscal Years ended June 30, 2017, 20162022, 2021 and 20152020
Consolidated Statements of Cash Flows - Fiscal Years ended June 30, 2017, 20162022, 2021 and 20152020
Notes to Consolidated Financial Statements
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(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.
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(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.
The Hain Celestial Group, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
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| Column A | | Column B | | Column C | | Column D | | Column E |
| | | | Additions | | | | |
| | Balance at
beginning of
period | | Charged to costs and expenses (iii) | | Charged to other accounts - describe (i) | | Deductions - describe (ii) | | Balance at
end of
period |
| Fiscal Year Ended June 30, 2022 | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 1,314 | | | $ | 1,292 | | | $ | — | | | $ | (875) | | | $ | 1,731 | |
| Valuation allowance for deferred tax assets | | $ | 37,453 | | | $ | 784 | | | $ | — | | | $ | (1,346) | | | $ | 36,891 | |
| Fiscal Year Ended June 30, 2021 | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 638 | | | $ | 348 | | | $ | — | | | $ | 328 | | | $ | 1,314 | |
| Valuation allowance for deferred tax assets | | $ | 41,941 | | | $ | 5,601 | | | $ | — | | | $ | (10,089) | | | $ | 37,453 | |
| Fiscal Year Ended June 30, 2020 | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 588 | | | $ | 454 | | | $ | — | | | $ | (404) | | | $ | 638 | |
| Valuation allowance for deferred tax assets | | $ | 34,912 | | | $ | 7,391 | | | $ | — | | | $ | (362) | | | $ | 41,941 | |
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| Column A | | Column B | | Column C | | Column D | | Column E |
| | | | | Additions | | | | |
| | | Balance at beginning of period | | Charged to costs and expenses | | Charged to other accounts - describe (i) | | Deductions - describe (ii) | | Balance at end of period |
| Fiscal Year Ended June 30, 2017: | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 936 |
| | $ | 1,077 |
| | $ | 149 |
| | $ | (715 | ) | | $ | 1,447 |
|
| Valuation allowance for deferred tax assets | | $ | 15,310 |
| | $ | 1,862 |
| | $ | — |
| | $ | (2,322 | ) | | $ | 14,850 |
|
| | | | | | | | | | | |
| Fiscal Year Ended June 30, 2016: | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 896 |
| | $ | 208 |
| | $ | 54 |
| | $ | (222 | ) | | $ | 936 |
|
| Valuation allowance for deferred tax assets | | $ | 10,926 |
| | $ | 7,484 |
| | $ | — |
| | $ | (3,100 | ) | | $ | 15,310 |
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| Fiscal Year Ended June 30, 2015: | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 1,586 |
| | $ | 791 |
| | $ | 20 |
| | $ | (1,501 | ) | | $ | 896 |
|
| Valuation allowance for deferred tax assets | | $ | 10,952 |
| | $ | 963 |
| | $ | — |
| | $ | (989 | ) | | $ | 10,926 |
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(i) | Represents the allowance for doubtful accounts of the business acquired during the fiscal year |
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(ii) | Amounts written off and changes in exchange rates |
(i)Represents the allowance for doubtful accounts of the business acquired or disposed of during the fiscal year
(ii)Amounts written off and changes in exchange rates
(iii)Includes item related to THWR purchase accounting (2022: $1,743; 2021: nil; 2020: nil)
(a)(3) Exhibits. The exhibits filed as part of this Annual Report on Form 10-K are listed on the Exhibit Index immediately following the signature page hereto,Item 16. “Form 10-K Summary,” which is incorporated herein by reference.
Item 16. Form 10-K Summary
None.
SIGNATURES
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.
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| | THE HAIN CELESTIAL GROUP, INC. |
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Date: | September 13, 2017 | /s/ Irwin D. Simon |
| | Irwin D. Simon,
Chairman, President and Chief
Executive Officer
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Date: | September 13, 2017 | /s/ James Langrock |
| | James Langrock,
Executive Vice President and
Chief Financial Officer
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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.
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SignatureExhibit
Number | | Title | | DateDescription |
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/s/ Irwin D. Simon | | Chairman purchase of the BoardTilda 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 Directorsthe Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019, filed with the SEC on August 29, 2019).
| | September 13, 2017 |
Irwin D. Simon | | | | |
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/s/ James Langrock | | Executive Vice President and
Chief Financial Officer
| | September 13, 2017 |
James Langrock | | | | |
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/s/ Michael McGuinness | | Senior Vice President and
Chief Accounting Officer
| | September 13, 2017 |
Michael McGuinness | | | | |
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/s/ Richard C. Berke | | Director | | September 13, 2017 |
Richard C. Berke | | | | |
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/s/ Andrew R. Heyer | | Director | | September 13, 2017 |
Andrew R. Heyer | | | | |
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/s/ Raymond W. Kelly | | Director | | September 13, 2017 |
Raymond W. Kelly | | | | |
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/s/ Roger Meltzer | | Director | | September 13, 2017 |
Roger Meltzer | | | | |
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/s/ Scott M. O’Neil | | Director | | September 13, 2017 |
Scott M. O’Neil | | | | |
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/s/ Adrianne Shapira | | Director | | September 13, 2017 |
Adrianne Shapira | | | | |
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/s/ Lawrence S. Zilavy | | Director | | September 13, 2017 |
Lawrence S. Zilavy | | | | |
EXHIBIT INDEX
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Exhibit
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| | SecondFourth Amended and Restated Credit Agreement, dated as of December 12, 2014,22, 2021, by and among The Hain Celestial Group, Inc.,the Company, the Lenders party thereto and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Bank of America Merrill Lynch International Limited, as Global Swingline Lender, Wells Fargo Bank, N.A., as Syndication Agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A. and Farm Credit East, ACA, as Documentation Agents, and the other lenders party theretoadministrative agent (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on December 18, 2014)28, 2021).
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| | Limited Waiver and Extension, dated September 23, 2016, to the Second Amended and Restated CreditSecurity and Pledge Agreement, dated as of December 12, 2014,22, 2021, by and among The Hain Celestial Group, Inc.,the Company, certain wholly-owned subsidiaries of the Company party thereto from time to time, and Bank of America, N.A., as Administrative Agent, Swing Line Lenderadministrative agent (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2021). |
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| | Share Repurchase Agreement, dated November 9, 2021, by and L/C Issuer, Bank of America Merrill Lynch International Limited, as Global Swingline Lender, Wells Fargo Bank, N.A., as Syndication Agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A.among the Company, Engaged Capital Co-Invest VI, LP, Engaged Capital Co-Invest VI-B, LP, Engaged Capital Co-Invest VI-C, LP, Engaged Capital Co-Invest VI-D, LP and Farm Credit East, ACA, as Documentation Agents, and the other lenders party theretoEngaged Capital Co-Invest VI-E, LP (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on September 27, 2016)November 15, 2021). |
| | Second Limited Waiver and Extension, dated December 16, 2016, to the Second Amended and Restated Credit Agreement, dated as of December 12, 2014, by and among The Hain Celestial Group, Inc., Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Bank of America Merrill Lynch International Limited, as Global Swingline Lender, Wells Fargo Bank, N.A., as Syndication Agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A. and Farm Credit East, ACA, as Documentation Agents, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 20, 2016). |
| | Third Limited Waiver and Extension, dated February 27, 2017, to the Second Amended and Restated Credit Agreement, dated as of December 12, 2014, by and among The Hain Celestial Group, Inc., Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Bank of America Merrill Lynch International Limited, as Global Swingline Lender, Wells Fargo Bank, N.A., as Syndication Agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A. and Farm Credit East, ACA, as Documentation Agents, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 3, 2017). |
| | Fourth Limited Waiver and Extension, dated May 30, 2017, to the Second Amended and Restated Credit Agreement, dated as of December 12, 2014, by and among The Hain Celestial Group, Inc., Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Bank of America Merrill Lynch International Limited, as Global Swingline Lender, Wells Fargo Bank, N.A., as Syndication Agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A. and Farm Credit East, ACA, as Documentation Agents, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 2, 2017). |
| | Fifth Limited Waiver and Extension, dated June 15, 2017, to the Second Amended and Restated Credit Agreement, dated as of December 12, 2014, by and among The Hain Celestial Group, Inc., Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Bank of America Merrill Lynch International Limited, as Global Swingline Lender, Wells Fargo Bank, N.A., as Syndication Agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A. and Farm Credit East, ACA, as Documentation Agents, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 20, 2017). |
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| | Offer Letter, dated July 1, 2003January 18, 2022, between the Company and Christopher J. Bellairs (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2003, filed with the Commission on November 14, 2003), as amended as described in the Company’s Current Report on Form 8-KMarch 31, 2022, filed with the SEC on November 3, 2006.March 5, 2022).
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* | | |
| 104 | | Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101). |
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| * | | 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.
SIGNATURES
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.
| | | | | | | | |
| | THE HAIN CELESTIAL GROUP, INC. |
| Date: | August 25, 2022 | /s/ Christopher J. Bellairs |
| | Christopher J. Bellairs, Executive Vice President and Chief Financial Officer |
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.
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| Signature | | Title | | Date |
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| /s/ Mark L. Schiller | | President, Chief Executive Officer and
Director
(Principal Executive Officer) | | August 25, 2022 |
| Mark L. Schiller | | | | |
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| /s/ Christopher J. Bellairs | | Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) | | August 25, 2022 |
| Christopher J. Bellairs | | | | |
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| /s/ Ameet Kumar | | Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer) | | August 25, 2022 |
| Ameet Kumar | | | | |
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| /s/ Dean Hollis | | Chair of the Board | | August 25, 2022 |
| Dean Hollis | | | | |
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| /s/ Richard A. Beck | | Director | | August 25, 2022 |
| Richard A. Beck | | | | |
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| /s/ Celeste A. Clark | | Director | | August 25, 2022 |
| Celeste A. Clark | | | | |
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| /s/ Shervin J. Korangy | | Director | | August 25, 2022 |
| Shervin J. Korangy | | | | |
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| /s/ Michael B. Sims | | Director | | August 25, 2022 |
| Michael B. Sims | | | | |
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| /s/ Carlyn R. Taylor | | Director | | August 25, 2022 |
| Carlyn R. Taylor | | | | |
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| /s/ Glenn W. Welling | | Director | | August 25, 2022 |
| Glenn W. Welling | | | | |
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| /s/ Dawn M. Zier | | Director | | August 25, 2022 |
| Dawn M. Zier | | | | |
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