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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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ý No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated
filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Emerging
growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No ý
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01 per share
HAIN
The
NASDAQ® Global Select Market
As of April 30, 2019, there were 104,149,062 shares outstanding of the registrant’s Common Stock, par value $.01 per share.
Cautionary Note Regarding Forward Looking Information
This Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (the “Form 10-Q”) 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 Quarterly Report on Form 10-Q, and are not statements of historical fact. We make such forward-looking statements pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform
Act of 1995.
Many of our forward-looking statements include discussions of trends and anticipated developments under the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Quarterly Report on Form 10-Q. In some cases, you can identify forward-looking statements by terminology such as the use of “may,”“will,”“should,”“expects,”“plans,”“anticipates,”“believes,”“estimates,”“projects,”“intends,”“predicts,”“potential,” or “continue” and similar expressions, or the negative of those expressions. These forward-looking statements include, among other things, our beliefs or expectations relating to our business strategy, growth strategy, market price, brand portfolio and product performance, the seasonality of our business,
our results of operations and financial condition, enhancing internal controls and remediating material weaknesses. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict. Therefore, our actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. We undertake no obligation to further update any such statement 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, the impact of competitive products, changes to the competitive environment, changes to consumer preferences, consolidation of customers, reliance on independent distributors, general economic and financial market conditions, risks associated with our international sales and operations, including “Brexit”, our ability to manage our supply chain effectively, changes in raw materials, freight, commodity costs and fuel, our ability to execute and realize cost savings initiatives, including, but not limited to, cost reduction initiatives under Project Terra and stock-keeping unit (“SKU”) rationalization plans, the identification and remediation of material weaknesses in our internal controls over financial reporting, our ability to manage our financial reporting and internal control system processes, potential liabilities due to legal claims, government
investigations and other regulatory enforcement actions, costs incurred due to pending and future litigation, the availability of key personnel and changes in management team, potential liability if our products cause illness or physical harm, impairments in the carrying value of goodwill or other intangible assets, our ability to identify and complete acquisitions or divestitures and integrate acquisitions, the availability of organic and natural ingredients, the reputation of our brands, risks relating to the protection of intellectual property, cybersecurity risks, unanticipated expenditures and other risks described in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018 under the heading “Risk Factors” and Part II, Item 1A, “Risk Factors” set forth herein, as well as in
other reports that we file in the future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except par values and per share data)
1. BUSINESS
The
Hain Celestial Group, Inc., a Delaware corporation (collectively, along with its subsidiaries, the “Company,” and herein referred to as “Hain Celestial,”“we,”“us” and “our”), was founded in 1993 and is headquartered in Lake Success, New York. The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet — To Create and Inspire A Healthier Way of LifeTM and be the leading marketer, manufacturer and seller of organic and natural, “better-for-you” products by anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience. The
Company is committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 80 countries worldwide.
The Company manufactures, markets, distributes and sells organic and natural products under brand names that are sold as “better-for-you” products, providing consumers with the opportunity to lead A Healthier Way of Life™. Hain Celestial is a leader in many organic and natural products categories, with many recognized brands in the various market categories
it serves, including Almond Dream®, Arrowhead Mills®, Bearitos®, Better Bean®, BluePrint®, Casbah®, Celestial Seasonings®, Clarks™, Coconut Dream®, Cully & Sully®, Danival®, DeBoles®, Earth’s Best®,
Ella’s Kitchen®, Europe’s Best®, Farmhouse Fare™, Frank Cooper’s®, Gale’s®, Garden of Eatin’®, GG UniqueFiber®, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, Johnson’s Juice Co.™, Joya®, Lima®,
Linda McCartney® (under license), MaraNatha®, Mary Berry (under license), Natumi®, New Covent Garden Soup Co.®, Orchard House®, Rice Dream®, Robertson’s®, Rudi’s Gluten-Free Bakery™, Rudi’s Organic Bakery®, Sensible Portions®, Spectrum® Organics, Soy Dream®,
Sun-Pat®, Sunripe®, SunSpire®, Terra®, The Greek Gods®, Tilda®, Walnut Acres®, Yorkshire Provender®, Yves Veggie Cuisine®and William’s™. The Company’s personal care products are marketed under the Alba Botanica®, Avalon
Organics®, Earth’s Best®, JASON®, Live Clean® and Queen Helene® brands.
2. BASIS OF PRESENTATION
The Company’s unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP. The amounts as of and for the periods ended June 30, 2018 are derived from the Company’s audited annual financial statements. The unaudited consolidated financial statements reflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair presentation for interim periods. Operating results for the three and nine months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30,
2019. Please refer to the Notes to the Consolidated Financial Statements as of June 30, 2018 and for the fiscal year then ended included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018 (the “Form 10-K”) for information not included in these condensed notes.
The Company is presenting the operating results and cash flows of the Hain Pure Protein reportable segment within discontinued operations in the current and prior periods. The assets and liabilities
of the Hain Pure Protein reportable segment are presented as assets and liabilities of discontinued operations in the Consolidated Balance Sheets for all periods presented.
All amounts in the unaudited consolidated financial statements, notes and tables have been rounded to the nearest thousand, except par values and per share amounts, unless otherwise indicated.
ASU
2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). This guidance outlines a single, comprehensive model for accounting for revenue from contracts with customers, providing a single five-step model to be applied to all revenue transactions. The guidance also requires improved disclosures to assist users of the financial statements to better understand the nature, amount, timing
and uncertainty of revenue that is recognized. Subsequent to the issuance of ASU 2014-09, the FASB issued various additional ASUs clarifying and amending this new revenue guidance. The Company adopted the new revenue standard on July 1, 2018 using the modified retrospective transition method. The adoption did not materially impact our results of operations or financial position, and, as a result, comparisons of revenues and operating profit between periods were not materially affected by the adoption of ASU 2014-09. The Company recorded a net increase to beginning retained earnings of $163 on July 1, 2018 due to the cumulative impact of adopting ASU 2014-09. Additionally,
as our products exhibit similar economic characteristics, are sold through similar channels to similar customers and are recognized at a point in time, we have concluded that the Company’s segment disclosures in Note 17, Segment Information, are indicative of the level of revenue disaggregation required under ASU 2014-09.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair
value recognized in net income. The pronouncement also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. We adopted ASU 2016‑01 in the three months ended September 30, 2018, which resulted in a net decrease to beginning retained earnings of $348 on July 1, 2018, representing the accumulated unrealized losses (net of tax) reported in accumulated other comprehensive income (loss) for available-for-sale equity securities on June 30, 2018. We no longer classify equity investments as trading or available-for-sale and will no longer recognize unrealized holding gains and losses on equity securities previously classified as available-for-sale in other comprehensive income (loss) as a result of
adoption of ASU 2016-01.
Recently Issued Accounting Pronouncements Not Yet Effective
In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842). The amendments in this ASU replace most of the existing U.S. GAAP lease accounting guidance in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The ASU requires lessees and lessors to recognize and measure leases at the beginning of the earliest period
presented using a modified retrospective approach. In July 2018, the FASB approved amendments to create an optional transition method that will provide an option to use the effective date of ASC 842 as the date of initial application of the transition. Under the new transition method, a reporting entity would initially apply the new lease requirements at the effective date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, continue to report comparative periods presented in the financial statements in the period of adoption in accordance with current U.S. GAAP (i.e., ASC 840, Leases) and provide the required disclosures under ASC 840 for all periods presented under current U.S. GAAP. We will adopt the standard effective July 1, 2019.
As part of the
Company’s assessment work to-date, the Company has formed an implementation work team to perform a comprehensive evaluation of the impact of the adoption of this guidance, which includes assessing the Company’s lease portfolio, the impact to business processes and internal controls over financial reporting and the related disclosure requirements. Additionally, the Company is implementing lease accounting software to assist in the quantification of the expected impact on the Consolidated Balance Sheet and to facilitate the calculations of the related accounting entries and disclosures, as well as to facilitate accounting, presentation and disclosure for all leases after the initial date of application under the new
standard.
While the Company is continuing to assess all potential impacts of the standard, the most significant impact relates to the recognition of new right-of-use assets and lease liabilities on the balance sheet for manufacturing, warehouse and office space operating leases. We believe that all of these leases will continue to be classified as operating leases under the new standard. We expect the accounting for capital leases to remain substantially unchanged.
Refer to Note 2, Summary of Significant Accounting Policies and Practices, in the Notes to the Consolidated Financial Statements as of June 30,
2018 and for the fiscal year then ended included in the Form 10-K for a detailed discussion on additional recently
issued accounting pronouncements not yet adopted by the Company. There has been no change to the statements made in the Form 10-K as of the date of filing of this Form 10-Q.
3. CHIEF EXECUTIVE OFFICER SUCCESSION PLAN
On
June 24, 2018, the Company entered into a Chief Executive Officer (“CEO”) Succession Agreement (the “Succession Agreement”), whereby the Company’s former CEO, Irwin D. Simon, agreed to terminate his employment with the Company upon the hiring of a new CEO.
The Succession Agreement provides Mr. Simon with a cash separation payment of $34,295 payable
in a single lump sum and cash benefit continuation costs of $208. These costs were recognized from June 24, 2018 through November 4, 2018. Expense recognized in connection with the agreement was $33,051 in the nine months ended March 31, 2019, and are included in the Consolidated Statement of Operations as a component of “Chief Executive Officer Succession Plan expense, net.” As of March 31, 2019, the total cash separation payment was held in a rabbi trust, which has been classified as restricted cash and included in accrued expenses and
other current liabilities in the Consolidated Balance Sheet. The cash separation payment was paid on May 6, 2019.
Consulting Agreement
On October 26, 2018, the Company and Mr. Simon entered into a Consulting Agreement (the “Consulting Agreement”) in order to, among other things, assist Mr. Schiller with his transition as the Company’s incoming CEO. The term of the Consulting Agreement commenced on November 5, 2018 and continued until February
5, 2019. Mr. Simon was entitled to receive an aggregate consulting fee of $975 as compensation for his services during the consulting term, of which $325 and $975 was recognized in the Consolidated Statement of Operations as a component of “Chief Executive Officer Succession Plan expense, net” in the three and nine months ended March 31, 2019, respectively.
4. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation
of basic and diluted net (loss) income per share:
Effect of dilutive stock options, unvested restricted stock and unvested
restricted share units
217
585
—
652
Diluted weighted average shares outstanding
104,334
104,503
104,045
104,473
Basic
net (loss) income per common share:
Continuing operations
$
0.10
$
0.24
$
(0.41
)
$
0.84
Discontinued
operations
(0.73
)
(0.12
)
(1.23
)
(0.07
)
Basic net (loss) income per common share
$
(0.63
)
$
0.12
$
(1.63
)
$
0.77
Diluted
net (loss) income per common share:
Continuing operations
$
0.10
$
0.24
$
(0.41
)
$
0.83
Discontinued
operations
(0.73
)
(0.12
)
(1.23
)
(0.07
)
Diluted net (loss) income per common share
$
(0.63
)
$
0.12
$
(1.63
)
$
0.76
Basic
net (loss) income per share excludes the dilutive effects of stock options, unvested restricted stock and unvested restricted share units.
Due to our net loss in the nine months ended March 31, 2019, all common stock equivalents such as stock options and unvested restricted stock awards have been excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive to the computations. Diluted earnings per share for the three months ended March 31, 2019 and the three and nine months ended March 31,
2018 includes the dilutive effects of common stock equivalents such as stock options and unvested restricted stock awards.
There were 3,071 and 3,117 stock-based awards excluded from our diluted net (loss) income per share calculations for the three and nine months ended March 31, 2019, respectively, as
such awards were contingently issuable based on market or performance conditions, and such conditions had not been achieved during the respective periods. Contingently issuable awards excluded were 559 for each of the three and nine months ended March 31, 2018, respectively.
There were 273 and 621 restricted stock awards excluded from our diluted net (loss) income per share calculation for the three and nine months ended March 31, 2019, as such awards were anti-dilutive.
Anti-dilutive restricted stock awards excluded from our diluted earnings per share calculation for the three and nine months ended March 31, 2018 were de minimis.
There were 110 potential shares of common stock issuable upon exercise of stock options excluded from our diluted net loss per share calculation for the nine months ended March 31, 2019, as they were anti-dilutive due to the net loss recorded in the period. No such awards were excluded for the three months ended
March 31, 2019 and the three and nine months ended March 31, 2018.
Share Repurchase Program
On June 21, 2017, the Company's Board of Directors authorized the repurchase of up to $250,000 of the Company’s issued and outstanding common stock. Repurchases may be made from time to time in the
open market, pursuant to pre-set trading plans, in private transactions or otherwise. The authorization does not have a stated expiration date. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations, including the Company’s historical strategy of pursuing accretive acquisitions. As of March 31, 2019, the Company had not repurchased any shares under this program and had $250,000 of remaining capacity under the share repurchase program.
5.
DISCONTINUED OPERATIONS
In March 2018, the Company’s Board of Directors approved a plan to sell all of the operations of the Hain Pure Protein Corporation (“HPPC”) and EK Holdings, Inc. (“Empire”) operating segments, which were reported in the aggregate as the Hain Pure Protein reportable segment. Collectively, these planned dispositions represent a strategic shift that will have a major impact on the Company’s operations and financial results and have been accounted for as discontinued operations.
The Company is presenting the operating results and cash flows of Hain
Pure Protein within discontinued operations in the current and prior periods. The assets and liabilities of Hain Pure Protein are presented as assets and liabilities of discontinued operations in the Consolidated Balance Sheets for all periods presented.
Sale of Plainville Farms Business
On February 15, 2019, the Company completed the sale of substantially all of the assets used primarily for the Plainville Farms business (a component of HPPC), which included $25,000 in cash to the purchaser, for a nominal purchase price. In addition, the purchaser assumed the current liabilities on the balance sheet of the Plainville Farms business as of the closing date.
As a condition to consummating the sale, the Company entered into a Contingent Funding and Earnout Agreement, which provides for the issuance by the Company of an irrevocable stand-by letter of credit of $10,000 which expires nineteen months after issuance. The Company is entitled to receive an earnout not to exceed, in the aggregate, 120% of the maximum amount that the purchaser draws on the letter of credit at any point from the date of issuance through the expiration of the letter of credit. Earnout payments are based on a specified percentage of annual free cash flow achieved for
all fiscal years ending on or prior to June 30, 2026. If a change in control of the purchaser occurs prior to June 30, 2026, the purchaser will pay the Company 120% of the difference between the amount drawn on the letter of credit less the sum of all earnout payments made prior to such time up to the net proceeds received by the purchaser. At March 31, 2019, the Company had not recorded an asset associated with the earnout. As a result of the disposition, the Company recognized
a pre-tax loss on sale of $40,223, or $29,685 net of tax, in the three months ended March 31, 2019 to write down the assets and liabilities to the final sales price less costs to sell.
On May 8, 2019, the Company entered into a definitive agreement to sell all of its equity interest in Hain Pure Protein Corporation, which includes the FreeBird™ and Empire® Kosher businesses, for a purchase price of $80,000, subject to adjustments. The transaction is expected to close before June
30, 2019, the end of the Company's fiscal year.
The following table presents the major classes of Hain Pure Protein’s line items constituting the “Net loss from discontinued operations, net of tax” in our Consolidated Statements of Operations:
Net
(loss) income from discontinued operations before income taxes
(97,340
)
(2,124
)
(176,507
)
5,389
(Benefit) provision for income taxes
(21,415
)
10,431
(49,035
)
12,738
Net
loss from discontinued operations, net of tax
$
(75,925
)
$
(12,555
)
$
(127,472
)
$
(7,349
)
Assets
and liabilities of discontinued operations presented in the Consolidated Balance Sheets as of March 31, 2019 and June 30, 2018 are included in the following table:
March 31,
June 30,
ASSETS
2019
2018
Cash
and cash equivalents
$
3,678
$
6,461
Accounts receivable, less allowance for doubtful accounts
11,680
21,616
Inventories
31,600
105,359
Prepaid
expenses and other current assets
1,906
5,604
Property, plant and equipment, net
49,537
83,776
Goodwill
41,089
41,089
Trademarks
and other intangible assets, net
33,762
51,029
Other assets
2,636
4,381
Deferred tax assets (2)
37,925
—
Impairments
of long-lived assets held for sale(1)
(77,632
)
(78,464
)
Current assets of discontinued operations(3)
$
136,181
$
240,851
LIABILITIES
Accounts
payable
$
11,211
$
31,762
Accrued expenses and other current liabilities
3,914
6,880
Deferred
tax liabilities (2)
—
11,111
Other noncurrent liabilities
70
93
Current liabilities of discontinued
operations(3)
$
15,195
$
49,846
(1) In the nine months ended March 31, 2019the Company recorded asset impairment charges of $109,252,
of which $51,348 was recorded in the third quarter of fiscal 2019 to adjust the carrying value of the Hain Pure Protein reportable segment to its estimated selling price.
(2) The change in deferred taxes from June 30, 2018 to March 31, 2019 was the result of the reversal of the $12,250 deferred tax liability previously recorded related to Hain Pure Protein being classified as held for sale. In addition, deferred taxes were impacted by the tax effect of current period book losses as well as the deferred tax benefit arising from asset impairment charges.
(3)
The assets and liabilities of Hain Pure Protein are classified as current on the March 31, 2019 and June 30, 2018 Consolidated Balance Sheets because it is probable that the sale will occur within the three months ended June 30, 2019.
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 excess of the purchase price over the fair value of the identified assets and liabilities has been recorded as goodwill.
The costs related to all acquisitions have been expensed as incurred and are included in “Project Terra costs and other” in the Consolidated Statements of Operations. Acquisition-related costs for the three and nine months ended March 31, 2019 were de minimis. Acquisition-related costs of $8 and $336 were expensed in the three and nine months ended March 31,
2018, respectively. The expenses incurred primarily related to professional fees and other transaction-related costs associated with our recent acquisitions.
Fiscal 2019
There were no acquisitions completed in the nine months ended March 31, 2019.
Fiscal 2018
On December 1, 2017, the
Company acquired Clarks UK Limited, (“Clarks”), a leading maple syrup and natural sweetener brand in the United Kingdom. Clarks produces natural sweeteners under the ClarksTM brand, including maple syrup, honey and carob, date and agave syrups, which are sold in leading retailers and used by food service and industrial customers in the United Kingdom. Consideration for the transaction, inclusive of a subsequent working capital adjustment, consisted of cash, net of cash acquired, totaling £9,179 (approximately $12,368 at the transaction date exchange rate). Additionally, contingent consideration of up to a maximum of £1,500 is payable based on the achievement of specified operating results over the 18-month period
following completion of the acquisition. Clarks is included in our United Kingdom operating segment. Net sales and income before income taxes attributable to the Clarks acquisition included in our consolidated results represented less than 1% of our consolidated results for the three and nine months ended March 31, 2019 and 2018.
Depreciation
and amortization expense for the three months ended March 31, 2019 and 2018 was $8,110 and $8,212, respectively. Such expense for the nine months ended March 31, 2019 and 2018 was $24,294 and $24,580, respectively.
In the nine
months ended March 31, 2019, the Company recorded $5,809 of non-cash impairment charges primarily related to the Company’s decision to consolidate manufacturing of certain fruit-based products in the United Kingdom.
There were no impairment charges recorded in the three months ended March 31, 2019.
9. GOODWILL
AND OTHER INTANGIBLE ASSETS
Goodwill
The following table shows the changes in the carrying amount of goodwill by business segment:
(a)
The total carrying value of goodwill is reflected net of $134,277 of accumulated impairment charges, of which $97,358 related to the Company’s United Kingdom operating segment, $29,219 related to the Company’s Europe operating segment and $7,700 related to the Company’s Hain Ventures operating segment (formerly known as the Cultivate operating segment).
Beginning in the third quarter of fiscal 2018, operations of Hain Pure Protein have
been classified as discontinued operations as discussed in Note 5, Discontinued Operations. Therefore, goodwill associated with Hain Pure Protein is presented as current assets of discontinued operations in the Consolidated Financial Statements.
The Company performs its annual test for goodwill and indefinite-lived intangible asset impairment as of the first day of the fourth quarter of its fiscal year. In addition, if and when events or circumstances change that would more likely than not reduce the fair value of any of its reporting units or indefinite-life intangible assets below their carrying value, an interim test is performed.
During the three months ended
December 31, 2018, the Company updated the forecasted operating results for each of its reporting units based on the most recent financial results. The updated forecasts reflected lower projected short-term revenue growth and profitability than previously expected, primarily in its United States segment. In connection with the preparation of the Consolidated Financial Statements for the period ended December 31, 2018, the Company assessed qualitative and quantitative factors, which included sensitivity analyses, and concluded that it is more likely than not that the fair value of its reporting units exceeded its carrying amount.
There were no events or circumstances that warranted an interim impairment test for goodwill during the three months ended March 31, 2019. The Company will continue to monitor impairment indicators and financial results in future periods.
Other Intangible Assets
The following table sets forth Consolidated Balance Sheet information for intangible assets, excluding goodwill, subject to amortization
and intangible assets not subject to amortization:
(a)
The gross carrying value of trademarks and tradenames is reflected net of $83,734 and $65,834 of accumulated impairment charges at March 31, 2019 and at June 30, 2018, respectively.
Indefinite-lived intangible assets, which are not amortized, consist primarily of acquired tradenames and trademarks. Indefinite-lived intangible assets are evaluated on an annual basis in conjunction with the Company’s evaluation of goodwill, or on an interim basis if and when events or circumstances change that would more likely than not reduce the fair value of any of its
indefinite-life intangible assets below their carrying value. In assessing fair value, the Company utilizes a “relief from royalty” methodology. This approach involves two steps: (i) estimating the royalty rates for each trademark and (ii) applying these royalty rates to a projected net sales stream and discounting the resulting cash flows to determine fair value. If the carrying value of the indefinite-lived intangible asset exceeds the fair value of the asset, the carrying value is written down to fair value in the period identified. During the three months ended December 31, 2018, the Company determined that an indicator of impairment existed in certain of the
Company’s indefinite-lived tradenames. The result of this assessment for the second quarter of fiscal 2019 indicated that the fair value of certain of the Company’s tradenames was below their carrying value, and therefore an impairment charge of $17,900 was recognized ($11,300 in the United States segment, $2,787 in the United Kingdom segment and $3,813 in the Rest of World). During the fiscal year ended June 30, 2018, an impairment charge of $5,632 ($5,100 in the Rest of World and $532 in the United Kingdom segment)
related to certain of the Company’s tradenames was recognized.
There were no events or circumstances that warranted an interim impairment test for indefinite-lived intangible assets during the three months ended March 31, 2019.
Amortized intangible assets, which are deemed to have a finite life, primarily consist of customer relationships and are amortized over their estimated useful lives of 3 to 25 years. Amortization expense included in continuing operations was as follows:
Short-term
borrowings and current portion of long-term debt
22,522
26,605
Long-term debt, less current portion
$
729,201
$
687,501
Credit
Agreement
On February 6, 2018, the Company entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for a $1,000,000 revolving credit facility through February 6, 2023 and provides for a $300,000 term loan. Under the Credit Agreement, the revolving credit facility may be increased by an additional uncommitted $400,000, provided certain conditions are met.
Borrowings under the Credit Agreement may be used
to provide working capital, finance capital expenditures and permitted acquisitions, refinance certain existing indebtedness and for other lawful corporate purposes. The Credit Agreement provides for multicurrency borrowings in Euros, Pounds Sterling and Canadian Dollars as well as other currencies which may be designated. In addition, certain wholly-owned foreign subsidiaries of the Company may be designated as co-borrowers. The Credit Agreement contains restrictive covenants, which are usual and customary for facilities of its type, and include, with specified exceptions, limitations on the Company’s ability to engage in certain business activities, incur debt, have liens, make capital expenditures, pay dividends
or make other distributions, enter into affiliate transactions, consolidate, merge or acquire or dispose of assets, and make certain investments, acquisitions and loans. The Credit Agreement also requires the Company to satisfy certain financial covenants. On the date the Credit Agreement was consummated, these covenants included maintaining a consolidated interest coverage ratio (as defined in the Credit Agreement) of no less than 4.0 to 1.0 and a consolidated leverage ratio (as defined in the Credit Agreement) of no more than 3.5 to 1.0. The consolidated leverage ratio was initially subject to a step-up to 4.0 to 1.0 for the four full fiscal quarters following an acquisition. Obligations under the Credit Agreement are guaranteed by certain existing
and future domestic subsidiaries of the Company. As of March 31, 2019, there were $455,206 and $285,000 of borrowings outstanding under the revolving credit facility and term loan, respectively, and $16,224 letters of credit outstanding under the Credit Agreement.
On November 7, 2018, the Company amended the Credit Agreement to modify the
calculation of the consolidated leverage ratio related to costs associated with CEO succession as well as the Project Terra cost reduction programs.
On February 6, 2019, the Company entered into an amendment to the Credit Agreement, whereby its allowable consolidated leverage ratio increased to no more than 4.0 to 1.0 as of December 31, 2018 and no more than 3.75 to 1.0 as of March 31, 2019 and June 30, 2019. Under the terms of the February 6, 2019 amendment,
the consolidated leverage ratio would return to 3.5 to 1.0 beginning in the period ending September 30, 2019.
On May 8, 2019, the Company entered into the Third Amendment to the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), whereby, among other things, its allowable consolidated leverage ratio increased to no more than 5.0 to 1.0 from March 31, 2019 to December 31, 2019, no more than 4.75 to 1.0 at March
31, 2020, no more than 4.25 to 1.0 at June 30, 2020 and no more than 4.0 to 1.0 on September 30, 2020 and thereafter. The allowable consolidated leverage ratio for each period will be decreased by 0.25 upon sale of the Company’s remaining Hain Pure Protein business. Additionally, the Company’s required consolidated interest coverage ratio (as defined in the Credit Agreement) was reduced to no less than 3.0 to 1 through March 31, 2020, no less than 3.75
to 1 through March 31, 2021 and no less than 4.0 to 1 thereafter. As part of the Amended Credit Agreement, HPPC was released from its obligations as a borrower and a guarantor under the Credit Agreement.
The Amended Credit Agreement also required that the Company and the subsidiary guarantors enter into a Security and Pledge Agreement pursuant to which all of the obligations under the Amended Credit Agreement are secured by liens on assets of the
Company
and its material domestic subsidiaries, including stock of each of their direct subsidiaries and intellectual property, subject to agreed upon exceptions.
As of March 31, 2019, $528,570 is available under the Amended Credit Agreement, and the Company was in compliance with all associated covenants, as amended by the Amended Credit Agreement.
The Amended Credit Agreement provides that
loans will bear interest at rates based on (a) the Eurocurrency Rate, as defined in the Credit Agreement, plus a rate ranging from 0.875% to 2.50% per annum; or (b) the Base Rate, as defined in the Credit Agreement, plus a rate ranging from 0.00% to 1.50% per annum, the relevant rate being the Applicable Rate. The Applicable Rate will be determined in accordance with a leverage-based pricing grid, as set forth in the Amended Credit Agreement. Swing line loans and Global Swing Line loans denominated in U.S. dollars will bear interest at the Base Rate plus the Applicable Rate, and Global Swing Line loans denominated in foreign currencies shall bear interest based on the overnight Eurocurrency Rate for loans denominated in such currency plus the Applicable Rate. The weighted average interest
rate on outstanding borrowings under the Amended Credit Agreement at March 31, 2019 was 4.30%. Additionally, the Amended Credit Agreement contains a Commitment Fee, as defined in the Amended Credit Agreement, on the amount unused under the Amended Credit Agreement ranging from 0.20% to 0.45% per annum, and such Commitment Fee is determined in accordance with a leverage-based pricing grid.
The term loan has required installment payments due on the last day of each fiscal quarter commencing June 30, 2018 in an amount equal to $3,750 and can be prepaid
in whole or in part without premium or penalty.
Tilda Short-Term Borrowing Arrangements
Tilda, a component of our United Kingdom reportable segment, maintains short-term borrowing arrangements primarily used to fund the purchase of rice from India and other countries. The maximum borrowings permitted under all such arrangements are £52,000. Outstanding borrowings are collateralized by the current assets of Tilda, typically have six-month terms and bear interest at variable rates typically based on LIBOR plus a margin (weighted average interest rate of approximately 3.27% at March 31,
2019). As of March 31, 2019 and June 30, 2018, there were $6,654 and $9,338 of borrowings under these arrangements, respectively.
11. INCOME TAXES
In general, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which
the Company operates, to determine its quarterly provision for income taxes. In the first quarter of fiscal 2019, the Company used an estimated annual effective tax rate to calculate its provision for income taxes. For the quarters ended March 31, 2019 and December 31, 2018, the Company calculated its effective tax rate on a discrete basis due to significant variations in the relationship between tax expense and projected pre-tax income. The Company’s effective tax rate may change from period-to-period based on recurring and non-recurring
factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes and tax audit settlements.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation pursuant to the Tax Cuts and Jobs Act (the “Tax Act”), which significantly revised the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from 35% to 21%, implementing a territorial tax system, imposing a one-time tax on foreign unremitted earnings and setting limitations on deductibility of certain costs (e.g., interest expense and executive compensation), among other things.
Due to the complexities involved in accounting for the Tax Act, the U.S. Securities and Exchange Commission’s
Staff Accounting Bulletin (“SAB”) 118 required that the Company include in its financial statements a reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined. Pursuant to SAB 118, the Company was allowed a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. As of December 31, 2018, the Company finalized its accounting for the income tax effects of the Tax Act and recorded an additional expense of $8,205 related to its transition tax liability. The net increase in the transition
tax was due to the finalization of the Company’s earnings and profits study for our foreign subsidiaries. The adjustment of the Company’s provisional tax expense was recorded as a change in estimate in accordance with SAB No. 118. Despite the completion of the Company’s accounting for the Tax Act under SAB 118, many aspects of the law remain unclear, and we expect ongoing guidance to be issued at both the federal and state levels. There was no new guidance issued in the third quarter of fiscal 2019 that impacted the Company’s liability. The
Company will continue to monitor and assess the impact of any new developments.
The Tax Act also includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries. The FASB Staff Q&A Topic No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election either to recognize deferred taxes for temporary differences that are expected to reverse as GILTI in future years or provide
for
the tax expense related to GILTI resulting from those items in the year the tax is incurred. We have elected to recognize the resulting tax on GILTI as a period expense in the period the tax is incurred. We have computed the impact on our effective tax rate on a discrete basis.
The effective income tax rate from continuing operations was expense of 23.2% and a benefit of 5.5% for the three months ended March 31, 2019 and March 31, 2018, respectively. The effective income tax rate from continuing operations was a benefit of 3.9% and
15.3% for the nine months ended March 31, 2019 and March 31, 2018, respectively. The effective income tax rate from continuing operations for the three and nine months ended March 31, 2019 was impacted by provisions in the Tax Act including GILTI, finalization of the transition tax liability, and limitations on the deductibility of executive compensation. The effective income tax rate was also impacted by the geographical mix of earnings and state taxes. The effective rate for the three and nine months ended
March 31, 2018 was primarily impacted by the enactment of the Tax Act on December 22, 2017, specifically the revalue of net deferred tax liabilities to the enacted 21% tax rate, repealing the deduction for domestic production activities, inclusion of the transition tax liability estimate and deductibility of executive officers’ compensation. The effective income tax rate from continuing operations for the three and nine months ended March 31, 2018 was also favorably impacted by the geographical mix of earnings, as well as a $3,754 benefit relating to the release of the
Company’s domestic uncertain tax position as a result of the expiration of the statute of limitations.
The income tax benefit from discontinued operations was $21,415 and $49,035 for the three and nine months ended March 31, 2019, while the income tax expense from discontinued operations was $10,431 and $12,738 for the three and nine months ended March 31, 2018. The benefit for income taxes for the nine
months ended March 31, 2019 includes the reversal of the $12,250 deferred tax liability previously recorded related to Hain Pure Protein being classified as held for sale. In addition, the three and nine month tax benefit is impacted by the tax effect of current period book losses including the loss on the sale of Plainville Farms assets in the third quarter of fiscal 2019 as well as the deferred tax benefit arising from asset impairment charges.
12.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the changes in accumulated other comprehensive income (loss):
Other
comprehensive income (loss) before reclassifications (1)
$
20,934
$
37,868
$
(20,533
)
$
80,065
Deferred
(losses)/gains on cash flow hedging instruments:
Other comprehensive (loss) income before reclassifications
(42
)
—
(42
)
39
Amounts
reclassified into income (2)
—
—
—
(106
)
Unrealized gains/(losses) on equity investment:
Other
comprehensive loss before reclassifications
—
(101
)
—
(103
)
Net change in accumulated other comprehensive income (loss)
$
20,892
$
37,767
$
(20,575
)
$
79,895
(1)
Foreign currency translation adjustments included intra-entity foreign currency transactions that were of a long-term investment nature and were a net loss of $403 and a net gain of $670 for the three months ended March 31, 2019 and 2018, respectively, and a net loss of $875 and a net gain of $1,736 for the nine months ended March 31,
2019 and 2018, respectively.
(2) Amounts reclassified into income for deferred (losses)/gains on cash flow hedging instruments are recorded in “Cost of sales” in the Consolidated Statements of Operations and, before taxes, were $132 for the nine months ended March 31, 2018. There were no amounts reclassified into income for deferred (losses)/gains on cash flow hedging instruments for the three and nine months ended March 31, 2019
and for the three months ended March 31, 2018.
13. STOCK-BASED COMPENSATION AND INCENTIVE PERFORMANCE PLANS
The Company
has two stockholder-approved plans, the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan and the 2000 Directors Stock Plan, under which the Company’s officers, senior management, other key employees, consultants and directors may be granted options to purchase the Company’s common stock or other forms of equity-based awards. The Company also grants shares under its 2019 Equity Inducement Award Program to induce selected individuals to become employees of the Company.
Compensation
cost and related income tax benefits recognized in the Consolidated Statements of Operations for stock-based compensation plans were as follows:
Chief
Executive Officer Succession Plan expense, net
—
—
429
—
Discontinued operations
6
—
58
—
Total
compensation cost recognized for stock-based compensation plans
$
3,943
$
2,936
$
5,989
$
10,258
Related
income tax benefit
$
470
$
971
$
765
$
3,391
In
the nine months ended March 31, 2019, the Company recorded a benefit of $1,867 related to the reversal of expense associated with the TSR Grant under the 2017-2019 LTIP, as defined and discussed further below.
Restricted Stock
A summary of the restricted stock and restricted share unit activity for the nine months ended March 31, 2019 is as follows:
Number
of Shares
and Units
Weighted
Average Grant
Date Fair
Value (per share)
Non-vested restricted stock, restricted share units, and performance units at June 30, 2018
1,057
$
22.29
Granted
3,470
$
7.13
Vested
(291
)
$
26.50
Forfeited
(333
)
$
17.68
Non-vested
restricted stock, restricted share units, and performance units at March 31, 2019
Fair value of restricted stock and restricted share units granted
$
24,734
$
14,595
Fair
value of shares vested
$
7,725
$
14,622
Tax benefit recognized from restricted shares vesting
$
3,331
$
4,970
At
March 31, 2019, $24,083 of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested restricted stock awards was expected to be recognized over a weighted average period of approximately 2.3 years.
At
March 31, 2019, there was no unrecognized compensation expense related to stock option awards.
Long-Term Incentive Plan
The Company maintains a long-term incentive program (the “LTI Plan”). The LTI Plan currently consists of four performance-based long-term incentive plans (the “2016-2018 LTIP”, “2017-2019 LTIP”, “2018-2020 LTIP” and “2019-2021 LTIP”) that provide for performance equity awards that can be earned over defined performance periods. Participants in the LTI Plan include
certain of the Company’s executive officers and other key executives.
The Compensation Committee administers the LTI Plan and is responsible for, among other items, selecting the specific performance measures for awards and setting the target performance required to receive an award after the completion of the performance period. The Compensation Committee determines the specific payout to the participants. 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, and the 2019 Equity Inducement Award Program, as applicable.
2019-2021 LTIP
Grants
Made Pursuant to the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan
On January 24, 2019, upon adoption of the 2019-2021 LTIP, the Compensation Committee granted 912 performance share units (“PSUs”), the achievement of which is dependent upon a defined calculation of relative total shareholder return (“TSR”) over the period from November 6, 2018 to November 6, 2021. The PSUs granted represent 100% of the targeted award, and will vest pursuant to the achievement of pre-established three-year compound annual TSR levels that are aligned with the CEO Inducement Grant. The
number of shares actually issued will range from zero to 300% of the shares granted. No PSUs will vest if the three-year compound annual TSR is below 15%. Of the 912 PSUs issued, 451 are subject to a holding period of one year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value for those shares subject to the one year holding period. The total grant date fair value with and without the illiquidity discount was estimated to be $5.99 and $5.26
per share, respectively. The total grant date fair value of this award was $5,132. Total compensation cost related to this PSU award was $432 in the three and nine months ended March 31, 2019.
The Company also issued 156 three-year time-based restricted share units under the 2019-2021 LTIP.
Grants Made Pursuant to the 2019 Equity Inducement Award Program
The
primary purpose of the 2019 Equity Inducement Award Program is to further the long term stability and success of the Company by providing a program to reward selected individuals newly hired as employees of the Company with grants of inducement awards. Shares issued under this program are granted outside of the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan.
In the three months ended March 31, 2019, the Compensation Committee granted 926 PSUs to selected individuals hired as employees of the Company, the achievement
of which is dependent upon a defined calculation of relative TSR over the period from November 6, 2018 to November 6, 2021. The PSUs granted represent 300% of the targeted award and will vest pursuant to the achievement of pre-established three-year compound annual TSR levels, which are aligned with the CEO Inducement Grant.
The number of PSUs expected to be earned, based
upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the service period, regardless of the eventual number of PSUs that are earned based upon the market condition, provided that each grantee remains an employee at the end of the performance period. Compensation expense is reversed if at any time during the service period a grantee is no longer an employee. These PSUs are subject to a holding period of one year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value.
The
total number of shares actually issued will range from zero to 926. No PSUs will vest if the three-year compound annual TSR is below 15%.
2018-2020 LTIP
Upon adoption of the 2018-2020 LTIP, the Compensation Committee granted 45 PSUs, the achievement of which is dependent upon a defined calculation of relative TSR over the period from January 24, 2019 to June 30, 2020.
The total grant date fair value of this award was estimated to be $18.32 per share, or $819.
2016-2018 and 2017-2019 LTIP
Upon adoption of the 2016-2018 LTIP and 2017-2019 LTIP, the Compensation Committee granted PSUs to each participant, the achievement of which is dependent upon a defined calculation of relative TSR over the period from July 1, 2015 to June 30, 2018 and from July 1, 2017 to June 30, 2019 (the “TSR Grant”), respectively. 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 and 2017-2019 LTIP is based on the Company’s achievement of specified net sales growth targets over the respective three-year period. If the targets are achieved, the award in connection with the 2017-2019 LTIP may be paid only in unrestricted shares of the Company’s common stock.
During the three months ended September
30, 2018, in connection with the 2016-2018 LTIP, for the three-year performance period of July 1, 2015 through June 30, 2018, the Compensation Committee determined that the adjusted operating income goal required to be met for Section 162(m) funding was not achieved and determined that no awards would be paid or vested pursuant to the 2016-2018 LTIP. Accordingly, the 223 unvested performance stock unit awards previously granted in connection with the relative TSR portion of the award were forfeited, and amounts accrued relating to the net sales portion of the award were reversed. As such, in the three months ended September 30, 2018, the Company
recorded a benefit of $6,482 associated with the reversal of previously accrued amounts under the net sales portion of the 2016-2018 LTIP, of which $5,065 was recorded in Chief Executive Officer Succession Plan expense, net on the Consolidated Statement of Operations.
In connection with the 2017-2019 LTIP, in the three months ended September 30, 2018, the Company determined that the achievement of the adjusted operating income goal required to be met for Section 162(m) funding was not probable. Accordingly, during the three months ended September 30, 2018, the
Company recorded benefits of $1,129 and $1,867 associated with the reversal of previously accrued amounts under the portions of the 2017-2019 LTIP that were dependent on the achievement of pre-determined performance measures of net sales and relative TSR, respectively.
Other Grants
In the nine months ended March 31, 2019, the Company granted 201 time-based restricted share units to certain key employees and members of the
Company’s Board of Directors that vest primarily over three years. Additionally, the Company issued 101 PSUs to certain key executives vesting over a period of one to two years based upon the achievement of certain market and/or performance based metrics being met.
On November 6, 2018, Mr. Schiller received an award of 1,050 PSUs intended to represent the total three-year long-term incentive opportunity that would have been made in fiscal years 2019 – 2021. The PSUs will vest pursuant to the achievement of pre-established three-year compound annual TSR levels. The number of shares actually issued will range from zero to 1,050. No PSUs will vest if the three-year compound annual TSR is below 15%. This award was
granted outside of Amended and Restated 2002 Long-Term Incentive and Stock Award Plan and the 2019 Equity Inducement Award Program.
The number of PSUs expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the three-year service period, regardless of the eventual number of PSUs that are earned based upon the market condition, provided Mr. Schiller remains an employee at the end of the three-year period. Compensation expense is reversed if at any time during the three-year service period Mr. Schiller is no longer an employee, subject to certain termination and change in control eligibility provisions. These
PSUs are subject to a holding period of one year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value. The total grant date fair value of the award was estimated to be $7,571, or $7.21 per share.
Total compensation cost related to this award recognized in the three and nine months ended March 31, 2019 was $621 and $1,008, respectively.
The
Company also issued 79 three-year time-based restricted share units to Mr. Schiller.
14. INVESTMENTS
Equity method investment
On October 27, 2015, the Company acquired a 14.9% interest in Chop’t Creative Salad Company LLC (“Chop’t”). Chop’tdevelops and operates fast-casual,
fresh salad restaurants in the Northeast and Mid-Atlantic United States. Chop’t markets and sells certain of the Company’s branded products and provides consumer insight and feedback. The investment is being accounted for as an equity method investment due to the Company’s representation on the Board of Directors of Chop’t. During fiscal 2018, the Company’s ownership interest was reduced to 13.4% due to the distribution of additional ownership interests. Further ownership interest distributions could potentially dilute the Company’s ownership interest to as low as 11.9%. At
March 31, 2019 and June 30, 2018, the carrying value of the Company’s investment in Chop’t was $14,622 and $15,524, respectively, and is included in the Consolidated Balance Sheets as a component of “Investments and joint ventures.”
The Company’s financial assets and liabilities measured at fair value are required to be grouped in one of three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:
•
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
•
Level
2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
•
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following table presents by level within the fair value hierarchy assets and liabilities measured at fair value on a recurring basis as of March 31, 2019:
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, 2018:
The
rabbi trust investments consist of cash and mutual funds whose fair value is based on quoted prices in active markets for identical assets, and are designated as Level 1 within the valuation hierarchy. The equity investment consists of the Company’s less than 1% investment in Yeo Hiap Seng Limited, a food and beverage manufacturer and distributor based in Singapore. Fair value is measured using the market approach based on quoted prices. The Company utilizes the income approach to measure fair value for its foreign currency forward contracts. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates and forward prices.
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.
The
following table summarizes the Level 3 activity for the nine months ended March 31, 2019:
(a) The change in the fair value of contingent consideration is included in “Project Terra costs and other” in the Company’s Consolidated Statements of Operations.
There
were no transfers of financial instruments between the three levels of fair value hierarchy during the nine months ended March 31, 2019 and March 31, 2018.
The carrying amount of cash and cash equivalents, accounts receivable, net, accounts payable and certain accrued expenses and other current liabilities approximate fair value due to the short-term maturities of these financial instruments. The Company’s debt approximates fair value due to the debt bearing fluctuating market interest rates (See Note 10, Debt and Borrowings).
In
addition to the instruments named above, the Company also makes fair value measurements in connection with its interim and annual goodwill and trade name impairment testing. These measurements fall into Level 3 of the fair value hierarchy (See Note 9, Goodwill and Other Intangible Assets).
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. The
Company may enter into certain derivative financial instruments, when available on a cost-effective basis, to manage such risk. Derivative financial instruments are not used for speculative purposes. The 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 derivative instruments that 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. Fair value hedges and derivative instruments not designated as hedges are marked-to-market each reporting period with any unrealized gains or losses recognized in earnings.
Derivative instruments designated at inception as hedges are measured
for 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 (loss) 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 three and nine months ended March 31, 2019 and March 31,
2018.
The notional and fair value amounts of cash flow hedges at March 31, 2019 were $3,920 and $52 of net liabilities, respectively. There were no cash flow hedges or fair value hedges outstanding as of June 30, 2018.
The notional amounts of foreign currency exchange contracts not designated as hedges at March 31,
2019 and June 30, 2018 were $54,884 and $20,986, respectively. The fair values of foreign currency exchange contracts not designated as hedges at March 31, 2019 and June 30, 2018 were $610 of net liabilities and $338 of net assets, respectively.
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 for the three and nine months ended March 31, 2019 and March 31, 2018.
On August 17, 2016, three securities class action complaints were filed in the Eastern District of New York against the Company alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The three complaints are: (1) Flora v. The Hain Celestial Group, Inc., et al. (the “Flora Complaint”); (2) Lynn v. The Hain Celestial Group, Inc., et al. (the “Lynn Complaint”); and (3) Spadola v. The Hain Celestial Group, Inc., et al. (the “Spadola Complaint” and,
together with the Flora and Lynn Complaints, the “Securities Complaints”). On June 5, 2017, the court issued an order for consolidation, appointment of Co-Lead Plaintiffs and approval of selection of co-lead counsel. Pursuant to this order, the Securities Complaints were consolidated under the caption In re The Hain Celestial Group, Inc. Securities Litigation (the “Consolidated Securities Action”), and Rosewood Funeral Home and Salamon Gimpel were appointed as Co-Lead Plaintiffs. On June 21, 2017, the Company received notice that plaintiff Spadola voluntarily dismissed his claims without prejudice to his ability to participate in the Consolidated Securities Action as an absent class member. The Co-Lead Plaintiffs in the Consolidated Securities Action filed a Consolidated
Amended Complaint on August 4, 2017 and a Corrected Consolidated Amended Complaint on September 7, 2017 on behalf of a purported class consisting of all persons who purchased or otherwise acquired Hain Celestial securities between November 5, 2013 and February 10, 2017 (the “Amended Complaint”). The Amended Complaint 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 the Securities Exchange Act of 1934 based on allegedly materially false or misleading statements and omissions in public statements, press
releases and SEC filings regarding the Company’s business, prospects, financial results and internal controls. Defendants filed a motion to dismiss on October 3, 2017. Co-Lead Plaintiffs filed an opposition on December 1, 2017, and Defendants filed the reply on January 16, 2018. On April 4, 2018, the Court requested additional briefing relating to certain aspects of Defendants’ motion to dismiss. In accordance with this request, Lead Plaintiffs submitted their supplemental brief on April 18, 2018, and Defendants submitted an opposition on May 2, 2018. Lead Plaintiffs filed a reply brief
on May 9, 2018, and Defendants submitted a sur-reply on May 16, 2018.
On March 29, 2019, the Court granted Defendant’s motion, dismissing the Amended Complaint in its entirety, without prejudice to replead. Lead Plaintiffs filed a seconded amended complaint on May 6, 2019.
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. On November 2, 2017, the parties agreed to stay the Consolidated Derivative Action until April 11, 2018. On April 6, 2018, the parties filed a proposed stipulation agreeing to stay the Consolidated Derivative Action until October 4, 2018, which the Court granted on May 3, 2018. On October
9, 2018, the Court further stayed this matter until December 4, 2018 and on December 4, 2018 further stayed the matter until January 14, 2019. On January 14, 2019, the Court held a status conference and granted Plaintiffs leave to file an amended complaint by March 7, 2019, while continuing the stay as to all other aspects of the case. On March 7, 2019, Plaintiffs filed an amended complaint. The Court held a status conference on March 13, 2019 and continued the stay until a subsequent conference scheduled for May 6, 2019. At the May 6 conference, the Court indicated
that the stay will be lifted, and after a preliminary conference for June 13, 2019, a scheduling order will be entered and the case will proceed.
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 (the “Merenstein Complaint”).
On August 10, 2017, the court granted the parties stipulation to consolidate the Barnes Complaint, the Silva Complaint and the Merenstein Complaint under the caption In re The Hain Celestial Group, Inc. Stockholder Class and Derivative Litigation (the “Consolidated Stockholder Class and Derivative Action”) and to appoint Robbins Arroyo LLP and Scott+Scott as Co-Lead Counsel, with the Law Offices of Thomas G. Amon as Liaison Counsel for Plaintiffs. On September 14, 2017, a related complaint was filed under the caption Oliver v. Berke, et al. (the “Oliver Complaint”), and on October 6, 2017, the Oliver Complaint was consolidated with the Consolidated
Stockholder Class and Derivative Action. The Plaintiffs filed their consolidated amended complaint under seal on October 26, 2017. On December 20, 2017, the parties agreed to stay Defendants’ time to answer, move, or otherwise respond to the consolidated amended complaint through and including 30 days after a decision is rendered on the motion to dismiss the Amended Complaint in the consolidated Securities Class Actions, described above.
After the Court dismissed the Amended Complaint in the Securities Class Actions, the parties to the Consolidated Stockholder Class and Derivative Action agreed to continue the stay of Defendants’ time to answer, move, or otherwise respond to the consolidated amended complaint. The stay is continued through the later of: (a) thirty (30) days after
the deadline for plaintiffs to file a second amended complaint in the Securities Class Actions; or, (b) if plaintiffs file a second amended complaint, and Defendants file a motion to dismiss the second amended complaint, thirty (30) days after the Court rules on the motion to dismiss the second amended complaint in the Securities Class Actions.
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.
17. SEGMENT INFORMATION
Beginning in the third quarter of fiscal 2018, the Hain Pure Protein operations were classified as discontinued operations as discussed in “Note 5, Discontinued Operations.” Therefore,
segment information presented excludes the results of Hain Pure Protein. As a result, the Company is now managed in seven operating segments: the United States, United Kingdom, Tilda, Ella’s Kitchen UK, Europe, Canada and Hain Ventures (formerly known as Cultivate).
The prior period segment information contained below has been adjusted to reflect the Company’s revised operating and reporting structure.
Net sales and operating income are the primary measures used by the Company’s Chief Operating
Decision Maker (“CODM”) to evaluate segment operating performance and to decide how to allocate resources to segments. The CODM is the Company’s Chief Executive Officer. Expenses related to certain centralized administration functions that are not specifically related to an operating segment are included in Corporate and Other. Corporate and Other expenses are comprised mainly of the compensation and related expenses of certain of the Company’s senior executive officers and other selected employees who perform duties related to the entire enterprise, as well as expenses for certain professional fees, facilities and other items which benefit the Company as a whole. Additionally, certain Project Terra 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 by the CODM on a consolidated basis and therefore are not reported by operating segment.
The following tables set forth financial information about each of the Company’s reportable segments. Transactions between reportable segments
were insignificant for all periods presented.
(a)
For the three months ended March 31, 2019, Corporate and Other includes $455 of Chief Executive Officer Succession Plan expense, net and $7,562 of Project Terra costs and other. For the three months ended March 31, 2018, Corporate and Other includes $4,175 of Project Terra costs and other $3,313 of accounting review and remediation costs.
For the nine months ended
March 31, 2019, Corporate and Other includes $30,156 of Chief Executive Officer Succession Plan expense, net, $21,045 of Project Terra costs and other and $4,334 of accounting review and remediation costs. Corporate and Other for the nine months ended March 31, 2019 also includes impairment charges of $17,900 ($11,300 related to the United States segment, $2,787 related to the United Kingdom segment and $3,813
in Rest of World) related to certain of the Company’s tradenames. For the nine months ended March 31, 2018, Corporate and Other included $7,429 of Project Terra costs and other and net expense of $6,406 of accounting review and remediation costs, net of insurance proceeds, consisting of $11,406 of costs incurred in the nine months ended March 31, 2018 offset by insurance proceeds of $5,000.
The
Company’s long-lived assets, which primarily represent net property, plant and equipment, by geographic area were as follows:
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and the related Notes for the period ended March 31, 2019 thereto contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended June 30, 2018. Forward looking statements in this Form 10-Q are qualified by the cautionary statement included in this Form
10-Q under the sub-heading “Cautionary Note Regarding Forward Looking Information” in the introduction of this Form 10-Q.
Overview
The Hain Celestial Group, Inc. (the “Company”), a Delaware corporation, was founded in 1993 and is headquartered in Lake Success, New York. The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet — To Create and Inspire A Healthier Way of LifeTM and be the 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.
The Company manufactures, markets, distributes and sells organic and natural products under brand names that are sold as “better-for-you” products, providing consumers with the opportunity to lead A Healthier Way of Life™. Hain Celestial is a leader in many organic and natural products categories, with many recognized brands in the various market categories it serves, including Almond Dream®, Arrowhead Mills®,
Bearitos®, Better Bean®, BluePrint®, Casbah®, Celestial Seasonings®, Clarks™, Coconut Dream®, Cully & Sully®, Danival®, DeBoles®, Earth’s Best®, Ella’s Kitchen®, Europe’s Best®,
Farmhouse Fare™, Frank Cooper’s®, Gale’s®, Garden of Eatin’®, GG UniqueFiber®, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, Johnson’s Juice Co.™, Joya®, Lima®, Linda McCartney® (under license), MaraNatha®,
Mary Berry (under license), Natumi®, New Covent Garden Soup Co.®, Orchard House®, Rice Dream®, Robertson’s®, Rudi’s Gluten-Free Bakery™, Rudi’s Organic Bakery®, Sensible Portions®, Spectrum® Organics, Soy Dream®, Sun-Pat®, Sunripe®,
SunSpire®, Terra®, The Greek Gods®, Tilda®, Walnut Acres®, Yorkshire Provender®, Yves Veggie Cuisine® and William’s™. 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 food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 80 countries worldwide.
Appointment of New CEO
On October
26, 2018, the Company’s Board of Directors appointed Mark L. Schiller as President and Chief Executive Officer, succeeding Irwin D. Simon. In connection with the appointment, on October 26, 2018, the Company and Mr. Schiller entered into an employment agreement, which was approved by the Board, with Mr. Schiller’s employment commencing on November 5, 2018. See Note 3, Chief Executive Officer Succession Plan, in the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q for additional information.
Discontinued
Operations
In March 2018, the Company’s Board of Directors approved a plan to sell all of the operations of the Hain Pure Protein Corporation (“HPPC”) and EK Holdings, Inc. (“Empire”) operating segments, which were reported in the aggregate as the Hain Pure Protein reportable segment. These dispositions are being undertaken to reduce complexity in the Company’s operations and simplify the Company’s brand portfolio, in addition to allowing additional flexibility to focus on opportunities for growth and innovation in the Company’s
more profitable core businesses.
Collectively, these dispositions represent a strategic shift that will have a major impact on the Company’s operations and financial results and have been accounted for as discontinued operations.
On February 15, 2019, the Company completed the sale of substantially all of the assets used primarily for the Plainville Farms business (a component of HPPC).
On May 8, 2019, the
Company entered into a definitive agreement to sell all of its equity interest in Hain Pure Protein Corporation, which includes the FreeBird™ and Empire® Kosher businesses, for a purchase price of $80.0 million, subject to adjustments. The transaction is expected to close before June 30, 2019, the end of the Company's fiscal year.
See
Note 5, Discontinued Operations, in the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q for additional information on discontinued operations.
Project Terra
During fiscal 2016, the Company commenced a strategic review, referred to as “Project Terra,” of which a key initiative is the identification of global cost savings, as well as removing complexities from the business. Under this plan, the Company aims to achieve $350 million in global savings by fiscal 2020, a portion of which the
Company intends to reinvest into its brands. This review includes streamlining the Company’s manufacturing plants, co-packers, and supply chain, in addition to product rationalization initiatives which are aimed at eliminating slow moving stock keeping units (“SKUs”).
The following table compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the three months ended March 31, 2019 and 2018 (amounts in thousands, other than percentages which may not add due to rounding):
Net sales for the three months ended March 31, 2019 were $599.8 million, a decrease of $32.9 million, or 5.2%, from
net sales of $632.7 million for the three months ended March 31, 2018. On a constant currency basis, net sales decreased approximately 1.8% from the prior year quarter. Net sales on a constant currency basis decreased in the United States and Rest of World reportable segments, partially offset by an increase in net sales in the United Kingdom reportable segment. Further details of changes in net sales by segment are provided below.
Gross Profit
Gross profit for the three months ended
March 31, 2019 was $125.3 million, a decrease of $7.7 million, or 5.8%, as compared to the prior year quarter. Gross profit margin was 20.9% of net sales, compared to 21.0% in the prior year quarter. Gross profit was unfavorably impacted by higher trade and promotional investments to drive future period growth. These increased costs were partially offset by Project Terra cost savings.
Selling, General and Administrative Expenses
Selling,
general and administrative expenses were $87.7 million for the three months ended March 31, 2019, an increase of $1.7 million, or 1.9%, from $86.1 million for the prior year quarter. Selling, general and administrative expenses increased primarily due to increased consulting costs in the United States associated with the Fountain of Truth product launch and e-commerce, as well as increased variable compensation costs, partially offset by Project Terra savings as well as the impact of foreign exchange rates. Selling, general and administrative expenses as
a percentage of net sales was 14.6% in the three months ended March 31, 2019 compared to 13.6% in the prior year quarter, reflecting an increase of 100 basis points primarily attributable to the aforementioned items.
Amortization of Acquired Intangibles
Amortization of acquired intangibles was $3.8 million for the three months ended March 31,
2019, a decrease of $0.9 million from $4.7 million in the prior year quarter. The decrease was due to finite-lived intangibles from certain historical acquisitions becoming fully amortized subsequent to March 31, 2018.
Project Terra Costs and Other
Project Terra costs and other was $9.4 million for the three months ended March 31,
2019, an increase of $4.6 million from $4.8 million in the prior year quarter. The increase was primarily due to increased consulting fees incurred in connection with the Company’s Project Terra strategic review as well as increased severance costs for the three months ended March 31, 2019 as compared to the prior year period.
Chief Executive Officer Succession Plan Expense, net
Net
costs and expenses associated with the Company’s Chief Executive Officer Succession Plan were $0.5 million for the three months ended March 31, 2019. There were no comparable expenses in the three months ended March 31, 2018. See Note 3, Chief Executive Officer Succession Plan, in the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q for further discussion.
Accounting Review and Remediation
Costs, net of Insurance Proceeds
Costs and expenses associated with the internal accounting review, remediation and other related matters were $3.3 million for the three months ended March 31, 2018. No such costs were incurred in the three months ended March 31, 2019.
Long-lived Asset and Intangibles Impairment
During the three
months ended March 31, 2018, the Company recorded non-cash impairment charges of $2.6 million related to the closure of a manufacturing facility in the United Kingdom and $2.2 million to write down the value of certain machinery and equipment. There were no impairment charges recorded in the three months ended March 31, 2019.
Operating income for the three months ended March 31, 2019 was $23.9 million compared to $29.3 million in the prior year quarter. The decrease in operating income resulted from the items described above.
Interest and Other Financing Expense, net
Interest and other financing expense, net totaled $9.4 million for the three months ended
March 31, 2019, an increase of $2.6 million, or 38.5%, from $6.8 million in the prior year quarter. The increase in interest and other financing expense, net resulted primarily from higher interest expense related to our revolving credit facility as a result of higher variable interest rates. See Note 10, Debt and Borrowings, in the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q.
Other Expense/(Income), net
Other
expense/(income), net, totaled $1.1 million of expense for the three months ended March 31, 2019, compared to $1.6 million of income in the prior year quarter. Included in other expense/(income), net were net unrealized foreign currency losses, compared to net unrealized foreign currency gains in the prior year quarter principally due to the effect of foreign currency movements on the remeasurement of foreign currency denominated loans.
Income From Continuing Operations Before Income Taxes and Equity in Net Loss of Equity-Method Investees
Income before
income taxes and equity in net loss of our equity-method investees for the three months ended March 31, 2019 was $13.4 million compared to $24.0 million for the three months ended March 31, 2018. The decrease was due to the items discussed above.
Income Taxes
The provision for income taxes includes federal, foreign, state and local income taxes. For the three
months ended March 31, 2019, the Company calculated its effective tax rate based on a discrete basis due to significant variations in the relationship between income tax expense and projected pre-tax income. As a result, the actual effective tax rate for the three months ended March 31, 2019 is being utilized. Our income tax expense from continuing operations was $3.1 million for the three months ended March 31, 2019 compared to $1.3
million of tax benefit in the prior year quarter.
The effective income tax rate from continuing operations was an expense of 23.2% for the three months ended March 31, 2019, compared to a benefit of 5.5% for the three months ended March 31, 2018. The effective income tax rate from continuing operations for the three months ended March 31, 2019
was impacted by the provisions in the Tax Act including global intangible low-taxed income and limitations on the deductibility of executive compensation. The effective income tax rate was also negatively impacted by the geographical mix of earnings and state taxes. For an additional discussion on the impact of the Tax Act, see Note 11, Income Taxes, in the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q.
The effective income tax rate from continuing operations for the three months ended March 31, 2018 was primarily impacted by the enactment of the Tax Act on December 22, 2017, specifically
the revalue of net deferred tax liabilities to the enacted 21% tax rate, repealing the deduction for domestic production activities, inclusion of the transition tax liability estimate and limitation on the deductibility of executive officers’ compensation. The effective income tax rate from continuing operations for the three months ended March 31, 2018 was also favorably impacted by the geographical mix of earnings, as well as a $3.8 million benefit relating to the release of the Company’s domestic uncertain tax position as a result of the expiration of the statute of limitations.
The income tax benefit from
discontinued operations was $21.4 million for the three months ended March 31, 2019, compared to income tax expense from discontinued operations of $10.4 million for the three months ended March 31, 2018. The tax benefit in the three months ended March 31, 2019 is impacted by the tax effect of current period book losses including the loss on the sale of Plainville Farms assets in the third quarter of fiscal 2019 as well as the deferred tax benefit arising from
asset impairment charges. Income tax expense for the three months ended March 31, 2018 includes a $10.7 million deferred tax liability related to Hain Pure Protein being classified as held for sale.
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.
Our equity in net loss from our equity-method investments for the three months ended March 31, 2019 was $0.2 million, compared to $0.1 million in the three months ended March 31, 2018. See Note 14, Investments, in the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q.
Net Income from Continuing Operations
Net
income from continuing operations for the three months ended March 31, 2019 was $10.1 million compared to $25.2 million for the three months ended March 31, 2018. Net income per diluted share from continuing operations was $0.10 for the three months ended March 31, 2019 compared to $0.24 in the prior year quarter. The decrease
was attributable to the factors noted above.
Net Loss from Discontinued Operations
Net loss from discontinued operations for the three months ended March 31, 2019 was $75.9 million compared to $12.6 million in the three months ended March 31, 2018. Diluted net loss per common share from discontinued operations was $0.73 and $0.12
in the three months ended March 31, 2019 and 2018, respectively. Net loss from discontinued operations for the three months ended March 31, 2019 included a loss on sale recorded in connection with the disposition of the Plainville Farms business of $40.2 million and asset impairment charges of $51.3 million to write-down the net assets of the remaining Hain Pure Protein components to the estimated selling price, less costs to sell, as discussed in Note 5, Discontinued Operations, in the Notes to Consolidated
Financial Statements included in Item 1 of this Form 10-Q.
Net (Loss) Income
Net loss for the three months ended March 31, 2019 was $65.8 million compared to net income of $12.7 million in the prior year quarter. Net loss per diluted share was $0.63 in the three months ended March 31, 2019 compared to net income per diluted share of $0.12
in the three months ended March 31, 2018. The decrease was attributable to the factors noted above.
Adjusted EBITDA
Our Adjusted EBITDA was $55.5 million and $73.4 million for the three months ended March 31, 2019 and 2018, respectively, as a result of the factors discussed
above and the adjustments described in the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures presented following the discussion of our results of operations.
The following table provides a summary of net sales and operating income by reportable segment for the three months ended March 31,
2019 and 2018:
(dollars in thousands)
United States
United Kingdom
Rest
of World
Corporate and Other
Consolidated
Net sales
Three
months ended 3/31/19
$
266,445
$
227,206
$
106,146
$
—
$
599,797
Three
months ended 3/31/18
281,052
238,321
113,347
—
632,720
$
change
$
(14,607
)
$
(11,115
)
$
(7,201
)
n/a
$
(32,923
)
%
change
(5.2
)%
(4.7
)%
(6.4
)%
n/a
(5.2
)%
Operating
income
Three months ended 3/31/19
$
17,099
$
18,147
$
10,868
$
(22,249
)
$
23,865
Three
months ended 3/31/18
24,974
13,863
11,059
(20,642
)
29,254
$
change
$
(7,875
)
$
4,284
$
(191
)
$
(1,607
)
$
(5,389
)
%
change
(31.5
)%
30.9
%
(1.7
)%
(7.8
)%
(18.4
)%
Operating
income margin
Three months ended 3/31/19
6.4
%
8.0
%
10.2
%
n/a
4.0
%
Three
months ended 3/31/18
8.9
%
5.8
%
9.8
%
n/a
4.6
%
United
States
Our net sales in the United States segment for the three months ended March 31, 2019 were $266.4 million, a decrease of $14.6 million, or 5.2%, from net sales of $281.1 million for the three months ended March 31, 2018. The decrease in net sales was primarily driven by declines in our Pantry and Better-For-You-Baby platforms. In
addition, the declines were also driven by the strategic decision to no longer support certain lower margin SKUs in order to reduce complexity and increase gross margins. Operating income in the United States for the three months ended March 31, 2019 was $17.1 million, a decrease of $7.9 million from operating income of $25.0 million for the three months ended March 31, 2018. The decrease in operating income was the result of the aforementioned decrease in net sales
and increased consulting costs associated with the Fountain of Truth product launch and e-commerce, as well as increased variable compensation costs in the three months ended March 31, 2019 compared to the three months ended March 31, 2018, partially offset by Project Terra savings.
United Kingdom
Our net sales in the United Kingdom segment for the three months ended March 31,
2019 were $227.2 million, a decrease of $11.1 million, or 4.7%, from net sales of $238.3 million for the three months ended March 31, 2018. On a constant currency basis, net sales increased 1.8% from the prior year quarter. The net sales increase on a constant currency basis was primarily due to growth from the Company’s Linda McCartney®
and Hartley’s® brands and in our Tilda and Ella’s Kitchen businesses. Operating income in the United Kingdom segment for the three months ended March 31, 2019 was $18.1 million, an increase of $4.3 million from $13.9 million for the three months ended March 31, 2018. The increase in operating income was primarily due to operating efficiencies achieved at Hain Daniels
driven by Project Terra and decreased sales and marketing costs in our Ella’s Kitchen business.
Our net sales in Rest of World were $106.1 million for the three months ended March 31, 2019, a decrease of $7.2
million, or 6.4%, from net sales of $113.3 million for the three months ended March 31, 2018. On a constant currency basis, net sales decreased 0.7% from the prior year. The decrease in net sales was driven by declines in Canada from the Company’s Europe’s Best®, Live Clean® and Dream® brands, offset
in part by growth in our Yves Veggie Cuisine®, Sensible Portions®, Terra® and Tilda® brands. Hain Ventures (formerly known as Cultivate) net sales decreased from the prior year quarter, primarily driven by declines from the Blueprint®, SunSpire® and DeBoles® brands, offset in part by growth from the GG UniqueFiber™ brand. Hain Europe net sales decreased from the prior year quarter, but increased on a constant currency basis, primarily
due to growth from the Company’s Joya® and Natumi® brands and private label sales, offset in part by declines from the Lima®, Danival® and Dream® brands. Operating income in the segment for the three months ended March 31, 2019 was $10.9 million, a decrease of $0.2 million,
from $11.1 million for the three months ended March 31, 2018. The decrease in operating income was primarily due to start-up costs incurred in connection with a new manufacturing facility in Canada.
Corporate and Other
Our Corporate and Other category consists of expenses related to the Company’s centralized administrative functions, which do not specifically relate to an operating segment. Such Corporate and Other expenses are comprised mainly of 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, Chief Executive Officer Succession Plan expense, net, Project Terra costs and other, net are included in Corporate and Other and were $0.5 million and $7.6 million, respectively, for the three months ended March 31, 2019. Project Terra costs and other and Accounting review and remediation costs, net were $4.2
million and $3.3 million, respectively, for the three months ended March 31, 2018.
Refer to Note 17, Segment Information, in the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q.
The following table compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the nine months ended March 31, 2019 and 2018 (amounts
in thousands, other than percentages which may not add due to rounding):
Chief
Executive Officer Succession Plan expense, net
30,156
1.7%
—
—%
30,156
*
Accounting
review and remediation costs, net of insurance proceeds
4,334
0.2%
6,406
0.3%
(2,072
)
(32.3)%
Long-lived
asset and intangibles impairment
23,709
1.4%
8,290
0.5%
15,419
186.0%
Operating
(loss) income
(15,626
)
(0.9)%
89,460
4.9%
(105,086
)
(117.5)%
Interest
and other financing expense, net
25,912
1.5%
19,543
1.1%
6,369
32.6%
Other
expense/(income), net
2,041
0.1%
(5,447
)
(0.3)%
7,488
(137.5)%
(Loss)
income from continuing operations before income taxes and equity in net loss (income) of equity-method investees
(43,579
)
(2.5)%
75,364
4.1%
(118,943
)
(157.8)%
Benefit
for income taxes
(1,679
)
(0.1)%
(11,516
)
(0.6)%
9,837
(85.4)%
Equity
in net loss (income) of equity-method investees
391
—%
(104
)
—%
495
(476.0)%
Net
(loss) income from continuing operations
$
(42,291
)
(2.4)%
$
86,984
4.7%
$
(129,275
)
(148.6)%
Net
loss from discontinued operations, net of tax
$
(127,472
)
(7.3)%
$
(7,349
)
(0.4)%
$
(120,123
)
*
Net
(loss) income
$
(169,763
)
(9.7)%
$
79,635
4.3%
$
(249,398
)
(313.2)%
Adjusted
EBITDA
$
134,433
7.7%
$
194,560
10.6%
$
(60,127
)
(30.9)%
* Percentage
is not meaningful
Net Sales
Net sales for the nine months ended March 31, 2019 were $1.74 billion, a decrease of $93.4 million, or 5.1%, from net sales of $1.84 billion for the nine months ended March 31, 2018. On a constant currency basis, net sales decreased
approximately 3.1% from the prior year period. Net sales decreased across all three of our reportable segments. Further details of changes in net sales by segment are provided below.
Gross Profit
Gross profit for the nine months ended March 31, 2019 was $339.1 million, a decrease of $51.2 million, or 13.1%, as compared to the prior year period. Gross profit margin was 19.4%
of net sales, compared to 21.2% in the prior year period. Gross profit was unfavorably impacted by higher trade and promotional investments and increased freight and commodity costs primarily in the United States segment. These increased costs were partially offset by Project Terra cost savings.
Selling, general and administrative expenses were $255.4 million
for the nine months ended March 31, 2019, a decrease of $3.2 million, or 1.2%, from $258.6 million for the prior year. Selling, general and administrative expenses decreased primarily due to a decrease of $2.5 million associated with the reversal of previously accrued amounts under the net sales portion of the 2016-2018 and 2017-2019 LTIPs and a $4.8 million decrease in stock-based compensation expense, which included the reversal of $1.9 million of previously recognized
stock-based compensation expense associated with the relative TSR portion of the 2017-2019 LTIP due to specified performance metrics not being attained. See Note 13, Stock-based Compensation and Incentive Performance Plans, in the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q for further discussion on the aforementioned reversals under the Company’s LTIPs. This decrease was offset in part by higher marketing investment costs in the Company’s international businesses and increased consulting costs in the United States associated with the Fountain of Truth product launch and e-commerce, as well as increased variable compensation costs. Selling, general and administrative expenses
as a percentage of net sales was 14.6% in the nine months ended March 31, 2019 and 14.1% in the prior year period, reflecting an increase of 50 basis points primarily attributable to the aforementioned items.
Amortization of Acquired Intangibles
Amortization of acquired intangibles was $11.6 million for the nine months ended March 31,
2019, a decrease of $2.3 million from $13.9 million in the prior year period. The decrease was due to finite-lived intangibles from certain historical acquisitions becoming fully amortized subsequent to March 31, 2018.
Project Terra Costs and Other
Project Terra costs and other was $29.6 million for the nine months ended March 31,
2019, an increase of $15.9 million from $13.8 million in the prior year period. The increase was primarily due to increased consulting fees incurred in connection with the Company’s Project Terra strategic review as well as increased severance costs for the nine months ended March 31, 2019 as compared to the prior year period. Project Terra costs and other for the nine months ended March 31, 2019
also included $2.1 million in costs associated with the exit of a leased production facility in the United Kingdom.
Chief Executive Officer Succession Plan Expense, net
Net costs and expenses associated with the Company’s Chief Executive Officer Succession Plan were $30.2 million for the nine months ended March 31, 2019. There were no comparable expenses in the nine months ended March 31, 2018. See
Note 3, Chief Executive Officer Succession Plan, in the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q for further discussion.
Accounting Review and Remediation Costs, net of Insurance Proceeds
Costs and expenses associated with the internal accounting review, remediation and other related matters were $4.3 million for the nine months ended March 31, 2019, compared to $6.4 million in the prior year period. Included in accounting review and remediation costs for the nine
months ended March 31, 2019 and 2018 were insurance proceeds of $0.2 million and $5.0 million, respectively, related to the reimbursement of costs incurred as part of the internal accounting review and the independent review by the Audit Committee and other related matters.
Long-lived Asset and Intangibles Impairment
In the nine months ended March 31, 2019, the
Company recorded a pre-tax impairment charge of $17.9 million ($11.3 million related to the United States, $3.8 million related to Rest of World and $2.8 million related to the United Kingdom segment) related to certain tradenames of the Company. See Note 9, Goodwill and Other Intangible Assets, in the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q. Additionally, the Company recorded $5.8 million of non-cash impairment charges primarily related to the
Company’s decision to consolidate manufacturing of certain fruit-based products in the United Kingdom. During the nine months ended March 31, 2018, the Company recorded a $6.2 million non-cash impairment charge related to the closures of manufacturing facilities in the United Kingdom and United States. Additionally, during the nine months ended March 31, 2018, the Company recorded a $2.1 million non-cash impairment charge to write down the value of certain machinery and equipment.
Operating loss for the nine months ended March 31, 2019 was $15.6 million compared to operating income of $89.5 million in the prior year period. The decrease in operating income resulted from the items described above.
Interest and Other Financing Expense, net
Interest
and other financing expense, net totaled $25.9 million for the nine months ended March 31, 2019, an increase of $6.4 million, or 32.6%, from $19.5 million in the prior year period. The increase in interest and other financing expense, net resulted primarily from higher interest expense related to our revolving credit facility as a result of higher variable interest rates. See Note 10, Debt and Borrowings, in the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q.
Other
Expense/(Income), net
Other expense/(income), net totaled $2.0 million of expense for the nine months ended March 31, 2019, compared to $5.4 million of income in the prior year period. Included in other expense/(income), net for the nine months ended March 31, 2019 were net unrealized foreign currency losses, which were higher than the prior year period principally due to the effect of foreign currency movements on the remeasurement of foreign currency denominated loans.
(Loss)
Income From Continuing Operations Before Income Taxes and Equity in Net Loss (Income) of Equity-Method Investees
Loss from continuing operations before income taxes and equity in net loss (income) of our equity-method investees for the nine months ended March 31, 2019 was $43.6 million compared to income of $75.4 million for the nine months ended March 31, 2018. The decrease was due to the items discussed above.
Income
Taxes
The provision for income taxes includes federal, foreign, state and local income taxes. For the nine months ended March 31, 2019, the Company calculated its effective tax rate based on a discrete basis due to significant variations in the relationship between income tax expense and projected pre-tax income. As a result, the actual effective tax rate for the nine months ended March 31, 2019 is being utilized. Our income tax expense from continuing operations was a benefit of $1.7
million for the nine months ended March 31, 2019 compared to $11.5 million of tax benefit in the prior year quarter.
The effective income tax rate from continuing operations was a benefit of 3.9% and 15.3% for the nine months ended March 31, 2019 and March 31, 2018, respectively. The effective income tax rate from continuing operations for the
nine months ended March 31, 2019 was impacted by the provisions in the Tax Act including global intangible low-taxed income, finalization of the Transition Tax liability, and limitations on the deductibility of executive compensation. The effective income tax rate was also impacted by the geographical mix of earnings and state taxes. For an additional discussion on the impact of the Tax Act, see Note 11, Income Taxes, in the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q.
The effective income tax rate from continuing operations for the nine months ended March 31,
2018 was primarily impacted by the enactment of the Tax Act on December 22, 2017, specifically related to the revalue of net deferred tax liabilities to the enacted 21% tax rate, repealing the deduction for domestic production activities, inclusion of a transition tax liability estimate and the deductibility of executive officers’ compensation. The effective income tax rate from continuing operations for the nine months ended March 31, 2018 was also favorably impacted by the geographical mix of earnings, as well as a $3.8 million benefit relating to the release of the Company’s domestic uncertain tax position as a result of
the expiration of the statute of limitations.
The income tax benefit from discontinued operations was $49.0 million for the nine months ended March 31, 2019, compared to income tax expense from discontinued operations of $12.7 million for the nine months ended March 31, 2018. The benefit for income taxes for the nine months ended March 31, 2019 includes the reversal
of the $12.3 million deferred tax liability previously recorded related to Hain Pure Protein being classified as held for sale. In addition, the nine month tax benefit is impacted by the tax effect of current period book losses including the loss on the sale of Plainville Farms assets in the third quarter of fiscal 2019 as well as the deferred tax benefit arising from asset impairment charges.
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.
Equity in Net Loss (Income) of Equity-Method Investees
Our equity in net loss from our equity-method investments for the nine months ended March 31, 2019 was $0.4 million, compared to equity in net income of $0.1 million in the three months ended March 31, 2018. See Note 14, Investments, in the Notes to Consolidated Financial Statements
included in Item 1 of this Form 10-Q.
Net (Loss) Income from Continuing Operations
Net loss from continuing operations for the nine months ended March 31, 2019 was $42.3 million compared to net income of $87.0 million for the nine months ended March 31, 2018. Net loss per diluted share was $0.41 for the nine months ended March 31,
2019 compared to net income per diluted share of $0.83 in the prior year period. The net loss from continuing operations was attributable to the factors noted above.
Net Loss from Discontinued Operations
Net loss from discontinued operations for the nine months ended March 31, 2019 was $127.5 million compared to $7.3 million in the nine months ended March 31, 2018,
or $1.23 and $0.07 net loss per diluted share from discontinued operations, respectively. The increase in net loss from discontinued operations was primarily attributable to asset impairment charges of $109.3 million and a loss on sale in connection with the disposition of the Plainville Farms business of $40.2 million, in each case recorded in the nine months ended March 31, 2019 and as discussed in Note 5, Discontinued Operations, in the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q.
Net
(Loss) Income
Net loss for the nine months ended March 31, 2019 was $169.8 million compared to net income of $79.6 million in the prior year period. Net loss per diluted share was $1.63 in the nine months ended March 31, 2019 compared to net income per diluted share of $0.76 in the nine months ended March 31,
2018. The decrease was attributable to the factors noted above.
Adjusted EBITDA
Our Adjusted EBITDA was $134.4 million and $194.6 million for the nine months ended March 31, 2019 and 2018, respectively, as a result of the factors discussed above and the adjustments described in the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures presented
following the discussion of our results of operations.
The following table provides a summary of net sales and operating (loss)/income by reportable segment for the nine months ended March 31, 2019 and 2018:
(dollars
in thousands)
United States
United Kingdom
Rest of World
Corporate and Other
Consolidated
Net sales
Nine
months ended 3/31/19
$
769,585
$
671,121
$
304,080
$
—
$
1,744,786
Nine
months ended 3/31/18
815,013
698,968
324,190
—
1,838,171
$
change
$
(45,428
)
$
(27,847
)
$
(20,110
)
n/a
$
(93,385
)
%
change
(5.6
)%
(4.0
)%
(6.2
)%
n/a
(5.1
)%
Operating
(loss)/income
Nine months ended 3/31/19
$
26,449
$
36,822
$
27,078
$
(105,975
)
$
(15,626
)
Nine
months ended 3/31/18
67,696
37,062
30,591
(45,889
)
89,460
$
change
$
(41,247
)
$
(240
)
$
(3,513
)
$
(60,086
)
$
(105,086
)
%
change
(60.9
)%
(0.6
)%
(11.5
)%
(130.9
)%
(117.5
)%
Operating
(loss)/income margin
Nine months ended 3/31/19
3.4
%
5.5
%
8.9
%
n/a
(0.9
)%
Nine
months ended 3/31/18
8.3
%
5.3
%
9.4
%
n/a
4.9
%
United
States
Our net sales in the United States segment for the nine months ended March 31, 2019 were $769.6 million, a decrease of $45.4 million, or 5.6%, from net sales of $815.0 million for the nine months ended March 31, 2018. The decrease in net sales was primarily driven by declines in our Pantry, Better-For-You-Baby, Fresh Living
and Tea platforms. In addition, the declines were also driven by the strategic decision to no longer support certain lower margin SKUs in order to reduce complexity and increase gross margins. Operating income in the United States for the nine months ended March 31, 2019 was $26.4 million, a decrease of $41.2 million from operating income of $67.7 million for the nine months ended March 31, 2018. The decrease in operating income was the result of the aforementioned
decrease in net sales, higher trade investments to drive future period growth and increased freight and logistics costs, offset in part by Project Terra cost savings.
United Kingdom
Our net sales in the United Kingdom segment for the nine months ended March 31, 2019 were $671.1 million, a decrease of $27.8 million, or 4.0%, from net sales of $699.0 million for the nine months
ended March 31, 2018. On a constant currency basis, net sales decreased 0.6% from the prior year. The net sales decrease was primarily due to declines of private label sales and declines in sales of the Company’s Hartley’s®, New Covent Garden Soup Co.®, Cully & Sully® and Johnson’s Juice Co.™ brands, partially offset by growth in the Company’s
Tilda and Ella’s Kitchenbusinesses and growth in our Linda McCartney® brand. Operating income in the United Kingdom segment for the nine months ended March 31, 2019 was $36.8 million, a decrease of $0.2 million from $37.1 million for the nine months ended March 31, 2018. The decrease in operating income was primarily due to the
aforementioned decrease in sales and a $4.3 million non-cash impairment charge associated with the consolidation of manufacturing of certain fruit-based products in the United Kingdom in the nine months ended March 31, 2019, partially offset by operating efficiencies achieved at Hain Daniels driven by Project Terra.
Our
net sales in Rest of World were $304.1 million for the nine months ended March 31, 2019, a decrease of $20.1 million, or 6.2%, from net sales of $324.2 million for the nine months ended March 31, 2018. On a constant currency basis, net sales decreased 2.6% from the prior year. The decrease in net sales was driven by declines in
Canada from the Company’s Europe’s Best® and Dream® brands and private label sales, partially offset by growth in our Yves Veggie Cuisine®, Sensible Portions® and Imagine® brands. Hain Europe net sales decreased from the prior year quarter, primarily driven by declines from the Danival®, Lima® and Dream® brands, offset in part by growth from the Natumi®
and Joya® brands and private label sales. Hain Ventures (formerly known as Cultivate) net sales decreased from the prior year, primarily driven by declines from the Blueprint®, SunSpire® and DeBoles® brands, offset in part by growth from the GG UniqueFiber™ brand. Operating income in the segment for the nine months ended March 31, 2019 was $27.1 million, a decrease of $3.5 million,
from $30.6 million for the nine months ended March 31, 2018. The decrease in operating income was primarily due to the aforementioned decrease in sales, start-up costs incurred in connection with a new manufacturing facility in Canada and costs associated with the planned closure of a manufacturing facility in the United States due to the Company’s decision to utilize a third-party manufacturer.
Corporate and Other
Our Corporate
and Other category consists of expenses related to the Company’s centralized administrative functions, which do not specifically relate to an operating segment. 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, Chief Executive Officer Succession Plan expense, net, Project Terra costs and other and accounting review and remediation costs, net are included in Corporate and Other and were $30.2 million,
$21.0 million and $4.3 million, respectively, for the nine months ended March 31, 2019. Corporate and Other in the nine months ended March 31, 2019 also includes tradename impairment charges of $17.9 million. Project Terra costs and other and accounting review and remediation costs, net were $7.4 million and $6.4 million, respectively, for the nine months ended March 31,
2018.
Refer to Note 17, Segment Information, in the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q.
Liquidity and Capital Resources
We finance our operations and growth primarily with the cash flows we generate from our operations and from borrowings available to us under our Credit Agreement and Amended Credit Agreement (defined below).
Our cash and cash equivalents balance
decreased $79.0 million at March 31, 2019 to $27.6 million as compared to $106.6 million at June 30, 2018. At March 31, 2019, our restricted cash balance was $34.5 million which was associated with the cash separation payment provided by the Chief Executive Officer Succession Agreement, which was paid on May 6, 2019. Our working capital from continuing operations was $364.9 million
at March 31, 2019, a decrease of $73.2 million from $438.1 million at the end of fiscal 2018.
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. Our cash balances are held in the United States, United Kingdom, Canada, Europe and India. As of March 31, 2019, approximately 82.9%
($22.8 million) of the total cash balance from continuing operations was held outside of the United States. Our cash balance for discontinued operations was $3.7 million and held in the United States at March 31, 2019. It is our current intent to indefinitely reinvest our foreign earnings outside the United States. However, we intend to further study changes enacted by the Tax Cuts and Jobs Act, costs of repatriation and the current and future cash needs of foreign operations to determine whether there is an opportunity to repatriate foreign cash balances in the future on a tax-efficient basis.
We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of March 31, 2019, 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.
Nine
Months Ended March 31,
Change in
(amounts in thousands)
2019
2018
Dollars
Percentage
Cash flows provided by (used in):
Operating
activities from continuing operations
$
12,043
$
67,370
$
(55,327
)
(82
)%
Investing
activities from continuing operations
(52,029
)
(61,308
)
9,279
15
%
Financing activities from continuing operations
(3,333
)
(31,849
)
28,516
90
%
Decrease
in cash from continuing operations
(43,319
)
(25,787
)
(17,532
)
(68
)%
Decrease in cash from discontinued operations
(2,782
)
(3,303
)
521
16
%
Effect
of exchange rate changes on cash
(1,225
)
5,884
(7,109
)
(121
)%
Net decrease in cash and cash equivalents
$
(47,326
)
$
(23,206
)
$
(24,120
)
(104
)%
Cash
provided by operating activities from continuing operations was $12.0 million for the nine months ended March 31, 2019, a decrease of $55.3 million from $67.4 million of cash provided by operating activities from continuing operations for the nine months ended March 31, 2018. This decrease resulted primarily from an increase of $79.8 million in net loss adjusted for non-cash charges offset in part by $24.5
million of cash provided by working capital accounts.
Cash used in investing activities from continuing operations was $52.0 million for the nine months ended March 31, 2019, a decrease of $9.3 million from $61.3 million of cash used in investing activities from continuing operations for the nine months ended March 31, 2018. Capital expenditures in the nine months ended
March 31, 2019 and March 31, 2018 were $55.9 million and $48.4 million, respectively. In the nine months ended March 31, 2018, cash used in investing activities included a $13.1 million payment for the acquisition of Clarks UK Limited.
Cash used in financing activities from continuing operations was $3.3 million for the nine months ended
March 31, 2019, a decrease of $28.5 million from $31.8 million of net cash used in financing activities from continuing operations for the nine months ended March 31, 2018. The decrease was due to net repayments of $7.8 million on our revolving credit facility and other debt for the nine months ended March 31, 2018, compared with net borrowings of $37.2
million for the nine months ended March 31, 2019. Additionally, included in the nine months ended March 31, 2019 was $3.1 million related to stock repurchases to satisfy employee payroll tax withholdings and $37.5 million to fund the operations of discontinued operations. Cash used in financing activities from continuing operations in the nine months ended March 31, 2018 included $6.9 million
related to stock repurchases to satisfy employee payroll tax withholdings and $17.2 million to fund operations of discontinued operations.
Operating Free Cash Flow from Continuing Operations
Our operating free cash flow from continuing operations was negative $43.8 million for the nine months ended March 31, 2019, a decrease of $62.9 million from the nine months ended March 31,
2018. This decrease resulted primarily from a decrease of $79.8 million in net loss adjusted for non-cash charges and an increase of $7.5 million in capital expenditures offset in part by $24.5 million of cash provided by working capital accounts. We expect that our capital spending for fiscal 2019 will be approximately $70-$80 million, and we may incur additional costs in connection with Project Terra. We refer the reader to the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures following the discussion of our results of operations for definitions and a reconciliation from our net cash provided by operating activities from continuing operations
to operating free cash flow from continuing operations.
Credit Agreement
On February 6, 2018, the Company entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for a $1,000,000 revolving credit facility through February 6, 2023 and provides for a $300,000 term loan. Under the Credit Agreement, the revolving credit facility may be increased by an additional uncommitted $400,000, provided certain conditions
are met. 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, finance capital expenditures and permitted acquisitions, refinance certain existing indebtedness and for other general corporate purposes.
On May 8, 2019, the
Company entered into the Third Amendment to the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), whereby, among other things, its allowable consolidated leverage ratio increased to no more than 5.0 to 1.0 from March 31, 2019 to December 31, 2019, no more than 4.75 to 1.0 at March 31, 2020, no more than 4.25 to 1.0 at June 30, 2020 and no more than 4.0 to 1.0 on September 30, 2020 and thereafter. The allowable consolidated leverage ratio for each period will be decreased by 0.25 upon sale of the
Company’s remaining Hain Pure Protein business. Additionally, the Company’s required consolidated interest coverage ratio (as defined in the Amended Credit Agreement) was reduced to no less than 3.0 to 1 through March 31, 2020, no less than 3.75 to 1 through March 31, 2021 and no less than 4.0 to 1 thereafter. The Amended Credit Agreement also required that the Company and the subsidiary guarantors enter into a Security and Pledge Agreement pursuant to which all of the obligations under Amended Credit Agreement are secured by liens on assets of the Company and its material domestic subsidiaries,
including stock of each of their direct subsidiaries and intellectual property, subject to agreed upon exceptions. Additionally, the Company is now required to maintain a consolidated interest coverage ratio (as defined in the Amended Credit Agreement) of no less than 3.0 to 1 through March 31, 2020, no less than 3.75 to 1 through March 31, 2021 and no less than 4.0 to 1 thereafter. The allowable consolidated leverage ratio will be decreased by 0.25 upon sale of the Company’s remaining Hain Pure Protein business.
The Amended
Credit Agreement provides that loans will bear interest at rates based on (a) the Eurocurrency Rate, as defined in the Amended Credit Agreement, plus a rate ranging from 0.875% to 2.50% per annum; or (b) the Base Rate, as defined in the Amended Credit Agreement, plus a rate ranging from 0.00% to 1.50% per annum, the relevant rate being the Applicable Rate. The Applicable Rate will be determined in accordance with a leverage-based pricing grid, as set forth in the Amended Credit Agreement. Swing line loans and Global Swing Line loans denominated in U.S. dollars will bear interest at the Base Rate plus the Applicable Rate, and Global Swing Line loans denominated in foreign currencies shall bear interest based on the overnight Eurocurrency Rate for loans denominated in such currency plus
the Applicable Rate. The weighted average interest rate on outstanding borrowings under the Amended Credit Agreement at March 31, 2019 was 4.30%. Additionally, the Amended Credit Agreement contains a Commitment Fee, as defined in the Amended Credit Agreement, on the amount unused under the Amended Credit Agreement ranging from 0.20% to 0.45% per annum, and such Commitment Fee is determined in accordance with a leverage-based pricing grid. As part of the Amended Credit Agreement, HPPC was released from its obligations as a borrower and a guarantor under the Credit Agreement.
As of March 31,
2019 and June 30, 2018, there were $740.2 million and $698.1 million of borrowings outstanding, respectively, under the Credit Agreement. The weighted average interest rate on outstanding borrowings under the Credit Agreement at March 31, 2019 was 4.30%.
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 3.27% at March 31, 2019). As of March 31, 2019 and June 30, 2018, there were $6.7 million and $9.3 million of borrowings under these arrangements, respectively.
Reconciliation
of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures
We have included in this report measures of financial performance that are not defined by U.S. GAAP. We believe that these measures provide useful information to investors and include these measures in other communications to investors.
For each of these non-U.S. GAAP financial measures, we are providing below a reconciliation of the differences between the non-U.S. GAAP measure and the most directly comparable U.S. GAAP measure, an explanation of why our management and Board of Directors believes the non-U.S. GAAP measure provides useful information to investors and any additional purposes for which our management and Board of Directors uses the non-U.S. GAAP measures. These non-U.S. GAAP measures should be viewed in addition to, and not in lieu of, the comparable U.S. GAAP measures.
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. dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rate in effect during the current period of the current fiscal year. As a result, the foreign currency
impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.
A reconciliation between reported and constant currency net sales decrease is as follows:
(amounts in thousands)
United Kingdom
Rest
of World
Hain Consolidated
Net sales - Three months ended 3/31/19
$
227,206
$
106,146
$
599,797
Impact
of foreign currency exchange
15,378
6,414
21,792
Net sales on a constant currency basis - Three months ended 3/31/19
$
242,584
$
112,560
$
621,589
Net
sales - Three months ended 3/31/18
$
238,321
$
113,347
$
632,720
Net sales growth on a constant currency basis
1.8
%
(0.7
)%
(1.8
)%
Net
sales - Nine months ended 3/31/19
$
671,121
$
304,080
$
1,744,786
Impact of foreign currency exchange
23,897
11,689
35,586
Net
sales on a constant currency basis - Nine months ended 3/31/19
$
695,018
$
315,769
$
1,780,372
Net
sales - Nine months ended 3/31/18
$
698,968
$
324,190
$
1,838,171
Net sales growth on a constant currency basis
(0.6
)%
(2.6
)%
(3.1
)%
Adjusted
EBITDA
Adjusted EBITDA is defined as net (loss) income before income taxes, net interest expense, depreciation and amortization, impairment of long-lived and intangible assets, equity in the earnings of equity-method investees, stock-based compensation, Project Terra costs and other, and other non-recurring items. 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.
Operating
Free Cash Flow from Continuing Operations
In our internal evaluations, we use the non-U.S. GAAP financial measure “operating free cash 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 flow provided by operating activities from continuing operations to Operating free cash flow from continuing operations is as follows:
Nine
Months Ended March 31,
(amounts in thousands)
2019
2018
Cash flow provided by operating activities from continuing operations
$
12,043
$
67,370
Purchase
of property, plant and equipment
(55,892
)
(48,368
)
Operating free cash flow from continuing operations
$
(43,849
)
$
19,002
Off
Balance Sheet Arrangements
At March 31, 2019, 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.
Critical Accounting Estimates
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have applied. The accounting policies that have been identified as critical to our business operations and to understanding the results of our operations pertain to revenue recognition, trade promotions and sales incentives, valuation of accounts and chargebacks receivable, accounting for acquisitions, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation, and valuation allowances for deferred tax assets. The application of each of these critical accounting policies and estimates is discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.
Recent Accounting Pronouncements
Refer to Note 2, Basis of Presentation, in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
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, due to the nature of our Tilda business, our net sales and earnings may further fluctuate based on the timing of certain 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 3. Quantitative and
Qualitative Disclosures About Market Risk
There have been no significant changes in market risk for the three and nine months ended March 31, 2019 from those addressed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018. See the information set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s Annual Report on Form 10-K for the fiscal year ended
June 30, 2018.
Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), with the assistance of other members of management, have reviewed
the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Our disclosure controls and procedures are intended to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based on this review, although the Company continues to work to remediate the material weakness in internal control over financial reporting as described in our Annual Report on Form 10-K for the fiscal year ended June 30,
2018 and significant progress has been made to date, our CEO and CFO have concluded that the disclosure controls and procedures related to this material weakness were not effective as of March 31, 2019.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect every misstatement. An evaluation of effectiveness is subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may decrease over time.
Changes in Internal Control Over Financial Reporting
Under
applicable SEC rules (Exchange Act Rules 13a-15(c) and 15d-15(c)), management is required to evaluate any change in internal control over financial reporting that occurred during each fiscal quarter that had materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
As explained in greater detail under Item 9A, Controls and Procedures, in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, we have undertaken a broad range of remedial procedures prior to May 9, 2019, the filing date of this report, to address the material weakness in our internal control over financial reporting identified as of June 30,
2018. Our efforts to improve our internal controls are ongoing and focused on organizational enhancements, control design enhancements to rework certain internal control gaps and documentation and training practices. Therefore, while we determined, with the participation of our CEO and CFO, that there have been no changes in our internal control over financial reporting in the three months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, we continue to monitor the operation of these remedial measures through the date of this report.
For a more comprehensive discussion of the material weakness in internal control over financial reporting identified by management as of June
30, 2018, and the remedial measures undertaken to address this material weakness, investors are encouraged to review Item 9A, Controls and Procedures, in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.
On August 17, 2016, three securities class action complaints were filed in the Eastern District of New York against the Company alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The three complaints are: (1) Flora v. The Hain Celestial Group, Inc., et al. (the “Flora Complaint”); (2) Lynn v. The Hain Celestial Group, Inc., et al. (the “Lynn Complaint”); and (3) Spadola v. The Hain Celestial Group, Inc., et al. (the “Spadola Complaint” and, together with the Flora and Lynn
Complaints, the “Securities Complaints”). On June 5, 2017, the court issued an order for consolidation, appointment of Co-Lead Plaintiffs and approval of selection of co-lead counsel. Pursuant to this order, the Securities Complaints were consolidated under the caption In re The Hain Celestial Group, Inc. Securities Litigation (the “Consolidated Securities Action”), and Rosewood Funeral Home and Salamon Gimpel were appointed as Co-Lead Plaintiffs. On June 21, 2017, the Company received notice that plaintiff Spadola voluntarily dismissed his claims without prejudice to his ability to participate in the Consolidated Securities Action as an absent class member. The Co-Lead Plaintiffs in the Consolidated Securities Action filed a Consolidated Amended Complaint on August
4, 2017 and a Corrected Consolidated Amended Complaint on September 7, 2017 on behalf of a purported class consisting of all persons who purchased or otherwise acquired Hain Celestial securities between November 5, 2013 and February 10, 2017 (the “Amended Complaint”). The Amended Complaint 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 the Securities Exchange Act of 1934 based on allegedly materially false or misleading statements and omissions in public statements, press releases and SEC filings regarding the
Company’s business, prospects, financial results and internal controls. Defendants filed a motion to dismiss on October 3, 2017. Co-Lead Plaintiffs filed an opposition on December 1, 2017, and Defendants filed the reply on January 16, 2018. On April 4, 2018, the Court requested additional briefing relating to certain aspects of Defendants’ motion to dismiss. In accordance with this request, Lead Plaintiffs submitted their supplemental brief on April 18, 2018, and Defendants submitted an opposition on May 2, 2018. Lead Plaintiffs filed a reply brief on May 9, 2018, and Defendants submitted a sur-reply on May
16, 2018.
On March 29, 2019, the Court granted Defendants’ motion, dismissing the Amended Complaint in its entirety, without prejudice to replead. Lead Plaintiffs filed a seconded amended complaint on May 6, 2019.
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. On November 2, 2017, the parties agreed to stay the Consolidated Derivative Action until April 11, 2018. On April 6, 2018, the parties filed a proposed stipulation agreeing to stay the Consolidated Derivative Action until October 4, 2018, which the Court granted on May 3, 2018. On October 9 ,2018, the Court further stayed this matter until December 4, 2018 and on December 4, 2018 further stayed the matter until January 14,
2019. On January 14, 2019, the Court held a status conference and granted Plaintiffs leave to file an amended complaint by March 7, 2019, while continuing the stay as to all other aspects of the case. On March 7, 2019, Plaintiffs filed an amended complaint. The Court held a status conference on March 13, 2019 and continued the stay until a subsequent conference scheduled for May 6, 2019. At the May 6 conference, the Court indicated that the stay will be lifted, and after a preliminary conference for June 13, 2019, a scheduling order will be entered and the case will proceed.
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 10, 2017, the court granted the parties stipulation to consolidate the Barnes Complaint, the Silva Complaint and the Merenstein Complaint under the caption In re The Hain Celestial Group, Inc. Stockholder Class and Derivative Litigation (the “Consolidated Stockholder Class and Derivative Action”) and to appoint Robbins Arroyo LLP and Scott+Scott as Co-Lead Counsel, with the Law Offices of Thomas G. Amon as Liaison Counsel for Plaintiffs. On September 14, 2017, a related complaint
was filed under the caption Oliver v. Berke, et al. (the “Oliver Complaint”), and on October 6, 2017, the Oliver Complaint was consolidated with the Consolidated Stockholder Class and Derivative Action. The Plaintiffs filed their consolidated amended complaint under seal on October 26, 2017. On December 20, 2017, the parties agreed to stay Defendants’ time to answer, move, or otherwise respond to the consolidated amended complaint through and including 30 days after a decision is rendered on the motion to dismiss the Amended Complaint in the consolidated Securities Class Actions, described above.
After the Court dismissed the Amended Complaint in the Securities Class Actions, the parties to the Consolidated Stockholder Class
and Derivative Action agreed to continue the stay of Defendants’ time to answer, move, or otherwise respond to the consolidated amended complaint. The stay is continued through the later of: (a) thirty (30) days after the deadline for plaintiffs to file a second amended complaint in the Securities Class Actions; or, (b) if plaintiffs file a second amended complaint, and Defendants file a motion to dismiss the second amended complaint, thirty (30) days after the Court rules on the motion to dismiss the second amended complaint in the Securities Class Actions.
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 1A. Risk Factors
We
have disclosed the risk factors affecting our business, results of operations and financial condition in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, filed with the SEC on August 29, 2018. There have been no material changes from the risk factors previously disclosed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The
table below sets forth information regarding repurchases by the Company of its common stock during the periods indicated.
(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 preset trading plans, in private transactions or otherwise. The authorization does not have a stated expiration date.
The
following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statement of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
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.
Pursuant
to the requirements 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.