HAIN 10-Q
Hain Celestial Group Inc (HAIN)
10-Q
2021-11-09
For: 2021-09-30
View Original
Added on
April 10, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-Q
___________________________________________
(Mark One)
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended September 30, 2021
or
| Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
for the transition period from to
Commission File No. 0-22818
___________________________________________
(Exact name of registrant as specified in its charter)
___________________________________________
(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (516 ) 587-5000
Former name, former address and former fiscal year, if changed since last report: N/A
___________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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.
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).
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.
| ☒ | 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
As of November 2, 2021, there were 94,581,455 shares outstanding of the registrant’s Common Stock, par value $0.01 per share.
THE HAIN CELESTIAL GROUP, INC.
Index
| Part I - Financial Information | Page | |||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Part II - Other Information | ||||||||
| Items 3, 4 and 5 are not applicable | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
1
Forward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (the “Form 10-Q”) contains forward-looking statements within the meaning of safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of The Hain Celestial Group, Inc. (collectively with its subsidiaries, the “Company,” “Hain Celestial,” “we,” “us” or “our”) may differ materially from those expressed or implied by such forward-looking statements. The words “believe,” “expect,” “anticipate,” “may,” “should,” “plan,” “intend,” “potential,” “will” and similar expressions are intended to identify such forward-looking statements. Forward-looking statements include, among other things, our beliefs or expectations relating to our future performance, results of operations and financial condition; our strategic initiatives, business strategy, supply chain, brand portfolio and product performance; the COVID-19 pandemic; current or future macroeconomic trends; and future corporate acquisitions or dispositions.
Risks and uncertainties that may cause actual results to differ materially from forward-looking statements include: challenges and uncertainty resulting from the impact of competition; challenges and uncertainty resulting from the COVID-19 pandemic; our ability to manage our supply chain effectively; disruption of operations at our manufacturing facilities; reliance on independent contract manufacturers; changes to consumer preferences; customer concentration; reliance on independent distributors; the availability of organic ingredients; risks associated with our international sales and operations; risks associated with outsourcing arrangements; our ability to execute our cost reduction initiatives and related strategic initiatives; our reliance on independent certification for a number of our products; the reputation of our Company and our brands; our ability to use and protect trademarks; general economic conditions; input cost inflation; the United Kingdom’s exit from the European Union; cybersecurity incidents; disruptions to information technology systems; the impact of climate change; liabilities, claims or regulatory change with respect to environmental matters; potential liability if our products cause illness or physical harm; the highly regulated environment in which we operate; pending and future litigation; compliance with data privacy laws; compliance with our credit agreement; the discontinuation of LIBOR; concentration in the ownership of our common stock; our ability to issue preferred stock; the adequacy of our insurance coverage; impairments in the carrying value of goodwill or other intangible assets; and other risks and matters described in our most recent Annual Report on Form 10-K, this Form 10-Q and our other filings from time to time with the U.S. Securities and Exchange Commission.
We undertake no obligation to update forward-looking statements to reflect actual results or changes in assumptions or circumstances, except as required by applicable law.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 2021 AND JUNE 30, 2021
(In thousands, except par values)
| September 30, | June 30, | ||||||||||
| 2021 | 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, less allowance for doubtful accounts of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Assets held for sale | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Trademarks and other intangible assets, net | |||||||||||
| Investments and joint ventures | |||||||||||
| Operating lease right-of-use assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, less current portion | |||||||||||
| Deferred income taxes | |||||||||||
| Operating lease liabilities, noncurrent portion | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 17) | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock - $ | |||||||||||
Common stock - $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Less: Treasury stock, at cost, | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See notes to consolidated financial statements.
3
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(In thousands, except per share amounts)
| Three Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net sales | $ | $ | |||||||||
| Cost of sales | |||||||||||
| Gross profit | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Amortization of acquired intangible assets | |||||||||||
Productivity and transformation costs | |||||||||||
Proceeds from insurance claim | ( | ||||||||||
| Long-lived asset impairment | |||||||||||
| Operating income | |||||||||||
| Interest and other financing expense, net | |||||||||||
| Other income, net | ( | ( | |||||||||
| Income from continuing operations before income taxes and equity in net loss of equity-method investees | |||||||||||
| Provision for income taxes | |||||||||||
| Equity in net loss of equity-method investees | |||||||||||
| Net income (loss) from continuing operations | $ | $ | ( | ||||||||
| Net income from discontinued operations, net of tax | |||||||||||
| Net income | $ | $ | |||||||||
| Net income (loss) per common share: | |||||||||||
| Basic net income (loss) per common share from continuing operations | $ | $ | ( | ||||||||
| Basic net income per common share from discontinued operations | |||||||||||
| Basic net income per common share | $ | $ | |||||||||
| Diluted net income (loss) per common share from continuing operations | $ | $ | ( | ||||||||
| Diluted net income per common share from discontinued operations | |||||||||||
| Diluted net income per common share | $ | $ | |||||||||
| Shares used in the calculation of net income (loss) per common share: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
See notes to consolidated financial statements.
4
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(In thousands)
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||||||||||||||
Pre-tax amount | Tax (expense) benefit | After-tax amount | Pre-tax amount | Tax (expense) benefit | After-tax amount | ||||||||||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments before reclassifications | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Change in deferred gains on cash flow hedging instruments | ( | ( | |||||||||||||||||||||||||||||||||
| Change in deferred gains (losses) on net investment hedging instruments | ( | ( | ( | ||||||||||||||||||||||||||||||||
Total other comprehensive (loss) income | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||
| Total comprehensive (loss) income | $ | ( | $ | ||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
5
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021
(In thousands, except par values)
| Common Stock | Additional | Accumulated Other | |||||||||||||||||||||||||||||||||||||||||||||
| Amount | Paid-in | Retained | Treasury Stock | Comprehensive | |||||||||||||||||||||||||||||||||||||||||||
| Shares | at $ | Capital | Earnings | Shares | Amount | Loss | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to stock-based compensation plans | |||||||||||||||||||||||||||||||||||||||||||||||
Shares withheld for payment of employee payroll taxes due on shares issued under stock-based compensation plans | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
6
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020
(In thousands, except par values)
| Common Stock | Additional | Accumulated Other | |||||||||||||||||||||||||||||||||||||||||||||
| Amount | Paid-in | Retained | Treasury Stock | Comprehensive | |||||||||||||||||||||||||||||||||||||||||||
| Shares | at $ | Capital | Earnings | Shares | Amount | Loss | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
Cumulative effect of adoption of | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to stock-based compensation plans | ( | ||||||||||||||||||||||||||||||||||||||||||||||
Shares withheld for payment of employee payroll taxes due on shares issued under stock-based compensation plans | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
7
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(In thousands)
| Three Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income | $ | $ | |||||||||
| Net income from discontinued operations | |||||||||||
| Net income (loss) from continuing operations | ( | ||||||||||
| Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities from continuing operations: | |||||||||||
| Depreciation and amortization | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Equity in net income of equity-method investees | |||||||||||
| Stock-based compensation | |||||||||||
| Long-lived asset impairment | |||||||||||
| Gain on sale of assets | ( | ||||||||||
| Gain on sale of businesses | ( | ||||||||||
| Other non-cash items including unrealized currency gains, net | ( | ( | |||||||||
| (Decrease) increase in cash attributable to changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Other current assets | |||||||||||
| Other assets and liabilities | ( | ( | |||||||||
| Accounts payable and accrued expenses | |||||||||||
| Net cash provided by operating activities from continuing operations | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Investment in joint venture | ( | ||||||||||
| Proceeds from sale of assets | |||||||||||
| Proceeds from sale of businesses and other | |||||||||||
Net cash used in investing activities from continuing operations | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Borrowings under bank revolving credit facility | |||||||||||
| Repayments under bank revolving credit facility | ( | ( | |||||||||
| Repayments of other debt, net | ( | ( | |||||||||
| Shares withheld for payment of employee payroll taxes | ( | ( | |||||||||
| Share repurchases | ( | ( | |||||||||
Net cash used in financing activities from continuing operations | ( | ( | |||||||||
| Effect of exchange rate changes on cash from continuing operations | ( | ||||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See notes to consolidated financial statements.
8
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
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 with its subsidiaries, the “Company,” “Hain Celestial,” “we,” “us” or “our”), was founded in 1993 and is headquartered in Lake Success, New York. The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet. The Company continues to be a leading marketer, manufacturer and seller of organic and natural, “better-for-you” products by anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience. The Company is committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 80 countries worldwide. The Company operates under two reportable segments: North America and International.
Discontinued Operations
The financial statements separately report discontinued operations and the results of continuing operations (see Note 4). All footnotes exclude discontinued operations unless otherwise noted.
2. BASIS OF PRESENTATION
The Company’s unaudited consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Investments in affiliated companies in which the Company exerts significant influence, but which it does not control, are accounted for under the equity method of accounting. As such, consolidated net income includes the Company's equity in the current earnings or losses of such companies.
The Company's unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP and should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2021 (the “Form 10-K”). The amounts as of and for the periods ended June 30, 2021 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 months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022. Please refer to the Notes to the Consolidated Financial Statements as of June 30, 2021 and for the fiscal year then ended included in the Form 10-K for information not included in these condensed notes.
All amounts in the unaudited consolidated financial statements, notes and tables have been rounded to the nearest thousand, except par values and per share amounts, unless otherwise indicated.
Reclassifications
Certain prior year amounts have been reclassified to conform with current year presentation.
Transfer of Financial Assets
The Company has non-recourse accounts receivable financing arrangements in which eligible receivables are sold to third-party buyers in exchange for cash. The Company transferred accounts receivables in their entirety to the buyers and satisfied all of the conditions to report the transfer of financial assets in their entirety as a sale. The principal amount of receivables sold under these arrangements was $22,889 and $14,360 during the three months ended September 30, 2021 and 2020, respectively. The incremental cost of accounts receivable financing arrangements is included in Interest and other financing expense, net in the Company’s Consolidated Statements of Operations. The proceeds from the sale of receivables are included in cash from operating activities in the accompanying Consolidated Statements of Cash Flows.
9
Significant Accounting Policies
The Company's significant accounting policies are described in Note 2, Summary of Significant Accounting Policies and Practices, in the Notes to the Consolidated Financial Statements in the Form 10-K.
Recently Adopted Accounting Pronouncements
Issued by the Financial Accounting Standards Board (“FASB”), ASC 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. Further, ASC 815 requires qualitative disclosures that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
During the first quarter of fiscal year 2022, the Company adopted the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
10
3. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net income (loss) per share:
| Three Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Numerator: | |||||||||||
| Net income (loss) from continuing operations | $ | $ | ( | ||||||||
| Net income from discontinued operations | |||||||||||
| Net income | $ | $ | |||||||||
Denominator: | |||||||||||
Basic weighted average shares outstanding | |||||||||||
Effect of dilutive stock options, unvested restricted stock and unvested restricted share units | |||||||||||
Diluted weighted average shares outstanding | |||||||||||
| Basic net income (loss) per common share: | |||||||||||
| Continuing operations | $ | $ | ( | ||||||||
| Discontinued operations | |||||||||||
| Basic net income per common share | $ | $ | |||||||||
| Diluted net income (loss) per common share: | |||||||||||
| Continuing operations | $ | $ | ( | ||||||||
| Discontinued operations | |||||||||||
| Diluted net income per common share | $ | $ | |||||||||
Basic net income (loss) per share excludes the dilutive effects of stock options, unvested restricted stock and unvested restricted share units.
Anti-dilutive restricted stock awards and stock options excluded from our calculation of diluted net income (loss) per share for the three months ended September 30, 2021 were de minimis. There were 1,299 stock-based awards excluded for the three months ended September 30, 2021 as such awards were contingently issuable based on market or performance conditions, and such conditions had not been achieved during the period.
Due to our net loss from continuing operations in the three months ended September 30, 2020, all common stock equivalents such as stock options and unvested restricted stock awards have been excluded from the computation of diluted net loss per common share because the effect would have been anti-dilutive to the computations in the period.
Share Repurchase Program
In June 2017 and August 2021, the Company's Board of Directors authorized the repurchase of up to $250,000 and $300,000 of the Company’s issued and outstanding common stock, respectively. Share repurchases under the 2021 authorization commenced in August 2021, after the 2017 authorization was fully utilized. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The authorization does not have a stated expiration date. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations. During the three months ended September 30, 2021, the Company repurchased 4,525 shares under the repurchase program for a total of $175,597 , excluding commissions, at an average price of $38.80 per share. As of September 30, 2021, the Company had $206,811 of remaining authorization under the share repurchase program. During the three months ended September 30, 2020, the Company repurchased 1,281 shares under the repurchase program for a total of $42,027 , excluding commissions, at an average price of $32.81 per share.
4. DISPOSITIONS
11
On June 28, 2021, the Company completed the divestiture of its crispbread crackers business, GG UniqueFiber® (“GG”) for total cash consideration of $336 . The sale of GG is consistent with the Company’s transformation and portfolio simplification process. GG operated in Norway and was part of the Company’s International reportable segment. The Company deconsolidated the net assets of GG during the twelve months ended June 30, 2021, recognizing a pre-tax loss on sale of $3,753 .
Dream® and WestSoy®
On April 15, 2021, the Company completed the divestiture of its North America non-dairy beverages business, consisting of the Dream® and WestSoy® brands, for total cash consideration of $33,000 , subject to customary post-closing adjustments. The final purchase price was $31,320 . The non-dairy beverage business was considered to be non-core within our broader North American business, and the sale aligns with the Company’s portfolio simplification process. The business operated out of the United States and Canada and was part of the Company’s North America reportable segment. The Company deconsolidated the net assets of the North American non-dairy beverage business during the twelve months ended June 30, 2021, recognizing a pre-tax gain on sale of $7,519 .
Fruit
In August 2020, the Company's Board of Directors approved a plan to sell its prepared fresh fruit, fresh fruit drinks and fresh fruit desserts division ("Fruit"), primarily consisting of the Orchard House® Foods Limited business and associated brands. This decision supported the Company's overall strategy as the Fruit business did not align, and had limited synergies, with the rest of the Company's businesses. The Company determined that the held for sale criteria was met and classified the assets and liabilities of the Fruit business as held for sale as of September 30, 2020 and December 31, 2020, recognizing pre-tax non-cash losses of $32,497 and $23,596 , respectively, to reduce the carrying value to its estimated fair value less costs to sell. The sale was completed on January 13, 2021 for a total cash consideration of $38,547 , recognizing a pre-tax loss on sale of $1,904 .
Danival
The Company entered into a definitive stock purchase agreement on June 30, 2020 for the sale of its Danival business, a component of the International reportable segment, and the transaction closed on July 21, 2020. The Company deconsolidated the net assets of the Danival business upon closing of the sale during the quarter ended September 30, 2020, recognizing a pre-tax gain on sale of $611 .
Discontinued Operations
Sale of Tilda Business
On August 27, 2019, the Company sold the entities comprising the Tilda Group Entities and certain other assets of the Tilda business for an aggregate price of $342,000 in cash, subject to customary post-closing adjustments based on the balance sheets of the Tilda business. The disposition of the Tilda operating segment represented a strategic shift that had a major impact on the Company’s operations and financial results and has been accounted for as discontinued operations. The following table presents the major classes of Tilda’s results within Net income from discontinued operations, net of tax in our Consolidated Statements of Operations:
| Three Months Ended September 30, | |||||
| 2020 | |||||
| Net sales | $ | ||||
| Cost of sales | |||||
Gross profit | |||||
| Other expense | |||||
| Net loss from discontinued operations before income taxes | ( | ||||
Benefit for income taxes(1) | ( | ||||
| Net income from discontinued operations, net of tax | $ | ||||
(1) Includes $11,331 of tax benefit related to the tax gain on the sale of Tilda for the three months ended September 30, 2020.
There were no
12
5. INVENTORIES
Inventories consisted of the following:
| September 30, 2021 | June 30, 2021 | ||||||||||
| Finished goods | $ | $ | |||||||||
| Raw materials, work-in-progress and packaging | |||||||||||
| $ | $ | ||||||||||
At each period end, inventory is reviewed to ensure that it is recorded at the lower of cost or net realizable value. During the three months ended September 30, 2021 and 2020, the Company recorded inventory write-downs of $0 and $204 , respectively.
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
| September 30, 2021 | June 30, 2021 | ||||||||||
| Land | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Computer hardware and software | |||||||||||
| Furniture and fixtures | |||||||||||
| Leasehold improvements | |||||||||||
| Construction in progress | |||||||||||
| Less: accumulated depreciation and amortization | |||||||||||
| $ | $ | ||||||||||
Depreciation expense for the three months ended September 30, 2021 and 2020 was $7,408 and $9,703 , respectively.
A facility in the United Kingdom was held for sale as of June 30, 2021 with a net carrying amount of 1,874 . Additionally, a facility in the United States was held for sale as of September 30, 2021 with a net carrying amount of $1,768 .
13
7. LEASES
The Company leases office space, warehouse and distribution facilities, manufacturing equipment and vehicles primarily in North America and Europe. The Company determines if an arrangement is or contains a lease at inception. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company’s lease agreements generally do not contain residual value guarantees or material restrictive covenants. A limited number of lease agreements include rental payments adjusted periodically for inflation.
Some of the Company’s leases contain variable lease payments, which are expensed as incurred unless those payments are based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and included in the measurement of the lease liability; thereafter, changes to lease payments due to rate or index changes are recorded as variable lease expense in the period incurred. The Company does not have any related party leases, and sublease transactions are de minimis.
14
The components of lease expenses for the three months ended September 30, 2021 and 2020 were as follows:
| Three Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Operating lease expenses | $ | $ | |||||||||
| Finance lease expenses | |||||||||||
| Variable lease expenses | |||||||||||
| Short-term lease expenses | |||||||||||
| Total lease expenses | $ | $ | |||||||||
Additional information related to leases is as follows:
| Three Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Supplemental cash flow information | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
| Operating cash flows from finance leases | $ | $ | |||||||||
| Financing cash flows from finance leases | $ | $ | |||||||||
| ROU assets obtained in exchange for lease obligations: | |||||||||||
| Operating leases | $ | $ | |||||||||
| Finance leases | $ | $ | |||||||||
| Weighted average remaining lease term: | |||||||||||
| Operating leases | |||||||||||
| Finance leases | |||||||||||
| Weighted average discount rate: | |||||||||||
| Operating leases | % | % | |||||||||
| Finance leases | % | % | |||||||||
Supplemental balance sheet information related to leases was as follows:
| Leases | Classification | September 30, 2021 | June 30, 2021 | |||||||||||||||||
| Assets | ||||||||||||||||||||
| Operating lease ROU assets, net | Operating lease right-of-use assets, net | $ | $ | |||||||||||||||||
| Finance lease ROU assets, net | ||||||||||||||||||||
| Total leased assets | $ | $ | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Current | ||||||||||||||||||||
| Operating | $ | $ | ||||||||||||||||||
| Finance | ||||||||||||||||||||
| Non-current | ||||||||||||||||||||
| Operating | Operating lease liabilities, noncurrent portion | |||||||||||||||||||
| Finance | ||||||||||||||||||||
| Total lease liabilities | $ | $ | ||||||||||||||||||
15
| Fiscal Year | Operating leases | Finance leases | Total | ||||||||||||||
| 2022 (remainder of year) | $ | $ | $ | ||||||||||||||
| 2023 | |||||||||||||||||
| 2024 | |||||||||||||||||
| 2025 | |||||||||||||||||
| 2026 | |||||||||||||||||
| Thereafter | |||||||||||||||||
| Total lease payments | |||||||||||||||||
| Less: Imputed interest | |||||||||||||||||
| Total lease liabilities | $ | $ | $ | ||||||||||||||
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8. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table provides the changes in the carrying value of goodwill by reportable segment:
| North America | International | Total | |||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | ||||||||||||||
| Translation and other adjustments, net | ( | ( | ( | ||||||||||||||
Balance as of September 30, 2021 | $ | $ | $ | ||||||||||||||
Other Intangible Assets
The following table includes the gross carrying amount and accumulated amortization, where applicable, for intangible assets, excluding goodwill:
| September 30, 2021 | June 30, 2021 | ||||||||||
| Non-amortized intangible assets: | |||||||||||
| Trademarks and tradenames | $ | $ | |||||||||
| Amortized intangible assets: | |||||||||||
| Other intangibles | |||||||||||
| Less: accumulated amortization | ( | ( | |||||||||
| Net carrying amount | $ | $ | |||||||||
There were no events or circumstances that warranted an interim impairment test for indefinite-lived intangible assets during the three months ended September 30, 2021 or 2020.
Amortized intangible assets, which are deemed to have a finite life, primarily consist of customer relationships and trademarks and tradenames and are amortized over their estimated useful lives of 5 to 25 years. Amortization expense included in continuing operations was as follows:
| Three Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Amortization of acquired intangibles | $ | $ | |||||||||
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9. DEBT AND BORROWINGS
Debt and borrowings consisted of the following:
| September 30, 2021 | June 30, 2021 | ||||||||||
| Revolving credit facility | $ | $ | |||||||||
| Other borrowings | |||||||||||
| Short-term borrowings and current portion of long-term debt | |||||||||||
| Long-term debt, less current portion | $ | $ | |||||||||
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 and Canadian dollars as well as other currencies which may be designated. In addition, certain wholly-owned foreign subsidiaries of the Company may be designated as co-borrowers. The Credit Agreement contains restrictive covenants, which are usual and customary for facilities of its type, and include, with specified exceptions, limitations on the Company’s ability to engage in certain business activities, incur debt, have liens, make capital expenditures, pay dividends or make other distributions, enter into affiliate transactions, consolidate, merge or acquire or dispose of assets, and make certain investments, acquisitions and loans. The Credit Agreement also requires the Company to satisfy certain financial covenants. Obligations under the Credit Agreement are guaranteed by certain existing and future domestic subsidiaries of the Company. As of September 30, 2021, there were $344,969 of borrowings outstanding under the revolving credit facility and $6,394 letters of credit outstanding under the Credit Agreement.
On May 8, 2019, the Company entered into the Third Amendment to the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), whereby, among other things, its allowable consolidated leverage ratio (as defined in the Credit Agreement) and interest coverage ratio (as defined in the Credit Agreement) were adjusted. The Company’s allowable consolidated leverage ratio is no more than 3.75 to 1.0 on September 30, 2020 and thereafter. Additionally, the Company’s required consolidated interest coverage ratio is no less than 3.75 to 1 through March 31, 2021 and no less than 4.0 to 1 thereafter.
The Amended Credit Agreement also required that the Company and the subsidiary guarantors enter into a Security and Pledge Agreement pursuant to which all of the obligations under the Amended Credit Agreement are secured by liens on assets of the Company and its material domestic subsidiaries, including stock of each of their direct subsidiaries and intellectual property, subject to agreed upon exceptions.
As of September 30, 2021, $648,637 was available under the Amended Credit Agreement, and the Company was in compliance with all associated covenants, as amended by the Amended Credit Agreement.
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10. INCOME TAXES
In general, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability on the effective tax rates from quarter to quarter. The Company’s effective tax rate may change from period-to-period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes and tax audit settlements.
The effective income tax rate from continuing operations was expense of 18.6 % and 589.2 % for the three months ended September 30, 2021 and 2020, respectively. Lower effective income tax rate relative to our statutory tax rates for the current quarter is mainly due to the reversal of uncertain tax position accruals based on filing and approval of certain elections by the tax authorities. In addition, the effective income tax rates from continuing operations for the three months ended September 30, 2021 and 2020 were negatively impacted by provisions in the Tax Cuts and Jobs Act (the "Tax Act"), primarily related to Global Intangible Low Taxed Income ("GILTI") and limitations on the deductibility of executive compensation. Furthermore, the effective income tax rate from continuing operations for the three months ended September 30, 2020 was negatively impacted by various discrete items including the tax impact of the United Kingdom Fruit business reserve, the legal entity reorganization, and the UK rate change. The effective income tax rates in each period were also impacted by the geographical mix of earnings and state valuation allowance.
The income tax expense (benefit) from discontinued operations was $0 for the three months ended September 30, 2021, while the income tax benefit from discontinued operations was $11,331 for the three months ended September 30, 2020. The benefit for income tax for the three months ended September 30, 2020 was impacted by a legal entity reorganization.
11. ACCUMULATED OTHER COMPREHENSI VE LOSS
The following table presents the changes in accumulated other comprehensive loss ("AOCL"):
| Three Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Foreign currency translation adjustments: | |||||||||||
| Other comprehensive (loss) income before reclassifications | $ | ( | $ | ||||||||
Amounts reclassified into income (1) | |||||||||||
| Deferred gains (losses) on cash flow hedging instruments: | |||||||||||
| Other comprehensive gain (loss) before reclassifications | ( | ||||||||||
Amounts reclassified into (expense) income (2) | ( | ||||||||||
| Deferred gains (losses) on net investment hedging instruments: | |||||||||||
| Other comprehensive gain (loss) before reclassifications | ( | ||||||||||
Amounts reclassified into expense (2) | ( | ( | |||||||||
| Net change in AOCL | $ | ( | $ | ||||||||
(1) Foreign currency translation gains or losses of foreign subsidiaries related to divested businesses are reclassified into income once the liquidation of the respective foreign subsidiaries is substantially complete. During the three months ended September 30, 2020, the Company reclassified $1,181 of translation losses from AOCL to Other income, net on the Consolidated Statement of Operations.
(2) See Note 15, Derivatives and Hedging Activities, for the amounts reclassified into income for deferred gains (losses) on cash flow hedging instruments recorded in the Consolidated Statements of Operations in the three months ended September 30, 2021 and 2020.
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12. STOCK-BASED COMPENSATION AND INCENTIVE PERFORMANCE PLANS
The Company has a stockholder approved plan, the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan (the "2002 Plan"), under which the Company’s officers, senior management, other key employees, consultants and directors may be granted equity-based awards. The Company also grants shares under its 2019 Equity Inducement Award Program (the "2019 Inducement Program") to induce selected individuals to become employees of the Company. The 2002 Plan and 2019 Inducement Program are collectively referred to as the "Stock Award Plans". In conjunction with the Stock Award Plans, the Company maintains a long-term incentive program (the “LTI Program”) that provides for performance and market equity awards that can be earned over defined performance periods. The Company's plans are described in Note 14, Stock-Based Compensation and Incentive Performance Plans, in the Notes to the Consolidated Financial Statements in the Form 10-K.
Compensation cost and related income tax benefits recognized in the Consolidated Statements of Operations for stock-based compensation plans were as follows:
| Three Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
Selling, general and administrative expense | $ | $ | |||||||||
| Related income tax benefit | $ | $ | |||||||||
Restricted Stock
Awards of restricted stock are either restricted stock awards ("RSAs") or restricted stock units ("RSUs") that are issued at no cost to the recipient. Performance-based or market-based RSUs are issued in the form of performance share units ("PSUs"). A summary of the restricted stock activity (including all RSAs, RSUs and PSUs) for the three months ended September 30, 2021 is as follows:
Number of Shares and Units | Weighted Average Grant Date Fair Value (per share) | ||||||||||
| Non-vested RSAs, RSUs and PSUs outstanding at June 30, 2021 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | ( | $ | |||||||||
| Non-vested RSAs, RSUs and PSUs outstanding at September 30, 2021 | $ | ||||||||||
At September 30, 2021 and June 30, 2021, the table above includes a total of 1,299 and 1,382 shares (including an inducement grant of 350 shares made to our CEO as previously disclosed), respectively, that represent the target number of shares that may be earned under non-vested performance equity awards that are eligible to vest up to 300 % of target. Vested shares during the current period include a total of 13 shares which vested based on certain performance-based metrics being met.
| Three Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Fair value of RSAs, RSUs and PSUs granted | $ | $ | |||||||||
| Fair value of shares vested | $ | $ | |||||||||
| Tax benefit recognized from restricted shares vesting | $ | $ | |||||||||
At September 30, 2021, there was $5,169 of unrecognized stock-based compensation expense related to non-vested restricted stock awards which is expected to be recognized over a weighted average period of 1.1 years.
20
13. INVESTMENTS
On October 27, 2015, the Company acquired a minority equity interest in Chop’t Creative Salad Company LLC, predecessor to Founders Table Restaurant Group, LLC (“Founders Table”). Founders Table develops and operates fast-casual, fresh salad restaurants in the Northeast and Mid-Atlantic United States. The investment is being accounted for as an equity method investment due to the Company’s representation on the Board of Directors of Founders Table. At September 30, 2021 and June 30, 2021, the carrying value of the Company’s investment in Chop’t was $10,161 and $10,699 , respectively, and is included in the Consolidated Balance Sheets as a component of Investments and joint ventures.
The Company also holds the following investments: (a) Hutchison Hain Organic Holdings Limited (“HHO”) with Hutchison China Meditech Ltd., a joint venture accounted for under the equity method of accounting, (b) Hain Future Natural Products Private Ltd. with Future Consumer Ltd, a joint venture accounted for under the equity method of accounting, and (c) Yeo Hiap Seng Limited, for which the Company holds a less than 1 % equity ownership interest. The carrying value of these combined investments was $6,557 and $6,218 as of September 30, 2021 and June 30, 2021, respectively, and is included in the Consolidated Balance Sheets as a component of Investments and joint ventures.
14. FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The Company’s financial assets and liabilities measured at fair value are required to be grouped in one of three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:
•Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
•Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
•Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
| Total | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Derivative financial instruments | |||||||||||||||||||||||
| Equity investment | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivative financial instruments | $ | $ | $ | $ | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
21
| Total | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Derivative financial instruments | |||||||||||||||||||||||
| Equity investment | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivative financial instruments | $ | $ | $ | $ | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The equity investment consists of the Company’s less than 1 % investment in Yeo Hiap Seng Limited, a food and beverage manufacturer and distributor based in Singapore. Fair value is measured using the market approach based on quoted prices. The Company utilizes the income approach to measure fair value for its foreign currency forward contracts. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates and forward prices.
There were no transfers of financial instruments between the three levels of fair value hierarchy during the three months ended September 30, 2021 or 2020.
The carrying amount of cash and cash equivalents, accounts receivable, net, accounts payable and certain accrued expenses and other current liabilities approximate fair value due to the short-term maturities of these financial instruments. The Company’s debt approximates fair value due to the debt bearing fluctuating market interest rates (see Note 9, Debt and Borrowings).
In addition to the instruments named above, the Company also makes fair value measurements in connection with its interim and annual goodwill and tradename impairment testing. These measurements fall into Level 3 of the fair value hierarchy (See Note 8, Goodwill and Other Intangible Assets).
Derivative Instruments
The Company uses interest rate swaps to manage its interest rate risk and cross-currency swaps and foreign currency exchange contracts to manage its exposure to fluctuations in foreign currency exchange rates. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
In accordance with the provisions of ASC 820, Fair Value Measurements, the Company incorporates credit valuation adjustments to appropriately reflect both the Company’s nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. The Company has also determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the derivatives held as of September 30, 2021 and June 30, 2021 were classified as Level 2 of the fair value hierarchy.
The fair value estimates presented in the fair value hierarchy tables above are based on information available to management as of September 30, 2021 and June 30, 2021. These estimates are not necessarily indicative of the amounts we could ultimately realize.
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15. DERIVATIVES AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s receivables and borrowings.
Certain of the Company’s foreign operations expose the Company to fluctuations of foreign exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company enters into derivative financial instruments to protect the value or fix the amount of certain assets and liabilities in terms of its functional currency, the U.S. dollar.
Accordingly, the Company uses derivative financial instruments to manage and mitigate such risks. The Company does not use derivatives for speculative or trading purposes.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During the three months ended September 30, 2021, such derivatives were used to hedge the variable cash flows associated with existing variable rate debt.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCL and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in AOCL related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate debt. During the remaining nine months of fiscal 2022, the Company estimates that an additional $283 will be reclassified as an increase to interest expense.
As of September 30, 2021, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
| Interest Rate Derivative | Number of Instruments | Notional Amount | ||||||
| Interest Rate Swap | $ | |||||||
Cash Flow Hedges of Foreign Exchange Risk
The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. Dollar. The Company uses foreign currency derivatives including cross-currency swaps to manage its exposure to fluctuations in the USD-EUR exchange rates. Cross-currency swaps involve exchanging fixed-rate interest payments for fixed-rate interest receipts, both of which will occur at the USD-EUR forward exchange rates in effect upon entering into the instrument. The Company, at times, also uses forward contracts to manage its exposure to fluctuations in the GBP-EUR exchange rates. The Company designates these derivatives as cash flow hedges of foreign exchange risks.
For derivatives designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in AOCL and subsequently reclassified in the period(s) during which the hedged transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During the remaining nine months of fiscal 2022, the Company estimates that an additional $127 relating to cross-currency swaps will be reclassified as a decrease to interest expense.
23
As of September 30, 2021, the Company had the following outstanding foreign currency derivatives that were used to hedge its foreign exchange risks:
| Foreign Currency Derivative | Number of Instruments | Notional Sold | Notional Purchased | ||||||||
| Cross-currency swap | € | $ | |||||||||
| Foreign currency forward contract | £ | € | |||||||||
Net Investment Hedges
The Company is exposed to fluctuations in foreign exchange rates on investments it holds in its European foreign entities and their exposure to the Euro. The Company uses fixed-to-fixed cross-currency swaps to hedge its exposure to changes in the foreign exchange rate on its foreign investment in Europe. Currency forward agreements involve fixing the USD-EUR exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in U.S. Dollars for their fair value at or close to their settlement date. Cross-currency swaps involve the receipt of functional-currency-fixed-rate amounts from a counterparty in exchange for the Company making foreign-currency fixed-rate payments over the life of the agreement.
For derivatives designated as net investment hedges, the gain or loss on the derivative is reported in AOCL as part of the cumulative translation adjustment. Amounts are reclassified out of AOCL into earnings when the hedged net investment is either sold or substantially liquidated.
As of September 30, 2021, the Company had the following outstanding foreign currency derivatives that were used to hedge its net investments in foreign operations:
| Foreign Currency Derivative | Number of Instruments | Notional Sold | Notional Purchased | ||||||||
| Cross-currency swap | € | $ | |||||||||
Non-Designated Hedges
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.
As of September 30, 2021 the Company had no outstanding derivatives that were not designated as hedges in qualifying hedging relationships.
Designated Hedges
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| Asset Derivatives | Liability Derivatives | ||||||||||||||||||||||
| Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||
| Interest rate swaps | Prepaid expenses and other current assets | $ | Accrued expenses and other current liabilities / Other noncurrent liabilities | $ | |||||||||||||||||||
| Cross-currency swaps | Prepaid expenses and other current assets | Other noncurrent liabilities | |||||||||||||||||||||
| Total derivatives designated as hedging instruments | $ | $ | |||||||||||||||||||||
The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of June 30, 2021:
| Asset Derivatives | Liability Derivatives | ||||||||||||||||||||||
| Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||
| Interest rate swaps | Prepaid expenses and other current assets | $ | Accrued expenses and other current liabilities / Other noncurrent liabilities | $ | |||||||||||||||||||
| Cross-currency swaps | Prepaid expenses and other current assets | Other noncurrent liabilities | |||||||||||||||||||||
| Total derivatives designated as hedging instruments | $ | $ | |||||||||||||||||||||
The following table presents the pre-tax effect of cash flow hedge accounting on AOCL as of September 30, 2021 and 2020:
| Derivatives in Cash Flow Hedging Relationships | Amount of Gain (Loss) Recognized in AOCL on Derivatives | Location of Gain (Loss) Reclassified from AOCL into Income | Amount of Gain (Loss) Reclassified from AOCL into Income | ||||||||||||||||||||
| Three Months Ended September 30, | Three Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Interest rate swaps | $ | ( | $ | Interest and other financing expense, net | $ | ( | $ | ( | |||||||||||||||
| Cross-currency swaps | ( | Interest and other financing expense, net / Other expense (income), net | ( | ||||||||||||||||||||
| Foreign currency forward contracts | ( | Cost of sales | |||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | |||||||||||||||||
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The following table presents the pre-tax effect of the Company’s derivative financial instruments electing cash flow hedge accounting on the Consolidated Statements of Operations as of September 30, 2021 and 2020:
| Location and Amount of Gain (Loss) Recognized in the Consolidated Statement of Operations on Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | Interest and other financing expense, net | Other expense (income), net | Cost of sales | Interest and other financing expense, net | Other expense (income), net | |||||||||||||||||||||||||||||||||||||||
| The effects of cash flow hedging: | ||||||||||||||||||||||||||||||||||||||||||||
| Gain (loss) on cash flow hedging relationships | ||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | ||||||||||||||||||||||||||||||||||||||||||||
| Amount of loss reclassified from AOCL into income | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Cross-currency swaps | ||||||||||||||||||||||||||||||||||||||||||||
| Amount of gain (loss) reclassified from AOCL into income | $ | — | $ | $ | $ | — | $ | $ | ( | |||||||||||||||||||||||||||||||||||
| Foreign currency forward contracts | ||||||||||||||||||||||||||||||||||||||||||||
| Amount of gain reclassified from AOCL into income | $ | — | $ | — | $ | — | $ | $ | — | $ | — | |||||||||||||||||||||||||||||||||
The following table presents the pre-tax effect of the Company’s net investment hedges on AOCL and the Consolidated Statements of Operations as of September 30, 2021 and 2020:
| Derivatives in Net Investment Hedging Relationships | Amount of Gain (Loss) Recognized in AOCL on Derivatives | Location of Gain (Loss) Recognized in Income on Derivatives | Amount of Gain (Loss) Recognized in Income on Derivatives | ||||||||||||||||||||
| Three Months Ended September 30, | Three Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Cross-currency swaps | $ | $ | ( | Interest and other financing expense, net | $ | $ | |||||||||||||||||
Non-Designated Hedges
The following table presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements Operations as of September 30, 2021 and 2020:
| Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | Amount of Gain (Loss) Recognized in Income on Derivatives | ||||||||||||
| Three Months Ended September 30, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Foreign currency forward contracts | Other expense (income), net | $ | $ | |||||||||||
Credit-Risk-Related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision providing that upon certain defaults by the Company on any of its indebtedness, the Company could also be declared in default on its derivative obligations.
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16. TERMINATION BENEFITS RELATED TO PRODUCTIVITY AND TRANSFORMATION INITIATIVES
As a part of the ongoing productivity and transformation initiatives related to the Company’s strategic objective to expand profit margins and cash flow, the Company initiated a reduction in workforce at targeted locations in the United States as well as at certain locations internationally. The reduction in workforce associated with these initiatives are expected to result in charges throughout fiscal 2022.
The following table displays the termination benefits and personnel realignment activities and liability balances relating to the reduction in workforce for the period ended as of September 30, 2021:
| Balance at June 30, 2021 | Charges | Amounts Paid | Foreign Currency Translation & Other Adjustments | Balance at September 30, 2021 | |||||||||||||||||||||||||
| Termination benefits and personnel realignment | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
The liability balance as of September 30, 2021 and June 30, 2021 is included within Accrued expenses and other current liabilities on the Company’s Consolidated Balance Sheets.
17. COMMITMENTS AND CONTINGENCIES
Securities Class Actions Filed in Federal Court
On August 17, 2016, three securities class action complaints were filed in the Eastern District of New York against the Company alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The three complaints are: (1) Flora v. The Hain Celestial Group, Inc., et al. (the “Flora Complaint”); (2) Lynn v. The Hain Celestial Group, Inc., et al. (the “Lynn Complaint”); and (3) Spadola v. The Hain Celestial Group, Inc., et al. (the “Spadola Complaint” and, together with the Flora and Lynn Complaints, the “Securities Complaints”). On June 5, 2017, the court issued an order for consolidation, appointment of Co-Lead Plaintiffs and approval of selection of co-lead counsel. Pursuant to this order, the Securities Complaints were consolidated under the caption In re The Hain Celestial Group, Inc. Securities Litigation (the “Consolidated Securities Action”), and Rosewood Funeral Home and Salamon Gimpel were appointed as Co-Lead Plaintiffs. On June 21, 2017, the Company received notice that plaintiff Spadola voluntarily dismissed his claims without prejudice to his ability to participate in the Consolidated Securities Action as an absent class member. The Co-Lead Plaintiffs in the Consolidated Securities Action filed a Consolidated Amended Complaint on August 4, 2017 and a Corrected Consolidated Amended Complaint on September 7, 2017 on behalf of a purported class consisting of all persons who purchased or otherwise acquired Hain Celestial securities between November 5, 2013 and February 10, 2017 (the “Amended Complaint”). The Amended Complaint named as defendants the Company and certain of its former officers (collectively, “Defendants”) and asserted violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegedly materially false or misleading statements and omissions in public statements, press releases and SEC filings regarding the Company’s business, prospects, financial results and internal controls. Defendants filed a motion to dismiss the Amended Complaint on October 3, 2017 which the Court granted on March 29, 2019, dismissing the case in its entirety, without prejudice to replead. Co-Lead Plaintiffs filed a Second Amended Consolidated Class Action Complaint on May 6, 2019 (the “Second Amended Complaint”). The Second Amended Complaint again named as defendants the Company and certain of its former officers and asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegations similar to those in the Amended Complaint, including materially false or misleading statements and omissions in public statements, press releases and SEC filings regarding the Company’s business, prospects, financial results and internal controls. Defendants filed a motion to dismiss the Second Amended Complaint on June 20, 2019. Co-Lead Plaintiffs filed an opposition on August 5, 2019, and Defendants submitted a reply on September 3, 2019. On April 6, 2020, the Court granted Defendants' motion to dismiss the Second Amended Complaint in its entirety, with prejudice. Co-Lead Plaintiffs filed a notice of appeal on May 5, 2020 indicating their intent to appeal the Court’s decision dismissing the Second Amended Complaint to the United States Court of Appeals for the Second Circuit. Co-Lead Plaintiffs filed their appellate brief on August 18, 2020. Defendants filed their opposition brief on November 17, 2020, and Plaintiffs filed their reply brief on December 8, 2020. Accordingly, Co-Lead Plaintiffs’ appeal is fully briefed. Oral argument took place on September 27, 2021. The parties await a decision.
Additional Stockholder Class Action and Derivative Complaints Filed in Federal Court
On April 19, 2017 and April 26, 2017, two class action and stockholder derivative complaints were filed in the Eastern District of New York against the former Board of Directors and certain former officers of the Company under the captions Silva v. Simon, et al. (the “Silva Complaint”) and Barnes v. Simon, et al. (the “Barnes Complaint”), respectively. Both the Silva
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Complaint and the Barnes Complaint allege violation of securities law, breach of fiduciary duty, waste of corporate assets and unjust enrichment.
On May 23, 2017, an additional stockholder filed a complaint under seal in the Eastern District of New York against the former Board of Directors and certain former officers of the Company. The complaint alleged that the Company’s former directors and certain former officers made materially false and misleading statements in press releases and SEC filings regarding the Company’s business, prospects and financial results. The complaint also alleged that the Company violated its by-laws and Delaware law by failing to hold its 2016 Annual Stockholders Meeting and includes claims for breach of fiduciary duty, unjust enrichment and corporate waste. On August 9, 2017, the Court granted an order to unseal this case and reveal Gary Merenstein as the plaintiff (the “Merenstein Complaint”).
On August 10, 2017, the court granted the parties' stipulation to consolidate the Barnes Complaint, the Silva Complaint and the Merenstein Complaint under the caption In re The Hain Celestial Group, Inc. Stockholder Class and Derivative Litigation (the “Consolidated Stockholder Class and Derivative Action”) and to appoint Robbins Arroyo LLP and Scott+Scott as Co-Lead Counsel, with the Law Offices of Thomas G. Amon as Liaison Counsel for Plaintiffs. On September 14, 2017, a related complaint was filed under the caption Oliver v. Berke, et al. (the “Oliver Complaint”), and on October 6, 2017, the Oliver Complaint was consolidated with the Consolidated Stockholder Class and Derivative Action. The Plaintiffs filed their consolidated amended complaint under seal on October 26, 2017. On December 20, 2017, the parties agreed to stay Defendants’ time to answer, move, or otherwise respond to the consolidated amended complaint through and including 30 days after a decision was rendered on the motion to dismiss the Amended Complaint in the Consolidated Securities Action, described above.
On March 29, 2019, the Court in the Consolidated Securities Action granted Defendants’ motion, dismissing the Amended Complaint in its entirety, without prejudice to replead. Co-Lead Plaintiffs in the Consolidated Securities Action filed the Second Amended Complaint on May 6, 2019. The parties to the Consolidated Stockholder Class and Derivative Action agreed to continue the stay of Defendants’ time to answer, move, or otherwise respond to the consolidated amended complaint through 30 days after a decision on Defendants' motion to dismiss the Second Amended Complaint in the Consolidated Securities Action.
On April 6, 2020, the Court granted Defendants’ motion to dismiss the Second Amended Complaint in the Consolidated Securities Action, with prejudice. Pursuant to the terms of the stay, Defendants in the Consolidated Stockholder Class and Derivative Action had until May 6, 2020 to answer, move, or otherwise respond to the complaint in this matter. This deadline was extended, and Defendants moved to dismiss the Consolidated Stockholder Class and Derivative Action Complaint on June 23, 2020, with Plaintiffs’ opposition due August 7, 2020.
On July 24, 2020, Plaintiffs made a stockholder litigation demand on the current Board containing overlapping factual allegations to those set forth in the Consolidated Stockholder Class and Derivative Action. On August 10, 2020, the Court vacated the briefing schedule on Defendants’ pending motion to dismiss in order to give the Board of Directors time to consider the demand. On each of September 8 and October 8, 2020, the Court extended its stay of any applicable deadlines for 30 days to give the Board of Directors additional time to complete its evaluation of the demand. On November 3, 2020, Plaintiffs were informed that the Board of Directors had finished investigating and resolved, among other things, that the demand should be rejected. On November 6, 2020, Plaintiffs and Defendants notified the Court that Plaintiffs were evaluating the rejection of the demand, sought certain additional information and were assessing next steps, and requested that the Court extend the stay for an additional 30 days, to on or around December 7, 2020. Since that time, Plaintiffs and Defendants have filed a number of joint status reports, requesting that the Court stay applicable deadlines to allow for the production of certain materials by the Board of Directors for review by Plaintiffs. The current stay ordered by the Court is set to expire on December 30, 2021.
Baby Food Litigation
Since February 2021, a large number of consumer class actions have been brought against the Company alleging that the Company’s Earth’s Best baby food products (the “Products”) contain unsafe and undisclosed levels of various naturally-occurring heavy metals, namely lead, arsenic, cadmium and mercury. There are currently 29 active lawsuits, which generally allege that the Company violated various state consumer protection laws and make other state and common law warranty and unjust enrichment claims related to the alleged failure to disclose the presence of these metals and that consumers would have allegedly either not purchased the Products or would have paid less for them had the Company made adequate disclosures. These putative class actions seek to certify a nationwide class of consumers as well as various state subclasses. One of the consumer class actions (Kathryn Gavula, et. al. v. Beech-Nut Nutrition Co., et. al.) filed in the U.S. District Court for the District of Oregon alleges that the Company violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”) by conspiring with other baby food manufacturers to conceal the presence of these heavy metals in our respective products. These actions have been filed against all of the major baby food manufacturers in federal courts across the country. The U.S. Judicial
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Panel on Multidistrict Litigation (“JPML”) declined a request to centralize all of the consumer class action lawsuits against all of the baby food manufacturers into a single multidistrict proceeding, and the vast majority of cases against the Company have now been transferred and consolidated in the U.S. District Court for the Eastern District of New York, In re Hain Celestial Heavy Metals Baby Food Litigation, Case No. 2:21-cv-678. One consumer class action is pending in New York Supreme Court, Nassau County. The Company has moved to stay or transfer this case to the consolidated proceeding in the Eastern District of New York and that motion is pending. The Company denies the allegations in these lawsuits and contends that its baby foods are safe and properly labeled.
The claims raised in these lawsuits were brought in the wake of a highly publicized report issued by the U.S. House of Representatives Subcommittee on Economic and Consumer Policy on Oversight and Reform, dated February 4, 2021 (the “House Report”), addressing the presence of heavy metals in baby foods made by certain manufacturers, including the Company. Since the publishing of the House Report, the Company has also received information requests with respect to the advertising and quality of its baby foods from certain governmental authorities, as such authorities investigate the claims made in the House Report. The Company is fully cooperating with these requests and is providing documents and other requested information. The Company has been named in one civil government enforcement action, State of New Mexico ex rel. Balderas v. Nurture, Inc., et al., which was filed by the New Mexico Attorney General against the Company and several other manufacturers based on the alleged presence of heavy metals in their baby food products. The Company and several other manufacturers have moved to dismiss the New Mexico Attorney General’s lawsuit, and that motion to dismiss is currently pending.
In addition to the consumer class actions discussed above, the Company is currently named in four lawsuits in state and federal courts alleging some form of personal injury from the ingestion of the Company’s Products, purportedly due to unsafe and undisclosed levels of various naturally occurring heavy metals. Two of these lawsuits name multiple plaintiffs alleging claims of physical injuries. These lawsuits generally allege injuries related to neurological development disorders such as autism and attention deficit hyperactivity disorder. The Company denies that its Products led to any of these injuries and will defend the cases vigorously.
Other
In addition to the litigation described above, the Company is and may be a defendant in lawsuits from time to time in the normal course of business. While the results of litigation and claims cannot be predicted with certainty, the Company believes the reasonably possible losses of such matters, individually and in the aggregate, are not material. Additionally, the Company believes the probable final outcome of such matters will not have a material adverse effect on the Company’s consolidated results of operations, financial position, cash flows or liquidity.
18. SEGMENT INFORMATION
Our organization structure consist of two geographic based reportable segments: North America and International. Our North America reportable segment consists of the United States and Canada as operating segments. Our International reportable segment is comprised of three operating segments: United Kingdom, Ella’s Kitchen UK and Europe. This structure is in line with how our Chief Operating Decision Maker (“CODM”) assesses our performance and allocates resources.
We use segment net sales and operating income to evaluate performance and to allocate resources. We believe these measures are most relevant in order to analyze segment results and trends. Segment operating income excludes certain general corporate expenses (which are a component of selling, general and administrative expenses), impairment and acquisition related expenses, restructuring, integration and other charges.
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The following tables set forth financial information about each of the Company’s reportable segments. Transactions between reportable segments were insignificant for all periods presented.
| Three Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net Sales: | |||||||||||
| North America | $ | $ | |||||||||
| International | |||||||||||
| $ | $ | ||||||||||
| Operating Income (Loss): | |||||||||||
| North America | $ | $ | |||||||||
| International | ( | ||||||||||
Corporate and Other (a) | ( | ( | |||||||||
| $ | $ | ||||||||||
(a) In addition to general Corporate and Other expenses as described above, for the three months ended September 30, 2021, Corporate and Other includes $2,057 of Productivity and transformation costs. For the three months ended September 30, 2020, Corporate and Other includes $803 of Productivity and transformation costs.
The Company's net sales by product category are as follows:
| Three Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Grocery | $ | $ | |||||||||
| Snacks | |||||||||||
| Personal Care | |||||||||||
| Tea | |||||||||||
| Total | $ | $ | |||||||||
The Company’s net sales by geographic region, which are generally based on the location of the Company’s subsidiaries, were as follows:
| Three Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| United States | $ | $ | |||||||||
| United Kingdom | |||||||||||
| All Other | |||||||||||
| Total | $ | $ | |||||||||
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The Company’s long-lived assets, which primarily represent net property, plant and equipment, operating lease right-of-use assets and noncurrent other assets by geographic area were as follows:
| September 30, 2021 | June 30, 2021 | ||||||||||
| United States | $ | $ | |||||||||
| United Kingdom | |||||||||||
| All Other | |||||||||||
| Total | $ | $ | |||||||||
19. RELATED PARTY TRANSACTIONS
On April 15, 2021, the Company completed the divestiture of its North America non-dairy beverages brands, Dream® and WestSoy®, for $31,320 . The purchaser in this transaction was SunOpta Inc. (“SunOpta”). The non-employee chair of the Company's Board of Directors is also the chair of the board of SunOpta.
SunOpta is also one of the Company’s suppliers, for which the Company incurs expenses in the ordinary course of business. The Company incurred expenses of $220 and $4,810 in the three months ended September 30, 2021 and 2020, respectively, to the supplier and affiliated entities.
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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 thereto for the period ended September 30, 2021 contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. Forward looking statements in this Form 10-Q are qualified by the cautionary statement included in this Form 10-Q under the sub-heading “Forward-Looking Statements” in the introduction of this Form 10-Q.
Overview
The Hain Celestial Group, Inc., a Delaware corporation (collectively with its subsidiaries, the “Company,” “Hain Celestial,” “we,” “us” or “our”), was founded in 1993 and is headquartered in Lake Success, New York. The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet. The Company continues to be a leading marketer, manufacturer and seller of organic and natural, “better-for-you” products by anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience. The Company is committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 80 countries worldwide. The Company operates under two reportable segments: North America and International.
The Company manufactures, markets, distributes and sells organic and natural products under brand names 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 Celestial Seasonings®, Clarks™, Cully & Sully®, Earth’s Best®, Ella’s Kitchen®, Frank Cooper’s®, Gale's®, Garden of Eatin'®, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, Joya®, Lima®, Linda McCartney's® (under license), MaraNatha®, Natumi®, New Covent Garden Soup Co.®, Robertson’s®, Rose's® (under license), Sensible Portions®, Spectrum®, Sun-Pat®, Terra®, The Greek Gods®, Yorkshire Provender® and Yves Veggie Cuisine®. The Company’s personal care products are marketed under the Alba Botanica®, Avalon Organics®, JASON®, Live Clean®, and Queen Helene® brands.
Since fiscal 2019, we have been executing the four key pillars of our strategy—(1) simplify our portfolio; (2) strengthen our capabilities; (3) expand profit margins and cash flow; and (4) reinvigorate profitable top line growth—which we refer to as Hain 2.0. This strategy, which is on schedule to be completed ahead of our planned timeline, has laid the foundation for Hain 3.0, our vision and strategy for the next several years, which is about building a global healthy food and beverage company with industry-leading top line growth. We believe Hain 3.0 positions us as an advantaged and differentiated company, as compared to others in the food industry for several reasons:
•we are singularly focused on health and wellness,
•we are a global company in high-growth categories with opportunities for expansion in existing and new channels and geographies,
•we have unique and advantaged brands with strong points of difference, and
•given our size, small wins can drive material incremental growth.
We have re-segmented the brand portfolio with a more global view to where we have the most growth potential. As a result, we are migrating from a strategy focused on rejuvenating North America behind a construct of “Get Bigger" and "Get Better” brand categories to one that focuses on growing global brands in categories where we think we have the most potential. The categories we have identified are called Turbocharge Growth, Targeted Investment, and Fuel:
•The Turbocharge Growth brands are leading-share brands in very high-growth categories. The Turbocharge Growth brands are made up of plant-based meat and non-dairy beverages as well as snacks. Our meat and dairy alternatives are concentrated outside the United States, while the snacks businesses include brands both within the United States and in International.
•The Targeted Investment brands are made up of leading-share brands in lower-growth categories. To date, we have demonstrated our ability to drive market share and reinvigorate these categories, and we expect that we can continue to do this in the future. The Targeted Investment brands are made up of tea, baby, yogurt, and personal care. In contrast with Hain 2.0, baby is now one of our growth focus areas, due to its strong brands, scale, profitability, and growth prospects.
•The Fuel brands are stable brands that will be leveraged to fuel investment in the Turbocharge Growth and Targeted Investment categories. Fuel brands are made up of premium pantry brands with scale, in categories such as soup, cooking oils and nut butters.
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Additionally, as part of Hain 3.0, we will continue to simplify our brand portfolio as we continue to identify brands that are declining and have low margins. The Simplify brands are subscale declining businesses that have limited long-term potential for the Company, and therefore will be managed for profit until they are potentially divested, likely over the course of the next several years. Acquisitions are expected to play a role in Hain 3.0 and part of our capital allocation strategy is focused on actively looking for targets in the market. As we continue to simplify and stabilize the organization and consolidate sales into fewer priority categories, we are well-positioned and expect to make targeted acquisitions supported by our borrowing capacity to help us further strengthen our position in those categories.
COVID-19
The COVID-19 pandemic has resulted in a net increase in overall demand for our products. The impact was particularly pronounced during the early stages of the pandemic as consumers reacted to stay-at-home measures and the uncertainty of the pandemic. In particular, our net sales during the third quarter of fiscal 2020 through the second quarter of fiscal 2021 benefited from pandemic-driven demand. The pandemic-driven demand for our products has subsided as effective vaccines have become available, governments have eased safety measures and consumer purchasing behaviors have started to return to pre-pandemic norms. As a result, net sales were lower in the third and fourth quarters of fiscal 2021 compared to the third and fourth quarters of fiscal 2020, respectively. Further, net sales in the first quarter of fiscal 2022 were lower than our net sales during the first quarter of fiscal 2021 as a result of normalizing consumer demand, among other factors as described more fully below under the heading "Comparison of Three Months Ended September 30, 2021 to Three Months Ended September 30, 2020."
The pandemic and the measures being taken by governments, businesses and consumers to limit the spread of COVID-19 have led to operational challenges in our business and may result in broader and longer-term challenges and uncertainty that we will need to manage successfully. Such challenges include but are not limited to:
•manufacturing, supply chain and logistics challenges resulting from health and safety precautions among our employees and the general population as well as macroeconomic factors resulting from the pandemic, including labor market shortages;
•an uncertain future demand environment as a result of changing consumer behaviors amid uncertain economic conditions; and
•increased costs of operating our business and managing our supply chain during a global pandemic.
Discontinued Operations
On August 27, 2019, the Company and Ebro Foods S.A. (the “Purchaser”) entered into, and consummated the transactions contemplated by, an agreement relating to the sale and purchase of the entities comprising the Company’s Tilda operating segment and certain other assets.
The Company's dispositions are described in more detail in Note 5, Dispositions, in the Notes to the Consolidated Financial Statements in the Form 10-K.
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Comparison of Three Months Ended September 30, 2021 to Three Months Ended September 30, 2020
Consolidated Results
The following table compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the three months ended September 30, 2021 and 2020 (amounts in thousands, other than percentages, which may not add due to rounding):
| Three Months Ended | Change in | ||||||||||||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | Dollars | Percentage | ||||||||||||||||||||||||||||||||
| Net sales | $ | 454,903 | 100.0% | $ | 498,627 | 100.0% | $ | (43,724) | (8.8)% | ||||||||||||||||||||||||||
| Cost of sales | 349,485 | 76.8% | 379,463 | 76.1% | (29,978) | (7.9)% | |||||||||||||||||||||||||||||
| Gross profit | 105,418 | 23.2% | 119,164 | 23.9% | (13,746) | (11.5)% | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 73,989 | 16.3% | 79,521 | 15.9% | (5,532) | (7.0)% | |||||||||||||||||||||||||||||
| Amortization of acquired intangible assets | 2,095 | 0.5% | 2,433 | 0.5% | (338) | (13.9)% | |||||||||||||||||||||||||||||
| Productivity and transformation costs | 3,983 | 0.9% | 1,433 | 0.3% | 2,550 | 177.9% | |||||||||||||||||||||||||||||
| Proceeds from insurance claim | (196) | —% | — | —% | (196) | * | |||||||||||||||||||||||||||||
| Long-lived asset impairment | — | —% | 32,497 | 6.5% | (32,497) | (100.0)% | |||||||||||||||||||||||||||||
| Operating income | 25,547 | 5.6% | 3,280 | 0.7% | 22,267 | 678.9% | |||||||||||||||||||||||||||||
| Interest and other financing expense, net | 1,856 | 0.4% | 2,453 | 0.5% | (597) | (24.3)% | |||||||||||||||||||||||||||||
| Other income, net | (788) | (0.2)% | (1,373) | (0.3)% | 585 | (42.6)% | |||||||||||||||||||||||||||||
| Income from continuing operations before income taxes and equity in net loss of equity-method investees | 24,479 | 5.4% | 2,200 | 0.4% | 22,279 | 1,012.7% | |||||||||||||||||||||||||||||
| Provision for income taxes | 4,542 | 1.0% | 12,962 | 2.6% | (8,420) | (65.0)% | |||||||||||||||||||||||||||||
| Equity in net loss of equity-method investees | 526 | —% | 19 | —% | 507 | 2,668.4% | |||||||||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | 19,411 | 4.3% | $ | (10,781) | (2.2)% | $ | 30,192 | * | ||||||||||||||||||||||||||
| Net income from discontinued operations, net of tax | — | —% | 11,266 | 2.3% | (11,266) | (100.0)% | |||||||||||||||||||||||||||||
| Net income | $ | 19,411 | 4.3% | $ | 485 | 0.1% | $ | 18,926 | 3,902.3% | ||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 47,316 | 10.4% | $ | 54,895 | 11.0% | $ | (7,579) | (13.8)% | ||||||||||||||||||||||||||
| Diluted net income (loss) per common share from continuing operations | $ | 0.20 | $ | (0.11) | $ | 0.31 | * | ||||||||||||||||||||||||||||
| Diluted net income per common share from discontinued operations | — | 0.11 | (0.11) | (100.0)% | |||||||||||||||||||||||||||||||
| Diluted net income per common share | $ | 0.20 | $ | — | $ | 0.20 | 100.0% | ||||||||||||||||||||||||||||
* Percentage is not meaningful due to a comparison of a positive figure and a negative figure.
Net Sales
Net sales for the three months ended September 30, 2021 were $454.9 million, a decrease of $43.7 million, or 8.8%, as compared to $498.6 million in the three months ended September 30, 2020. On a constant currency basis, adjusted for the impact of divestitures and discontinued brands, net sales decreased approximately $0.6 million and 0.1% from the prior year quarter driven by the North America reportable segment. Further details of changes in net sales by segment are provided below in the Segment Results section.
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Gross Profit
Gross profit for the three months ended September 30, 2021 was $105.4 million, a decrease of $13.7 million, or 11.5%, as compared to the prior year quarter. Gross profit margin was 23.2% of net sales, compared to 23.9% in the prior year quarter. The gross profit decrease was driven primarily by our North America reportable segment, and mostly by the United States operating segment, as a result of lower net sales when compared with the prior year period as well as higher delivery and warehouse expenses. The decrease in the North America reportable segment was offset in part by an increase in the International reportable segment, due to the performance of the two UK operating segments. The Ella's Kitchen UK operating segment had higher net sales than the prior year quarter due to COVID-driven consumer demand issues in the prior year period which negatively impacted prior year net sales as well as lower cost of sales in the current year due to cost savings, partially offset by higher delivery and warehouse expense in the current year. The other UK operating segment, Hain United Kingdom, delivered improved gross margins versus prior year driven by the implementation of productivity initiatives and the divestiture of the low gross margin fruit business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $74.0 million for the three months ended September 30, 2021, a decrease of $5.5 million, or 7.0%, from $79.5 million for the prior year quarter. The decrease occurred primarily in the United States and Europe operating segments. The decrease in the United States operating segment was primarily due to lower marketing expenses in the current year. The decrease in the Europe operating segment was due to lower broker commissions.
Amortization of Acquired Intangible Assets
Amortization of acquired intangibles was $2.1 million for the three months ended September 30, 2021, a decrease of $0.3 million from $2.4 million in the prior year quarter due to prior year dispositions that occurred in the later part of fiscal 2021.
Productivity and Transformation Costs
Productivity and transformation costs were $4.0 million for the three months ended September 30, 2021, an increase of $2.6 million from $1.4 million in the prior year quarter. The increase was primarily due to a $1.6 million increase related to costs incurred for consulting fees related to supply chain optimization and other productivity and transformation initiatives.
Long-lived Asset Impairment
During the three months ended September 30, 2020, the Company recognized a pre-tax impairment charge of $32.5 million related to the reserve recorded against the assets of the Company's United Kingdom fruit business (see Note 4, Dispositions, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q). There was no impairment charge recorded in the corresponding period in the three months ended September 30, 2021.
Operating Income
Operating income for the three months ended September 30, 2021 was $25.5 million compared to $3.3 million in the prior year quarter as a result of the items described above.
Interest and Other Financing Expense, Net
Interest and other financing expense, net totaled $1.9 million for the three months ended September 30, 2021, a decrease of $0.6 million, or 24.3%, from $2.5 million in the prior year quarter. The decrease resulted primarily from lower variable interest rates applied to borrowings outstanding under our revolving credit facility. See Note 9, Debt and Borrowings, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Other Income, Net
Other income, net totaled $0.8 million for the three months ended September 30, 2021, compared to $1.4 million in the prior year quarter. The change was primarily attributable to a lower gain on sale of business and higher realized foreign currency losses in the current year.
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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 September 30, 2021 was $24.5 million compared to $2.2 million in the prior year quarter. The increase was due to the items discussed above.
Provision for Income Taxes
The provision for income taxes includes federal, foreign, state and local income taxes. Our income tax expense from continuing operations was $4.5 million for the three months ended September 30, 2021 compared to an income tax expense of $13.0 million in the prior year quarter.
The effective income tax rate from continuing operations was expense of 18.6% and 589.2% for the three months ended September 30, 2021 and 2020, respectively. Lower effective income tax rate relative to our statutory tax rates for the current quarter is mainly due to the reversal of uncertain tax position accruals based on filing and approval of certain elections by the tax authorities. In addition, the effective income tax rates from continuing operations for the three months ended September 30, 2021 and 2020 were negatively impacted by provisions in the Tax Cuts and Jobs Act (the "Tax Act"), primarily related to Global Intangible Low Taxed Income ("GILTI") and limitations on the deductibility of executive compensation. Furthermore, the effective income tax rate from continuing operations for the three months ended September 30, 2020 was negatively impacted by various discrete items including the tax impact of the United Kingdom fruit business reserve, the legal entity reorganization, and the UK rate change. The effective income tax rates in each period were also impacted by the geographical mix of earnings and state valuation allowance.
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 of Equity-Method Investees
Our equity in net loss from our equity-method investments for the three months ended September 30, 2021 was $0.5 million and less than $0.1 million in the prior year quarter. See Note 13, Investments, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Net Income (Loss) from Continuing Operations
Net income from continuing operations for the three months ended September 30, 2021 was $19.4 million, or $0.20 per diluted share, compared to net loss of $10.8 million, or $0.11 per diluted share, for the three months ended September 30, 2020. The change to income from loss was attributable to the factors noted above.
Net Income from Discontinued Operations, Net of Tax
Net income from discontinued operations, net of tax, for the three months ended September 30, 2020 was $11.3 million, or $0.11 per diluted share.
During the three months ended September 30, 2020, the Company recognized a $11.3 million adjustment to the Tilda business primarily related to the recognition of a deferred tax benefit.
See Note 4, Dispositions, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for further discussion.
Net Income
Net income for the three months ended September 30, 2021 was $19.4 million, or $0.20 per diluted share, compared to $0.5 million, or $0.00 per diluted share, in the prior year quarter. The change was attributable to the factors noted above.
Adjusted EBITDA
Our Adjusted EBITDA was $47.3 million and $54.9 million for the three months ended September 30, 2021 and 2020, 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.
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Segment Results
The following table provides a summary of net sales and operating income by reportable segment for the three months ended September 30, 2021 and 2020:
| (dollars in thousands) | North America | International | Corporate and Other | Consolidated | |||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| Three months ended 9/30/21 | $ | 265,525 | $ | 189,378 | $ | — | $ | 454,903 | |||||||||||||||
| Three months ended 9/30/20 | 280,668 | 217,959 | — | 498,627 | |||||||||||||||||||
| $ change | $ | (15,143) | $ | (28,581) | n/a | $ | (43,724) | ||||||||||||||||
| % change | (5.4) | % | (13.1) | % | n/a | (8.8) | % | ||||||||||||||||
| Operating income (loss) | |||||||||||||||||||||||
| Three months ended 9/30/21 | $ | 16,842 | $ | 24,069 | $ | (15,364) | $ | 25,547 | |||||||||||||||
| Three months ended 9/30/20 | 33,256 | (15,889) | (14,087) | 3,280 | |||||||||||||||||||
| $ change | $ | (16,414) | $ | 39,958 | $ | (1,277) | $ | 22,267 | |||||||||||||||
| % change | (49.4) | % | * | (9.1) | % | 678.9 | % | ||||||||||||||||
| Operating income (loss) margin | |||||||||||||||||||||||
| Three months ended 9/30/21 | 6.3 | % | 12.7 | % | n/a | 5.6 | % | ||||||||||||||||
| Three months ended 9/30/20 | 11.8 | % | (7.3) | % | n/a | 0.7 | % | ||||||||||||||||
* Percentage is not meaningful due to a comparison of a positive figure and a negative figure.
North America
Our net sales in the North America reportable segment for the three months ended September 30, 2021 were $265.5 million, a decrease of $15.1 million, or 5.4%, from net sales of $280.7 million in the prior year quarter. On a constant currency basis, adjusted for the impact of divestitures and discontinued brands, net sales decreased 1.3%. In the United States operating segment sales decreased due to sales normalization in the current year, given last year's COVID impact which positively impacted prior year sales, offset in part by stronger sales in tea, baby food and certain snack products in the current year. In the Canada operating segment sales decreased primarily due to lower hand sanitizer sales in the current year. Operating income in North America for the three months ended September 30, 2021 was $16.8 million, a decrease of $16.4 million from $33.3 million in the prior year quarter. The decrease was driven by lower sales in the current year when compared with the prior year period and higher cost of goods sold largely because of an increase in delivery and warehouse expenses, partially offset by lower selling, general and administrative expenses.
International
Our net sales in the International reportable segment for the three months ended September 30, 2021 were $189.4 million, a decrease of $28.6 million, or 13.1%, from net sales of $218.0 million in the prior year quarter. On a constant currency basis, adjusted for the impact of divestitures and discontinued brands, net sales increased 1.6% from the prior year quarter due to the performance of the two UK operating segments. Ella's Kitchen UK benefited from improved demand given the COVID impact on baby food consumption in the prior year. Hain United Kingdom benefited from higher soup sales versus prior year. Operating income in our International reportable segment for the three months ended September 30, 2021 was $24.1 million, an increase of $40.0 million from operating loss of $15.9 million for the three months ended September 30, 2020. The increase reflects lower costs in the current year from productivity initiatives and non-recurring impairment charges associated with the fruit business impairment that was recognized in the prior year.
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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. Our operating loss in Corporate and Other for the three months ended September 30, 2021 was $15.4 million, an increase of $1.3 million, from operating loss of $14.1 million for the three months ended September 30, 2020. This change was primarily related to productivity and transformation costs included in Corporate and Other of $2.1 million for the three months ended September 30, 2021, an increase of $1.3 million from $0.8 million for the three months ended September 30, 2020 primarily due to higher consulting costs.
Refer to Note 18, Segment Information, in the Notes to the Consolidated Financial Statements included in Part I, 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 Amended Credit Agreement. We believe that our cash flows from operations and borrowing capacity under our Amended Credit Agreement will be adequate to meet anticipated operating and other expenditures for the foreseeable future.
Our cash and cash equivalents balance decreased $46.9 million at September 30, 2021 to $29.0 million as compared to $75.9 million at June 30, 2021. Our working capital from continuing operations was $232.3 million at September 30, 2021, a decrease of $52.4 million from $284.7 million at the end of fiscal 2021 as we continued to reduce product inventories. Additionally, our long-term debt increased $114.9 million at September 30, 2021 to $345.4 million as compared to $230.5 million at June 30, 2021 as a result of $120.0 million of additional borrowings to support the share repurchases carried out in the quarter offset by $5.0 million of repayments. As of September 30, 2021, $648.6 million was available under the Amended Credit Agreement as compared with $763.6 million as of June 30, 2021, and the Company was in compliance with all associated covenants.
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, Middle East and India. As of September 30, 2021, substantially all of the total cash balance from continuing operations was held outside of the United States. It is our current intent to indefinitely reinvest our remaining foreign earnings outside the United States.
We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of September 30, 2021, 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.
| Three Months Ended September 30, | Change in | ||||||||||||||||
| (amounts in thousands) | 2021 | 2020 | Dollars | ||||||||||||||
| Cash flows provided by (used in): | |||||||||||||||||
| Operating activities from continuing operations | $ | 37,586 | $ | 40,669 | $ | (3,083) | |||||||||||
| Investing activities from continuing operations | (18,054) | (7,728) | (10,326) | ||||||||||||||
| Financing activities from continuing operations | (63,515) | (35,959) | (27,556) | ||||||||||||||
| Effect of exchange rate changes on cash from continuing operations | (2,926) | 2,500 | (5,426) | ||||||||||||||
| Net decrease in cash and cash equivalents | $ | (46,909) | $ | (518) | $ | (46,391) | |||||||||||
Cash provided by operating activities from continuing operations was $37.6 million for the three months ended September 30, 2021, a decrease of $3.1 million from cash provided by operating activities from continuing operations of $40.7 million in the prior year period. This decrease versus the prior period resulted primarily from a reduction of $5.7 million in lower net income adjusted for non-cash charges netted by higher cash generation of $2.6 million from our working capital accounts.
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Cash used in investing activities from continuing operations was $18.1 million for the three months ended September 30, 2021, an increase of $10.3 million from $7.7 million in the prior year period primarily due to increased capital expenditures.
Cash used in financing activities from continuing operations was $63.5 million for the three months ended September 30, 2021, an increase of $27.6 million compared to $36.0 million of cash used in the prior year period and the increase is primarily due to share repurchases.
Operating Free Cash Flow from Continuing Operations
Our operating free cash flow from continuing operations was $19.8 million for the three months ended September 30, 2021, a decrease of $8.7 million from $28.5 million in the three months ended September 30, 2020. This decrease versus prior year resulted from a decrease in cash flow from operations of $3.1 million driven by the reasons explained above and higher capital expenditures of $5.7 million. See the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures following the discussion of our results of operations for definitions and a reconciliation from our net cash provided by operating activities from continuing operations to operating free cash flow from continuing operations.
Share Repurchase Program
In June 2017 and August 2021, the Company's Board of Directors authorized the repurchase of up to $250 million and $300 million of the Company’s issued and outstanding common stock, respectively. Share repurchases under the 2021 authorization commenced in August 2021, after the 2017 authorization was fully utilized. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The authorization does not have a stated expiration date. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations. During the three months ended September 30, 2021, the Company repurchased 4.525 million shares under the repurchase program for a total of $175.6 million, excluding commissions, at an average price of $38.80 per share. As of September 30, 2021, the Company had $206.8 million of remaining authorization under the share repurchase program. During the three months ended September 30, 2020, the Company repurchased 1.281 million shares under the repurchase program for a total of $42.0 million, excluding commissions, at an average price of $32.81 per share.
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 believe the non-U.S. GAAP measure provides useful information to investors and any additional purposes for which our management and Board of Directors use 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.
Constant Currency Presentation
We believe that this measure provides useful information to investors because it provides transparency to underlying performance in our consolidated net sales by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given the volatility in foreign currency exchange markets. To present this information for historical periods, current period net sales for entities reporting in currencies other than the U.S. 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.
Divestitures and Discontinued Brands
We also exclude the impact of divestitures and discontinued brands when comparing net sales to prior periods, which results in the presentation of certain non-U.S. GAAP financial measures. The Company's management believes that excluding the impact of divestitures and discontinued brands when presenting period-over-period results of net sales aids in comparability.
A reconciliation between reported and constant currency net sales increase (decrease) is as follows:
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| (amounts in thousands) | North America | International | Hain Consolidated | ||||||||||||||
| Net sales - Three months ended September 30, 2021 | $ | 265,525 | $ | 189,378 | $ | 454,903 | |||||||||||
| Divestitures and discontinued brands | (178) | — | (178) | ||||||||||||||
| Impact of foreign currency exchange | (1,719) | (8,269) | (9,988) | ||||||||||||||
| Net sales on a constant currency basis adjusted for divestitures and discontinued brands - Three months ended September 30, 2021 | $ | 263,628 | $ | 181,109 | $ | 444,737 | |||||||||||
| Net sales - Three months ended September 30, 2020 | $ | 280,668 | $ | 217,959 | $ | 498,627 | |||||||||||
| Divestitures and discontinued brands | (13,621) | (39,630) | (53,251) | ||||||||||||||
| Net sales adjusted for divestitures and discontinued brands | $ | 267,047 | $ | 178,329 | $ | 445,376 | |||||||||||
| Net sales decline | (5.4) | % | (13.1) | % | (8.8) | % | |||||||||||
| Impact of divestitures and discontinued brands | 4.7 | % | 18.5 | % | 10.7 | % | |||||||||||
| Impact of foreign currency exchange | (0.6) | % | (3.8) | % | (2.0) | % | |||||||||||
| Net sales (decline) growth on a constant currency basis adjusted for divestitures and discontinued brands | (1.3) | % | 1.6 | % | (0.1) | % | |||||||||||
Adjusted EBITDA
Adjusted EBITDA is defined as net income (loss) before income taxes, net interest expense, depreciation and amortization, impairment charges, equity in net loss of equity-method investees, stock-based compensation, restructuring activities, litigation and related expenses, acquisitions and divestitures, unrealized currency gains and losses and other adjustments. 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.
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A reconciliation of net income (loss) to Adjusted EBITDA is as follows:
| Three Months Ended September 30, | |||||||||||
| (amounts in thousands) | 2021 | 2020 | |||||||||
| Net income | $ | 19,411 | $ | 485 | |||||||
| Net income from discontinued operations | — | 11,266 | |||||||||
| Net income (loss) from continuing operations | 19,411 | (10,781) | |||||||||
| Depreciation and amortization | 10,855 | 13,761 | |||||||||
| Equity in net loss of equity-method investees | 526 | 19 | |||||||||
| Interest expense, net | 1,146 | 2,154 | |||||||||
| Provision for income taxes | 4,542 | 12,962 | |||||||||
| Stock-based compensation | 4,287 | 4,367 | |||||||||
| Unrealized currency gains | (1,023) | (1,202) | |||||||||
| Litigation & related costs | |||||||||||
| Litigation expenses | 1,956 | — | |||||||||
| Proceeds from insurance claim | (196) | — | |||||||||
| Restructuring activities | |||||||||||
| Plant closure related costs | 996 | (6) | |||||||||
| Productivity and transformation costs | 3,204 | 781 | |||||||||
| Warehouse/manufacturing consolidation and other costs | 2,289 | 390 | |||||||||
| Acquisitions & divestitures | |||||||||||
| Acquisitions & divestitures transaction costs, net | (231) | 369 | |||||||||
| Gain on sale of assets | (446) | — | |||||||||
| Gain on sale of businesses | — | (620) | |||||||||
| Impairment charges | |||||||||||
| SKU rationalization and inventory write-down | — | 204 | |||||||||
| Long-lived asset impairment | — | 32,497 | |||||||||
| Adjusted EBITDA | $ | 47,316 | $ | 54,895 | |||||||
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 purchases of property, plant and equipment (capital spending). 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.
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A reconciliation from Cash flow provided by operating activities from continuing operations to Operating Free Cash flow from continuing operations is as follows:
| Three Months Ended September 30, | |||||||||||
| (amounts in thousands) | 2021 | 2020 | |||||||||
| Cash flow provided by operating activities from continuing operations | $ | 37,586 | $ | 40,669 | |||||||
| Purchases of property, plant and equipment | (17,810) | (12,155) | |||||||||
| Operating Free Cash Flow from continuing operations | $ | 19,776 | $ | 28,514 | |||||||
Off Balance Sheet Arrangements
At September 30, 2021, 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 chargeback receivable, 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 Part II, 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, 2021.
Recent Accounting Pronouncements
Refer to Note 2, Basis of Presentation, in the Notes to the 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, hot-eating desserts and soup sales are stronger in colder months, while sales of snack foods, sunscreen and certain of our personal care products are stronger in the warmer months. As such, our results of operations and our cash flows for any particular quarter are not indicative of the results we expect for the full year, and our historical seasonality may not be indicative of future quarterly results of operations. In recent years, net sales and diluted earnings per share in the first fiscal quarter have typically been the lowest of our four quarters.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes in market risk from those addressed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 during the three months ended September 30, 2021. 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, 2021.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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, our CEO and CFO have concluded that the disclosure controls and procedures were effective as of September 30, 2021.
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
There were no changes in our internal controls over financial reporting that occurred during the three months ended September 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information called for by this item is incorporated herein by reference to Note 17, Commitments and Contingencies, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Item 1A. Risk Factors
There have been no material changes from the discussion of the material factors that make an investment in the Company speculative or risky contained in the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2021, filed with the SEC on August 26, 2021.
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.
| Period | (a) Total number of shares purchased (1) | (b) Average price paid per share | (c) Total number of shares purchased as part of publicly announced plans | (d) Maximum number of shares that may yet be purchased under the plans (in millions of dollars) (2) | |||||||||||||||||||
| July 1, 2021 - July 31, 2021 | 1,366,202 | $ | 39.69 | 1,366,202 | $ | 28.2 | |||||||||||||||||
| August 1, 2021 - August 31, 2021 | 915,378 | 38.22 | 891,346 | $ | 294.2 | ||||||||||||||||||
| September 1, 2021 - September 30, 2021 | 2,272,554 | 38.53 | 2,267,949 | $ | 206.8 | ||||||||||||||||||
| Total | 4,554,134 | $ | 38.81 | 4,525,497 | |||||||||||||||||||
(1) Includes shares surrendered for payment of employee payroll taxes due on shares issued under stock-based compensation plans and shares repurchased under share repurchase programs approved by the Board of Directors. See (2) below for further details.
(2) In June 2017 and August 2021, the Company’s Board of Directors authorized the repurchase of up to $250 million and $300 million of the Company’s issued and outstanding common stock, respectively. Share repurchases under the 2021 authorization commenced in August 2021, after the 2017 authorization was fully utilized. 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. During the three months ended September 30, 2021, the Company repurchased 4,525 shares pursuant to the repurchase program for a total of $175.6 million, excluding commissions, at an average price of $38.80 per share. As of September 30, 2021, the Company had $206.8 million of remaining authorization under the share repurchase program.
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Item 6. Exhibits
Exhibit Number | Description | |||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
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.
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SIGNATURES
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.
| THE HAIN CELESTIAL GROUP, INC. | ||||||||
| (Registrant) | ||||||||
| Date: | November 9, 2021 | /s/ Mark L. Schiller | ||||||
| Mark L. Schiller, President and Chief Executive Officer | ||||||||
| Date: | November 9, 2021 | /s/ Javier H. Idrovo | ||||||
Javier H. Idrovo, Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||||
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