Document
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________ 
FORM 10-Q
___________________________________________ 
(Mark One)
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019
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
___________________________________________ 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12894058&doc=18
THE HAIN CELESTIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
___________________________________________ 
 
 
 
Delaware
 
22-3240619
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
1111 Marcus Avenue
Lake Success, New York
 
11042
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (516) 587-5000
___________________________________________ 


Table of Contents



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     
Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
 
Accelerated filer
¨
 
 
 
 
 
 
 
 
 
Non-accelerated filer
¨
 
Smaller reporting company
¨
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨    No  ý

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $.01 per share
 
HAIN
 
The NASDAQ® Global Select Market


As of April 30, 2019, there were 104,149,062 shares outstanding of the registrant’s Common Stock, par value $.01 per share.


Table of Contents


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

Table of Contents


Cautionary Note Regarding Forward Looking Information

This Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (the “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections about future events only as of the date of this Quarterly Report on Form 10-Q, and are not statements of historical fact. We make such forward-looking statements pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

Many of our forward-looking statements include discussions of trends and anticipated developments under the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Quarterly Report on Form 10-Q. In some cases, you can identify forward-looking statements by terminology such as the use of “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” and similar expressions, or the negative of those expressions. These forward-looking statements include, among other things, our beliefs or expectations relating to our business strategy, growth strategy, market price, brand portfolio and product performance, the seasonality of our business, our results of operations and financial condition, enhancing internal controls and remediating material weaknesses. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict. Therefore, our actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. We undertake no obligation to further update any such statement to reflect new information, the occurrence of future events or circumstances or otherwise.

The forward-looking statements in this filing do not constitute guarantees or promises of future performance. Factors that could cause or contribute to such differences may include, but are not limited to, the impact of competitive products, changes to the competitive environment, changes to consumer preferences, consolidation of customers, reliance on independent distributors, general economic and financial market conditions, risks associated with our international sales and operations, including “Brexit”, our ability to manage our supply chain effectively, changes in raw materials, freight, commodity costs and fuel, our ability to execute and realize cost savings initiatives, including, but not limited to, cost reduction initiatives under Project Terra and stock-keeping unit (“SKU”) rationalization plans, the identification and remediation of material weaknesses in our internal controls over financial reporting, our ability to manage our financial reporting and internal control system processes, potential liabilities due to legal claims, government investigations and other regulatory enforcement actions, costs incurred due to pending and future litigation, the availability of key personnel and changes in management team, potential liability if our products cause illness or physical harm, impairments in the carrying value of goodwill or other intangible assets, our ability to identify and complete acquisitions or divestitures and integrate acquisitions, the availability of organic and natural ingredients, the reputation of our brands, risks relating to the protection of intellectual property, cybersecurity risks, unanticipated expenditures and other risks described in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018 under the heading “Risk Factors” and Part II, Item 1A, “Risk Factors” set forth herein, as well as in other reports that we file in the future.




2

Table of Contents


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2019 AND JUNE 30, 2018
(In thousands, except par values)
 
March 31,
 
June 30,
 
2019
 
2018
ASSETS
(Unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
27,562

 
$
106,557

Restricted cash
34,452

 

Accounts receivable, less allowance for doubtful accounts of $405 and $1,828, respectively
256,799

 
252,708

Inventories
395,246

 
391,525

Prepaid expenses and other current assets
54,786

 
59,946

Current assets of discontinued operations
136,181

 
240,851

Total current assets
905,026

 
1,051,587

Property, plant and equipment, net
331,070

 
310,172

Goodwill
1,016,863

 
1,024,136

Trademarks and other intangible assets, net
475,582

 
510,387

Investments and joint ventures
19,228

 
20,725

Other assets
30,502

 
29,667

Total assets
$
2,778,271

 
$
2,946,674

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
205,014

 
$
229,993

Accrued expenses and other current liabilities
176,400

 
116,001

Current portion of long-term debt
22,522

 
26,605

Current liabilities of discontinued operations
15,195

 
49,846

Total current liabilities
419,131

 
422,445

Long-term debt, less current portion
729,201

 
687,501

Deferred income taxes
63,619

 
86,909

Other noncurrent liabilities
16,528

 
12,770

Total liabilities
1,228,479

 
1,209,625

Commitments and contingencies (Note 16)

 

Stockholders’ equity:
 
 
 
Preferred stock - $.01 par value, authorized 5,000 shares; issued and outstanding: none

 

Common stock - $.01 par value, authorized 150,000 shares; issued: 108,713 and 108,422 shares, respectively; outstanding: 104,121 and 103,952 shares, respectively
1,087

 
1,084

Additional paid-in capital
1,154,182

 
1,148,196

Retained earnings
708,568

 
878,516

Accumulated other comprehensive loss
(204,467
)
 
(184,240
)
 
1,659,370

 
1,843,556

Less: Treasury stock, at cost, 4,592 and 4,470 shares, respectively
(109,578
)
 
(106,507
)
Total stockholders’ equity
1,549,792

 
1,737,049

Total liabilities and stockholders’ equity
$
2,778,271

 
$
2,946,674

See notes to consolidated financial statements.

3

Table of Contents


THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2019 AND 2018
(In thousands, except per share amounts) 
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2019

2018
 
2019

2018
Net sales
$
599,797


$
632,720


$
1,744,786


$
1,838,171

Cost of sales
474,528


499,707


1,405,650


1,447,820

Gross profit
125,269

 
133,013

 
339,136

 
390,351

Selling, general and administrative expenses
87,739


86,063


255,383


258,586

Amortization of acquired intangibles
3,802


4,713


11,567


13,859

Project Terra costs and other
9,408


4,831


29,613


13,750

Chief Executive Officer Succession Plan expense, net
455

 

 
30,156

 

Accounting review and remediation costs, net of insurance proceeds


3,313


4,334


6,406

Long-lived asset and intangibles impairment


4,839


23,709


8,290

Operating income (loss)
23,865

 
29,254

 
(15,626
)
 
89,460

Interest and other financing expense, net
9,390


6,782


25,912


19,543

Other expense/(income), net
1,068

 
(1,560
)
 
2,041

 
(5,447
)
Income (loss) from continuing operations before income taxes and equity in net loss (income) of equity-method investees
13,407

 
24,032

 
(43,579
)
 
75,364

Provision (benefit) for income taxes
3,114


(1,310
)

(1,679
)

(11,516
)
Equity in net loss (income) of equity-method investees
205


101


391


(104
)
Net income (loss) from continuing operations
$
10,088

 
$
25,241

 
$
(42,291
)
 
$
86,984

Net loss from discontinued operations, net of tax
(75,925
)
 
(12,555
)
 
(127,472
)
 
(7,349
)
Net (loss) income
$
(65,837
)
 
$
12,686

 
$
(169,763
)
 
$
79,635

 
 
 
 
 
 
 
 
Net (loss) income per common share:
 
 
 
 
 
 
 
Basic net income (loss) per common share from continuing operations
$
0.10

 
$
0.24

 
$
(0.41
)
 
$
0.84

Basic net loss per common share from discontinued operations
(0.73
)
 
(0.12
)
 
(1.23
)
 
(0.07
)
Basic net (loss) income per common share
$
(0.63
)
 
$
0.12

 
$
(1.63
)
 
$
0.77

 
 
 
 
 
 
 
 
Diluted net income (loss) per common share from continuing operations
$
0.10

 
$
0.24

 
$
(0.41
)
 
$
0.83

Diluted net loss per common share from discontinued operations
(0.73
)
 
(0.12
)
 
(1.23
)
 
(0.07
)
Diluted net (loss) income per common share
$
(0.63
)
 
$
0.12

 
$
(1.63
)
 
$
0.76

 
 
 
 
 
 
 
 
Shares used in the calculation of net (loss) income per common share:
 
 
 
 
 
 
 
Basic
104,117


103,918


104,045


103,821

Diluted
104,334


104,503


104,045


104,473

See notes to consolidated financial statements.


4

Table of Contents


THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2019 AND 2018
(In thousands)
 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
Pre-tax
amount
 
Tax (expense) benefit
 
After-tax amount
 
Pre-tax
amount
 
Tax (expense) benefit
 
After-tax amount
Net (loss) income
 
 
 
 
$
(65,837
)
 
 
 
 
 
$
12,686

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
20,934

 
$

 
20,934

 
$
37,868

 
$

 
37,868

Change in deferred (losses) gains on cash flow hedging instruments
(52
)
 
10

 
(42
)
 

 

 

Change in unrealized losses on equity investment

 

 

 
(68
)
 
(33
)
 
(101
)
Total other comprehensive income (loss)
$
20,882

 
$
10

 
$
20,892

 
$
37,800

 
$
(33
)
 
$
37,767

 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive (loss) income
 
 
 
 
$
(44,945
)
 
 
 
 
 
$
50,453

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
March 31, 2019
 
March 31, 2018
 
Pre-tax
amount
 
Tax (expense) benefit
 
After-tax amount
 
Pre-tax
amount
 
Tax (expense) benefit
 
After-tax amount
Net (loss) income
 
 
 
 
$
(169,763
)
 
 
 
 
 
$
79,635

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(20,533
)
 
$

 
(20,533
)
 
$
80,065

 
$

 
80,065

Change in deferred (losses) gains on cash flow hedging instruments
(52
)
 
10

 
(42
)
 
(82
)
 
15

 
(67
)
Change in unrealized losses on equity investment

 

 

 
(70
)
 
(33
)
 
(103
)
Total other comprehensive (loss) income
$
(20,585
)
 
$
10

 
$
(20,575
)
 
$
79,913

 
$
(18
)
 
$
79,895

 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive (loss) income
 
 
 
 
$
(190,338
)
 
 
 
 
 
$
159,530

 
 
 
 
 
 
 
 
 
 
 
 
See notes to consolidated financial statements.

5

Table of Contents


THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2019
(In thousands, except par values)

 
Common Stock
 
Additional
 
 
 
 
 
 
 
Accumulated
Other
 
 
 
 
 
Amount
 
Paid-in
 
Retained
 
Treasury Stock
 
Comprehensive
 
 
 
Shares
 
at $.01
 
Capital
 
Earnings
 
Shares
 
Amount
 
(Loss) Income
 
Total
Balance at June 30, 2018
108,422

 
$
1,084

 
$
1,148,196

 
$
878,516

 
4,470

 
$
(106,507
)
 
$
(184,240
)
 
$
1,737,049

Net loss
 
 
 
 
 
 
(37,425
)
 
 
 
 
 
 
 
(37,425
)
Cumulative effect of adoption of ASU 2016-01
 
 
 
 
 
 
(348
)
 
 
 
 
 
348

 

Cumulative effect of adoption of ASU 2014-09
 
 
 
 
 
 
163

 
 
 
 
 
 
 
163

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
(13,519
)
 
(13,519
)
Issuance of common stock pursuant to stock-based compensation plans
85

 
1

 
(1
)
 
 
 
 
 
 
 
 
 

Shares withheld for payment of employee payroll taxes due on shares issued under stock-based compensation plans
 
 
 
 
 
 
 
 
35

 
(979
)
 
 
 
(979
)
Stock-based compensation expense
 
 
 
 
135

 
 
 
 
 
 
 
 
 
135

Balance at September 30, 2018
108,507

 
$
1,085

 
$
1,148,330

 
$
840,906

 
4,505

 
$
(107,486
)
 
$
(197,411
)
 
$
1,685,424

Net loss
 
 
 
 
 
 
(66,501
)
 
 
 
 
 
 
 
(66,501
)
Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
(27,948
)
 
(27,948
)
Issuance of common stock pursuant to stock-based compensation plans
184

 
2

 
(2
)
 
 
 
 
 
 
 
 
 

Shares withheld for payment of employee payroll taxes due on shares issued under stock-based compensation plans
 
 
 
 
 
 
 
 
79

 
(1,943
)
 
 
 
(1,943
)
Stock-based compensation expense
 
 
 
 
1,911

 
 
 
 
 
 
 
 
 
1,911

Balance at December 31, 2018
108,691

 
$
1,087

 
$
1,150,239

 
$
774,405

 
4,584

 
$
(109,429
)
 
$
(225,359
)
 
$
1,590,943

Net loss
 
 
 
 
 
 
(65,837
)
 
 
 
 
 
 
 
(65,837
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
20,892

 
20,892

Issuance of common stock pursuant to stock-based compensation plans
22

 

 

 
 
 
 
 
 
 
 
 

Shares withheld for payment of employee payroll taxes due on shares issued under stock-based compensation plans
 
 
 
 
 
 
 
 
8

 
(149
)
 
 
 
(149
)
Stock-based compensation expense
 
 
 
 
3,943

 
 
 
 
 
 
 
 
 
3,943

Balance at March 31, 2019
108,713

 
$
1,087

 
$
1,154,182

 
$
708,568

 
4,592

 
$
(109,578
)
 
$
(204,467
)
 
$
1,549,792

See notes to consolidated financial statements.


6

Table of Contents


THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2018
(In thousands, except par values)
 
Common Stock
 
Additional
 
 
 
 
 
 
 
Accumulated
Other
 
 
 
 
 
Amount
 
Paid-in
 
Retained
 
Treasury Stock
 
Comprehensive
 
 
 
Shares
 
at $.01
 
Capital
 
Earnings
 
Shares
 
Amount
 
(Loss) Income
 
Total
Balance at June 30, 2017
107,989

 
$
1,080

 
$
1,137,724

 
$
868,822

 
4,287

 
$
(99,315
)
 
$
(195,479
)
 
$
1,712,832

Net income
 
 
 
 
 
 
19,846

 
 
 
 
 
 
 
19,846

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
33,787

 
33,787

Issuance of common stock pursuant to stock-based compensation plans
98

 
1

 
(1
)
 
 
 
 
 
 
 
 
 

Shares withheld for payment of employee payroll taxes due on shares issued under stock-based compensation plans
 
 
 
 
 
 
 
 
52

 
(2,098
)
 
 
 
(2,098
)
Stock-based compensation expense
 
 
 
 
3,164

 
 
 
 
 
 
 
 
 
3,164

Balance at September 30, 2017
108,087

 
$
1,081

 
$
1,140,887

 
$
888,668

 
4,339

 
$
(101,413
)
 
$
(161,692
)
 
$
1,767,531

Net income
 
 
 
 
 
 
47,103

 
 
 
 
 
 
 
47,103

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
8,341

 
8,341

Issuance of common stock pursuant to stock-based compensation plans
284

 
3

 
(3
)
 
 
 
 
 
 
 
 
 

Shares withheld for payment of employee payroll taxes due on shares issued under stock-based compensation plans
 
 
 
 
 
 
 
 
114

 
(4,587
)
 
 
 
(4,587
)
Stock-based compensation expense
 
 
 
 
4,158

 
 
 
 
 
 
 
 
 
4,158

Balance at December 31, 2017
108,371

 
$
1,084

 
$
1,145,042

 
$
935,771

 
4,453

 
$
(106,000
)
 
$
(153,351
)
 
$
1,822,546

Net income
 
 
 
 
 
 
12,686

 
 
 
 
 
 
 
12,686

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
37,767

 
37,767

Issuance of common stock pursuant to stock-based compensation plans
12

 

 

 
 
 
 
 
 
 
 
 

Shares withheld for payment of employee payroll taxes due on shares issued under stock-based compensation plans
 
 
 
 
 
 
 
 
5

 
(168
)
 
 
 
(168
)
Stock-based compensation expense
 
 
 
 
2,936

 
 
 
 
 
 
 
 
 
2,936

Balance at March 31, 2018
108,383

 
$
1,084

 
$
1,147,978

 
$
948,457

 
4,458

 
$
(106,168
)
 
$
(115,584
)
 
$
1,875,767

See notes to consolidated financial statements.

7

Table of Contents


THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 2019 AND 2018
(In thousands)
 
Nine Months Ended March 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net (loss) income
$
(169,763
)
 
$
79,635

Net loss from discontinued operations
(127,472
)
 
(7,349
)
Net (loss) income from continuing operations
(42,291
)
 
86,984

Adjustments to reconcile net (loss) income from continuing operations to net cash provided by operating activities from continuing operations:
 
 
 
Depreciation and amortization
42,074

 
45,139

Deferred income taxes
(24,653
)
 
(30,115
)
Chief Executive Officer Succession Plan expense, net
29,727

 

Equity in net loss (income) of equity-method investees
391

 
(104
)
Stock-based compensation, net
5,931

 
10,258

Long-lived asset and intangibles impairment
23,709

 
8,290

Other non-cash items, net
3,703

 
(2,025
)
Increase (decrease) in cash attributable to changes in operating assets and liabilities:
 
 
 
Accounts receivable
(8,824
)
 
(23,998
)
Inventories
(7,176
)
 
(43,355
)
Other current assets
315

 
(8,153
)
Other assets and liabilities
5,248

 
5,367

Accounts payable and accrued expenses
(16,111
)
 
19,082

Net cash provided by operating activities - continuing operations
12,043

 
67,370

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Purchases of property and equipment
(55,892
)
 
(48,368
)
Acquisitions of businesses, net of cash acquired

 
(13,064
)
Other
3,863

 
124

Net cash used in investing activities - continuing operations
(52,029
)
 
(61,308
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Borrowings under bank revolving credit facility
240,000

 
45,000

Repayments under bank revolving credit facility
(186,791
)
 
(355,185
)
Borrowings under term loan

 
299,245

Repayments under term loan
(11,250
)
 

Funding of discontinued operations entities
(37,451
)
 
(17,167
)
(Repayments) borrowings of other debt, net
(4,770
)
 
3,111

Shares withheld for payment of employee payroll taxes
(3,071
)
 
(6,853
)
Net cash used in financing activities - continuing operations
(3,333
)
 
(31,849
)
Effect of exchange rate changes on cash
(1,225
)
 
5,884

CASH FLOWS FROM DISCONTINUED OPERATIONS
 
 
 
Cash used in operating activities
(7,339
)
 
(11,783
)
Cash used in investing activities
(32,742
)
 
(8,531
)
Cash provided by financing activities
37,299

 
17,011

Net cash flows used in discontinued operations
(2,782
)
 
(3,303
)
Net decrease in cash and cash equivalents and restricted cash
(47,326
)
 
(23,206
)
Cash and cash equivalents at beginning of period
113,018

 
146,992

Cash and cash equivalents and restricted cash at end of period
$
65,692

 
$
123,786

Less: cash and cash equivalents of discontinued operations
(3,678
)
 
(6,634
)
Cash and cash equivalents and restricted cash of continuing operations at end of period
$
62,014

 
$
117,152

See notes to consolidated financial statements.

8

Table of Contents


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, along with its subsidiaries, the “Company,” and herein referred to as “Hain Celestial,” “we,” “us” and “our”), was founded in 1993 and is headquartered in Lake Success, New York. The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet — To Create and Inspire A Healthier Way of LifeTM and be the leading marketer, manufacturer and seller of organic and natural, “better-for-you” products by anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience. The Company is committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores in over 80 countries worldwide.

The Company manufactures, markets, distributes and sells organic and natural products under brand names that are sold as “better-for-you” products, providing consumers with the opportunity to lead A Healthier Way of Life™.  Hain Celestial is a leader in many organic and natural products categories, with many recognized brands in the various market categories it serves, including Almond Dream®, Arrowhead Mills®, Bearitos®, Better Bean®, BluePrint®, Casbah®, Celestial Seasonings®, Clarks™, Coconut Dream®, Cully & Sully®, Danival®, DeBoles®, Earth’s Best®, Ella’s Kitchen®, Europe’s Best®, Farmhouse Fare™, Frank Cooper’s®, Gale’s®, Garden of Eatin’®, GG UniqueFiber®, Hain Pure Foods®, Hartley’s®, Health Valley®, Imagine®, Johnson’s Juice Co.™, Joya®, Lima®, Linda McCartney® (under license), MaraNatha®, Mary Berry (under license), Natumi®, New Covent Garden Soup Co.®, Orchard House®, Rice Dream®, Robertson’s®, Rudi’s Gluten-Free Bakery™, Rudi’s Organic Bakery®, Sensible Portions®, Spectrum® Organics, Soy Dream®, Sun-Pat®, Sunripe®, SunSpire®, Terra®, The Greek Gods®, Tilda®, Walnut Acres®, Yorkshire Provender®, Yves Veggie Cuisine®and William’s™. The Company’s personal care products are marketed under the Alba Botanica®, Avalon Organics®, Earth’s Best®, JASON®, Live Clean® and Queen Helene® brands.

2.    BASIS OF PRESENTATION

The Company’s unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP. The amounts as of and for the periods ended June 30, 2018 are derived from the Company’s audited annual financial statements. The unaudited consolidated financial statements reflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair presentation for interim periods. Operating results for the three and nine months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019. Please refer to the Notes to the Consolidated Financial Statements as of June 30, 2018 and for the fiscal year then ended included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018 (the “Form 10-K”) for information not included in these condensed notes.

The Company is presenting the operating results and cash flows of the Hain Pure Protein reportable segment within discontinued operations in the current and prior periods. The assets and liabilities of the Hain Pure Protein reportable segment are presented as assets and liabilities of discontinued operations in the Consolidated Balance Sheets for all periods presented.

All amounts in the unaudited consolidated financial statements, notes and tables have been rounded to the nearest thousand, except par values and per share amounts, unless otherwise indicated.


9

Table of Contents


Newly Adopted Accounting Pronouncements

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). This guidance outlines a single, comprehensive model for accounting for revenue from contracts with customers, providing a single five-step model to be applied to all revenue transactions. The guidance also requires improved disclosures to assist users of the financial statements to better understand the nature, amount, timing and uncertainty of revenue that is recognized. Subsequent to the issuance of ASU 2014-09, the FASB issued various additional ASUs clarifying and amending this new revenue guidance. The Company adopted the new revenue standard on July 1, 2018 using the modified retrospective transition method. The adoption did not materially impact our results of operations or financial position, and, as a result, comparisons of revenues and operating profit between periods were not materially affected by the adoption of ASU 2014-09. The Company recorded a net increase to beginning retained earnings of $163 on July 1, 2018 due to the cumulative impact of adopting ASU 2014-09. Additionally, as our products exhibit similar economic characteristics, are sold through similar channels to similar customers and are recognized at a point in time, we have concluded that the Company’s segment disclosures in Note 17, Segment Information, are indicative of the level of revenue disaggregation required under ASU 2014-09.

ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10)
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The pronouncement also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. We adopted ASU 2016‑01 in the three months ended September 30, 2018, which resulted in a net decrease to beginning retained earnings of $348 on July 1, 2018, representing the accumulated unrealized losses (net of tax) reported in accumulated other comprehensive income (loss) for available-for-sale equity securities on June 30, 2018. We no longer classify equity investments as trading or available-for-sale and will no longer recognize unrealized holding gains and losses on equity securities previously classified as available-for-sale in other comprehensive income (loss) as a result of adoption of ASU 2016-01.

Recently Issued Accounting Pronouncements Not Yet Effective

In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842). The amendments in this ASU replace most of the existing U.S. GAAP lease accounting guidance in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The ASU requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB approved amendments to create an optional transition method that will provide an option to use the effective date of ASC 842 as the date of initial application of the transition. Under the new transition method, a reporting entity would initially apply the new lease requirements at the effective date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, continue to report comparative periods presented in the financial statements in the period of adoption in accordance with current U.S. GAAP (i.e., ASC 840, Leases) and provide the required disclosures under ASC 840 for all periods presented under current U.S. GAAP. We will adopt the standard effective July 1, 2019.

As part of the Company’s assessment work to-date, the Company has formed an implementation work team to perform a comprehensive evaluation of the impact of the adoption of this guidance, which includes assessing the Company’s lease portfolio, the impact to business processes and internal controls over financial reporting and the related disclosure requirements. Additionally, the Company is implementing lease accounting software to assist in the quantification of the expected impact on the Consolidated Balance Sheet and to facilitate the calculations of the related accounting entries and disclosures, as well as to facilitate accounting, presentation and disclosure for all leases after the initial date of application under the new standard.

While the Company is continuing to assess all potential impacts of the standard, the most significant impact relates to the recognition of new right-of-use assets and lease liabilities on the balance sheet for manufacturing, warehouse and office space operating leases. We believe that all of these leases will continue to be classified as operating leases under the new standard. We expect the accounting for capital leases to remain substantially unchanged.

Refer to Note 2, Summary of Significant Accounting Policies and Practices, in the Notes to the Consolidated Financial Statements as of June 30, 2018 and for the fiscal year then ended included in the Form 10-K for a detailed discussion on additional recently

10

Table of Contents


issued accounting pronouncements not yet adopted by the Company. There has been no change to the statements made in the Form 10-K as of the date of filing of this Form 10-Q.

3.    CHIEF EXECUTIVE OFFICER SUCCESSION PLAN

On June 24, 2018, the Company entered into a Chief Executive Officer (“CEO”) Succession Agreement (the “Succession Agreement”), whereby the Company’s former CEO, Irwin D. Simon, agreed to terminate his employment with the Company upon the hiring of a new CEO.

On October 26, 2018, the Company’s Board of Directors appointed Mark L. Schiller as President and CEO, succeeding Mr. Simon. In connection with the appointment, on October 26, 2018, the Company and Mr. Schiller entered into an employment agreement, which was approved by the Board, with Mr. Schiller’s employment commencing on November 5, 2018. Accordingly, Mr. Simon’s employment with the Company terminated on November 4, 2018.

Cash Separation Payments

The Succession Agreement provides Mr. Simon with a cash separation payment of $34,295 payable in a single lump sum and cash benefit continuation costs of $208. These costs were recognized from June 24, 2018 through November 4, 2018. Expense recognized in connection with the agreement was $33,051 in the nine months ended March 31, 2019, and are included in the Consolidated Statement of Operations as a component of “Chief Executive Officer Succession Plan expense, net.” As of March 31, 2019, the total cash separation payment was held in a rabbi trust, which has been classified as restricted cash and included in accrued expenses and other current liabilities in the Consolidated Balance Sheet. The cash separation payment was paid on May 6, 2019.

Consulting Agreement

On October 26, 2018, the Company and Mr. Simon entered into a Consulting Agreement (the “Consulting Agreement”) in order to, among other things, assist Mr. Schiller with his transition as the Company’s incoming CEO. The term of the Consulting Agreement commenced on November 5, 2018 and continued until February 5, 2019. Mr. Simon was entitled to receive an aggregate consulting fee of $975 as compensation for his services during the consulting term, of which $325 and $975 was recognized in the Consolidated Statement of Operations as a component of “Chief Executive Officer Succession Plan expense, net” in the three and nine months ended March 31, 2019, respectively.

4.    EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted net (loss) income per share:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2019

2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
10,088

 
$
25,241

 
$
(42,291
)
 
$
86,984

Net loss from discontinued operations, net of tax
(75,925
)
 
(12,555
)
 
(127,472
)
 
(7,349
)
Net (loss) income
$
(65,837
)
 
$
12,686

 
$
(169,763
)
 
$
79,635

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Basic weighted average shares outstanding
104,117

 
103,918

 
104,045

 
103,821

Effect of dilutive stock options, unvested restricted stock and unvested restricted share units
217

 
585

 

 
652

Diluted weighted average shares outstanding
104,334

 
104,503

 
104,045

 
104,473

 
 
 
 
 
 
 
 
Basic net (loss) income per common share:
 
 
 
 
 
 
 
Continuing operations
$
0.10

 
$
0.24

 
$
(0.41
)
 
$
0.84

Discontinued operations
(0.73
)
 
(0.12
)
 
(1.23
)
 
(0.07
)
Basic net (loss) income per common share
$
(0.63
)
 
$
0.12

 
$
(1.63
)
 
$
0.77

 
 
 
 
 
 
 
 
Diluted net (loss) income per common share:
 
 
 
 
 
 
 
Continuing operations
$
0.10

 
$
0.24

 
$
(0.41
)
 
$
0.83

Discontinued operations
(0.73
)
 
(0.12
)
 
(1.23
)
 
(0.07
)
Diluted net (loss) income per common share
$
(0.63
)
 
$
0.12

 
$
(1.63
)
 
$
0.76


Basic net (loss) income per share excludes the dilutive effects of stock options, unvested restricted stock and unvested restricted share units.

Due to our net loss in the nine months ended March 31, 2019, all common stock equivalents such as stock options and unvested restricted stock awards have been excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive to the computations.  Diluted earnings per share for the three months ended March 31, 2019 and the three and nine months ended March 31, 2018 includes the dilutive effects of common stock equivalents such as stock options and unvested restricted stock awards.

11

Table of Contents


 
There were 3,071 and 3,117 stock-based awards excluded from our diluted net (loss) income per share calculations for the three and nine months ended March 31, 2019, respectively, as such awards were contingently issuable based on market or performance conditions, and such conditions had not been achieved during the respective periods. Contingently issuable awards excluded were 559 for each of the three and nine months ended March 31, 2018, respectively.

There were 273 and 621 restricted stock awards excluded from our diluted net (loss) income per share calculation for the three and nine months ended March 31, 2019, as such awards were anti-dilutive. Anti-dilutive restricted stock awards excluded from our diluted earnings per share calculation for the three and nine months ended March 31, 2018 were de minimis.

There were 110 potential shares of common stock issuable upon exercise of stock options excluded from our diluted net loss per share calculation for the nine months ended March 31, 2019, as they were anti-dilutive due to the net loss recorded in the period. No such awards were excluded for the three months ended March 31, 2019 and the three and nine months ended March 31, 2018.

Share Repurchase Program

On June 21, 2017, the Company's Board of Directors authorized the repurchase of up to $250,000 of the Company’s issued and outstanding common stock. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The authorization does not have a stated expiration date. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations, including the Company’s historical strategy of pursuing accretive acquisitions. As of March 31, 2019, the Company had not repurchased any shares under this program and had $250,000 of remaining capacity under the share repurchase program.

5. DISCONTINUED OPERATIONS

In March 2018, the Company’s Board of Directors approved a plan to sell all of the operations of the Hain Pure Protein Corporation (“HPPC”) and EK Holdings, Inc. (“Empire”) operating segments, which were reported in the aggregate as the Hain Pure Protein reportable segment. Collectively, these planned dispositions represent a strategic shift that will have a major impact on the Company’s operations and financial results and have been accounted for as discontinued operations.
The Company is presenting the operating results and cash flows of Hain Pure Protein within discontinued operations in the current and prior periods. The assets and liabilities of Hain Pure Protein are presented as assets and liabilities of discontinued operations in the Consolidated Balance Sheets for all periods presented.
Sale of Plainville Farms Business

On February 15, 2019, the Company completed the sale of substantially all of the assets used primarily for the Plainville Farms business (a component of HPPC), which included $25,000 in cash to the purchaser, for a nominal purchase price. In addition, the purchaser assumed the current liabilities on the balance sheet of the Plainville Farms business as of the closing date. As a condition to consummating the sale, the Company entered into a Contingent Funding and Earnout Agreement, which provides for the issuance by the Company of an irrevocable stand-by letter of credit of $10,000 which expires nineteen months after issuance. The Company is entitled to receive an earnout not to exceed, in the aggregate, 120% of the maximum amount that the purchaser draws on the letter of credit at any point from the date of issuance through the expiration of the letter of credit. Earnout payments are based on a specified percentage of annual free cash flow achieved for all fiscal years ending on or prior to June 30, 2026. If a change in control of the purchaser occurs prior to June 30, 2026, the purchaser will pay the Company 120% of the difference between the amount drawn on the letter of credit less the sum of all earnout payments made prior to such time up to the net proceeds received by the purchaser. At March 31, 2019, the Company had not recorded an asset associated with the earnout. As a result of the disposition, the Company recognized a pre-tax loss on sale of $40,223, or $29,685 net of tax, in the three months ended March 31, 2019 to write down the assets and liabilities to the final sales price less costs to sell.

On May 8, 2019, the Company entered into a definitive agreement to sell all of its equity interest in Hain Pure Protein Corporation, which includes the FreeBird™ and Empire® Kosher businesses, for a purchase price of $80,000, subject to adjustments. The transaction is expected to close before June 30, 2019, the end of the Company's fiscal year.


12

Table of Contents


The following table presents the major classes of Hain Pure Protein’s line items constituting the “Net loss from discontinued operations, net of tax” in our Consolidated Statements of Operations:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
Net sales
$
88,729

 
$
118,198

 
$
349,449

 
$
396,227

Cost of sales
88,277

 
113,629

 
356,073

 
373,122

Gross profit (loss)
452

 
4,569

 
(6,624
)
 
23,105

Selling, general and administrative expense
4,039

 
5,888

 
13,031

 
14,458

Asset impairments (1)
51,348

 

 
109,252

 

Other expense
2,182

 
805

 
7,377

 
3,258

Loss on sale of discontinued operations
40,223

 

 
40,223

 

Net (loss) income from discontinued operations before income taxes
(97,340
)
 
(2,124
)
 
(176,507
)
 
5,389

(Benefit) provision for income taxes
(21,415
)
 
10,431

 
(49,035
)
 
12,738

Net loss from discontinued operations, net of tax
$
(75,925
)
 
$
(12,555
)
 
$
(127,472
)
 
$
(7,349
)

Assets and liabilities of discontinued operations presented in the Consolidated Balance Sheets as of March 31, 2019 and June 30, 2018 are included in the following table:
 
March 31,
 
June 30,
ASSETS
2019
 
2018
Cash and cash equivalents
$
3,678

 
$
6,461

Accounts receivable, less allowance for doubtful accounts
11,680

 
21,616

Inventories
31,600

 
105,359

Prepaid expenses and other current assets
1,906

 
5,604

Property, plant and equipment, net
49,537

 
83,776

Goodwill
41,089

 
41,089

Trademarks and other intangible assets, net
33,762

 
51,029

Other assets
2,636

 
4,381

Deferred tax assets (2)
37,925

 

Impairments of long-lived assets held for sale(1)
(77,632
)
 
(78,464
)
Current assets of discontinued operations(3)
$
136,181

 
$
240,851

 
 
 
 
LIABILITIES
 
 
 
Accounts payable
$
11,211

 
$
31,762

Accrued expenses and other current liabilities
3,914

 
6,880

Deferred tax liabilities (2)

 
11,111

Other noncurrent liabilities
70

 
93

Current liabilities of discontinued operations(3)
$
15,195

 
$
49,846


(1) In the nine months ended March 31, 2019 the Company recorded asset impairment charges of $109,252, of which $51,348 was recorded in the third quarter of fiscal 2019 to adjust the carrying value of the Hain Pure Protein reportable segment to its estimated selling price.

(2) The change in deferred taxes from June 30, 2018 to March 31, 2019 was the result of the reversal of the $12,250 deferred tax liability previously recorded related to Hain Pure Protein being classified as held for sale. In addition, deferred taxes were impacted by the tax effect of current period book losses as well as the deferred tax benefit arising from asset impairment charges.

(3) The assets and liabilities of Hain Pure Protein are classified as current on the March 31, 2019 and June 30, 2018 Consolidated Balance Sheets because it is probable that the sale will occur within the three months ended June 30, 2019.

13

Table of Contents



6.    ACQUISITIONS

The Company accounts for acquisitions in accordance with ASC 805, Business Combinations. The results of operations of the acquisitions have been included in the consolidated results from their respective dates of acquisition. The purchase price of each acquisition is allocated to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. Acquisitions may include contingent consideration, the fair value of which is estimated on the acquisition date as the present value of the expected contingent payments, determined using weighted probabilities of possible payments. The fair values assigned to identifiable intangible assets acquired were determined primarily by using an income approach which was based on assumptions and estimates made by management. Significant assumptions utilized in the income approach were based on Company-specific information and projections which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance. The excess of the purchase price over the fair value of the identified assets and liabilities has been recorded as goodwill.

The costs related to all acquisitions have been expensed as incurred and are included in “Project Terra costs and other” in the Consolidated Statements of Operations. Acquisition-related costs for the three and nine months ended March 31, 2019 were de minimis. Acquisition-related costs of $8 and $336 were expensed in the three and nine months ended March 31, 2018, respectively. The expenses incurred primarily related to professional fees and other transaction-related costs associated with our recent acquisitions.

Fiscal 2019

There were no acquisitions completed in the nine months ended March 31, 2019.

Fiscal 2018

On December 1, 2017, the Company acquired Clarks UK Limited, (“Clarks”), a leading maple syrup and natural sweetener brand in the United Kingdom. Clarks produces natural sweeteners under the ClarksTM brand, including maple syrup, honey and carob, date and agave syrups, which are sold in leading retailers and used by food service and industrial customers in the United Kingdom. Consideration for the transaction, inclusive of a subsequent working capital adjustment, consisted of cash, net of cash acquired, totaling £9,179 (approximately $12,368 at the transaction date exchange rate). Additionally, contingent consideration of up to a maximum of £1,500 is payable based on the achievement of specified operating results over the 18-month period following completion of the acquisition. Clarks is included in our United Kingdom operating segment. Net sales and income before income taxes attributable to the Clarks acquisition included in our consolidated results represented less than 1% of our consolidated results for the three and nine months ended March 31, 2019 and 2018.


7.    INVENTORIES

Inventories consisted of the following:
 
March 31,
2019
 
June 30,
2018
Finished goods
$
235,232

 
$
231,926

Raw materials, work-in-progress and packaging
160,014

 
159,599

 
$
395,246

 
$
391,525




14

Table of Contents


8.    PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following:
 
March 31,
2019
 
June 30,
2018
Land
$
28,049

 
$
28,378

Buildings and improvements
95,604

 
83,289

Machinery and equipment
315,574

 
323,348

Computer hardware and software
56,168

 
54,092

Furniture and fixtures
18,624

 
17,894

Leasehold improvements
31,269

 
31,519

Construction in progress
30,556

 
17,280

 
575,844

 
555,800

Less: Accumulated depreciation and amortization
244,774

 
245,628

 
$
331,070

 
$
310,172


Depreciation and amortization expense for the three months ended March 31, 2019 and 2018 was $8,110 and $8,212, respectively. Such expense for the nine months ended March 31, 2019 and 2018 was $24,294 and $24,580, respectively.

In the nine months ended March 31, 2019, the Company recorded $5,809 of non-cash impairment charges primarily related to the Company’s decision to consolidate manufacturing of certain fruit-based products in the United Kingdom.

There were no impairment charges recorded in the three months ended March 31, 2019.

9.    GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table shows the changes in the carrying amount of goodwill by business segment:
 
United States
 
United Kingdom
 
Rest of World
 
Total
Balance as of June 30, 2018 (a)
$
552,814

 
$
377,163

 
$
94,159

 
$
1,024,136

  Translation and other adjustments, net

 
(5,203
)
 
(2,070
)
 
(7,273
)
Balance as of March 31, 2019 (a)
$
552,814

 
$
371,960

 
$
92,089

 
$
1,016,863


(a) The total carrying value of goodwill is reflected net of $134,277 of accumulated impairment charges, of which $97,358 related to the Company’s United Kingdom operating segment, $29,219 related to the Company’s Europe operating segment and $7,700 related to the Company’s Hain Ventures operating segment (formerly known as the Cultivate operating segment).

Beginning in the third quarter of fiscal 2018, operations of Hain Pure Protein have been classified as discontinued operations as discussed in Note 5, Discontinued Operations. Therefore, goodwill associated with Hain Pure Protein is presented as current assets of discontinued operations in the Consolidated Financial Statements.

The Company performs its annual test for goodwill and indefinite-lived intangible asset impairment as of the first day of the fourth quarter of its fiscal year. In addition, if and when events or circumstances change that would more likely than not reduce the fair value of any of its reporting units or indefinite-life intangible assets below their carrying value, an interim test is performed.
During the three months ended December 31, 2018, the Company updated the forecasted operating results for each of its reporting units based on the most recent financial results. The updated forecasts reflected lower projected short-term revenue growth and profitability than previously expected, primarily in its United States segment. In connection with the preparation of the Consolidated Financial Statements for the period ended December 31, 2018, the Company assessed qualitative and quantitative factors, which included sensitivity analyses, and concluded that it is more likely than not that the fair value of its reporting units exceeded its carrying amount. 

15

Table of Contents


There were no events or circumstances that warranted an interim impairment test for goodwill during the three months ended March 31, 2019. The Company will continue to monitor impairment indicators and financial results in future periods.

Other Intangible Assets

The following table sets forth Consolidated Balance Sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:
 
March 31,
2019
 
June 30,
2018
Non-amortized intangible assets:
 
 
 
Trademarks and tradenames (a)
$
364,068

 
$
385,609

Amortized intangible assets:
 
 
 
Other intangibles
236,333

 
239,323

Less: accumulated amortization
(124,819
)
 
(114,545
)
Net carrying amount
$
475,582

 
$
510,387


(a) The gross carrying value of trademarks and tradenames is reflected net of $83,734 and $65,834 of accumulated impairment charges at March 31, 2019 and at June 30, 2018, respectively.

Indefinite-lived intangible assets, which are not amortized, consist primarily of acquired tradenames and trademarks. Indefinite-lived intangible assets are evaluated on an annual basis in conjunction with the Company’s evaluation of goodwill, or on an interim basis if and when events or circumstances change that would more likely than not reduce the fair value of any of its indefinite-life intangible assets below their carrying value. In assessing fair value, the Company utilizes a “relief from royalty” methodology. This approach involves two steps: (i) estimating the royalty rates for each trademark and (ii) applying these royalty rates to a projected net sales stream and discounting the resulting cash flows to determine fair value. If the carrying value of the indefinite-lived intangible asset exceeds the fair value of the asset, the carrying value is written down to fair value in the period identified. During the three months ended December 31, 2018, the Company determined that an indicator of impairment existed in certain of the Company’s indefinite-lived tradenames. The result of this assessment for the second quarter of fiscal 2019 indicated that the fair value of certain of the Company’s tradenames was below their carrying value, and therefore an impairment charge of $17,900 was recognized ($11,300 in the United States segment, $2,787 in the United Kingdom segment and $3,813 in the Rest of World). During the fiscal year ended June 30, 2018, an impairment charge of $5,632 ($5,100 in the Rest of World and $532 in the United Kingdom segment) related to certain of the Company’s tradenames was recognized.
There were no events or circumstances that warranted an interim impairment test for indefinite-lived intangible assets during the three months ended March 31, 2019.

Amortized intangible assets, which are deemed to have a finite life, primarily consist of customer relationships and are amortized over their estimated useful lives of 3 to 25 years. Amortization expense included in continuing operations was as follows:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
Amortization of acquired intangibles
$
3,802

 
$
4,713

 
$
11,567

 
$
13,859



16

Table of Contents


10.    DEBT AND BORROWINGS

Debt and borrowings consisted of the following:
 
March 31,
2019
 
June 30,
2018
Revolving credit facility
$
455,206

 
$
401,852

Term loan
285,000

 
296,250

Less: Unamortized issuance costs
(579
)
 
(692
)
Tilda short-term borrowing arrangements
6,654

 
9,338

Other borrowings
5,442

 
7,358

 
751,723

 
714,106

Short-term borrowings and current portion of long-term debt
22,522

 
26,605

Long-term debt, less current portion
$
729,201

 
$
687,501


Credit Agreement

On February 6, 2018, the Company entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for a $1,000,000 revolving credit facility through February 6, 2023 and provides for a $300,000 term loan. Under the Credit Agreement, the revolving credit facility may be increased by an additional uncommitted $400,000, provided certain conditions are met.

Borrowings under the Credit Agreement may be used to provide working capital, finance capital expenditures and permitted acquisitions, refinance certain existing indebtedness and for other lawful corporate purposes. The Credit Agreement provides for multicurrency borrowings in Euros, Pounds Sterling and Canadian Dollars as well as other currencies which may be designated. In addition, certain wholly-owned foreign subsidiaries of the Company may be designated as co-borrowers. The Credit Agreement contains restrictive covenants, which are usual and customary for facilities of its type, and include, with specified exceptions, limitations on the Company’s ability to engage in certain business activities, incur debt, have liens, make capital expenditures, pay dividends or make other distributions, enter into affiliate transactions, consolidate, merge or acquire or dispose of assets, and make certain investments, acquisitions and loans. The Credit Agreement also requires the Company to satisfy certain financial covenants. On the date the Credit Agreement was consummated, these covenants included maintaining a consolidated interest coverage ratio (as defined in the Credit Agreement) of no less than 4.0 to 1.0 and a consolidated leverage ratio (as defined in the Credit Agreement) of no more than 3.5 to 1.0. The consolidated leverage ratio was initially subject to a step-up to 4.0 to 1.0 for the four full fiscal quarters following an acquisition. Obligations under the Credit Agreement are guaranteed by certain existing and future domestic subsidiaries of the Company. As of March 31, 2019, there were $455,206 and $285,000 of borrowings outstanding under the revolving credit facility and term loan, respectively, and $16,224 letters of credit outstanding under the Credit Agreement.

On November 7, 2018, the Company amended the Credit Agreement to modify the calculation of the consolidated leverage ratio related to costs associated with CEO succession as well as the Project Terra cost reduction programs.

On February 6, 2019, the Company entered into an amendment to the Credit Agreement, whereby its allowable consolidated leverage ratio increased to no more than 4.0 to 1.0 as of December 31, 2018 and no more than 3.75 to 1.0 as of March 31, 2019 and June 30, 2019. Under the terms of the February 6, 2019 amendment, the consolidated leverage ratio would return to 3.5 to 1.0 beginning in the period ending September 30, 2019.

On May 8, 2019, the Company entered into the Third Amendment to the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), whereby, among other things, its allowable consolidated leverage ratio increased to no more than 5.0 to 1.0 from March 31, 2019 to December 31, 2019, no more than 4.75 to 1.0 at March 31, 2020, no more than 4.25 to 1.0 at June 30, 2020 and no more than 4.0 to 1.0 on September 30, 2020 and thereafter. The allowable consolidated leverage ratio for each period will be decreased by 0.25 upon sale of the Company’s remaining Hain Pure Protein business. Additionally, the Company’s required consolidated interest coverage ratio (as defined in the Credit Agreement) was reduced to no less than 3.0 to 1 through March 31, 2020, no less than 3.75 to 1 through March 31, 2021 and no less than 4.0 to 1 thereafter. As part of the Amended Credit Agreement, HPPC was released from its obligations as a borrower and a guarantor under the Credit Agreement.

The Amended Credit Agreement also required that the Company and the subsidiary guarantors enter into a Security and Pledge Agreement pursuant to which all of the obligations under the Amended Credit Agreement are secured by liens on assets of the

17

Table of Contents


Company and its material domestic subsidiaries, including stock of each of their direct subsidiaries and intellectual property, subject to agreed upon exceptions.

As of March 31, 2019, $528,570 is available under the Amended Credit Agreement, and the Company was in compliance with all associated covenants, as amended by the Amended Credit Agreement.

The Amended Credit Agreement provides that loans will bear interest at rates based on (a) the Eurocurrency Rate, as defined in the Credit Agreement, plus a rate ranging from 0.875% to 2.50% per annum; or (b) the Base Rate, as defined in the Credit Agreement, plus a rate ranging from 0.00% to 1.50% per annum, the relevant rate being the Applicable Rate. The Applicable Rate will be determined in accordance with a leverage-based pricing grid, as set forth in the Amended Credit Agreement.  Swing line loans and Global Swing Line loans denominated in U.S. dollars will bear interest at the Base Rate plus the Applicable Rate, and Global Swing Line loans denominated in foreign currencies shall bear interest based on the overnight Eurocurrency Rate for loans denominated in such currency plus the Applicable Rate. The weighted average interest rate on outstanding borrowings under the Amended Credit Agreement at March 31, 2019 was 4.30%. Additionally, the Amended Credit Agreement contains a Commitment Fee, as defined in the Amended Credit Agreement, on the amount unused under the Amended Credit Agreement ranging from 0.20% to 0.45% per annum, and such Commitment Fee is determined in accordance with a leverage-based pricing grid.

The term loan has required installment payments due on the last day of each fiscal quarter commencing June 30, 2018 in an amount equal to $3,750 and can be prepaid in whole or in part without premium or penalty.

Tilda Short-Term Borrowing Arrangements

Tilda, a component of our United Kingdom reportable segment, maintains short-term borrowing arrangements primarily used to fund the purchase of rice from India and other countries. The maximum borrowings permitted under all such arrangements are £52,000. Outstanding borrowings are collateralized by the current assets of Tilda, typically have six-month terms and bear interest at variable rates typically based on LIBOR plus a margin (weighted average interest rate of approximately 3.27% at March 31, 2019). As of March 31, 2019 and June 30, 2018, there were $6,654 and $9,338 of borrowings under these arrangements, respectively.


11.    INCOME TAXES

In general, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. In the first quarter of fiscal 2019, the Company used an estimated annual effective tax rate to calculate its provision for income taxes. For the quarters ended March 31, 2019 and December 31, 2018, the Company calculated its effective tax rate on a discrete basis due to significant variations in the relationship between tax expense and projected pre-tax income. The Company’s effective tax rate may change from period-to-period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes and tax audit settlements.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation pursuant to the Tax Cuts and Jobs Act (the “Tax Act”), which significantly revised the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from 35% to 21%, implementing a territorial tax system, imposing a one-time tax on foreign unremitted earnings and setting limitations on deductibility of certain costs (e.g., interest expense and executive compensation), among other things.

Due to the complexities involved in accounting for the Tax Act, the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 118 required that the Company include in its financial statements a reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined. Pursuant to SAB 118, the Company was allowed a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. As of December 31, 2018, the Company finalized its accounting for the income tax effects of the Tax Act and recorded an additional expense of $8,205 related to its transition tax liability. The net increase in the transition tax was due to the finalization of the Company’s earnings and profits study for our foreign subsidiaries. The adjustment of the Company’s provisional tax expense was recorded as a change in estimate in accordance with SAB No. 118. Despite the completion of the Company’s accounting for the Tax Act under SAB 118, many aspects of the law remain unclear, and we expect ongoing guidance to be issued at both the federal and state levels. There was no new guidance issued in the third quarter of fiscal 2019 that impacted the Company’s liability. The Company will continue to monitor and assess the impact of any new developments.

The Tax Act also includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries. The FASB Staff Q&A Topic No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election either to recognize deferred taxes for temporary differences that are expected to reverse as GILTI in future years or provide

18

Table of Contents


for the tax expense related to GILTI resulting from those items in the year the tax is incurred. We have elected to recognize the resulting tax on GILTI as a period expense in the period the tax is incurred. We have computed the impact on our effective tax rate on a discrete basis.

The effective income tax rate from continuing operations was expense of 23.2% and a benefit of 5.5% for the three months ended March 31, 2019 and March 31, 2018, respectively. The effective income tax rate from continuing operations was a benefit of 3.9% and 15.3% for the nine months ended March 31, 2019 and March 31, 2018, respectively. The effective income tax rate from continuing operations for the three and nine months ended March 31, 2019 was impacted by provisions in the Tax Act including GILTI, finalization of the transition tax liability, and limitations on the deductibility of executive compensation. The effective income tax rate was also impacted by the geographical mix of earnings and state taxes. The effective rate for the three and nine months ended March 31, 2018 was primarily impacted by the enactment of the Tax Act on December 22, 2017, specifically the revalue of net deferred tax liabilities to the enacted 21% tax rate, repealing the deduction for domestic production activities, inclusion of the transition tax liability estimate and deductibility of executive officers’ compensation. The effective income tax rate from continuing operations for the three and nine months ended March 31, 2018 was also favorably impacted by the geographical mix of earnings, as well as a $3,754 benefit relating to the release of the Company’s domestic uncertain tax position as a result of the expiration of the statute of limitations.

The income tax benefit from discontinued operations was $21,415 and $49,035 for the three and nine months ended March 31, 2019, while the income tax expense from discontinued operations was $10,431 and $12,738 for the three and nine months ended March 31, 2018. The benefit for income taxes for the nine months ended March 31, 2019 includes the reversal of the $12,250 deferred tax liability previously recorded related to Hain Pure Protein being classified as held for sale. In addition, the three and nine month tax benefit is impacted by the tax effect of current period book losses including the loss on the sale of Plainville Farms assets in the third quarter of fiscal 2019 as well as the deferred tax benefit arising from asset impairment charges.
                                                                                                                                                                                                                                                                                                              
12.     ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in accumulated other comprehensive income (loss):
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications (1)
$
20,934

 
$
37,868

 
$
(20,533
)
 
$
80,065

Deferred (losses)/gains on cash flow hedging instruments:
 
 
 
 
 
 
 
Other comprehensive (loss) income before reclassifications
(42
)
 

 
(42
)
 
39

Amounts reclassified into income (2)

 

 

 
(106
)
Unrealized gains/(losses) on equity investment:
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications

 
(101
)
 

 
(103
)
Net change in accumulated other comprehensive income (loss)
$
20,892

 
$
37,767

 
$
(20,575
)
 
$
79,895


(1) Foreign currency translation adjustments included intra-entity foreign currency transactions that were of a long-term investment nature and were a net loss of $403 and a net gain of $670 for the three months ended March 31, 2019 and 2018, respectively, and a net loss of $875 and a net gain of $1,736 for the nine months ended March 31, 2019 and 2018, respectively.
(2) Amounts reclassified into income for deferred (losses)/gains on cash flow hedging instruments are recorded in “Cost of sales” in the Consolidated Statements of Operations and, before taxes, were $132 for the nine months ended March 31, 2018. There were no amounts reclassified into income for deferred (losses)/gains on cash flow hedging instruments for the three and nine months ended March 31, 2019 and for the three months ended March 31, 2018.



19

Table of Contents


13.    STOCK-BASED COMPENSATION AND INCENTIVE PERFORMANCE PLANS

The Company has two stockholder-approved plans, the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan and the 2000 Directors Stock Plan, under which the Company’s officers, senior management, other key employees, consultants and directors may be granted options to purchase the Company’s common stock or other forms of equity-based awards. The Company also grants shares under its 2019 Equity Inducement Award Program to induce selected individuals to become employees of the Company.

Compensation cost and related income tax benefits recognized in the Consolidated Statements of Operations for stock-based compensation plans were as follows:
  
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2019

2018
 
2019
 
2018
Selling, general and administrative expense
$
3,937


$
2,936

 
$
5,502


$
10,258

Chief Executive Officer Succession Plan expense, net

 

 
429

 

Discontinued operations
6

 

 
58

 

Total compensation cost recognized for stock-based compensation plans
$
3,943

 
$
2,936

 
$
5,989

 
$
10,258

Related income tax benefit
$
470

 
$
971

 
$
765

 
$
3,391


In the nine months ended March 31, 2019, the Company recorded a benefit of $1,867 related to the reversal of expense associated with the TSR Grant under the 2017-2019 LTIP, as defined and discussed further below.

Restricted Stock

A summary of the restricted stock and restricted share unit activity for the nine months ended March 31, 2019 is as follows:
 
Number of Shares
and Units
 
Weighted
Average Grant
Date Fair 
Value (per share)
Non-vested restricted stock, restricted share units, and performance units at June 30, 2018
1,057

 
$
22.29

Granted
3,470

 
$
7.13

Vested
(291
)
 
$
26.50

Forfeited
(333
)
 
$
17.68

Non-vested restricted stock, restricted share units, and performance units at March 31, 2019
3,903

 
$
8.89


 
Nine Months Ended March 31,
 
2019
 
2018
Fair value of restricted stock and restricted share units granted
$
24,734

 
$
14,595

Fair value of shares vested
$
7,725

 
$
14,622

Tax benefit recognized from restricted shares vesting
$
3,331

 
$
4,970


At March 31, 2019, $24,083 of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested restricted stock awards was expected to be recognized over a weighted average period of approximately 2.3 years.

20

Table of Contents



Stock Options

A summary of the stock option activity for the nine months ended March 31, 2019 is as follows:
 
Number of Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Contractual
Life (years)
 
Aggregate
Intrinsic Value
Options outstanding and exercisable at June 30, 2018
122

 
$
2.26

 
 
 
 
Exercised

 

 
 
 
 
Options outstanding and exercisable at March 31, 2019
122

 
$
2.26

 
12.3
 
$
2,544


At March 31, 2019, there was no unrecognized compensation expense related to stock option awards.

Long-Term Incentive Plan

The Company maintains a long-term incentive program (the “LTI Plan”). The LTI Plan currently consists of four performance-based long-term incentive plans (the “2016-2018 LTIP”, “2017-2019 LTIP”, “2018-2020 LTIP” and “2019-2021 LTIP”) that provide for performance equity awards that can be earned over defined performance periods. Participants in the LTI Plan include certain of the Company’s executive officers and other key executives.

The Compensation Committee administers the LTI Plan and is responsible for, among other items, selecting the specific performance measures for awards and setting the target performance required to receive an award after the completion of the performance period. The Compensation Committee determines the specific payout to the participants. Any such stock-based awards shall be issued pursuant to and be subject to the terms and conditions of the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan, as in effect and as amended from time-to-time, and the 2019 Equity Inducement Award Program, as applicable.

2019-2021 LTIP

Grants Made Pursuant to the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan

On January 24, 2019, upon adoption of the 2019-2021 LTIP, the Compensation Committee granted 912 performance share units (“PSUs”), the achievement of which is dependent upon a defined calculation of relative total shareholder return (“TSR”) over the period from November 6, 2018 to November 6, 2021. The PSUs granted represent 100% of the targeted award, and will vest pursuant to the achievement of pre-established three-year compound annual TSR levels that are aligned with the CEO Inducement Grant. The number of shares actually issued will range from zero to 300% of the shares granted. No PSUs will vest if the three-year compound annual TSR is below 15%. Of the 912 PSUs issued, 451 are subject to a holding period of one year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value for those shares subject to the one year holding period. The total grant date fair value with and without the illiquidity discount was estimated to be $5.99 and $5.26 per share, respectively. The total grant date fair value of this award was $5,132. Total compensation cost related to this PSU award was $432 in the three and nine months ended March 31, 2019.

The Company also issued 156 three-year time-based restricted share units under the 2019-2021 LTIP.

Grants Made Pursuant to the 2019 Equity Inducement Award Program

The primary purpose of the 2019 Equity Inducement Award Program is to further the long term stability and success of the Company by providing a program to reward selected individuals newly hired as employees of the Company with grants of inducement awards. Shares issued under this program are granted outside of the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan.

In the three months ended March 31, 2019, the Compensation Committee granted 926 PSUs to selected individuals hired as employees of the Company, the achievement of which is dependent upon a defined calculation of relative TSR over the period from November 6, 2018 to November 6, 2021. The PSUs granted represent 300% of the targeted award and will vest pursuant to the achievement of pre-established three-year compound annual TSR levels, which are aligned with the CEO Inducement Grant.


21

Table of Contents


The number of PSUs expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the service period, regardless of the eventual number of PSUs that are earned based upon the market condition, provided that each grantee remains an employee at the end of the performance period. Compensation expense is reversed if at any time during the service period a grantee is no longer an employee. These PSUs are subject to a holding period of one year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value.

Grant Date
Shares Issued
Fair Value Per Share
Grant Date Fair Value
February 19, 2019
739

$
1.79

$
1,324

March 29, 2019
187

$
3.01

563

Total
926

 
$
1,887


The total number of shares actually issued will range from zero to 926. No PSUs will vest if the three-year compound annual TSR is below 15%.


2018-2020 LTIP

Upon adoption of the 2018-2020 LTIP, the Compensation Committee granted 45 PSUs, the achievement of which is dependent upon a defined calculation of relative TSR over the period from January 24, 2019 to June 30, 2020. The total grant date fair value of this award was estimated to be $18.32 per share, or $819.

2016-2018 and 2017-2019 LTIP

Upon adoption of the 2016-2018 LTIP and 2017-2019 LTIP, the Compensation Committee granted PSUs to each participant, the achievement of which is dependent upon a defined calculation of relative TSR over the period from July 1, 2015 to June 30, 2018 and from July 1, 2017 to June 30, 2019 (the “TSR Grant”), respectively. The grant date fair value for these awards was separately estimated based on a Monte Carlo simulation that calculated the likelihood of goal attainment. Each performance unit translates into one unit of common stock. The TSR Grant represents half of each participant’s target award. The other half of the 2016-2018 LTIP and 2017-2019 LTIP is based on the Company’s achievement of specified net sales growth targets over the respective three-year period. If the targets are achieved, the award in connection with the 2017-2019 LTIP may be paid only in unrestricted shares of the Company’s common stock.

During the three months ended September 30, 2018, in connection with the 2016-2018 LTIP, for the three-year performance period of July 1, 2015 through June 30, 2018, the Compensation Committee determined that the adjusted operating income goal required to be met for Section 162(m) funding was not achieved and determined that no awards would be paid or vested pursuant to the 2016-2018 LTIP. Accordingly, the 223 unvested performance stock unit awards previously granted in connection with the relative TSR portion of the award were forfeited, and amounts accrued relating to the net sales portion of the award were reversed. As such, in the three months ended September 30, 2018, the Company recorded a benefit of $6,482 associated with the reversal of previously accrued amounts under the net sales portion of the 2016-2018 LTIP, of which $5,065 was recorded in Chief Executive Officer Succession Plan expense, net on the Consolidated Statement of Operations.

In connection with the 2017-2019 LTIP, in the three months ended September 30, 2018, the Company determined that the achievement of the adjusted operating income goal required to be met for Section 162(m) funding was not probable. Accordingly, during the three months ended September 30, 2018, the Company recorded benefits of $1,129 and $1,867 associated with the reversal of previously accrued amounts under the portions of the 2017-2019 LTIP that were dependent on the achievement of pre-determined performance measures of net sales and relative TSR, respectively.

Other Grants

In the nine months ended March 31, 2019, the Company granted 201 time-based restricted share units to certain key employees and members of the Company’s Board of Directors that vest primarily over three years. Additionally, the Company issued 101 PSUs to certain key executives vesting over a period of one to two years based upon the achievement of certain market and/or performance based metrics being met.



22

Table of Contents


CEO Inducement Grant

On November 6, 2018, Mr. Schiller received an award of 1,050 PSUs intended to represent the total three-year long-term incentive opportunity that would have been made in fiscal years 2019 – 2021. The PSUs will vest pursuant to the achievement of pre-established three-year compound annual TSR levels. The number of shares actually issued will range from zero to 1,050. No PSUs will vest if the three-year compound annual TSR is below 15%. This award was granted outside of Amended and Restated 2002 Long-Term Incentive and Stock Award Plan and the 2019 Equity Inducement Award Program.

The number of PSUs expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the three-year service period, regardless of the eventual number of PSUs that are earned based upon the market condition, provided Mr. Schiller remains an employee at the end of the three-year period. Compensation expense is reversed if at any time during the three-year service period Mr. Schiller is no longer an employee, subject to certain termination and change in control eligibility provisions. These PSUs are subject to a holding period of one year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value. The total grant date fair value of the award was estimated to be $7,571, or $7.21 per share.

Total compensation cost related to this award recognized in the three and nine months ended March 31, 2019 was $621 and $1,008, respectively.

The Company also issued 79 three-year time-based restricted share units to Mr. Schiller.

14.    INVESTMENTS

Equity method investment

On October 27, 2015, the Company acquired a 14.9% interest in Chop’t Creative Salad Company LLC (“Chop’t”). Chop’t develops and operates fast-casual, fresh salad restaurants in the Northeast and Mid-Atlantic United States. Chop’t markets and sells certain of the Company’s branded products and provides consumer insight and feedback. The investment is being accounted for as an equity method investment due to the Company’s representation on the Board of Directors of Chop’t. During fiscal 2018, the Company’s ownership interest was reduced to 13.4% due to the distribution of additional ownership interests. Further ownership interest distributions could potentially dilute the Company’s ownership interest to as low as 11.9%. At March 31, 2019 and June 30, 2018, the carrying value of the Company’s investment in Chop’t was $14,622 and $15,524, respectively, and is included in the Consolidated Balance Sheets as a component of “Investments and joint ventures.”


23

Table of Contents


15.    FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE

The Company’s financial assets and liabilities measured at fair value are required to be grouped in one of three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following table presents by level within the fair value hierarchy assets and liabilities measured at fair value on a recurring basis as of March 31, 2019
 
Total
 
Quoted
prices in
active
markets
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Rabbi trust investments
$
34,452

 
$
34,452

 
$

 
$

Forward foreign currency contracts
40

 

 
40

 

Equity investment
661

 
661

 

 

Contingent consideration, current
1,735

 

 

 
1,735

Total
$
36,888

 
$
35,113

 
$
40

 
$
1,735

Liabilities:
 
 
 
 
 
 
 
Forward foreign currency contracts
$
702

 
$