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, 2022
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 1, 2022, there were 89,313,637 shares outstanding of the registrant’s Common Stock, par value $.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, 2022 (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; foreign exchange and inflation rates; our strategic initiatives, our business strategy, our supply chain, including the availability and pricing of raw materials, our brand portfolio, pricing actions and product performance; 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; our ability to manage our supply chain effectively; input cost inflation, including with respect to freight and other distribution costs; foreign currency exchange risk; risks arising from the Russia-Ukraine war; disruption of operations at our manufacturing facilities; reliance on independent contract manufacturers; challenges and uncertainty resulting from the COVID-19 pandemic; changes to consumer preferences; customer concentration; reliance on independent distributors; the availability of natural and organic ingredients; risks associated with operating internationally; risks associated with outsourcing arrangements; our ability to execute our cost reduction initiatives and related strategic initiatives; our ability to identify and complete acquisitions or divestitures and our level of success in integrating acquisitions; 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; 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; 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 other reports that we file in the future.
We undertake no obligation to update forward-looking statements to reflect actual results or changes in assumptions or circumstances, except as required by applicable law.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 2022 AND JUNE 30, 2022
(In thousands, except par values)
| September 30, | June 30, | ||||||||||
| 2022 | 2022 | ||||||||||
| 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 16) | |||||||||||
| 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, 2022 AND 2021
(In thousands, except per share amounts)
| Three Months Ended September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| 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 | ( | |||||||||||||
| Operating income | ||||||||||||||
| Interest and other financing expense, net | ||||||||||||||
| Other income, net | ( | ( | ||||||||||||
| Income from 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 | $ | $ | ||||||||||||
| Net income per common share: | ||||||||||||||
| Basic | $ | $ | ||||||||||||
| Diluted | $ | $ | ||||||||||||
| Shares used in the calculation of net income per common share: | ||||||||||||||
| Basic | ||||||||||||||
| Diluted | ||||||||||||||
See notes to consolidated financial statements.
4
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(In thousands)
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||||||||||||||||||||||||||
Pre-tax amount | Tax (expense) benefit | After-tax amount | Pre-tax amount | Tax (expense) benefit | After-tax amount | ||||||||||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments before reclassifications | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
Change in deferred gains on cash flow hedging instruments | ( | ( | |||||||||||||||||||||||||||||||||
Change in deferred losses on fair value hedging instruments | ( | ( | |||||||||||||||||||||||||||||||||
Change in deferred gains on net investment hedging instruments | ( | ( | |||||||||||||||||||||||||||||||||
Total other comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| Total comprehensive loss | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
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, 2022
(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, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to stock-based compensation plans | |||||||||||||||||||||||||||||||||||||||||||||||
Employee shares withheld for taxes | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
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, 2021
(In thousands, except par values)
| Common Stock | Additional | Accumulated Other | |||||||||||||||||||||||||||||||||||||||||||||
| Amount | Paid-in | Retained | Treasury Stock | Comprehensive | |||||||||||||||||||||||||||||||||||||||||||
| Shares | at $ | Capital | Earnings | Shares | Amount | Income (Loss) | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to stock-based compensation plans | |||||||||||||||||||||||||||||||||||||||||||||||
Employee shares withheld for taxes | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
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, 2022 AND 2021
(In thousands)
| Three Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income from operations to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Equity in net loss of equity-method investees | |||||||||||
| Stock-based compensation, net | |||||||||||
| Gain on sale of assets | ( | ( | |||||||||
| Other non-cash items, 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 (used in) provided by operating activities | ( | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Investments and joint ventures, net | ( | ||||||||||
| Proceeds from sale of assets | |||||||||||
Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Borrowings under bank revolving credit facility | |||||||||||
| Repayments under bank revolving credit facility | ( | ( | |||||||||
| Payments of other debt, net | ( | ( | |||||||||
| Share repurchases | ( | ||||||||||
Employee shares withheld for taxes | ( | ( | |||||||||
Net cash provided by (used in) financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash | ( | ( | |||||||||
| 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 75 countries worldwide. The Company operates under two reportable segments: North America and International.
Acquisition
On December 28, 2021, the Company acquired all outstanding stock of Proven Brands, Inc. (and its subsidiary That's How We Roll LLC) and KTB Foods Inc., collectively doing business as "That's How We Roll" ("THWR"), the producer and marketer of ParmCrisps® and Thinsters®. See Note 4, Acquisition, for details.
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, 2022 (the “Form 10-K”). The amounts as of and for the periods ended June 30, 2022 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, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2023. Please refer to the Notes to the Consolidated Financial Statements as of June 30, 2022 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.
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. Included herein are certain updates to those policies.
Transfer of Financial Assets
The Company accounts for transfers of financial assets, such as non-recourse accounts receivable financing arrangements, when the Company has surrendered control over the related assets. Determining whether control has transferred requires an evaluation of relevant legal considerations, an assessment of the nature and extent of the Company’s continuing involvement with the assets transferred and any other relevant considerations. The Company has non-recourse financing arrangements in which eligible receivables are sold to third-party buyers in exchange for cash. The Company transferred accounts receivable 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 $83,659 and $22,889 during the three months ended September 30, 2022 and 2021,
9
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net income per share utilized to calculate earnings per share on the Consolidated Statements of Operations:
| Three Months Ended September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||
| 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 | ||||||||||||||
There were 489 and nil restricted stock awards excluded from our calculation of diluted net income per share for the three months ended September 30, 2022 and 2021, respectively, as such awards were anti-dilutive.
Additionally, 298 and 1,299 stock-based awards outstanding at September 30, 2022 and 2021, respectively, were excluded from the calculation of diluted net income per share for the three months ended September 30, 2022 and 2021, respectively, as such awards were contingently issuable based on market or performance conditions, and such conditions had not been achieved during the respective periods.
Share Repurchase Program
In January 2022, the Company's Board of Directors authorized the repurchase of up to $200,000 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 current 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, 2022, the Company did not repurchase any shares under the repurchase program. As of September 30, 2022, the Company had $173,514 of remaining authorization under the share repurchase program. 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. Repurchases made during the three months ended September 30, 2021, were made under a previous Board of Directors authorization.
4. ACQUISITION
That's How We Roll
On December 28, 2021, the Company acquired all outstanding stock of THWR, the producer and marketer of ParmCrisps® and Thinsters®, deepening the Company's position in the snacking category. Consideration for the transaction consisted of cash, net of cash acquired, totaling $260,424 . Of the total consideration, $259,985 was paid with the remaining $439 payable as of September 30, 2022. The acquisition was funded with borrowings under the Credit Agreement (as defined in Note 9, Debt and Borrowings).
Results of THWR are included in the United States operating segment, a component of the North America reportable segment. THWR's net sales included in our consolidated results were 3.6 % of consolidated net sales for the three months ended September 30, 2022.
10
purposes only and does not purport to be indicative of the actual results that would have been achieved by the Company for the periods presented or that will be achieved by the combined company in the future. The pro forma information has been adjusted to give effect to items that are directly attributable to the transactions and are expected to have a continuing impact on the combined results.
| Unaudited supplemental pro forma information | ||||||||||||||
| Three Months Ended | ||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||
| Net sales | $ | $ | ||||||||||||
| Net income from operations | $ | $ | ||||||||||||
| Diluted net income per common share from operations | $ | $ | ||||||||||||
The Company's acquisition is described in more detail in Note 4, Acquisitions and Dispositions, in the Notes to the Consolidated Financial Statements in the Form 10-K.
5. INVENTORIES
Inventories consisted of the following:
| September 30, 2022 | June 30, 2022 | ||||||||||
| Finished goods | $ | $ | |||||||||
| Raw materials, work-in-progress, and packaging | |||||||||||
| $ | $ | ||||||||||
11
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
| September 30, 2022 | June 30, 2022 | ||||||||||
| Land | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Computer hardware and software | |||||||||||
| Furniture and fixtures | |||||||||||
| Leasehold improvements | |||||||||||
| Construction in progress | |||||||||||
| Less: Accumulated depreciation and impairment | |||||||||||
| $ | $ | ||||||||||
Depreciation expense for the three months ended September 30, 2022 and 2021 was $8,067 and $7,408 , respectively.
A facility in the United States was held for sale as of September 30, 2022 with a net carrying amount of $1,840 .
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.
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.
12
The components of lease expenses for the three months ended September 30, 2022 and 2021 were as follows:
| Three Months Ended | ||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||
| Operating lease expenses | $ | $ | ||||||||||||
| Finance lease expenses | ||||||||||||||
| Variable lease expenses | ||||||||||||||
| Short-term lease expenses | ||||||||||||||
| Total lease expenses | $ | $ | ||||||||||||
Supplemental balance sheet information related to leases was as follows:
| Leases | Classification | September 30, 2022 | June 30, 2022 | |||||||||||||||||
| 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 | $ | $ | ||||||||||||||||||
| Three Months Ended | |||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||
| 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 | % | % | |||||||||
13
| Fiscal Year | Operating leases | Finance leases | Total | ||||||||||||||
| 2023 (remainder of year) | $ | $ | $ | ||||||||||||||
| 2024 | |||||||||||||||||
| 2025 | |||||||||||||||||
| 2026 | |||||||||||||||||
| 2027 | |||||||||||||||||
| Thereafter | |||||||||||||||||
| Total lease payments | |||||||||||||||||
| Less: Imputed interest | |||||||||||||||||
| Total lease liabilities | $ | $ | $ | ||||||||||||||
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, 2022 | $ | $ | $ | ||||||||||||||
| Translation and other adjustments, net | ( | ( | |||||||||||||||
Balance as of September 30, 2022 | $ | $ | $ | ||||||||||||||
There were no events or circumstances that warranted an interim impairment test for goodwill during the three months ended September 30, 2022 or 2021.
Other Intangible Assets
The following table includes the gross carrying amount and accumulated amortization, where applicable, for intangible assets, excluding goodwill:
| September 30, 2022 | June 30, 2022 | ||||||||||
| Non-amortized intangible assets: | |||||||||||
| Trademarks and tradenames | $ | $ | |||||||||
| Amortized intangible assets: | |||||||||||
| Other intangibles | |||||||||||
| Less: Accumulated amortization | ( | ( | |||||||||
| Net amortized intangible assets | |||||||||||
| Net other intangible assets | $ | $ | |||||||||
There were no events or circumstances that warranted an interim impairment test for indefinite-lived intangible assets during the three months ended September 30, 2022 or 2021.
Amortized intangible assets, which are deemed to have a finite life, primarily consist of customer relationships, trademarks and tradenames and are amortized over their estimated useful lives of 7 to 25 years. Amortization expense included in the Consolidated Statements of Operations was as follows:
| Three Months Ended September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Amortization of acquired intangibles | $ | $ | ||||||||||||
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| Fiscal Year Ending June 30, | |||||||||||||||||||||||||||||
| 2023 (remainder of year) | 2024 | 2025 | 2026 | 2027 | |||||||||||||||||||||||||
| Estimated amortization expense | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The weighted average remaining amortization period of amortized intangible assets is 14.2 years.
9. DEBT AND BORROWINGS
Debt and borrowings consisted of the following:
| September 30, 2022 | June 30, 2022 | ||||||||||
| Revolving credit facility | $ | $ | |||||||||
| Term loans | |||||||||||
| Less: Unamortized issuance costs | ( | ( | |||||||||
Other borrowings(1) | |||||||||||
Short-term borrowings and current portion of long-term debt(2) | |||||||||||
| Long-term debt, less current portion | $ | $ | |||||||||
(1) Includes $401 (June 30, 2022: $427 ) of finance lease obligations as discussed in Note 7, Leases.
(2) Includes $124 (June 30, 2022: $149 ) of short-term finance lease obligations as discussed in Note 7, Leases.
Amended and Restated Credit Agreement
On December 22, 2021, the Company refinanced its revolving credit facility by entering into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for senior secured financing of $1,100,000 in the aggregate, consisting of (1) $300,000 in aggregate principal amount of term loans (the "Term Loans") and (2) an $800,000 senior secured revolving credit facility (which includes borrowing capacity available for letters of credit, and is comprised of a $440,000 U.S. revolving credit facility and $360,000 global revolving credit facility) (the "Revolver"). Both the Revolver and the Term Loans mature on December 22, 2026. As of September 30, 2022, there were $605,000 of loans under the Revolver, $294,375 of Term Loans, and $6,769 letters of credit outstanding under the Credit Agreement.
The Credit Agreement provides that loans will bear interest at rates based on (a) the Eurodollar Rate plus a rate ranging from 0.875 % to 1.75 % per annum or (b) the Base Rate plus a rate ranging from 0.00 % to 0.75 % per annum, the relevant rate being the Applicable Rate. The Applicable Rate will be determined in accordance with a leverage-based pricing grid, as set forth in the Credit Agreement. Swing Line 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 (a) the Euro Short Term Rate, or €STR, in the case of such loans denominated in Euros plus the Applicable Rate, (b) the Sterling Overnight Index Average Reference Rate, or SONIA, in the case of such loans denominated in Sterling plus the Applicable Rate or (c) the Canadian Prime Rate plus the Applicable Rate. The weighted average interest rate on outstanding borrowings under the Credit Agreement at September 30, 2022 was 4.38 %. Additionally, the Credit Agreement contains a Commitment Fee on the amount unused under the Credit Agreement ranging from 0.15 % to 0.25 % per annum, and such Commitment Fee is determined in accordance with a leverage-based pricing grid.
The Credit Agreement includes financial covenants that require compliance with a consolidated interest coverage ratio, a consolidated secured leverage ratio and a consolidated leverage ratio. The minimum consolidated interest coverage ratio is 2.75 :1.00. The maximum consolidated secured leverage ratio was 5.00 :1.00 through the fiscal quarter ended September 30, 2022; will be 4.50 4.25 :1.00 thereafter commencing with the fiscal quarter ending June 30, 2023. The maximum consolidated leverage ratio is 6.00 :1.00. As of September 30, 2022, $188,231 was available under the Credit Agreement, subject to compliance with the financial covenants. As of September 30, 2022, the Company was in compliance with all associated covenants.
In connection with the Credit Agreement, the Company and its material domestic subsidiaries entered into an Amended and Restated Security and Pledge Agreement (the “Security Agreement”), pursuant to which all of the obligations under the Credit Agreement will
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be secured by liens on assets of the Company and its material domestic subsidiaries, including the equity interests in each of their direct subsidiaries and intellectual property, subject to agreed-upon exceptions.
Credit Agreement Issuance Costs
Based on the Company's evaluation of the borrowing capacity associated with the creditors participating in the previous facility compared to those in the Credit Agreement, $1,762 of the $2,036 of unamortized deferred financing costs at December 22, 2021 were deferred and the remaining $274 were expensed as a component of Interest and other financing expense, net on our Consolidated Statement of Operations. Additionally, the Company incurred debt issuance costs of approximately $2,764 in connection with the Credit Agreement. Of the total $4,526 of deferred debt issuance costs, $3,292 were associated with the Revolver and are being amortized on a straight-line basis within Other assets on our Consolidated Balance Sheet, and $1,234 are being amortized on a straight-line basis, which approximates the effective interest method, as an adjustment to the carrying amount of the Term Loans as a component of Interest and other financing expense, net on our Consolidated Statement of Operations over the term of the Credit Agreement.
Maturities of all debt instruments at September 30, 2022, are as follows:
| Due in Fiscal Year | Amount | |||||||
| Remainder of 2023 | $ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Total debt and borrowings | $ | |||||||
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 was an expense of 26.5 % and 18.6 % for the three months ended September 30, 2022 and 2021, respectively. The effective income tax rate for the three months ended September 30, 2022 increased due to tax expense related to stock-based compensation and uncertain tax positions. The effective income tax rate for the three months ended September 30, 2021
decreased due to the reversal of uncertain tax position accruals based on filing and approval of certain elections by taxing authorities. The effective income tax rates in each period were also impacted by the geographical mix of earnings and state income taxes.
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11. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the changes in accumulated other comprehensive loss (AOCL):
| Three Months Ended September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Foreign currency translation adjustments: | ||||||||||||||
| Other comprehensive loss before reclassifications | $ | ( | $ | ( | ||||||||||
| Deferred gains on cash flow hedging instruments: | ||||||||||||||
Amount of gain recognized in AOCL on derivatives (1) | ||||||||||||||
Amount of gain reclassified from AOCL into income (1) | ( | ( | ||||||||||||
| Deferred gains on fair value hedging instruments: | ||||||||||||||
Amount of gain recognized in AOCL on derivatives (1) | ||||||||||||||
Amount of gain reclassified from AOCL into income (1) | ( | |||||||||||||
| Deferred gains on net investment hedging instruments: | ||||||||||||||
Amount of gain recognized in AOCL on derivatives (1) | ||||||||||||||
Amount of gain reclassified from AOCL into income (1) | ( | ( | ||||||||||||
| Net change in AOCL | $ | ( | $ | ( | ||||||||||
(1)See Note 15, Derivatives and Hedging Activities, for the amounts reclassified into income for deferred gains (losses) on cash flow and net investment hedging instruments recorded in the Consolidated Statements of Operations in the three months ended September 30, 2022 and 2021.
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” or "LTIP") that provides for equity awards, including performance and market-based equity awards that can be earned over defined performance periods. The Company's plans are described in Note 13, 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, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
Selling, general and administrative expense | $ | $ | ||||||||||||
| Related income tax benefit | $ | $ | ||||||||||||
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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, 2022 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, 2022 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | ( | $ | |||||||||
| Non-vested RSAs, RSUs and PSUs outstanding at September 30, 2022 | $ | ||||||||||
The table above includes a total of 365 shares granted during the three months ended September 30, 2022 that represent the target number of shares that may be earned based on pre-defined market conditions that are eligible to vest ranging from zero to 200 % of target. All such shares relate to the 2023 – 2025 LTIP as further described below. Vested shares during the three months ended September 30, 2022 include a total of 5 shares related to certain performance-based metrics being met and a total of 19 shares related to service-based RSUs. There are market-based PSU awards outstanding under both the 2023 – 2025 LTIP and the 2022 – 2024 LTIP. At September 30, 2022, 365 of such shares were outstanding under the 2023 – 2025 LTIP while 158 shares were outstanding under the 2022 – 2024 LTIP.
The fair value of RSAs, RSUs and PSUs granted and of shares vested, and the tax benefit recognized from restricted shares vesting was as follows:
| Three Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Fair value of RSAs, RSUs and PSUs granted | $ | $ | |||||||||
| Fair value of shares vested | $ | $ | |||||||||
| Tax benefit recognized from restricted shares vesting | $ | $ | |||||||||
At September 30, 2022, there was $37,613 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 2.08 years.
2023-2025 LTIP
During the three months ended September 30, 2022, the Company granted market-based PSU awards under the LTI Program with a total target payout of 365 shares of common stock. Vesting is pursuant to a defined calculation of either relative TSR or absolute TSR (as defined) over the period from September 6, 2022 through the earlier of (i) September 6, 2025; (ii) the date the participant’s employment is terminated due to death or Disability (as defined); or (iii) the effective date of a Change in Control (as defined) (the “TSR Performance Period”). Vesting of 245 target shares of the outstanding PSU awards is pursuant to a defined calculation of relative TSR over the TSR Performance Period (the “Relative TSR PSUs”). Vesting of 120 target shares of the outstanding PSU awards is pursuant to the achievement of pre-established three-year compound annual TSR targets over the TSR Performance Period (the “Absolute TSR PSUs”). Total shares eligible to vest for both the Relative TSR PSUs and Absolute TSR PSUs range from zero to 200 % of the target amount. Grant date fair values are calculated using a Monte-Carlo simulation model with grant date fair values per target share and related valuation assumptions as follows:
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| Absolute TSR PSUs | Relative TSR PSUs | ||||||||||
| Grant date fair value (per target share) | $ | $ | |||||||||
| Risk-free interest rate | % | % | |||||||||
| Expected dividend yield | |||||||||||
| Expected volatility | % | % | |||||||||
| Expected term | |||||||||||
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 owns and operates the fast-casual restaurant chains Chop't Creative Salad Co. and Dos Toros Taqueria. The investment is being accounted for as an equity method investment due to the Company’s representation on the Board of Directors of Founders Table. At September 30, 2022 and June 30, 2022, the carrying value of the Company’s investment in Founders Table was $8,910 and $9,491 , respectively, and is included in the Consolidated Balance Sheets as a component of Investments and joint ventures.
The Company also holds an investment in Hutchison Hain Organic Holdings Limited, a joint venture with HUTCHMED (China) Limited, accounted for under the equity method of accounting. The carrying value of the investments were $4,917 and $4,965 as of September 30, 2022 and June 30, 2022, 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).
The following table presents assets and liabilities measured at fair value on a recurring basis as of September 30, 2022:
| 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 | $ | $ | |||||||||||||||||||||