SEC Company Response from HAIN CELESTIAL GROUP (HAIN) — Mar 7, 2014
HAIN CELESTIAL GROUP INC
Date: March 7, 2014 · CIK: 0000910406 · Accession: 0000910406-14-000014
AI Filing Summary & Sentiment
Reasoning
Referenced dates: January 30, 2014
Letter
VIA EDGAR United States Securities and Exchange Commission Form 10-K for Fiscal Year Ended June 30, 2013 Filed August 29, 2013 File No. 0000-22818
Re: The Hain Celestial Group, Inc.
Dear Mr. Skinner:
This letter is submitted on behalf of The Hain Celestial Group, Inc. (the “Company”) in response to the comments that you provided on behalf of the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “SEC”) in your letter (the “Comment Letter”) dated January 30, 2014 regarding our Annual Report on Form 10-K for the fiscal year ended June 30, 2013 (the “Annual Report”). The responses to the Staff’s comments are set forth below, with each paragraph numbered to correspond to the numbered comments set forth in the Comment Letter. For your convenience, your comments have been reproduced in italics below, together with the responses. Capitalized terms used and not defined herein have the meanings given to such terms in the Company’s filing.
Form 10-K for the Fiscal Year ended June 30, 2013
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 23
Results of Operations, page 24
1.
Disclosure in various parts of your filing indicates that you have made material acquisitions during each of the periods reported in your 10-K. However, your MD&A does not appear to include clear, consistent discussion of the impact of these acquisitions on your reported results of operations. Revise the disclosure throughout your MD&A to provide this information. See Item 303(a)(3)(i) of Regulation S-K.
The Company completed six unrelated acquisitions during the fiscal years ended June 30, 2013 and 2012. Of the six acquisitions, two had a material impact on our results of operations during these periods (the UK Ambient Grocery Brands in fiscal 2013 and The Daniels Group in fiscal 2012). Both of these acquisitions became part of our United Kingdom operating segment and were the primary reason for the changes in operating results during these periods in that operating segment, which was disclosed in our MD&A. In explaining our consolidated results, we specifically referred to each of these two acquisitions in three important metrics - Net Sales, Gross Profit and Selling, General and Administrative Expenses. While we did not provide certain quantitative information with
respect to these two acquisitions in our MD&A, we did provide this information in our notes to the consolidated financial statements and advised in our MD&A introductory paragraph that the MD&A should be read in conjunction with the consolidated financial statements and related notes. Additionally, in our notes we disclosed that the other four acquisitions completed during these periods did not materially impact the consolidated financial statements, which is more fully discussed in our response to comment number 4.
In Note 4 to our consolidated financial statements, we disclosed that as a result of our acquisition of the UK Ambient Grocery Brands on October 27, 2012, net sales of $161.8 million and income before income taxes from continuing operations of $19.9 million were included in the consolidated statement of income for the fiscal year ended June 30, 2013. In our MD&A we attributed the increase in sales and operating income for fiscal 2013 in our United Kingdom operating segment to this acquisition based on these amounts, which represent approximately 70% of the total net sales increase and approximately 90% of the total segment income increase. Similarly, we disclosed in Note 4 that as a result of our acquisition of The Daniels Group on October 25, 2011, net sales of $144.3 million and income before income taxes from continuing operations of $13.0 million were included in the consolidated statement of income for the fiscal year ended June 30, 2012. These amounts represent approximately 94% of the total net sales increase and approximately 90% of the total segment income increase for fiscal 2012. Additionally, our discussion of consolidated gross profit and selling, general and administrative expenses refers to these acquisitions as the primary driver for the changes in the respective margins. Specifically, we discuss that the acquired businesses operate at slightly lower relative gross margins (and hence the decrease in consolidated gross margin due to the change in mix of gross profit by segment) as well as slightly lower relative expenses (and hence the decrease in SG&A expenses). Furthermore, when other line items on the statement of income were materially impacted by acquisitions or acquisition-related activities, we included a discussion of the impact. For example, we include a discussion of the acquisition related expenses line item during each period, which given its nature, may be impacted by all of our acquisitions, even those that did not have a material impact on the other line items in the statement of income.
In sum, our disclosure sets out two important acquisitions, provides several different metrics about each of these acquisitions in the MD&A, and includes a reference to the Notes, where we provide additional disclosure. Furthermore, the Notes inform a reader that the other four acquisitions we undertook during this two year period did not have any significant impact on our operations. For these reasons, we believe that the disclosure included in the Annual Report provides sufficient information to understand the impact of these acquisitions on both the consolidated and segment operating results. We acknowledge the Staff’s comment and, in addition to providing such information in our Notes, we hereby undertake to prospectively provide in our MD&A the type of quantitative disclosure noted above when the impact of an acquisition is material to the Company’s and its operating segments’ results of operations.
2.
Revise your disclosure under this section to indicate the extent to which increases in revenue from year to year are attributable to increases in prices or volume sold. See Item 303(a)(3)(iii) of Regulation S-K.
During the periods included in our Annual Report, pricing did not materially impact net sales, and therefore, we have not attributed the increase in our net sales to pricing in our discussion.
In our MD&A, we attributed the increase in our consolidated net sales to the increases in net sales in our United States and United Kingdom operating segments. As we noted in our response to comment number 1, the increase in sales in our United Kingdom segment resulted from the acquisitions of the UK Ambient Grocery Brands and The Daniels Group. We described the increase in our sales in the United States operating segment as resulting “from improved consumption, expanded distribution and the impact of current year acquisitions.” “Expanded distribution” relates directly to the volumes of products that we sell. We used the term “improved consumption” in concert with expanded distribution to provide a qualitative indication of the increase in the volume sold and not as a separate factor. We did not separately quantify the change in consumption as it is not a direct measurement of the change in the Company’s reported net sales. Consumption data is obtained from independent marketing
and data collection agencies and certain retailers, and measures sales of products scanned through cash registers at retail. It therefore is a measure of historical consumer trends, as well as an indicator of future expectations, and is used by us as a corroborating factor in understanding changes in volume sold.
We appreciate the Staff’s comment and acknowledge that our description may not have been completely clear that the primary reason for the increase in sales was attributable to volume increases and acquisitions. We intend to clarify our disclosure in future filings as it relates to volume increases as well as acquisitions as noted in our response to comment number 1.
3.
Disclosure in various parts of your MD&A indicates that changes from year to year in reported line items were due to multiple factors without indicating the amount attributable to each factor. For example, you disclose on page 24 that the sales increase in the United States in 2013 as compared to 2012 primarily resulted from “improved consumption, expanded distribution and the impact of current year acquisitions” without indicating the amount attributable to each factor. Where material year-to-year changes in reported line items are due to two or more factors, revise the disclosure to quantify the impact of each identified factor. See FRC 501-04.
We believe that our responses to comments 1 and 2 address the portion of this comment that relates to changes in net sales from year-to-year.
We also respectfully note to the Staff that we provide two levels of discussion to explain the reasons for changes in the Company’s results of operations. We discuss each of the statement of income line items for our consolidated results, followed by a discussion of the results of each of our reportable segments. Where practicable, we provide quantitative disclosures of the material factors that impact the Company’s results of operations when the information is reasonably available and reasonably precise. For example, we provided amounts related to the impact of the shift in sales responsibilities of the Sensible Portions brand for the Canadian operations. Similarly, we provided details of adjustments related to the carrying value of contingent consideration liabilities, income tax benefits and earnings of our equity method investees. However, quantifying the impact of certain other recurring factors, such as year-to-year changes in gross margins resulting from changes in product mix, input costs, manufacturing yields and overall market fluctuations, are inherently less precise. This is due to their interrelated impacts and the judgmental assumptions that would need to be employed in order to quantify these items in isolation. Our disclosures in these areas have been provided to reflect qualitative trends to help the reader understand the underlying financial information provided.
Where practicable, we will prospectively provide additional quantitative disclosure of factors we believe to be material that impact the Company’s results of operations when the information is reasonably available and reasonably precise.
Financial Statements
Consolidated Financial Statements, page 41
Note 4. Acquisitions and Disposals, page 53
4.
You disclose that, for certain acquisitions, reported net sales and income before income taxes from continuing operations attributable to the acquisition were not “significant” in the year of acquisition. For each such acquisition, tell us the amount of net sales and income before income taxes from continuing operations, and explain to us your basis for concluding that amounts were not “significant.” As part of your response, explain whether you believe these amounts are also not material.
ASC 805-10-50-2.h.1 states that for each business combination that occurs during a reporting period, the acquirer shall disclose the amounts of revenue and earnings of the acquiree since the acquisition date included in the
consolidated income statement for the reporting period. As a result of our fiscal 2013 acquisitions of Ella’s Kitchen and BluePrint, net sales of $15.6 million and $22.4 million, respectively, and income before income taxes from continuing operations of $0.8 million and $0.5 million, respectively, were included in our consolidated statement of income for fiscal 2013. These amounts represented approximately two percent or less of the consolidated amounts for fiscal 2013, and as such, we concluded the amounts, both individually and in the aggregate, were not significant. In addition, as a result of our fiscal 2012 acquisitions of Cully & Sully and Europe’s Best, net sales of $1.4 million and $21.5 million, respectively, and income before income taxes from continuing operations of $0.1 million and $2.2 million, respectively, were included in our consolidated statement of income for fiscal 2012. These amounts also represented approximately two percent or less of the consolidated amounts for fiscal 2012, and as such, we concluded the amounts, both individually and in the aggregate, were not significant. As used in Note 4, we used the term “significant” as a synonym for material. As a result, for each of these fiscal years, we did not deem these amounts to be material.
5.
You present unaudited pro forma results of continuing operations for each of the years included in your 10-K as if all of the disclosed acquisitions had been completed as of the beginning of the earliest period presented. This appears to be inconsistent with the guidance in FASB ASC paragraph 805-10-50-2.h.3, which indicates that pro forma information should be presented as though the business combinations that occurred during the current year had occurred as of the beginning of the comparable prior period. In view of this, revise your presentation to comply with this guidance. Alternatively, explain to us why you believe no revision is necessary.
ASC 805-10-50-2.h.3 states that if comparative financial statements are presented, the acquirer should present the revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The guidance also states that such disclosures would not be revised if that year is presented for comparative purposes with the subsequent year’s financial statements (even if that year is the earliest period presented).
As disclosed in Note 4, the Company completed three acquisitions during fiscal 2013 and three acquisitions during fiscal 2012. The guidance suggests that supplemental pro forma financial information should be presented as though our fiscal 2013 acquisitions had been completed at the beginning of fiscal 2012, and that our supplemental pro forma financial information included in our Form 10-K for fiscal 2012 relating to our fiscal 2012 acquisitions should not be revised. However, after reading the guidance during the preparation of our consolidated financial statements, we believed a presentation in this manner would be confusing and misleading to investors as it does not appear to provide additional clarification when a company has completed multiple material acquisitions during successive periods. Under the guidance, the supplemental pro forma information presented for our fiscal 2013 acquisitions would be prepared under the assumption that those acquisitions were completed at the beginning of fiscal 2012, but suggests that we should not assume that our fiscal 2012 acquisitions were also completed at the beginning of fiscal 2012. For example, the net sales recorded by The Daniels Group during the pre-acquisition period in fiscal 2012 (July 1, 2011 through October 24, 2011) would not be included in our fiscal 2013 pro forma presentation and would therefore incorrectly suggest to a reader that growth in sales not attributable to acquisitions was greater than it actually was. Similarly, if in our fiscal 2013 10-K we repeated the disclosure of the supplemental pro forma financial information for fiscal 2012 that was presented in our fiscal 2012 10-K, we also believed this was confusing as it provided information that is no longer comparable to the current structure of the Company.
Based on our considerations of the guidance, we believed that presentation of the pro forma disclosures in this manner would be confusing and misleading. Therefore, we presented our disclosures as if our acquisitions were completed at the be
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CORRESP 1 filename1.htm SEC Comment Letter Response - 3.7.14 VIA EDGAR March 7, 2014 Mr. Brad Skinner United States Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Re: The Hain Celestial Group, Inc. Form 10-K for Fiscal Year Ended June 30, 2013 Filed August 29, 2013 File No. 0000-22818 Dear Mr. Skinner: This letter is submitted on behalf of The Hain Celestial Group, Inc. (the “Company”) in response to the comments that you provided on behalf of the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “SEC”) in your letter (the “Comment Letter”) dated January 30, 2014 regarding our Annual Report on Form 10-K for the fiscal year ended June 30, 2013 (the “Annual Report”). The responses to the Staff’s comments are set forth below, with each paragraph numbered to correspond to the numbered comments set forth in the Comment Letter. For your convenience, your comments have been reproduced in italics below, together with the responses. Capitalized terms used and not defined herein have the meanings given to such terms in the Company’s filing. Form 10-K for the Fiscal Year ended June 30, 2013 Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 23 Results of Operations, page 24 1. Disclosure in various parts of your filing indicates that you have made material acquisitions during each of the periods reported in your 10-K. However, your MD&A does not appear to include clear, consistent discussion of the impact of these acquisitions on your reported results of operations. Revise the disclosure throughout your MD&A to provide this information. See Item 303(a)(3)(i) of Regulation S-K. The Company completed six unrelated acquisitions during the fiscal years ended June 30, 2013 and 2012. Of the six acquisitions, two had a material impact on our results of operations during these periods (the UK Ambient Grocery Brands in fiscal 2013 and The Daniels Group in fiscal 2012). Both of these acquisitions became part of our United Kingdom operating segment and were the primary reason for the changes in operating results during these periods in that operating segment, which was disclosed in our MD&A. In explaining our consolidated results, we specifically referred to each of these two acquisitions in three important metrics - Net Sales, Gross Profit and Selling, General and Administrative Expenses. While we did not provide certain quantitative information with 1 respect to these two acquisitions in our MD&A, we did provide this information in our notes to the consolidated financial statements and advised in our MD&A introductory paragraph that the MD&A should be read in conjunction with the consolidated financial statements and related notes. Additionally, in our notes we disclosed that the other four acquisitions completed during these periods did not materially impact the consolidated financial statements, which is more fully discussed in our response to comment number 4. In Note 4 to our consolidated financial statements, we disclosed that as a result of our acquisition of the UK Ambient Grocery Brands on October 27, 2012, net sales of $161.8 million and income before income taxes from continuing operations of $19.9 million were included in the consolidated statement of income for the fiscal year ended June 30, 2013. In our MD&A we attributed the increase in sales and operating income for fiscal 2013 in our United Kingdom operating segment to this acquisition based on these amounts, which represent approximately 70% of the total net sales increase and approximately 90% of the total segment income increase. Similarly, we disclosed in Note 4 that as a result of our acquisition of The Daniels Group on October 25, 2011, net sales of $144.3 million and income before income taxes from continuing operations of $13.0 million were included in the consolidated statement of income for the fiscal year ended June 30, 2012. These amounts represent approximately 94% of the total net sales increase and approximately 90% of the total segment income increase for fiscal 2012. Additionally, our discussion of consolidated gross profit and selling, general and administrative expenses refers to these acquisitions as the primary driver for the changes in the respective margins. Specifically, we discuss that the acquired businesses operate at slightly lower relative gross margins (and hence the decrease in consolidated gross margin due to the change in mix of gross profit by segment) as well as slightly lower relative expenses (and hence the decrease in SG&A expenses). Furthermore, when other line items on the statement of income were materially impacted by acquisitions or acquisition-related activities, we included a discussion of the impact. For example, we include a discussion of the acquisition related expenses line item during each period, which given its nature, may be impacted by all of our acquisitions, even those that did not have a material impact on the other line items in the statement of income. In sum, our disclosure sets out two important acquisitions, provides several different metrics about each of these acquisitions in the MD&A, and includes a reference to the Notes, where we provide additional disclosure. Furthermore, the Notes inform a reader that the other four acquisitions we undertook during this two year period did not have any significant impact on our operations. For these reasons, we believe that the disclosure included in the Annual Report provides sufficient information to understand the impact of these acquisitions on both the consolidated and segment operating results. We acknowledge the Staff’s comment and, in addition to providing such information in our Notes, we hereby undertake to prospectively provide in our MD&A the type of quantitative disclosure noted above when the impact of an acquisition is material to the Company’s and its operating segments’ results of operations. 2. Revise your disclosure under this section to indicate the extent to which increases in revenue from year to year are attributable to increases in prices or volume sold. See Item 303(a)(3)(iii) of Regulation S-K. During the periods included in our Annual Report, pricing did not materially impact net sales, and therefore, we have not attributed the increase in our net sales to pricing in our discussion. In our MD&A, we attributed the increase in our consolidated net sales to the increases in net sales in our United States and United Kingdom operating segments. As we noted in our response to comment number 1, the increase in sales in our United Kingdom segment resulted from the acquisitions of the UK Ambient Grocery Brands and The Daniels Group. We described the increase in our sales in the United States operating segment as resulting “from improved consumption, expanded distribution and the impact of current year acquisitions.” “Expanded distribution” relates directly to the volumes of products that we sell. We used the term “improved consumption” in concert with expanded distribution to provide a qualitative indication of the increase in the volume sold and not as a separate factor. We did not separately quantify the change in consumption as it is not a direct measurement of the change in the Company’s reported net sales. Consumption data is obtained from independent marketing 2 and data collection agencies and certain retailers, and measures sales of products scanned through cash registers at retail. It therefore is a measure of historical consumer trends, as well as an indicator of future expectations, and is used by us as a corroborating factor in understanding changes in volume sold. We appreciate the Staff’s comment and acknowledge that our description may not have been completely clear that the primary reason for the increase in sales was attributable to volume increases and acquisitions. We intend to clarify our disclosure in future filings as it relates to volume increases as well as acquisitions as noted in our response to comment number 1. 3. Disclosure in various parts of your MD&A indicates that changes from year to year in reported line items were due to multiple factors without indicating the amount attributable to each factor. For example, you disclose on page 24 that the sales increase in the United States in 2013 as compared to 2012 primarily resulted from “improved consumption, expanded distribution and the impact of current year acquisitions” without indicating the amount attributable to each factor. Where material year-to-year changes in reported line items are due to two or more factors, revise the disclosure to quantify the impact of each identified factor. See FRC 501-04. We believe that our responses to comments 1 and 2 address the portion of this comment that relates to changes in net sales from year-to-year. We also respectfully note to the Staff that we provide two levels of discussion to explain the reasons for changes in the Company’s results of operations. We discuss each of the statement of income line items for our consolidated results, followed by a discussion of the results of each of our reportable segments. Where practicable, we provide quantitative disclosures of the material factors that impact the Company’s results of operations when the information is reasonably available and reasonably precise. For example, we provided amounts related to the impact of the shift in sales responsibilities of the Sensible Portions brand for the Canadian operations. Similarly, we provided details of adjustments related to the carrying value of contingent consideration liabilities, income tax benefits and earnings of our equity method investees. However, quantifying the impact of certain other recurring factors, such as year-to-year changes in gross margins resulting from changes in product mix, input costs, manufacturing yields and overall market fluctuations, are inherently less precise. This is due to their interrelated impacts and the judgmental assumptions that would need to be employed in order to quantify these items in isolation. Our disclosures in these areas have been provided to reflect qualitative trends to help the reader understand the underlying financial information provided. Where practicable, we will prospectively provide additional quantitative disclosure of factors we believe to be material that impact the Company’s results of operations when the information is reasonably available and reasonably precise. Financial Statements Consolidated Financial Statements, page 41 Note 4. Acquisitions and Disposals, page 53 4. You disclose that, for certain acquisitions, reported net sales and income before income taxes from continuing operations attributable to the acquisition were not “significant” in the year of acquisition. For each such acquisition, tell us the amount of net sales and income before income taxes from continuing operations, and explain to us your basis for concluding that amounts were not “significant.” As part of your response, explain whether you believe these amounts are also not material. ASC 805-10-50-2.h.1 states that for each business combination that occurs during a reporting period, the acquirer shall disclose the amounts of revenue and earnings of the acquiree since the acquisition date included in the 3 consolidated income statement for the reporting period. As a result of our fiscal 2013 acquisitions of Ella’s Kitchen and BluePrint, net sales of $15.6 million and $22.4 million, respectively, and income before income taxes from continuing operations of $0.8 million and $0.5 million, respectively, were included in our consolidated statement of income for fiscal 2013. These amounts represented approximately two percent or less of the consolidated amounts for fiscal 2013, and as such, we concluded the amounts, both individually and in the aggregate, were not significant. In addition, as a result of our fiscal 2012 acquisitions of Cully & Sully and Europe’s Best, net sales of $1.4 million and $21.5 million, respectively, and income before income taxes from continuing operations of $0.1 million and $2.2 million, respectively, were included in our consolidated statement of income for fiscal 2012. These amounts also represented approximately two percent or less of the consolidated amounts for fiscal 2012, and as such, we concluded the amounts, both individually and in the aggregate, were not significant. As used in Note 4, we used the term “significant” as a synonym for material. As a result, for each of these fiscal years, we did not deem these amounts to be material. 5. You present unaudited pro forma results of continuing operations for each of the years included in your 10-K as if all of the disclosed acquisitions had been completed as of the beginning of the earliest period presented. This appears to be inconsistent with the guidance in FASB ASC paragraph 805-10-50-2.h.3, which indicates that pro forma information should be presented as though the business combinations that occurred during the current year had occurred as of the beginning of the comparable prior period. In view of this, revise your presentation to comply with this guidance. Alternatively, explain to us why you believe no revision is necessary. ASC 805-10-50-2.h.3 states that if comparative financial statements are presented, the acquirer should present the revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The guidance also states that such disclosures would not be revised if that year is presented for comparative purposes with the subsequent year’s financial statements (even if that year is the earliest period presented). As disclosed in Note 4, the Company completed three acquisitions during fiscal 2013 and three acquisitions during fiscal 2012. The guidance suggests that supplemental pro forma financial information should be presented as though our fiscal 2013 acquisitions had been completed at the beginning of fiscal 2012, and that our supplemental pro forma financial information included in our Form 10-K for fiscal 2012 relating to our fiscal 2012 acquisitions should not be revised. However, after reading the guidance during the preparation of our consolidated financial statements, we believed a presentation in this manner would be confusing and misleading to investors as it does not appear to provide additional clarification when a company has completed multiple material acquisitions during successive periods. Under the guidance, the supplemental pro forma information presented for our fiscal 2013 acquisitions would be prepared under the assumption that those acquisitions were completed at the beginning of fiscal 2012, but suggests that we should not assume that our fiscal 2012 acquisitions were also completed at the beginning of fiscal 2012. For example, the net sales recorded by The Daniels Group during the pre-acquisition period in fiscal 2012 (July 1, 2011 through October 24, 2011) would not be included in our fiscal 2013 pro forma presentation and would therefore incorrectly suggest to a reader that growth in sales not attributable to acquisitions was greater than it actually was. Similarly, if in our fiscal 2013 10-K we repeated the disclosure of the supplemental pro forma financial information for fiscal 2012 that was presented in our fiscal 2012 10-K, we also believed this was confusing as it provided information that is no longer comparable to the current structure of the Company. Based on our considerations of the guidance, we believed that presentation of the pro forma disclosures in this manner would be confusing and misleading. Therefore, we presented our disclosures as if our acquisitions were completed at the be