HAIN CELESTIAL GROUP INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto for the period ended March 31, 2021 contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended June 30, 2020. Forward looking statements in this Form 10-Q are qualified by the cautionary statement included in this Form 10-Q under the sub-heading “Cautionary Note Regarding Forward Looking Information” in the introduction of this Form 10-Q. Overview The Hain Celestial Group, Inc., 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 Life TM and be the leading marketer, manufacturer and seller of organic and natural 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 manufactures, markets, distributes and sells organic and natural products under brand names, with ma ny recognized brands in the various market categories it serves, including Celestial Seasonings ® , Clarks™, Cully & Sully ® , Earth’s Best ® , Ella’s Kitchen ® , Farmhouse Fare™, Frank Cooper’s ® , GG UniqueFiber ® , Gale’s ® , Garden of Eatin’ ® , Hain Pure Foods ® , Hartley’s ® , Health Valley ® , Imagine ® , Joya ® , Lima ® , Linda McCartney's ® ™ (under license), MaraNatha ® , Natumi ® , New Covent Garden Soup Co. ® , Robertson’s ® , Sensible Portions ® , Spectrum ® , Sun-Pat ® , Terra ® , The Greek Gods ® , William’s™, Yorkshire Provender ® and Yves Veggie Cuisine ® . The Company’s personal care products are marketed under the Alba Botanica ® , Avalon Organics ® , Earth’s Best ® , JASON ® , Live Clean ® , One Step ® and Queen Helene ® brands. The Company continues to execute the four key pillars of its strategy: (1) simplify its portfolio; (2) strengthen its capabilities; (3) expand profit margins and cash flow; and (4) reinvigorate profitable topline growth. The Company has executed this strategy, with a focus on discontinuing uneconomic investment, realigning resources to coincide with brand importance, reducing unproductive stock-keeping units (“SKUs”) and brands and reassessing current pricing architecture. As part of this initiative, the Company reviewed its product portfolio within North America and d ivided it into “Get Bigger” and “Get Better” brand categories. • The Company’s “Get Bigger” brands represent its strongest brands with higher margins, which compete in categories with strong growth potential. The Company has concentrated its investment in marketing, innovation and other resources to prioritize spending for these brands, in an effort to reinvigorate profitable topline growth, optimize assortment and increase share of distribution. • The Company’s “Get Better” brands are the brands in which the Company is primarily focused on simplification and expansion of profit margin. Some of these brands have historically been low margin, non-strategic brands that added complexity with minimal benefit to the Company’s operations. In addition, as part of the Company’s overall strategy, the Company may seek to dispose of businesses and brands that are less profitable or are otherwise less of a strategic fit within its core portfolio. During fiscal 2019, for example, the Company divested its Hain Pure Protein reportable segment and its WestSoy ® tofu, seitan and tempeh businesses. In fiscal 2020, the Company divested its Tilda business and its Arrowhead Mills ® , SunSpire ® , Europe's Best ® , Casbah ® , Rudi’s Gluten-Free Bakery ™ , Rudi’s Organic Bakery ® and Fountain of Truth ™ brands. In fiscal 2021, the Company divested Danival ® , along with its U.K. fruit business ("Fruit"), primarily consisting of the Orchard House ® Foods Limited business and associated brands, and in April 2021, the Company completed the sale of both WestSoy ® and Dream ® . COVID-19 The COVID-19 pandemic continues to create challenging and unprecedented conditions, and we continue our commitment to supporting the global response to the crisis. Various policies and initiatives have been implemented by governments, organizations and individuals to reduce the global transmission of COVID-19. 39 Table of Contents Although there are effective vaccines for COVID-19 that have been approved for use, it is uncertain when the rate of vaccinations will allow a return to a more normal economic activity and business operations. Access to vaccines and vaccination rates vary greatly by country. In addition, recent lockdowns in Europe, the presence of new variants and efficacy of existing vaccines against new variants pose additional uncertainty about the duration and extent of the impact from the COVID-19 pandemic. Employee and Consumer Health and Safety Precautions From the outset of the pandemic, our first priority has been the well-being of our employees and consumers. We continue to consistently meet or exceed government guidelines for addressing the health and safety of our employees, including global travel restrictions, prohibitions against visitors, social distancing requirements, the use of thermal temperature scanners, and the provision of personal protective equipment to our employees. We have continued the use of certain technology to allow many of our office-based employees to work from home effectively. Manufacturing Facilities and Supply Chain Challenges Shelter-in-place and social distancing behaviors, which are being mandated or encouraged by governments and practiced by businesses and individuals, continue to create challenges for our manufacturing employees. We have safety protocols in place that consistently meet or exceed government guidelines for addressing the health and safety of our employees, and we have successfully implemented contingency plans overseen by crisis management teams to monitor the evolving needs of our business. To date, there have been some disruptions to our supply chain network, including labor availability and the supply of our ingredients, packaging or other sourced materials. It is possible that additional disruptions could occur if the COVID-19 pandemic continues to impact markets around the world. We are also working closely with our contract manufacturers, distributors, and other external business partners to minimize the potential impact on our business. Additionally, we continue to consolidate product shipping orders to more efficiently meet increased customer and consumer demand. Consumer Demand Shelter-in-place and social distancing behaviors have resulted in increased overall demand for our products, most notably in our grocery, snacks, tea and certain personal care product categories. Other product offerings have been adversely impacted due to changed consumer behavior and priorities, such as sun care products in the early stages of the pandemic. While we have experienced a net increase in the overall demand for our products during the COVID-19 pandemic, the continued duration of that increased demand environment is uncertain. Additionally, deteriorating economic conditions arising from the COVID-19 pandemic could adversely affect future demand for our products. Factors such as increased unemployment, decreases in disposable income and declines in consumer confidence could cause a decrease in demand for our overall product set, particularly higher priced products. Our Financial Position The COVID-19 pandemic has resulted in a net increase in overall demand for our products. Accordingly, to date, our financial position has benefited from the COVID-19 pandemic, albeit to a limited extent. We finance our operations primarily with the cash flows we generate from our operations and from borrowings available to us under our Third Amended and Restated Credit Agreement (as amended, the “Amended Credit Agreement”). As of March 31, 2021, we had borrowing capacity of $738.6 million available under the Amended Credit Agreement. Business Priorities While the current environment has caused us to delay certain planned innovation and productivity initiatives, our business strategy of simplifying our portfolio and reinvigorating profitable sales growth remains unchanged. Financial Impact on Third Parties and Equity Investments Deteriorating economic conditions could jeopardize the viability of some third parties and our business relationships with them and could cause us to incur losses or increased costs in our dealings with those third parties. We have taken measures to 40 Table of Contents minimize the impact of hardships faced by individual business partners, including by identifying secondary sources of supply and manufacturing capabilities. Productivity and Transformation Costs In fiscal 2019, the Company announced a strategy that includes as one of its key pillars identifying areas of cost savings and operating efficiencies to expand profit margins and cash flow. As part of this overall strategy and the key pillar of realizing savings and efficiencies, during fiscal 2020, the Company began the integration of its United States and Canada operations in alignment with the North America reportable segment structure. In addition, during fiscal 2021, the Company initiated cost reduction programs for its international businesses in the United Kingdom and Europe. The Company will carry out additional productivity initiatives under this strategy in fiscal 2021. Productivity and transformation costs include costs, such as consulting and severance costs, relating to streamlining the Company’s manufacturing plants, co-packers and supply chain, eliminating served categories or brands within those categories, and product rationalization initiatives which are aimed at eliminating slow moving SKUs. Discontinued Operations On August 27, 2019, the Company and Ebro Foods S.A. entered into, and consummated the transactions contemplated by, an agreement relating to the sale and purchase of the Tilda Group Entities and certain other assets. 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 the Company’s Hain Pure Protein Corporation (“HPPC”) operating segment. On June 28, 2019, the Company completed the sale of the remainder of HPPC and Empire Kosher which included the FreeBird and Empire Kosher businesses. These dispositions were undertaken to reduce complexity in the Company’s operations and simplify the Company’s brand portfolio, in addition to allowing additional flexibility to focus on opportunities for growth and innovation in the Company’s more profitable and faster growing core businesses. Collectively, these dispositions were reported in the aggregate as the Hain Pure Protein reportable segment. These dispositions represented strategic shifts that had a major impact on the Company’s operations and financial results, and therefore, the Company is presenting the operating results and cash flows of the Tilda operating segment and the Hain Pure Protein reportable segment within discontinued operations in the current and prior peri ods. Se e Note 4, Dispositions , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information on discontinued operations. 41 Table of Contents Comparison of Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020 Consolidated Results The following table compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the three months ended March 31, 2021 and 2020 (amounts in thousands, other than percentages, which may not add due to rounding): Three Months Ended Change in March 31, 2021 March 31, 2020 Dollars Percentage Net sales $ 492,604 100.0% $ 553,297 100.0% $ (60,693) (11.0)% Cost of sales 362,698 73.6% 420,902 76.1% (58,204) (13.8)% Gross profit 129,906 26.4% 132,395 23.9% (2,489) (1.9)% Selling, general and administrative expenses 74,223 15.1% 85,447 15.4% (11,224) (13.1)% Amortization of acquired intangible assets 2,145 0.4% 3,174 0.6% (1,029) (32.4)% Productivity and transformation costs 4,553 0.9% 11,514 2.1% (6,961) (60.5)% Proceeds from insurance claim (592) (0.1)% (400) (0.1)% (192) * Long-lived asset and intangibles impairment — —% 13,525 2.4% (13,525) (100.0)% Operating income 49,577 10.1% 19,135 3.5% 30,442 159.1% Interest and other financing expense, net 2,030 0.4% 4,037 0.7% (2,007) (49.7)% Other expense (income), net 1,566 0.3% (260) —% 1,826 * Income from continuing operations before income taxes and equity in net loss of equity-method investees 45,981 9.3% 15,358 2.8% 30,623 199.4% Provision (benefit) for income taxes 11,797 2.4% (10,242) (1.9)% 22,039 * Equity in net (income) loss of equity-method investees (70) —% 564 0.1% (634) * Net income from continuing operations $ 34,254 7.0% $ 25,036 4.5% $ 9,218 36.8% Net loss from discontinued operations, net of tax — —% (697) (0.1)% 697 * Net income $ 34,254 7.0% $ 24,339 4.4% $ 9,915 40.7% Adjusted EBITDA $ 73,752 15.0% $ 60,690 11.0% $ 13,062 21.5% Diluted net income per common share from continuing operations $ 0.34 $ 0.24 $ 0.10 41.7% Diluted net loss per common share from discontinued operations — (0.01) 0.01 * Diluted net income per common share $ 0.34 $ 0.23 $ 0.11 47.8% * Percentage is not meaningful due to one or more numbers being negative. Net Sales Net sales for the three months ended March 31, 2021 were $492.6 million , a decrease of $60.7 million , or 11.0% , as compared to $553.3 million in the three months ended March 31, 2020 . On a constant currency basis, and adjusted for the impact of divestitures and discontinued brands, net sales decreased approximately 6.0% from the prior year quarter. Net sales on a constant currency basis, adjusted for the impact of divestitures and discontinued brands, decreased in both the North America and International reportable segments. Further details of changes in adjusted net sales by segment are provided below in the Segment Results section. 42 Table of Contents Gross Profit Gross profit for the three months ended March 31, 2021 was $129.9 million, a decrease of $2.5 million, or 1.9%, as compared to the prior year quarter primarily driven by lower sales. Gross profit margin was 26.4% of net sales, compared to 23.9% in the prior year quarter. The increase in margin was driven by cost savings from the Company's productivity and transformation initiatives, favorable product mix and lower trade promotion costs in both our North America and International reportable segments. Selling, General and Administrative Expenses Selling, general and administrative expenses were $74.2 million for the three months ended March 31, 2021, a decrease of $11.2 million, or 13.1%, from $85.4 million for the prior year quar ter. The decrease was primarily due to lower marketing and advertising costs, salaries, consulting expense, travel and entertainment expenses, broker trade accruals and corporate expenses. Some of the decrease drivers were part of our productivity and transformation initiatives. Selling, general and a dministrative expenses as a percentage of net sales was 15.1% in the three months ended March 31, 2021 compared to 15.4% in the prior year quarter, reflecting a decrease of 30 basis points primarily attributable to the aforementioned items. Amortization of Acquired Intangible Assets Amortization of acquired intangibles was $2.1 million for the three months ended March 31, 2021, a decrease of $1.0 million from $3.2 million in the prior year quarter . The decrease was due to the elimination of the Fruit business intangible amortization during the third quarter of fiscal 2021 and finite-lived intangibles from historical acquisitions becoming fully amortized or impaired during fiscal year 2020, partially offset by amortization from some of the indefinite-lived intangibles being changed to finite-lived intangibles during the first quarter of fiscal 2021. Productivity and Transformation Costs Productivity and transformation costs were $4.6 million for the three months ended March 31, 2021, a decrease of $7.0 million from $11.5 million in the prior year quarter. The decrease was primarily due to higher consulting fees and severance costs incurred in connection with the Company’s productivity and transformation initiatives in the prior year quarter and fewer comparable costs incurred in the current year quarter. Long-lived Asset and Intangibles Impairment There were no long-lived asset and intangible impairment charges recorded in the three months ended March 31, 2021. In comparison, during the three months ended March 31, 2020, the Company recorded pre-tax impairment charges of $13.5 million of which $2.1 million related to certain tradenames within the Company's North America segment, $5.5 million related to certain tradenames within the Company's International segment and $5.9 million related to a write-down of certain machinery and equipment in the United States and Europe used to manufacture certain slow moving or low margin SKUs. Operating Income Operating income for the three months ended March 31, 2021 was $49.6 million compared to $19.1 million in the prior year quarter as a result of the items described above. Interest and Other Financing Expense, Net Interest and other financing expense, net totaled $2.0 million for the three months ended March 31, 2021, a decrease of $2.0 million, or 49.7%, from $4.0 million in the prior year quarter. The decrease resulted primarily from lower interest expense as a result of lower outstanding debt and lower variable interest rates on the portion of the debt not hedged by the derivatives. See Note 9, Debt and Borrowings , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Other Expense (Income), Net Other expense, net totaled $1.6 million for the three months ended March 31, 2021, compared to income of $0.3 million in the prior year quarter . The change from income to expense was primarily attributable to a loss on the sale of the Fruit business which occurred in the current year quarter. 43 Table of Contents Income from Continuing Operations Before Income Taxes and Equity in Net Loss of Equity-Method Investees Income before income taxes and equity in net loss of our equity-method investees for the three months ended March 31, 2021 was $46.0 million compared to $15.4 million in the prior year quarter. The increase was due to the items discussed above. Provision (Benefit) for Income Taxes The provision (benefit) for income taxes includes federal, foreign, state and local income taxes. Our income tax expense from continuing operations was $11.8 million for the three months ended March 31, 2021 compared to an income tax benefit of $10.2 million in the prior year quarter. The effective income tax rate from continuing operations was an expense of 25.7% and a benefit of 66.7% for the three months ended March 31, 2021 and March 31, 2020, respectively. The effective income tax rate from continuing operations for the three months ended March 31, 2021 was impacted by various discrete items including the finalization of fiscal year 2020 income tax returns. The income tax benefit for the three months ended March 31, 2020 was primarily due to the benefits from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") tax loss carryback. Our effective tax rate may change from period-to-period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes and tax audit settlements. Equity in Net (Income) Loss of Equity-Method Investees Our equity in net (income) loss from our equity-method investments for the three months ended March 31, 2021 was income of $0.1 million compared to a loss of $0.6 million in the prior year quarter. See Note 13, Investments , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Net Income from Continuing Operations Net income from continuing operations for the three months ended March 31, 2021 was $34.3 million, or $0.34 per diluted share, compared to net income of $25.0 million, or $0.24 per diluted share, for the three months ended March 31, 2020. The increase in net income from continuing operations was attributable to the factors noted above. Net Loss from Discontinued Operations, Net of Tax There was no net loss from discontinued operations, net of tax, for the three months ended March 31, 2021, compared to a loss of $0.7 million in the three months ended March 31, 2020 . See Note 4, Dispositions , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for further discussion. Net Income Net income for the three months ended March 31, 2021 was $34.3 million, or $0.34 per diluted share, compared to net income of $24.3 million, or $0.23 per diluted share, in the prior year quarter. The change to net income was attributable to the factors noted above. Adjusted EBITDA Adjusted EBITDA was $73.8 million and $60.7 million for the three months ended March 31, 2021 and 2020, respectively, as a result of the factors discussed above and the adjustments described in the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures presented following the discussion of our results of operations. 44 Table of Contents Segment Results The following table provides a summary of net sales and operating income (loss) by reportable segment for the three months ended March 31, 2021 and 2020: (dollars in thousands) North America International Corporate and Other Consolidated Net sales Three months ended 3/31/21 $ 287,500 $ 205,104 $ — $ 492,604 Three months ended 3/31/20 320,440 232,857 — 553,297 $ change $ (32,940) $ (27,753) n/a $ (60,693) % change (10.3) % (11.9) % n/a (11.0) % Operating income (loss) Three months ended 3/31/21 $ 39,492 $ 26,774 $ (16,689) $ 49,577 Three months ended 3/31/20 28,873 18,660 (28,398) 19,135 $ change $ 10,619 $ 8,114 $ 11,709 $ 30,442 % change 36.8 % 43.5 % * 159.1 % Operating income (loss) margin Three months ended 3/31/21 13.7 % 13.1 % n/a 10.1 % Three months ended 3/31/20 9.0 % 8.0 % n/a 3.5 % * Percentage is not meaningful due to one or more numbers being negative. North America Net sales in the North America reportable segment for the three months ended March 31, 2021 were $287.5 million, a decrease of $32.9 million, or 10.3%, from net sales of $320.4 million in the prior year quarter. On a constant currency basis, adjusted for the impact of divestitures and discontinued brands, net sales decreased by 7.9% from the prior year quarter. On an adjusted basis, the decrease was primarily driven by a large program with a wholesale club which was not repeated in the current quarter and pantry stocking in the prior year quarter as a result of stay-at-home orders at the beginning of the COVID-19 pandemic. Operating income in North America for the three months ended March 31, 2021 was $39.5 million, an increase of $10.6 million from $28.9 million in the prior year quarter due to lower trade promotion costs, a favorable product mix, lower selling, general and administrative expenses and supply chain cost efficiencies gained as a result of the Company's productivity and transformation initiatives. I nternational Net sales in the International reportable segment for the three months ended March 31, 2021 were $205.1 million, a decrease of $27.8 million, or 11.9%, from net sales of $232.9 million in the prior year quarter. On a constant currency basis, and adjusted for the impact of divestitures and discontinued brands, net sales decreased by 2.6% from the prior year quarter. On an adjusted basis, the decrease was mainly due to United Kingdom customer inventory reductions that were elevated in three months ended December 31, 2020 in anticipation of potential Brexit supply disruptions as well as pantry stocking in the prior year quarter as a result of stay-at-home orders at the beginning of the COVID-19 pandemic. Operating income in our International reportable segment for the three months ended March 31, 2021 was $26.8 million, compared to operating income of $18.7 million for the three months ended March 31, 2020, an increase of $8.1 million due to lower trade promotion costs, supply chain cost efficiencies and lower selling, general and administrative expenses. 45 Table of Contents Corporate and Other Our Corporate and Other category consists of expenses related to the Company’s centralized administrative functions, which do not specifically relate to an operating segment. Such Corporate and Other expenses are comprised mainly of compensation and related expenses of certain of the Company’s senior executive officers and other employees who perform duties related to our entire enterprise as well as expenses for certain professional fees, facilities, and other items which benefit the Company as a whole. Our Corporate and Other expenses for the three months ended March 31, 2021 were $16.7 million, a decrease of $11.7 million, from $28.4 million. Included in the three months ended March 31, 2020 was a tradename impairment charge of $7.6 million compared with no tradename impairment charges in the three months ended March 31, 2021. In addition, the decrease is due to Productivity and transformation costs included in Corporate and Other, which for the three months ended March 31, 2021 were $2.8 million, a decrease of $2.8 million, from $5.6 million for the three months ended March 31, 2020. Refer to Note 18, Segment Information , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. 46 Table of Contents Comparison of Nine Months Ended March 31, 2021 to Nine Months Ended March 31, 2020 Consolidated Results The following table compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the nine months ended March 31, 2021 and 2020 (amounts in thousands, other than percentages, which may not add due to rounding): Nine Months Ended Change in March 31, 2021 March 31, 2020 Dollars Percentage Net sales $ 1,519,649 100.0% $ 1,542,157 100.0% $ (22,508) (1.5)% Cost of sales 1,140,614 75.1% 1,206,324 78.2% (65,710) (5.4)% Gross profit 379,035 24.9% 335,833 21.8% 43,202 12.9% Selling, general and administrative expenses 236,995 15.6% 245,205 15.9% (8,210) (3.3)% Amortization of acquired intangible assets 6,771 0.4% 9,446 0.6% (2,675) (28.3)% Productivity and transformation costs 12,371 0.8% 37,949 2.5% (25,578) (67.4)% Proceeds from insurance claim (592) —% (2,962) (0.2)% 2,370 * Long-lived asset and intangibles impairment 57,676 3.8% 15,414 1.0% 42,262 274.2% Operating income 65,814 4.3% 30,781 2.0% 35,033 113.8% Interest and other financing expense, net 6,820 0.4% 15,068 1.0% (8,248) (54.7)% Other (income) expense, net (852) (0.1)% 2,312 0.1% (3,164) * Income from continuing operations before income taxes and equity in net loss of equity-method investees 59,846 3.9% 13,401 0.9% 46,445 346.6% Provision (benefit) for income taxes 33,197 2.2% (9,753) (0.6)% 42,950 * Equity in net loss of equity-method investees 1,025 0.1% 1,219 0.1% (194) (15.9)% Net income from continuing operations $ 25,624 1.7% $ 21,935 1.4% $ 3,689 16.8% Net income (loss) from discontinued operations, net of tax 11,255 0.7% (105,581) (6.8)% 116,836 * Net income (loss) $ 36,879 2.4% $ (83,646) (5.4)% $ 120,525 * Adjusted EBITDA $ 190,838 12.6% $ 137,827 8.9% $ 53,011 38.5% Diluted net income per common share from continuing operations $ 0.25 $ 0.21 $ 0.04 19.0% Diluted net income (loss) per common share from discontinued operations 0.11 (1.01) 1.12 * Diluted net income (loss) per common share $ 0.36 $ (0.80) $ 1.16 * * Percentage is not meaningful due to one or more numbers being negative. 47 Table of Contents Net Sales Net sales for the nine months ended March 31, 2021 were $1,519.6 million , a decrease of $22.5 million , or 1.5% , as compared to $1,542.2 million in the nine months ended March 31, 2020 as a result of a decrease in sales in the North America reportable segments. On a constant currency basis, adjusted for the impact of divestitures and discontinued brands, net sales increased approximately 1.6% from the prior comparable period. On an adjusted basis, net sales increased in both North America and International segments. Further details of changes in adjusted net sales by segment are provided below in the Segment Results section. Gross Profit Gross profit for the nine months ended March 31, 2021 was $379.0 million, an increase of $43.2 million, or 12.9%, as compared to the prior year comparable period. Gross profit margin was 24.9% of net sales, compared to 21.8% in the prior year comparable period. The increase was driven by cost savings from the Company's productivity and transformation initiatives, favorable product mix and lower trade promotion costs in both our North America and International reportable segments. Selling, General and Administrative Expenses Selling, general and administrative expenses were $237.0 million for the nine months ended March 31, 2021, a decrease of $8.2 million, or 3.3%, from $245.2 million for the prior year comparable period . The decrease was due to lower broker trade accruals, salaries, consulting expense, travel and entertainment expenses and corporate expenses. Selling, general and a dministrative expenses as a percentage of net sales was 15.6% in the nine months ended March 31, 2021 compared to 15.9% in the prior year comparable period, attributable to the aforementioned items. Amortization of Acquired Intangible Assets Amortization of acquired intangibles was $6.8 million for the nine months ended March 31, 2021, a decrease of $2.7 million from $9.4 million in the prior year comparable period . The decrease was due to the elimination of the Fruit business intangible amortization since the first quarter of fiscal 2021 and finite-lived intangibles from historical acquisitions becoming fully amortized or impaired during fiscal year 2020, partially offset by amortization from some of the indefinite-lived intangibles being changed to finite-lived intangibles during the first quarter of fiscal 2021. Productivity and Transformation Costs Productivity and transformation costs were $12.4 million for the nine months ended March 31, 2021, a decrease of $25.6 million from $37.9 million in the prior year comparable period. The decrease was primarily due to higher consulting fees and severance costs incurred in connection with the Company’s productivity and transformation initiatives in the prior year period and fewer comparable costs incurred in fiscal 2021. Proceeds from Insurance Claim In the third quarter of fiscal year 2021, the Company received $0.6 million as payment from an insurance claim related to a litigation described in Note 17, Commitments and Contingencies . In July of 2019, the Company received $7.0 million as partial payment from an insurance claim relating to business disruption costs associated with a co-packer. Of this amount, $4.5 million was recognized in fiscal 2019 as it related to reimbursement of costs already incurred, with the remaining $2.9 million recognized in the nine months ended March 31, 2020. Long-lived Asset and Intangibles Impairment During the nine months ended March 31, 2021, the Company recognized a pre-tax impairment charge of $57.7 million, of which $56.1 million related to the reserve recorded against the assets of the Company's Fruit business (see Note 4, Dispositions , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q) and $1.6 million related to impairment of property, plant and equipment and other non-current assets not related to the Fruit business. During the nine months ended March 31, 2020, the Company recorded a pre-tax impairment charge of $15.4 million, of which $4.0 million related to certain tradenames within the Company's North America segment, $5.5 million related to certain tradenames within the Company's International segment and $5.9 million related to a write-down of certain machinery and equipment in the United States and Europe used to manufacture certain slow moving or low margin SKUs. 48 Table of Contents Operating Income Operating income for the nine months ended March 31, 2021 was $65.8 million compared to $30.8 million in the prior year comparable period because of the items described above. Interest and Other Financing Expense, Net Interest and other financing expense, net totaled $6.8 million for the nine months ended March 31, 2021, a decrease of $8.2 million, or 54.7%, from $15.1 million in the prior year comparable period. The decrease resulted primarily from lower interest expense as a result of lower outstanding debt and lower variable interest rates on the portion of the debt not hedged by the derivatives. See Note 9, Debt and Borrowings , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Other (Income) Expense, Net Other income, net totaled $0.9 million for the nine months ended March 31, 2021, compared to expense of $2.3 million in the prior year comparable period . The change from expense to income was primarily attributable to net unrealized foreign currency losses in fiscal 2020 being higher than in fiscal 2021 principally due to foreign currency movements on the remeasurement of foreign currency denominated loans, partially offset by loss on sale of businesses of $1.3 million in fiscal 2021 compared with gain on sale of business of $2.1 million in fiscal 2020. Income from Continuing Operations Before Income Taxes and Equity in Net Loss of Equity-Method Investees Income from continuing operations before income taxes and equity in net loss of our equity-method investees for the nine months ended March 31, 2021 was $59.8 million compared to $13.4 million in the prior year comparable period. The increase was due to the items discussed above. Provision (Benefit) for Income Taxes The provision for income taxes includes federal, foreign, state and local income taxes. Our income tax expense from continuing operations was $33.2 million for the nine months ended March 31, 2021 compared to a tax benefit of $9.8 million in the prior year comparable period. The effective income tax rate from continuing operations was an expense of 55.5% and benefit of 72.8% for the nine months ended March 31, 2021 and 2020 , respectively. The effective income tax rate from continuing operations for the period ended March 31, 2021 was impacted by various discrete items including the tax impact of the sale of the Fruit business, the enacted change in the United Kingdom's corporate income tax rate to 19% and a legal entity reorganization completed during the quarter ended September 30, 2020. The income tax benefit for the nine months ended March 31, 2020 was mainly due to the benefits from the CARES Act carryback. Through the nine months ended March 31, 2021 , the Company received $53.8 million including $1.3 million of interest from the CARES Act tax loss carryback refund claims. Our effective tax rate may change from period-to-period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes and tax audit settlements. Equity in Net Loss of Equity-Method Investees Our equity in net loss from our equity-method investments for the nine months ended March 31, 2021 was $1.0 million compared to $1.2 million in the prior year comparable period. See Note 13, Investments , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Net Income from Continuing Operations Net income from continuing operations for the nine months ended March 31, 2021 was $25.6 million, or $0.25 per diluted share, compared to $21.9 million, or $0.21 per diluted share, for the nine months ended March 31, 2020. The increase in net income from continuing operations was attributable to the factors noted above. Net Income (Loss) from Discontinued Operations, Net of Tax 49 Table of Contents Net income (loss) from discontinued operations, net of tax, for the nine months ended March 31, 2021 was income of $11.3 million, or $0.11 per diluted share, compared to a loss of $105.6 million, or $1.01 per diluted share, in the nine months ended March 31, 2020 . During the nine months ended March 31, 2021, the Company recognized a $11.3 million adjustment to the Tilda business primarily related to the recognition of a deferred tax benefit. Net loss from discontinued operations, net of tax, for the nine months ended March 31, 2020 included a reclassification of $95.1 million of cumulative translation losses from accumulated other comprehensive loss to the Company's results of the Tilda business' discontinued operations. The income tax expense from discontinued operations of $13.5 million for the nine months ended March 31, 2020 was impacted by $15.3 million of tax related to the tax gain on the sale of the Tilda entities. See Note 4, Dispositions , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for further discussion. Net Income (Loss) Net income for the nine months ended March 31, 2021 was $36.9 million, or $0.36 per diluted share, compared to a net loss of $83.6 million, or $0.80 per diluted share, in the prior year comparable period. The change from net loss to net income was attributable to the factors noted above. Adjusted EBITDA Our Adjusted EBITDA was $190.8 million and $137.8 million for the nine months ended March 31, 2021 and 2020, respectively, as a result of the factors discussed above and the adjustments described in the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures presented following the discussion of our results of operations. 50 Table of Contents Segment Results The following table provides a summary of net sales and operating income by reportable segment for the nine months ended March 31, 2021 and 2020: (dollars in thousands) North America International Corporate and Other Consolidated Net sales Nine months ended 3/31/21 $ 850,780 $ 668,869 $ — $ 1,519,649 Nine months ended 3/31/20 872,834 669,323 — 1,542,157 $ change $ (22,054) $ (454) n/a $ (22,508) % change (2.5) % (0.1) % n/a (1.5) % Operating income (loss) Nine months ended 3/31/21 $ 105,188 $ 8,144 $ (47,518) $ 65,814 Nine months ended 3/31/20 64,067 40,666 (73,952) 30,781 $ change $ 41,121 $ (32,522) $ 26,434 $ 35,033 % change 64.2 % (80.0) % * 113.8 % Operating income (loss) margin Nine months ended 3/31/21 12.4 % 1.2 % n/a 4.3 % Nine months ended 3/31/20 7.3 % 6.1 % n/a 2.0 % * Percentage is not meaningful due to one or more numbers being negative. North America Our net sales in the North America reportable segment for the nine months ended March 31, 2021 were $850.8 million, a decrease of $22.1 million, or 2.5%, from net sales of $872.8 million in the prior year comparable period. On a constant currency basis, adjusted for the impact of divestitures and discontinued brands, net sales increased by 2.0%. On an adjusted basis, North America segment sales increased by 2.0% due to higher sales in first two quarters of the current year compared to the prior year driven by an increase in overall demand for our products as a result of increased at-home food consumption, most notably in our snacks, tea, yogurt, and certain personal care product categories. This increase was partially offset by a decrease in the third quarter due to reasons discussed above in the Comparison of Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020 section. Operating income in North America for the nine months ended March 31, 2021 was $105.2 million, an increase of $41.1 million from $64.1 million in the prior year comparable period. The increase was driven by lower trade promotion costs, a favorable product mix, lower selling, general and administrative expenses and supply chain cost efficiencies gained with the Company's productivity and transformation initiatives. I nternational Our net sales in the International reportable segment for the nine months ended March 31, 2021 were $668.9 million, a decrease of $0.5 million, or 0.1%, from net sales of $669.3 million in the prior year comparable period. On a constant currency basis, and adjusted for the impact of divestitures and discontinued brands, net sales increased 1.2% from the prior year comparable period primarily due to an increase in overall demand for our products including the growth in our plant-based food and beverage products. This increase was partially offset by a decrease in the third quarter due to reasons discussed above in the Comparison of Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020 section. Operating income in our International reportable segment for the nine months ended March 31, 2021 was $8.1 million, a decrease of $32.5 million from operating income of $40.7 million for the nine months ended March 31, 2020. The decrease was primarily due to a reserve of $56.1 million recorded against the Fruit business. Without this charge, operating income would have increased by $23.6 million driven by improvement in gross profit from adjusted net sales growth and the implementation of productivity initiatives. 51 Table of Contents Corporate and Other Our Corporate and Other category consists of expenses related to the Company’s centralized administrative functions, which do not specifically relate to an operating segment. Such Corporate and Other expenses are comprised mainly of compensation and related expenses of certain of the Company’s senior executive officers and other employees who perform duties related to our entire enterprise as well as expenses for certain professional fees, facilities, and other items which benefit the Company as a whole. Our Corporate and Other expenses for the nine months ended March 31, 2021 were $47.5 million, a decrease of $26.4 million, from $74.0 million in the prior year period. This change was primarily related to a decrease in productivity and transformation costs included in Corporate and Other, which for the nine months ended March 31, 2021 were $6.3 million, a decrease of $19.8 million, from $26.1 million for the nine months ended March 31, 2020. Included in the nine months ended March 31, 2020 was a tradename impairment charge of $7.6 million compared with no tradename impairment charges in the three months ended March 31, 2021. The decrease of $26.4 million was related to Corporate and Other expenses was partially offset by lower marketing and advertising expenses. Refer to Note 18, Segment Information , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Liquidity and Capital Resources We finance our operations and growth primarily with the cash flows we generate from our operations and from borrowings available to us under our Amended Credit Agreement. As of March 31, 2021, $738.6 million was available under the Amended Credit Agreement, and the Company was in compliance with all associated covenants. We believe that our cash flows from operations and borrowing capacity under our Amended Credit Agreement will be adequate to meet anticipated operating and other expenditures for the foreseeable future. Our cash and cash equivalents balance increased $15.2 million at March 31, 2021 to $53.0 million as compared to $37.8 million at June 30, 2020. Our working capital from continuing operations was $264.9 million at March 31, 2021, an increase of $4.2 million from $260.7 million at the end of fiscal 2020. Liquidity is affected by many factors, some of which are based on normal ongoing operations of the Company’s business and some of which arise from fluctuations related to global economics and markets. Our cash balances are held in the United States, United Kingdom, Canada, Europe and India. As of March 31, 2021, substantially all of the total cash balance from continuing operations was held outside of the United States due to debt repayments made towards our revolving credit facility at the end of the period by the United States operating segment. We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of March 31, 2021, all of our investments were expected to mature in less than three months. Accordingly, we do not believe that our investments have significant exposure to interest rate risk. Cash provided by (used in) operating, investing and financing activities is summarized below. Nine Months Ended March 31, Change in (amounts in thousands) 2021 2020 Dollars Cash flows provided by (used in): Operating activities from continuing operations $ 146,517 $ 64,092 $ 82,425 Investing activities from continuing operations (25,968) (32,533) 6,565 Financing activities from continuing operations (110,956) (18,917) (92,039) Effect of exchange rate changes on cash from continuing operations 5,650 (2,110) 7,760 Increase in cash from continuing operations 15,243 10,532 4,711 Decrease in cash from discontinued operations — (8,509) 8,509 Net increase in cash and cash equivalents $ 15,243 $ 2,023 $ 13,220 Cash provided by operating activities from continuing operations was $146.5 million for the nine months ended March 31, 2021, an increase of $82.4 million from cash provided by operating activities from continuing operations of $64.1 million in the prior year period. This increase resulted primarily from an improvement of $56.2 million in net income adjusted for non-cash 52 Table of Contents charges in the current period. The larger non-cash adjustments to net income from continuing operations related to the L ong-lived asset and intangibles impairment charge of $57.7 million during the nine months ended March 31, 2021 compared with $15.4 million in the prior year period as well as a change to deferred tax expense of $3.2 million in the current year period compared with deferred tax benefit of $9.0 million in the prior year period . The reason for the change to Long-lived asset and intangible impairment charge is discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section entitled Comparison of Nine Months Ended March 31, 2021 to Nine Months Ended March 31, 2020 . Compared to current year deferred tax expense, the prior year deferred tax benefit is primarily due to the CARES Act. Additionally, the increase in cash provided by operating activities from continuing operations resulted from greater cash generation of $26.3 million from our working capital accounts. Cash used in investing activities from continuing operations was $26.0 million for the nine months ended March 31, 2021, a decrease of $6.6 million from $32.5 million in the prior year period primarily due to higher proceeds received in the current year period from the sale of businesses. Cash used in financing activities from continuing operations was $111.0 million for the nine months ended March 31, 2021, an increase in cash used of $92.0 million compared to $18.9 million of cash used in the prior year period. Cash used in financing activities from continuing operations for the nine months ended March 31, 2021 included $25.0 million of net repayments of our revolving credit facility and $80.3 million of share repurchases. Cash used in financing activities from continuing operations for the nine months ended March 31, 2020 included $265.3 million of net repayments of our term loan, revolving credit facility and other debt and by $57.4 million for share repurchases, partially offset by $305.2 million related to the proceeds from the sale of Tilda. Operating Free Cash Flow from Continuing Operations Our Operating Free Cash Flow from continuing operations was $93.5 million for the nine months ended March 31, 2021, an improvement of $76.3 million compared to $17.1 million in the nine months ended March 31, 2020. This improvement resulted primarily from an improvement of $56.2 million in net income adjusted for non-cash charges in the current period and greater cash generation of $26.3 million from our working capital accounts. See the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures following the discussion of our results of operations for definitions and a reconciliation from our net cash provided by operating activities from continuing operations to Operating Free Cash Flow from continuing operations. Share Repurchase Program On June 21, 2017, the Company’s Board of Directors authorized the repurchase of up to $250 million of the Company’s issued and outstanding common stock. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The authorization does not have a stated expiration date. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations. During the nine months ended March 31, 2021, the Company repurchased 2,408 shares under the program for a total of $80.3 million, excluding commissions, at an average price of $33.33 per share. As of March 31, 2021, the Company had $109.5 million of remaining authorization under the share repurchase program. Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures We have included in this report measures of financial performance that are not defined by accounting principles generally accepted in the United States (“U.S. GAAP”). We believe that these measures provide useful information to investors and include these measures in other communications to investors. For each of these non-U.S. GAAP financial measures, we are providing below a reconciliation of the differences between the non-U.S. GAAP measure and the most directly comparable U.S. GAAP measure, an explanation of why our management and Board of Directors believe the non-U.S. GAAP measure provides useful information to investors and any additional purposes for which our management and Board of Directors use the non-U.S. GAAP measures. These non-U.S. GAAP measures should be viewed in addition to, and not in lieu of, the comparable U.S. GAAP measures. 53 Table of Contents Constant Currency Presentation We believe that this measure provides useful information to investors because it provides transparency to underlying performance in our consolidated net sales by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given the volatility in foreign currency exchange markets. To present this information for historical periods, current period net sales for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rate in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year. Divestitures and Discontinued Brands We also exclude the impact of divestitures and discontinued brands when comparing net sales to prior periods, which results in the presentation of certain non-U.S. GAAP financial measures. The Company's management believes that excluding the impact of divestitures and discontinued brands when presenting period-over-period results of net sales aids in comparability. A reconciliation between reported and constant currency net sales adjusted for divestitures and discontinued brands increase (decrease) is as follows: 54 Table of Contents (amounts in thousands) North America International Hain Consolidated Net sales - Three Months Ended March 31, 2021 $ 287,500 $ 205,104 $ 492,604 Divestitures and discontinued brands (320) (4,144) (4,464) Impact of foreign currency exchange (2,042) (15,428) (17,470) Net sales on a constant currency basis adjusted for divestitures and discontinued brands - Three Months Ended March 31, 2021 $ 285,138 $ 185,532 $ 470,670 Net sales - Three Months Ended March 31, 2020 $ 320,440 $ 232,857 $ 553,297 Divestitures and discontinued brands (10,717) (42,462) (53,179) Net sales adjusted for divestitures and discontinued brands - Three Months Ended March 31, 2020 $ 309,723 $ 190,395 $ 500,118 Net sales decline (10.3) % (11.9) % (11.0) % Impact of divestitures and discontinued brands 3.0 % 15.9 % 8.2 % Impact of foreign currency exchange (0.6) % (6.6) % (3.2) % Net sales decline on a constant currency basis adjusted for divestitures and discontinued brands (7.9) % (2.6) % (6.0) % Net sales - Nine Months Ended March 31, 2021 $ 850,780 $ 668,869 $ 1,519,649 Divestitures and discontinued brands (4,105) (5,052) (9,157) Impact of foreign currency exchange (2,144) (35,133) (37,277) Net sales on a constant currency basis adjusted for divestitures and discontinued brands - Nine Months Ended March 31, 2021 $ 844,531 $ 628,684 $ 1,473,215 Net sales - Nine Months Ended March 31, 2020 $ 872,834 $ 669,323 $ 1,542,157 Divestitures and discontinued brands (44,120) (48,122) (92,242) Net sales adjusted for divestitures and discontinued brands - Nine Months Ended March 31, 2020 $ 828,714 $ 621,201 $ 1,449,915 Net sales decline (2.5) % (0.1) % (1.5) % Impact of divestitures and discontinued brands 4.7 % 6.5 % 5.5 % Impact of foreign currency exchange (0.2) % (5.2) % (2.4) % Net sales growth on a constant currency basis adjusted for divestitures and discontinued brands 2.0 % 1.2 % 1.6 % Adjusted EBITDA Adjusted EBITDA is defined as net income (loss) before income taxes, net interest expense, depreciation and amortization, impairment of long-lived assets and intangibles, equity in net (income) loss of equity-method investees, stock-based compensation, net, productivity and transformation costs, SKU rationalization and certain inventory write-downs, unrealized currency gains and losses and other adjustments. The Company’s management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses this measure for reviewing the financial results of the Company and as a component of performance-based executive compensation. Adjusted EBITDA is a non-U.S. GAAP measure and may not be comparable to similarly titled measures reported by other companies. We do not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with U.S. GAAP. The principal limitation of Adjusted EBITDA is that it excludes certain expenses and income that are required by U.S. GAAP to be recorded in our consolidated financial statements. In addition, Adjusted EBITDA is subject to inherent limitations as this metric reflects the exercise of judgment by management about which expenses and income are excluded or included in determining Adjusted EBITDA. In order to compensate for these limitations, management presents Adjusted EBITDA in connection with U.S. GAAP results. 55 Table of Contents A reconciliation of net income (loss) to Adjusted EBITDA is as follows: Three Months Ended March 31, Nine Months Ended March 31, (amounts in thousands) 2021 2020 2021 2020 Net income (loss) $ 34,254 $ 24,339 $ 36,879 $ (83,646) Net (loss) income from discontinued operations, net of tax — (697) 11,255 (105,581) Net income from continuing operations 34,254 25,036 25,624 21,935 Provision (benefit) for income taxes 11,797 (10,242) 33,197 (9,753) Interest expense, net 1,327 3,332 4,781 11,884 Depreciation and amortization 12,814 12,927 37,768 40,069 Equity in net (income) loss of equity-method investees (70) 564 1,025 1,219 Stock-based compensation, net 3,698 3,761 11,888 9,581 Unrealized currency losses (gains) 442 (1,011) (535) 188 Productivity and transformation costs 3,915 10,967 10,428 37,402 Proceeds from insurance claim (592) (400) (592) (2,962) Long-lived asset and intangibles impairment — 13,525 57,676 15,414 Warehouse/manufacturing consolidation and other costs 3,598 537 7,313 3,055 Loss on sale of businesses 1,904 332 1,293 2,115 Litigation and related expenses 644 — 644 48 Plant closure related costs 21 — 17 2,354 SKU rationalization and inventory write-down — 1,362 311 5,278 Adjusted EBITDA $ 73,752 $ 60,690 $ 190,838 $ 137,827 Operating Free Cash Flow from Continuing Operations In our internal evaluations, we use the non-U.S. GAAP financial measure “Operating Free Cash Flow from Continuing Operations.” The difference between Operating Free Cash Flow from continuing operations and cash flow provided by or used in operating activities from continuing operations, which is the most comparable U.S. GAAP financial measure, is that Operating Free Cash Flow from continuing operations reflects the impact of purchases of property, plant and equipment (capital spending). Since capital spending is essential to maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider capital spending when evaluating our cash provided by or used in operating activities. We view Operating Free Cash Flow from continuing operations as an important measure because it is one factor in evaluating the amount of cash available for discretionary investments. We do not consider Operating Free Cash Flow from continuing operations in isolation or as an alternative to financial measures determined in accordance with U.S. GAAP. 56 Table of Contents A reconciliation from cash flow provided by operating activities from continuing operations to Operating Free Cash Flow from continuing operations is as follows: Nine Months Ended March 31, (amounts in thousands) 2021 2020 Cash flow provided by operating activities from continuing operations $ 146,517 $ 64,092 Purchases of property, plant and equipment (53,062) (46,961) Operating free cash flow from continuing operations $ 93,455 $ 17,131 Off Balance Sheet Arrangements At March 31, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have had, or are likely to have, a material current or future effect on our consolidated financial statements. Critical Accounting Estimates Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have applied. The accounting policies that have been identified as critical to our business operations and to understanding the results of our operations pertain to revenue recognition, trade promotions and sales incentives, valuation of accounts and chargeback receivable, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation and valuation allowances for deferred tax assets. The application of each of these critical accounting policies and estimates is discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020. Recent Accounting Pronouncements Refer to Note 2, Basis of Presentation , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Seasonality Certain of our product lines have seasonal fluctuations. Hot tea, hot-eating desserts and soup sales are stronger in colder months, while sales of snack foods, sunscreen and certain of our prepared food and personal care products are stronger in the warmer months. As such, our results of operations and our cash flows for any particular quarter are not indicative of the results we expect for the full year, and our historical seasonality may not be indicative of future quarterly results of operations. In recent years, net sales and diluted earnings per share in the first fiscal quarter have typically been the lowest of our four quarters.