DISCONTINUED OPERATIONS

In March 2018, the Company’s Board of Directors approved a plan to sell all of the operations of the Hain Pure Protein Corporation (“HPPC”) operating segment, which includes the Plainville Farms and FreeBird businesses, and the EK Holdings, Inc. (“Empire Kosher” or “Empire”) operating segment, which were reported in the aggregate as the Hain Pure Protein reportable segment. Collectively, these dispositions represented a strategic shift that will have a major impact on the Company’s operations and financial results and have been accounted for as discontinued operations.

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

The Company recorded reserves of $109,252 and $78,464 in fiscal years ended June 30, 2019 and 2018, respectively, to adjust the carrying value of Hain Pure Protein and Empire Kosher to its fair value, less its cost to sell, which is reflected in net (loss) income from discontinued operations, net of taxes in each respective period. The reserves were recorded due to negative market conditions in the sector, resulting in the Company lowering the projected long-term growth rate and profitability levels of HPPC and to adjust the carrying value of Hain Pure Protein to its estimated selling price.

Sale of Plainville Farms Business

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

Sale of HPPC and Empire Kosher

On June 28, 2019, the Company completed the sale of the remainder of HPPC and EK Holdings, which includes the FreeBirdand Empire Kosher businesses. The purchase price, net of customary adjustments based on the closing balance sheet of HPPC, was $77,714. The Company used the proceeds from the sale to pay down outstanding borrowings under its term loan. As a result of the disposition, the Company recognized a pre-tax loss of $636 in the twelve months ended June 30, 2019 to write down the assets and liabilities to the final sales price less costs to sell.

The following table presents the major classes of Hain Pure Protein’s line items constituting the “Net (loss) income from discontinued operations, net of tax” in our Consolidated Statements of Operations:



	Fiscal Year Ended June 30,
	2019			2018			2017
Net sales	$	408,109		$	509,475		$	509,606
Cost of sales	409,433			486,023			487,631
Gross (loss) profit	(1,324		)	23,452			21,975
Asset impairments	109,252			78,464			—
Selling, general and administrative expense	16,384			18,743			19,180
Other expense	9,088			4,699			1,530
Loss on sale of discontinued operations before income taxes	40,859			—			—
Net (loss) income from discontinued operations before income taxes	(176,907		)	(78,454		)	1,265
Benefit for income taxes	(43,538		)	(5,720		)	(624		)
Net (loss) income from discontinued operations, net of tax	$	(133,369	)	$	(72,734	)	$	1,889

Assets and liabilities of discontinued operations presented in the Consolidated Balance Sheets as of June 30, 2018 are included in the following table:



ASSETS	June 30, 2018
Cash and cash equivalents	$	6,460
Accounts receivable, less allowance for doubtful accounts	21,616
Inventories	105,359
Prepaid expenses and other current assets	5,604
Property, plant and equipment, net	83,776
Goodwill	41,089
Trademarks and other intangible assets, net	51,029
Other assets	4,382
Impairments of long-lived assets held for sale	(78,464		)
Current assets of discontinued operations	$	240,851

LIABILITIES
Accounts payable	$	31,762
Accrued expenses and other current liabilities	6,880
Deferred tax liabilities	11,111
Other noncurrent liabilities	93
Current liabilities of discontinued operations	$	49,846