Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

T

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended November 30, 2014

 

 

 

or

 

 

£

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from ..... to …..

 

Commission file number: 001-14669

 

HELEN OF TROY LIMITED

(Exact name of registrant as specified in its charter)

 

Bermuda

 

74-2692550

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

Clarenden House

 

 

2 Church Street

 

 

Hamilton, Bermuda

 

 

(Address of principal executive offices)

 

 

1 Helen of Troy Plaza

 

 

El Paso, Texas

 

79912

(Registrant’s United States Mailing Address)

 

(Zip Code)

(915) 225-8000

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                                                                                            Yes x    No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer T

Accelerated filer £

Non-accelerated filer £

Smaller Reporting Company £

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

Outstanding at January 5, 2015

Common Shares, $0.10 par value, per share

28,428,055 shares

 


 



Table of Contents

 


 

HELEN OF TROY LIMITED AND SUBSIDIARIES

 

FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

PAGE

 

 

 

PART I.

FINANCIAL  INFORMATION

 

 

 

 

Item 1.

Financial Statements

2

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of  Operations

24

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

48

 

 

 

Item 4.

Controls and Procedures

53

 

 

 

PART 2.

OTHER  INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

54

 

 

 

Item 1A.

Risk Factors

54

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

56

 

 

 

Item 6.

Exhibits

57

 

 

 

SIGNATURES

58

 


 

1

 



Table of Contents

 


 

PART I.   FINANCIAL INFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS

 

HELEN OF TROY LIMITED AND SUBSIDIARIES

 

Consolidated Condensed Balance Sheets (Unaudited)

 

(in thousands, except shares and par value)

 

 

November 30,
2014

 

February 28,

 

 

 

 

2014

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Assets, current:

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,056

 

 

$

70,027

 

Receivables - principally trade, less allowances of $6,248 and $4,679

 

289,449

 

 

213,054

 

Inventory, net

 

318,823

 

 

289,255

 

Prepaid expenses and other current assets

 

9,118

 

 

10,097

 

Income taxes receivable

 

-

 

 

3,783

 

Deferred tax assets, net

 

30,110

 

 

29,260

 

Total assets, current

 

668,556

 

 

615,476

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $81,217 and $71,516

 

128,588

 

 

129,117

 

Goodwill

 

549,828

 

 

453,241

 

Other intangible assets, net of accumulated amortization of $113,093 and $94,698

 

404,872

 

 

322,309

 

Deferred tax assets, net

 

917

 

 

2,523

 

Other assets, net of accumulated amortization of $8,664 and $6,781

 

10,935

 

 

10,636

 

Total assets

 

$

1,763,696

 

 

$

1,533,302

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Liabilities, current:

 

 

 

 

 

 

Revolving line of credit

 

$

440,000

 

 

$

-

 

Accounts payable, principally trade

 

101,435

 

 

75,585

 

Accrued expenses and other current liabilities

 

164,097

 

 

156,688

 

Income taxes payable

 

4,312

 

 

-

 

Deferred tax liabilities, net

 

198

 

 

181

 

Long-term debt, current maturities

 

21,900

 

 

96,900

 

Total liabilities, current

 

731,942

 

 

329,354

 

 

 

 

 

 

 

 

Long-term debt, excluding current maturities

 

93,807

 

 

95,707

 

Deferred tax liabilities, net

 

53,299

 

 

56,988

 

Other liabilities, noncurrent

 

25,658

 

 

21,766

 

Total liabilities

 

904,706

 

 

503,815

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Cumulative preferred stock, non-voting, $1.00 par. Authorized 2,000,000 shares; none issued

 

-

 

 

-

 

Common stock, $0.10 par. Authorized 50,000,000 shares; 28,425,523 and 32,272,519 shares issued and outstanding

 

2,843

 

 

3,227

 

Additional paid in capital

 

174,633

 

 

180,861

 

Accumulated other comprehensive income (loss)

 

128

 

 

(1,091

)

Retained earnings

 

681,386

 

 

846,490

 

Total stockholders’ equity

 

858,990

 

 

1,029,487

 

Total liabilities and stockholders’ equity

 

$

1,763,696

 

 

$

1,533,302

 

 

See accompanying notes to consolidated condensed financial statements.

 

 

2

 



Table of Contents

 


 

HELEN OF TROY LIMITED AND SUBSIDIARIES

 

Consolidated Condensed Statements of Income (Unaudited)

 

(in thousands, except per share data)

 

 

Three Months Ended November 30,

 

Nine Months Ended November 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

435,674

 

 

$

380,730

 

 

$

1,067,401

 

 

$

1,004,633

 

Cost of goods sold

 

254,263

 

 

233,029

 

 

632,726

 

 

613,513

 

Gross profit

 

181,411

 

 

147,701

 

 

434,675

 

 

391,120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense

 

116,368

 

 

98,308

 

 

312,906

 

 

278,697

 

Asset impairment charges

 

-

 

 

-

 

 

9,000

 

 

12,049

 

Operating income

 

65,043

 

 

49,393

 

 

112,769

 

 

100,374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonoperating income, net

 

87

 

 

13

 

 

234

 

 

153

 

Interest expense

 

(4,173

)

 

(2,513

)

 

(11,588

)

 

(7,647

)

Income before income taxes

 

60,957

 

 

46,893

 

 

101,415

 

 

92,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit):

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

9,328

 

 

10,911

 

 

14,255

 

 

24,780

 

Deferred

 

(3,748

)

 

(1,542

)

 

(3,454

)

 

(7,133

)

Net income

 

$

55,377

 

 

$

37,524

 

 

$

90,614

 

 

$

75,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.95

 

 

$

1.17

 

 

$

3.17

 

 

$

2.35

 

Diluted

 

$

1.92

 

 

$

1.16

 

 

$

3.12

 

 

$

2.33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock used in computing net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

28,414

 

 

32,047

 

 

28,630

 

 

31,982

 

Diluted

 

28,824

 

 

32,482

 

 

29,070

 

 

32,311

 

 

See accompanying notes to consolidated condensed financial statements.

 

 

3

 



Table of Contents

 


 

HELEN OF TROY LIMITED AND SUBSIDIARIES

 

Consolidated Condensed Statements of Comprehensive Income (Unaudited)

 

(in thousands)

 

 

Three Months Ended November 30,

 

 

2014

 

2013

 

 

 

Before

 

 

 

Net of

 

 

Before

 

 

 

Net of

 

 

 

Tax

 

Tax

 

Tax

 

 

Tax

 

Tax

 

Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income

 

$

60,957

 

$

(5,580

)

$

55,377

 

 

$

46,893

 

$

(9,369

)

$

37,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

-

 

-

 

-

 

 

(70

)

24

 

(46

)

Settlements reclassified to income

 

-

 

-

 

-

 

 

946

 

(330

)

616

 

Subtotal

 

-

 

-

 

-

 

 

876

 

(306

)

570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

301

 

(59

)

242

 

 

(641

)

125

 

(516

)

Settlements reclassified to income

 

(201

)

31

 

(170

)

 

78

 

(15

)

63

 

Subtotal

 

100

 

(28

)

72

 

 

(563

)

110

 

(453

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

100

 

(28

)

72

 

 

313

 

(196

)

117

 

Comprehensive income

 

$

61,057

 

$

(5,608

)

$

55,449

 

 

$

47,206

 

$

(9,565

)

$

37,641

 

 

 

 

 

 

 

 

 

Nine Months Ended November 30,

 

 

2014

 

2013

 

 

 

Before

 

 

 

Net of

 

 

Before

 

 

 

Net of

 

 

 

Tax

 

Tax

 

Tax

 

 

Tax

 

Tax

 

Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income

 

$

101,415

 

$

(10,801

)

$

90,614

 

 

$

92,880

 

$

(17,647

)

$

75,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

28

 

(10

)

18

 

 

(97

)

34

 

(63

)

Settlements reclassified to income

 

1,199

 

(420

)

779

 

 

2,785

 

(975

)

1,810

 

Subtotal

 

1,227

 

(430

)

797

 

 

2,688

 

(941

)

1,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

515

 

(97

)

418

 

 

(673

)

136

 

(537

)

Settlements reclassified to income

 

15

 

(11

)

4

 

 

(246

)

39

 

(207

)

Subtotal

 

530

 

(108

)

422

 

 

(919

)

175

 

(744

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

1,757

 

(538

)

1,219

 

 

1,769

 

(766

)

1,003

 

Comprehensive income

 

$

103,172

 

$

(11,339

)

$

91,833

 

 

$

94,649

 

$

(18,413

)

$

76,236

 

 

See accompanying notes to consolidated condensed financial statements.

 

 

4

 



Table of Contents

 


 

HELEN OF TROY LIMITED AND SUBSIDIARIES

 

Consolidated Condensed Statements of Cash Flows (Unaudited)

 

(in thousands)

 

 

Nine Months Ended November 30,

 

 

2014

 

 

2013

 

 

 

 

 

 

 

Cash provided (used) by operating activities:

 

 

 

 

 

 

Net income

 

$

90,614

 

 

$

75,233

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

29,075

 

 

25,184

 

Amortization of financing costs

 

1,457

 

 

677

 

Provision for doubtful receivables

 

417

 

 

744

 

Non-cash share-based compensation

 

4,539

 

 

9,200

 

Intangible asset impairment charges

 

9,000

 

 

12,049

 

(Gain) loss on the sale of property and equipment

 

43

 

 

74

 

Deferred income taxes and tax credits

 

(3,454

)

 

(7,136

)

Changes in operating capital, net of effects of acquisition of businesses:

 

 

 

 

 

 

Receivables

 

(76,555

)

 

(60,724

)

Inventories

 

(23,468

)

 

(9,018

)

Prepaid expenses and other current assets

 

2,946

 

 

955

 

Other assets and liabilities, net

 

4,638

 

 

(1,340

)

Accounts payable

 

19,377

 

 

21,478

 

Accrued expenses and other current liabilities

 

(113

)

 

22,787

 

Accrued income taxes

 

4,956

 

 

949

 

Net cash provided by operating activities

 

63,472

 

 

91,112

 

 

 

 

 

 

 

 

Cash provided (used) by investing activities:

 

 

 

 

 

 

Capital and intangible asset expenditures

 

(4,893

)

 

(38,563

)

Payment to acquire a business, net of cash received

 

(195,943

)

 

-

 

Net cash used by investing activities

 

(200,836

)

 

(38,563

)

 

 

 

 

 

 

 

Cash provided (used) by financing activities:

 

 

 

 

 

 

Proceeds from line of credit

 

694,400

 

 

107,300

 

Repayment of line of credit

 

(254,400

)

 

(184,400

)

Proceeds from issuance of long-term debt

 

-

 

 

35,509

 

Repayment of long-term debt

 

(76,900

)

 

-

 

Payment of financing costs

 

(2,321

)

 

(127

)

Proceeds from share issuances under share-based compensation plans, including tax benefits

 

5,267

 

 

5,019

 

Payment of tax obligations resulting from cashless share award exercises

 

(4,569

)

 

(483

)

Payments for repurchases of common stock

 

(273,598

)

 

(1,311

)

Share-based compensation tax benefit

 

514

 

 

1,877

 

Net cash provided (used) by financing activities

 

88,393

 

 

(36,616

)

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(48,971

)

 

15,933

 

Cash and cash equivalents, beginning balance

 

70,027

 

 

12,842

 

Cash and cash equivalents, ending balance

 

$

21,056

 

 

$

28,775

 

 

See accompanying notes to consolidated condensed financial statements.

 

 

5

 



Table of Contents

 


 

HELEN OF TROY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

November 30, 2014

 

Note 1 – Basis of Presentation and Conventions Used in this Report

 

The accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly our consolidated financial position as of November 30, 2014 and February 28, 2014, and the results of our consolidated operations for the interim periods presented. We follow the same accounting policies when preparing quarterly financial data as we use for preparing annual data. These statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K for the fiscal year ended February 28, 2014, and our other reports on file with the Securities and Exchange Commission (the “SEC”).

 

In this report and the accompanying consolidated condensed financial statements and notes, unless the context suggests otherwise or otherwise indicated, references to “the Company”, “our Company”, “Helen of Troy”, “we”, “us”, or “our” refer to Helen of Troy Limited and its subsidiaries. We refer to the Company’s common shares, par value $0.10 per share, as “common stock.” References to “OXO” refer to the operations of OXO International and certain of its affiliated subsidiaries that comprise our Housewares segment. References to “Kaz” refer to the operations of Kaz, Inc. and its subsidiaries, which comprise a segment within the Company referred to as the Healthcare / Home Environment segment.  References to “Healthy Directions” refer to the operations of Healthy Directions, LLC and its subsidiaries, acquired on June 30, 2014, that comprise the Nutritional Supplements segment.  Product and service names mentioned in this report are used for identification purposes only and may be protected in the United States and other jurisdictions by trademarks, trade names, service marks, and other intellectual property rights of the Company and other parties. The absence of a specific attribution in connection with any such mark does not constitute a waiver of any such right. All trademarks, trade names, service marks, and logos referenced herein belong to their respective owners. References to “the FASB” refer to the Financial Accounting Standards Board. References to “GAAP” refer to U.S. generally accepted accounting principles. References to “ASU” refer to the codification of GAAP in the Accounting Standards Updates issued by the FASB. References to “ASC” refer to the codification of GAAP in the Accounting Standards Codification issued by the FASB.

 

We are a global designer, developer, importer, marketer, and distributor of an expanding portfolio of brand-name consumer products. We have four segments: Housewares, Healthcare / Home Environment, Nutritional Supplements, and Personal Care. Our Housewares segment provides a broad range of innovative consumer products for the home. Product offerings include food preparation tools, gadgets and storage containers, cleaning, organization, and baby and toddler care products. The Healthcare / Home Environment segment focuses on healthcare devices such as thermometers, humidifiers, blood pressure monitors, and heating pads; water filtration systems; and small home appliances such as portable heaters, fans, air purifiers, and insect control devices. Our Nutritional Supplements segment is a leading provider of premium branded vitamins, minerals and supplements, as well as other health products sold directly to consumers.  Our Personal Care segment products include electric hair care, beauty care and wellness appliances; grooming tools and accessories; and liquid-, solid- and powder-based personal care and grooming products.

 

Our business is seasonal due to different calendar events, holidays and seasonal weather patterns. Historically, our highest sales volume and operating income occur in our third fiscal quarter ending November 30th. We purchase our products from unaffiliated manufacturers, most of which are located in China, Mexico and the United States.

 

 

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Our consolidated condensed financial statements are prepared in U.S. Dollars and in accordance with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.  We have reclassified, combined or separately disclosed certain amounts in the prior period’s consolidated condensed financial statements and accompanying footnotes to conform to the current period’s presentation.

 

Note 2 - Change in Accounting Estimate

 

In the third quarter of fiscal year 2015, we revised our product liability estimates to reflect more relevant historical claims experience.  The effect of the change in estimate was recorded in selling, general and administrative expense (“SG&A”) and increased operating income and net income by $2.22 million and $1.36 million, respectively, for the fiscal quarter and year-to-date ended November 30, 2014.   The effect of the change in estimate increased diluted earnings per share $0.05 per share for both the third fiscal quarter and fiscal year-to-date ended November 30, 2014.

 

Note 3 – New Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that we adopt according to the various timetables the FASB specifies.  Unless otherwise discussed below, we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial position, results of operations and cash flows upon adoption.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, issued as a new Topic, ASC Topic 606.  The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a Company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective for us beginning in fiscal year 2018 and can be adopted either retrospectively or as a cumulative effect adjustment as of the date of adoption.  We are currently evaluating the effect this new accounting guidance will have on our consolidated results of operations, cash flows and financial position.

 

 

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Note 4 – Commitments and Contingencies

 

We are involved in various legal claims and proceedings in the normal course of operations. We believe the outcome of these matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

 

Notes 8, 10, 11, 12, 13, and 14 provide additional information regarding certain of our significant commitments and certain significant contingencies we have provided for in the accompanying consolidated condensed financial statements.

 

Our products are under warranty against defects in material and workmanship for periods ranging from two to five years. We estimate our warranty accrual using historical trends and believe that these trends are the most reliable method by which we can estimate our warranty liability.  The following table summarizes the activity in our warranty accrual for the periods covered below:

 

ACCRUAL FOR WARRANTY RETURNS

(in thousands)

 

 

Three Months Ended November 30,

 

 

Nine Months Ended November 30,

 

 

 

2014 (1)

 

 

2013

 

 

2014 (2)

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

  $

22,492

 

 

$

21,357

 

 

  $

19,269

 

 

$

23,150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to the accrual

 

16,574

 

 

12,931

 

 

46,088

 

 

38,041

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reductions of the accrual - payments and credits issued

 

(13,821

)

 

(12,197

)

 

(40,112

)

 

(39,100

)

Ending balance

 

  $

25,245

 

 

$

22,091

 

 

  $

25,245

 

 

$

22,091

 

 

(1)

For the fiscal quarter ended November 30, 2014, the table includes accrual additions of $2.18 million and related payments and credits of $2.37 million attributed to Healthy Directions.

 

 

(2)

For the nine months ended November 30, 2014, the table includes additions to the accrual of $5.37 million and related payments and credits of $4.20 million attributed to Healthy Directions.

 

Note 5 – Earnings per Share

 

We compute basic earnings per share using the weighted average number of shares of common stock outstanding during the period.  We compute diluted earnings per share using the weighted average number of shares of common stock outstanding plus the effect of dilutive securities.  Options for common stock are excluded from the computation of diluted earnings per share if their effect is antidilutive.  See Note 16 to these consolidated condensed financial statements for more information regarding share-based payment arrangements.

 

For the periods covered below, the basic and diluted shares are as follows:

 

WEIGHTED AVERAGE DILUTED SECURITIES

(in thousands)

 

 

Three Months Ended November 30,

 

 

Nine Months Ended November 30,

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

28,414

 

 

32,047

 

 

28,630

 

 

31,982

 

Incremental shares from share-based payment arrangements

 

410

 

 

435

 

 

440

 

 

329

 

Weighted average shares outstanding, diluted

 

28,824

 

 

32,482

 

 

29,070

 

 

32,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive securities, as a result of in-the-money options

 

643

 

 

574

 

 

686

 

 

373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive securities, as a result of unvested or unsettled share awards

 

278

 

 

408

 

 

267

 

 

298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Antidilutive securities, as a result of out-of-the-money options

 

245

 

 

358

 

 

240

 

 

586

 

 

 

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Note 6 –Segment Information

 

The following tables contain segment information for the periods covered below:

 

THREE MONTHS ENDED NOVEMBER 30, 2014 AND 2013

(in thousands)

 

 

 

 

Healthcare /

 

Nutritional

 

Personal

 

 

 

November 30, 2014

 

Housewares

 

Home Environment

 

Supplements (1)

 

Care

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

85,984

 

$

176,994

 

$

38,462

 

$

134,234

 

$

435,674

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset impairment charges

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

18,275

 

18,694

 

6,214

 

21,860

 

65,043

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and intangible asset expenditures

 

233

 

535

 

211

 

226

 

1,205

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

892

 

5,125

 

2,032

 

2,533

 

10,582

 

 

 

 

 

 

Healthcare /

 

Nutritional

 

Personal

 

 

 

November 30, 2013

 

Housewares

 

Home Environment

 

Supplements (1)

 

Care

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

74,776

 

$

165,752

 

$

-

 

$

140,202

 

$

380,730

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset impairment charges

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

15,278

 

10,665

 

-

 

23,450

 

49,393

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and intangible asset expenditures

 

193

 

3,207

 

-

 

585

 

3,985

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

871

 

5,149

 

-

 

2,726

 

8,746

 

 

NINE MONTHS ENDED NOVEMBER 30, 2014 AND 2013

(in thousands)

 

 

 

 

Healthcare /

 

Nutritional

 

Personal

 

 

 

November 30, 2014

 

Housewares

 

Home Environment

 

Supplements (1)

 

Care

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

222,377

 

$

445,701

 

$

63,096

 

$

336,227

 

$

1,067,401

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset impairment charges

 

-

 

-

 

-

 

9,000

 

9,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

45,201

 

31,919

 

6,324

 

29,325

 

112,769

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and intangible asset expenditures

 

1,275

 

2,022

 

388

 

1,208

 

4,893

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

2,669

 

15,384

 

3,391

 

7,631

 

29,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare /

 

Nutritional

 

Personal

 

 

 

November 30, 2013

 

Housewares

 

Home Environment

 

Supplements (1)

 

Care

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

208,471

 

$

424,398

 

$

-

 

$

371,764

 

$

1,004,633

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset impairment charges

 

-

 

-

 

-

 

12,049

 

12,049

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

41,506

 

22,175

 

-

 

36,693

 

100,374

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and intangible asset expenditures

 

574

 

36,321

 

-

 

1,668

 

38,563

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

2,868

 

14,298

 

-

 

8,018

 

25,184

 

 

(1)

The Nutritional Supplements segment includes three- and five-months of operating results, respectively, for the fiscal quarter and year-to-date ended November 30, 2014, as the segment was acquired on June 30, 2014. Operating income includes acquisition-related expenditures of $3.61 million for the five months of operating results included in the fiscal year-to-date ended November 30, 2014. For further information regarding the acquisition, see Note 10 to these consolidated condensed financial statements.

 

We compute segment operating income based on net sales revenue, less cost of goods sold, SG&A and any asset impairment charges associated with the segment. The SG&A used to compute each segment’s operating income is directly associated with the segment, plus overhead expenses that are allocable to the segment.  The operations for the Nutritional Supplements segment do not include any allocation of corporate costs for fiscal year 2015.  As the new segment is further integrated into our operating structure, we expect to make an allocation of corporate costs

 

 

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to the segment in future fiscal years. When we decide such allocations are appropriate, there may be some reduction in the operating income of the Nutritional Supplements segment offset by increases in operating income of our other segments. The extent of this operating income impact between the segments has not yet been determined.  We do not allocate nonoperating income and expense, including interest or income taxes, to operating segments.

 

Note 7 - Comprehensive Income (Loss)

 

The table below presents the changes in accumulated other comprehensive income (loss) by component and the amounts reclassified out of accumulated other comprehensive income (loss) for the 2015 fiscal year-to-date:

 

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT

(in thousands)

 

 

 

Unrealized Holding Gains (Losses)

 

 

 

 

 

On Cash Flow Hedges

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

Interest Rate

 

Currency

 

 

 

 

 

Swaps (1)

 

Contracts (2)

 

Total

 

 

 

 

 

 

 

 

 

Balance at February 28, 2014

 

$

(797

)

$

(294

)

$

(1,091

)

 

 

 

 

 

 

 

 

Other comprehensive income before reclassification

 

28

 

515

 

543

 

 

 

 

 

 

 

 

 

Amounts reclassified out of accumulated other comprehensive income (loss)

 

1,199

 

15

 

1,214

 

 

 

 

 

 

 

 

 

Tax effects

 

(430

)

(108

)

(538

)

Other comprehensive income

 

797

 

422

 

1,219

 

 

 

 

 

 

 

 

 

Balance at November 30, 2014

 

$

-

 

$

128

 

$

128

 

 

(1)  Includes net deferred tax benefits of $0.43 million at February 28, 2014.

 

(2)  Includes net deferred tax (expense) benefits of ($0.03) and $0.08 million at November 30, 2014 and February 28, 2014, respectively.

 

Note 8 - Supplemental Balance Sheet Information

 

PROPERTY AND EQUIPMENT

(in thousands)

 

 

Estimated

 

 

 

 

 

 

 

 

Useful Lives

 

November 30,

 

 

February 28,

 

 

 

(Years)

 

2014

 

 

2014

 

 

 

 

 

 

 

 

 

 

Land

 

   -     

 

$

12,800

 

 

$

12,800

 

Building and improvements

 

3 - 40

 

102,040

 

 

98,660

 

Computer, furniture and other equipment

 

3 - 15

 

66,593

 

 

60,291

 

Tools, molds and other production equipment

 

1 - 10

 

25,580

 

 

23,017

 

Construction in progress

 

   -     

 

2,792

 

 

5,865

 

Property and equipment, gross

 

 

 

209,805

 

 

200,633

 

Less accumulated depreciation

 

 

 

(81,217

)

 

(71,516

)

Property and equipment, net

 

 

 

$

128,588

 

 

$

129,117

 

 

 

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

(in thousands)

 

 

November 30,

 

 

February 28,

 

 

 

2014

 

 

2014

 

 

 

 

 

 

 

 

Accrued compensation, benefits and payroll taxes

 

  $

41,994

 

 

$

69,877

 

Accrued sales returns, discounts and allowances

 

35,817

 

 

25,297

 

Accrued warranty returns

 

25,245

 

 

19,269

 

Accrued advertising

 

24,970

 

 

16,414

 

Accrued product liability, legal and professional fees

 

6,429

 

 

5,705

 

Accrued royalties

 

9,214

 

 

5,712

 

Accrued property, sales and other taxes

 

9,624

 

 

6,835

 

Derivative liabilities, current

 

-

 

 

1,596

 

Liability for uncertain tax positions

 

-

 

 

453

 

Other

 

10,804

 

 

5,530

 

Total accrued expenses and other current liabilities

 

  $

164,097

 

 

$

156,688

 

 

OTHER LIABILITIES, NONCURRENT

(in thousands)

 

 

November 30,

 

 

February 28,

 

 

 

2014

 

 

2014

 

 

 

 

 

 

 

 

Deferred compensation liability

 

  $

8,412

 

 

$

7,257

 

Liability for uncertain tax positions

 

10,846

 

 

13,471

 

Other liabilities

 

6,400

 

 

1,038

 

Total other liabilities, noncurrent

 

  $

25,658

 

 

$

21,766

 

 

Note 9 - Goodwill and Intangible Assets

 

Annual Impairment Testing in the First Quarter of Fiscal Year 2015 - We performed our annual evaluation of goodwill and indefinite-lived intangible assets for impairment during the first quarter of fiscal year 2015.  As a result of our testing of indefinite-lived trademarks and licenses, we recorded a non-cash asset impairment charge of $9.00 million ($8.16 million after tax).  The charge was related to certain trademarks in our Personal Care segment, which were written down to their estimated fair value, determined on the basis of future discounted cash flows using the relief from royalty valuation method.

 

Annual Impairment Testing in the First Quarter of Fiscal Year 2014 - We performed our annual evaluation of goodwill and indefinite-lived intangible assets for impairment during the first quarter of fiscal year 2014.  As a result of our testing of indefinite-lived trademarks and licenses, we recorded a non-cash asset impairment charge of $12.05 million ($12.03 million after tax).  The charge was related to certain trademarks in our Personal Care segment, which were written down to their estimated fair value, determined on the basis of future discounted cash flows using the relief from royalty valuation method.

 

 

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A summary of the carrying amounts and associated accumulated amortization for all intangible assets by operating segment follows:

 

GOODWILL AND INTANGIBLE ASSETS

(in thousands)

 

 

November 30, 2014

 

 

February 28, 2014

 

 

 

Gross

 

Cumulative

 

 

 

 

 

 

Gross

 

Cumulative

 

 

 

 

 

 

 

Carrying

 

Goodwill

 

Accumulated

 

Net Book

 

 

Carrying

 

Goodwill

 

Accumulated

 

Net Book

 

Description

 

Amount

 

Impairments

 

Amortization

 

Value

 

 

Amount

 

Impairments

 

Amortization

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Housewares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

166,132

 

$

-

 

$

-

 

$

166,132

 

 

$

166,132

 

$

-

 

$

-

 

$

166,132

 

Trademarks - indefinite

 

75,200

 

-

 

-

 

75,200

 

 

75,200

 

-

 

-

 

75,200

 

Other intangibles - finite

 

15,923

 

-

 

(12,090

)

3,833

 

 

15,693

 

-

 

(11,149

)

4,544

 

Total Housewares

 

257,255

 

-

 

(12,090

)

245,165

 

 

257,025

 

-

 

(11,149

)

245,876

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare / Home Environment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

251,758

 

-

 

-

 

251,758

 

 

251,758

 

-

 

-

 

251,758

 

Trademarks - indefinite

 

54,000

 

-

 

-

 

54,000

 

 

54,000

 

-

 

-

 

54,000

 

Licenses - finite

 

15,300

 

-

 

(8,637

)

6,663

 

 

15,300

 

-

 

(6,416

)

8,884

 

Other intangibles - finite

 

114,918

 

-

 

(42,789

)

72,129

 

 

114,490

 

-

 

(34,606

)

79,884

 

Total Healthcare / Home Environment

 

435,976

 

-

 

(51,426

)

384,550

 

 

435,548

 

-

 

(41,022

)

394,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nutritional Supplements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill (1)

 

96,587

 

-

 

-

 

96,587

 

 

-

 

-

 

-

 

-

 

Brand assets - indefinite

 

65,500

 

-

 

-

 

65,500

 

 

-

 

-

 

-

 

-

 

Other intangibles - finite

 

43,800

 

-

 

(2,607

)

41,193

 

 

-

 

-

 

-

 

-

 

Total Nutritional Supplements

 

205,887

 

-

 

(2,607

)

203,280

 

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Care:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

81,841

 

(46,490

)

-

 

35,351

 

 

81,841

 

(46,490

)

-

 

35,351

 

Trademarks - indefinite

 

54,754

 

-

 

-

 

54,754

 

 

63,754

 

-

 

-

 

63,754

 

Trademarks - finite

 

150

 

-

 

(81

)

69

 

 

150

 

-

 

(77

)

73

 

Licenses - indefinite

 

10,300

 

-

 

-

 

10,300

 

 

10,300

 

-

 

-

 

10,300

 

Licenses - finite

 

18,683

 

-

 

(16,123

)

2,560

 

 

18,683

 

-

 

(15,887

)

2,796

 

Other intangibles - finite

 

49,437

 

-

 

(30,766

)

18,671

 

 

49,437

 

-

 

(26,563

)

22,874

 

Total Personal Care

 

215,165

 

(46,490

)

(46,970

)

121,705

 

 

224,165

 

(46,490

)

(42,527

)

135,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,114,283

 

$

(46,490

)

$

(113,093

)

$

954,700

 

 

$

916,738

 

$

(46,490

)

$

(94,698

)

$

775,550

 

 

(1)      Includes $1.28 million of acquisition adjustments recorded in the fiscal quarter ending August 31, 2014.

 

On October 24, 2014, we amended the terms of our trademark licensing agreement with Honeywell International Inc. to relinquish the rights to market Honeywell branded portable air purifiers after December 31, 2015 in twelve selected developing countries, including China.  In exchange for the amendment, we received a one-time cash payment of $7 million ($6.98 million after tax), which was recorded as a gain in SG&A.  For the fiscal quarter and year-to-date ended November 30, 2014, sales into the relinquished countries accounted for approximately 1.1 and 1.0 percent, respectively, of the Healthcare / Home Environment segment’s total net sales.  For the fiscal quarter and year-to-date ended November 30, 2013, sales into the relinquished countries accounted for approximately 0.4 and 0.5 percent, respectively, of the Healthcare / Home Environment segment’s total net sales.  We plan to market portable air purifiers in the relinquished markets under non-Honeywell branded trademarks and retained the rights to market Honeywell portable air purifiers in other countries, including the United States, Canada and all European countries.  For categories such as portable fans, portable heaters and portable humidifiers, we remain the Honeywell global licensee under the same material terms as our previous agreement.

 

 

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The following table summarizes the amortization expense attributable to intangible assets for the periods covered in this quarterly report, as well as our estimated amortization expense for the fiscal years 2015 through 2020.

 

AMORTIZATION OF INTANGIBLE ASSETS

 

 

 

(in thousands)

 

 

 

Aggregate Amortization Expense

 

 

 

For the three months ended

 

 

 

 

 

 

 

November 30, 2014

 

$

6,853

 

November 30, 2013

 

$

5,407

 

 

 

 

 

Aggregate Amortization Expense

 

 

 

For the nine months ended

 

 

 

 

 

 

 

November 30, 2014

 

$

18,427

 

November 30, 2013

 

$

16,246

 

 

 

 

 

 

Estimated Amortization Expense

 

 

 

For the fiscal years ended

 

 

 

 

 

 

 

February 2015

 

$

25,257

 

February 2016

 

$

27,150

 

February 2017

 

$

26,835

 

February 2018

 

$

23,030

 

February 2019

 

$

18,306

 

February 2020

 

$

16,720

 

 

 

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Note 10 – Acquisitions

 

On June 30, 2014, we completed the acquisition of Healthy Directions, LLC and its subsidiaries (“Healthy Directions”), a leader in the premium branded vitamin, mineral and supplement market for a total cash purchase price of $195.94 million.  The purchase price was funded from borrowings under the Credit Agreement, as described below, and cash on hand.  The sellers were certain funds controlled by American Securities, LLC and ACI Capital Co., LLC.  Significant assets acquired include inventory, property and equipment, customer relationships, brand assets, and goodwill.  Acquisition-related expenses incurred through November 30, 2014 are approximately $3.61 million ($2.31 million after tax).  Healthy Directions reports its operations as the Nutritional Supplements segment.

 

The following schedule presents the acquisition date fair value of the net assets of Healthy Directions.  These balances are preliminary and may be subject to additional adjustment.

 

HEALTHY DIRECTIONS - NET ASSETS RECORDED UPON ACQUISITION AT JUNE 30, 2014

(in thousands)

 

 

 

 

 

 

 

Assets:

 

 

 

Receivables

 

$

257

 

Inventory

 

6,226

 

Prepaid expenses and other current assets

 

1,875

 

Property and equipment

 

5,962

 

Goodwill

 

95,308

 

Brand assets - indefinite

 

65,500

 

Customer relationships - definite

 

43,800

 

Subtotal - assets

 

218,928

 

 

 

 

 

Liabilities:

 

 

 

Accounts payable

 

6,479

 

Accrued expenses

 

13,964

 

Other long-term liabilities

 

2,542

 

Subtotal - liabilities

 

22,985

 

 

 

 

 

Net assets recorded

 

$

195,943

 

 

The fair values of the intangible assets acquired were estimated by applying income and market approaches.  These fair value measurements were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements. Key assumptions included various discount rates based upon a 14.6 percent weighted average cost of capital, a royalty rate of 5 percent used in the determination of brand assets and a customer attrition rate of 14 percent per year used in the determination of customer relationship values. The goodwill recognized is expected to be deductible for income tax purposes.

 

The impact of the Healthy Directions acquisition on the Company’s consolidated condensed statements of income from the acquisition date through the three- and five-month periods ended November 30, 2014 is as follows:

 

HEALTHY DIRECTIONS - IMPACT ON CONSOLIDATED CONDENSED STATEMENT OF INCOME

June 30, 2014 (Acquisition Date) through November 30, 2014