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 |
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For the quarterly period ended November 30, 2014 |
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or |
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£ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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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 |
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74-2692550 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
Clarenden House |
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2 Church Street |
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Hamilton, Bermuda |
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(Address of principal executive offices) |
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1 Helen of Troy Plaza |
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El Paso, Texas |
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79912 |
(Registrants United States Mailing Address) |
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(Zip Code) |
(915) 225-8000 | ||
(Registrants 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 issuers 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 |
HELEN OF TROY LIMITED AND SUBSIDIARIES
FORM 10-Q
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PAGE |
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2 | ||
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
24 | |
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48 | ||
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53 | ||
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54 | ||
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54 | ||
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56 | ||
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57 | ||
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58 |
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands, except shares and par value)
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November 30, |
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February 28, |
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2014 |
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Assets |
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Assets, current: |
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Cash and cash equivalents |
|
$ |
21,056 |
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$ |
70,027 |
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Receivables - principally trade, less allowances of $6,248 and $4,679 |
|
289,449 |
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213,054 |
| ||
Inventory, net |
|
318,823 |
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289,255 |
| ||
Prepaid expenses and other current assets |
|
9,118 |
|
|
10,097 |
| ||
Income taxes receivable |
|
- |
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|
3,783 |
| ||
Deferred tax assets, net |
|
30,110 |
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|
29,260 |
| ||
Total assets, current |
|
668,556 |
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615,476 |
| ||
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Property and equipment, net of accumulated depreciation of $81,217 and $71,516 |
|
128,588 |
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129,117 |
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Goodwill |
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549,828 |
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|
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 |
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Liabilities and Stockholders Equity |
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Liabilities, current: |
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Revolving line of credit |
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$ |
440,000 |
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|
$ |
- |
|
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 |
| ||
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|
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Long-term debt, excluding current maturities |
|
93,807 |
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|
95,707 |
| ||
Deferred tax liabilities, net |
|
53,299 |
|
|
56,988 |
| ||
Other liabilities, noncurrent |
|
25,658 |
|
|
21,766 |
| ||
Total liabilities |
|
904,706 |
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|
503,815 |
| ||
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Commitments and contingencies |
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Stockholders equity: |
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Cumulative preferred stock, non-voting, $1.00 par. Authorized 2,000,000 shares; none issued |
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- |
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- |
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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.
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, | ||||||||||||
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2014 |
|
|
2013 |
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|
2014 |
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|
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 |
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|
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 |
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|
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|
|
|
|
|
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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 |
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|
92,880 |
| ||||
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|
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|
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Income tax expense (benefit): |
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|
|
|
|
|
|
|
|
|
| ||||
Current |
|
9,328 |
|
|
10,911 |
|
|
14,255 |
|
|
24,780 |
| ||||
Deferred |
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(3,748 |
) |
|
(1,542 |
) |
|
(3,454 |
) |
|
(7,133 |
) | ||||
Net income |
|
$ |
55,377 |
|
|
$ |
37,524 |
|
|
$ |
90,614 |
|
|
$ |
75,233 |
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Earnings per share: |
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Basic |
|
$ |
1.95 |
|
|
$ |
1.17 |
|
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$ |
3.17 |
|
|
$ |
2.35 |
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Diluted |
|
$ |
1.92 |
|
|
$ |
1.16 |
|
|
$ |
3.12 |
|
|
$ |
2.33 |
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Weighted average shares of common stock used in computing net earnings per share: |
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|
|
|
|
|
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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.
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.
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.
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 Companys 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.
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 periods consolidated condensed financial statements and accompanying footnotes to conform to the current periods 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.
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 |
|
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 segments 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
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 |
|
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.
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 segments 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 segments 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.
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 |
|
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 Companys 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 | ||||||||