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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 August 31, 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 T    No £

 

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 T    No £

 

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 £    No T

 

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 October 6, 2014

Common Shares, $0.10 par value, per share

28,408,527 shares

 

 




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)

 

 

August 31,

 

 

February 28,

 

 

 

2014

 

 

2014

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Assets, current:

 

 

 

 

 

 

Cash and cash equivalents

 

  $

24,726

 

 

$

70,027

 

Receivables - principally trade, less allowances of $5,078 and $4,679

 

217,066

 

 

213,054

 

Inventory, net

 

351,823

 

 

289,255

 

Prepaid expenses and other current assets

 

11,286

 

 

10,097

 

Income taxes receivable

 

3,941

 

 

3,783

 

Deferred tax assets, net

 

26,239

 

 

29,260

 

Total assets, current

 

635,081

 

 

615,476

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $78,252 and $71,516

 

131,311

 

 

129,117

 

Goodwill

 

549,827

 

 

453,241

 

Other intangible assets, net of accumulated amortization of $106,272 and $94,698

 

411,524

 

 

322,309

 

Deferred tax assets, net

 

1,646

 

 

2,523

 

Other assets, net of accumulated amortization of $7,912 and $6,781

 

11,596

 

 

10,636

 

Total assets

 

  $

1,740,985

 

 

$

1,533,302

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Liabilities, current:

 

 

 

 

 

 

Revolving line of credit

 

  $

488,900

 

 

$

-

 

Accounts payable, principally trade

 

114,704

 

 

75,585

 

Accrued expenses and other current liabilities

 

143,334

 

 

156,688

 

Deferred tax liabilities, net

 

183

 

 

181

 

Long-term debt, current maturities

 

21,900

 

 

96,900

 

Total liabilities, current

 

769,021

 

 

329,354

 

 

 

 

 

 

 

 

Long-term debt, excluding current maturities

 

93,807

 

 

95,707

 

Deferred tax liabilities, net

 

53,891

 

 

56,988

 

Other liabilities, noncurrent

 

22,456

 

 

21,766

 

Total liabilities

 

939,175

 

 

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; 28,401,124 and 32,272,519 shares issued and outstanding

 

2,840

 

 

3,227

 

Additional paid in capital

 

172,904

 

 

180,861

 

Accumulated other comprehensive income (loss)

 

56

 

 

(1,091

)

Retained earnings

 

626,010

 

 

846,490

 

Total stockholders’ equity

 

801,810

 

 

1,029,487

 

Total liabilities and stockholders’ equity

 

  $

1,740,985

 

 

$

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 August 31,

 

Six Months Ended August 31,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

  $

319,949

 

 

$

319,387

 

 

  $

631,727

 

 

$

623,903

 

Cost of goods sold

 

186,205

 

 

196,132

 

 

378,463

 

 

380,484

 

Gross profit

 

133,744

 

 

123,255

 

 

253,264

 

 

243,419

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense

 

109,141

 

 

92,899

 

 

196,538

 

 

180,389

 

Asset impairment charges

 

-

 

 

-

 

 

9,000

 

 

12,049

 

Operating income

 

24,603

 

 

30,356

 

 

47,726

 

 

50,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonoperating income (expense), net

 

97

 

 

56

 

 

147

 

 

140

 

Interest expense

 

(3,998

)

 

(2,192

)

 

(7,415

)

 

(5,134

)

Income before income taxes

 

20,702

 

 

28,220

 

 

40,458

 

 

45,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense:

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

2,888

 

 

9,973

 

 

4,927

 

 

13,869

 

Deferred

 

(1,025

)

 

(5,071

)

 

294

 

 

(5,591

)

Net income

 

  $

18,839

 

 

$

23,318

 

 

  $

35,237

 

 

$

37,709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

  $

0.66

 

 

$

0.73

 

 

  $

1.23

 

 

$

1.18

 

Diluted

 

  $

0.65

 

 

$

0.72

 

 

  $

1.21

 

 

$

1.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

28,372

 

 

31,993

 

 

28,738

 

 

31,951

 

Diluted

 

28,769

 

 

32,272

 

 

29,192

 

 

32,226

 

 

 

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 August 31,

 

 

2014

 

2013

 

 

 

Before

 

 

 

Net of

 

 

Before

 

 

 

Net of

 

 

 

Tax

 

Tax

 

Tax

 

 

Tax

 

Tax

 

Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income

 

  $

20,702

 

$

(1,863

)

$

18,839

 

 

  $

28,220

 

$

(4,902

)

$

23,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

16

 

(5

)

11

 

 

(24

)

9

 

(15

)

Settlements reclassified to income

 

285

 

(100

)

185

 

 

925

 

(325

)

600

 

Subtotal

 

301

 

(105

)

196

 

 

901

 

(316

)

585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

136

 

(21

)

115

 

 

(68

)

18

 

(50

)

Settlements reclassified to income

 

50

 

(15

)

35

 

 

(108

)

13

 

(95

)

Subtotal

 

186

 

(36

)

150

 

 

(176

)

31

 

(145

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

487

 

(141

)

346

 

 

725

 

(285

)

440

 

Comprehensive income

 

  $

21,189

 

$

(2,004

)

$

19,185

 

 

  $

28,945

 

$

(5,187

)

$

23,758

 

 

 

 

 

Six Months Ended August 31,

 

 

2014

 

2013

 

 

 

Before

 

 

 

Net of

 

 

Before

 

 

 

Net of

 

 

 

Tax

 

Tax

 

Tax

 

 

Tax

 

Tax

 

Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income

 

  $

40,458

 

$

(5,221

)

$

35,237

 

 

  $

45,987

 

$

(8,278

)

$

37,709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

28

 

(10

)

18

 

 

(27

)

10

 

(17

)

Settlements reclassified to income

 

1,199

 

(420

)

779

 

 

1,839

 

(645

)

1,194

 

Subtotal

 

1,227

 

(430

)

797

 

 

1,812

 

(635

)

1,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

214

 

(38

)

176

 

 

(32

)

11

 

(21

)

Settlements reclassified to income

 

216

 

(42

)

174

 

 

(324

)

54

 

(270

)

Subtotal

 

430

 

(80

)

350

 

 

(356

)

65

 

(291

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

1,657

 

(510

)

1,147

 

 

1,456

 

(570

)

886

 

Comprehensive income

 

  $

42,115

 

$

(5,731

)

$

36,384

 

 

  $

47,443

 

$

(8,848

)

$

38,595

 

 

 

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)

 

 

Six Months Ended August 31,

 

 

2014

 

2013

 

 

 

 

 

Cash provided (used) by operating activities:

 

 

 

 

Net income

 

  $

35,237

 

     $

37,709

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

 

 

 

 

Depreciation and amortization

 

18,493

 

16,438

Amortization of financing costs

 

858

 

451

Provision for doubtful receivables

 

16

 

316

Non-cash share-based compensation

 

3,212

 

6,797

Intangible asset impairment charges

 

9,000

 

12,049

(Gain) loss on the sale of property and equipment

 

40

 

63

Deferred income taxes and tax credits

 

294

 

(5,592)

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

 

 

 

 

Receivables

 

(3,771)

 

(11,906)

Inventories

 

(56,468)

 

(25,982)

Prepaid expenses and other current assets

 

701

 

(1,991)

Other assets and liabilities, net

 

1,222

 

(3,232)

Accounts payable

 

32,648

 

36,807

Accrued expenses and other current liabilities

 

(20,563)

 

(3,401)

Accrued income taxes

 

(2,924)

 

(1,386)

Net cash provided by operating activities

 

17,995

 

57,140

 

 

 

 

 

Cash provided (used) by investing activities:

 

 

 

 

Capital and intangible asset expenditures

 

(3,688)

 

(34,578)

Payment to acquire a business, net of cash received

 

(195,943)

 

-    

Net cash used by investing activities

 

(199,631)

 

(34,578)

 

 

 

 

 

Cash provided (used) by financing activities:

 

 

 

 

Proceeds from line of credit

 

640,900

 

76,800

Repayment of line of credit

 

(152,000)

 

(135,300)

Proceeds from issuance of long-term debt

 

-      

 

29,147

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

 

4,527

 

4,511

Payment of tax obligations resulting from cashless share award exercises

 

(4,569)

 

(438)

Payments for repurchases of common stock

 

(273,598)

 

(1,311)

Share-based compensation tax benefit

 

296

 

1,411

Net cash provided (used) by financing activities

 

136,335

 

(25,307)

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(45,301)

 

(2,745)

Cash and cash equivalents, beginning balance

 

70,027

 

12,842

Cash and cash equivalents, ending balance

 

  $

24,726

 

     $

10,097

 

 

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)

August 31, 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 August 31, 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. References to “PUR” refer to the PUR brand of water filtration products that we acquired, along with certain other assets and liabilities, from The Procter & Gamble Company and certain of its affiliates. Kaz and PUR 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 by trademarks, trade names, service marks, and other intellectual property rights of the Company and other parties in the United States and other jurisdictions. 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 health care 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 was formed with the acquisition of Healthy Directions, LLC and its subsidiaries on June 30, 2014.  Healthy Directions 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’s 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.

 

 

6



Table of Contents

 

 

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 – 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 3 – 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 7, 9, 10, 11, 12, and 13 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 August 31,

 

Six Months Ended August 31,

 

 

2014 (1)

 

 

2013

 

 

2014 (1)

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

  $

19,140

 

 

$

20,782

 

 

  $

19,269

 

 

$

23,150

 

Additions to the accrual

 

18,554

 

 

13,020

 

 

31,840

 

 

26,598

 

Reductions of the accrual - payments and credits issued

 

(15,202

)

 

(12,445

)

 

(28,617

)

 

(28,391

)

Ending balance

 

  $

22,492

 

 

$

21,357

 

 

  $

22,492

 

 

$

21,357

 

 

(1)      Includes opening balance and  accrual additions totaling $3.19 million and related payments and credits issued of $1.82 million attributed to the Healthy Directions acquisition.

 

 

7



Table of Contents

 

 

Note 4 – 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 15 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 August 31,

 

Six Months Ended August 31,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

28,372

 

 

31,993

 

 

28,738

 

 

31,951

 

Incremental shares from share-based payment arrangements

 

397

 

 

279

 

 

454

 

 

275

 

Weighted average shares outstanding, diluted

 

28,769

 

 

32,272

 

 

29,192

 

 

32,226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

687

 

 

347

 

 

708

 

 

273

 

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

 

260

 

 

251

 

 

246

 

 

242

 

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

 

241

 

 

603

 

 

237

 

 

700

 

 

 

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Note 5 – Segment Information

 

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

 

THREE MONTHS ENDED AUGUST 31, 2014 AND 2013

(in thousands)

 

 

 

 

 

Healthcare /

 

Nutritional

 

Personal

 

 

 

August 31, 2014

 

Housewares

 

Home Environment

 

Supplements (1)

 

Care

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

69,637

 

$

126,218

 

$

24,634

 

$

99,460

 

$

319,949

 

Asset impairment charges

 

-

 

-

 

-

 

-

 

-

 

Operating income

 

13,891

 

4,508

 

110

 

6,094

 

24,603

 

Capital and intangible asset expenditures

 

218

 

1,081

 

177

 

390

 

1,866

 

Depreciation and amortization

 

889

 

5,027

 

1,359

 

2,718

 

9,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare /

 

Nutritional

 

Personal

 

 

 

August 31, 2013

 

Housewares

 

Home Environment

 

Supplements (1)

 

Care

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

70,165

 

$

133,044

 

$

-

 

$

116,178

 

$

319,387

 

Asset impairment charges

 

-

 

-

 

-

 

-

 

-

 

Operating income

 

13,772

 

4,974

 

-

 

11,610

 

30,356

 

Capital and intangible asset expenditures

 

167

 

17,009

 

-

 

402

 

17,578

 

Depreciation and amortization

 

1,004

 

4,342

 

-

 

2,645

 

7,991

 

 

SIX MONTHS ENDED AUGUST 31, 2014 AND 2013

(in thousands)

 

 

 

 

 

Healthcare /

 

Nutritional

 

Personal

 

 

 

August 31, 2014

 

Housewares

 

Home Environment

 

Supplements (1)

 

Care

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

136,393

 

$

268,707

 

$

24,634

 

$

201,993

 

$

631,727

 

Asset impairment charges

 

-

 

-

 

-

 

9,000

 

9,000

 

Operating income

 

26,926

 

13,225

 

110

 

7,465

 

47,726

 

Capital and intangible asset expenditures

 

1,042

 

1,487

 

177

 

982

 

3,688

 

Depreciation and amortization

 

1,777

 

10,259

 

1,359

 

5,098

 

18,493

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare /

 

Nutritional

 

Personal

 

 

 

August 31, 2013

 

Housewares

 

Home Environment

 

Supplements (1)

 

Care

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

133,695

 

$

258,646

 

$

-

 

$

231,562

 

$

623,903

 

Asset impairment charges

 

-

 

-

 

-

 

12,049

 

12,049

 

Operating income

 

26,228

 

11,510

 

-

 

13,243

 

50,981

 

Capital and intangible asset expenditures

 

381

 

33,114

 

-

 

1,083

 

34,578

 

Depreciation and amortization

 

2,023

 

9,123

 

-

 

5,292

 

16,438

 

 

(1)      The Nutritional Supplements segment includes two months of operating results for each interim period presented in fiscal year 2015 as the segment was acquired on June 30, 2014.  Operating income includes $3.61 million of acquisition-related expenditures.  For further information regarding the acquisition, see Note 9 to these consolidated condensed financial statements.

 

We compute segment operating income based on net sales revenue, less cost of goods sold, selling, general and administrative expense (“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 two months of operations for the Nutritional Supplements segment do not include any allocation of corporate costs.  As the new segment is further integrated into our operating structure, we expect to make an allocation of corporate costs to the segment. 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.

 

 

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Note 6 – 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 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

 

214

 

242

 

Amounts reclassified out of accumulated other comprehensive income

 

1,199

 

216

 

1,415

 

Tax effects

 

(430

)

(80

)

(510

)

Other comprehensive income

 

797

 

350

 

1,147

 

 

 

 

 

 

 

 

 

Balance at August 31, 2014

 

$

-

 

$

56

 

$

56

 

 

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

 

(2)      Includes net deferred tax (expense) benefits of ($0.01) and $0.08 million at August 31, 2014 and February 28, 2014, respectively.

 

Note 7 – Supplemental Balance Sheet Information

 

PROPERTY AND EQUIPMENT

(in thousands)

 

 

Estimated

 

 

 

 

 

 

 

 

Useful Lives

 

August 31,

 

 

February 28,

 

 

 

(Years)

 

2014

 

 

2014

 

 

 

 

 

 

 

 

 

 

Land

 

-

 

  $

12,800

 

 

$

12,800

 

Building and improvements

 

3 - 40

 

101,950

 

 

98,660

 

Computer, furniture and other equipment

 

3 - 15

 

66,410

 

 

60,291

 

Tools, molds and other production equipment

 

1 - 10

 

25,655

 

 

23,017

 

Construction in progress

 

-

 

2,748

 

 

5,865

 

Property and equipment, gross

 

 

 

209,563

 

 

200,633

 

Less accumulated depreciation

 

 

 

(78,252

)

 

(71,516

)

Property and equipment, net

 

 

 

  $

131,311

 

 

$

129,117

 

 

 

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Table of Contents

 

 

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

(in thousands)

 

 

 

August 31,

 

 

February 28,

 

 

 

2014

 

 

2014

 

 

 

 

 

 

 

 

Accrued compensation, benefits and payroll taxes

 

  $

36,485

 

 

$

69,877

 

Accrued sales returns, discounts and allowances

 

29,666

 

 

25,297

 

Accrued warranty returns

 

22,492

 

 

19,269

 

Accrued advertising

 

20,350

 

 

16,414

 

Accrued product liability, legal and professional fees

 

7,944

 

 

5,705

 

Accrued royalties

 

7,310

 

 

5,712

 

Accrued property, sales and other taxes

 

7,325

 

 

6,835

 

Derivative liabilities, current

 

24

 

 

1,596

 

Liability for uncertain tax positions

 

-

 

 

453

 

Other

 

11,738

 

 

5,530

 

Total accrued expenses and other current liabilities

 

  $

143,334

 

 

$

156,688

 

 

OTHER LIABILITIES, NONCURRENT

(in thousands)

 

 

 

August 31,

 

 

February 28,

 

 

 

2014

 

 

2014

 

 

 

 

 

 

 

 

Deferred compensation liability

 

  $

5,213

 

 

$

7,257

 

Liability for uncertain tax positions

 

11,001

 

 

13,471

 

Other liabilities

 

6,242

 

 

1,038

 

Total other liabilities, noncurrent

 

  $

22,456

 

 

$

21,766

 

 

Note 8 – 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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Table of Contents

 

 

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

 

GOODWILL AND INTANGIBLE ASSETS

(in thousands)

 

 

 

August 31, 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

 

15,964

 

-

 

(11,781

)

4,183

 

 

15,693

 

-

 

(11,149

)

4,544

 

Total Housewares

 

257,296

 

-

 

(11,781

)

245,515

 

 

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

 

-

 

(7,897

)

7,403

 

 

15,300

 

-

 

(6,416

)

8,884

 

Other intangibles - finite

 

114,708

 

-

 

(40,060

)

74,648

 

 

114,490

 

-

 

(34,606

)

79,884

 

Total Healthcare / Home Environment

 

435,766

 

-

 

(47,957

)

387,809

 

 

435,548

 

-

 

(41,022

)

394,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nutritional Supplements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill (1)

 

96,586

 

-

 

-

 

96,586

 

 

-

 

-

 

-

 

-

 

Brand assets - indefinite

 

65,500

 

-

 

-

 

65,500

 

 

-

 

-

 

-

 

-

 

Other intangibles - finite

 

43,800

 

-

 

(1,043

)

42,757

 

 

-

 

-

 

-

 

-

 

Total Nutritional Supplements

 

205,886

 

-

 

(1,043

)

204,843

 

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

-

 

(80

)

70

 

 

150

 

-

 

(77

)

73

 

Licenses - indefinite

 

10,300

 

-

 

-

 

10,300

 

 

10,300

 

-

 

-

 

10,300

 

Licenses - finite

 

18,683

 

-

 

(16,044

)

2,639

 

 

18,683

 

-

 

(15,887

)

2,796

 

Other intangibles - finite

 

49,437

 

-

 

(29,367

)

20,070

 

 

49,437

 

-

 

(26,563

)

22,874

 

Total Personal Care

 

215,165

 

(46,490

)

(45,491

)

123,184

 

 

224,165

 

(46,490

)

(42,527

)

135,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,114,113

 

$

(46,490

)

$

(106,272

)

$

961,351

 

 

$

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.

 

 

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Table of Contents

 

 

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

 

 

 

 

 

 

 

August 31, 2014

 

$

6,315

 

August 31, 2013

 

$

5,408

 

 

 

 

 

Aggregate Amortization Expense

 

 

 

For the six months ended

 

 

 

 

 

 

 

August 31, 2014

 

$

11,574

 

August 31, 2013

 

$

10,839

 

 

 

 

 

 

Estimated Amortization Expense

 

 

 

For the fiscal years ended

 

 

 

 

 

 

 

February 2015

 

$

25,234

 

February 2016

 

$

27,142

 

February 2017

 

$

26,827

 

February 2018

 

$

23,021

 

February 2019

 

$

18,297

 

February 2020

 

$

16,593

 

 

 

13



Table of Contents

 

 

Note 9 – 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, subject to certain future adjustments.  The purchase price was funded from borrowings under the Credit Agreement, as described below, and cash on hand.  The sellers are 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 August 31, 2014 are approximately $3.61 million.  Healthy Directions will report 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 two month period ended August 31, 2014 is as follows:

 

HEALTHY DIRECTIONS - IMPACT ON CONSOLIDATED CONDENSED STATEMENT OF INCOME

June 30, 2014 (Acquisition Date) through August 31, 2014

(in thousands, except earnings per share data)

 

 

 

Two Months Ended

 

 

 

August 31, 2014

 

 

 

 

 

Sales revenue, net

 

  $

24,634

 

Net income

 

69

 

 

 

 

 

Earnings per share:

 

 

 

Basic

 

  $

0.00

 

Diluted

 

  $

0.00

 

 

 

14



Table of Contents

 

 

The following supplemental pro forma information presents the Company’s financial results as if the Healthy Directions acquisition had occurred as of the beginning of the fiscal periods presented. This supplemental pro forma information has been prepared for comparative purposes and would not necessarily indicate what may have occurred if the acquisition had been completed on March 1, 2013, and this information is not intended to be indicative of future results.

 

HEALTHY DIRECTIONS - PRO FORMA IMPACT ON CONSOLIDATED CONDENSED STATEMENTS OF INCOME

As if the Acquisition Had Been Completed at the Beginning of March 1, 2013

(in thousands, except earnings per share data)

 

 

 

Three Months Ended August 31,

 

Six Months Ended August 31,

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

  $

333,100

 

$

355,722

 

  $

684,845

 

$

698,272

 

Net income

 

19,444

 

25,637

 

38,687

 

39,342

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

  $

0.69

 

$

0.80

 

  $

1.35

 

$

1.23

 

Diluted

 

  $

0.68

 

$

0.79

 

  $