10-Q 1 a12-18644_110q.htm QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(D)

 

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, 2012

 

 

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

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

Clarenden House

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    £ (Do not check if a smaller reporting company)

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 3, 2012

Common Shares, $0.10 par value, per share

 

31,806,775 shares

 


 



 

HELEN OF TROY LIMITED AND SUBSIDIARIES

 

INDEX – FORM 10-Q

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Consolidated Condensed Balance Sheets (unaudited)
as of August 31, 2012 and February 29, 2012

3

 

 

 

 

 

 

Consolidated Condensed Statements of Income (unaudited)
for the Three- and Six-Months Ended
August 31, 2012 and August 31, 2011

4

 

 

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income (unaudited)
for the Three- and Six-Months Ended
August 31, 2012 and August 31, 2011

5

 

 

 

 

 

 

Consolidated Condensed Statements of Cash Flows (unaudited)
for the Six Months Ended
August 31, 2012 and August 31, 2011

6

 

 

 

 

 

 

Notes to Consolidated Condensed Financial Statements (unaudited)

7

 

 

 

 

 

Item 2.

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

21

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

36

 

 

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

42

 

 

 

 

 

Item 1A.

Risk Factors

42

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

 

 

 

 

 

Item 6.

Exhibits

43

 

 

 

 

 

Signatures

44

 

- 2 -



 

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 29,

 

 

 

2012

 

2012

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Assets, current:

 

 

 

 

 

Cash and cash equivalents

 

$

21,767

 

$

21,846

 

Receivables - principally trade, less allowances of $5,487 and $5,541

 

208,284

 

195,283

 

Inventory, net

 

318,697

 

246,142

 

Prepaid expenses and other current assets

 

7,939

 

7,645

 

Deferred tax assets, net

 

17,462

 

17,620

 

Total assets, current

 

574,149

 

488,536

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $70,545 and $62,550

 

99,615

 

100,690

 

Goodwill

 

452,253

 

452,350

 

Other intangible assets, net of accumulated amortization of $62,436 and $52,268

 

366,651

 

377,150

 

Deferred tax assets, net

 

734

 

976

 

Other assets, net of accumulated amortization of $4,824 and $3,938

 

15,660

 

16,021

 

Total assets

 

$

1,509,062

 

$

1,435,723

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Liabilities, current:

 

 

 

 

 

Revolving line of credit

 

$

161,000

 

$

171,100

 

Accounts payable, principally trade

 

106,475

 

69,845

 

Accrued expenses and other current liabilities

 

124,753

 

131,632

 

Income taxes payable

 

7,692

 

352

 

Deferred tax liabilities, net

 

1,168

 

2,960

 

Long-term debt, current maturities

 

-

 

3,000

 

Total liabilities, current

 

401,088

 

378,889

 

 

 

 

 

 

 

Long-term debt, excluding current maturities

 

175,000

 

175,000

 

Deferred tax liabilities, net

 

57,265

 

60,576

 

Other liabilities, noncurrent

 

23,349

 

24,529

 

Total liabilities

 

656,702

 

638,994

 

 

 

 

 

 

 

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; 31,789,225 and 31,681,067 shares issued and outstanding

 

3,179

 

3,168

 

Additional paid in capital

 

159,879

 

151,006

 

Accumulated other comprehensive loss

 

(4,747

)

(5,589

)

Retained earnings

 

694,049

 

648,144

 

Total stockholders’ equity

 

852,360

 

796,729

 

Total liabilities and stockholders’ equity

 

$

1,509,062

 

$

1,435,723

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

- 3 -



 

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,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

287,411

 

$

277,420

 

$

587,622

 

$

548,887

 

Cost of goods sold

 

170,381

 

165,138

 

349,444

 

326,692

 

Gross profit

 

117,030

 

112,282

 

238,178

 

222,195

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense

 

86,189

 

81,933

 

176,189

 

161,192

 

Operating income

 

30,841

 

30,349

 

61,989

 

61,003

 

 

 

 

 

 

 

 

 

 

 

Nonoperating income (expense), net

 

31

 

(658

)

54

 

(515

)

Interest expense

 

(3,130

)

(3,265

)

(6,442

)

(6,694

)

Income before income taxes

 

27,742

 

26,426

 

55,601

 

53,794

 

 

 

 

 

 

 

 

 

 

 

Income tax expense:

 

 

 

 

 

 

 

 

 

Current

 

8,487

 

1,044

 

14,388

 

2,434

 

Deferred

 

(3,713

)

1,789

 

(5,227

)

3,162

 

Net income

 

$

22,968

 

$

23,593

 

$

46,440

 

$

48,198

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.72

 

$

0.75

 

$

1.46

 

$

1.55

 

Diluted

 

$

0.72

 

$

0.74

 

$

1.46

 

$

1.52

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Basic

 

31,743

 

31,292

 

31,721

 

31,074

 

Diluted

 

31,846

 

31,731

 

31,843

 

31,696

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

- 4 -



 

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Comprehensive Income (unaudited)

(in thousands)

 

 

 

Three Months Ended August 31,

 

 

 

 

2012

 

 

2011

 

 

 

Before

 

 

 

Net of

 

 

Before

 

 

 

Net of

 

 

 

Tax

 

Tax

 

Tax

 

 

Tax

 

Tax

 

Tax

 

Net income

 

$

27,742

 

$

(4,774

)

$

22,968

 

$

26,426

 

$

(2,833

)

$

23,593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

(457

)

160

 

(297

)

(846

)

296

 

(550

)

Interest rate settlements reclassified to income

 

980

 

(343

)

637

 

1,103

 

(386

)

717

 

Subtotal

 

523

 

(183

)

340

 

257

 

(90

)

167

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - foreign currency swaps and contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

(933

)

327

 

(606

)

499

 

(159

)

340

 

Ineffectiveness recorded in income

 

(14

)

5

 

(9

)

115

 

(36

)

79

 

Settlements reclassified to income

 

(11

)

3

 

(8

)

125

 

(40

)

85

 

Subtotal

 

(958

)

335

 

(623

)

739

 

(235

)

504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auction rate security activity

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

-

 

-

 

-

 

1,423

 

(498

)

925

 

Settlements reclassified to income

 

-

 

-

 

-

 

(6

)

2

 

(4

)

Subtotal

 

-

 

-

 

-

 

1,417

 

(496

)

921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

(435

)

152

 

(283

)

2,413

 

(821

)

1,592

 

Comprehensive income

 

$

27,307

 

$

(4,622

)

$

22,685

 

$

28,839

 

$

(3,654

)

$

25,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended August 31,

 

 

 

 

2012

 

 

2011

 

 

 

Before

 

 

 

Net of

 

 

Before

 

 

 

Net of

 

 

 

Tax

 

Tax

 

Tax

 

Tax

 

Tax

 

Tax

 

Net income

 

$

55,601

 

$

(9,161

)

$

46,440

 

$

53,794

 

$

(5,596

)

$

48,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

(501

)

175

 

(326

)

(3,288

)

1,407

 

(1,881

)

Interest rate settlements reclassified to income

 

1,906

 

(667

)

1,239

 

2,629

 

(1,081

)

1,548

 

Subtotal

 

1,405

 

(492

)

913

 

(659

)

326

 

(333

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - foreign currency swaps and contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

(23

)

9

 

(14

)

12

 

(3

)

9

 

Ineffectiveness recorded in income

 

(49

)

17

 

(32

)

178

 

(56

)

122

 

Settlements reclassified to income

 

(37

)

12

 

(25

)

269

 

(86

)

183

 

Subtotal

 

(109

)

38

 

(71

)

459

 

(145

)

314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auction rate security activity

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

-

 

-

 

-

 

1,465

 

(520

)

945

 

Settlements reclassified to income

 

-

 

-

 

-

 

(126

)

65

 

(61

)

Subtotal

 

-

 

-

 

-

 

1,339

 

(455

)

884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

1,296

 

(454

)

842

 

1,139

 

(274

)

865

 

Comprehensive income

 

$

56,897

 

$

(9,615

)

$

47,282

 

$

54,933

 

$

(5,870

)

$

49,063

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

- 5 -



 

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows (unaudited)

(in thousands)

 

 

Six Months Ended August 31,

 

 

 

2012

 

2011

 

Cash provided (used) by operating activities:

 

 

 

 

 

Net income

 

$

46,440

 

$

48,198

 

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

 

 

 

 

 

Depreciation and amortization

 

17,795

 

13,691

 

Provision for doubtful receivables

 

(54

)

225

 

Share-based compensation

 

3,129

 

1,163

 

Gain on the sale of property and equipment

 

(15

)

(84

)

Unrealized loss on investments

 

-

 

756

 

Deferred income taxes and tax credits

 

(5,231

)

3,114

 

Changes in operating capital:

 

 

 

 

 

Receivables

 

(12,947

)

(12,411

)

Inventories

 

(72,450

)

(40,380

)

Prepaid expenses and other current assets

 

(674

)

(3,382

)

Other assets and liabilities, net

 

(390

)

(796

)

Accounts payable

 

36,611

 

31,394

 

Accrued expenses and other current liabilities

 

(8,544

)

(13,994

)

Accrued income taxes

 

7,083

 

1,792

 

Net cash provided by operating activities

 

10,753

 

29,286

 

 

 

 

 

 

 

Cash provided (used) by investing activities:

 

 

 

 

 

Capital and intangible asset expenditures

 

(5,760

)

(6,979

)

Proceeds from the sale of property and equipment

 

20

 

1,438

 

Proceeds from note receivable related to land sale

 

737

 

-

 

Proceeds from sale of investments

 

-

 

3,100

 

Net cash used by investing activities

 

(5,003

)

(2,441

)

 

 

 

 

 

 

Cash provided (used) by financing activities:

 

 

 

 

 

Proceeds from line of credit

 

114,950

 

485,500

 

Repayment of line of credit

 

(125,050

)

(451,500

)

Repayments of long-term debt

 

(3,000

)

(53,000

)

Payments of financing costs

 

(28

)

(25

)

Proceeds from exercise of stock options and employee stock purchases, including tax benefits

 

6,913

 

2,619

 

Directors’ stock repurchased

 

(72

)

-

 

Payment of tax obligations resulting from cashless option exercise

 

-

 

(12,546

)

Share-based compensation tax benefit

 

458

 

52

 

Net cash used by financing activities

 

(5,829

)

(28,900

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(79

)

(2,055

)

Cash and cash equivalents, beginning balance

 

21,846

 

27,193

 

Cash and cash equivalents, ending balance

 

$

21,767

 

$

25,138

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

- 6 -



 

HELEN OF TROY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)

August 31, 2012

 

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, 2012 and February 29, 2012, and the results of our consolidated operations for the three- and six-month periods ended August 31, 2012 and 2011. 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 29, 2012, and our other reports on file with the Securities and Exchange Commission (“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, and amounts are expressed in thousands of U.S. Dollars.  We refer to the Company’s common shares, par value $0.10 per share, as “common stock.” 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 on December 30, 2011. Kaz and PUR comprise a segment within the Company referred to as the Healthcare / Home Environment segment.  Product and service names mentioned in this report are used for identification purposes only and may be protected by trademarks, trade names, services marks, and/or other intellectual property rights of the Company and/or other parties in the United States and/or 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 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 “ASC” refer to the codification of U.S. 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 three segments: Personal Care, Housewares and Healthcare / Home Environment. 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 Housewares segment provides a broad range of innovative consumer products for the home. Product offerings include food preparation and storage, cleaning, organization, and baby and toddler care products. The Healthcare / Home Environment segment focuses on health care devices such as thermometers, blood pressure monitors, humidifiers, and heating pads; water filtration systems; and small home appliances such as air purifiers, portable heaters, fans, and bug zappers. All three segments sell their products primarily through mass merchandisers, drugstore chains, warehouse clubs, catalogs, grocery stores, and specialty stores. In addition, the Personal Care segment sells extensively through beauty supply retailers and wholesalers, and the Healthcare / Home Environment segment sells certain of its product lines through medical distributors and other products through home improvement stores. 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 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.

 

- 7 -



 

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, 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.

 

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), and (14) provide additional information regarding certain of our significant long-term 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 in the accompanying consolidated condensed statements of income:

 

ACCRUAL FOR WARRANTY RETURNS

(in thousands)

 

 

Three Months Ended August 31,

 

Six Months Ended August 31,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

23,313

 

$

24,369

 

$

26,665

 

$

24,021

 

Additions to the accrual

 

7,899

 

9,386

 

14,773

 

16,496

 

Reductions of the accrual - payments and credits issued

 

(9,352

)

(9,303

)

(19,578

)

(16,065

)

Ending balance

 

$

21,860

 

$

24,452

 

$

21,860

 

$

24,452

 

 

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 and diluted earnings per share using basic earnings per share plus the effect of dilutive securities.  Our securities that can have dilutive effects consist of outstanding options to purchase common stock.  “In-the-money” options to purchase common stock are dilutive because they have exercise prices that are less than the average market price of our common stock during the period reported.  “Out-of-the-money” options to purchase common stock are antidilutive and are excluded from the computation of earnings per share because the exercise price of the options was greater than the average market price of our common stock during the period reported.  For the periods covered in the accompanying consolidated condensed statements of income, the basic and diluted shares are as follows:

 

WEIGHTED AVERAGE DILUTED SECURITIES

(in thousands)

 

 

Three Months Ended August 31,

 

Six Months Ended August 31,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

31,743

 

31,292

 

31,721

 

31,074

 

Incremental shares from share-based payment arrangements

 

103

 

439

 

122

 

622

 

Weighted average shares outstanding, diluted

 

31,846

 

31,731

 

31,843

 

31,696

 

 

 

 

 

 

 

 

 

 

 

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

 

380

 

665

 

376

 

644

 

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

 

617

 

365

 

621

 

386

 

 

- 8 -



 

Note 5 – Segment Information

 

The following tables contain segment information for the periods covered in the accompanying consolidated condensed statements of income:

 

THREE MONTHS ENDED AUGUST 31, 2012 AND 2011

(in thousands)

 

 

Personal

 

 

 

Healthcare / Home

 

 

 

August 31, 2012

 

Care

 

Housewares

 

Environment

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

112,364

 

$

64,570

 

$

110,477

 

$

287,411

 

Operating income

 

11,880

 

12,078

 

6,883

 

30,841

 

Capital and intangible asset expenditures

 

864

 

326

 

1,202

 

2,392

 

Depreciation and amortization

 

3,242

 

1,278

 

4,175

 

8,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Healthcare / Home

 

 

 

August 31, 2011

 

Care

 

Housewares

 

Environment

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

115,296

 

$

63,848

 

$

98,276

 

$

277,420

 

Operating income

 

11,155

 

11,973

 

7,221

 

30,349

 

Capital and intangible asset expenditures

 

3,736

 

385

 

822

 

4,943

 

Depreciation and amortization

 

2,582

 

1,398

 

2,617

 

6,597

 

 

SIX MONTHS ENDED AUGUST 31, 2012 AND 2011

(in thousands)

 

 

Personal

 

 

 

Healthcare / Home

 

 

 

August 31, 2012

 

Care

 

Housewares

 

Environment

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

229,916

 

$

124,819

 

$

232,887

 

$

587,622

 

Operating income

 

23,760

 

23,355

 

14,874

 

61,989

 

Capital and intangible asset expenditures

 

3,119

 

517

 

2,124

 

5,760

 

Depreciation and amortization

 

6,509

 

2,576

 

8,710

 

17,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Healthcare / Home

 

 

 

August 31, 2011

 

Care

 

Housewares

 

Environment

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

238,014

 

$

116,794

 

$

194,079

 

$

548,887

 

Operating income

 

31,007

 

22,838

 

7,158

 

61,003

 

Capital and intangible asset expenditures

 

4,633

 

965

 

1,381

 

6,979

 

Depreciation and amortization

 

5,243

 

2,839

 

5,609

 

13,691

 

 

We compute operating income for each segment based on net sales revenue, less cost of goods sold, selling, general and administrative expense (“SG&A”), and any impairment charges associated with the segment. SG&A used to compute each segment’s operating income is directly associated with the segment, plus overhead expenses allocable to the segment.  We make allocations of overhead between operating segments using a number of relevant allocation criteria, depending on the nature of the expense, the most significant of which are relative revenues, estimates of relative labor expenditures, headcount, and facilities square footage.  In fiscal 2013, we began making certain additional cost allocations to the Healthcare / Home Environment segment that were not made in fiscal 2012.  These allocations are costs of corporate and operating functions that are shared by our segments.  We made this change because we now have a complete fiscal year’s operating experience with the Healthcare / Home Environment segment.  In the past year, we have integrated certain of the segment’s corporate and operating functions into consolidated corporate and shared operating functions. For the three- and six-month periods ended August 31, 2012, the allocation totaled $4.10 and $8.22 million, respectively, compared to $1.51 and $3.01 million, respectively, for the same periods last year.  We do not allocate nonoperating income and expense, interest or income taxes to operating segments.

 

- 9 -



 

Note 6 – Comprehensive Income (Loss)

 

The components of accumulated other comprehensive loss, net of tax, are as follows:

 

COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS

(in thousands)

 

 

August 31,

 

February 29,

 

 

 

2012

 

2012

 

 

 

 

 

 

 

Unrealized holding losses on cash flow hedges - interest rate swap, net of tax (1)

 

$

(4,647

)

$

(5,559

)

Unrealized holding losses on cash flow hedges - foreign currency swaps and contracts, net of tax (2)

 

(100

)

(30

)

Total accumulated other comprehensive loss

 

$

(4,747

)

$

(5,589

)

 

(1) Includes net deferred tax benefits of $2.50 and $2.99 million at August 31, 2012 and February 29, 2012, respectively.

 

(2) Includes net deferred tax benefits of $0.05 and $0.02 million at August 31, 2012 and February 29, 2012, respectively.

 

Note 7 – Supplemental Balance Sheet Information

 

PROPERTY AND EQUIPMENT

(in thousands)

 

 

Estimated

 

 

 

 

 

 

 

Useful Lives

 

August 31,

 

February 29,

 

 

 

(Years)

 

2012

 

2012

 

 

 

 

 

 

 

 

 

Land

 

-

 

$

8,767

 

$

8,767

 

Building and improvements

 

3 - 40

 

66,953

 

66,580

 

Computer, furniture and other equipment

 

3 - 15

 

57,711

 

56,162

 

Tools, molds and other production equipment

 

1 - 10

 

30,818

 

25,617

 

Construction in progress

 

-

 

5,911

 

6,114

 

Property and equipment, gross

 

 

 

170,160

 

163,240

 

Less accumulated depreciation

 

 

 

(70,545

)

(62,550

)

Property and equipment, net

 

 

 

$

99,615

 

$

100,690

 

 

 

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

(in thousands)

 

 

August 31,

 

February 29,

 

 

 

2012

 

2012

 

 

 

 

 

 

 

Accrued sales returns, discounts and allowances

 

$

33,860

 

$

29,481

 

Accrued warranty returns

 

21,860

 

26,665

 

Accrued compensation, benefits and payroll taxes

 

22,331

 

31,754

 

Accrued advertising

 

9,514

 

7,849

 

Accrued royalties

 

7,782

 

6,990

 

Accrued property, sales and other taxes

 

5,781

 

5,745

 

Accrued legal expenses and professional fees

 

5,316

 

5,364

 

Derivative liabilities

 

3,896

 

3,694

 

Other

 

14,413

 

14,090

 

Total accrued expenses and other current liabilities

 

$

124,753

 

$

131,632

 

 

- 10 -



 

OTHER LIABILITIES, NONCURRENT

(in thousands)

 

 

August 31,

 

February 29,

 

 

 

2012

 

2012

 

 

 

 

 

 

 

Deferred compensation liability

 

$

4,727

 

$

4,478

 

Liability for uncertain tax positions

 

13,375

 

13,213

 

Derivative liabilities

 

3,574

 

5,022

 

Other liabilites

 

1,673

 

1,816

 

Total other liabilities, noncurrent

 

$

23,349

 

$

24,529

 

 

Note 8 – Goodwill and Intangible Assets

 

Annual Impairment Testing in the First Quarter of Fiscal 2013 and 2012 - We performed our annual evaluation of goodwill and indefinite-lived intangible assets for impairment during the first quarters of fiscal 2013 and 2012.  As a result, we concluded no impairment charges were required during either period.  For both periods, the estimated fair value of the indefinite-lived trademarks and licenses, reporting unit net assets, and the Company’s estimated enterprise value exceeded their respective carrying values as of the date of the evaluation.

 

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, 2012

 

February 29, 2012

 

 

Gross

 

Cumulative

 

 

 

 

 

 

 

Gross

 

Cumulative

 

 

 

 

 

 

 

Carrying

 

Goodwill

 

Accumulated

 

Net Book

 

 

 

Carrying

 

Goodwill

 

Accumulated

 

Net Book

 

Description

 

Amount

 

Impairments

 

Amortization

 

Value

 

 

 

Amount

 

Impairments

 

Amortization

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Care:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

81,842

 

$

(46,490

)

$

 -

 

$

35,352

 

 

 

$

81,842

 

$

(46,490

)

$

-

 

$

35,352

 

Trademarks - indefinite

 

75,803

 

-

 

-

 

75,803

 

 

 

75,303

 

-

 

-

 

75,303

 

Trademarks - finite

 

150

 

-

 

(70

)

80

 

 

 

150

 

-

 

(67

)

83

 

Licenses - indefinite

 

10,300

 

-

 

-

 

10,300

 

 

 

10,300

 

-

 

-

 

10,300

 

Licenses - finite

 

18,683

 

-

 

(15,344

)

3,339

 

 

 

19,564

 

-

 

(15,967

)

3,597

 

Other intangibles - finite

 

49,437

 

-

 

(17,998

)

31,439

 

 

 

49,437

 

-

 

(15,012

)

34,425

 

Total Personal Care

 

236,215

 

(46,490

)

(33,412

)

156,313

 

 

 

236,596

 

(46,490

)

(31,046

)

159,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Housewares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

166,131

 

-

 

-

 

166,131

 

 

 

166,131

 

-

 

-

 

166,131

 

Trademarks - indefinite

 

75,200

 

-

 

-

 

75,200

 

 

 

75,200

 

-

 

-

 

75,200

 

Other intangibles - finite

 

15,724

 

-

 

(9,572

)

6,152

 

 

 

15,774

 

-

 

(9,000

)

6,774

 

Total Housewares

 

257,055

 

-

 

(9,572

)

247,483

 

 

 

257,105

 

-

 

(9,000

)

248,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare / Home Environment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

250,770

 

-

 

-

 

250,770

 

 

 

250,867

 

-

 

-

 

250,867

 

Trademarks - indefinite

 

54,000

 

-

 

-

 

54,000

 

 

 

54,000

 

-

 

-

 

54,000

 

Licenses - finite

 

15,300

 

-

 

(1,974

)

13,326

 

 

 

14,900

 

-

 

(481

)

14,419

 

Other Intangibles - finite

 

114,490

 

-

 

(17,478

)

97,012

 

 

 

114,790

 

-

 

(11,741

)

103,049

 

Total Healthcare / Home Environment

 

434,560

 

-

 

(19,452

)

415,108

 

 

 

434,557

 

-

 

(12,222

)

422,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

927,830

 

$

(46,490

)

$

 (62,436

)

$

818,904

 

 

 

$

928,258

 

$

(46,490

)

$

(52,268

)

$

829,500

 

 

The following table summarizes the amortization expense attributable to intangible assets for the periods covered in the accompanying consolidated condensed statements of income, as well as our estimated amortization expense for the fiscal years 2013 through 2018.

 

- 11 -


 


 

AMORTIZATION OF INTANGIBLE ASSETS

 

 

 

(in thousands)

 

 

 

Aggregate Amortization Expense

 

 

 

For the three months ended

 

 

 

 

 

 

 

August 31, 2012

 

$

5,626

 

August 31, 2011

 

$

4,492

 

 

 

 

 

Aggregate Amortization Expense

 

 

 

For the six months ended

 

 

 

 

 

 

 

August 31, 2012

 

$

11,262

 

August 31, 2011

 

$

9,049

 

 

 

 

 

Estimated Amortization Expense

 

 

 

For the fiscal years ended

 

 

 

 

 

 

 

February 2013

 

$

22,326

 

February 2014

 

$

21,583

 

February 2015

 

$

21,019

 

February 2016

 

$

20,835

 

February 2017

 

$

20,500

 

February 2018

 

$

16,677

 

 

- 12 -



 

NOTE 9 - Acquisitions

 

PUR Acquisition - On December 30, 2011, we completed an asset and stock purchase transaction in which we acquired 100 percent of the stock of PUR Water Purification Products, Inc., and certain other assets and liabilities from The Procter & Gamble Company and certain of its affiliates (“P&G”) for a net cash purchase price of $160 million, subject to future adjustments.  The acquisition was funded entirely with short-term debt.  Significant assets acquired include manufacturing equipment, trademarks, customer lists, distribution rights, patents, and the goodwill of the PUR water filtration business.  PUR’s product line includes faucet mount water filtration systems and filters, pitcher systems and filters, and refrigerator filters.  We are operating the PUR business in our Healthcare / Home Environment segment and market its products primarily into retail trade channels in the U.S.  Goodwill arising from the acquisition consists largely of the distribution network, marketing synergies and economies of scale that are anticipated from the addition of the new product line.

 

In connection with this acquisition, we entered into transitional services and supply agreements whereby P&G or one or more of its affiliates will provide certain short-term services for, and supply certain products to the Company in exchange for specified fees. We finished using certain of these services in the second quarter of fiscal 2013 and acquired the remaining PUR inventory on-hand from P&G.

 

We accounted for the acquisition as the purchase of a business and recorded the excess purchase price as goodwill. None of the goodwill recognized is expected to be deductible for income tax purposes. We completed our preliminary estimate of the economic lives of all the assets acquired and a preliminary allocation of the initial purchase price. We assigned the acquired trademarks indefinite economic lives and are amortizing the customer list,  patents, trademarks and technology license agreements, and covenant not to compete over expected weighted average lives of approximately 15.0,  12.4,  5.2, and 2.0  years, respectively.  For the customer list, we used historical attrition rates to assign an expected life.  For patent rights, we used the underlying non-renewable term of a royalty-free license we acquired for the use of patented designs in certain PUR products.

 

The following schedule presents the acquisition date fair value of the net assets of PUR:

 

PUR - NET ASSETS ACQUIRED ON DECEMBER 30, 2011

(in thousands)

 

 

 

 

 

 

 

Supplier tooling advances

 

$

1,432

 

Tools, dies, molds and other production equipment

 

12,495

 

Goodwill

 

86,162

 

Trademarks

 

54,000

 

Trademark and technology licensing agreements

 

14,900

 

Patents

 

4,140

 

Customer relationships

 

18,600

 

Covenant not to compete

 

200

 

Total assets acquired

 

191,929

 

Less: Deferred tax liabilities recorded at acquisition

 

(31,929

)

Net assets acquired

 

$

160,000

 

 

We estimated the fair values of the PUR assets acquired by applying income and market approaches. The fair value measurement of the intangible assets is 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 15.20 percent weighted average cost of capital, a royalty rate of 7.0 percent used to determine the trademark fair value, royalty rates of 0.50 to 1.00 percent used to determine patent estate values, and customer attrition rates of 5.00 percent per year used to determine customer list value.

 

- 13 -



 

Note 10 – Debt

 

Revolving Line of Credit - We have a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. that provides for an unsecured total revolving commitment of up to $250.00 million. The commitment under the Credit Agreement terminates on December 30, 2015.  Borrowings accrue interest under one of two alternative methods as described in the Credit Agreement.  With each borrowing against our credit line, we can elect the interest rate method based on our funding needs at the time.  We also incur loan commitment fees and letter of credit fees under the Credit Agreement.  Outstanding letters of credit reduce the borrowing availability under the Credit Agreement on a dollar-for-dollar basis.  As of August 31, 2012, the outstanding revolving loan principal balance was $161.00 million and there were $0.62 million of open letters of credit outstanding against the Credit Agreement. For the three- and six-month periods ended August 31, 2012, borrowings under the Credit Agreement incurred interest charges at rates ranging from 1.61 to 3.63 percent and 1.61 to 4.00 percent, respectively.  As of August 31, 2012, the amount available for borrowings under the Credit Agreement was $88.38 million.

 

Long-Term Debt – A summary of our long-term debt is as follows:

 

LONG-TERM DEBT

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Original

 

 

 

 

 

 

 

 

 

 

 

Date

 

Interest

 

 

 

August 31,

 

February 29,

 

 

 

Borrowed

 

Rates

 

Matures

 

2012

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

$15 million unsecured Senior Note payable at a fixed interest rate of 7.24%. Interest payable quarterly. Annual principal payments of $3 million began in July 2008. Paid in July 2012.

 

07/97

 

7.24%

 

07/12

 

$

-

 

$

3,000

 

 

 

 

 

 

 

 

 

 

 

 

 

$75 million unsecured floating interest rate 10 year Senior Notes. Interest set and payable quarterly at three-month LIBOR plus 90 basis points. Principal is due at maturity. Notes can be prepaid without penalty. (1)

 

06/04

 

6.01%

 

06/14

 

75,000

 

75,000

 

 

 

 

 

 

 

 

 

 

 

 

 

$100 million unsecured Senior Notes payable at a fixed interest rate of 3.90%. Interest payable semi-annually. Annual principal payments of $20 million begin in January 2014. Prepayment of notes are subject to a “make whole” premium.

 

01/11

 

3.90%

 

01/18

 

100,000

 

100,000

 

Total long-term debt

 

 

 

 

 

 

 

175,000

 

178,000

 

Less current maturities of long-term debt

 

 

 

 

 

 

 

-

 

(3,000

)

Long-term debt, excluding current maturities

 

 

 

 

 

 

 

$

175,000

 

$

175,000

 

 

(1)          Floating interest rates have been hedged with an interest rate swap (the “Swap”) to effectively fix interest rates. Additional information regarding the swap is provided in Note 12 to these consolidated condensed financial statements.

 

The fair market value of the fixed rate debt at August 31, 2012 computed using a discounted cash flow analysis was $104.56 million compared to the $100.00 million book value and represents a Level 2 liability. All other long-term debt has floating interest rates, and its book value approximates its fair value at August 31, 2012.

 

All of our debt is unconditionally guaranteed, on a joint and several basis, by the Company and certain of its subsidiaries. Our debt agreements require the maintenance of certain financial covenants, including maximum leverage ratios, minimum interest coverage ratios and minimum consolidated net worth levels (as each of these terms is defined in the various agreements).  Our debt agreements also contain other customary covenants, including, among other things, covenants restricting or limiting the Company, except under certain conditions set forth therein, from (1) incurring debt, (2) incurring liens on its properties, (3) making certain types of investments, (4) selling certain assets or making other fundamental changes relating to mergers and consolidations, and (5) repurchasing shares of our common stock and paying dividends.

 

- 14 -



 

As of August 31, 2012, our debt agreements effectively limited our ability to incur more than $237.60 million of additional debt from all sources, including draws on the Credit Agreement. As of August 31, 2012, we were in compliance with the terms of all of our debt agreements.

 

Note 11 – Fair Value

 

The fair value hierarchy of our financial assets and liabilities carried at fair value and measured on a recurring basis is as follows:

 

FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Quoted Prices in

 

Significant Other

 

 

 

 

 

Active Markets

 

Observable

 

 

 

Fair Values at

 

for Identical Assets

 

Market Inputs

 

Description

 

August 31, 2012

 

(Level 1)

 

(Level 2)

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Money market accounts

 

$

1,119

 

$

1,119

 

$

-

 

Foreign currency contracts and currency swaps

 

36

 

-

 

36

 

Total assets

 

$

1,155

 

$

1,119

 

$

36

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Long-term debt - fixed rate (1)

 

$

104,559

 

$

-

 

$

104,559

 

Long-term debt - floating rate

 

75,000

 

-

 

75,000

 

Interest rate swap

 

7,148

 

-

 

7,148

 

Foreign currency contracts

 

322

 

-

 

322

 

Total liabilities

 

$

187,029

 

$

-

 

$

187,029

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted Prices in

 

Significant Other

 

 

 

 

 

Active Markets

 

Observable

 

 

 

Fair Values at

 

for Identical Assets

 

Market Inputs

 

Description

 

February 29, 2012

 

(Level 1)

 

(Level 2)

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Money market accounts

 

$

801

 

$

801

 

$

-

 

Note receivable (1)

 

737

 

-

 

737

 

Total assets

 

$

1,538

 

$

801

 

$

737

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Long-term debt - fixed rate (1)

 

$

104,450

 

$

-

 

$

104,450

 

Long-term debt - floating rate

 

75,000

 

-

 

75,000

 

Interest rate swap

 

8,553

 

-

 

8,553

 

Foreign currency contracts

 

163

 

-

 

163

 

Total liabilities

 

$

188,166

 

$

-

 

$

188,166

 

 

(1)          Note receivable and debt values are reported at estimated fair value in these tables, but are recorded in the accompanying consolidated condensed balance sheets at the undiscounted value of remaining principal payments due.

 

The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value because of the short maturity of these items.

 

Money market accounts are included in cash and cash equivalents in the accompanying consolidated condensed balance sheets and are classified as Level 1 assets.

 

- 15 -



 

We classify our note receivable as a Level 2 asset and our fixed and floating rate debt as Level 2 liabilities because the estimation of the fair market value of these financial assets and liabilities requires the use of discount rates based upon current market rates of interest for obligations with comparable remaining terms. Such comparable rates are significant other observable market inputs. The fair market value of the note receivable was computed using a discounted cash flow analysis and a discount rate of 6.95 percent at February 29, 2012. The fair market value of the fixed rate debt was computed using a discounted cash flow analysis and discount rate of 2.48 percent at August 31, 2012 (one Senior Note) and rates ranging from 0.54 to 3.54 percent at February 29, 2012 (multiple Senior Notes), depending on the term of the loan. All other long-term debt has floating interest rates, and its book value approximates its fair value as of the reporting date.

 

We use derivatives for hedging purposes and our derivatives are primarily foreign currency contracts, a foreign currency swap and an interest rate swap. We determine the fair value of our derivative instruments based on Level 2 inputs in the fair value hierarchy.

 

The Company’s other non-financial assets include goodwill and other intangible assets, which we classify as Level 3 assets. These assets are measured at fair value on a non-recurring basis as part of the Company’s impairment assessments and as circumstances require.

 

Note 12 – Financial Instruments and Risk Management

 

Foreign Currency Risk - Our functional currency is the U.S. Dollar. By operating internationally, we are subject to foreign currency risk from transactions denominated in currencies other than the U.S. Dollar (“foreign currencies”).  Such transactions include sales, certain inventory purchases and operating expenses. As a result of such transactions, portions of our cash, trade accounts receivable and trade accounts payable are denominated in foreign currencies.  During the three- and six-month periods ended August 31, 2012, approximately 16 percent of our net sales revenue was in foreign currencies.  During the three- and six-month periods ended August 31, 2011, approximately 17 and 19 percent, respectively, of our net sales revenue was in foreign currencies.  In each of the periods, sales were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, Japanese Yen, Australian Dollars, Chilean Pesos, Peruvian Soles, and Venezuelan Bolivares Fuertes. We make most of our inventory purchases from the Far East and use the U.S. Dollar for such purchases.  In our consolidated condensed statements of income, exchange gains and losses resulting from the remeasurement of foreign taxes receivable, taxes payable, deferred tax assets, and deferred tax liabilities are recognized in their respective income tax lines, and all other foreign exchange gains and losses from remeasurement are recognized in SG&A.  For the three- and six-month periods ended August 31, 2012, we recorded net foreign exchange gains (losses), including the impact of currency hedges and currency swaps, of $0.77 and ($0.17) million, respectively, in SG&A and ($0.03) and $0.16 million, respectively, in income tax expense.  For the three- and six-month periods ended August 31, 2011, we recorded net foreign exchange gains (losses), including the impact of currency hedges, of ($0.05) and ($0.20) million, respectively, in SG&A and ($0.04) and ($0.08) million, respectively, in income tax expense.

 

We have historically hedged against certain foreign currency exchange rate risk by using a series of forward contracts designated as cash flow hedges to protect against the foreign currency exchange risk inherent in our forecasted transactions denominated in currencies other than the U.S. Dollar.  We do not enter into any forward exchange contracts or similar instruments for trading or other speculative purposes.

 

Interest Rate Risk – Interest on our outstanding debt as of August 31, 2012 is both floating and fixed.  Fixed rates are in place on $100.00 million of Senior Notes due January 2018 at 3.90 percent and floating rates are in place on $161.00 million in advances against our Credit Agreement and $75.00 million of Senior Notes due June 2014.  If short-term interest rates increase, we will incur higher interest rates on any outstanding balances under the Credit Agreement. The floating rate Senior Notes due June 2014 reset as described in Note 10, and have been effectively converted to fixed rate debt using an interest rate swap, as described below.

 

We manage our floating rate debt using an interest rate swap.  As of August, 31, 2012, the swap converted an aggregate notional principal amount of $75.00 million from floating interest rate payments under our Senior Notes due June 2014 to fixed interest rate payments at 6.01 percent.  In the swap transaction, we maintain

 

- 16 -



 

contracts to pay fixed rates of interest on an aggregate notional principal amount of $75.00 million at a rate of 5.11 percent on our Senior Notes due June 2014, while simultaneously receiving floating rate interest payments set at 0.46 percent as of August 31, 2012 on the same notional amounts. The fixed rate side of the swap will not change over its life. The floating rate payments are reset quarterly based on three-month LIBOR. The resets are concurrent with the interest payments made on the underlying debt. Changes in the spread between the fixed rate payment side of the swap and the floating rate receipt side of the swap offset 100 percent of the change in any period of the underlying debt’s floating rate payments. The swap is used to reduce our risk of increased interest costs; however, when interest rates drop significantly below the swap rate, we lose the benefit that our floating rate debt would provide if not managed with a swap. The swap is considered 100 percent effective.

 

In addition, during August 2012, we entered into two foreign currency swaps maturing October 2012, which we accounted for as cash flow hedges.

 

The fair values of our various derivative instruments are as follows:

 

FAIR VALUES OF DERIVATIVE INSTRUMENTS

(in thousands)

August 31, 2012

 

 

 

 

 

 

 

 

Prepaid

 

Accrued

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

Expenses

 

 

 

 

 

 

 

Final

 

 

 

and Other

 

and Other

 

Other

 

 

 

 

 

Settlement

 

Notional

 

Current

 

Current

 

Liabilities,

 

Designated as hedging instruments

 

Hedge Type

 

Date

 

Amount

 

Assets

 

Liabilities

 

Noncurrent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts - sell Canadian

 

Cash flow

 

12/2012

 

$

7,000

 

$

-    

 

$

209

 

$

-    

 

Foreign currency contracts - sell Euro

 

Cash flow

 

2/2013

 

10,000

 

-    

 

104

 

-    

 

Foreign currency contracts - sell Pounds

 

Cash flow

 

2/2013

 

£

4,500

 

-    

 

9

 

-    

 

Foreign currency swaps - buy Canadian

 

Cash flow

 

10/2012

 

$

2,400

 

36

 

-    

 

-    

 

Interest rate swap

 

Cash flow

 

6/2014

 

$

75,000

 

-    

 

3,574

 

3,574

 

Total fair value

 

 

 

 

 

 

 

$

36

 

$

3,896

 

$

3,574

 

 

February 29, 2012

 

 

 

 

 

 

 

 

Prepaid

 

Accrued

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

Expenses

 

 

 

 

 

 

 

Final

 

 

 

and Other

 

and Other

 

Other

 

 

 

 

 

Settlement

 

Notional

 

Current

 

Current

 

Liabilities,

 

Designated as hedging instruments

 

Hedge Type

 

Date

 

Amount

 

Assets

 

Liabilities

 

Noncurrent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts - sell Canadian

 

Cash flow

 

12/2012

 

$

7,000

 

$

-    

 

$

163

 

$

-    

 

Interest rate swap

 

Cash flow

 

6/2014

 

$

75,000

 

-    

 

3,531

 

5,022

 

Total fair value

 

 

 

 

 

 

 

$

-    

 

$

3,694

 

$

5,022

 

 

- 17 -



 

The pre-tax effect of derivative instruments for the periods covered in the accompanying consolidated condensed financial statements are as follows:

 

PRE-TAX EFFECT OF DERIVATIVE INSTRUMENTS

(in thousands)

 

 

Three Months Ended August 31,

 

 

 

 

Gain \ (Loss)

 

 

Gain \ (Loss) Reclassified

 

 

 

 

 

 

 

 

Recognized in OCI

 

 

from Accumulated Other

 

 

 

Gain \ (Loss) Recognized

 

 

 

 

(effective portion)

 

 

Comprehensive Loss into Income

 

 

 

as Income (1)

 

 

 

 

2012

 

 

2011

 

 

Location

 

 

2012

 

 

 

2011

 

 

 

Location

 

 

2012

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency contracts - ordinary and cash flow hedges

 

$

(933

)

$

499

 

 

SG&A

 

$

11

 

 

$

(125

)

 

 

SG&A

 

$

14

 

$

(115)

 

Interest rate swaps - cash flow hedges

 

 

(457

)

 

(846

)

 

Interest expense

 

 

(980

)

 

 

(1,103

)

 

 

 

 

 

-    

 

 

-      

 

Total

 

$

(1,390

)

$

(347

)

 

 

 

$

(969

)

 

$

(1,228

)

 

 

 

 

$

14

 

$

(115)

 

 

 

 

 

 

 

Six Months Ended August 31,

 

 

 

 

Gain \ (Loss)

 

 

Gain \ (Loss) Reclassified

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognized in OCI

 

 

from Accumulated Other

 

 

 

Gain \ (Loss) Recognized

 

 

 

 

(effective portion)

 

 

Comprehensive Loss into Income

 

 

 

as Income (1)

 

 

 

 

2012

 

 

2011

 

 

Location

 

 

2012

 

 

 

2011

 

 

 

Location

 

 

2012

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency contracts - ordinary and cash flow hedges

 

$

(23

)

$

12

 

 

SG&A

 

$

37

 

 

$

(269

)

 

 

SG&A

 

$

49

 

$

(178)

 

Interest rate swaps - cash flow hedges

 

 

(501

)

 

(3,288

)

 

Interest expense

 

 

(1,906

)

 

 

(2,629

)

 

 

 

 

 

-    

 

 

-      

 

Total

 

$

(524

)

$

(3,276

)

 

 

 

$

(1,869

)

 

$

(2,898

)

 

 

 

 

$

49

 

$

(178)

 

 

(1)  The amounts shown represent the ineffective portion of the change in fair value of cash flow hedges.

 

We expect net losses of $0.29 million associated with foreign currency contracts and a foreign currency swap, and a loss of $3.57 million associated with our interest rate swap, currently reported in accumulated other comprehensive loss, to be reclassified into income over the next twelve months. The amount ultimately realized, however, will differ as exchange rates and interest rates change and the underlying contracts settle.

 

Counterparty Credit Risk - Financial instruments, including foreign currency contracts, foreign currency swaps and interest rate swaps, expose us to counterparty credit risk for nonperformance. We manage our exposure to counterparty credit risk by only dealing with counterparties who are substantial international financial institutions with significant experience using such derivative instruments. Although our theoretical credit risk is the replacement cost at the then- estimated fair value of these instruments, we believe that the risk of incurring credit risk losses is remote.

 

- 18 -



 

Note 13 – Repurchase of Helen of Troy Common Stock

 

As of August 31, 2012, we are authorized by our Board of Directors to purchase up to 3,019,071 shares of common stock in the open market or through private transactions. Our current equity compensation plans include provisions that allow for the “cashless exercise” of stock options by all plan participants. In a cashless exercise, any required payroll taxes, federal withholding taxes and exercise price of the shares due from the option holder can be paid for by having the option holder tender back to the Company a number of shares at fair value equal to the amounts due. Cashless exercises are accounted for by the Company as a purchase and retirement of shares.

 

For the periods covered in the accompanying consolidated condensed financial statements, there was no open market repurchase activity; however, common stock option exercises and director stock compensation resulted in the following share repurchases:

 

SHARE REPURCHASES

 

 

 

Three Months Ended August 31,

 

Six Months Ended August 31,

 

 

 

2012

 

2011

 

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common stock received from stock option exercises

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

 

2,595

 

1,040,079

 

 

 

47,039  

 

1,066,262

 

Aggregate market value of shares (in thousands)

 

 

$

82

 

$

37,345

 

 

 

  $

1,558  

 

$

38,182

 

Average price per share

 

 

$

31.46

 

$

35.91

 

 

 

  $

33.11  

 

$

35.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common stock received from director stock compensation

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

 

1,122

 

-

 

 

 

2,244  

 

-

 

Aggregate market value of shares (in thousands)

 

 

$

34

 

$

-

 

 

 

  $

72  

 

$

-

 

Average price per share

 

 

$

30.30

 

$

-

 

 

 

  $

32.04  

 

$

-

 

 

Note 14 – Share-Based Compensation Plans

 

We have options and restricted shares outstanding under two expired and three active share-based compensation plans.

 

During the three- and six-month periods ended August 31, 2012, the Company granted options to purchase 7,000 and 308,000 shares of common stock, respectively. For the fiscal year to date, these options were granted at exercise prices ranging from $31.68 to $34.72 per share to certain of our officers, employees and new hires. The fair value of the options were estimated using the Black-Scholes option pricing model to estimate fair values ranging from $10.17 to $14.57 for grants with terms of four and five years. The following assumptions were used for the grants: expected lives ranging from 4.05 to 4.35 years; risk free interest rates ranging from 0.55 to 0.86 percent; zero dividend yield; and expected volatilities ranging from 45.11 to 52.48 percent.

 

During the three- and six-month periods ended August 31, 2012, the Company granted 3,750 and 7,500 shares of restricted stock, respectively, to certain board members having fair values at the date of grant ranging from $30.30 to $32.88 per share and a total value granted of $0.12 and $0.24 million, respectively. The restricted stock awards vested immediately and were valued at the fair value of the Company’s common stock at the date of the grant.

 

A significant portion of our Chief Executive Officer’s current and long-term incentive compensation will be settled in restricted stock, as described below. The expense impact of this compensation for the three- and six-month periods ended August 31, 2012 has been included in the following table.

 

On March 1, 2012, under the terms of his employment agreement, our Chief Executive Officer and President was granted 700,000 restricted stock units (the “Performance RSUs”), which may be earned in tranches based on the Company’s achievement of specified performance goals for fiscal years 2013, 2014 and 2015. Any earned Performance RSUs are subject to additional time-based vesting requirements. Up to 100,000 and 200,000 Performance RSUs may be earned based on the Company’s achievement of the specified performance goals for fiscal years 2013 and 2014, respectively. Up to 700,000 Performance RSUs (less the number of Performance

 

- 19 -



 

RSUs previously earned, if any) may be earned based on the Company’s achievement of either the specified performance goals for fiscal year 2015 or the three year average performance goal for the three fiscal years 2013 through 2015. The Performance RSUs had a fair value at the date of grant of $32.88 per share for a grant date fair value of $23.02 million. Compensation expense associated with Performance RSUs is equal to the market value of our common stock on the date of the grant multiplied by the number of Performance RSUs vesting during any given period. Expense for each tranche must be estimated until earned, subject to a probability assessment of achieving the performance criteria specified for the tranche. We are recording the expense for each tranche over the related service periods.

 

Our Chief Executive Officer and President is also eligible to receive an annual bonus, subject to the achievement of specified performance goals. Any such bonus that is earned and payable will be paid two-thirds in the form of cash or cash equivalents up to a maximum of $10.00 million. The remainder will be paid in the form of restricted stock. Any restricted stock granted will vest, with respect to annual bonuses for fiscal years 2013 and 2014, on February 28, 2015, and with respect to annual bonus for fiscal year 2015, on the date the Company certifies that the performance goals have been achieved. These restricted stock grants are accrued during the period they can be expected to vest.

 

Accruals for Performance RSU’s and restricted stock grants are shown in the line below entitled “Performance based restricted stock awards and units.”

 

During the three- and six-month periods ended August 31, 2012, employees exercised stock options to purchase 37,901 and 130,906 shares of common stock, respectively.

 

We recorded share-based compensation expense in SG&A for the periods covered in the accompanying consolidated condensed financial statements as follows:

 

SHARE-BASED PAYMENT EXPENSE

(in thousands, except per share data)

 

 

 

Three Months Ended August 31,

 

Six Months Ended August 31,

 

 

 

2012

 

 

2011

 

 

 

2012

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

$

612

 

 

$

538

 

 

 

$

1,159

 

 

$

1,004

 

Directors stock compensation

 

 

114

 

 

-    

 

 

 

237

 

 

-    

 

Performance based restricted stock awards and units

 

 

663

 

 

-    

 

 

 

1,595

 

 

-    

 

Employee stock purchase plan

 

 

138

 

 

159

 

 

 

138

 

 

159

 

Share-based payment expense

 

 

1,527

 

 

697

 

 

 

3,129

 

 

1,163

 

Less income tax benefits

 

 

(193

)

 

(27

)

 

 

(458

)

 

(52

)

Share-based payment expense, net of income tax benefits

 

 

$

1,334

 

 

$

670

 

 

 

$

2,671

 

 

 $

1,111

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share impact of share-based payment expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

$

0.04

 

 

$

0.02

 

 

 

$

0.08

 

 

$

0.04

 

Diluted

 

 

$

0.04

 

 

$

0.02

 

 

 

$

0.08

 

 

$

0.04

 

 

- 20 -



 

ITEM 2.              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This discussion contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially due to a number of factors, including those discussed in Part I, Item 3. “Quantitative and Qualitative Disclosures about Market Risk” and “Information Regarding Forward Looking Statements” in this report and “Risk Factors” in the Company’s most recent annual report on Form 10-K and its other filings with the Securities and Exchange Commission (the “SEC”). This discussion should be read in conjunction with our consolidated condensed financial statements included under Part I, Item 1 of this report.

 

OVERVIEW OF THE QUARTER’S RESULTS:

 

Retail sales in the U.S. began to strengthen in July, and overall retail sales in August showed growth in comparison to the prior year. Housing starts and new mortgage applications, a strong leading indicator for many of our product lines, appear to be trending modestly upward. However, recent moves in the Consumer Confidence Index are mixed, which we believe is due in large part to coverage of economic conditions, weak job growth and the uncertainty created by future potential tax increases and government spending cuts. The impact of these issues could put a damper on holiday spending.

 

U.S. macroeconomic conditions marginally improved over the fiscal quarter. However, global macroeconomic conditions, including a pullback in the Chinese economy, recession in parts of Europe and Latin America and continued uncertainty surrounding European sovereign debt issues, continue to signal caution for the remainder of the year.

 

In our second fiscal quarter, we continued to be constrained by the current economic conditions. We believe the increases in consumer spending are concentrated in non-discretionary purchases. Consumers continue to be thrifty and promotion oriented, which has reduced consumption and impacted sales mix in many of our product categories. Against this backdrop, our top-line performance did not meet our expectations for the quarter in many of our product categories. Promotional pressure, soft takeaway at retail, shelf placement challenges, cost pressures from our suppliers, and the general economic uncertainties discussed above continue to keep us cautious regarding our outlook for the remainder of fiscal 2013.

 

Consolidated net sales revenue for the three- and six-month periods ended August 31, 2012 increased $9.99 and $38.74 million to $287.41 and $587.62 million, respectively, compared to $277.42 and $548.89 million, respectively, for the same periods last year. Net sales revenue in our Personal Care segment decreased $2.93 million, or 2.5 percent, for the three month period ended August 31, 2012, and decreased $8.10 million, or 3.4 percent, for the six month period ended August 31, 2012, when compared to the same periods last year. Net sales revenue in our Housewares segment increased $0.72 million, or 1.1 percent, for the three month period ended August 31, 2012, and increased $8.03 million, or 6.9 percent, for the six month period ended August 31, 2012, when compared to the same periods last year. Net sales revenue in our Healthcare / Home Environment segment increased $12.20 million, or 12.4 percent, for the three month period ended August 31, 2012, and increased $38.81 million, or 20.0 percent, for the six month period ended August 31, 2012, when compared to the same periods last year. The Healthcare / Home Environment segment’s results for the three- and six-month periods ended August 31, 2012 include $26.25 and $50.54 million, respectively, of incremental net sales revenue from our PUR water filtration business, which was acquired on December 30, 2011. In addition to our net sales revenue performance discussed above, key results for the three- and six-month periods ended August 31, 2012 include the following:

 

·                  Consolidated gross profit margin as a percentage of net sales revenue for the fiscal quarter ended August 31, 2012 increased 0.2 percentage points to 40.7 percent compared to 40.5 percent for the same period last year. Consolidated gross profit margin as a percentage of net sales for the six month period ended August 31, 2012 of 40.5 percent was flat compared to the same period last year.

 

- 21 -



 

·                  Selling, general and administrative expense (“SG&A”) as a percentage of net sales increased 0.5 percentage points to 30.0 percent for the three months ended August 31, 2012 compared to 29.5 percent for the same period last year. SG&A as a percentage of net sales for the six months ended August 31, 2012 increased 0.6 percentage points to 30.0 percent compared to 29.4 percent for the same period last year.

 

·                  For the three- and six- month periods ended August 31, 2012, operating income increased to $30.84 and $61.99 million compared to $30.35 and $61.00 million, respectively, for the same periods last year. For the three- and six-month periods ended August 31, 2012, this represents a year-over-year increase of 1.6 percent for each period.

 

·                  For the three- and six-month periods ended August 31, 2012, our net income was $22.97 and $46.44 million, respectively, compared to $23.59 and $48.20 million, respectively, for the same periods last year, a decrease of 2.6 and 3.6 percent, respectively. For the three- and six-month periods ended August 31, 2012, our diluted earnings per share was $0.72 and $1.46 compared to $0.74 and $1.52, respectively, for the same periods last year.

 

- 22 -


 


 

RESULTS OF OPERATIONS

 

Comparison of the three- and six-month periods ended August 31, 2012 to the same periods ended August 31, 2011

 

The following table sets forth, for the periods indicated, our selected operating data, in U.S. Dollars, as a year-over-year percentage change and as a percentage of net sales revenue.

 

SELECTED OPERATING DATA

(dollars in thousands)

 

 

Three Months Ended August 31,

 

 

 

 

 

 

% of Sales Revenue, net

 

 

2012

 

2011

 

$

 Change

 

% Change

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Care

 

$

112,364

 

$

115,296

 

$

(2,932

)

-2.5%

 

39.1

%

41.6

%

Housewares

 

64,570

 

63,848

 

722

 

1.1%

 

22.5

%

23.0

%

Healthcare / Home Environment **

 

110,477

 

98,276

 

12,201

 

12.4%

 

38.4

%

35.4

%

Total sales revenue, net

 

287,411

 

277,420

 

9,991

 

3.6%

 

100.0

%

100.0

%

Cost of goods sold

 

170,381

 

165,138

 

5,243

 

3.2%

 

59.3

%

59.5

%

Gross profit

 

117,030

 

112,282

 

4,748

 

4.2%

 

40.7

%

40.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expense

 

86,189

 

81,933

 

4,256

 

5.2%

 

30.0

%

29.5

%

Operating income

 

30,841

 

30,349

 

492

 

1.6%

 

10.7

%

10.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonoperating income (expense), net

 

31

 

(658

)

689

 

*    

 

0.0

%

-0.2

%

Interest expense

 

(3,130

)

(3,265

)

135

 

-4.1%

 

-1.1

%

-1.2

%

Total other income (expense)

 

(3,099

)

(3,923

)

824

 

-21.0%

 

-1.1

%

-1.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

27,742

 

26,426

 

1,316

 

5.0%

 

9.7

%

9.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

4,774

 

2,833

 

1,941

 

68.5%

 

1.7

%

1.0

%

Net income

 

$

22,968

 

$

23,593

 

$

(625

)

-2.6%

 

8.0

%

8.5

%

 

 

 

 

Six Months Ended August 31,

 

 

 

 

 

 

% of Sales Revenue, net

 

 

2012

 

2011

 

$

 Change

 

% Change

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Care

 

$

229,916

 

$

238,014

 

$

(8,098

)

-3.4%

 

39.1

%

43.4

%

Housewares

 

124,819

 

116,794

 

8,025

 

6.9%

 

21.3

%

21.3

%

Healthcare / Home Environment **

 

232,887

 

194,079

 

38,808

 

20.0%

 

39.6

%

35.3

%

Total sales revenue, net

 

587,622

 

548,887

 

38,735

 

7.1%

 

100.0

%

100.0

%

Cost of goods sold

 

349,444

 

326,692

 

22,752

 

7.0%

 

59.5

%

59.5

%

Gross profit

 

238,178

 

222,195

 

15,983

 

7.2%

 

40.5

%

40.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expense

 

176,189

 

161,192

 

14,997

 

9.3%

 

30.0

%

29.4

%

Operating income

 

61,989

 

61,003

 

986

 

1.6%

 

10.5

%

11.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonoperating income (expense), net

 

54

 

(515

)

569

 

*    

 

0.0

%

-0.1

%

Interest expense

 

(6,442

)

(6,694

)

252

 

-3.8%

 

-1.1

%

-1.2

%

Total other income (expense)

 

(6,388

)

(7,209

)

821

 

-11.4%

 

-1.1

%

-1.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

55,601

 

53,794

 

1,807

 

3.4%

 

9.5

%

9.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

9,161

 

5,596

 

3,565

 

63.7%

 

1.6

%

1.0

%

Net income

 

$

46,440

 

$

48,198

 

$

(1,758

)

-3.6%

 

7.9

%

8.8

%

 

*                           Calculation is not meaningful

**                     Includes PUR net sales revenues for the three- and six-month periods ended August 31, 2012 of $26.25 and $50.54 million, respectively.

 

- 23 -



 

Consolidated net sales revenue:

 

Consolidated net sales revenue for the three- and six-month periods ended August 31, 2012 increased $9.99 and $38.74 million to $287.41 and $587.62 million, respectively, compared to $277.42 and $548.89 million, respectively, for the same periods last year.  Net sales revenue in our Personal Care segment decreased $2.93 million, or 2.5 percent, for the three month period ended August 31, 2012, and decreased $8.10 million, or 3.4 percent, for the six month period ended August 31, 2012, when compared to the same periods last year.  Net sales revenue in our Housewares segment increased $0.72 million, or 1.1 percent, for the three month period ended August 31, 2012, and increased $8.03 million, or 6.9 percent, for the six month period ended August 31, 2012, when compared to the same periods last year. Net sales revenue in our Healthcare / Home Environment segment increased $12.20 million, or 12.4 percent, for the three month period ended August 31, 2012, and increased $38.81 million, or 20.0 percent, for the six month period ended August 31, 2012, when compared to the same periods last year.  The Healthcare / Home Environment segment’s results for the three- and six-month periods ended August 31, 2012 include $26.25 and $50.54 million, respectively, of incremental net sales revenue from our PUR water filtration business, which was acquired on December 30, 2011.

 

Impact of acquisitions on net sales revenue:

 

Net sales revenue from the PUR acquisition contributed 9.5 and 9.2 percentage points, respectively, or $26.25 and $50.54 million, respectively to our consolidated net sales revenue growth for the three- and six-month periods ended August 31, 2012.  The PUR business operates as part of the Healthcare / Home Environment segment.  Organic growth in our Housewares segment was offset by declines in our Personal Care and Healthcare / Home Environment segments’ core businesses.  The following tables set forth the impact acquisitions had on our net sales revenue:

 

IMPACT OF ACQUISITIONS ON NET SALES REVENUE

(in thousands)

 

 

 

Three Months Ended August 31,

 

 

2012

 

2011

 

 

 

 

 

 

 

Prior year’s sales revenue, net

 

$

277,420

 

$

174,823

 

 

 

 

 

 

 

Components of net sales revenue change

 

 

 

 

 

Core business

 

(16,261

)

4,321

 

Incremental net sales revenue from acquisitions:

 

 

 

 

 

Kaz (three months in fiscal 2012)

 

-    

 

98,276

 

PUR (three months in fiscal 2013)

 

26,252

 

-    

 

Change in sales revenue, net

 

9,991

 

102,597

 

Sales revenue, net

 

$

287,411

 

$

277,420

 

 

 

 

 

 

 

Total net sales revenue growth

 

3.6%

 

58.7%

 

Core business

 

-5.9%

 

2.5%

 

Acquisitions

 

9.5%

 

56.2%

 

 

- 24 -



 

IMPACT OF ACQUISITIONS ON NET SALES REVENUE

(in thousands)

 

 

 

Six Months Ended August 31,

 

 

2012

 

2011

 

 

 

 

 

 

 

Prior year’s sales revenue, net

 

$

548,887

 

$

334,976

 

 

 

 

 

 

 

Components of net sales revenue change

 

 

 

 

 

Core business

 

(11,808

)

13,319

 

Incremental net sales revenue from acquisitions:

 

 

 

 

 

Pert Plus & Sure (one month in fiscal 2012)

 

-    

 

6,513

 

Kaz (six months in fiscal 2012)

 

-    

 

194,079

 

PUR (six months in fiscal 2013)

 

50,543

 

-    

 

Change in sales revenue, net

 

38,735

 

213,911

 

Sales revenue, net

 

$

587,622

 

$

548,887

 

 

 

 

 

 

 

Total net sales revenue growth

 

7.1%

 

63.9%

 

Core business

 

-2.2%

 

4.0%

 

Acquisitions

 

9.2%

 

59.9%

 

 

In the above tables, core business is net sales revenue associated with product lines or brands after the first twelve months from the date a business, product line or brand was acquired. Net sales revenue from internally developed brands or product lines are always considered core business. Net sales revenue from acquisitions is net sales revenues associated with product lines or brands that we have acquired and operated for less than twelve months during each period presented.

 

Impact of foreign currencies on net sales revenue:

 

During each of the three- and six-month periods ended August 31, 2012, we transacted approximately 16 percent of our net sales revenues in foreign currencies.  During the three- and six-month periods ended August 31, 2011, we transacted approximately 17 and 19 percent, respectively, of our net sales revenues in foreign currencies.  These transactions were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, Japanese Yen, Australian Dollars, Chilean Pesos, Peruvian Soles, and Venezuelan Bolivares Fuertes. For the three- and six-month periods ended August 31, 2012, the impact of net foreign currency exchange rates decreased our international net sales revenue by approximately $3.28 and $5.93 million, respectively.  Most of the impact of these fluctuations affected sales in our Personal Care and Healthcare / Home Environment segments.

 

Segment net sales revenue:

 

We operate our business under three segments: Personal Care, Housewares and Healthcare / Home Environment. 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 Housewares segment provides a broad range of innovative consumer products for the home. Product offerings include food preparation and storage, cleaning, organization, and baby and toddler care products. The Healthcare / Home Environment segment focuses on health care devices such as thermometers, blood pressure monitors, humidifiers, and heating pads; water filtration systems; and small home appliances such as air purifiers, portable heaters, fans, and bug zappers.

 

Personal Care Segment - Net sales revenue in the Personal Care segment for the three month period ended August 31, 2012 decreased $2.93 million, or 2.5 percent, to $112.36 million compared with $115.30 million for the same period last year.  Net sales revenue in the Personal Care segment for the six month period ended August 31, 2012 decreased $8.10 million, or 3.4 percent, to $229.92 million compared with $238.01 million for the same period last year.

 

- 25 -



 

Personal Care net sales revenue continues to be negatively impacted by the following factors:

 

·                 A difficult U.S. retail sales environment, resulting in soft consumer spending;

 

·                 Challenging macroeconomic conditions in Europe and Latin America;

 

·                 Increases in competitive trade promotional activities, including a major hair category launch by a significant competitor;

 

·                 The impact of inventory reductions and shifts in category emphasis by certain retailers;

 

·                 A difficult year-over-year comparison due to new product distribution fill-in with a key customer during the same period last year, compared with reorder activity for the same product in the current year;

 

·                 Unforecasted demand and product availability issues with certain suppliers; and

 

·                 The impact of foreign currency fluctuations on U.S. Dollar reported net sales.

 

We continue to expect that net sales revenue performance in our Personal Care segment will be heavily dependent on the direction of consumer sentiment, which requires continued improvements in employment, housing markets and consumers’ personal finances.

 

Housewares Segment Segment net sales revenue for the three months ended August 31, 2012 increased $0.72 million, or 1.1 percent, to $64.57 million compared with $63.85 million for the same period last year.  Segment net sales revenue for the six months ended August 31, 2012 increased $8.03 million, or 6.9 percent, to $124.82 million compared with $116.79 million for the same period last year.  Modest net sales revenue growth in the second fiscal quarter was the result of:

 

·                 A difficult retail sales environment, resulting in soft consumer spending;

 

·                 Increased competition from competitors who are offering heavy promotional price discounts to capture market share;

 

·                 Loss of distribution volume due to pricing, and

 

·                 The impact of our first quarter aggressive seasonal closeout sales.

 

As we reported last quarter, some level of sales were concentrated in the first fiscal quarter of this fiscal year that might otherwise normally occur over the remainder of the fiscal year. We believe that most of the unfavorable impact of this closeout acceleration was experienced in the second fiscal quarter of this fiscal year.  The segment continues to experience growth in its food preparation, bath, cleaning, and baby and toddler categories.

 

Healthcare / Home Environment Segment net sales revenue for the three months ended August 31, 2012 increased $12.20 million, or 12.4 percent, to $110.48 million compared with $98.28 million for the same period last year.  Segment net sales revenue for the six months ended August 31, 2012 increased $38.81 million, or 20.0 percent, to $232.89 million compared with $194.08 million for the same period last year.  The Healthcare / Home Environment segment’s results for the three- and six-month periods ended August 31, 2012 include $26.25 and $50.54  million, respectively, of incremental net sales revenue from our PUR water filtration business, which was acquired on December 30, 2011. The core business categories in the segment experienced sales declines of $14.05 million, or 14.3 percent and $11.74 million, or 6.0 percent, respectively for the three- and six-month periods ended August 31, 2012 compared to the same periods last year. Healthcare / Home Environment

 

- 26 -



 

net sales revenue over both periods was negatively impacted by the following factors:

 

·                 Difficult U.S. and European retail sales environments;

 

·                 The impact of high seasonal inventory levels at retail due to the previous warm winter and mild cold and flu season.  This will also impact the coming cold and flu seasons early orders as prior year inventory stocks at retailers are sold off before replenishment orders are placed;

 

·                 Lost shelf placement on certain key products due to competitive pricing pressures; and

 

·                 The impact of foreign currency fluctuations on U.S. Dollar reported net sales.

 

Strong summer season fan sales and early season thermometer sales helped to offset some of the core business category declines.

 

Consolidated gross profit margin:

 

Consolidated gross profit margin as a percentage of net sales revenue for the three months ended August 31, 2012 increased 0.2 percentage points to 40.7 percent compared to 40.5 percent for the same period last year.  Consolidated gross profit margin as a percentage of net sales revenue for the six months ended August 31, 2012 of 40.5 percent was flat compared to same period last year.  In the second fiscal quarter and for the fiscal year-to-date, our consolidated gross profit margin continued to be unfavorably impacted by the combined effects of foreign currency exchange rates on net sales and general product cost increases across all segments.  These unfavorable impacts were offset by the PUR water filtration acquisition, which has favorably impacted consolidated gross profit margins.

 

Our product sourcing mix is heavily dependent on imports from China. China’s currency is no longer pegged solely to the U.S. dollar. As a result, we believe China’s currency may continue to appreciate against the U.S. Dollar in the short-to-intermediate-term, resulting in increased product costs over time.  Furthermore, if increases in the underlying costs of labor and commodities in China continue, we expect that they would also result in future increases in our product costs.

 

Selling, general and administrative expense:

 

SG&A increased 0.5 percentage points, or $4.26 million in dollar terms, to 30.0 percent of net sales revenue for the three month period ended August 31, 2012, compared to 29.5 percent for the same period last year.  SG&A increased 0.6 percentage points, or $15.00 million in dollar terms, to 30.0 percent of net sales revenue for the six month period ended August 31, 2012, compared to 29.4 percent for the same period last year. The year-over-year increases in SG&A as a percentage of net sales revenue are primarily due to:

 

·                 Higher overall media advertising costs;

 

·                 Transition service fees incurred through June 2012 in connection with the acquisition of the PUR business, which we did not incur during the first two fiscal quarters last year;

 

·                 Higher incentive compensation expense associated with a new performance bonus plan for our Chief Executive Officer;

 

·                 Higher depreciation as a result of an upgrade of our Enterprise Resource Planning system; and

 

·                 Higher amortization of intangible assets as a result of the PUR acquisition.

 

- 27 -



 

Operating income by segment:

 

The following table sets forth, for the periods indicated, our operating income by segment as a year-over-year percentage change and as a percentage of net sales revenue for each segment and the Company overall:

 

OPERATING INCOME BY SEGMENT

(dollars in thousands)

 

 

Three Months Ended August 31,

 

 

 

 

 

% of Sales Revenue, net

 

 

2012

 

2011

 

$

 Change

 

% Change

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Personal Care

 

$

11,880

 

$

11,155

 

$

725

 

6.5%

 

10.6%

 

9.7

%

 Housewares

 

12,078

 

11,973

 

105

 

0.9%

 

18.7%

 

18.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Healthcare / Home Environment *

 

6,883

 

7,221

 

(338

)

-4.7%

 

6.2%

 

7.3

%

 Total operating income

 

$

30,841

 

$

30,349

 

$

492

 

1.6%

 

10.7%

 

10.9

%

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended August 31,

 

 

 

 

 

% of Sales Revenue, net

 

 

2012

 

2011

 

$

 Change

 

% Change

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Personal Care

 

$

23,760

 

$

31,007

 

$

(7,247

)

-23.4%

 

10.3%

 

13.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Housewares

 

23,355

 

22,838

 

517

 

2.3%

 

18.7%

 

19.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Healthcare / Home Environment *

 

14,874

 

7,158

 

7,716

 

107.8%

 

6.4%

 

3.7

%

 Total operating income

 

$

61,989

 

$

61,003

 

$

986

 

1.6%

 

10.5%

 

11.1

%

 

*  Includes three- and six-months of PUR operating income in fiscal 2012

 

We compute operating income for each segment based on net sales revenue, less cost of goods sold and any SG&A associated with the segment. The SG&A used to compute each segment’s operating income is comprised of SG&A directly associated with the segment, plus overhead expenses that are allocable to the segment.  We make allocations of overhead between operating segments using a number of relevant allocation criteria, depending on the nature of the expense, the most significant of which are relative revenues, estimates of relative labor expenditures, headcount, and facilities square footage.  In fiscal 2013, we began making certain additional cost allocations to the Healthcare / Home Environment segment that were not made in fiscal 2012.  These allocations are costs of corporate and operating functions that are shared by the segments.   We made this change because we now have a complete fiscal year’s operating experience with the Healthcare / Home Environment segment.  In the past year, we have integrated certain of the segment’s corporate and operating functions into consolidated corporate and shared operating functions. For the three- and six-month periods ended August 31, 2012, the allocation totaled $4.10 and $8.22 million, respectively, compared to $1.51 and $3.01 million, respectively, for the same periods last year.

 

The Personal Care segment’s operating income increased $0.73 million, or 6.5 percent, for the three month period ended August 31, 2012 compared to the same period last year.  The Personal Care segment’s operating income decreased $7.25 million, or 23.4 percent, for the six month period ended August 31, 2012 compared to the same period last year.  The fiscal year-to-date decline is principally due to:

 

·                  A difficult U.S. retail sales environment;

 

·                  Challenging macroeconomic conditions in Europe and Latin America;

 

·                  Increases in competitive trade promotional activities, including a major hair category launch by a significant competitor;

 

·                  Increased competition from competitors who are offering heavy promotional price discounts to capture market share;

 

·                  The impact of foreign currency fluctuations on U.S. Dollar reported net sales;

 

- 28 -



 

·                  Increased air freight costs incurred to mitigate the impact of product availability issues due primarily to the closure of a supplier;

 

·                  Product cost increases across most product categories; and

 

·                  Higher depreciation as a result of an upgrade of our Enterprise Resource Planning system.

 

The Housewares segment’s operating income increased $0.11 million, or 0.9 percent, for the three month period ended August 31, 2012 compared to the same period last year.  The Housewares segment’s operating income increased $0.52 million, or 2.3 percent, for the six month period ended August 31, 2012 compared to the same period last year.  Increases in operating income for the three- and six-month periods were due to increases in net sales revenue partially offset by overall cost of goods sold increases.

 

The Healthcare / Home Environment segment’s operating income decreased $0.34 million, or 4.7 percent, for the three month period ended August 31, 2012 compared to the same period last year.  The decrease in operating income is due to a reduction in sales in the core business partially offset by the incremental impact of the PUR acquisition.  The Healthcare / Home Environment segment’s operating income increased $7.72 million, or 107.8 percent, for the six month period ended August 31, 2012 compared to the same period last year.  The increase in operating income was the  result of the incremental impact of the PUR acquisition.

 

Interest expense:

 

Interest expense for the three- and six-month periods ended August 31, 2012 was $3.13 and $6.44 million, respectively, compared to $3.27 and $6.69 million, respectively, for the same periods last year.  Interest expense was slightly lower when compared to the same period last year despite higher levels of debt due to lower interest rates on short-term debt.

 

Income tax expense:

 

Income tax expense as a percentage of income before taxes for the three- and six-month periods ended August 31, 2012 was 17.2 and 16.5 percent, respectively, compared to 10.7 and 10.4 percent, respectively, for the same periods last year.   During fiscal years 2012 and 2013, our effective tax rates have been trending up primarily due to the acquisitions of Kaz and PUR, which increased the proportion of taxable income in higher tax rate jurisdictions relative to total taxable income.

 

- 29 -



 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

Selected measures of our liquidity and capital resources for the six month periods ended August 31, 2012 and 2011 are shown below:

 

SELECTED MEASURES OF OUR LIQUIDITY AND CAPITAL UTILIZATION

 

 

Six Months Ended August 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Accounts Receivable Turnover (Days) (1)

 

61.1

 

63.5

 

Inventory Turnover (Times) (1)

 

2.7

 

2.8

 

Working Capital (in thousands)

 

$173,061

 

$186,677

 

Current Ratio

 

1.4 : 1

 

1.5 : 1

 

Debt to Equity Ratio (2)

 

39.4%

 

39.0%

 

Return on Average Equity (1)

 

13.7%

 

14.6%

 

 

(1)   Accounts receivable turnover, inventory turnover and return on average equity computations use 12-month trailing sales, cost of sales or net income components as required by the particular measure.   The current and four prior quarters’ ending balances of accounts receivable, inventory and equity are used for the purposes of computing the average balance component as required by the particular measure.

 

(2)   Debt is defined as all debt outstanding at the balance sheet date. This includes the sum of the following lines on our consolidated balance sheets: “Revolving line of credit,” “Long-term debt, current maturities” and “Long-term debt, excluding current maturities.”

 

Operating activities:

 

Operating activities provided $10.75 million of cash during the first six months of fiscal 2012, compared to $29.29 million of cash provided during the same period in fiscal 2011.  The decrease in operating cash flow was primarily due to the timing of fluctuations in working capital components, when compared to the same period last year, as well as the purchase of PUR inventory from Procter & Gamble upon termination of a transition services agreement.

 

Accounts receivable increased $13.00 million to $208.28 million as of August 31, 2012, compared to $195.28 million at the end of fiscal 2012.  Accounts receivable turnover improved slightly to 61.1 days at August 31, 2012 from 63.5 days at August 31, 2011.  This calculation is based on a rolling five quarter accounts receivable balance.

 

Inventories increased $72.56 million to $318.70 million as of August 31, 2012, compared to $246.14 million at the end of fiscal 2012.  Inventory turnover was 2.7 times at August 31, 2012, compared to 2.8 times at August 31, 2011. Inventories as of August 31, 2012 increased $61.09 million, when compared to August 31, 2011.  The increase is primarily due to the prior warm winter and mild cold and flu season’s negative impacts on our Healthcare / Home Environment segment shipments, the purchase of PUR inventories during the second fiscal quarter and the early ordering and holding of inventory to mitigate the impact that Chinese New Year extended factory holidays tend to have on fourth fiscal quarter deliveries.

 

Working capital was $173.06 million at August 31, 2012, compared to $186.68 million at August 31, 2011.  Our current ratio decreased to 1.4:1 at August 31, 2012, compared to 1.5:1 at August 31, 2011.

 

- 30 -



 

Investing activities:

 

Investing activities used $5.00 million of cash during the six month period ended August 31, 2012. Highlights of those activities follow:

 

·                  We spent $2.06 million on molds, tooling and other production equipment, $2.19 million on information technology infrastructure, $0.50 million to acquire a new trademark, $0.16 million on the development of new patents, and $0.85 million on other capital asset additions; and

 

·                  We received proceeds of $0.74 million on a note receivable associated with the fiscal 2012 sale of a land parcel in El Paso, Texas.

 

Financing activities:

 

Financing activities used $5.83 million of cash during the six month period ended August 31, 2012.  Highlights of those activities follow:

 

·                  We had draws of $114.95 million against our revolving credit agreement;

 

·                  We repaid $125.05 million drawn against our revolving credit agreement;

 

·                  We repaid $3.0 million of long-term debt;

 

·                  Employees exercised options to purchase 130,906 shares of common stock, providing $1.42 million of cash;

 

·                  Purchases of common stock through our employee stock purchase plan provided $0.51 million of cash; and

 

·                  Tax benefits associated with the exercise of options provided $4.98 million of cash.

 

Revolving Line of Credit Agreement and Other Debt Agreements:

 

We have a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. that provides for an unsecured total revolving commitment of up to $250.00 million. The commitment under the Credit Agreement terminates on December 30, 2015.  Borrowings under the Credit Agreement accrue interest at a “Base Rate” plus a margin of 0.00 to 1.125 percent per annum based on the Leverage Ratio (as defined in the Credit Agreement) at the time of borrowing. The base rate is equal to the highest of the Federal Funds Rate (as defined in the Credit Agreement) plus 0.50 percent, Bank of America’s prime rate or the one-month LIBOR rate plus 1.00 percent. Alternatively, if we elect, borrowings accrue interest based on the respective 1-, 2-, 3-, or 6-month LIBOR rate plus a margin of 1.00 to 2.125 percent per annum based upon the Leverage Ratio at the time of the borrowing. We also incur loan commitment fees and letter of credit fees under the Credit Agreement.  Outstanding letters of credit reduce the borrowing availability under the Credit Agreement on a dollar-for-dollar basis.  As of August 31, 2012, the revolving loan principal balance was $161.00 million and there were $0.62 million of open letters of credit outstanding against the Credit Agreement. For the three- and six-month periods ended August 31, 2012, borrowings under the Credit Agreement incurred interest charges at rates ranging from 1.61 to 3.63  percent and 1.61 to 4.00 percent, respectively.  As of August 31, 2012, the amount available for borrowings under the Credit Agreement was $88.38 million.

 

In addition to the Credit Agreement, at August 31, 2012, we had an aggregate principal balance of $175.00 million of Senior Notes from prior year’s financings with varying maturities due between January 2014 and January 2018 and interest rates ranging from 3.90 to 6.01 percent. Up to $75.00 million of the debt can be prepaid without penalty while $100.00 million of the debt is subject to a “make-whole” premium if repaid before maturity.

 

- 31 -



 

All of our debt is unconditionally guaranteed, on a joint and several basis, by the Company and certain of its subsidiaries.  Our debt agreements require the maintenance of certain financial covenants, including maximum leverage ratios, minimum interest coverage ratios and minimum consolidated net worth levels (as each of these terms are defined in the various agreements).  Our debt agreements also contain other customary covenants, including, among other things, covenants restricting or limiting the Company, except under certain conditions set forth therein, from (1) incurring debt, (2) incurring liens on its properties, (3) making certain types of investments, (4) selling certain assets or making other fundamental changes relating to mergers and consolidations, and (5) repurchasing shares of our common stock and paying dividends. Our debt agreements also contain customary events of default, including failure to pay principal or interest when due, among others. Our debt agreements are cross-defaulted to each other. Upon an event of default under our debt agreements, the holders or lenders may, among other things, accelerate the maturity of any amounts outstanding under our debt. Under the terms of our Credit Agreement, the commitments of the lenders to make loans to us are several and not joint. Accordingly, if any lender fails to make loans to us, our available liquidity could be reduced by an amount up to the aggregate amount of such lender’s commitments under the facility.

 

The table below provides the formulas for certain key financial covenants as defined in our various debt agreements:

 

 

Applicable Financial Covenant

 

 

Credit Agreement

 

 

$75 Million Floating Rate Senior
Notes

 

 

$100 Million 3.90% Fixed Rate Senior Notes

 

Minimum Consolidated Net Worth

$530 Million + 100% of Increase in Equity Due to Sale of Equity Interests After August 31, 2010

+

40% of Fiscal Quarter Net Earnings After August 31, 2010 (1)

$260 Million

+

25% of Fiscal Quarter Net Earnings After February 29, 2004 (1)

$500 Million

+

25% of Fiscal Quarter Net Earnings After August 31, 2010 (1)

Interest Coverage Ratio

EBIT (2) 

÷

Interest Expense (2)

None

EBIT (2)

÷

Interest Expense (2)

Minimum Required: 3.00 to 1.00

Minimum Required: 2.50 to 1.00

Maximum Leverage Ratio

Total Current and Long Term Debt (3)

÷

[EBITDA (2) + Pro Forma Effect of Acquisitions]

Total Current and Long Term Debt (3)

÷

Total Capitalization (3)

Total Current and Long Term Debt (3)

÷

[ EBITDA (2) + Pro Forma Effect of Acquisitions ]

Maximum Allowed: 3:00 to 1:00

Maximum Allowed: 55%

Maximum Allowed: 3:25 to 1:00

 

Key Definitions:

 

EBIT:

 

Earnings Before Non-Cash Charges, Interest Expense and Taxes

 

 

 

EBITDA:

 

EBIT + Depreciation and Amortization Expense + Share Based Compensation

 

 

 

Total Capitalization:

 

Total Current and Long Term Debt + Total Equity

 

 

 

Pro Forma Effect of Acquisitions:

 

For any acquisition, pre-acquisition EBITDA of the acquired business is included so that the EBITDA of the acquired business included in the computation equals its twelve month trailing total.

 

Notes:

(1) Excluding any fiscal quarter net losses.

(2) Computed using totals for the latest reported four consecutive fiscal quarters.

(3) Computed using the ending balances as of the latest reported fiscal quarter.

 

As of August 31, 2012, all our debt agreements effectively limited our ability to incur more than an estimated $237.60  million of additional debt from all sources, including draws on the Credit Agreement. We are currently in compliance with the terms of our debt agreements.

 

- 32 -



 

Contractual obligations and commercial commitments:

 

Our contractual obligations and commercial commitments at August 31, 2012, were:

 

PAYMENTS DUE BY PERIOD - TWELVE MONTHS ENDED AUGUST 31:

(in thousands)

 

 

 

 

2013

 

2014

 

2015

 

2016

 

2017

 

After

 

 

 

Total

 

1 year

 

2 years

 

3 years

 

4 years

 

5 years

 

5 years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Term debt - fixed rate

 

$

100,000

 

$

-    

 

$

20,000

 

$

20,000

 

$

20,000

 

$

20,000

 

$

20,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Term debt - floating rate (1)

 

75,000

 

-    

 

75,000

 

-    

 

-    

 

-    

 

-    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Long-term incentive plan payouts

 

6,686

 

3,308

 

2,514

 

864

 

-    

 

-    

 

-    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Interest on fixed rate debt

 

13,130

 

3,900

 

3,406

 

2,626

 

1,846

 

1,066

 

286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Interest on floating rate debt (1)

 

8,351

 

4,570

 

3,781

 

-    

 

-    

 

-    

 

-    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Open purchase orders

 

208,679

 

208,679

 

-    

 

-    

 

-    

 

-    

 

-    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Minimum royalty payments

 

94,597

 

14,682

 

13,119

 

12,947

 

10,917

 

9,856

 

33,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Advertising and promotional

 

70,004

 

12,629

 

5,927

 

5,942

 

5,729

 

5,723

 

34,054

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Operating leases

 

23,028

 

6,501

 

5,518

 

5,386

 

2,681

 

1,366

 

1,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Capital spending commitments

 

3,710

 

3,710

 

-    

 

-    

 

-    

 

-    

 

-    

 

 Total contractual obligations (2)

 

$

603,185

 

$

257,979

 

$

129,265

 

$

47,765

 

$

41,173

 

$

38,011

 

$

88,992

 

 

 

(1)   The Company uses an interest rate hedge agreement (the “swap”),  in conjunction with its unsecured, floating interest rate, $75.00 million Senior Notes due June 2014. The swap hedges the variable LIBOR rates used to reset the floating rates on these Senior Notes. The swap effectively fixes the interest rates on the Senior Notes due June 2014 at 6.01 percent.

 

(2)   In addition to the contractual obligations and commercial commitments in the table above, as of August 31, 2012, we have recorded a provision for our uncertain tax positions of $13.38 million. We are unable to reliably estimate the timing of future payments, if any, related to uncertain tax positions.  Therefore, we have excluded these tax liabilities from the table above.

 

During fiscal 2012, we entered into an Amended and Restated Employment Agreement with Gerald J. Rubin, our Chief Executive Officer and President (the “Revised Employment Agreement”) and adopted the Helen of Troy Limited 2011 Annual Incentive Plan (the “2011 Bonus Plan”). The 2011 Bonus Plan was approved by our shareholders at our Annual General Meeting held on October 11, 2011. The base and incentive compensation provisions of the Revised Employment Agreement are effective for fiscal years 2013 through 2015, subject to earlier termination by either party. Substantially all of Mr. Rubin’s compensation pursuant to the Revised Employment Agreement is performance-based and contingent upon our achievement of specified performance goals.  Pursuant to the Revised Employment Agreement, Mr. Rubin received a grant of 700,000 restricted stock units (the “Performance RSUs”), which may be earned in tranches based on the Company’s achievement of specified performance goals for fiscal years 2013, 2014 and 2015.  Any earned Performance RSUs are subject to additional time-based vesting requirements. Up to 100,000 and 200,000 Performance RSUs may be earned based on the Company’s achievement of the specified performance goals for fiscal years 2013 and 2014, respectively. Up to 700,000 Performance RSUs (less the number of Performance RSUs previously earned, if any) may be earned based on the Company’s achievement of either the specified performance goals for fiscal year 2015 or the three year average performance goal for the three fiscal years 2013 through 2015.  The Performance RSUs had a fair value at the date of grant of $32.88 per share for a grant date fair value of  $23.02 million.  Compensation expense associated with Performance RSUs is equal to the market value of our common stock on the date of the grant multiplied by the number of Performance RSUs vesting during any given period.  Expense for each tranche must be estimated until earned, subject to a probability assessment of achieving the performance criteria specified for the tranche. We are recording the expense for each tranche over the related service periods.

 

Mr. Rubin is also eligible to receive an annual bonus, subject to the achievement of specified performance goals.  Any such bonus that is earned and payable will be paid two-thirds in the form of cash or cash equivalents up to a maximum of $10.00 million. The remainder will be paid in the form of restricted stock. Any restricted

 

- 33 -



 

stock granted will vest, with respect to annual bonuses for fiscal years 2013 and 2014, on February 28, 2015, and with respect to annual bonus for fiscal year 2015, on the date the Company certifies that the performance goals have been achieved.  Additionally, under the Revised Employment Agreement, three life insurance policies and the obligation to pay the associated premiums will be transferred to Mr. Rubin over the term of the agreement subject to the Company meeting certain performance conditions.  The amount of the value of the transfer of each of the three life insurance policies (based on cash surrender values) is capped at $3.00, $4.00 and $7.00 million, respectively.

 

We currently expect Mr. Rubin to achieve certain performance goals for fiscal 2013 and the accompanying consolidated condensed financial statements include estimated accruals for his annual bonus, life insurance bonus and Performance RSU’s,  under the revised agreements.  Accordingly, through the six months ended August 31, 2012, we have accrued $5.00 million in cash and $1.05 million in restricted shares for the annual bonus, $1.06 million in life insurance bonus and $0.55 million for Performance RSUs.

 

At this time we are unable to predict with a reasonable degree of certainty whether Mr. Rubin will achieve the performance goals for fiscal years 2014 and 2015. To the extent these performance goals are achieved (in full or in part), the resulting incentive compensation expense could have a significant impact upon future SG&A and net income.

 

Off-balance sheet arrangements:

 

We have no existing activities involving special purpose entities or off-balance sheet financing.

 

Current and future capital needs:

 

Based on our current financial condition and current operations, we believe that cash flows from operations and available financing sources will continue to provide sufficient capital resources to fund our foreseeable short- and long-term liquidity requirements.  We expect our capital needs to stem primarily from the need to purchase sufficient levels of inventory and to carry normal levels of accounts receivable on our balance sheet. In addition, we continue to evaluate acquisition opportunities on a regular basis and may augment our internal growth with acquisitions of complementary businesses or product lines. We may finance acquisition activity with available cash, the issuance of common stock, additional debt, or other sources of financing, depending upon the size and nature of any such transaction and the status of the capital markets at the time of such acquisition.

 

In addition to repurchases of shares associated with the net settlement of director and employee stock options, the Company may elect to repurchase additional common stock from time to time based upon its assessment of its liquidity position and market conditions at the time, and subject to limitations contained in its debt agreements.  For additional information, see Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” in this report.

 

- 34 -



 

CRITICAL ACCOUNTING POLICIES

 

The SEC defines critical accounting policies as those that are both most important to the portrayal of a company’s financial condition and results, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a discussion of our critical accounting policies, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, under the heading “Critical Accounting Policies” in our annual report on Form 10-K for the year ended February 29, 2012. There have been no material changes to the Company’s critical accounting policies from the information provided in our annual report on Form 10-K.

 

NEW ACCOUNTING PRONOUNCEMENTS

 

See Note 2 – “New Accounting Pronouncements,” to the accompanying consolidated condensed financial statements of this report, for a discussion of the status and potential impact of new accounting pronouncements.

 

- 35 -



 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Changes in currency exchange rates and interest rates are our primary financial market risks.

 

Foreign currency risk:

 

Our functional currency is the U.S. Dollar. By operating internationally, we are subject to foreign currency risk from transactions denominated in currencies other than the U.S. Dollar (“foreign currencies”).  Such transactions include sales, certain inventory purchases and operating expenses. As a result of such transactions, portions of our cash, trade accounts receivable and trade accounts payable are denominated in foreign currencies.  During the three- and six-month periods ended August 31, 2012 approximately 16 percent of our net sales revenue was in foreign currencies.  During the three- and six-month periods ended August 31, 2011, approximately 17 and 19 percent, respectively, of our net sales revenue was in foreign currencies.  In each of the periods, sales were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, Japanese Yen, Australian Dollars, Chilean Pesos, Peruvian Soles, and Venezuelan Bolivares Fuertes. We make most of our inventory purchases from the Far East and use the U.S. Dollar for such purchases.  In our consolidated condensed statements of income, exchange gains and losses resulting from the remeasurement of foreign taxes receivable, taxes payable, deferred tax assets, and deferred tax liabilities are recognized in their respective income tax lines, and all other foreign exchange gains and losses from remeasurement are recognized in SG&A.

 

A significant portion of the products we sell are purchased from third-party manufacturers in China. During fiscal 2012 and 2011, the Chinese Renminbi appreciated against the U.S. Dollar approximately 4 percent each period. For the current fiscal year-to-date, the Renminbi’s value against the U.S. Dollar has remained relatively stable.  To the extent the Chinese Renminbi appreciates with respect to the U.S. Dollar in the future, the Company may experience cost increases on such purchases, and this can adversely impact profitability. China’s currency intervention strategy with respect to the U.S. Dollar continues to evolve. Future interventions by China may result in further currency appreciation and increase our product costs over time.

 

We identify foreign currency risk by regularly monitoring our foreign currency-denominated transactions and balances.  Where operating conditions permit, we reduce foreign currency risk by purchasing most of our inventory with U.S. Dollars and by converting cash balances denominated in foreign currencies to U.S. Dollars.

 

We have historically hedged against certain foreign currency exchange rate risk by using a series of forward contracts designated as cash flow hedges to protect against the foreign currency exchange risk inherent in our forecasted transactions denominated in currencies other than the U.S. Dollar.  In these transactions, we execute a forward currency contract that will settle at the end of a forecasted period.  Because the size and terms of the forward contract are designed so that its fair market value will move in the opposite direction and approximate magnitude of the underlying foreign currency’s forecasted exchange gain or loss during the forecasted period, a hedging relationship is created.  To the extent that we forecast the expected foreign currency cash flows from the period we enter into the forward contract until the date it will settle with reasonable accuracy, we significantly lower or materially eliminate a particular currency’s exchange risk exposure over the life of the related forward contract.  We enter into these types of agreements where we believe we have meaningful exposure to foreign currency exchange risk and the hedge pricing appears reasonable.  It is not practical for us to hedge all our exposures, nor are we able to project in any meaningful way, the possible effect and interplay of all foreign currency fluctuations on translated amounts or future earnings.  This is due to our constantly changing exposure to various currencies, the fact that each foreign currency reacts differently to the U.S. Dollar and the significant number of currencies involved. Accordingly, we will always be subject to foreign exchange rate-risk on exposures we have not hedged, and these risks may be material.  We do not enter into any forward exchange contracts or similar instruments for trading or other speculative purposes.  We expect that as currency market conditions warrant, and our foreign denominated transaction exposure grows, we will continue to execute additional contracts in order to hedge against certain potential foreign exchange losses.

 

- 36 -



 

Interest rate risk:

 

Interest on our outstanding debt as of August 31, 2012 is both floating and fixed.  Fixed rates are in place on $100.00 million of Senior Notes due January 2018 at 3.90 percent and floating rates are in place on $161.00 million in advances against our Credit Agreement and $75.00 million of Senior Notes due June 2014.  If short-term interest rates increase, we will incur higher interest rates on any outstanding balances under the Credit Agreement. The floating rate Senior Notes due June 2014 reset as described in Note 10 to the accompanying consolidated condensed financial statements, and have been effectively converted to fixed rate debt using an interest rate swap, as described below.

 

Our levels of debt, certain additional draws against the Credit Agreement (whose interest rates can vary with the term of each draw) and the uncertainty regarding the level of future interest rates increase our risk profile. We manage our floating rate debt using an interest rate swap.  As of August 31, 2012, the swap converted an aggregate notional principal amount of $75.00 million from floating interest rate payments under our Senior Notes due June 2014 to fixed interest rate payments at 6.01 percent.  In the swap transaction, we maintain contracts to pay fixed rates of interest on an aggregate notional principal amount of $75.00 million at a rate of 5.11 percent on our Senior Notes due June 2014, while simultaneously receiving floating rate interest payments set at 0.46 percent as of August 31, 2012 on the same notional amounts.  The fixed rate side of the swap will not change over its life.  The floating rate payments are reset quarterly based on three-month LIBOR.  The resets are concurrent with the interest payments made on the underlying debt. Changes in the spread between the fixed rate payment side of the swap and the floating rate receipt side of the swap offset 100 percent of the change in any period of the underlying debt’s floating rate payments.  The swap is used to reduce our risk of increased interest costs; however, when interest rates drop significantly below the swap rate, we lose the benefit that our floating rate debt would provide if not managed with a swap. The swap is considered 100 percent effective.

 

In addition, during August 2012, we entered into two foreign currency swaps maturing October 2012, which we accounted for as cash flow hedges.

 

The fair values of our various derivative instruments are as follows:

 

FAIR VALUES OF DERIVATIVE INSTRUMENTS

(in thousands)

August 31, 2012

 

 

 

 

 

 

 

 

Prepaid

 

Accrued

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

Expenses

 

 

 

 

 

 

 

Final

 

 

 

and Other

 

and Other

 

Other

 

 

 

 

 

Settlement

 

Notional

 

Current

 

Current

 

Liabilities,

 

Designated as hedging instruments

 

Hedge Type

 

Date

 

Amount

 

Assets

 

Liabilities

 

Noncurrent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts - sell Canadian

 

Cash flow

 

12/2012

 

$

7,000

 

$

-    

 

$

209

 

$

-    

 

Foreign currency contracts - sell Euro

 

Cash flow

 

2/2013

 

10,000

 

-    

 

104

 

-    

 

Foreign currency contracts - sell Pounds

 

Cash flow

 

2/2013

 

£

4,500

 

-    

 

9

 

-    

 

Foreign currency swaps - buy Canadian

 

Cash flow

 

10/2012

 

$

2,400

 

36

 

-    

 

-    

 

Interest rate swap

 

Cash flow

 

6/2014

 

$

75,000

 

-    

 

3,574

 

3,574

 

Total fair value

 

 

 

 

 

 

 

$

36

 

$

3,896

 

$

3,574

 

 

February 29, 2012

 

 

 

 

 

 

 

 

Prepaid

 

Accrued

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

Expenses

 

 

 

 

 

 

 

Final

 

 

 

and Other

 

and Other

 

Other

 

 

 

 

 

Settlement

 

Notional

 

Current

 

Current

 

Liabilities,

 

Designated as hedging instruments

 

Hedge Type

 

Date

 

Amount

 

Assets

 

Liabilities

 

Noncurrent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts - sell Canadian

 

Cash flow

 

12/2012

 

$

7,000

 

$

-    

 

$

163

 

$

-    

 

Interest rate swap

 

Cash flow

 

6/2014

 

$

75,000

 

-    

 

3,531

 

5,022

 

Total fair value

 

 

 

 

 

 

 

$

-    

 

$

3,694

 

$

5,022

 

 

- 37 -



 

Counterparty credit risk:

 

Financial instruments, including foreign currency contracts and interest rate swaps, expose us to counterparty credit risk for nonperformance.  We manage our exposure to counterparty credit risk by only dealing with counterparties who are substantial international financial institutions with significant experience using such derivative instruments.  Although our theoretical credit risk is the replacement cost at the then-estimated fair value of these instruments, we believe that the risk of incurring credit risk losses is remote.

 

- 38 -



 

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

 

Certain written and oral statements made by our Company and subsidiaries of our Company may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. This includes statements made in this report, in other filings with the Securities and Exchange Commission (“SEC”), in press releases, and in certain other oral and written presentations. Generally, the words “anticipates”, “believes”, “expects”, “plans”, “may”, “will”, “should”, “seeks”, “estimates”, “project”, “predict”, “potential”, “continue”, “intends”, and other similar words identify forward-looking statements. All statements that address operating results, events or developments that we expect or anticipate will occur in the future, including statements related to sales, earnings per share results and statements expressing general expectations about future operating results, are forward-looking statements and are based upon our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and assumptions, but there can be no assurance that we will realize our expectations or that our assumptions will prove correct. Forward-looking statements are subject to risks that could cause them to differ materially from actual results. Accordingly, we caution readers not to place undue reliance on forward-looking statements. We believe that these risks include, but are not limited to, the risks described in Part 1, Item 1A. “Risk Factors” of our annual report on Form 10-K for the year ended February 29, 2012 and risks otherwise described from time to time in our SEC reports as filed.  Such risks, uncertainties and other important factors include, among others:

 

·                  the departure and recruitment of key personnel;

 

·                  our ability to deliver products to our customers in a timely manner and according to their fulfillment standards;

 

·                  our geographic concentration of certain U.S. distribution facilities, which at certain times operate at or near capacity, increases our exposure to significant shipping disruptions and added shipping and storage costs;

 

·                  our projections of product demand, sales and net income (including the Company’s guidance for PUR net sales revenue and the expectation that the acquisition will be accretive) are highly subjective in nature and future sales and net income could vary in a material amount from such projections;

 

·                  expectations regarding the acquisition of Kaz, PUR and any other future acquisitions, including our ability to realize anticipated cost savings, synergies and other benefits along with our ability to effectively integrate acquired businesses;

 

·                  our relationship with key customers and licensors;

 

·                  the costs of complying with the business demands and requirements of large sophisticated customers;

 

·                  our dependence on foreign sources of supply and foreign manufacturing, and associated operational risks including but not limited to long lead times, consistent local labor availability and capacity, and timely availability of sufficient shipping carrier capacity;

 

·                  the impact of changing costs of raw materials and energy on cost of goods sold and certain operating expenses;

 

·                  circumstances which may contribute to future impairment of goodwill, intangible or other long-lived assets;

 

·                  the risks associated with the use of trademarks licensed from and to third parties;

 

·                  our dependence on the strength of retail economies and vulnerabilities to a prolonged economic downturn;

 

·                  our ability to develop and introduce a continuing stream of new products to meet changing consumer preferences;

 

·                  disruptions in U.S., European and other international credit markets;

 

·                  foreign currency exchange rate fluctuations;

 

·                  trade barriers, exchange controls, expropriations, and other risks associated with foreign operations;

 

- 39 -



 

·                  our leverage and the constraints it may impose on our ability to manage our cash resources and operate our business;

 

·                  the costs, complexity and challenges of upgrading and managing our global information systems;

 

·                  the risks associated with information security breaches;

 

·                  the risks associated with tax audits and related disputes with taxing authorities;

 

·                  the risks of potential changes in laws, including tax laws and the complexities of compliance with such laws; and

 

·                  our ability to continue to avoid classification as a controlled foreign corporation.

 

We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.

 

- 40 -



 

ITEM 4. CONTROLS AND PROCEDURES

 

DISCLOSURE CONTROLS AND PROCEDURES

 

Our management, under the supervision and with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), maintains disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.

 

Our management, including our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended August 31, 2012.  Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective at a reasonable level of assurance as of August 31, 2012, the end of the period covered by this quarterly report on Form 10-Q.

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

In connection with the evaluation described above, we identified no change in our internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act that occurred during our fiscal quarter ended August 31, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

- 41 -



 

PART II.   OTHER INFORMATION

 

ITEM 1.   LEGAL PROCEEDINGS

 

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.

 

ITEM 1A.   RISK FACTORS

 

The ownership of our common stock involves a number of risks and uncertainties.  When evaluating the Company and our business before making an investment decision regarding our securities, potential investors should carefully consider the risk factors and uncertainties described in Part 1, Item 1A. “Risk Factors” of our annual report on Form 10-K for the fiscal year ended February 29, 2012.  Since the filing of our annual report on Form 10-K, there have been no material changes in our risk factors from those disclosed therein.

 

ITEM 2.              UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On October 11, 2011, our Board of Directors approved a resolution to add 3,000,000 shares to the then-existing shares of common stock authorized for repurchase in open market or through private transactions. On October 31, 2011, our Board of Directors approved a resolution to extend our existing repurchase program through October 31, 2014. Under this program, as of August 31, 2012, we are authorized by our Board of Directors to purchase up to 3,019,071 shares of common stock in the open market or through private transactions.  Our current equity compensation plans include provisions that allow for the “cashless exercise” of stock options by all plan participants. In a cashless exercise, any required payroll taxes, federal withholding taxes and exercise price of the shares due from the option holder can be paid for by having the option holder tender back to the Company a number of shares at fair value equal to the amounts due. Cashless exercises are accounted for by the Company as a purchase and retirement of shares.

 

During the three month period ended August 31, 2012 there was no open market repurchase activity, however, employees tendered 2,595 shares of common stock having an aggregate market value of $0.08 million, or an average of $31.46 per share, as payment for the exercise price arising from the exercise of options. Also, during the three month period ended August 31, 2012, directors tendered 1,122 shares of common stock having an aggregate market value of $0.03 million, or an average of $30.30 per share, in exchange for cash in connection with certain stock compensation. We accounted for this as a purchase and retirement of the shares. The following schedule sets forth the purchase activity for the three month period ended August 31, 2012:

 

ISSUER PURCHASES OF EQUITY SECURITIES FOR THE THREE MONTHS ENDED AUGUST 31, 2012

Period

 

Total Number of
Shares
 Purchased

 

Average Price
Paid per Share

 

Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs

 

 

Maximum
Number of
Shares that May
Yet Be Purchased
Under the Plans
or Programs

 

 

 

 

 

 

 

 

 

 

 

 

June 1 through June 30, 2012

 

2,801

 

$31.02

 

2,801

 

 

3,019,987

 

July 1 through July 31, 2012

 

349

 

32.23

 

349

 

 

3,019,638

 

August 1 through August 31, 2012

 

567

 

30.86

 

567

 

 

3,019,071

 

Total

 

3,717

 

$31.11

 

3,717

 

 

 

 

 

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ITEM 6.      EXHIBITS

 

(a)

Exhibits

 

 

 

31.1*

Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

31.2*

Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

32**

Joint certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

101.INS**

XBRL Instance Document

 

101.SCH**

XBRL Taxonomy Extension Schema

 

101.CAL**

XBRL Taxonomy Extension Calculation Linkbase

 

101.DEF**

XBRL Taxonomy Extension Definition Linkbase

 

101.LAB**

XBRL Taxonomy Extension Label Linkbase

 

101.PRE**

XBRL Taxonomy Extension Presentation Linkbase

 

 

 

*

Filed herewith.

 

 

 

 

**

Furnished herewith. With respect to Exhibit 101, as provided by Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

HELEN OF TROY LIMITED

 

(Registrant)

 

 

 

 

Date:    October 10, 2012

/s/ Gerald J. Rubin

 

Gerald J. Rubin

 

Chairman of the Board, Chief
Executive Officer, President, Director
and Principal Executive Officer

 

 

 

 

Date:    October 10, 2012

/s/ Thomas J. Benson

 

Thomas J. Benson

 

Senior Vice President

 

and Chief Financial Officer

 

 

 

 

Date:    October 10, 2012

/s/ Richard J. Oppenheim

 

Richard J. Oppenheim

 

Financial Controller

 

and Principal Accounting Officer

 

- 44 -



 

Index to Exhibits

 

31.1*

Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2*

Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32**

Joint Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS**

 

XBRL Instance Document

101.SCH**

 

XBRL Taxonomy Extension Schema

101.CAL**

 

XBRL Taxonomy Extension Calculation Linkbase

101.DEF**

 

XBRL Taxonomy Extension Definition Linkbase

101.LAB**

 

XBRL Taxonomy Extension Label Linkbase

101.PRE**

 

XBRL Taxonomy Extension Presentation Linkbase

 

*

Filed herewith.

 

 

**

Furnished herewith. With respect to Exhibit 101, as provided by Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

 

- 45 -