UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended November 30, 2011 | |
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or | |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from ..... to .. |
Commission file number: 001-14669
HELEN OF TROY LIMITED
(Exact name of registrant as specified in its charter)
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Bermuda |
74-2692550 |
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(State or other jurisdiction of |
(I.R.S. Employer |
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incorporation or organization) |
Identification No.) |
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Clarenden House Church Street Hamilton, Bermuda |
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(Address of principal executive offices) |
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1 Helen of Troy Plaza |
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El Paso, Texas |
79912 |
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(Registrants United States Mailing Address) |
(Zip Code) |
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(915) 225-8000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 £ |
Accelerated filer T |
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Non-accelerated filer £ (Do not check if a smaller reporting company) |
Smaller reporting company £ |
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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 issuers classes of common stock, as of the latest practicable date.
Class |
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Outstanding at December 30, 2011 |
Common Shares, $0.10 par value, per share |
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31,611,090 shares |
HELEN OF TROY LIMITED AND SUBSIDIARIES
INDEX FORM 10-Q
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (unaudited)
(in thousands, except shares and par value)
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November 30, |
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February 28, |
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2011 |
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2011 |
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Assets |
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Asset, current: |
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Cash and cash equivalents |
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$ |
35,419 |
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$ |
27,193 |
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Investments, at market value |
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- |
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1,233 |
| ||
Receivables - principally trade, less allowances of $5,414 and $4,148 |
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229,221 |
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188,404 |
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Inventory, net |
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251,760 |
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217,230 |
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Prepaid expenses and other assets, current |
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6,358 |
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5,149 |
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Income taxes receivable |
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2,865 |
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2,399 |
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Deferred tax assets, net |
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14,760 |
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18,843 |
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Total assets, current |
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540,383 |
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460,451 |
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Property and equipment, net of accumulated depreciation of $71,342 and $65,428 |
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86,713 |
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82,487 |
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Goodwill |
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367,409 |
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356,242 |
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Other intangible assets, net of accumulated amortization of $48,645 and $36,083 |
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291,308 |
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304,705 |
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Deferred tax assets, net |
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981 |
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- |
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Other assets, net of accumulated amortization of $3,580 and $4,096 |
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14,185 |
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36,639 |
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Total assets |
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$ |
1,300,979 |
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$ |
1,240,524 |
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Liabilities and Stockholders Equity |
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Liabilities, current: |
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Revolving line of credit |
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$ |
70,000 |
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$ |
71,000 |
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Accounts payable, principally trade |
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96,648 |
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73,321 |
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Accrued expenses and other current liabilities |
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140,077 |
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141,620 |
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Deferred tax liabilities, net |
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1,360 |
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- |
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Long-term debt, current maturities |
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3,000 |
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53,000 |
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Total liabilities, current |
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311,085 |
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338,941 |
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Deferred compensation liability |
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3,840 |
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4,712 |
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Other liabilities, noncurrent |
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1,674 |
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1,594 |
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Deferred tax liabilities, net |
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27,222 |
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23,216 |
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Long-term debt, excluding current maturities |
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175,000 |
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178,000 |
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Liability for uncertain tax positions |
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12,246 |
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2,481 |
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Derivative liabilities, noncurrent |
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5,707 |
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6,031 |
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Total liabilities |
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536,774 |
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554,975 |
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Commitments and contingencies |
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Stockholders equity: |
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Cumulative preferred stock, non-voting, $1.00 par. Authorized 2,000,000 shares; none issued |
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- |
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- |
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Common stock, $0.10 par. Authorized 50,000,000 shares; 31,605,993 and 30,838,860 shares issued and outstanding |
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3,161 |
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3,084 |
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Additional paid in capital |
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147,543 |
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130,015 |
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Accumulated other comprehensive loss |
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(5,787 |
) |
(7,850 |
) | ||
Retained earnings |
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619,288 |
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560,300 |
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Total stockholders equity |
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764,205 |
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685,549 |
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Total liabilities and stockholders equity |
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$ |
1,300,979 |
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$ |
1,240,524 |
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See accompanying notes to consolidated condensed financial statements.
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Condensed Statements of Income (unaudited)
(in thousands, except per share data)
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Three Months Ended November 30, |
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Nine Months Ended November 30, | |||||||||||
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2011 |
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2010 |
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2011 |
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2010 |
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Sales revenue, net |
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$ |
338,785 |
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$ |
205,001 |
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$ |
887,672 |
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$ |
539,977 |
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Cost of goods sold |
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205,603 |
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112,256 |
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532,295 |
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294,529 |
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Gross profit |
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133,182 |
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92,745 |
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355,377 |
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245,448 |
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Selling, general, and administrative expense |
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91,354 |
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61,205 |
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252,546 |
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163,020 |
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Operating income before impairments |
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41,828 |
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31,540 |
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102,831 |
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82,428 |
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Asset impairment charges |
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- |
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- |
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- |
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501 |
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Operating income |
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41,828 |
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31,540 |
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102,831 |
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81,927 |
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Nonoperating income (expense), net |
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190 |
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156 |
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(325 |
) |
490 |
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Interest expense |
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(2,958 |
) |
(2,081 |
) |
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(9,652 |
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(6,377 |
) | ||||
Income before income taxes |
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39,060 |
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29,615 |
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92,854 |
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76,040 |
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Income tax expense (benefit): |
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Current |
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4,222 |
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2,191 |
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6,656 |
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7,365 |
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Deferred |
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1,959 |
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361 |
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5,121 |
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(248 |
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Net income |
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$ |
32,879 |
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$ |
27,063 |
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$ |
81,077 |
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$ |
68,923 |
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Earnings per share: |
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Basic |
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$ |
1.04 |
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$ |
0.88 |
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$ |
2.59 |
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$ |
2.25 |
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Diluted |
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$ |
1.04 |
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$ |
0.86 |
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$ |
2.56 |
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$ |
2.20 |
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Weighted average shares of common stock used in computing net earnings per share: |
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Basic |
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31,592 |
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30,644 |
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31,246 |
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30,640 |
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Diluted |
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31,666 |
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31,297 |
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31,685 |
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31,293 |
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See accompanying notes to consolidated condensed financial statements.
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (unaudited)
(in thousands)
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Nine Months Ended November 30, | |||||
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2011 |
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2010 |
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Net cash provided by operating activities: |
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Net income |
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$ |
81,077 |
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$ |
68,923 |
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Adjustments to reconcile net income to net cash provided by operating activities |
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Depreciation and amortization |
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21,066 |
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12,415 |
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Provision for doubtful receivables |
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605 |
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69 |
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Share-based compensation |
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2,231 |
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1,547 |
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Intangible asset impairment charges |
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- |
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501 |
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(Gain) loss on the sale of property and equipment |
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(95 |
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50 |
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Realized loss on investments |
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697 |
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- |
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Deferred income taxes and tax credits |
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5,041 |
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(324 |
) | ||
Changes in operating assets and liabilities, net of effects of acquisition of businesses: |
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Receivables |
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(41,363 |
) |
(34,172 |
) | ||
Inventories |
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(34,530 |
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(23,404 |
) | ||
Prepaid expenses and other assets |
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(1,071 |
) |
(1,460 |
) | ||
Other assets and liabilities, net |
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128 |
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(765 |
) | ||
Accounts payable |
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23,327 |
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(901 |
) | ||
Accrued expenses and other current liabilities |
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(1,488 |
) |
13,214 |
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Accrued income taxes |
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548 |
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(2,094 |
) | ||
Net cash provided by operating activities |
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56,173 |
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33,599 |
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Net cash provided (used) by investing activities: |
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Capital and other intangible expenditures |
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(11,238 |
) |
(3,032 |
) | ||
Proceeds from the sale of property and equipment |
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1,534 |
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63 |
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Proceeds from sale of investments |
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22,421 |
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300 |
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Payments to acquire businesses |
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- |
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(69,000 |
) | ||
Net cash provided (used) by investing activities |
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12,717 |
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(71,669 |
) | ||
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Net cash used by financing activities: |
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Proceeds from line of credit |
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809,450 |
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- |
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Repayment of line of credit |
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(810,450 |
) |
- |
| ||
Repayment of long-term debt |
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(53,000 |
) |
(3,000 |
) | ||
Payments of financing costs |
|
(25 |
) |
- |
| ||
Proceeds from exercise of stock options and employee stock purchases, including tax benefits |
|
5,907 |
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3,284 |
| ||
Payments for repurchases of common stock |
|
- |
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(1,799 |
) | ||
Payment of tax obligations resulting from cashless option exercise |
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(12,546 |
) |
- |
| ||
Net cash used by financing activities |
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(60,664 |
) |
(1,515 |
) | ||
Net increase (decrease) in cash and cash equivalents |
|
8,226 |
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(39,585 |
) | ||
Cash and cash equivalents, beginning balance |
|
27,193 |
|
110,208 |
| ||
Cash and cash equivalents, ending balance |
|
$ |
35,419 |
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$ |
70,623 |
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|
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Supplemental cash flow information: |
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|
|
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Interest paid |
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$ |
8,745 |
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$ |
6,208 |
|
Income taxes paid, net of refunds |
|
$ |
1,779 |
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$ |
9,389 |
|
Value of common stock received as exercise price of options |
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$ |
25,822 |
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$ |
- |
|
Transfer of auction rate securities from non-current assets to investments |
|
$ |
18,950 |
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$ |
- |
|
See accompanying notes to consolidated condensed financial statements.
HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
November 30, 2011
Note 1 - Basis of Presentation and Conventions Used in this Report
In our opinion, the accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly our consolidated financial position as of November 30, 2011 and February 28, 2011, and the results of our consolidated operations for the three- and nine-month periods ended November 30, 2011 and 2010. The same accounting policies are followed in preparing quarterly financial data as are followed in preparing annual data. These statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K for the fiscal year ended February 28, 2011, 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. References to Kaz refer to the operations of Kaz, Inc. and its subsidiaries, which we acquired in a merger on December 31, 2010. Kaz is its own segment within the Company referred to as the Healthcare / Home Environment segment. References to OXO refer to the operations of OXO International and certain affiliated subsidiaries that comprise the Housewares segment of the Companys business. 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 respective owners. We refer to the Companys common shares, par value $0.10 per share, as common stock. 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.
Note 2 New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Companys management believes that the impact of recently issued standards that are not yet effective, some of which may impact presentation in the financial statements and/or accompanying footnotes, will not have a material impact on its consolidated financial position, results of operations and cash flows upon adoption.
Note 3 Litigation
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.
Note 4 Earnings per Share
Basic earnings per share is computed based upon the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based upon the weighted average number of shares of common stock outstanding during the period plus the effect of dilutive securities. Our dilutive securities consist entirely of outstanding options for common stock that were in-the-money, meaning that the exercise price of the options was less than the average market price of our common stock during the period reported. Out-of-the-money options are outstanding options to purchase common stock that were 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. Thus, their effect would be antidilutive.
The effect of dilutive securities was approximately 74,600 and 439,100 shares of common stock for the three- and nine-month periods ended November 30, 2011, respectively, and 652,600 and 653,900 shares of common stock for the three- and nine-month periods ended November 30, 2010, respectively. Options to purchase common stock that were antidilutive totaled approximately 490,300 and 420,700 shares for the three- and nine-month periods ended November 30, 2011, respectively, and 527,700 and 620,500 shares for the three- and nine-month periods ended November 30, 2010, respectively.
Note 5 Comprehensive Income
The components of comprehensive income, net of tax, for each of the periods covered by this report are as follows:
COMPONENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
Three Months Ended November 30, |
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|
Nine Months Ended November 30, |
| ||||||||
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|
2011 |
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2010 |
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2011 |
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2010 |
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|
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|
|
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|
|
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|
| ||||
Net income |
|
$ |
32,879 |
|
$ |
27,063 |
|
|
$ |
81,077 |
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$ |
68,923 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
| ||||
Cash flow hedges - interest rate swaps, net of tax (1) |
|
721 |
|
860 |
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|
388 |
|
118 |
| ||||
Cash flow hedges - foreign currency, net of tax (2) |
|
477 |
|
(412 |
) |
|
791 |
|
17 |
| ||||
Unrealized gain (loss) - auction rate securities, net of tax (3) |
|
- |
|
(4 |
) |
|
884 |
|
(7 |
) | ||||
Comprehensive income, net of tax |
|
$ |
34,077 |
|
$ |
27,507 |
|
|
$ |
83,140 |
|
$ |
69,051 |
|
The components of accumulated other comprehensive loss, net of tax, for the periods covered by our consolidated condensed balance sheets are as follows:
COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS
(in thousands)
|
|
November 30, |
|
February 28, |
| ||
|
|
2011 |
|
2011 |
| ||
|
|
|
|
|
| ||
Unrealized holding losses on cash flow hedges - interest rate swaps, net of tax (1) |
|
$ |
(5,964 |
) |
$ |
(6,352 |
) |
Unrealized holding gains (losses) on cash flow hedges - foreign currency, net of tax (2) |
|
177 |
|
(614 |
) | ||
Temporary impairment loss on auction rate securities, net of tax (3) |
|
- |
|
(884 |
) | ||
Total accumulated other comprehensive loss |
|
$ |
(5,787 |
) |
$ |
(7,850 |
) |
(1) The change in unrealized loss on interest rate swap cash flow hedges is recorded net of tax (expense) of ($0.39) and ($0.06) million for the three- and nine-month periods ended November 30, 2011, respectively, and ($0.44) and ($0.06) million for the three- and nine-month periods ended November 30, 2010, respectively. The unrealized holding loss on interest rate swap cash flow hedges included in accumulated other comprehensive loss includes net deferred tax benefits of $3.21 and $3.27 million at November 30, 2011 and February 28, 2011, respectively.
(2) The change in unrealized gain (loss) on foreign currency cash flow hedges is recorded net of tax benefit (expense) of ($0.24) and ($0.38) million for the three- and nine-month periods ended November 30, 2011, respectively, and $0.21 and ($0.02) million for the three- and nine-month periods ended November 30, 2010, respectively. The unrealized holding gain (loss) on foreign currency cash flow hedges included in accumulated other comprehensive loss, includes net deferred tax benefit (expense) of ($0.08) and $0.30 million at November 30, 2011 and February 28, 2011, respectively.
(3) The change in temporary impairment loss on auction rate securities is recorded net of tax benefit (expense) of $0.00 and ($0.46) million for the three- and nine-month periods ended November 30, 2011, respectively, and $0.00 million for both the three- and nine-month periods ended November 30, 2010, respectively. The temporary impairment loss on auction rate securities included in accumulated other comprehensive loss, includes net deferred tax benefits of $0.00 and $0.46 million at November 30, 2011 and February 28, 2011, respectively.
Note 6 Segment Information
In the tables that follow, we present three segments: Personal Care, Housewares and Healthcare / Home Environment. Our Personal Care segments 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 reports the operations of the OXO family of brands, which provide 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 reports the operations of Kaz, which we acquired on December 31, 2010, as further discussed in Note 9 to these consolidated condensed financial statements. This segment focuses on health care devices such as thermometers, humidifiers and heating pads, and small domestic 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 use third-party manufacturers to produce our goods.
The following tables contain segment information for the periods covered by our consolidated condensed statements of income:
THREE MONTHS ENDED NOVEMBER 30, 2011 AND 2010
(in thousands)
|
|
Personal |
|
|
|
Healthcare / |
|
|
| ||||
November 30, 2011 |
|
Care |
|
Housewares |
|
Home Environment |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Sales revenue, net |
|
$ |
148,984 |
|
$ |
61,223 |
|
$ |
128,578 |
|
$ |
338,785 |
|
Operating income |
|
17,292 |
|
11,016 |
|
13,520 |
|
41,828 |
| ||||
Capital, license, trademark and other intangible expenditures |
|
1,876 |
|
521 |
|
1,862 |
|
4,259 |
| ||||
Depreciation and amortization |
|
2,640 |
|
1,765 |
|
2,970 |
|
7,375 |
| ||||
|
|
Personal |
|
|
|
Healthcare / |
|
|
| ||||
November 30, 2010 |
|
Care |
|
Housewares |
|
Home Environment |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Sales revenue, net |
|
$ |
146,506 |
|
$ |
58,495 |
|
$ |
- |
|
$ |
205,001 |
|
Operating income |
|
18,816 |
|
12,724 |
|
- |
|
31,540 |
| ||||
Capital, license, trademark and other intangible expenditures |
|
299 |
|
734 |
|
- |
|
1,033 |
| ||||
Depreciation and amortization |
|
2,674 |
|
1,435 |
|
- |
|
4,109 |
| ||||
NINE MONTHS ENDED NOVEMBER 30, 2011 AND 2010
(in thousands)
|
|
Personal |
|
|
|
Healthcare / |
|
|
| ||||
November 30, 2011 |
|
Care |
|
Housewares |
|
Home Environment |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Sales revenue, net |
|
$ |
386,998 |
|
$ |
178,017 |
|
$ |
322,657 |
|
$ |
887,672 |
|
Operating income |
|
48,299 |
|
33,854 |
|
20,678 |
|
102,831 |
| ||||
Capital, license, trademark and other intangible expenditures |
|
6,509 |
|
1,486 |
|
3,243 |
|
11,238 |
| ||||
Depreciation and amortization |
|
7,883 |
|
4,604 |
|
8,579 |
|
21,066 |
| ||||
|
|
Personal |
|
|
|
Healthcare / |
|
|
| ||||
November 30, 2010 |
|
Care |
|
Housewares |
|
Home Environment |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Sales revenue, net |
|
$ |
377,853 |
|
$ |
162,124 |
|
$ |
- |
|
$ |
539,977 |
|
Operating income before impairment |
|
47,142 |
|
35,286 |
|
- |
|
82,428 |
| ||||
Asset impairment charges |
|
501 |
|
- |
|
- |
|
501 |
| ||||
Operating income |
|
46,641 |
|
35,286 |
|
- |
|
81,927 |
| ||||
Capital, license, trademark and other intangible expenditures |
|
1,220 |
|
1,812 |
|
- |
|
3,032 |
| ||||
Depreciation and amortization |
|
7,904 |
|
4,511 |
|
- |
|
12,415 |
| ||||
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. The SG&A used to compute each segments 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. Beginning in fiscal 2012, we began making an allocation of corporate overhead to the Healthcare / Home Environment segment. For the three- and nine-month periods ended November 30, 2011, these allocations totaled $1.51 and $4.52 million, respectively. As we continue to integrate the operations of the Healthcare / Home Environment segment, we expect to allocate the costs of certain operating functions that will likely be shared between segments. As we decide such operating cost allocations are appropriate, there may be additional reductions in the operating results of the Healthcare / Home Environment segment offset by increases in operating income of the Personal Care and Housewares segments. The extent of this operating income impact between the segments has not yet been determined. We do not allocate other items of income and expense, including income taxes to operating segments.
The following tables contain identifiable assets allocable to each segment for the periods covered by our consolidated condensed balance sheets:
IDENTIFIABLE ASSETS AT NOVEMBER 30, 2011 AND FEBRUARY 28, 2011
(in thousands)
|
|
Personal |
|
|
|
Healthcare / |
|
|
| ||||
|
|
Care |
|
Housewares |
|
Home Environment |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
November 30, 2011 |
|
$ |
501,250 |
|
$ |
372,176 |
|
$ |
427,553 |
|
$ |
1,300,979 |
|
February 28, 2011 |
|
474,344 |
|
363,128 |
|
403,052 |
|
1,240,524 |
| ||||
Note 7 Property and Equipment
A summary of property and equipment is as follows:
PROPERTY AND EQUIPMENT
(in thousands)
|
|
Estimated |
|
|
|
|
| ||
|
|
Useful Lives |
|
November 30, |
|
February 28, |
| ||
|
|
(Years) |
|
2011 |
|
2011 |
| ||
|
|
|
|
|
|
|
| ||
Land |
|
- |
|
$ |
9,073 |
|
$ |
9,073 |
|
Building and improvements |
|
3 - 40 |
|
66,237 |
|
65,605 |
| ||
Computer and other equipment |
|
3 - 10 |
|
48,303 |
|
47,171 |
| ||
Tools, dies and molds |
|
1 - 3 |
|
17,705 |
|
13,080 |
| ||
Transportation equipment |
|
3 - 5 |
|
118 |
|
118 |
| ||
Furniture and fixtures |
|
5 - 15 |
|
8,809 |
|
8,668 |
| ||
Construction in progress |
|
- |
|
7,810 |
|
4,200 |
| ||
Property and equipment, gross |
|
|
|
158,055 |
|
147,915 |
| ||
Less accumulated depreciation |
|
|
|
(71,342 |
) |
(65,428 |
) | ||
Property and equipment, net |
|
|
|
$ |
86,713 |
|
$ |
82,487 |
|
Depreciation expense was $2.23 and $6.45 million for the three- and nine-month periods ended November 30, 2011, respectively, and $1.97 and $6.07 million for the three- and nine-month periods ended November 30, 2010, respectively.
We lease certain facilities, equipment and vehicles under operating leases, which expire at various dates through fiscal 2019. Certain leases contain escalation clauses and renewal or purchase options. Rent expense related to our operating leases was $1.41 and $4.22 million for the three- and nine-month periods ended November 30, 2011, respectively, and $0.60 and $1.62 million for the three- and nine-month periods ended November 30, 2010, respectively.
Note 8 Intangible Assets
Annual Impairment Testing in the First Quarter of Fiscal 2012 - The Company performed its annual evaluation of goodwill and indefinite-lived intangible assets for impairment during the first quarter of fiscal 2012. As a result of its testing, the Company concluded no impairment charges were required as the estimated fair value of the indefinite-lived trademarks and licenses, reporting unit net assets and the Companys estimated enterprise value exceeded their respective carrying values as of the date of the evaluation.
Annual Impairment Testing in the First Quarter of Fiscal 2011 - The Company performed its annual evaluation of goodwill and indefinite-lived intangible assets for impairment during the first quarter of fiscal 2011. As a result of its testing, the Company recorded a non-cash impairment charge of $0.50 million ($0.49 million after tax). The charge was related to an indefinite-lived trademark in our Personal Care segment that was written down to its fair value, determined on the basis of future discounted cash flows using the relief from royalty method.
A summary of the carrying amounts and associated accumulated amortization for all intangible assets by operating segment is as follows:
GOODWILL AND INTANGIBLE ASSETS
(in thousands)
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
November 30, 2011 |
|
|
February 28, 2011 |
| ||||||||||||||||||||
|
|
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 |
|
$ |
81,841 |
|
$ |
(46,490) |
|
$ |
- |
|
$ |
35,351 |
|
|
$ |
81,901 |
|
$ |
(46,490 |
) |
$ |
- |
|
$ |
35,411 |
|
Trademarks - indefinite |
|
75,303 |
|
- |
|
- |
|
75,303 |
|
|
75,303 |
|
- |
|
- |
|
75,303 |
| ||||||||
Trademarks - finite |
|
150 |
|
- |
|
(66) |
|
84 |
|
|
150 |
|
- |
|
(62 |
) |
88 |
| ||||||||
Licenses - indefinite |
|
10,300 |
|
- |
|
- |
|
10,300 |
|
|
10,300 |
|
- |
|
- |
|
10,300 |
| ||||||||
Licenses - finite |
|
19,564 |
|
- |
|
(15,838) |
|
3,726 |
|
|
19,564 |
|
- |
|
(15,450 |
) |
4,114 |
| ||||||||
Other intangibles - finite |
|
49,437 |
|
- |
|
(13,521) |
|
35,916 |
|
|
49,401 |
|
- |
|
(9,048 |
) |
40,353 |
| ||||||||
Total Personal Care |
|
236,595 |
|
(46,490) |
|
(29,425) |
|
160,680 |
|
|
236,619 |
|
(46,490 |
) |
(24,560 |
) |
165,569 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Housewares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Goodwill |
|
166,131 |
|
- |
|
- |
|
166,131 |
|
|
166,131 |
|
- |
|
- |
|
166,131 |
| ||||||||
Trademarks - indefinite |
|
75,200 |
|
- |
|
- |
|
75,200 |
|
|
75,200 |
|
- |
|
- |
|
75,200 |
| ||||||||
Other intangibles - finite |
|
18,149 |
|
- |
|
(10,231) |
|
7,918 |
|
|
19,320 |
|
- |
|
(9,893 |
) |
9,427 |
| ||||||||
Total Housewares |
|
259,480 |
|
- |
|
(10,231) |
|
249,249 |
|
|
260,651 |
|
- |
|
(9,893 |
) |
250,758 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Healthcare / Home Environment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Goodwill |
|
165,927 |
|
- |
|
- |
|
165,927 |
|
|
154,700 |
|
- |
|
- |
|
154,700 |
| ||||||||
Other Intangibles - finite |
|
91,850 |
|
- |
|
(8,989) |
|
82,861 |
|
|
91,550 |
|
- |
|
(1,630 |
) |
89,920 |
| ||||||||
Total Healthcare / Home Environment |
|
257,777 |
|
- |
|
(8,989) |
|
248,788 |
|
|
246,250 |
|
- |
|
(1,630 |
) |
244,620 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total |
|
$ |
753,852 |
|
$ |
(46,490) |
|
$ |
(48,645) |
|
$ |
658,717 |
|
|
$ |
743,520 |
|
$ |
(46,490 |
) |
$ |
(36,083 |
) |
$ |
660,947 |
|
During the fiscal quarter ended November 30, 2011, the Company recorded a $11.20 million net increase to goodwill related to certain Kaz pre-acquisition tax positions.
The following table summarizes the amortization expense attributable to intangible assets for the three- and nine- month periods ended November 30, 2011 and 2010, as well as our estimated amortization expense for the fiscal years ending the last day of each February 2012 through 2017.
AMORTIZATION OF INTANGIBLE ASSETS
(in thousands)
Aggregate Amortization Expense |
|
|
| |
For the three months ended |
|
|
| |
|
|
|
| |
November 30, 2011 |
|
$ |
4,952 |
|
November 30, 2010 |
|
$ |
2,086 |
|
|
|
|
| |
Aggregate Amortization Expense |
|
|
| |
For the nine months ended |
|
|
| |
|
|
|
| |
November 30, 2011 |
|
$ |
14,001 |
|
November 30, 2010 |
|
$ |
6,177 |
|
|
|
|
| |
Estimated Amortization Expense |
|
|
| |
For the fiscal years ended |
|
|
| |
|
|
|
| |
February 2012 |
|
$ |
18,443 |
|
February 2013 |
|
$ |
18,035 |
|
February 2014 |
|
$ |
17,424 |
|
February 2015 |
|
$ |
16,889 |
|
February 2016 |
|
$ |
16,667 |
|
February 2017 |
|
$ |
16,107 |
|
NOTE 9 - Acquisitions
Kaz, Inc. Acquisition On December 31, 2010, we completed the merger of Kaz under the terms of an Agreement and Plan of Merger dated December 8, 2010, among us, Helen of Troy Texas Corporation, our wholly-owned subsidiary, KI Acquisition Corp., our indirect wholly-owned subsidiary, Kaz, and certain shareholders of Kaz. Pursuant to the terms of the merger agreement, all of the shares of capital stock of Kaz were cancelled and converted into a total cash purchase price of $271.50 million, subject to certain future adjustments. The acquisition was funded with $77.50 million of cash and $194.00 million in short- and long-term debt. Based in Southborough, Massachusetts, Kaz is a world leader in providing a broad range of consumer products in two primary product categories consisting of healthcare and home environment. Kaz sources, markets and distributes a number of well-recognized brands including: Vicks, Braun, Kaz, Smart-Temp, SoftHeat, Honeywell, Duracraft, Protec, Stinger, and Nosquito. The acquisition helps broaden the Companys geographic footprint, increase our mutual significance with common customers and vendors, and expand our customer base worldwide.
The following schedule presents the identifiable assets and liabilities acquired, assumed or recognized at the acquisition date at their fair values. These balances are provisional and may be subject to additional adjustment.
KAZ - NET ASSETS RECORDED UPON ACQUISITION AT DECEMBER 31, 2010
(in thousands)
Assets: |
|
|
| |
Cash |
|
$ |
4,258 |
|
Receivables |
|
70,792 |
| |
Inventory |
|
62,415 |
| |
Prepaid expenses and other current assets |
|
2,197 |
| |
Property and equipment |
|
4,083 |
| |
Goodwill |
|
154,700 |
| |
Other intangible assets - finite |
|
91,550 |
| |
Deferred tax assets |
|
12,376 |
| |
Other assets |
|
3,098 |
| |
Subtotal - assets |
|
405,469 |
| |
Liabilities: |
|
|
| |
Accounts payable |
|
41,371 |
| |
Accrued expenses |
|
64,118 |
| |
Income taxes payable |
|
1,496 |
| |
Deferred tax liabilities |
|
24,303 |
| |
Liabilities for uncertain tax positions |
|
1,453 |
| |
Deferred compensation |
|
1,230 |
| |
Subtotal - liabilities |
|
133,971 |
| |
Net assets recorded |
|
$ |
271,498 |
|
The fair values of the intangible assets acquired were estimated by applying income and market approaches. These fair value measurements were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements. Key assumptions included various discount rates based upon a 10.25 percent weighted average cost of capital, royalty rates ranging from 2.00 to 3.50 percent used in the determination of patent values and customer attrition rates of 10.00 percent per year used in the determination of customer list values.
Gross receivables of $77.49 million have been recorded in the transaction. We estimated that $6.70 million of gross receivables would not be collected and recorded the acquired receivables at their estimated fair value of $70.79 million. Since these receivables were recorded at a fair value which contemplated their ultimate collectability, no additional allowances for collectability needed to be recorded against acquired receivables while they remained on our balance sheets. As of November 30, 2011, allowances totaling $1.38 million have been established against Kazs post-acquisition trade receivables. These allowances are included in the $5.41 million of receivables allowance set forth in the accompanying consolidated balance sheet at November 30, 2011.
The goodwill of $154.70 million provisionally recorded with the acquisition consisted largely of the synergies and economies of scale expected from combining the operations of the Company and Kaz. All of the goodwill was assigned to the Companys Healthcare / Home Environment segment. None of the goodwill recognized is expected to be deductible for income tax purposes.
Pert Plus and Sure Acquisition - On March 31, 2010, we completed the acquisition of certain assets and liabilities of the Pert Plus hair care and Sure antiperspirant and deodorant businesses from Innovative Brands, LLC for a net purchase price of $69.00 million, which we paid with cash on hand. Net assets acquired consist principally of accounts receivable, finished goods inventories, prepaid expenses, goodwill, patents, trademarks, tradenames, product design specifications, production know-how, certain fixed assets, distribution rights and customer lists, less certain product related operating accruals and other current liabilities. We market Pert Plus and Sure products primarily into retail trade channels.
The following schedule presents the acquisition date fair value of the net assets of Pert Plus and Sure:
PERT PLUS AND SURE - NET ASSETS ACQUIRED ON MARCH 31, 2010
(in thousands)
Receivables |
|
$ |
8,589 |
|
Inventory |
|
4,887 |
| |
Prepaid expenses |
|
392 |
| |
Tools, dies and molds |
|
730 |
| |
Goodwill |
|
15,845 |
| |
Trademarks |
|
23,650 |
| |
Patent rights |
|
2,600 |
| |
Customer list |
|
21,275 |
| |
Total assets acquired |
|
77,968 |
| |
Less: Accounts payable and other current liabilities assumed or recorded at acquisition |
|
(8,968 |
) | |
Net assets acquired |
|
$ |
69,000 |
|
The fair values of the intangible assets acquired were estimated by applying income and market approaches. These fair value measurements were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements. Key assumptions included various discount rates based upon a 15.80 percent weighted average cost of capital, royalty rates of 5.00 percent used in the determination of trademark values and customer attrition rates of 11.50 percent per year used in the determination of customer list values.
Note 10 Short-Term Debt
We have a Credit Agreement (the 2010 RCA) with Bank of America, N.A. that provided for an unsecured total revolving commitment of up to $150.00 million as of November 30, 2011, subject to certain terms and limitations as described below. The commitment under the 2010 RCA terminates on December 30, 2015. Borrowings under the 2010 RCA accrue interest at a Base Rate plus a margin of 0.25 to 1.375 percent per annum based on the Leverage Ratio (as defined in the 2010 RCA) at the time of borrowing. The base rate is equal to the highest of the Federal Funds Rate (as defined in the 2010 RCA) plus 0.50 percent, Bank of Americas 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 1.25 to 2.375 percent per annum based upon the Leverage Ratio at the time of the borrowing. We incur loan commitment fees at a rate ranging from 0.30 to 0.50 percent per annum on the unused balance of the 2010 RCA. We incur letter of credit fees under the 2010 RCA at a rate ranging from 1.25 to 2.375 percent per annum on the face value of any letter of credit. Outstanding letters of credit reduce the borrowing availability under the 2010 RCA on a dollar-for-dollar basis. The 2010 RCA and our other debt are unconditionally guaranteed, on a joint and several basis, by the Company and certain of its subsidiaries. As of November 30, 2011, there were $70.00 million in revolving loans and $0.34 million of open letters of credit outstanding against the 2010 RCA. For the three- and nine-months ended November 30, 2011, borrowings under the 2010 RCA incurred interest charges at rates ranging from 1.94 to 4.00 percent. As of November 30, 2011, the amount available for borrowings under the 2010 RCA was $79.66 million.
The 2010 RCA and our other debt agreements require the maintenance of maximum debt leverage and minimum interest coverage ratios, specify minimum consolidated net worth levels and contain other customary covenants, which restrict us from incurring liens on any of our properties, except under certain conditions, and limit our ability to pay dividends and repurchase shares of our common stock, among other things. As of November 30, 2011, all our debt agreements effectively limited our ability to incur more than an estimated $250.43 million of additional debt from all sources, including draws on the 2010 RCA and we were in compliance with the terms of the 2010 RCA and our other debt agreements.
On December 15, 2011, we amended the 2010 RCA to increase the amount of borrowings available under the revolving commitment from $150.00 million to $250.00 million. See Note 18 for further information related to this amendment to the 2010 RCA.
Note 11 Accrued Expenses and Current Liabilities
A summary of accrued expenses and other current liabilities is as follows:
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
(in thousands)
|
|
November 30, |
|
February 28, |
| ||
|
|
2011 |
|
2011 |
| ||
Accrued sales returns, discounts and allowances |
|
$ |
35,380 |
|
$ |
32,136 |
|
Accrued warranty returns |
|
24,199 |
|
24,021 |
| ||
Accrued compensation |
|
19,483 |
|
24,379 |
| ||
Accrued advertising |
|
10,166 |
|
10,159 |
| ||
Accrued interest |
|
2,270 |
|
1,973 |
| ||
Accrued royalties |
|
8,902 |
|
7,265 |
| ||
Accrued legal expenses and professional fees |
|
4,898 |
|
6,851 |
| ||
Accrued benefits and payroll taxes |
|
7,723 |
|
10,100 |
| ||
Accrued freight |
|
2,079 |
|
1,950 |
| ||
Accrued property, sales and other taxes |
|
7,117 |
|
4,668 |
| ||
Kaz acquisition liabilities |
|
- |
|
4,261 |
| ||
Derivative liabilities, current |
|
3,563 |
|
4,564 |
| ||
Other |
|
14,297 |
|
9,293 |
| ||
Total accrued expenses and other current liabilities |
|
$ |
140,077 |
|
$ |
141,620 |
|
Kaz acquisition liabilities at February 28, 2011 consisted of $4.26 million of additional purchase price consideration due to former Kaz shareholders as a working capital adjustment settlement, which was paid during the fiscal quarter ended August 31, 2011.
Note 12 Income Taxes
United States Income Taxes - In April 2010, the IRS concluded its audits of the 2007 and 2008 consolidated U.S. federal tax returns for Helen of Troy Texas Corporation. No adjustments were made to either years tax returns. The U.S. federal income tax returns of Kaz and its subsidiaries for tax years 2003, 2004, 2006, 2007, and 2008 are currently under examination. The IRS has issued a notice of proposed adjustment for the 2006 tax year, which is currently under appeal. The Company is protesting the adjustments and believes that the potential impact of any adjustments sustained at appeal will not have a material impact on our results of operations or financial position, as the proposed adjustments relate to a tax receivable that was not acquired in the purchase of Kaz.
In November and December 2011, the Company received additional notices of proposed permanent adjustments related to Kazs 2007 and 2008 tax years that would increase tax expense by $0.52 and $1.1 million, respectively. The Company also received notices of proposed timing adjustments related to the Kaz 2007 and 2008 tax years that would increase taxes payable and deferred tax assets by $0.51 and $2.51 million, respectively. The Company is currently evaluating the merits of the adjustments, but does not expect them to have a material impact on our results of operations or financial position. The IRS has not proposed any other adjustments for the other tax years under examination.
Income Tax Provisions - We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments must be used in the calculation of certain tax assets and liabilities because of differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. As changes occur in our assessments regarding our ability to recover our deferred tax assets, our tax provision is increased in any period in which we determine that the recovery is not probable.
In 1994, we engaged in a corporate restructuring that, among other things, resulted in a greater portion of our income not being subject to taxation in the U.S. If such income were subject to U.S. federal income taxes, our effective income tax rate would increase materially. Future actions by taxing authorities may result in tax liabilities that are significantly higher than the reserves established, which could have a material adverse effect on our consolidated results of operations or cash flows. Additionally, the U.S. government is constantly considering numerous proposed legislative changes in the tax law that, if enacted, could increase our overall effective tax rate.
Unrecognized Tax Benefits During the fiscal quarter ended November 30, 2011, in connection with its ongoing evaluation of its tax positions, the company recorded a $9.13 million net increase to unrecognized tax benefits, primarily related to certain Kaz pre-acquisition tax positions.
Note 13 Long-Term Debt
A summary of long-term debt is as follows:
LONG-TERM DEBT
(dollars in thousands)
|
|
Original |
|
|
|
|
|
|
|
|
| ||
|
|
Date |
|
Interest |
|
|
|
November 30, |
|
February 28, |
| ||
|
|
Borrowed |
|
Rates |
|
Matures |
|
2011 |
|
2011 |
| ||
$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. |
|
07/97 |
|
7.24% |
|
07/12 |
|
$ |
3,000 |
|
$ |
6,000 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
$50 million unsecured floating interest rate 7 year Senior Notes. Interest set and payable quarterly at three-month LIBOR plus 85 basis points. Principal is due at maturity. Notes can be prepaid without penalty. (1) |
|
06/04 |
|
5.89% |
|
06/11 |
|
- |
|
50,000 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
$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 |
|
|
|
|
|
|
|
178,000 |
|
231,000 |
| ||
Less current maturities of long-term debt |
|
|
|
|
|
|
|
(3,000 |
) |
(53,000 |
) | ||
Long-term debt, excluding current maturities |
|
|
|
|
|
|
|
$ |
175,000 |
|
$ |
178,000 |
|
(1) Floating interest rates have been hedged with interest rate swaps to effectively fix interest rates. Additional information regarding these swaps is provided in Note 15.
The fair market value of the fixed rate debt at November 30, 2011, computed using a discounted cash flow analysis, was $102.46 million compared to the $103.00 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 November 30, 2011.
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 a maximum leverage ratio (as that term is defined in the various agreements), a minimum interest coverage ratio (as defined in the various agreements) and a minimum consolidated net worth (as defined in the various agreements). Additionally, our debt agreements contain other customary covenants, including, among other things, covenants restricting the Company, except under certain conditions set forth therein, from (1) incurring debt, (2) incurring liens on any of its properties, (3) making certain types of investments, (4) selling certain assets or making other fundamental changes relating to mergers and consolidations, and (5) limit our ability to repurchase shares of our common stock and pay dividends.
As of November 30, 2011, our debt agreements effectively limited our ability to incur more than $250.43 million of additional debt from all sources, including draws on the 2010 RCA and we were in compliance with the terms of all of our debt agreements.
The following table contains a summary of the components of our interest expense for the periods covered by our consolidated condensed statements of income:
INTEREST EXPENSE
(in thousands)
|
|
Three Months Ended November 30, |
|
Nine Months Ended November 30, |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
Interest and commitment fees |
|
$ |
1,844 |
|
$ |
534 |
|
$ |
5,491 |
|
$ |
1,704 |
|
Deferred finance costs |
|
192 |
|
57 |
|
610 |
|
171 |
| ||||
Interest rate swap settlements, net |
|
922 |
|
1,490 |
|
3,551 |
|
4,502 |
| ||||
Total interest expense |
|
$ |
2,958 |
|
$ |
2,081 |
|
$ |
9,652 |
|
$ |
6,377 |
|
Note 14 Fair Value
The following tables present the fair value hierarchy of our financial assets and liabilities carried at fair value or measured for disclosure purposes on a recurring basis as of November 30, 2011 and February 28, 2011:
FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES | |||||||||||||
(in thousands) |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
| ||||
|
|
|
|
Active Markets |
|
Observable |
|
Unobservable |
| ||||
|
|
Fair Values at |
|
for Identical Assets |
|
Market Inputs |
|
Inputs |
| ||||
Description |
|
November 30, 2011 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Money market accounts |
|
$ |
2,134 |
|
$ |
2,134 |
|
$ |
- |
|
$ |
- |
|
Foreign currency contracts |
|
162 |
|
- |
|
162 |
|
- |
| ||||
Total assets |
|
$ |
2,296 |
|
$ |
2,134 |
|
$ |
162 |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Long-term debt - fixed rate (1) |
|
$ |
102,459 |
|
$ |
- |
|
$ |
102,459 |
|
$ |
- |
|
Long-term debt - floating rate |
|
75,000 |
|
- |
|
75,000 |
|
- |
| ||||
Interest rate swaps |
|
9,175 |
|
- |
|
9,175 |
|
- |
| ||||
Foreign currency contracts |
|
95 |
|
- |
|
95 |
|
- |
| ||||
Total liabilities |
|
$ |
186,729 |
|
$ |
- |
|
$ |
186,729 |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
| ||||
|
|
|
|
Active Markets |
|
Observable |
|
Unobservable |
| ||||
|
|
Fair Value at |
|
for Identical Assets |
|
Market Inputs |
|
Inputs |
| ||||
Description |
|
February 28, 2011 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Money market accounts |
|
$ |
6,435 |
|
$ |
6,435 |
|
$ |
- |
|
$ |
- |
|
Commercial paper |
|
1,560 |
|
1,560 |
|
- |
|
- |
| ||||
Mutual funds |
|
1,233 |
|
1,233 |
|
- |
|
- |
| ||||
Auction rate securities |
|
20,711 |
|
- |
|
- |
|
20,711 |
| ||||
Total assets |
|
$ |
29,939 |
|
$ |
9,228 |
|
$ |
- |
|
$ |
20,711 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Long-term debt - fixed rate (1) |
|
$ |
104,650 |
|
$ |
- |
|
$ |
104,650 |
|
$ |
- |
|
Long-term debt - floating rate |
|
125,000 |
|
- |
|
125,000 |
|
- |
| ||||
Interest rate swaps |
|
9,625 |
|
- |
|
9,625 |
|
- |
| ||||
Foreign currency contracts |
|
970 |
|
- |
|
970 |
|
- |
| ||||
Total liabilities |
|
$ |
240,245 |
|
$ |
- |
|
$ |
240,245 |
|
$ |
- |
|
(1) Debt values are reported at their estimated fair values in this table but are recorded in the accompanying consolidated condensed balance sheets at the undiscounted value of remaining principal payments due.
Money market accounts and commercial paper are included in cash and cash equivalents in the accompanying consolidated condensed balance sheets and are classified as Level 1 assets. Mutual funds are classified as Level 1 assets and included in the line entitled Investments, at market value in the consolidated condensed balance sheets. Mutual fund market values are determined by the most recent trading price of each fund as of the balance sheet dates. At February 28, 2011, we determined auction rate securities (ARS) estimated fair values with discounted cash flow models using the methodology and assumptions described in Note 10 to the consolidated financial statements contained in our latest annual report on Form 10-K. ARS were recorded in the line Other assets, net of accumulated amortization in the consolidated condensed balance sheet as of February 28, 2011.
We classify our fixed and floating rate debt as Level 2 liabilities because the estimation of the fair market value of debt requires the use of a discount rate based upon current market rates of interest for debt with comparable remaining terms. Such comparable rates are considered significant other observable market inputs. The fair market value of the fixed rate debt was computed using a discounted cash flow analysis and discount rates, ranging from 1.09 to 4.11 percent at November 30, 2011 and 1.86 to 4.36 percent at February 28, 2011, 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 and interest rate swaps. While there are not active markets for these hedge contracts once they have been executed, the inputs used to calculate the fair values of those instruments at each reporting date are tied to active markets. Accordingly, we determine the fair value of our derivative instruments based on Level 2 inputs in the fair value hierarchy.
The Companys 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 nonrecurring basis as part of the Companys impairment assessments and as circumstances require.
The table below presents a reconciliation of our ARS measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three- and nine-month periods ended November 30, 2011:
FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS (Level 3) | ||||||||
(in thousands) |
|
|
|
|
| |||
|
|
|
Periods Ended November, 2011 |
| ||||
|
|
|
Three Months |
|
Nine Months |
| ||
|
|
|
|
|
| |||
Balance at beginning of period |
|
$ |
18,194 |
|
$ |
20,711 |
| |
Total gains (losses): |
|
|
|
|
| |||
Included in net income - realized |
|
(752 |
) |
(626 |
) | |||
Included in net income - unrealized |
|
756 |
|
- |
| |||
Included in other comprehensive income - unrealized |
|
- |
|
1,213 |
| |||
Sales at par |
|
(150 |
) |
(3,250 |
) | |||
Sales at fair value |
|
(18,048 |
) |
(18,048 |
) | |||
Balance at end of period |
|
$ |
- |
|
$ |
- |
| |
|
|
|
|
|
| |||
Cumulative unrealized losses relating to assets still held at the reporting date, net of taxes |
|
|
|
$ |
- |
|
Note 15 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 nine-month periods ended November 30, 2011, approximately 20 and 19 percent, respectively, of our net sales revenue were in foreign currencies. These sales were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, Japanese Yen, Australian Dollars, Chilean Pesos, Peruvian Soles and Venezuelan Bolivares Fuertes. During the three- and nine-month periods ended November 30, 2010, approximately 16 and 13 percent, respectively, of our net sales revenue were in foreign currencies. These transactions were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian 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 are recognized in SG&A. For the three- and nine-month periods ended November 30, 2011, we recorded net foreign exchange gains (losses), including the impact of currency hedges, of ($1.44) and ($1.64) million, respectively, in SG&A and $0.14 and $0.06 million, respectively, in income tax expense. For the three- and nine-month periods ended November 30, 2010, we recorded net foreign exchange gains (losses), including the impact of currency hedges, of $0.40 and $0.49 million, respectively, in SG&A and ($0.05) and $0.09 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 long-term debt outstanding as of November 30, 2011 is both floating and fixed. Fixed rates are in place on $103.00 million of Senior Notes at rates ranging from 3.90 to 7.24 percent and floating rates are in place on $70.00 million in advances against our 2010 RCA and $75.00 million of Senior Notes. If short-term interest rates increase, we will incur higher interest rates on any outstanding balances under the 2010 RCA. The floating rate Senior Notes reset, as described in Note 13, and have been effectively converted to fixed rate debt using an interest rate swap, as described below.
We manage a portion of our floating rate debt using an interest rate swap (the swap). As of November 30, 2011, we had a swap that converted an aggregate notional principal of $75.00 million from floating interest rate payments under our 10 year Senior Notes 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 5.11 percent on our 10 year Senior Notes, while simultaneously receiving floating rate interest payments set at 0.37 percent as of November 30, 2011 on the same notional amounts. The fixed rate side of the swap will not change over the life of the swap. 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 debts floating rate payments. The swap is used to reduce the Companys 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.
The following table summarizes the fair values of our various derivative instruments at November 30, 2011 and February 28, 2011:
FAIR VALUES OF DERIVATIVE INSTRUMENTS IN THE CONSOLIDATED BALANCE SHEETS | ||||||||||||||||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
November 30, 2011 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Accrued |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
| |||||
|
|
|
|
Final |
|
|
|
Derivative |
|
Derivative |
|
and Other |
|
Derivative |
| |||||
|
|
|
|
Settlement |
|
Notional |
|
Assets, |
|
Assets, |
|
Current |
|
Liabilities, |
| |||||
Designated as hedging instruments |
|
Hedge Type |
|
Date |
|
Amount |
|
Current |
|
Noncurrent |
|
Liabilities |
|
Noncurrent |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency contracts - sell Pounds |
|
Cash flow |
|
2/2012 |
|
£ |
4,000 |
|
$ |
94 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Foreign currency contracts - sell Canadian |
|
Cash flow |
|
12/2012 |
|
$ |
9,000 |
|
45 |
|
23 |
|
- |
|
- |
| ||||
Foreign currency contracts - sell Euros |
|
Cash flow |
|
2/2012 |
|
|
2,000 |
|
- |
|
- |
|
95 |
|
- |
| ||||
Subtotal |
|
|
|
|
|
|
|
139 |
|
23 |
|
95 |
|
- |
| |||||
Interest rate swap |
|
Cash flow |
|
6/2014 |
|
$ |
75,000 |
|
- |
|
- |
|
3,468 |
|
5,707 |
| ||||
Total fair value |
|
|
|
|
|
|
|
$ |
139 |
|
$ |
23 |
|
$ |
3,563 |
|
$ |
5,707 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
February 28, 2011 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Accrued |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
| |||||
|
|
|
|
Final |
|
|
|
Derivative |
|
Derivative |
|
and Other |
|
Derivative |
| |||||
|
|
|
|
Settlement |
|
Notional |
|
Assets, |
|
Assets, |
|
Current |
|
Liabilities, |
| |||||
Designated as hedging instruments |
|
Hedge Type |
|
Date |
|
Amount |
|
Current |
|
Noncurrent |
|
Liabilities |
|
Noncurrent |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency contracts - sell Pounds |
|
Cash flow |
|
2/2012 |
|
£ |
7,000 |
|
$ |
- |
|
$ |
- |
|
$ |
197 |
|
$ |
- |
|
Foreign currency contracts - sell Canadian |
|
Cash flow |
|
12/2012 |
|
$ |
13,000 |
|
- |
|
- |
|
208 |
|
191 |
| ||||
Foreign currency contracts - sell Euros |
|
Cash flow |
|
2/2012 |
|
|
5,000 |
|
- |
|
- |
|
374 |
|
- |
| ||||
Subtotal |
|
|
|
|
|
|
|
- |
|
- |
|
779 |
|
191 |
| |||||
Interest rate swaps |
|
Cash flow |
|
6/2014 |
|
$ |
125,000 |
|
- |
|
- |
|
3,785 |
|
5,840 |
| ||||
Total fair value |
|
|
|
|
|
|
|
$ |
- |
|
$ |
- |
|
$ |
4,564 |
|
$ |
6,031 |
|
The pre-tax effect of derivative instruments for the three- and nine-month periods ended November 30, 2011 and 2010 is as follows:
PRE TAX EFFECT OF DERIVATIVE INSTRUMENTS | |||||||||||||||||||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
Three Months Ended November 30, | |||||||||||||||||||||
|
|
Gain \ (Loss) |
|
Gain \ (Loss) Reclassified |
|
|
|
|
|
|
| ||||||||||||
|
|
Recognized in OCI |
|
from Accumulated Other |
|
Gain \ (Loss) Recognized |
| ||||||||||||||||
|
|
(effective portion) |
|
Comprehensive Loss into Income |
|
as Income (1) |
| ||||||||||||||||
|
|
2011 |
|
2010 |
|
Location |
|
2011 |
|
2010 |
|
Location |
|
2011 |
|
2010 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Currency contracts - ordinary and cash flow hedges |
|
$ |
682 |
|
$ |
(702 |
) |
SG&A |
|
$ |
(75 |
) |
$ |
(38 |
) |
SG&A |
|
$ |
40 |
|
$ |
(41 |
) |
Interest rate swaps - cash flow hedges |
|
187 |
|
(187 |
) |
Interest expense |
|
(922 |
) |
(1,490 |
) |
|
|
- |
|
- |
| ||||||
Total |
|
$ |
869 |
|
$ |
(889 |
) |
|
|
$ |
(997 |
) |
$ |
(1,528 |
) |
|
|
$ |
40 |
|
$ |
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
Nine Months Ended November 30, | |||||||||||||||||||||
|
|
Gain \ (Loss) |
|
Gain \ (Loss) Reclassified |
|
|
|
|
|
|
| ||||||||||||
|
|
Recognized in OCI |
|
from Accumulated Other |
|
Gain \ (Loss) Recognized |
| ||||||||||||||||
|
|
(effective portion) |
|
Comprehensive Loss into Income |
|
as Income (1) |
| ||||||||||||||||
|
|
2011 |
|
2010 |
|
Location |
|
2011 |
|
2010 |
|
Location |
|
2011 |
|
2010 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Currency contracts - ordinary and cash flow hedges |
|
$ |
694 |
|
$ |
72 |
|
SG&A |
|
$ |
(344 |
) |
$ |
112 |
|
SG&A |
|
$ |
(138 |
) |
$ |
(76 |
) |
Interest rate swaps - cash flow hedges |
|
(3,101 |
) |
(4,324 |
) |
Interest expense |
|
(3,551 |
) |
(4,502 |
) |
|
|
- |
|
- |
| ||||||
Total |
|
$ |
(2,407 |
) |
$ |
(4,252 |
) |
|
|
$ |
(3,895 |
) |
$ |
(4,390 |
) |
|
|
$ |
(138 |
) |
$ |
(76 |
) |
(1) The amounts shown represent the ineffective portion of the change in fair value of a cash flow hedge.
We expect net gains of $0.02 million associated with foreign currency contracts that are 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 change and the underlying contracts settle.
Counterparty Credit Risk - Financial instruments, including foreign currency contracts and interest rate swaps, expose us to counterparty credit risk for non-performance. We manage our exposure to counterparty credit risk through 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.
Risks Inherent in Cash, Cash Equivalents and Investment Holdings Our cash, cash equivalents and investments are subject to interest rate risk, credit risk and liquidity risk. Cash consists of both interest bearing and non-interest bearing disbursement or short-term investment accounts. Cash equivalents consist of commercial paper and money market investment accounts. Investments consist of BAA3 to AAA rated ARS and mutual funds. The following table summarizes our cash, cash equivalents and investments at November 30, 2011 and February 28, 2011:
CASH, CASH EQUIVALENTS AND INVESTMENTS
(in thousands)
|
|
|
November 30, 2011 |
|
|
February 28, 2011 |
| ||||||
|
|
|
Carrying |
|
Range of |
|
|
Carrying |
|
Range of |
| ||
|
|
|
Amount |
|
Interest Rates |
|
|
Amount |
|
Interest Rates |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
| ||
Cash, interest and non-interest-bearing accounts - unrestricted |
|
|
$ |
31,171 |
|
0.00 to 1.70% |
|
|
$ |
16,587 |
|
0.00 to 1.60% |
|
Cash, interest and non-interest-bearing accounts - restricted |
|
|
2,114 |
|
0.00 to 1.25% |
|
|
2,611 |
|
0.00 to 1.25% |
| ||
Commercial paper |
|
|
- |
|
|
|
|
1,560 |
|
0.13% |
| ||
Money market funds |
|
|
2,134 |
|
0.01 to 4.92% |
|
|
6,435 |
|
0.03 to 3.27% |
| ||
Total cash and cash equivalents |
|
|
$ |
35,419 |
|
|
|
|
$ |
27,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Investments: |
|
|
|
|
|
|
|
|
|
|
| ||
Auction rate securities |
|
|
$ |
- |
|
|
|
|
$ |
20,711 |
|
1.76 to 8.47% |
|
Mutual funds, principally equity based |
|
|
- |
|
|
|
|
1,233 |
|
|
| ||
Total investments |
|
|
$ |
- |
|
|
|
|
$ |
21,944 |
|
|
|
Our cash balances at November 30, 2011 and February 28, 2011 include restricted cash of $2.11 and $2.61 million, respectively, denominated in Venezuelan Bolivares Fuertes, shown above under the heading Cash, interest and non-interest-bearing accounts restricted. The balances arise from our operations within the Venezuelan market. Until we are able to repatriate cash from Venezuela, we intend to use these cash balances in-country to continue to fund operations. We do not otherwise rely on these restricted funds as a source of liquidity.
At November 30, 2011, most of our cash equivalents are in money market accounts; therefore, we believe there is no material interest rate, credit or liquidity risk. During the fiscal quarter ended November 30, 2011, we sold all our mutual fund holdings paying out all proceeds in satisfaction of an associated Kaz deferred compensation plan.
At February 28, 2011, we held investments in ARS collateralized by student loans (with underlying maturities from 18 to 35 years). Substantially all of the collateral was guaranteed by the U.S. government under the Federal Family Education Loan Program. Liquidity for these securities was normally dependent on an auction process that reset the applicable interest rate at pre-determined intervals, ranging from 7 to 35 days. Beginning in February 2008, the auctions for the ARS held by us and others were unsuccessful, requiring us to hold them beyond their typical auction reset dates. Auctions fail when there is insufficient demand. However, this did not represent a default by the issuer of the security. Upon an auctions failure, the interest rates reset based on a formula contained in the security agreement. Our subsequent valuation of the securities was based on the assumption that they continued to accrue interest until one of the following occurred: the auction succeeded; the issuer called the securities; or the securities matured.
At February 28, 2011, we had cumulative pre-tax unrealized losses on our ARS of $1.34 million, reflected in accumulated other comprehensive loss in our accompanying consolidated condensed balance sheet, net of related tax effects of $0.46 million. The recording of this unrealized loss was not a result of the quality of the underlying collateral, but rather a markdown reflecting a lack of liquidity and other market conditions at that time. For the three- and nine-month periods ended November 30, 2011, we liquidated $0.15 and $3.25 million, respectively, of ARS at par. For the three- and nine-month periods ended November 30, 2010, we liquidated $0.10 and $0.30 million, respectively, of ARS at par. On September 15, 2011, the Company entered into an agreement to sell its
then remaining portfolio of $18.90 million par value ARS for approximately 96 percent of par. The transaction settled in the fiscal quarter ended November 30, 2011.
Note 16 Repurchase of Helen of Troy Common Stock
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 the repurchase program through October 31, 2014. Under this program, as of November 30, 2011, we are authorized to purchase up to 3,120,039 shares of common stock in the open market or through private transactions. During the three- and nine-month periods ended November 30, 2011, there was no open market repurchase activity. During the three-month period ended November 30, 2010, there was no open market repurchase activity. During the nine-month period ended November 30, 2010, we repurchased and retired 80,000 shares of common stock at a total purchase price of $1.80 million, for a $22.49 per share average price.
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 November 30, 2011, employees tendered 6,616 shares of common stock having an aggregate market value of $0.19 million, or an average of $28.23 per share, as payment for the exercise price arising from the exercise of options. During the nine-month period ended November 30, 2011, certain members of our Board of Directors and employees tendered 56,651 shares of common stock having an aggregate market value of $1.85 million, or an average of $32.66 per share, as payment for the exercise price arising from the exercise of options. In addition, on July 7, 2011, our Chief Executive Officer tendered 1,016,227 shares of common stock having a market value of $36.52 million as payment for the exercise price and related federal tax obligations arising from the exercise of stock options to purchase 1,625,000 shares of common stock. During the three- and nine-month periods ended November 30, 2010, there were no tenders of shares of common stock as payment for the exercise price arising from the exercise of options.
Note 17 Share-Based Compensation Plans
We have options outstanding under two expired and two active share-based compensation plans. The Company recorded share-based compensation expense in SG&A for the three- and nine-month periods ended November 30, 2011 and 2010, respectively, as follows:
SHARE-BASED PAYMENT EXPENSE
(in thousands, except per share data)
|
|
Three Months Ended November 30, |
|
Nine Months Ended November 30, |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Stock options |
|
$ |
537 |
|
$ |
402 |
|
$ |
1,541 |
|
$ |
1,218 |
|
Restricted stock grants |
|
531 |
|
- |
|
531 |
|
258 |
| ||||
Employee stock purchase plan |
|
- |
|
- |
|
159 |
|
71 |
| ||||
Share-based payment expense |
|
1,068 |
|
402 |
|
2,231 |
|
1,547 |
| ||||
Less income tax benefits |
|
(24 |
) |
(25 |
) |
(76 |
) |
(75 |
) | ||||
Share-based payment expense, net of income tax benefits |
|
$ |
1,044 |
|
$ |
377 |
|
$ |
2,155 |
|
$ |
1,472 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share impact of share-based payment expense: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.03 |
|
$ |
0.01 |
|
$ |
0.07 |
|
$ |
0.05 |
|
Diluted |
|
$ |
0.03 |
|
$ |
0.01 |
|
$ |
0.07 |
|
$ |
0.05 |
|
The fair value of the options granted during the last nine months were estimated using the Black-Scholes option pricing model to estimate fair values over four and five year vesting terms. The weighted average grant date fair value for all such grants was approximately $13.07. The following assumptions were used for the four and five year grants: expected lives ranging from of 4.05 and 4.35 years; risk free interest rates ranging from 0.97 to 1.51 percent; zero dividend yield; and expected volatilities ranging from 51.44 to 65.86 percent.
A summary of option activity as of November 30, 2011, and changes during the nine months then ended is as follows:
SUMMARY OF STOCK OPTION ACTIVITY
(in thousands, except contractual term and per share data)
|
|
|
|
|
|
|
|
Weighted |
|
|
| |||
|
|
|
|
Weighted |
|
Weighted |
|
Average |
|
|
| |||
|
|
|
|
Average |
|
Average |
|
Remaining |
|
|
| |||
|
|
|
|
Exercise |
|
Grant Date |
|
Contractual |
|
Aggregate |
| |||
|
|
|
|
Price |
|
Fair Value |
|
Term |
|
Intrinsic |
| |||
|
|
Options |
|
(per share) |
|
(per share) |
|
(in years) |
|
Value |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Outstanding at February 28, 2011 |
|
2,510 |
|
$ |
17.64 |
|
$ |
6.40 |
|
3.05 |
|
$ |
26,054 |
|
Granted |
|
369 |
|
32.73 |
|
|
|
|
|
|
| |||
Exercised |
|
(1,801 |
) |
(15.58 |
) |
|
|
|
|
36,031 |
| |||
Forfeited / expired |
|
(81 |
) |
(28.06 |
) |
|
|
|
|
|
| |||
Outstanding at November 30, 2011 |
|
997 |
|
$ |
26.10 |
|
$ |
10.09 |
|
5.81 |
|
$ |
4,821 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Exercisable at November 30, 2011 |
|
341 |
|
$ |
24.28 |
|
$ |
8.65 |
|
3.72 |
|
$ |
1,954 |
|
At the Companys Annual General Meeting of Shareholders, held on October 11, 2011, the Companys shareholders approved certain amendments to the Helen of Troy Limited 2008 Stock Incentive Plan. The most significant of these amendments consisted of (1) increasing the number of shares of common stock available for grant as stock options, unrestricted shares, restricted stock, restricted stock units or any other type of stock-based awards from 750,000 shares to 3,750,000 shares, (2) permitting Gerald J. Rubin, the Companys Chairman of the Board, Chief Executive Officer and President, to participate in the plan, and (3) increasing the maximum number of shares with respect to which awards of any and all types may be granted during a calendar year to any participant, from 250,000 to 1,000,000 shares.
On October 24, 2011, the Company granted 18,000 shares of restricted stock under the Helen of Troy Limited 2008 Non-Employee Directors Stock Incentive Plan to certain board members having a fair value at the date of the grant of $29.48 per share. A summary of restricted stock share activity under the plan follows:
SUMMARY OF 2008 DIRECTORS PLAN RESTRICTED SHARE ACTIVITY
(in thousands, except per share data)
|
|
|
|
Weighted |
|
|
| ||
|
|
|
|
Average |
|
|
| ||
|
|
|
|
Grant Date |
|
|
| ||
|
|
Restricted |
|
Fair Value |
|
Total |
| ||
|
|
Shares |
|
(per share) |
|
Value |
| ||
|
|
|
|
|
|
|
| ||
Outstanding at February 28, 2011 |
|
20 |
|
22.14 |
|
434 |
| ||
Grants |
|
18 |
|
29.48 |
|
531 |
| ||
Outstanding at November 30, 2011 |
|
38 |
|
$ |
25.65 |
|
$ |
965 |
|
Note 18 Subsequent Events
Amendment to the 2010 RCA In connection with the acquisition of the PUR home water filtration business discussed below, the Company amended the 2010 RCA on December 15, 2011. The amendment increased the amount of borrowings available under the revolving commitment from $150.00 million to $250.00 million, subject to the terms and limitations described in the 2010 RCA.
PUR® Water Purification Products Acquisition - On December 5, 2011, we entered into an asset and stock purchase agreement to acquire 100 percent of the stock of PUR Water Purification Products, Inc., and certain other assets and liabilities from the Procter & Gamble Company and certain affiliates (P&G) for a net purchase price of $160.00 million. Significant assets acquired include manufacturing equipment, trademarks, customer lists, distribution rights, patents and the goodwill of the PUR home water filtration business (PUR). On December 30, 2011, we completed the acquisition, which was paid for in cash with $160.00 million of advances on our 2010 RCA. PURs product line includes faucet mount water filtration systems and filters, pitcher systems and filters, and refrigerator filters. We will operate the PUR business in our Healthcare / Home Environment segment and market its products primarily into retail trade channels in the U.S. We expect that goodwill arising from the acquisition will consist 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, the parties 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. Upon the completion of these services, we will acquire any remaining PUR inventory on-hand from P&G.
Because of the proximity of the acquisition closing date to the date of filing this report, the Company has not completed the initial accounting for the acquisition, including determining the acquisition-date fair values of the identifiable acquired assets and liabilities assumed. Management will use third party valuations and other detailed analysis to complete our analysis of the economic lives of assets acquired, make fair value estimates and allocate the purchase price. Depending on the results of this analysis, we will likely, in future periods, record amortization expense on the finite lived intangible assets associated with the acquisition. Additionally, without the initial accounting for the acquisition, it was impractical to provide complete and suitably adjusted pro forma financial disclosures showing the impact of the transaction on historical net sales revenue and net income. We expect to complete the analysis required in sufficient time to report the initial accounting for the acquisition in our annual consolidated financial statements for the current fiscal year ending February 29, 2012.
ITEM 2. MANAGEMENTS 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 Companys 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.
ABOUT THE COMPANY
We are a global designer, developer, importer, and distributor of an expanding portfolio of brand-name consumer products. We were incorporated as Helen of Troy Corporation in Texas in 1968 and reincorporated as Helen of Troy Limited in Bermuda in 1994. We have three segments: Personal Care, Housewares and Healthcare / Home Environment. Our Personal Care segments 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 reports the operations of the OXO family of brands, which provide 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. Our Healthcare / Home Environment segment reports the operations of Kaz, which we acquired on December 31, 2010. This segment focuses on health care devices such as thermometers, humidifiers and heating pads, and small domestic 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.
On December 5, 2011, we entered into an asset and stock purchase agreement to acquire 100 percent of the stock of PUR Water Purification Products, Inc., and certain other assets and liabilities from the Procter & Gamble Company and certain affiliates (P&G) for a net purchase price of $160.00 million. Significant assets acquired include manufacturing equipment, trademarks, customer lists, distribution rights, patents and the goodwill of the PUR home water filtration business (PUR). On December 30, 2011, we completed the acquisition, which was paid for in cash with $160.00 million of advances on our 2010 RCA. PURs product line includes faucet mount water filtration systems and filters, pitcher systems and filters, and refrigerator filters. We will operate the PUR business in our Healthcare / Home Environment segment and market its products primarily into the retail trade channels in the U.S. We believe the product category shares many of the segments existing customer base, target audience, and product focus areas. PUR adds an important brand to a portfolio of well-recognized and widely-trusted brands and we believe will provide a continuing revenue stream from consumables.
OVERVIEW OF THE QUARTERS RESULTS
On a historical basis, our third fiscal quarters net sales revenue volume is generally the highest of each fiscal year. Historically, our business has been seasonal. With the addition of the Healthcare / Home Environment segment, the impact of the seasonality of the combined business on consolidated operating income has become more pronounced. We expect that a significant portion of the new segments operating income will be earned in the last two quarters of our fiscal year.
Domestic and global economic indicators continue to provide mixed signals regarding an economic recovery. Consumers continue to react with modest resilience. Holiday sales, while trending stronger than last year, have been less than robust, with much of the growth coming from hand-held consumer electronics such as cell phones, e-book readers and tablet computing. The consequences of recent events, including the impact of Middle East tensions and related political instabilities on fuel and transportation prices, the U.S. debt ceiling
legislative debate and downgrade in the U.S.s debt rating, stock market volatility, uncertainties regarding the direction of foreign currency markets, sovereign debt issues in the European Union, the likelihood that a broad euro-zone economic contraction has begun and the impact of cost variability on materials used in some of our products continue to keep us cautious regarding the outlook for most of our businesses.
We continue to implement certain significant and interdependent initiatives. These include the upgrade of our Enterprise Resource Planning System and the integration of the Kaz business and its supply chain. Implementing these initiatives is complex and requires the devotion of significant time by our employees. If complications arise in this process, we could potentially experience supply disruptions, order cancellations, loss of product placement and charge-backs as a result of late deliveries. Accordingly, we continue to focus on mitigating these risks by taking certain measures, including increasing our internal staffing and resources in key areas in order to effectively manage upgrade and integration activities while continuing to adjust our sourcing capabilities for expanding product offerings.
Consolidated net sales revenue for the three- and nine-month periods ended November 30, 2011 increased 65.3 and 64.4 percent to $338.79 and $887.67 million, respectively, compared to $205.00 and $539.98 million, respectively, for the same periods last year. Net sales revenue in our Personal Care segment was up 1.7 and 2.4 percent for the three- and nine-month periods ended November 30, 2011, respectively, when compared to the same periods last year. The nine-month period ended November 30, 2011 includes an extra month of net sales revenue of $6.51 million, or 1.7 percentage points of growth, from the Pert Plus and Sure acquisition when compared with the same period last year (which only included eight months of revenue due to Pert Plus and Sure being acquired on March 31, 2010). Net sales revenue in our Housewares segment was up 4.7 and 9.8 percent, for the three- and nine-month periods ended November 30, 2011, respectively, when compared to the same periods last year. The Healthcare / Home Environment segment reported net sales revenue totaling $128.58 and $322.66 million for three- and nine-month periods ended November 30, 2011. On a pro forma basis, the segments net sales revenue was up 3.5 and 3.2 percent, for the three- and nine-month periods ended November 30, 2011, respectively, when compared to the same periods last year, prior to the acquisition. In addition to our net sales revenue performance, key items for the three- and nine-month periods ended November 30, 2011 include the following:
· Consolidated gross profit margin as a percentage of net sales revenue for the fiscal quarter ended November 30, 2011 decreased 5.9 percentage points to 39.3 percent compared to 45.2 percent for the same period last year. Consolidated gross profit margin as a percentage of net sales for the nine-month period ended November 30, 2011 decreased 5.5 percentage points to 40.0 percent compared to 45.5 percent for the same period last year.
· Selling, general and administrative expense (SG&A) as a percentage of net sales decreased 2.9 percentage points to 27.0 percent for the three months ended November 30, 2011 compared to 29.9 percent for the same period last year. SG&A as a percentage of net sales for the nine months ended November 30, 2011 decreased 1.7 percentage points to 28.5 percent compared to 30.2 percent for the same period last year.
· For the three- and nine-month periods ended November 30, 2011, operating income before impairments increased to $41.83 and $102.83 million compared to $31.54 and $82.43 million, respectively, for the same periods last year. For the three- and nine-month periods ended November 30, 2011, the dollar increases represent a year-over-year improvement of 32.6 and 24.8 percent, respectively.
· For the three- and nine-month periods ended November 30, 2011, our net income was $32.88 and $81.08 million, respectively, compared to $27.06 and $68.92 million, respectively, for the same periods last year, an increase of 21.5 and 17.6 percent, respectively. For the three- and nine-month periods ended November 30, 2011, our diluted earnings per share was $1.04 and $2.56 compared to $0.86 and $2.20, respectively, for the same periods last year.
RESULTS OF OPERATIONS
Comparison of three- and nine-month periods ended November 30, 2011 to the same periods ended November 30, 2010
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)
|
Quarter Ended November 30, |
|
|
|
|
|
% of Sales Revenue, net | |||||||||
|
|
2011 |
|
2010 |
|
$ Change |
|
% Change |
|
2011 |
|
2010 |
| |||
Sales revenue, net |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Personal Care |
|
$ |
148,984 |
|
$ |
146,506 |
|
$ |
2,478 |
|
1.7% |
|
44.0 |
% |
71.5 |
% |
Housewares |
|
61,223 |
|
58,495 |
|
2,728 |
|
4.7% |
|
18.1 |
% |
28.5 |
% | |||
Healthcare / Home Environment |
|
128,578 |
|
- |
|
128,578 |
|
* |
|
37.9 |
% |
0.0 |
% | |||
Total sales revenue, net |
|
338,785 |
|
205,001 |
|
133,784 |
|
65.3% |
|
100.0 |
% |
100.0 |
% | |||
Cost of goods sold |
|
205,603 |
|
112,256 |
|
93,347 |
|
83.2% |
|
60.7 |
% |
54.8 |
% | |||
Gross profit |
|
133,182 |
|
92,745 |
|
40,437 |
|
43.6% |
|
39.3 |
% |
45.2 |
% | |||
Selling, general, and administrative expense |
|
91,354 |
|
61,205 |
|
30,149 |
|
49.3% |
|
27.0 |
% |
29.9 |
% | |||
Operating income before impairments |
|
41,828 |
|
31,540 |
|
10,288 |
|
32.6% |
|
12.3 |
% |
15.4 |
% | |||
Asset impairment charges |
|
- |
|
- |
|
- |
|
0.0% |
|
0.0 |
% |
0.0 |
% | |||
Operating income |
|
41,828 |
|
31,540 |
|
10,288 |
|
32.6% |
|
12.3 |
% |
15.4 |
% | |||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Nonoperating income (expense), net |
|
190 |
|
156 |
|
34 |
|
21.8% |
|
0.1 |
% |
0.1 |
% | |||
Interest expense |
|
(2,958 |
) |
(2,081 |
) |
(877 |
) |
42.1% |
|
-0.9 |
% |
-1.0 |
% | |||
Total other income (expense) |
|
(2,768 |
) |
(1,925 |
) |
(843 |
) |
43.8% |
|
-0.8 |
% |
-0.9 |
% | |||
Income before income taxes |
|
39,060 |
|
29,615 |
|
9,445 |
|
31.9% |
|
11.5 |
% |
14.4 |
% | |||
Income tax expense |
|
6,181 |
|
2,552 |
|
3,629 |
|
142.2% |
|
1.8 |
% |
1.2 |
% | |||
Net income |
|
$ |
32,879 |
|
$ |
27,063 |
|
$ |
5,816 |
|
21.5% |
|
9.7 |
% |
13.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Nine Months Ended November 30, |
|
|
|
|
|
% of Sales Revenue, net | |||||||||
|
|
2011 |
|
2010 |
|
$ Change |
|
% Change |
|
2011 |
|
2010 |
| |||
Sales revenue, net |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Personal Care |
|
$ |
386,998 |
|
$ |
377,853 |
|
$ |
9,145 |
|
2.4% |
|
43.6 |
% |
70.0 |
% |
Housewares |
|
178,017 |
|
162,124 |
|
15,893 |
|
9.8% |
|
20.1 |
% |
30.0 |
% | |||
Healthcare / Home Environment |
|
322,657 |
|
- |
|
322,657 |
|
* |
|
36.3 |
% |
0.0 |
% | |||
Total sales revenue, net |
|
887,672 |
|
539,977 |
|
347,695 |
|
64.4% |
|
100.0 |
% |
100.0 |
% | |||
Cost of goods sold |
|
532,295 |
|
294,529 |
|
237,766 |
|
80.7% |
|
60.0 |
% |
54.5 |
% | |||
Gross profit |
|
355,377 |
|
245,448 |
|
109,929 |
|
44.8% |
|
40.0 |
% |
45.5 |
% | |||
Selling, general, and administrative expense |
|
252,546 |
|
163,020 |
|
89,526 |
|
54.9% |
|
28.5 |
% |
30.2 |
% | |||
Operating income before impairments |
|
102,831 |
|
82,428 |
|
20,403 |
|
24.8% |
|
11.6 |
% |
15.3 |
% | |||
Asset impairment charges |
|
- |
|
501 |
|
(501 |
) |
* |
|
0.0 |
% |
0.1 |
% | |||
Operating income |
|
102,831 |
|
81,927 |
|
20,904 |
|
25.5% |
|
11.6 |
% |
15.2 |
% | |||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Nonoperating income (expense), net |
|
(325 |
) |
490 |
|
(815 |
) |
* |
|
0.0 |
% |
0.1 |
% | |||
Interest expense |
|
(9,652 |
) |
(6,377 |
) |
(3,275 |
) |
51.4% |
|
-1.1 |
% |
-1.2 |
% | |||
Total other income (expense) |
|
(9,977 |
) |
(5,887 |
) |
(4,090 |
) |
69.5% |
|
-1.1 |
% |
-1.1 |
% | |||
Income before income taxes |
|
92,854 |
|
76,040 |
|
16,814 |
|
22.1% |
|
10.5 |
% |
14.1 |
% | |||
Income tax expense |
|
11,777 |
|
7,117 |
|
4,660 |
|
65.5% |
|
1.3 |
% |
1.3 |
% | |||
Net income |
|
$ |
81,077 |
|
$ |
68,923 |
|
$ |
12,154 |
|
17.6% |
|
9.1 |
% |
12.8 |
% |
* Calculation is not meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales revenue:
Consolidated net sales revenue for the three- and nine-month periods ended November 30, 2011 increased 65.3 and 64.4 percent to $338.79 and $887.67 million, respectively, compared to $205.00 and $539.98 million, respectively, for the same periods last year. Net sales revenue for three- and nine-month periods ended November 30, 2011 includes sales results totaling $128.58 and $322.66 million, respectively, from our recent acquisition of Kaz on December 31, 2010, which is reported as our Healthcare / Home Environment segment. Our Personal Care segment contributed consolidated net sales revenue growth of 1.2 and 1.7 percentage points, or $2.48 and $9.15 million, respectively, for the three- and nine-month periods ended November 30, 2011, when compared to the same periods last year. Our Housewares segment contributed consolidated net sales revenue growth of 1.3 and 2.9 percentage points, or $2.73 and $15.89 million, respectively, for the three- and nine-month periods ended November 30, 2011, when compared to the same periods last year.
Impact of acquistions on net sales revenue:
Net sales revenue from acquisitions, principally the Kaz acquisition on December 31, 2010, contributed 62.7 and 61.0 percentage points, respectively, to our consolidated net sales revenue growth for the three- and nine-month periods ended November 30, 2011. Kazs results are reported as the Healthcare / Home Environment segment and accounted for 62.7 and 59.8 percentage points, or $128.58 and $322.66 million, respectively, of consolidated net sales revenue growth for the three- and nine-month periods ended November 30, 2011. Net sales revenue from acquisitions for the nine-month period ended November 30, 2011 also included one month of incremental net sales revenue from our Pert Plus hair care and Sure antiperspirant and deodorant product lines acquired on March 31, 2010. For the nine-month period ended November 30, 2011, the Pert Plus and Sure product lines contributed 1.2 percentage points, or $6.51 million, of consolidated net sales revenue growth. Organic growth came from our core business (business owned and operated over the same fiscal period last year) which contributed 2.5 and 3.4 percentage points, or $5.21 and $18.53 million, respectively, to consolidated net sales revenue growth for the three- and nine-month periods ended November 30, 2011, when compared to the same periods last year. The following table sets forth the impact acquisitions had on our net sales revenue:
IMPACT OF ACQUISITIONS ON NET SALES REVENUE
(in thousands)
|
|
Quarter Ended November 30, | |||||
|
|
2011 |
|
2010 |
| ||
Prior years sales revenue, net |
|
$ |
205,001 |
|
$ |
189,399 |
|
Components of net sales revenue change |
|
|
|
|
| ||
Core business |
|
5,206 |
|
(1,991 |
) | ||
Incremental net sales revenue from acquisitions: |
|
|
|
|
| ||
Pert Plus & Sure (three months in fiscal 2011) |
|
- |
|
17,593 |
| ||
Healthcare / Home Environment (three months in fiscal 2012) |
|
128,578 |
|
- |
| ||
Change in sales revenue, net |
|
133,784 |
|
15,602 |
| ||
Sales revenue, net |
|
$ |
338,785 |
|
$ |
205,001 |
|
Total net sales revenue growth |
|
65.3% |
|
8.2% |
| ||
Core business |
|
2.5% |
|
-1.1% |
| ||
Acquisitions |
|
62.7% |
|
9.3% |
|
IMPACT OF ACQUISITIONS ON NET SALES REVENUE
(in thousands)
|
|
Nine Months Ended November 30, | |||||
|
|
2011 |
|
2010 |
| ||
Prior years sales revenue, net |
|
$ |
539,977 |
|
$ |
495,465 |
|
Components of net sales revenue change |
|
|
|
|
| ||
Core business |
|
18,525 |
|
(6,275 |
) | ||
Incremental net sales revenue from acquisitions: |
|
|
|
|
| ||
Infusium (one month in fiscal 2011) |
|
- |
|
2,366 |
| ||
Pert Plus & Sure (one and eight months in fiscal 2012 and 2011, respectively) |
|
6,513 |
|
48,421 |
| ||
Healthcare / Home Environment (nine months in fiscal 2012) |
|
322,657 |
|
- |
| ||
Change in sales revenue, net |
|
347,695 |
|
44,512 |
| ||
Sales revenue, net |
|
$ |
887,672 |
|
$ |
539,977 |
|
Total net sales revenue growth |
|
64.4% |
|
9.0% |
| ||
Core business |
|
3.4% |
|
-1.3% |
| ||
Acquisitions |
|
61.0% |
|
10.3% |
|
In the preceding tables, core business is defined as net sales revenue associated with product lines or brands after the first twelve months from the date the 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 defined as net sales revenues associated with businesses, 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 the three- and nine-month periods ended November 30, 2011, we transacted approximately 20 and 19 percent, respectively, of our net sales revenues in foreign currencies. These were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, Japanese Yen, Australian Dollars, Chilean Pesos, Peruvian Soles, and Venezuelan Bolivares Fuertes. During the three- and nine-month periods ended November 30, 2010, we transacted approximately 16 and 13 percent, respectively, of our net sales revenues in foreign currencies. These transactions were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, Chilean Pesos, Peruvian Soles, and Venezuelan Bolivares Fuertes. For the three- and nine-month periods ended November 30, 2011, the impact of net foreign currency exchange rates increased our international net sales revenue by approximately $0.59 and $8.09 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 segments 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 reports the operations of the OXO family of brands, which provide 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 reports the operating results from Kaz, which we acquired on December 31, 2010. This segment focuses on health care devices such as thermometers, humidifiers and heating pads, and small domestic appliances such as air purifiers, portable heaters, fans, and bug zappers.
The following table sets forth, for the periods indicated, our net sales revenue and the impact of volume and price mix changes for each segment:
SALES REVENUE, NET BY SEGMENT
(dollars in thousands)
|
|
Quarter Ended November 30, |
|
$ Change |
|
% Change | ||||||||||||||||
|
|
2011 |
|
2010 |
|
Volume |
|
Price |
|
Net |
|
Volume |
|
Price |
|
Net |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sales revenue, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Personal Care |
|
$ |
148,984 |
|
$ |
146,506 |
|
$ |
3,043 |
|
$ |
(565 |
) |
$ |
2,478 |
|
2.1 |
% |
-0.4 |
% |
1.7 |
% |
Housewares |
|
61,223 |
|
58,495 |
|
1,579 |
|
1,149 |
|
2,728 |
|
2.7 |
% |
2.0 |
% |
4.7 |
% | |||||
Healthcare / Home Environment |
|
128,578 |
|
- |
|
128,578 |
|
- |
|
128,578 |
|
* |
|
* |
|
* |
| |||||
Total sales revenue, net |
|
$ |
338,785 |
|
$ |
205,001 |
|
$ |
133,200 |
|
$ |
584 |
|
$ |
133,784 |
|
65.0 |
% |
0.3 |
% |
65.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
Nine Months Ended November 30, |
|
$ Change |
|
% Change | ||||||||||||||||
|
|
2011 |
|
2010 |
|
Volume |
|
Price |
|
Net |
|
Volume |
|
Price |
|
Net |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sales revenue, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Personal Care |
|
$ |
386,998 |
|
$ |
377,853 |
|
$ |
2,565 |
|
$ |
6,580 |
|
$ |
9,145 |
|
0.7 |
% |
1.7 |
% |
2.4 |
% |
Housewares |
|
178,017 |
|
162,124 |
|
14,686 |
|
1,207 |
|
15,893 |
|
9.1 |
% |
0.7 |
% |
9.8 |
% | |||||
Healthcare / Home Environment |
|
322,657 |
|
- |
|
322,657 |
|
- |
|
322,657 |
|
* |
|
* |
|
* |
| |||||
Total sales revenue, net |
|
$ |
887,672 |
|
$ |
539,977 |
|
$ |
339,908 |
|
$ |
7,787 |
|
$ |
347,695 |
|
62.9 |
% |
1.4 |
% |
64.4 |
% |
* Calculation is not meaningful
Personal Care Segment - Segment net sales revenue for the three months ended November 30, 2011 increased $2.48 million, or 1.7 percent, to $148.98 million compared with $146.51 million for the same period last year. The segments increase in the third fiscal quarter was principally due to unit volume increases. We believe this segments net sales revenue continues to be negatively impacted by economic conditions as we believe that consumers are trading down to value priced merchandise, especially within the dollar store channels. Segment net sales revenue for the nine months ended November 30, 2011 increased $9.15 million, or 2.4 percent, to $387.00 million compared with $377.85 million for the same period last year. A large portion of the segments net sales revenue growth for the nine months ended November 30, 2011 was provided by an additional month, or $6.51 million, of net sales revenue from the Pert Plus and Sure product lines, when compared with the same period last year (which only included eight months of revenue, due to Pert Plus and Sure being acquired on March 31, 2010).
We continue to expect that net sales revenue performance in our Personal Care segment will be heavily dependent on improvements in employment, housing markets and consumers personal finances.
Housewares Segment - Segment net sales revenue for the three months ended November 30, 2011 increased $2.73 million, or 4.7 percent, to $61.22 million compared with $58.50 million for the same period last year. Net sales revenue growth for the three months ended November 30, 2011 was negatively impacted by early seasonal promotional closeout sales made in the second fiscal quarter that have historically shipped in the third and fourth fiscal quarters. Segment net sales revenue for the nine months ended November 30, 2011 increased $15.89 million, or 9.8 percent, to $178.02 million compared with $162.12 million for the same period last year. Net sales revenue growth for the nine months ended November 30, 2011 was due to a combination of expanded distribution in certain product categories and year-over-year unit volume growth with a number of key retail partners.
Future net sales revenue growth in this segment of our business continues to be dependent on new product innovation, continued product line expansion, new sources of distribution, geographic expansion and the retail economic environment. While we believe in the segments organic growth potential, we remain cautious about its ability to sustain net sales revenue growth experienced prior to fiscal 2012. We continue to expect net sales revenue annual growth rates for the segment to remain in the mid-to-high single digits in fiscal 2012.
Healthcare / Home Environment - The Healthcare / Home Environment segment reflects the operating results from Kaz, which we acquired on December 31, 2010. Net sales revenue for the three- and nine-month periods ended November 30, 2011 was $128.58 and $322.66 million, respectively. On a pro forma basis, the segments net sales revenue was up 3.5 percent and 3.2 percent, for the three- and nine-month periods ended November 30, 2011, respectively, when compared to the same periods last year, prior to the acquisition. Sales in the third fiscal quarter continued to benefit from demand for new thermometry product introductions.
Consolidated gross profit margin:
Consolidated gross profit margin as a percentage of net sales revenue for the three months ended November 30, 2011 decreased 5.9 percentage points to 39.3 percent compared to 45.2 percent for the same period last year. Consolidated gross profit margin as a percentage of net sales revenue for the nine months ended November 30, 2011 decreased 5.5 percentage points to 40.0 percent compared to 45.5 percent for the same period last year. The decline in our margin for both periods was primarily due to the dilutive impact of the Healthcare / Home Environment segment, whose overall gross profit margin is below those of our other two segments. Promotional discounts and product cost increases also contributed to gross profit margin declines for the fiscal quarter ended November 30, 2011.
Our product sourcing mix is heavily dependent on imports from China. Chinas currency is no longer pegged solely to the U.S. dollar. As a result, we believe Chinas currency will continue to appreciate against the U.S. Dollar in the short-to-intermediate-term, resulting in increased product costs over time. In addition, there has been recent variability across all segments in raw materials and associated inbound transportation costs. Accordingly, we remain cautious about the gross profit margin for the remainder of fiscal 2012.
Selling, general and administrative expense:
SG&A decreased 2.9 percentage points to 27.0 percent of net sales revenue for the three-month period ended November 30, 2011, compared to 29.9 percent for the same period last year. SG&A decreased 1.7 percentage points to 28.5 percent of net sales revenue for the nine-month period ended November 30, 2011, compared to 30.2 percent for the same period last year.
The year-over-year decrease in SG&A as a percentage of net sales revenue for the three months ended November 30, 2011 is primarily due to the impact of Kaz, which operates on lower SG&A as a percentage of net sales revenue than the Companys consolidated SG&A as a percentage of net sales revenue for the same period last year. This decrease was partially offset by the unfavorable impact of net foreign exchange gains/losses year-over-year. SG&A for the nine months ended November 30, 2011 compared to the same period last year benefitted from the favorable impact of the Kaz acquisition and from transition service fees incurred last year in connection with the acquisition of Pert Plus and Sure brands that did not repeat in the current year, partially offset by the unfavorable impact of net foreign exchange gains/losses year-over-year.
Operating income before impairments by segment:
The following tables set forth, for the periods indicated, our operating income before impairments 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 BEFORE IMPAIRMENTS BY SEGMENT
(dollars in thousands)
|
Quarter Ended November 30, |
|
|
|
|
% of Sales Revenue, net | ||||||||||
|
|
2011 |
|
2010 |
|
$ Change |
|
% Change |
|
2011 |
|
2010 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Personal Care |
|
$ |
17,292 |
|
$ |
18,816 |
|
$ |
(1,524 |
) |
-8.1% |
|
11.6 |
% |
12.8 |
% |
Housewares |
|
11,016 |
|
12,724 |
|
(1,708 |
) |
-13.4% |
|
18.0 |
% |
21.8 |
% | |||
Healthcare / Home Environment |
|
13,520 |
|
- |
|
13,520 |
|
* |
|
10.5 |
% |
0.0 |
% | |||
Total operating income before impairments |
|
$ |
41,828 |
|
$ |
31,540 |
|
$ |
10,288 |
|
32.6% |
|
12.3 |
% |
15.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Nine Months Ended November 30, |
|
|
|
|
% of Sales Revenue, net | ||||||||||
|
|
2011 |
|
2010 |
|
$ Change |
|
% Change |
|
2011 |
|
2010 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Personal Care |
|
$ |
48,299 |
|
$ |
47,142 |
|
$ |
1,157 |
|
2.5% |
|
12.5 |
% |
12.5 |
% |
Housewares |
|
33,854 |
|
35,286 |
|
(1,432 |
) |
-4.1% |
|
19.0 |
% |
21.8 |
% | |||
Healthcare / Home Environment |
|
20,678 |
|
- |
|
20,678 |
|
* |
|
6.4 |
% |
0.0 |
% | |||
Total operating income before impairments |
|
$ |
102,831 |
|
$ |
82,428 |
|
$ |
20,403 |
|
24.8% |
|
11.6 |
% |
15.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
* Calculation is not meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
We compute operating income before impairment for each segment based on net sales revenue, less cost of goods sold and any SG&A associated with the segment, not including impairment charges. The SG&A used to compute each segments 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. For the three- and nine-month periods ended November 30, 2011, we began making an allocation of corporate overhead to the Healthcare / Home Environment segment. These allocations totaled $1.51 and $4.52 million, respectively. As we continue to further integrate the operations of the Healthcare / Home Environment segment, we expect to allocate the costs of certain operating functions that will likely be shared between segments. As we decide such operating cost allocations are appropriate, there may be some additional reduction in the operating results of the Healthcare / Home Environment segment offset by increases in operating income of the Personal Care and Housewares segments. The extent of this operating income impact between the segments has not yet been determined.
The Personal Care segments operating income before impairments for the three months ended November 30, 2011 decreased $1.52 million, or 8.1 percent, compared to the same period last year. Net sales revenue gains in the third fiscal quarter were offset by higher promotional discounts, product cost increases, and the unfavorable impact of net foreign exchange gains/losses. The decrease in operating income in the second and third quarters of fiscal 2012 was offset by strong first quarter operating income, resulting in operating income gains for the nine months ended November 30, 2011 of $1.16 million, or 2.5 percent, when compared to the same period last year.
The Housewares segments operating income before impairments decreased $1.71 million, or 13.4 percent, for the three months ended November 30, 2011 compared to the same period last year. The segments operating income before impairments decreased $1.43 million, or 4.1 percent, for the nine months ended November 30, 2011, when compared to the same period last year. The decline in third fiscal quarter profitability and decline in overall year-to-date profitability in the segment was principally due to the impact of product cost increases.
The Healthcare / Home Environment segment reported operating income of $13.52 and $20.68 million for the three- and nine-months ended November 30, 2011, respectively. The segment continues to benefit from the combined impact of better sales mix and synergy initiatives. In addition, as we have previously disclosed, the first half of the fiscal year ending in August has historically been Kazs weakest half of the year in terms of net sales revenue and operating margin and is not reflective of its anticipated full year results for fiscal 2012. We expect that a significant portion of the new segments operating income will be earned in the second half of the fiscal year. The segment operates on a lower overall gross profit margin than the Personal Care and Housewares segments, which is the principal reason for its lower overall operating profit, as a percentage of net sales revenue.
Impairment Charges:
The Company conducts its annual test of impairment of goodwill and indefinite-lived intangible assets in the first quarter of each fiscal year. The Company also tests for impairment if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit or an indefinite-lived intangible asset is below its carrying amount.
As a result of its testing during the fiscal quarter ended May 31, 2011, the Company concluded no impairment charges were required as the estimated fair value of the indefinite-lived trademarks and licenses, reporting unit net assets and the Companys estimated enterprise value exceeded their respective carrying values as of the date of the evaluation.
As a result of its testing during the fiscal quarter ended May 31, 2010, the Company recorded a non-cash impairment charge of $0.50 million ($0.49 million after tax). The charge was related to an indefinite-lived trademark in our Personal Care segment which was written down to its fair value, determined on the basis of future discounted cash flows using the relief from royalty method.
Other income (expense):
Nonoperating income (expense), net, for the three- and nine-month periods ended November 30, 2011, was $0.19 and ($0.33) million, respectively, compared to $0.16 and $0.49 million, respectively, for the same periods last year.
Interest expense for the three- and nine-month periods ended November 30, 2011, was $2.96 and $9.65 million, respectively, compared to $2.08 and $6.38 million, respectively, for the same periods last year. Interest expense was higher when compared to the same periods last year primarily due to the increase in short-term and long-term debt outstanding, which was used to finance the acquisition of Kaz.
Income tax expense:
Income tax expense for the three- and nine-month periods ended November 30, 2011 was 15.8 and 12.7 percent, respectively, of income before income taxes compared to 8.6 and 9.4 percent, respectively, the same periods last year. For the three- and nine-month periods ended November 30, 2011 the increase in the effective tax rate, when compared to the same periods last year, is primarily due to the impact of Kaz on the mix of income taxed in high rate jurisdictions. Since Kaz was acquired on December 31, 2010, its operating results are not included in the comparable periods for last year.
In April 2010, the IRS concluded its audits of the 2007 and 2008 consolidated U.S. federal tax returns for Helen of Troy Texas Corporation. No adjustments were made to either years tax returns. The U.S. federal income tax returns of Kaz and its subsidiaries for tax years 2003, 2004, 2006, 2007, and 2008 are currently under examination. The IRS has issued a notice of proposed adjustment for the 2006 tax year, which is currently under appeal. The Company is protesting the adjustments and believes that the potential impact of any adjustments sustained at appeal will not have a material impact on our results of operations or financial position, as the proposed adjustments relate to a tax receivable that was not acquired in the purchase of Kaz.
In November and December 2011, the Company received additional notices of proposed permanent adjustments related to Kazs 2007 and 2008 tax years that would increase tax expense by $0.52 and $1.1 million, respectively. The Company also received notices of proposed timing adjustments related to the Kaz 2007 and 2008 tax years that would increase taxes payable and deferred tax assets by $0.51 and $2.51 million, respectively. The Company is currently evaluating the merits of the adjustments, but does not expect them to have a material impact on our results of operations or financial position. The IRS has not proposed any other adjustments for the other tax years under examination.
Net income:
Our net income was $32.88 and $81.08 million for the three- and nine-month periods ended November 30, 2011, respectively, compared to $27.06 and $68.92 million for the same periods last year, representing period-over-period net income increases of 21.5 and 17.6 percent, respectively. Our diluted earnings per share was $1.04 and $2.56 for the three- and nine-month periods ended November 30, 2011, respectively, compared to $0.86 and $2.20, for the same periods last year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Selected measures of our liquidity and capital utilization for the nine-month periods ended November 30, 2011 and 2010 are shown below:
SELECTED MEASURES OF OUR LIQUIDITY AND CAPITAL UTILIZATION
|
|
Nine Months Ended November 30, | |||
|
|
2011 |
|
2010 |
|
|
|
|
|
|
|
Accounts Receivable Turnover (Days) (1) |
|
62.9 |
|
68.0 |
|
Inventory Turnover (Times) (1) |
|
3.0 |
|
2.7 |
|
Working Capital (in thousands) |
|
$229,298 |
|
$219,518 |
|
Current Ratio |
|
1.7 : 1 |
|
2.3 : 1 |
|
Debt to Equity Ratio (2) |
|
32.5% |
|
20.0% |
|
Return on Average Equity (1) |
|
14.9% |
|
14.1% |
|
(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 $56.17 million of cash during the first nine months of fiscal 2012, compared to $33.60 million of cash provided during the same period in fiscal 2011. The increase in operating cash flow was primarily due to the timing of fluctuations in working capital components, in addition to an increase in net income of $12.15 million and depreciation and amortization of $8.65 million for the nine months ended November 30, 2011, when compared to the same period last year.
Accounts receivable increased $40.82 million to $229.22 million as of November 30, 2011, compared to $188.40 million at the end of fiscal 2011. The increase is due to normal seasonal fluctuations in sales and collection activity. Accounts receivable turnover improved to 62.9 days at November 30, 2011 from 68.0 days at November 30, 2010. This calculation is based on a rolling five quarter accounts receivable balance.
Inventories increased $34.53 million to $251.76 million as of November 30, 2011, compared to $217.23 million at the end of fiscal 2011. Inventory turnover was 3.0 times at November 30, 2011 compared to 2.7 times at November 30, 2010. The change in inventories reflects a normal seasonal pattern expected during our heavy shipping season, which typically begins in early August and continues through early December.
Working capital was $229.30 million at November 30, 2011, compared to $219.52 million at November 30, 2010. Our current ratio decreased to 1.7:1 at November 30, 2011, compared to 2.3:1 at November 30, 2010. The decrease in our working capital and current ratio was primarily due to a net decrease in cash and increase in overall short-term debt obligations as a result of the use of cash on hand and our revolving line of credit to fund the Kaz acquisition.
Investing activities:
Investing activities provided $12.72 million of cash during the nine months ended November 30, 2011. Highlights of those activities follow:
· We spent $3.04 million on molds and tooling, $6.76 million on information technology infrastructure, $0.45 million on distribution equipment and $0.27 million on the development of new patents.
· We sold a facility in Hudson, New York yielding net proceeds to us of $1.00 million.
· We sold or redeemed $3.25 million of ARS at par. In addition, in November 2011, we settled the sale of the remaining portfolio of ARS for $18.05 million, or approximately 96 percent of par.
· We sold $1.17 million of interests in mutual funds.
Financing activities:
Financing activities used $60.66 million of cash during the nine months ended November 30, 2011. Highlights of those activities follow:
· We had draws of $809.45 million against our line of credit.
· We repaid $810.45 million drawn against our line of credit.
· We repaid $53.00 million of long-term debt.
· Employees and certain members of our Board of Directors exercised options to purchase 175,805 shares of common stock, providing $2.26 million of cash, including related tax benefits.
· On July 7, 2011, our Chief Executive Officer tendered 1,016,227 shares of common stock having a market value of $36.52 million as payment for the exercise price and related federal tax obligations arising from the exercise of stock options to purchase 1,625,000 shares of common stock. The exercise of these options required $12.55 million to pay related federal income tax obligations and generated $3.15 million in current tax benefits.
· Purchases of common stock through our employee stock purchase plan provided $0.50 million of cash.
Revolving Line of Credit Agreement and Other Debt Agreements:
On December 30, 2010, we entered into a Credit Agreement (the 2010 RCA) with Bank of America, N.A. that provides for an unsecured revolving commitment of up to $150.00 million. In connection with the acquisition of the PUR home water filtration business, the Company amended the 2010 RCA on December 15, 2011. The amendment increased the amount of borrowings available under the revolving commitment from $150.00 million to $250.00 million, subject to the terms and limitations described below. The commitment under the 2010 RCA terminates on December 30, 2015. Borrowings under the 2010 RCA accrue interest at a Base Rate plus a margin of 0.25 to 1.375 percent per annum based on the Leverage Ratio (as defined in the 2010 RCA) at the time of borrowing. The base rate is equal to the highest of the Federal Funds Rate (as defined in the 2010 RCA) plus 0.50 percent, Bank of Americas 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 1.25 to 2.375 percent per annum based upon the Leverage Ratio at the time of the borrowing. We incur loan commitment fees at a rate ranging from 0.30 to 0.50 percent per annum on the unused balance of the 2010 RCA. We incur letter of credit fees under the 2010 RCA at a rate ranging from 1.25 to 2.375 percent per annum on the face value of any letter of credit. Outstanding letters of credit reduce the borrowing availability under the 2010 RCA on a dollar-for-dollar basis. The 2010 RCA and our other debt are unconditionally guaranteed, on a joint and several basis, by the Company and certain of its subsidiaries. As of November 30, 2011, there were $70.00 million in revolving loans and $0.34 million of open letters of credit outstanding against the 2010 RCA. For the three- and nine-month periods ended November 30, 2011, borrowings under the 2010 RCA incurred interest charges at rates ranging from 1.94 to 4.00 percent. As of November 30, 2011, the amount available for borrowings under the 2010 RCA was $79.66 million.
On January 12, 2011, the Company and certain of its subsidiaries entered into a Note Purchase Agreement which provided for the issuance and sale of $100.00 million of 3.90 percent Senior Notes of Helen of Troy, L.P. (the borrower), due January 12, 2018 (the Notes). The borrowers obligations under the Notes are unsecured, and all obligations under the Note Purchase Agreement and the Notes were unconditionally guaranteed, on a joint and several basis, by the Company and certain of its subsidiaries. The Company used the proceeds of the Notes to repay all outstanding borrowings under a term loan credit agreement dated December 30, 2010 with Bank of America, N.A. that was used as short-term bridge financing for the Kaz acquisition. The Notes bear interest, payable semi-annually in arrears on January 12 and July 12 of each year at a rate of 3.90 percent per annum. The first interest payment was made on July 12, 2011. Principal payments of $20.00 million (or, if applicable, such lesser principal amount then outstanding) are due on January 12, 2014 and each anniversary thereafter through January 12, 2017, with the remaining outstanding balance due at maturity. The borrower may redeem the Notes, in whole or in part, at any time, at a price equal to 100 percent of their principal amount, plus accrued and unpaid interest and a make-whole premium.
In addition to the Notes and the 2010 RCA, at November 30, 2011, we had an aggregate principal balance of $78.00 million of term debt with varying maturities due through June 2014.
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 a maximum leverage ratio, a minimum interest coverage ratio and a minimum consolidated net worth. 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.
The table below provides the formulas for certain key financial covenants as defined in our various debt agreements:
Applicable Financial Covenant |
2010 RCA |
$75 Million Floating Rate Senior
|
$100 Million 3.90% Fixed Rate Senior Notes and $3 Million 7.24% 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 |
$500 Million + 25% of Fiscal Quarter Net Earnings After |
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.
Additionally, our debt agreements contain other customary covenants, including, among other things, covenants restricting the Company, except under certain conditions set forth therein, from (1) incurring debt, (2) incurring liens on any of its properties, (3) making certain types of investments, (4) selling certain assets or making other fundamental changes relating to mergers and consolidations, and (5) limit our ability to repurchase shares of our common stock and pay dividends. As of November 30, 2011, our debt agreements effectively limited our ability to incur more than $250.43 million of additional debt from all sources, including draws on the 2010 RCA, and we were currently in compliance with the terms of our debt agreements. In connection with the completion of the PUR acquisition, on December 30, 2011, we received $160.00 million of new advances under the 2010 RCA. After giving pro forma effect to the PUR acquisition and 2010 RCA amendment as if they had occurred on November 30, 2011, our debt agreements would have effectively limited our ability to incur additional debt from all sources to approximately $195.43 million.
Contractual obligations and commercial commitments:
Our contractual obligations and commercial commitments, at November 30, 2011, were:
PAYMENTS DUE BY PERIOD - TWELVE MONTHS ENDED NOVEMBER 30:
(in thousands)
|
|
|
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
After |
| |||||||
|
|
Total |
|
1 year |
|
2 years |
|
3 years |
|
4 years |
|
5 years |
|
5 years |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Term debt - fixed rate |
|
$ |
103,000 |
|
$ |
3,000 |
|
$ |
- |
|
$ |
20,000 |
|
$ |
20,000 |
|
$ |
20,000 |
|
$ |
40,000 |
|
Term debt - floating rate (1) |
|
75,000 |
|
- |
|
- |
|
75,000 |
|
- |
|
- |
|
- |
| |||||||
Long-term incentive plan payouts |
|
6,115 |
|
3,161 |
|
2,072 |
|
882 |
|
- |
|
- |
|
- |
| |||||||
Interest on fixed rate debt |
|
16,193 |
|
4,038 |
|
3,900 |
|
3,211 |
|
2,431 |
|
1,651 |
|
962 |
| |||||||
Interest on floating rate debt (1) |
|
11,795 |
|
4,583 |
|
4,570 |
|
2,642 |
|
- |
|
- |
|
- |
| |||||||
Open purchase orders |
|
192,117 |
|
192,117 |
|
- |
|
- |
|
- |
|
- |
|
- |
| |||||||
Minimum royalty payments |
|
93,636 |
|
15,188 |
|
14,011 |
|
12,240 |
|
9,589 |
|
5,790 |
|
36,818 |
| |||||||
Advertising and promotional |
|
68,048 |
|
7,859 |
|
5,600 |
|
5,248 |
|
5,388 |
|
5,576 |
|
38,377 |
| |||||||
Operating leases |
|
17,559 |
|
4,321 |
|
3,714 |
|
3,277 |
|
2,788 |
|
1,194 |
|
2,265 |
| |||||||
Capital spending commitments |
|
3,899 |
|
3,899 |
|
- |
|
- |
|
- |
|
- |
|
- |
| |||||||
Total contractual obligations (2) |
|
$ |
587,362 |
|
$ |
238,166 |
|
$ |
33,867 |
|
$ |
122,500 |
|
$ |
40,196 |
|
$ |
34,211 |
|
$ |
118,422 |
|
(1) The Company uses an interest rate hedge agreement (the swap) in conjunction with its unsecured floating interest rate, $75.00 million, 10 year Senior Notes. 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 10 year Senior Notes at 6.01 percent. Accordingly, the future interest obligations related to this debt have been estimated using this rate.
(2) In addition to the contractual obligations and commercial commitments in the table above, as of November 30, 2011, we have recorded a provision for our uncertain tax positions of $13.75 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.
In addition to the contractual obligations and commercial commitments set forth above, on September 13, 2011, the Company entered into an Amended and Restated Employment Agreement with Gerald J. Rubin, our Chief Executive Officer and President (the Revised Employment Agreement). The Revised Employment Agreement became effective as of October 11, 2011 and will continue until February 28, 2015, subject to earlier termination by either party. The Revised Employment Agreement provides that Mr. Rubin is eligible to receive an annual base salary of $600,000 and an annual bonus payable in cash, restricted stock and restricted stock units based upon achieving certain performance measures. The Revised Employment Agreement becomes effective with respect to incentive compensation for fiscal year 2013. Incentive compensation under the Revised Employment Agreement is performance-based using new performance measures. We are currently unable to estimate the impact upon Mr. Rubins incentive compensation under the Revised Employment Agreement for any period following fiscal 2012.
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.
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.
CRITICAL ACCOUNTING POLICIES
The SEC defines critical accounting policies as those that are both most important to the portrayal of a companys financial condition and results, and require managements 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. Managements 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 28, 2011. There have been no material changes to the Companys critical accounting policies from the information provided in our 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Changes in currency exchange rates, interest rates and the liquidity of any investments we hold from time-to-time 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 nine-month periods ended November 30, 2011, approximately 20 and 19 percent, respectively, of our net sales revenue were in foreign currencies. These sales were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, Japanese Yen, Australian Dollars, Chilean Pesos, Peruvian Soles and Venezuelan Bolivares Fuertes. During the three- and nine-month periods ended November 30, 2010, approximately 16 and 13 percent, respectively, of our net sales revenue were in foreign currencies. These transactions were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian 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 are recognized in SG&A.
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 currencys 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 currencys 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.
Interest rate risk:
Interest on our long-term debt outstanding as of November 30, 2011 is both floating and fixed. Fixed rates are in place on $103.00 million of Senior Notes at rates ranging from 3.90 to 7.24 percent and floating rates are in place on $70.00 million in advances against our 2010 RCA and $75.00 million of Senior Notes. If short-term interest rates increase, we will incur higher interest rates on any outstanding balances under the 2010 RCA. The floating rate Senior Notes reset, as described in Note 13, 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 2010 RCA (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 a portion of our floating rate debt using an interest rate swap (the swap). As of November 30, 2011, we had a swap that converted an aggregate notional principal of $75.00 million from floating interest rate payments under our 10 year Senior Notes 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 5.11 percent on our 10 year Senior Notes, while simultaneously receiving floating rate interest payments set at 0.37 percent as of November 30, 2011 on the same notional amounts. The fixed rate side of the swap will not change over the life of the swap. 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 debts floating rate payments. The swap is used to reduce the Companys 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.
The following table summarizes the fair values of our various derivative instruments at November 30, 2011 and February 28, 2011:
FAIR VALUES OF DERIVATIVE INSTRUMENTS IN THE CONSOLIDATED BALANCE SHEETS
(in thousands)
November 30, 2011
|
| |||||||||||||||||||
Designated as hedging instruments |
|
Hedge Type |
|
Final |
|
Notional |
|
Derivative |
|
Derivative |
|
Accrued |
|
Derivative |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency contracts - sell Pounds |
|
Cash flow |
|
2/2012 |
|
£ |
4,000 |
|
$ |
94 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Foreign currency contracts - sell Canadian |
|
Cash flow |
|
12/2012 |
|
$ |
9,000 |
|
45 |
|
23 |
|
- |
|
- |
| ||||
Foreign currency contracts - sell Euros |
|
Cash flow |
|
2/2012 |
|
|
2,000 |
|
- |
|
- |
|
95 |
|
- |
| ||||
Subtotal |
|
|
|
|
|
|
|
139 |
|
23 |
|
95 |
|
- |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest rate swap |
|
Cash flow |
|
6/2014 |
|
$ |
75,000 |
|
- |
|
- |
|
3,468 |
|
5,707 |
| ||||
Total fair value |
|
|
|
|
|
|
|
$ |
139 |
|
$ |
23 |
|
$ |
3,563 |
|
$ |
5,707 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
February 28, 2011
|
| |||||||||||||||||||
Designated as hedging instruments |
|
Hedge Type |
|
Final |
|
Notional |
|
Derivative |
|
Derivative |
|
Accrued |
|
Derivative |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency contracts - sell Pounds |
|
Cash flow |
|
2/2012 |
|
£ |
7,000 |
|
$ |
- |
|
$ |
- |
|
$ |
197 |
|
$ |
- |
|
Foreign currency contracts - sell Canadian |
|
Cash flow |
|
12/2012 |
|
$ |
13,000 |
|
- |
|
- |
|
208 |
|
191 |
| ||||
Foreign currency contracts - sell Euros |
|
Cash flow |
|
2/2012 |
|
|
5,000 |
|
- |
|
- |
|
374 |
|
- |
| ||||
Subtotal |
|
|
|
|
|
|
|
- |
|
- |
|
779 |
|
191 |
| |||||
Interest rate swaps |
|
Cash flow |
|
6/2014 |
|
$ |
125,000 |
|
- |
|
- |
|
3,785 |
|
5,840 |
| ||||
Total fair value |
|
|
|
|
|
|
|
$ |
- |
|
$ |
- |
|
$ |
4,564 |
|
$ |
6,031 |
|
Counterparty credit risk:
Financial instruments, including foreign currency contracts and interest rate swaps, expose us to counterparty credit risk for non-performance. We manage our exposure to counterparty credit risk through 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.
Risks inherent in cash, cash equivalents and investment holdings:
Our cash, cash equivalents and investments are subject to interest rate risk, credit risk and liquidity risk. Cash consists of both interest bearing and non-interest bearing disbursement or short-term investment accounts. Cash equivalents consist of commercial paper and money market investment accounts. Investments consist of BAA3 to AAA rated ARS and mutual funds. The following table summarizes our cash, cash equivalents and investments we held at November 30, 2011 and February 28, 2011:
CASH, CASH EQUIVALENTS AND INVESTMENTS
(in thousands)
|
|
November 30, 2011 |
|
February 28, 2011 |
| ||||||
|
|
Carrying |
|
Range of |
|
Carrying |
|
Range of |
| ||
|
|
Amount |
|
Interest Rates |
|
Amount |
|
Interest Rates |
| ||
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
| ||
Cash, interest and non-interest-bearing accounts - unrestricted |
|
$ |
31,171 |
|
0.00 to 1.70% |
|
$ |
16,587 |
|
0.00 to 1.60% |
|
Cash, interest and non-interest-bearing accounts - restricted |
|
2,114 |
|
0.00 to 1.25% |
|
2,611 |
|
0.00 to 1.25% |
| ||
Commercial paper |
|
- |
|
- |
|
1,560 |
|
0.13% |
| ||
Money market funds |
|
2,134 |
|
0.01 to 4.92% |
|
6,435 |
|
0.03 to 3.27% |
| ||
Total cash and cash equivalents |
|
$ |
35,419 |
|
|
|
$ |
27,193 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Investments: |
|
|
|
|
|
|
|
|
| ||
Auction rate securities |
|
$ |
- |
|
- |
|
$ |
20,711 |
|
1.76 to 8.47% |
|
Mutual funds, principally equity based |
|
- |
|
- |
|
1,233 |
|
|
| ||
Total investments |
|
$ |
- |
|
|
|
$ |
21,944 |
|
|
|
Our cash balances at November 30, 2011 and February 28, 2011 include restricted cash of $2.11 and $2.61 million, respectively, denominated in Venezuelan Bolivares Fuertes, shown above under the heading Cash, interest and non-interest-bearing accounts restricted. The balances arise from our operations within the Venezuelan market. Until we are able to repatriate cash from Venezuela, we intend to use these cash balances in-country to continue to fund operations. We do not otherwise rely on these restricted funds as a source of liquidity.
At November 30, 2011, most of our cash equivalents are in money market accounts; therefore, we believe there is no material interest rate, credit or liquidity risk. During the fiscal quarter ended November 30, 2011, we liquidated all our mutual fund holdings paying out all proceeds in satisfaction of an associated Kaz deferred compensation plan.
At February 28, 2011, we held investments in ARS collateralized by student loans (with underlying maturities from 18 to 35 years). Substantially all of the collateral was guaranteed by the U.S. government under the Federal Family Education Loan Program. Liquidity for these securities was normally dependent on an auction process that reset the applicable interest rate at pre-determined intervals, ranging from 7 to 35 days. Beginning in February 2008, the auctions for the ARS held by us and others were unsuccessful, requiring us to hold them beyond their typical auction reset dates. Auctions fail when there is insufficient demand. However, this did not represent a default by the issuer of the security agreement. Our subsequent valuation of the securities was based on the assumption that they continued to accrue interest until one of the following occurred: the auction succeeded; the issuer called the securities; or the securities matured. On September 15, 2011, the Company entered into an agreement to sell its then remaining portfolio of $18.90 million par value ARS for approximately 96 percent of par. The transaction settled in the fiscal quarter ended November 30, 2011.
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 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 the Companys current expectations and various assumptions. The Company believes there is a reasonable basis for its expectations and assumptions, but there can be no assurance that the Company will realize its expectations or that the Companys assumptions will prove correct. Forward-looking statements are subject to risks that could cause them to differ materially from actual results. Accordingly, the Company cautions 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 28, 2011 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 projections of product demand, sales and net income (including the Companys guidance for Kazs 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 acquisitions of Kaz and 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 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. and international credit markets;
· foreign currency exchange rate fluctuations;
· trade barriers, exchange controls, expropriations and other risks associated with foreign operations;
· 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 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.
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 Rules 13a-15(e) under 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 SECs 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 November 30, 2011. In conducting our evaluation of the effectiveness of internal control over financial reporting, we have excluded the assets and liabilities and results of operations of Kaz, which we acquired on December 31, 2010, in accordance with the Securities and Exchange Commissions guidance concerning the reporting of internal controls over financial reporting in connection with a material acquisition. The assets resulting from this acquisition constituted approximately 32.9 percent of consolidated assets as of November 30, 2011, 38.0 and 36.3 percent of consolidated net sales revenue, respectively, and 32.3 and 20.1 percent of consolidated operating income, respectively, for the three- and nine-month periods ended November 30, 2011. Based upon that evaluation, which excluded the internal control over financial reporting of Kaz, the CEO and CFO concluded that our disclosure controls and procedures were effective at a reasonable level of assurance as of November 30, 2011, the end of the periods 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) that occurred during our fiscal quarter ended November 30, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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.
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 28, 2011. 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 the repurchase program through October 31, 2014. Under this program, as of November 30, 2011, we are authorized to purchase up to 3,120,039 shares of common stock in the open market or through private transactions. During the three- and nine-month periods ended November 30, 2011, there was no open market repurchase activity.
During the three-month period ended November 30, 2011, employees tendered 6,616 shares of common stock having an aggregate market value of $0.19 million, or an average of $28.23 per share, as payment for the exercise price arising from the exercise of options. During the nine-month period ended November 30, 2011, certain members of our Board of Directors and employees tendered 56,651 shares of common stock having an aggregate market value of $1.85 million, or an average of $32.66 per share, as payment for the exercise price arising from the exercise of options. In addition, on July 7, 2011, our Chief Executive Officer tendered 1,016,227 shares of common stock having a market value of $36.52 million as payment for the exercise price and related federal tax obligations arising from the exercise of stock options to purchase 1,625,000 shares of common stock. We accounted for this activity as a purchase and retirement of the shares. The following schedule sets forth the purchase activity for the three months ended November 30, 2011.
ISSUER PURCHASES OF EQUITY SECURITIES FOR THE THREE MONTHS ENDED NOVEMBER 30, 2011 | |||||||||
Period |
|
Total Number of |
|
Average Price |
|
Total Number of |
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
September 1 through September 30, 2011 |
|
1,073 |
|
$24.88 |
|
1,073 |
|
125,582 |
|
October 1 through October 31, 2011 |
|
1,864 |
|
28.86 |
|
1,864 |
|
3,123,718 |
|
November 1 through November 30, 2011 |
|
3,679 |
|
28.90 |
|
3,679 |
|
3,120,039 |
|
Total |
|
6,616 |
|
$28.23 |
|
6,616 |
|
|
|
(a) |
Exhibits | ||
|
| ||
|
10.1 |
Amended and Restated Employment Agreement between Helen of Troy Nevada Corporation, Helen of Troy Limited and Gerald J. Rubin, dated September 13, 2011 (incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on September 16, 2011). | |
|
|
| |
|
10.2* |
Helen of Troy Limited 2008 Stock Incentive Plan, as amended. | |
|
|
| |
|
10.3 |
Helen of Troy Limited 2011 Annual Incentive Plan (incorporated by reference to Appendix B to the Companys Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 14, 2011). | |
|
|
| |
|
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** |
The following materials from the Companys Quarterly Report on Form 10-Q for the quarter ended November 30, 2011 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements. | |
|
|
| |
|
|
Management contracts or compensatory plans or arrangements. | |
|
|
| |
|
* |
Filed herewith. | |
|
|
| |
|
** |
Furnished herewith. With respect to Exhibit 101, as provided in 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. | |
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: January 6, 2012 |
/s/ Gerald J. Rubin |
|
Gerald J. Rubin |
|
Chairman of the Board, Chief |
|
and Principal Executive Officer |
|
|
|
|
Date: January 6, 2012 |
/s/ Thomas J. Benson |
|
Thomas J. Benson |
|
Senior Vice-President |
|
and Chief Financial Officer |
|
|
|
|
Date: January 6, 2012 |
/s/ Richard J. Oppenheim |
|
Richard J. Oppenheim |
|
Financial Controller |
|
and Principal Accounting Officer |
Index to Exhibits
10.1 |
Amended and Restated Employment Agreement between Helen of Troy Nevada Corporation, Helen of Troy Limited and Gerald J. Rubin, dated September 13, 2011 (incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on September 16, 2011). | |
|
| |
10.2* |
Helen of Troy Limited 2008 Stock Incentive Plan, as amended. | |
|
| |
10.3 |
Helen of Troy Limited 2011 Annual Incentive Plan (incorporated by reference to Appendix B to the Companys Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 14, 2011). | |
|
| |
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** |
The following materials from the Companys Quarterly Report on Form 10-Q for the quarter ended November 30, 2011 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements. | |
|
| |
|
Management contracts or compensatory plans or arrangements. | |
|
| |
* |
Filed herewith. | |
|
| |
** |
Furnished herewith. With respect to Exhibit 101, as provided in 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. | |
EXHIBIT 10.2
APPENDIX A
HELEN OF TROY LIMITED
2008 STOCK INCENTIVE PLAN
(as amended on October 11, 2011)
1. Purpose of the Plan
The purpose of the Plan is to (i) aid the Company and its Subsidiaries and Affiliates in attracting, securing and retaining employees of outstanding ability, (ii) attract consultants to provide services to the Company and its Subsidiaries and Affiliates, as needed, and (iii) motivate such persons to exert their best efforts on behalf of the Company and its Subsidiaries and its Affiliates by providing incentives through the granting of Awards. The Company expects that it will benefit from the added interest, which such persons will have in the welfare of the Company as a result of their proprietary interest in the Companys success.
2. Definitions
The following capitalized terms used in the Plan have the respective meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any successor thereto.
(b) Affiliate: Any entity (i) 20% or more of the voting equity of which is owned or controlled directly or indirectly by the Company, or (ii) that had been a business, division or subsidiary of the Company, the equity of which has been distributed to the Companys shareholders, even if the Company thereafter owns less than 20% of the voting equity.
(c) Average Invested Capital: With respect to any fiscal year performance period, as of any date of determination, the sum of the following: (i) total assets determined by disregarding any impairment charges recorded during such fiscal year minus (ii) total current liabilities plus (iii) indebtedness for borrowed money included in total current liabilities, in each case, of the Company and its Subsidiaries as determined in accordance with GAAP, with such amount derived from clauses (i), (ii) and (iii) calculated as the simple average during such fiscal year based on the last day of each of the trailing five (5) fiscal quarters through the end of such fiscal year, minus (iv) the impairment charges disregarded in clause (i) above. For purposes of clarity, aggregate impairment charges with respect to the applicable fiscal year will not be averaged over the fiscal quarters of such fiscal year but aggregate impairment charges with respect to the applicable fiscal year will reduce the average invested capital calculated pursuant to clauses (i), (ii) and (iii) above.
(d) Award: An Option, Stock Appreciation Right or Other Stock-Based Award granted pursuant to the Plan.
(e) Award Agreement: Any written or electronic agreement, contract, or other instrument or document evidencing an Award granted by the Committee hereunder, which does not require the signature of the Company or the Participant.
(f) Beneficial Owner or Beneficially Owned: As such term is defined in Rule 13d-3 under the Act (or any successor rule thereto).
(g) Board: The Board of Directors of the Company.
(h) Change of Control: The occurrence of any of the following events:
(i) any Person becomes the Beneficial Owner, directly or indirectly, of more than forty percent (40%) of the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the Outstanding Company Voting Securities); provided, however, that the following acquisitions shall not constitute a Change of Control: (A) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (B) any acquisition by an entity pursuant to a reorganization, merger, amalgamation or consolidation, unless such reorganization, merger, amalgamation or consolidation constitutes a Change of Control under clause (ii) of this Section 2(g);
(ii) the consummation of a reorganization, merger, amalgamation or consolidation, unless following such reorganization, merger, amalgamation or consolidation sixty percent (60%) or more of the combined voting power of the then-outstanding voting securities of the entity resulting from such reorganization, merger, amalgamation or consolidation entitled to vote generally in the election of directors is then Beneficially Owned, directly or indirectly, by all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the Outstanding Company Voting Securities immediately prior to such reorganization, merger, amalgamation or consolidation;
(iii) the (A) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or (B) sale or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company and its Subsidiaries, unless the successor entity existing immediately after such sale or disposition is then Beneficially Owned, directly or indirectly, by all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the Outstanding Company Voting Securities immediately prior to such sale or disposition;
(iv) during any period of twenty-four months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 2(g)(i), (ii) or (iii) of the Plan, (B) a director whose initial assumption of office occurs as a result of either an actual or threatened election contest subject to Rule 14a-11 of Regulation 14A promulgated under the Act or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (C) a director designated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the Outstanding Company Voting Securities) whose election by the Board or nomination for election by the Companys shareholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or
Notwithstanding the foregoing, to the extent that any amount constituting non-qualified deferred compensation under Section 409A of the Code would become payable under this Plan by reason of a Change of Control, such amount shall become payable only if the event constituting a Change of Control would also constitute a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A of the Code.
(i) Code: The Internal Revenue Code of 1986, as amended, or any successor thereto.
(j) Committee: The Compensation Committee of the Board, or any successor thereto or other committee designated by the Board to assume the obligations of the Committee hereunder, or if no such committee shall be designated or in office, the Board.
(k) Company: Helen of Troy Limited, a Bermuda company.
(l) Confidential Information: All knowledge and information pertaining to the business of the Company and its Subsidiaries obtained by a Participant from any source whatever as a result of his or her Services to the Company and/or its Subsidiaries and which is not a matter of public knowledge, including, without limitation, any confidential records, documents, contracts, customer lists, writings, data or other information, whether or not the same is in written or other recorded form. Without limiting the generality of the foregoing, Confidential Information shall be deemed to include any information or knowledge which may now or hereafter be deemed a trade secret of the Company and/or its Subsidiaries or information which relates to the Companys and/or its Subsidiaries personnel; present operations or future planning with respect to suppliers or customers, the contents of any Company or Subsidiary manual, practice or procedure, operating, revenue, expense or other statistics; private or public debt or equity financing or concerning any banking, accounting or financial matters; current or future advertising or promotion plans or programs; applications to or matters pending or under the jurisdiction of any regulatory agency or court, including those that are only threatened; any system, program, procedure or administrative operations, including those pertaining to any matter relative to computer operations of any type; information of the type mentioned above or of any other type regarding affiliates of the Company; present or future plans for the extension of the present business or the commencement of new business by the Company and/or its Subsidiaries.
(m) Corporate Tax Rate: For any fiscal year performance period, the lesser of (i) the average effective income tax rate of the Company and its Subsidiaries for the fiscal year corresponding with the applicable EBITDA ROIC performance, or (ii) twenty (20) percent.
(n) Covered Employee: An employee of the Company or its Subsidiaries who may be deemed to be a covered employee within the meaning of Section 162(m) of the Code.
(o) Disability: Inability to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which can be expected to result in death, or can be expected to last for a continuous period of not less than 12 months. The determination whether a Participant has suffered a Disability shall be made by the Committee based upon such evidence as it deems necessary and appropriate. A Participant shall not be considered disabled unless he or she furnishes such medical or other evidence of the existence of the Disability as the Committee, in its sole discretion, may require.
(p) EBITDA: For any fiscal year performance period, the sum (without duplication) of (i) operating income (loss) after impairment charges plus (ii) depreciation and amortization charges, in each case, of the Company and its Subsidiaries as determined in accordance with GAAP, plus (iii) to the extent included in clause (i) above, any impairment charges incurred by the Company and its Subsidiaries, as determined in accordance with GAAP, solely to the extent such charges result from capital market and/or economic conditions creating a stock market trigger that requires testing for and recording of impairments under GAAP which cannot be attributed to any fundamental change in the underlying current or expected operating cash flows associated with the impaired assets, as reflected in the financial statements of the Company and its Subsidiaries and the notes thereto.
(q) EBITDA ROIC: For any fiscal year performance period, an amount equal to (i) the product of (y) EBITDA and (z) one (1) minus the Corporate Tax Rate, divided by (ii) Average Invested Capital.
(r) Effective Date: The date on which the Plan takes effect, as defined pursuant to Section 28 of the Plan.
(s) Fair Market Value: As of any date that requires the determination of the Fair Market Value of Shares under this Plan, the value of a Share on such date of determination, calculated as follows:
(i) If the Shares are then listed or admitted to trading on a Nasdaq market system or a stock exchange which reports closing sale prices, the Fair Market Value shall be the closing sale price on such date on such Nasdaq market system or principal stock exchange on which the Share is then listed or admitted to trading, or, if no closing sale price is quoted on such day, then the Fair Market Value shall be the closing sale price of the Share on such Nasdaq market system or such exchange on the immediately preceding day on which a closing sale price is reported;
(ii) If the Shares are not then listed or admitted to trading on a Nasdaq market system or a stock exchange which reports closing sale prices, the Fair Market Value shall be the average of the closing bid and asked prices of the Share in the over-the-counter market on such date; or
(iii) If neither clause (i) nor (ii) is applicable as of such date, then the Fair Market Value shall be determined by the Board in good faith and in using any reasonable method of evaluation, which determination shall be conclusive and binding on all interested parties.
(t) GAAP: Generally accepted accounting principles used and applied in the United States of America.
(u) ISO: An Option that is also an incentive stock option granted pursuant to Section 7(d) of the Plan.
(v) LSAR: A limited stock appreciation right granted pursuant to Section 8(d) of the Plan.
(w) Other Stock-Based Awards: Awards granted pursuant to Section 9 of the Plan.
(x) Option: A stock option granted pursuant to Section 7 of the Plan.
(y) Option Price: The purchase price per Share of an Option, as determined pursuant to Section 7(a) of the Plan.
(z) Participant: An individual who is selected by the Committee to participate in the Plan pursuant to Section 5 of the Plan.
(aa) Performance-Based Awards: Other Stock-Based Awards granted pursuant to Section 9(b) of the Plan.
(bb) Person: As such term is used for purposes of Section 13(d)(3) or 14(d)(2) of the Act (or any successor section thereto).
(cc) Plan: The Helen of Troy Limited 2008 Stock Incentive Plan, as amended from time to time.
(dd) Restricted Stock: Restricted stock granted pursuant to Section 9 of the Plan.
(ee) Restricted Stock Unit: A restricted stock unit representing a right to acquire a fixed number of Shares at a future date, granted pursuant to Section 9 of the Plan.
(ff) Securities Act: The Securities Act of 1933, as amended, or any successor thereto.
(gg) Service: Services rendered to the Company or any of its Subsidiaries as an employee or consultant.
(hh) Shares: Common shares, par value $0.10 per Share, of the Company, as adjusted pursuant to Section 10 of the Plan.
(ii) Stock Appreciation Right: A stock appreciation right granted pursuant to Section 8 of the Plan.
(jj) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
(kk) Termination of Service: A Participants termination of service with the Company, its Subsidiaries and Affiliates. A Termination of Service of an employee of the Company or any Subsidiary shall not be deemed to have occurred in the case of sick leave, military leave or any other leave of absence, in each case approved by the Committee or in the case of transfers between locations of the Company or its Subsidiaries. In the case of a U.S. taxpayer who is a specified employee (as defined under Section 409A of the Code), an Award which is considered non-qualified deferred compensation (as defined under Section 409A of the Code) which is otherwise distributable upon a Termination of Service (which is also a Separation from Service as such term is defined under Section 409A of the Code) may not be made before the first day of the seventh month after the date of the Separation from Service (or, if earlier, the date of death of the Participant).
3. Shares Subject to the Plan
The maximum number of Shares with respect to which Awards may be granted under the Plan shall be 3,750,000 (subject to adjustment in accordance with the provisions of Section 10 hereof), whether pursuant to ISOs or otherwise. Of that number, not more than 3,750,000 Shares (subject to adjustment in accordance with the provisions of Section 10 hereof) will be available for grants under the Plan of ISOs pursuant to Section 7(d) hereof. The maximum number of Shares with respect to which Awards of any and all types may be granted during a calendar year to any Participant shall be limited, in the aggregate, to 1,000,000 Shares (subject to adjustment in accordance with the provisions of Section 10 hereof). The Shares may consist, in whole or in part, of authorized and unissued Shares or treasury Shares, including Shares acquired by purchase in the open market or in private transactions. If any Awards are forfeited, cancelled, terminated, exchanged or surrendered or such Award is settled in cash or otherwise terminates without a distribution of Shares to the Participant, any Shares counted against the number of Shares reserved and available under the Plan with respect to such Award shall, to the extent of any such forfeiture, settlement, termination, cancellation, exchange or surrender, again be available for Awards under the Plan.
4. Administration
(a) The Plan shall be administered by the Committee, which may delegate its duties and powers in whole or in part to any subcommittee thereof. If necessary to satisfy the requirements of Section 162(m) of the Code and/or Rule 16b-3 promulgated under the Act, the Committee shall consist solely of at least two individuals who are each non-employee directors within the meaning of Rule 16b-3 under the Act (or any successor rule thereto), outside directors within the meaning of Section 162(m) of the Code (or any successor section thereto) and satisfy all applicable independence requirements set forth in any applicable stock exchange or market or quotation system in which the Shares are then traded, listed or
quoted. Except as required by Section 162(m) of the Code or Rule 16b under the Act, any action permitted to be taken by the Committee may be taken by the Board, in its discretion; provided however that, to the extent required by any stock exchange or market or quotation system on which the Shares are traded, listed or quoted, any Award approved by the Board shall also have been approved by a majority of the Companys independent directors (within the meaning of such exchange or market or quotation system). The Committee may also delegate to a committee consisting of employees of the Company the authority to authorize transfers, establish terms and conditions upon which transfers may be made and establish classes of options eligible to transfer options, as well as to make other determinations with respect to option transfers.
(b) The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, to make any other determinations that it deems necessary or desirable for the administration of the Plan, and to take the following actions, in each case subject to and consistent with the provisions of the Plan:
(i) to select Participants to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each Participant;
(iii) to determine the type and number of Awards to be granted, the number of Shares to which an Award may relate, the terms and conditions of any Award granted under the Plan (including, but not limited to, any exercise price, grant price, or purchase price, and any bases for adjusting such exercise, grant or purchase price, any restriction or condition, any schedule for lapse of restrictions or conditions relating to transferability or forfeiture, exercisability, or settlement of an Award, and waiver or accelerations thereof, and waivers of performance conditions relating to an Award, based in each case on such considerations as the Committee shall determine), and all other matters to be determined in connection with an Award;
(iv) to determine whether, to what extent, and under what circumstances an Award may be settled, or the exercise price of an Award may be paid, in cash, Shares, other Awards, or other property, or an Award may be cancelled, forfeited, exchanged, or surrendered;
(v) to take any action consistent with the terms of the Plan, either before or after an Award has been granted, as the Committee deems necessary or advisable to comply with any government laws or regulatory requirements of a non-U.S. jurisdiction, including but not limited to, modifying or amending the terms and conditions governing any Awards, establishing any local country plans as sub-plans to the Plan or to conform with or take advantage of governmental requirements, statutes or regulations;
(vi) to prescribe the form of each Award Agreement, which need not be identical for each Participant;
(vii) to correct any defect or supply any omission or reconcile any inconsistency in the Plan and to construe and interpret the Plan and any Award, rules and regulations, Award Agreement, or other instrument hereunder, in each case, in the manner and to the extent the Committee deems necessary or desirable;
(viii) to approve any repurchase of Shares pursuant to Section 42A of the Companies Act 1981 of Bermuda where a Participant wishes to effect payment of (A) an exercise of an Award or (B) payment of taxes pursuant to Section 4(d) below by delivery of Shares; and
(ix) to make all other decisions and determinations as may be required under the terms of the Plan or as the Committee may deem necessary or advisable for the administration of the Plan.
(c) Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors). Determinations made by the Committee under the Plan need not be uniform and may be made selectively among Participants, whether or not such Participants are similarly situated.
(d) The Committee shall require payment of any amount it may determine to be necessary to withhold for federal, state, local or other taxes as a result of the grant, vesting or the exercise of an Award. With the approval of the Committee, the Participant may elect to pay a portion or all of such withholding taxes by (i) delivery of Shares or (ii) having Shares withheld by the Company from any Shares that would have otherwise been received by the Participant. The number of Shares so delivered or withheld shall have an aggregate Fair Market Value on the date of the exercise of an Award sufficient to satisfy the applicable withholding taxes. In addition, with the approval of the Committee, a Participant may satisfy any additional tax that the Participant elects to have the Company withhold by delivering to the Company or its designated representative Shares already owned by the Participant or, in the case of Shares acquired through an employee benefit plan sponsored by the Company or its Subsidiaries, Shares held by the Participant for more than six months.
(e) If the chief executive officer of the Company is a member of the Board, upon recommendation of the Committee, the Board by specific resolution may constitute such chief executive officer as a committee of one which shall, subject to the terms and conditions of such resolution, have the authority to grant Awards of up to an aggregate of 350,000 Shares (subject to adjustment in accordance with the provisions of Section 10 hereof) in each calendar year to Participants who are not subject to the rules promulgated under Section 16 of the Act (or any successor section thereto) or Covered Employees; provided, however, that such chief executive officer shall notify the Committee of any such grants made pursuant to this Section 4.
(f) Notwithstanding the foregoing, a Repricing (as defined below) is prohibited without prior shareholder approval. Subject to compliance with the provisions of the immediately preceding sentence regarding a Repricing, the Committee may, at any time or from time to time: (i) authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards or (ii) buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree. For purposes of the Plan, Repricing means any of the following or any other action that has the same purpose and effect: (A) lowering the exercise price of an outstanding Option granted under the Plan after it is granted or (B) canceling an outstanding Award granted under the Plan at a time when its exercise or purchase price exceeds the then Fair Market Value of the stock underlying such outstanding Award, in exchange for another Award or a cash payment, unless the cancellation and exchange occurs in connection with a merger, amalgamation, consolidation, sale of substantially all the Companys assets, acquisition, spin-off or other similar corporate transaction.
(g) Shares issues pursuant to an Award shall, subject to the terms hereof, be purchased for such consideration, paid for at such times, by such methods, and in such forms, including cash, share repurchase, option cancellation, Participant services or other consideration, as the Committee shall determine.
5. Eligibility
Employees of the Company, its Subsidiaries and Affiliates, who are from time to time responsible for, or contribute to, the management, growth and protection of the business of the Company and its Affiliates, and consultants to the Company and its Subsidiaries, are eligible to be granted Awards under the Plan. Participants shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion, the number of Shares to be covered by the Awards granted to each Participant. Notwithstanding any provisions of the Plan to the contrary, an Award may be granted to an employee or consultant, in connection with his or her hiring or retention prior
to the date the employee or consultant first performs services for the Company or a Subsidiary; provided, however, that any such Award shall not become vested prior to the date the employee or consultant first performs such services.
6. Limitations
No Award may be granted under the Plan after the tenth anniversary of the Effective Date, but Awards theretofore granted may extend beyond that date.
7. Terms and Conditions of Options
Options granted under the Plan shall be, as determined by the Committee, non-qualified, incentive or other stock options for federal income tax purposes, as evidenced by the related Award Agreements, and shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine:
(a) Option Price. The Option Price per Share shall be determined by the Committee, but shall not be less than 100% of the Fair Market Value of the Shares on the date an Option is granted.
(b) Exercisability. Options granted under the Plan shall be exercisable at such time and upon such terms and conditions as may be determined by the Committee, but in no event shall an Option be exercisable more than ten years after the date it is granted.
(c) Exercise of Options. Except as otherwise provided in the Plan or in an Award Agreement, an Option may be exercised for all, or from time to time any part, of the Shares for which it is then exercisable. For purposes of Section 7 of the Plan, the exercise date shall be the date the Company receives a written notice of exercise in accordance with the terms of the Award Agreement and full payment for the Shares with respect to which the Option is exercised, together with (i) any other agreements required by the terms of the Plan and/or Award Agreement or as required by the Committee, and (ii) payment by the Participant of all payroll, withholding or income taxes incurred in connection with such Option exercise (or arrangements for the collection or payment of such tax satisfactory to the Committee are made). The purchase price for the Shares as to which an Option is exercised shall be paid to the Company in full at the time of exercise at the election of the Participant (A) in cash, (B) in Shares having a Fair Market Value equal to the aggregate Option Price for the Shares being purchased and satisfying such other requirements as may be imposed by the Committee; provided, that, such Shares have been held by the Participant for no less than six months, (C) partly in cash and partly in such Shares, (D) through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the aggregate Option Price for the Shares being purchased, (E) through having Shares withheld by the Company from any Shares that would have otherwise been received by the Participant or (F) through such other means as shall be prescribed in the Award Agreement.
(d) ISOs. The Committee may grant Options under the Plan that are intended to be ISOs. Such ISOs shall comply with the requirements of Section 422 of the Code (or any successor section thereto). If the aggregate Fair Market Value of the Shares (determined as of the respective date or dates of grant) for which ISOs are granted under the Plan (or any other stock incentive plan of the Company or Subsidiaries) are exercisable for the first time by a Participant during any calendar year exceeds $100,000, the portion of the Option not exceeding $100,000, to the extent of whole Shares, will be treated as an ISO and the remaining portion of the Option will be treated as a non-statutory stock option. The preceding sentence will be applied by taking Options into account in the order in which they were granted. Unless otherwise permitted under Section 422 of the Code (or any successor section thereto), no ISO may be granted to any Participant who at the time of such grant, owns more than 10% of the total combined voting power of all classes of stock of the Company or of any Subsidiary, unless (i) the Option Price for such ISO is at least 110% of the Fair Market Value of a Share on the date the ISO is granted and (ii) the date on which such ISO terminates is a date not later than the day preceding the fifth anniversary of the date on
which the ISO is granted. Any Participant who disposes of Shares acquired upon the exercise of an ISO either (i) within two years after the date of grant of such ISO or (ii) within one year after the transfer of such Shares to the Participant, shall notify the Company of such disposition and of the amount realized upon such disposition. Notwithstanding Section 5 of the Plan, ISOs may be granted solely to employees of the Company and its Subsidiaries.
(e) Exercisability Upon Termination of Service by Death or Disability. Upon a Termination of Service by reason of death or Disability, the Option may be exercised within one year following the date of death or Termination of Service due to Disability (subject to any earlier termination of the Option as provided by its terms), by the Participant in the case of Disability, or in the case of death, by the Participants estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but in any case only to the extent the Participant was entitled to exercise the Option on the date of his or her Termination of Service by death or Disability. To the extent that he or she was not entitled to exercise such Option at the date of his or her Termination of Service by death or Disability, or if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate. Notwithstanding anything to the contrary herein, the Committee may at any time and from time to time prior to the termination of an Option, with the consent of the Participant, extend the period of time during which the Participant may exercise his or her Option following the date of Termination of Service due to death or Disability; provided, however, that the maximum period of time during which an Option shall be exercisable following the date of Termination of Service due to death or Disability shall not exceed the original term of such Option as set forth in the Award Agreement and that notwithstanding any extension of time during which an Option may be exercised, such Option, unless otherwise amended by the Committee, shall only be exercisable to the extent the Participant was entitled to exercise the Option on the date of Termination of Service due to death or Disability.
(f) Effect of Other Termination of Service. Upon a Termination of Service for any reason (other than death or Disability), an unexercised Option may thereafter be exercised during the period ending 90 days after the date of such Termination of Service, but only to the extent to which such Option was vested and exercisable at the time of such Termination of Service. Notwithstanding the foregoing, the Committee may, in its sole discretion, either by prior written agreement with the Participant or upon the occurrence of a Termination of Service, accelerate the vesting of unvested Options held by a Participant if such Participants Termination of Service is without cause (as such term is defined by the Committee in its sole discretion) by the Company.
(g) Nontransferability of Stock Options. Except as otherwise provided in this Section 7(g), an Option shall not be transferable by the Participant otherwise than by will or by the laws of descent and distribution, and during the lifetime of a Participant an Option shall be exercisable only by the Participant. An Option exercisable after the death of a Participant or a transferee pursuant to the following sentence may be exercised by the legatees, personal representatives or distributees of the Participant or such transferee. The Committee may, in its discretion, authorize all or a portion of the Options previously granted or to be granted to a Participant, other than ISOs, to be on terms which permit irrevocable transfer for no consideration by such Participant to any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, of the Participant, any trust in which these persons have more than 50% of the beneficial interest, any foundation in which these persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than 50% of the voting interests (Eligible Transferees), provided that (i) the Award Agreement pursuant to which such options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section 7(g) and (ii) subsequent transfers of transferred Options shall be prohibited except those in accordance with the first sentence of this Section 7(g). The Committee may, in its discretion, amend the definition of Eligible Transferees to conform to the coverage rules of Form S-8 under the Securities Act (or any comparable or successor registration statement) from time to time in effect. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. The events of Termination of Service of Sections 7(e) and 7(f) hereof shall continue to be applied with respect to the
original Participant, following which the options shall be exercisable by the transferee only to the extent, and for the periods specified, in Sections 7(e) and 7(f).
8. Terms and Conditions of Stock Appreciation Rights
(a) Grants. The Committee also may grant a Stock Appreciation Right, independent of an Option, with respect to Shares that are traded or listed on an established stock exchange or market or quotation system.
(b) Terms. The exercise price per Share of a Stock Appreciation Right shall be an amount determined by the Committee but in no event shall such amount be less than the greater of (i) the Fair Market Value of a Share on the date the Stock Appreciation Right is granted and (ii) an amount permitted by applicable laws, rules, by-laws or policies of regulatory authorities or stock exchanges or market or quotation systems. Each Stock Appreciation Right granted independent of an Option shall entitle a Participant to exercise the Stock Appreciation Right in whole or in part and, upon such exercise, to receive from the Company an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the exercise price per Share, times (ii) the number of Shares covered by the portion of the Stock Appreciation Right so exercised. The date a notice of exercise is received by the Company shall be the exercise date. Payment shall be made in cash, Shares or a combination of cash and Shares, as determined by the Committee. Stock Appreciation Rights may be exercised from time to time upon actual receipt by the Company of written notice of exercise stating the number of Shares with respect to which the Stock Appreciation Right is being exercised.
(c) Limitations. The Committee may impose, in its discretion, such conditions upon the exercisability or transferability of Stock Appreciation Rights as it may deem fit.
(d) Limited Stock Appreciation Rights. The Committee may grant LSARs that are exercisable upon the occurrence of specified contingent events. Such LSARs may provide for a different method of determining appreciation, may specify that payment will be made only in cash as soon as practicable after the occurrence of the specified contingent event and may provide that any related Awards are not exercisable while such LSARs are exercisable. Unless the context otherwise requires, whenever the term Stock Appreciation Right is used in the Plan, such term shall include LSARs.
9. Other Stock-Based Awards
(a) Generally. The Committee, in its sole discretion, may grant Awards of unrestricted Shares, Restricted Stock, Restricted Stock Units and other Awards that are valued in whole or in part by reference to, or are otherwise based on the Fair Market Value of, Shares (collectively, Other Stock-Based Awards). Such Other Stock-Based Awards shall be in such form, and dependent on such conditions, as the Committee shall determine, including, without limitation, the right to receive one or more Shares (or the equivalent cash value of such Shares) upon the completion of a specified period of service, the occurrence of an event and/or the attainment of performance objectives. Other Stock-Based Awards may be granted alone or in addition to any other Awards granted under the Plan. Subject to the provisions of the Plan, the Committee shall determine (i) to whom and when Other Stock-Based Awards will be made, (ii) the number of Shares to be awarded under (or otherwise related to) such Other Stock-Based Awards, (iii) whether such Other Stock-Based Awards shall be settled in cash, Shares or a combination of cash and Shares, and (iv) all other terms and conditions of such Awards (including, without limitation, the vesting provisions thereof).
(b) Performance-Based Awards. Notwithstanding anything to the contrary herein, certain Other Stock-Based Awards granted under this Section 9 may be granted to Covered Employees in a manner that will enable the Company to deduct any amount paid by the Company under Section 162(m) of the Code (or any successor section thereto) (Performance-Based Awards). A Covered Employees Performance-Based Award shall be determined based on the attainment of one or more pre-established, objective performance goals established in writing by the Committee, for a performance period established
by the Committee, (i) at a time when the outcome for that performance period is substantially uncertain and (ii) not later than 90 days after the commencement of the performance period to which the performance goal relates, but in no event after 25% of the relevant performance period has elapsed. The performance goals shall be based upon one or more of the following criteria, which may be Company-wide, on an individual basis, a consolidated basis or otherwise: (i) earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization); (ii) EBITDA; (iii) net income; (iv) operating income; (v) earnings from continuing operations; (vi) earnings per Share (whether basic or fully diluted); (vii) book value per Share; (viii) expense management; (ix) return on investment before or after the cost of capital; (x) improvements in capital structure; (xi) profitability of an identifiable business unit or product; (xii) maintenance or improvement of profit margins; (xiii) stock price; (xiv) market share; (xv) revenues or sales; (xvi) costs; (xvii) cash flow; (xviii) working capital; (xix) changes in net assets (whether or not multiplied by a constant percentage intended to represent the cost of capital); (xx) EBITDA ROIC; (xxi) return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales or revenue); (xxii) reductions in the Companys overhead ratio; and (xxiii) expenses to sales ratio. The foregoing criteria may relate to the Company, one or more of its Affiliates, Subsidiaries or one or more of its divisions, units, minority investments, partnerships, joint ventures, product lines or products or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto), the performance goals may be calculated without regard to extraordinary items or accounting changes. The Committee shall determine whether, with respect to a performance period, the applicable performance goals have been met with respect to a given Covered Employee and, if they have, to so certify and ascertain the amount of the applicable Performance-Based Award. No Performance-Based Awards will be paid for such performance period until such certification is made by the Committee. The amount of the Performance-Based Award actually paid to a given Covered Employee may be less than the amount determined by the applicable performance goal formula, at the discretion of the Committee. The amount of the Performance-Based Award determined by the Committee for a performance period shall be paid to the Covered Employee at such time as determined by the Committee, in its sole discretion after the end of such performance period; provided, however, that a Covered Employee may, if and to, the extent permitted by the Committee and consistent with the provisions of Sections 162(m) and 409A of the Code, elect to defer payment of a Performance-Based Award.
(c) Terms and Conditions of Restricted Stock and Restricted Stock Units.
(i) Grant. Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement in form approved by the Committee. The vesting of a Restricted Stock Award or Restricted Stock Unit granted under the Plan may be conditioned upon the completion of a specified period of employment with the Company or a Subsidiary, upon attainment of specified performance goals, and/or upon such other criteria as the Committee may determine in its sole discretion.
(ii) Receipt of Restricted Stock. As soon as practicable after an Award of Restricted Stock has been made to a Participant, there shall be registered in the name of such Participant or of a nominee the number of Shares of Restricted Stock so awarded. Except as provided in the applicable Award Agreement, no Shares of Restricted Stock may be assigned, transferred or otherwise encumbered or disposed of by the Participant until such Shares have vested in accordance with the terms of such Award Agreement. If and to the extent that the applicable Award Agreement so provides, a Participant shall have the right to vote and receive dividends on the Shares of Restricted Stock granted to him or her under the Plan. Unless otherwise provided in the applicable Award Agreement, any Shares received as a dividend or bonus issue on such Restricted Stock or in connection with a stock split or division of the Shares of Restricted Stock shall be subject to the same restrictions as the Restricted Stock.
(iii) Payments Pursuant to Restricted Stock Units. Restricted Stock Units may not be assigned, transferred or otherwise encumbered or disposed of by the Participant until such
Restricted Stock Units have vested in accordance with the terms of the applicable Award Agreement. Upon the vesting of the Restricted Stock Unit, certificates for Shares shall be delivered to the Participant or his legal representative on the last business day of the calendar quarter in which such vesting event occurs or as soon thereafter as practicable (but not later than the 15th day of the third month following the last day of the Companys taxable year in which such Restricted Stock Units vest), in a number equal to the Shares covered by the Restricted Stock Unit.
(iv) Effect of Termination of Service. Upon a Termination of Service for any reason, the Participant shall only be entitled to the Restricted Stock or Restricted Stock Units vested at the time of such Termination of Service, and the Participants unvested Restricted Stock and Restricted Stock Units shall be forfeited. Notwithstanding the foregoing, the Committee may, in its sole discretion, either by prior written agreement with the Participant or upon the occurrence of a Termination of Service, accelerate the vesting of unvested Restricted Stock or Restricted Stock Units held by the Participant if such Participants Termination of Service is without cause (as such term is defined by the Committee in its sole discretion) by the Company; provided that with respect to Awards granted to Covered Employees that are intended to qualify as performance-based compensation under Section 162(m) of the Code such acceleration must be done in a manner that complies with Section 162(m) of the Code.
10. Adjustments Upon Certain Events
Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan:
(a) Adjustments upon Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number and type of Shares covered by each outstanding Award, and the number and type of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation, expiration or forfeiture of an Award, as well as the exercise or purchase price, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split or combination or the payment of a stock dividend (but only on the Companys common shares) or reclassification of the Companys common shares or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company (other than increases pursuant to the issuance of Other Stock-Based Awards under Section 9 of the Plan). Such adjustment shall be made by the Committee in its sole discretion, which adjustment shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to the Plan or an Award.
(b) Dissolution, Liquidation, Sale of Assets or Merger.
(i) In the event of the dissolution or liquidation of the Company, other than pursuant to a Reorganization (hereinafter defined), any Option, Stock Appreciation Right or Restricted Stock Unit granted under the Plan shall terminate as of a date to be fixed by the Committee, provided that not less than 30 days written notice of the date so fixed shall be given to each Participant holding an affected Option, Stock Appreciation Right or Restricted Stock Unit and, subject to any applicable laws, each such Participant shall have the right during such period to exercise or settle his Options, Stock Appreciation Rights and Restricted Stock Units as to all or any part of the Shares covered thereby or subject thereto.
(ii) In the event of a Reorganization in which the Company is not the surviving or acquiring company, or in which the Company is or becomes a wholly-owned subsidiary of another company after the effective date of the Reorganization, then (i) if there is no plan or agreement respecting the Reorganization (Reorganization Agreement) or if the Reorganization Agreement
does not specifically provide for the change, conversion or exchange of the Shares under outstanding unexercised or unsettled Options, Stock Appreciation Rights or Restricted Stock Units for securities of another corporation, then the Committee shall take such action, and such Awards shall terminate, as provided above; or (ii) if there is a Reorganization Agreement and if the Reorganization Agreement specifically provides for the change, conversion or exchange of the Shares under outstanding, unexercised or unsettled Options, Stock Appreciation Rights or Restricted Stock Units for securities of another corporation, then the Committee shall adjust the Shares under such outstanding unexercised or unsettled Options, Stock Appreciation Rights or Restricted Stock Units (and shall adjust the Shares which are then available to be granted, if the Reorganization Agreement makes specific provisions therefor) in a manner not inconsistent with the provisions of the Reorganization Agreement for the adjustment, change, conversion or exchange of such options, stock appreciation rights or restricted stock units.
(iii) The term Reorganization as used in this Section 10(b) shall mean any statutory merger, statutory amalgamation, statutory consolidation, sale of all or substantially all of the assets of the Company, or sale, pursuant to an agreement with the Company, of securities of the Company pursuant to which the Company is or becomes a wholly-owned subsidiary of another company after the effective date of the Reorganization.
(iv) Except as provided above in this Section 10(b) and except as otherwise provided by the Committee in its sole discretion, any Options, Stock Appreciation Rights and Restricted Stock Units shall terminate immediately prior to the consummation of such proposed action.
(c) Change of Control. Subject to Section 10(b), in the event there occurs a Change of Control, (i) the Participants shall have the right to exercise or settle from and after the date of the Change of Control any Option, Stock Appreciation Right or Restricted Stock Unit held by such Participant in whole or in part, notwithstanding that such Option, Stock Appreciation Right or Restricted Stock Unit may not be fully exercisable or vested, and (ii) any and all restrictions on any Participants Other Stock-Based Award shall lapse and such stock shall immediately vest in the Participants, notwithstanding that the Other Stock-Based Award was unvested.
11. Confidentiality and Non-Competition
By accepting an Award under the Plan and as a condition to the exercise or settlement of Options, Stock Appreciation Rights or Restricted Stock Units and the enjoyment of any of the benefits of the Plan and the applicable Award Agreement, each Participant agrees as follows:
(a) Confidentiality. During the period that each Participant provides Services (or the Participants engaging in any other activity with or for the Company) and for a two year period thereafter, such Participant shall treat and safeguard as confidential and secret all Confidential Information received by such Participant at any time. Without the prior written consent of the Company, except as required by law, such Participant will not disclose or reveal any Confidential Information to any third party whatsoever or use the same in any manner except in connection with the businesses of the Company and its Subsidiaries. In the event that a Participant is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or other process) to disclose (i) any Confidential Information or (ii) any information relating to his opinion, judgment or recommendations concerning the Company or its Subsidiaries as developed from the Confidential Information, each Participant will provide the Company with prompt written notice of any such request or requirement so that the Company may seek an appropriate protective order or waive compliance with the provisions contained herein. If, failing the entry of a protective order or the receipt of a waiver hereunder, such Participant is, in the reasonable opinion of his counsel, compelled to disclose Confidential Information, such Participant shall disclose only that portion and will exercise best efforts to obtain assurances that confidential treatment will be accorded such Confidential Information.
(b) Non-Competition.
(i) During the period that each Participant provides Services to the Company or its Subsidiaries, and for a two-year period thereafter, such Participant shall not, without prior written consent of the Committee, do, directly or indirectly, any of the following: (A) own, manage, control or participate in the ownership, management, or control of, or be employed or engaged by or otherwise affiliated or associated with, any other corporation, partnership, proprietorship, firm, association or other business entity, or otherwise engage in any business which competes with the business of the Company or any of its Subsidiaries (as such business is conducted during the term such Participant provides Services to the Company or its Subsidiaries) in the geographical regions in which such business is conducted; provided, however, that the ownership of a maximum of one percent of the outstanding stock of any publicly traded corporation shall not violate this covenant; or (B) employ, solicit for employment or assist in employing or soliciting for employment any present, former or future employee, officer or agent of the Company or any of its Subsidiaries.
(ii) In the event any court of competent jurisdictions should determine that the foregoing covenant of non-competition is not enforceable because of the extent of the geographical area or the duration thereof, then the Company and the affected Participant hereby petition such court to modify the foregoing covenant to the extent, but only to the extent, necessary to create a covenant which is enforceable in the opinion of such court, with the intention of the parties that the Company shall be afforded the maximum enforceable covenant of non-competition which may be available under the circumstances and applicable law.
(c) Failure to Comply. Each Participant acknowledges that remedies at law for any breach by him of this Section 11 may be inadequate and that the damages resulting from any such breach are not readily susceptible to being measured in monetary terms. Accordingly, each Participant acknowledges that upon his or her violation of any provision of this Section 11, the Company will be entitled to immediate injunctive relief and may obtain an order restraining any threatened or future breach. Each Participant further agrees, subject to the proviso at the end of this sentence, that if he or she violates any provisions of this Section 11, such Participant shall immediately forfeit any rights and benefits under the Plan and shall return to the Company any unexercised Options and forfeit the rights under any other Awards and shall return any Shares held by such Participant received upon exercise of any Option or the vesting of Shares underlying an Award granted hereunder, together with any proceeds from sales of any Shares received upon exercise of such Options or the vesting of Shares underlying an Award; provided, however, that upon violation of subsection (b) of this Section 11, the forfeiture and return provisions contained in this sentence shall apply only to Awards under which underlying Shares have become exercisable or vested, and in any such case the proceeds of sales therefrom, during the two year period immediately prior to termination of the Participants Services. Nothing in this Section 11 will be deemed to limit, in any way, the remedies at law or in equity of the Company, for a breach by a Participant of any of the provisions of this Section 11.
(d) Notice. Each Participant agrees to provide written notice of the provisions of this Section 11 to any future employer of such Participant, and the Company expressly reserves the right to provide such notice to such Participants future employer(s).
(e) Severability. If any provisions or part of any provision of this Section 11 is held for any reason to be unenforceable, (i) the remainder of this Section 11 shall nevertheless remain in full force and effect and (ii) such provision or part shall be deemed to be amended in such manner as to render such provision enforceable.
12. Lockup Agreement
The Committee may in its discretion specify upon granting an Award that upon request of the Company or the underwriters managing any underwritten offering of the Companys securities, the Participant shall agree in writing that for a period of time (not to exceed 180 days) from the effective date
of any registration of securities of the Company, the Participant will not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Shares issued pursuant to the exercise and settlement of such Award, without the prior written consent of the Company or such underwriters, as the case may be.
13. Limitation of Liability
Each member of the Committee shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or other employee of the Company or any Subsidiary or Affiliate, the Companys independent certified public accountants, or other professional retained by the Company to assist in the administration of the Plan. No member of the Committee, nor any officer or employee of the Company acting on behalf of the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Committee and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination, or interpretation.
14. Amendments or Termination
(a) The Board or the Committee may terminate or discontinue the Plan at any time. The Board or the Committee may amend, modify or alter the Plan at any time, but no amendment, modification or alteration shall be made which, (i) without the approval of the shareholders of the Company, would (except as is provided in Section 10 of the Plan), increase the total number of Shares reserved for the purposes of the Plan, change the maximum number of Shares for which Awards may be granted to any Participant or modify the Plan in any other way to the extent shareholder approval is required by the rules of any stock exchange or market or quotation system on which the Shares are traded, listed or quoted, or (ii) without the consent of a Participant, would impair any of the rights or obligations under any Award theretofore granted to such Participant under the Plan. Notwithstanding anything to the contrary herein, neither the Committee nor the Board may amend, alter or discontinue the provisions relating to Section 10(b) of the Plan after the occurrence of a Change of Control.
(b) Except as provided in Section 10 of the Plan or expressly provided under the Plan, any amendment, modification, termination or discontinuance of the Plan shall not affect Awards previously granted, and such Awards shall remain in full force and effect as if the Plan had not been amended, modified, terminated or discontinued, unless such amendment, modification, termination or discontinuance would not impair any of the rights or obligations under any Award or unless mutually agreed otherwise between the Participant and the Company, which agreement shall be in writing and signed by the Participant and the Company.
15. International Participants
The Committee may delegate to another committee, as it may appoint, the authority to take any action consistent with the terms of the Plan, either before or after an Award has been granted, which such other committee deems necessary or advisable to comply with any government laws or regulatory requirements of a non-U.S. jurisdiction, including but not limited to, modifying or amending the terms and conditions governing any Awards, or establishing any local country plans as sub-plans to the Plan. In addition, under all circumstances, the Committee may make non-substantive administrative changes to the Plan as to conform with or take advantage of governmental requirements, statutes or regulations.
16. No Right to Continued Employment or Service
Neither the Plan nor the granting of an Award under the Plan shall impose any obligation on the Company, a Subsidiary or any Affiliate to continue the employment or Service of a Participant or lessen or
affect the Companys, Subsidiarys or Affiliates right to terminate the employment or service of such Participant.
17. Not Compensation for Benefit Plans
No Award payable under the Plan shall be deemed salary or compensation for the purpose of computing benefits under any benefit plan or other arrangement of the Company for the benefit of its employees or directors unless the Company shall determine otherwise.
18. Unfunded Status of Awards
The Plan is intended to constitute an unfunded plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award shall give any such Participant any rights that are greater than those of a general creditor of the Company; provided, however, that the Committee may authorize the creation of trusts or make other arrangements to meet the Companys obligations under the Plan to deliver cash, Shares, other Awards, or other property pursuant to any Award, which trusts or other arrangements shall be consistent with the unfunded status of the Plan unless the Committee otherwise determines with the consent of each affected Participant.
19. Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor its submission to the shareholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of options and other awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
20. Successors and Assigns
The Plan shall be binding on all successors and assigns of the Company and a Participant, including, without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participants creditors.
21. Nontransferability of Awards
Except as provided in Section 7(g) of the Plan, an Award shall not be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution. During the lifetime of a Participant, an Award shall be exercisable only by such Participant. An Award exercisable after the death of a Participant may be exercised by the legatees, personal representatives or distributees of the Participant. Notwithstanding anything to the contrary herein, the Committee, in its sole discretion, shall have the authority to waive this Section 21 or any part hereof (except with respect to ISOs) to the extent that this Section 21 or any part hereof is not required under the rules promulgated under any law, rule or regulation applicable to the Company.
22. No Rights to Awards, No Shareholder Rights
No Participant or employee shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants and employees. Unless otherwise expressly provided herein or in the Award Agreement, no Award shall confer on any Participant any rights to dividends or other rights of a shareholder with respect to Shares subject to an Award unless and until Shares are duly issued or transferred to the Participant in accordance with the terms of the Award and, if applicable, the satisfaction of any other conditions imposed by the Committee pursuant to the Plan.
23. No Fractional Shares
No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, including on account of any action under Section 10 of the Plan. In the case of Awards to Participants, the Committee shall determine, in its discretion, whether cash, other Awards, scrip certificates (which shall be in a form and have such terms and conditions as the Committee in its discretion shall prescribe) or other property shall be issued or paid in lieu of such fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.
24. Compliance with Legal and Trading Requirements
The Plan, the granting, exercising and settlement of Awards thereunder, and the other obligations of the Company under the Plan and any Award Agreement, shall be subject to all applicable federal, state and local laws, rules and regulations, and to such approvals by any regulatory or governmental agency as may be required. All certificates for Shares delivered under the Plan pursuant to any Award shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange or market or quotation system upon which the Shares are then listed, traded or quoted, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. No Award granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would comply with all applicable requirements of the U.S. federal securities laws and any other laws to which such offer, if made, would be subject. The Company, in its discretion, may postpone the issuance or delivery of Shares under any Award until completion of such stock exchange or market or quotation system listing or registration or qualification of such Shares or other required action under any state, federal or local law, rule or regulation as the Company may consider appropriate, including the Securities Act and the Act, and may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Shares in compliance with applicable laws, rules and regulations. No provisions of the Plan shall be interpreted or construed to obligate the Company to register any Shares under federal, state or local law.
25. Severability
If any provision of the Plan is or becomes or is deemed invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan, it shall be stricken and the remainder of the Plan shall remain in full force and effect.
26. Choice of Law
The Plan and all Award Agreements shall be governed by and construed in accordance with the laws of the State of Texas applicable to contracts made and to be performed in the State of Texas without regard to conflict of laws principles.
27. Conflict
To the extent the provisions of the Plan conflicts with the terms and conditions of any written agreement between the Company and a Participant (including the vesting or settlement of any Awards upon termination of employment, whether by Change of Control or any analogous term or otherwise), the terms and conditions of such agreement shall control.
28. Effectiveness of the Plan; Term
The Plan shall be effective on August 19, 2008. The Plan shall continue in effect until August 19, 2018 unless sooner terminated under Section 14 of the Plan.
29. Section 409A of the Code
Notwithstanding any other provision of the Plan or an Award Agreement to the contrary, to the extent that the Committee determines that any Award granted to a U.S. taxpayer under the Plan is subject to Section 409A of the Code, it is the intent of the parties to the applicable Award Agreement that such Award Agreement incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code and that such Award Agreement and the terms of the Plan as applicable to such Award be interpreted and construed in compliance with Section 409A of the Code and the Treasury regulations and other interpretive guidance issued thereunder. Notwithstanding the foregoing, the Company shall not be required to assume any increased economic burden in connection therewith.
30. Section 457A of the Code
It is the intent of the Company that the Plan and all Awards made to U.S. taxpayers hereunder will comply with Section 457A of the Code and the provisions of the Plan and any Award Agreement shall be interpreted and construed consistent with this intent. Notwithstanding the foregoing, in the event an Award is found not to comply with Section 457A, the Company shall not be required to assume any increased economic burden in connection therewith.
31. Notices
All notices or other communications by a Participant to the Committee, the Board or the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Committee at the location, or by the person, designated by the Committee for the receipt thereof. Notwithstanding anything to the contrary contained in the Plan, notices and other elections under the Plan may be delivered or made electronically, in the discretion of the Committee. In addition, in the discretion of the Committee, Shares otherwise deliverable under the Plan may be delivered or otherwise evidenced through book entry or other electronic format without the need to deliver an actual Share certificate; provided, however, an actual Share certificate shall be delivered if requested by the Participant.
32. Clawback Policy
Notwithstanding any other provision of the Plan or an Award Agreement to the contrary, acceptance by any Participant of any Award granted pursuant to the Plan constitutes such Participants acknowledgement and agreement that all Awards made pursuant to the Plan shall be subject to (a) Section 304 of the Sarbanes Oxley Act of 2002 and (b) to the extent required under the rules and/or regulations issued pursuant to the Dodd-Frank Act of 2010, any clawback policy adopted by the Company pursuant to such rules and/or regulations.
EXHIBIT 31.1
CERTIFICATION
I, Gerald J. Rubin, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended November 30, 2011 of Helen of Troy Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Dated: |
January 6, 2012 |
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/s/ Gerald J. Rubin |
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Gerald J. Rubin |
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Chairman of the Board, Chief Executive Officer, President, Director | ||
and Principal Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Thomas J. Benson, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended November 30, 2011 of Helen of Troy Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Dated: |
January 6, 2012 |
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/s/ Thomas J. Benson |
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Thomas J. Benson |
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Senior Vice President and Chief Financial Officer | |||
EXHIBIT 32
CERTIFICATION
In connection with the quarterly report of Helen of Troy Limited (the Company) on Form 10-Q for the fiscal quarter ended November 30, 2011, as filed with the Securities and Exchange Commission (the Report), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned, the Chairman, Chief Executive Officer, President, Director and Principal Executive Officer and the Senior Vice President and Chief Financial Officer of the Company, hereby certifies that to the best of their knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: |
January 6, 2012 |
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/s/ Gerald J. Rubin |
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Gerald J. Rubin |
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Chairman of the Board, Chief Executive Officer, President, Director and Principal Executive Officer | ||
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/s/ Thomas J. Benson |
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Thomas J. Benson |
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Senior Vice President and Chief Financial Officer |
This certification is not deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. This certification is not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.
Earnings per Share
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9 Months Ended | |
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Nov. 30, 2011
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Earnings per Share | ||
Earnings per Share |
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