XNAS:HELE Quarterly Report 10-Q Filing - 5/31/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

T

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

 

 

For the quarterly period ended May 31, 2012

 

 

or

 

 

£

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

 

 

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

 

Commission file number: 001-14669

 

 

HELEN OF TROY LIMITED

 

(Exact name of registrant as specified in its charter)

 

Bermuda

 

74-2692550

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

Clarenden House

Church Street

Hamilton, Bermuda

 

 

(Address of principal executive offices)

 

 

 

 

 

1 Helen of Troy Plaza

 

 

El Paso, Texas

 

79912

(Registrant’s United States Mailing Address)

 

(Zip Code)

 

(915) 225-8000

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer T

Accelerated filer £

 

 

Non-accelerated filer    £ (Do not check if a smaller reporting company)

Smaller reporting company £

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £      No T

 

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

 

Class

 

Outstanding at July 2, 2012

Common Shares, $0.10 par value, per share

 

31,736,452 shares

 


 



 

HELEN OF TROY LIMITED AND SUBSIDIARIES

 

INDEX – FORM 10-Q

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

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

3

 

 

 

 

 

 

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

4

 

 

 

 

 

 

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

5

 

 

 

 

 

 

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

6

 

 

 

 

 

 

Notes to Consolidated Condensed Financial Statements (unaudited)

7

 

 

 

 

 

Item 2.

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

19

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

30

 

 

 

 

 

Item 4.

Controls and Procedures

34

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

 

 

Item 1A.

Risk Factors

35

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

 

 

Item 6.

Exhibits

36

 

 

 

 

 

Signatures

37

 

- 2 -



 

PART I.   FINANCIAL INFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS

 

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (unaudited)

(in thousands, except shares and par value)

 

 

 

May 31,

 

February 29,

 

 

 

2012

 

2012

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Assets, current:

 

 

 

 

 

Cash and cash equivalents

 

$

20,880

 

$

21,846

 

Receivables - principally trade, less allowances of $5,153 and $5,541

 

188,264

 

195,283

 

Inventory, net

 

259,989

 

246,142

 

Prepaid expenses and other current assets

 

8,093

 

7,645

 

Deferred tax assets, net

 

14,724

 

17,620

 

Total assets, current

 

491,950

 

488,536

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $67,498 and $62,550

 

100,830

 

100,690

 

Goodwill

 

452,285

 

452,350

 

Other intangible assets, net of accumulated amortization of $57,800 and $52,268

 

371,709

 

377,150

 

Deferred tax assets, net

 

627

 

976

 

Other assets, net of accumulated amortization of $4,377 and $3,938

 

15,877

 

16,021

 

Total assets

 

$

1,433,278

 

$

1,435,723

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Liabilities, current:

 

 

 

 

 

Revolving line of credit

 

$

158,000

 

$

171,100

 

Accounts payable, principally trade

 

72,911

 

69,845

 

Accrued expenses and other current liabilities

 

113,451

 

131,632

 

Income taxes payable

 

498

 

352

 

Deferred tax liabilities, net

 

887

 

2,960

 

Long-term debt, current maturities

 

3,000

 

3,000

 

Total liabilities, current

 

348,747

 

378,889

 

 

 

 

 

 

 

Long-term debt, excluding current maturities

 

175,000

 

175,000

 

Deferred tax liabilities, net

 

58,261

 

60,576

 

Other liabilities, noncurrent

 

23,800

 

24,529

 

Total liabilities

 

605,808

 

638,994

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

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

 

-

 

-

 

Common stock, $0.10 par. Authorized 50,000,000 shares; 31,732,256 and 31,681,067 shares issued and outstanding

 

3,173

 

3,168

 

Additional paid in capital

 

157,615

 

151,006

 

Accumulated other comprehensive loss

 

(4,464

)

(5,589

)

Retained earnings

 

671,146

 

648,144

 

Total stockholders’ equity

 

827,470

 

796,729

 

Total liabilities and stockholders’ equity

 

$

1,433,278

 

$

1,435,723

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

- 3 -



 

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Income (unaudited)

(in thousands, except per share data)

                                               

 

 

 

Three Months Ended May 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Sales revenue, net

 

$

300,211

 

$

271,467

 

Cost of goods sold

 

179,063

 

161,554

 

Gross profit

 

121,148

 

109,913

 

 

 

 

 

 

 

Selling, general and administrative expense

 

90,000

 

79,259

 

Operating income

 

31,148

 

30,654

 

 

 

 

 

 

 

Nonoperating income (expense), net

 

23

 

143

 

Interest expense

 

(3,312

)

(3,429

)

Income before income taxes

 

27,859

 

27,368

 

 

 

 

 

 

 

Income tax expense:

 

 

 

 

 

Current

 

5,901

 

1,390

 

Deferred

 

(1,514

)

1,373

 

Net income

 

$

23,472

 

$

24,605

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic

 

$

0.74

 

$

0.80

 

Diluted

 

$

0.74

 

$

0.78

 

 

 

 

 

 

 

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

 

 

 

 

 

Basic

 

31,699

 

30,857

 

Diluted

 

31,840

 

31,660

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

- 4 -



 

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Comprehensive Income (unaudited)

(in thousands)

 

 

 

 

Three Months Ended May 31,

 

 

 

 

2012

 

2011

 

 

 

Before

 

 

 

Net of

 

Before

 

 

 

Net of

 

 

 

Tax

 

Tax

 

Tax

 

Tax

 

Tax

 

Tax

 

Net income

 

$

27,859

 

$

(4,387

)

$

23,472

 

$

27,368

 

$

(2,763

)

$

24,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

(44

)

15

 

(29

)

(2,442

)

1,111

 

(1,331

)

Interest rate settlements reclassified to income

 

926

 

(324

)

602

 

1,526

 

(695

)

831

 

Subtotal

 

882

 

(309

)

573

 

(916

)

416

 

(500

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - foreign currency

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

910

 

(318

)

592

 

(487

)

156

 

(331

)

Ineffectiveness recorded in income

 

(35

)

12

 

(23

)

63

 

(20

)

43

 

Settlements reclassified to income

 

(26

)

9

 

(17

)

144

 

(46

)

98

 

Subtotal

 

849

 

(297

)

552

 

(280

)

90

 

(190

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auction rate security activity

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

-

 

-

 

-

 

42

 

(22

)

20

 

Settlements reclassified to income

 

-

 

-

 

-

 

(120

)

63

 

(57

)

Subtotal

 

-

 

-

 

-

 

(78

)

41

 

(37

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

1,731

 

(606

)

1,125

 

(1,274

)

547

 

(727

)

Comprehensive income

 

$

29,590

 

$

(4,993

)

$

24,597

 

$

26,094

 

$

(2,216

)

$

23,878

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

- 5 -



 

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated  Condensed Statements of Cash Flows (unaudited)

(in thousands)

 

 

 

Three Months Ended May 31,

 

 

 

2012

 

2011

 

Cash provided (used) by operating activities:

 

 

 

 

 

Net income

 

$

23,472

 

$

24,605

 

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

 

 

 

 

 

Depreciation and amortization

 

9,100

 

7,094

 

Provision for doubtful receivables

 

(168

)

227

 

Share-based compensation

 

1,602

 

466

 

Gain on the sale of property and equipment

 

(4

)

(24

)

Realized and unrealized loss on investments

 

-

 

56

 

Deferred income taxes and tax credits

 

(1,804

)

1,373

 

Changes in operating capital:

 

 

 

 

 

Receivables

 

7,187

 

(8,634

)

Inventories

 

(13,742

)

(11,004

)

Prepaid expenses and other current assets

 

(675

)

(2,862

)

Other assets and liabilities, net

 

(779

)

(543

)

Accounts payable

 

3,066

 

4,224

 

Accrued expenses and other current liabilities

 

(18,206

)

(11,002

)

Accrued income taxes

 

(28

)

447

 

Net cash provided by operating activities

 

9,021

 

4,423

 

 

 

 

 

 

 

Cash provided (used) by investing activities:

 

 

 

 

 

Capital and intangible asset expenditures

 

(3,368

)

(2,036

)

Proceeds from the sale of property and equipment

 

7

 

24

 

Proceeds from note receivable related to land sale

 

737

 

-

 

Proceeds from sale of investments

 

-

 

3,050

 

Net cash provided (used) by investing activities

 

(2,624

)

1,038

 

 

 

 

 

 

 

Cash provided (used) by financing activities:

 

 

 

 

 

Proceeds from line of credit

 

59,950

 

142,700

 

Repayment of line of credit

 

(73,050

)

(160,500

)

Payments of financing costs

 

(28

)

(24

)

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

 

5,537

 

1,182

 

Directors’ stock repurchased

 

(37

)

-

 

Share-based compensation tax benefit

 

265

 

25

 

Net cash used by financing activities

 

(7,363

)

(16,617

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(966

)

(11,156

)

Cash and cash equivalents, beginning balance

 

21,846

 

27,193

 

Cash and cash equivalents, ending balance

 

$

20,880

 

$

16,037

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

- 6 -



 

HELEN OF TROY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)

May 31, 2012

 

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

 

The accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly our consolidated financial position as of May 31, 2012 and February 29, 2012, and the results of our consolidated operations for the three month periods ended May 31, 2012 and 2011. We follow the same accounting policies when preparing quarterly financial data as we use for preparing annual data. These statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K for the fiscal year ended February 29, 2012, and our other reports on file with the Securities and Exchange Commission (“SEC”).

 

In this report and the accompanying consolidated condensed financial statements and notes, unless the context suggests otherwise or otherwise indicated, references to “the Company,” “our Company,” “Helen of Troy,” “we,” “us,” or “our” refer to Helen of Troy Limited and its subsidiaries, and amounts are expressed in thousands of U.S. Dollars.  We refer to the Company’s common shares, par value $0.10 per share, as “common stock.” References to “Kaz” refer to the operations of Kaz, Inc. and its subsidiaries.  References to “PUR” refer to the PUR brand of water filtration products that we acquired, along with certain other assets and liabilities, from The Procter & Gamble Company and certain of its affiliates on December 30, 2011. Kaz and PUR comprise a segment within the Company referred to as the Healthcare / Home Environment segment.  References to “OXO” refer to the operations of OXO International and certain of its affiliated subsidiaries that comprise our Housewares segment. Product and service names mentioned in this report are used for identification purposes only and may be protected by trademarks, trade names, services marks, and/or other intellectual property rights of the Company and/or other parties in the United States and/or other jurisdictions. The absence of a specific attribution in connection with any such mark does not constitute a waiver of any such right. All trademarks, trade names, service marks, and logos referenced herein belong to their owners.  References to “the FASB” refer to the Financial Accounting Standards Board. References to “GAAP” refer to U.S. generally accepted accounting principles. References to “ASC” refer to the codification of U.S. GAAP in the Accounting Standards Codification issued by the FASB.

 

We are a global designer, developer, importer, marketer, and distributor of an expanding portfolio of brand-name consumer products. We have three segments: Personal Care, Housewares and Healthcare / Home Environment. Our Personal Care segment’s products include electric hair care, beauty care and wellness appliances; grooming tools and accessories; and liquid, solid- and powder-based personal care and grooming products. Our Housewares segment provides a broad range of innovative consumer products for the home. Product offerings include food preparation and storage, cleaning, organization, and baby and toddler care products. The Healthcare / Home Environment segment focuses on health care devices such as thermometers, blood pressure monitors, humidifiers, and heating pads; water filtration systems; and small home appliances such as air purifiers, portable heaters, fans, and bug zappers. All three segments sell their products primarily through mass merchandisers, drugstore chains, warehouse clubs, catalogs, grocery stores, and specialty stores. In addition, the Personal Care segment sells extensively through beauty supply retailers and wholesalers, and the Healthcare / Home Environment segment sells certain of its product lines through medical distributors and other products through home improvement stores. We purchase our products from unaffiliated manufacturers, most of which are located in China, Mexico and the United States.

 

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

 

- 7 -



 

Note 2 – New Accounting Pronouncements

 

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

 

Note 3 – Commitments and Contingencies

 

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

 

Notes (7), (9), (10), (11), and (14) provide additional information regarding certain of our significant long-term commitments and certain significant contingencies we have provided for in the accompanying consolidated condensed financial statements.

 

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

 

ACCRUAL FOR WARRANTY RETURNS

(in thousands)

 

 

 

Three Months Ended May 31,

 

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Beginning balance

 

$

26,665

 

$

24,021

 

Additions to the accrual

 

6,874

 

7,110

 

Reductions of the accrual - payments and credits issued

 

(10,226

)

(6,762

)

Ending balance

 

$

23,313

 

$

24,369

 

 

Note 4 – Earnings per Share

 

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

 

WEIGHTED AVERAGE DILUTED SECURITIES

(in thousands)

 

 

 

Three Months Ended May 31,

 

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

31,699

 

30,857

 

Incremental shares of common stock attributable to share-based payment arrangements

 

141

 

803

 

Weighted average shares outstanding, diluted

 

31,840

 

31,660

 

 

 

 

 

 

 

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

 

423

 

2,338

 

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

 

625

 

407

 

 

- 8 -



 

Note 5 – Segment Information

 

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

 

THREE MONTHS ENDED MAY 31, 2012 AND 2011

(in thousands)

 

 

Personal

 

 

 

Healthcare / Home

 

 

 

May 31, 2012

 

Care

 

Housewares

 

Environment

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

117,552

 

$

60,249

 

$

122,410

 

$

300,211

 

Operating income

 

11,880

 

11,277

 

7,991

 

31,148

 

Capital and intangible asset expenditures

 

2,255

 

191

 

922

 

3,368

 

Depreciation and amortization

 

3,267

 

1,298

 

4,535

 

9,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Healthcare / Home

 

 

 

May 31, 2011

 

Care

 

Housewares

 

Environment

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

122,718

 

$

52,946

 

$

95,803

 

$

271,467

 

Operating income (loss)

 

19,852

 

10,865

 

(63

)

30,654

 

Capital and intangible asset expenditures

 

897

 

580

 

559

 

2,036

 

Depreciation and amortization

 

2,661

 

1,441

 

2,992

 

7,094

 

 

We compute operating income for each segment based on net sales revenue, less cost of goods sold, selling, general and administrative expense (“SG&A”), and any impairment charges associated with the segment. SG&A used to compute each segment’s operating income is directly associated with the segment, plus overhead expenses allocable to the segment.  We make allocations of overhead between operating segments using a number of relevant allocation criteria, depending on the nature of the expense, the most significant of which are relative revenues, estimates of relative labor expenditures, headcount, and facilities square footage.  In fiscal 2013, we began making certain additional cost allocations to the Healthcare / Home Environment segment that were not made in fiscal 2012.  These allocations are costs of corporate and operating functions that are shared by our segments.   We made this change because we now have a complete fiscal year’s operating experience with the Healthcare / Home Environment segment.  In the past year we have integrated certain of the segment’s corporate and operating functions that were redundant. For the three month period ended May 31, 2012, the allocation totaled $4.12 million compared to $1.50 million for the same period last year.  We do not allocate nonoperating income and expense, interest or income taxes to operating segments.

 

Note 6 – Comprehensive Income (Loss)

 

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

 

COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS

(in thousands)

 

 

May 31,

 

February 29,

 

 

 

2012

 

2012

 

 

 

 

 

 

 

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

 

$

(4,986

)

$

(5,559

)

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

 

522

 

(30

)

Total accumulated other comprehensive loss

 

$

(4,464

)

$

(5,589

)

 

(1) Includes net deferred tax benefits of $2.68 and $2.99 million at May 31, 2012 and February 29, 2012, respectively.

 

(2) Includes net deferred tax benefits (liabilities) of ($0.28) and $0.02 million at May 31, 2012 and February 29, 2012, respectively.

 

- 9 -



 

Note 7 – Supplemental Balance Sheet Information

 

PROPERTY AND EQUIPMENT

(in thousands)

 

 

Estimated

 

 

 

 

 

 

 

Useful Lives

 

May 31,

 

February 29,

 

 

 

(Years)

 

2012

 

2012

 

 

 

 

 

 

 

 

 

Land

 

-

 

$

8,767

 

$

8,767

 

Building and improvements

 

3 - 40

 

66,953

 

66,580

 

Computer, furniture and other equipment

 

3 - 15

 

57,475

 

56,162

 

Tools, molds and other production equipment

 

1 - 10

 

30,165

 

25,617

 

Construction in progress

 

-

 

4,968

 

6,114

 

Property and equipment, gross

 

 

 

168,328

 

163,240

 

Less accumulated depreciation

 

 

 

(67,498

)

(62,550

)

Property and equipment, net

 

 

 

$

100,830

 

$

100,690

 

 

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

(in thousands)

 

 

May 31,

 

February 29,

 

 

 

2012

 

2012

 

 

 

 

 

 

 

Accrued sales returns, discounts and allowances

 

$

27,885

 

$

29,481

 

Accrued warranty returns

 

23,313

 

26,665

 

Accrued compensation, benefits and payroll taxes

 

16,673

 

31,754

 

Accrued advertising

 

9,865

 

7,849

 

Accrued royalties

 

6,059

 

6,990

 

Accrued property, sales and other taxes

 

6,012

 

5,745

 

Accrued legal expenses and professional fees

 

5,482

 

5,364

 

Derivative liabilities

 

3,464

 

3,694

 

Other

 

14,698

 

14,090

 

Total accrued expenses and other current liabilities

 

$

113,451

 

$

131,632

 

 

OTHER LIABILITIES, NONCURRENT

(in thousands)

 

 

May 31,

 

February 29,

 

 

 

2012

 

2012

 

 

 

 

 

 

 

Deferred compensation liability

 

$

4,648

 

$

4,478

 

Liability for uncertain tax positions

 

13,284

 

13,213

 

Derivative liabilities

 

4,207

 

5,022

 

Other liabilites

 

1,661

 

1,816

 

Total other liabilities, noncurrent

 

$

23,800

 

$

24,529

 

 

- 10 -



 

Note 8 – Goodwill and Intangible Assets

 

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

 

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

 

GOODWILL AND INTANGIBLE ASSETS

(in thousands)

 

 

 

May 31, 2012

 

 

February 29, 2012

 

 

 

Gross

 

Cumulative

 

 

 

 

 

 

Gross

 

Cumulative

 

 

 

 

 

 

 

Carrying

 

Goodwill

 

Accumulated

 

Net Book

 

 

Carrying

 

Goodwill

 

Accumulated

 

Net Book

 

Description

 

Amount

 

Impairments

 

Amortization

 

Value

 

 

Amount

 

Impairments

 

Amortization

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Care:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

81,842

 

$

(46,490

)

$

-

 

$

35,352

 

 

$

81,842

 

$

(46,490

)

$

-

 

$

35,352

 

Trademarks - indefinite

 

75,303

 

-

 

-

 

75,303

 

 

75,303

 

-

 

-

 

75,303

 

Trademarks - finite

 

150

 

-

 

(68

)

82

 

 

150

 

-

 

(67

)

83

 

Licenses - indefinite

 

10,300

 

-

 

-

 

10,300

 

 

10,300

 

-

 

-

 

10,300

 

Licenses - finite

 

19,564

 

-

 

(16,097

)

3,467

 

 

19,564

 

-

 

(15,967

)

3,597

 

Other intangibles - finite

 

49,437

 

-

 

(16,505

)

32,932

 

 

49,437

 

-

 

(15,012

)

34,425

 

Total Personal Care

 

236,596

 

(46,490

)

(32,670

)

157,436

 

 

236,596

 

(46,490

)

(31,046

)

159,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Housewares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

166,131

 

-

 

-

 

166,131

 

 

166,131

 

-

 

-

 

166,131

 

Trademarks - indefinite

 

75,200

 

-

 

-

 

75,200

 

 

75,200

 

-

 

-

 

75,200

 

Other intangibles - finite

 

15,765

 

-

 

(9,289

)

6,476

 

 

15,774

 

-

 

(9,000

)

6,774

 

Total Housewares

 

257,096

 

-

 

(9,289

)

247,807

 

 

257,105

 

-

 

(9,000

)

248,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare / Home Environment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

250,802

 

-

 

-

 

250,802

 

 

250,867

 

-

 

-

 

250,867

 

Trademarks - indefinite

 

54,000

 

-

 

-

 

54,000

 

 

54,000

 

-

 

-

 

54,000

 

Licenses - finite

 

15,300

 

-

 

(1,234

)

14,066

 

 

14,900

 

-

 

(481

)

14,419

 

Other Intangibles - finite

 

114,490

 

-

 

(14,607

)

99,883

 

 

114,790

 

-

 

(11,741

)

103,049

 

Total Healthcare / Home Environment

 

434,592

 

-

 

(15,841

)

418,751

 

 

434,557

 

-

 

(12,222

)

422,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

928,284

 

$

(46,490

)

$

(57,800

)

$

823,994

 

 

$

928,258

 

$

(46,490

)

$

(52,268

)

$

829,500

 

 

 

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

 

AMORTIZATION OF INTANGIBLE ASSETS

 

 

 

(in thousands)

 

 

 

Aggregate Amortization Expense

 

 

 

For the three months ended

 

 

 

 

 

 

 

May 31, 2012

 

$

5,636

 

May 31, 2011

 

$

4,557

 

 

 

 

 

Estimated Amortization Expense

 

 

 

For the fiscal years ended

 

 

 

 

 

 

 

February 2013

 

$

22,190

 

February 2014

 

$

21,509

 

February 2015

 

$

20,945

 

February 2016

 

$

20,761

 

February 2017

 

$

20,423

 

February 2018

 

$

16,599

 

 

- 11 -



 

NOTE 9 - Acquisitions

 

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

 

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

 

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

 

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

 

PUR - NET ASSETS ACQUIRED ON DECEMBER 30, 2011

 

(in thousands)

 

 

 

 

 

 

 

Supplier tooling advances

 

$

1,432

 

Tools, dies, molds and other production equipment

 

12,495

 

Goodwill

 

86,162

 

Trademarks

 

54,000

 

Trademark and technology licensing agreements

 

14,900

 

Patents

 

4,140

 

Customer list

 

18,600

 

Covenant not to compete

 

200

 

Total assets acquired

 

191,929

 

Less: Deferred tax liabilities recorded at acquisition

 

(31,929

)

Net assets acquired

 

$

160,000

 

 

We estimated the fair values of the PUR assets acquired by applying income and market approaches. The fair value measurement of the intangible assets is based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements.  Key assumptions included various discount rates based upon a 15.20 percent weighted average cost of capital, a royalty rate of 7.0 percent used to determine the trademark fair value, royalty rates of 0.50 to 1.00 percent used to determine patent estate values, and customer attrition rates of 5.00 percent per year used to determine customer list value.

 

- 12 -



 

Note 10 – Debt

 

Revolving Line of Credit - We have a Credit Agreement (the “2010 RCA”) with Bank of America, N.A. that provides for an unsecured total revolving commitment of up to $250.00 million. The commitment under the 2010 RCA terminates on December 30, 2015.  Borrowings accrue interest under one of two alternative methods as described in the 2010 RCA.  We also incur loan commitment fees and letter of credit fees under the 2010 RCA.  Outstanding letters of credit reduce the borrowing availability under the 2010 RCA on a dollar-for-dollar basis.  As of May 31, 2012, the outstanding revolving loan principal balance was $158.00 million and there were $0.35 million of open letters of credit outstanding against the 2010 RCA. For the three months ended May 31, 2012 and May 31, 2011, borrowings under the 2010 RCA incurred interest charges at rates ranging from 1.61 to 4.00 percent and 1.95 to 4.00 percent, respectively. As of May 31, 2012, the amount available for borrowings under the 2010 RCA was $91.65 million.

 

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

 

LONG-TERM DEBT

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Original

 

 

 

 

 

 

 

 

 

 

 

Date

 

Interest

 

 

 

May 31,

 

February 29,

 

 

 

Borrowed

 

Rates

 

Matures

 

2012

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

07/97

 

7.24%

 

07/12

 

$

3,000

 

$

3,000

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

06/04

 

6.01%

 

06/14

 

75,000

 

75,000

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

01/11

 

3.90%

 

01/18

 

100,000

 

100,000

 

Total long-term debt

 

 

 

 

 

 

 

178,000

 

178,000

 

Less current maturities of long-term debt

 

 

 

 

 

 

 

(3,000

)

(3,000

)

Long-term debt, excluding current maturities

 

 

 

 

 

 

 

$

175,000

 

$

175,000

 

 

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

 

The fair market value of the fixed rate debt at May 31, 2012 computed using a discounted cash flow analysis was $104.43 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 May 31, 2012.

 

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

 

As of May 31, 2012, our debt agreements effectively limited our ability to incur more than $251.80 million of additional debt from all sources, including draws on the 2010 RCA. As of May 31, 2012, we were in compliance with the terms of all of our debt agreements.

 

- 13 -



 

Note 11 – Fair Value

 

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

 

FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Quoted Prices in

 

Significant Other

 

 

 

 

 

Active Markets

 

Observable

 

 

 

Fair Values at

 

for Identical Assets

 

Market Inputs

 

Description

 

May 31, 2012

 

(Level 1)

 

(Level 2)

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Money market accounts

 

$

1,431

 

$

1,431

 

$

-

 

Foreign currency contracts

 

382

 

-

 

382

 

Total assets

 

$

1,813

 

$

1,431

 

$

382

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Long-term debt - fixed rate (1)

 

$

104,430

 

$

-

 

$

104,430

 

Long-term debt - floating rate

 

75,000

 

-

 

75,000

 

Interest rate swap

 

7,671

 

-

 

7,671

 

Total liabilities

 

$

187,101

 

$

-

 

$

187,101

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted Prices in

 

Significant Other

 

 

 

 

 

Active Markets

 

Observable

 

 

 

Fair Values at

 

for Identical Assets

 

Market Inputs

 

Description

 

February 29, 2012

 

(Level 1)

 

(Level 2)

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Money market accounts

 

$

801

 

$

801

 

$

-

 

Note receivable (1)

 

737

 

-

 

737

 

Total assets

 

$

1,538

 

$

801

 

$

737

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Long-term debt - fixed rate (1)

 

$

104,450

 

$

-

 

$

104,450

 

Long-term debt - floating rate

 

75,000

 

-

 

75,000

 

Interest rate swap

 

8,553

 

-

 

8,553

 

Foreign currency contracts

 

163

 

-

 

163

 

Total liabilities

 

$

188,166

 

$

-

 

$

188,166

 

 

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

 

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

 

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

 

We classify our note receivable, fixed and floating rate debt as Level 2 liabilities because the estimation of the fair market value of these financial assets requires the use of a discount rate based upon current market rates of interest for debt with comparable remaining terms. Such comparable rates are significant other observable market inputs. The fair market value of the note receivable was computed using a discounted cash flow analysis and a discount rate of 6.95 percent at February 29, 2012. The fair market value of the fixed rate debt was computed using a discounted cash flow analysis and discount rates, ranging from 0.29 to 3.50 percent at May 31, 2012 and

 

- 14 -



 

0.54 to 3.54 percent at February 29, 2012, 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 an interest rate swap. We determine the fair value of our derivative instruments based on Level 2 inputs in the fair value hierarchy.

 

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

 

Note 12 – Financial Instruments and Risk Management

 

Foreign Currency Risk - Our functional currency is the U.S. Dollar. By operating internationally, we are subject to foreign currency risk from transactions denominated in currencies other than the U.S. Dollar (“foreign currencies”).  Such transactions include sales, certain inventory purchases and operating expenses. As a result of such transactions, portions of our cash, trade accounts receivable and trade accounts payable are denominated in foreign currencies.  During the three month periods ended May 31, 2012 and 2011, approximately 17 and 20 percent, respectively, of our net sales revenue was 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. We make most of our inventory purchases from the Far East and use the U.S. Dollar for such purchases.  In our consolidated condensed statements of income, exchange gains and losses resulting from the remeasurement of foreign taxes receivable, taxes payable, deferred tax assets, and deferred tax liabilities, are recognized in their respective income tax lines, and all other foreign exchange gains and losses from remeasurement are recognized in SG&A.  For the three month periods ended May 31, 2012 and 2011, we recorded net foreign exchange gains (losses), including the impact of currency hedges, of ($0.94) and ($0.15) million, respectively, in SG&A and $0.19 and ($0.04) million, respectively, in income tax expense.

 

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

 

Interest Rate Risk – Interest on our outstanding debt as of May 31, 2012 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 $158.00 million in advances against our 2010 RCA and $75.00 million of Senior Notes due June 2014.  If short-term interest rates increase, we will incur higher interest rates on any outstanding balances under the 2010 RCA. The floating rate Senior Notes due June 2014 reset as described in Note 10, and have been effectively converted to fixed rate debt using an interest rate swap (the “swap”), as described below.

 

We manage our floating rate debt using an interest rate swap.  As of May 31, 2012, the swap converted an aggregate notional principal amount of $75.00 million from floating interest rate payments under our Senior Notes due June 2014 to fixed interest rate payments at 6.01 percent.  In the swap transaction, we maintain contracts to pay fixed rates of interest on an aggregate notional principal amount of $75.00 million at a rate of 5.11 percent on our Senior Notes due June 2014, while simultaneously receiving floating rate interest payments set at 0.47 percent as of May 31, 2012 on the same notional amounts.  The fixed rate side of the swap will not change over its life.  The floating rate payments are reset quarterly based on three-month LIBOR.  The resets are concurrent with the interest payments made on the underlying debt. Changes in the spread between the fixed rate payment side of the swap and the floating rate receipt side of the swap offset 100 percent of the change in any period of the underlying debt’s floating rate payments.  The swap is used to reduce our risk of increased interest costs; however, when interest rates drop significantly below the swap rate, we lose the benefit that our floating rate debt would provide, if not managed with a swap. The swap is considered 100 percent effective.

 

- 15 -


 


 

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

 

FAIR VALUES OF DERIVATIVE INSTRUMENTS

 

(in thousands)

 

May 31, 2012

 

 

 

 

 

 

 

 

Prepaid

 

Accrued

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

Expenses

 

 

 

 

 

 

 

Final

 

 

 

and Other

 

and Other

 

Other

 

 

 

 

 

Settlement

 

Notional

 

Current

 

Current

 

Liabilities,

 

Designated as hedging instruments

 

Hedge Type

 

Date

 

Amount

 

Assets

 

Liabilities

 

Noncurrent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts - sell Canadian

 

Cash flow

 

12/2012

 

$

7,000

 

$

120

 

$

-    

 

$

-    

 

Foreign currency contracts - sell Pounds

 

Cash flow

 

2/2013

 

£

5,750

 

262

 

-    

 

-    

 

Subtotal

 

 

 

 

 

 

 

382

 

-    

 

-    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap

 

Cash flow

 

6/2014

 

$

75,000

 

-

 

3,464

 

4,207

 

Total fair value

 

 

 

 

 

 

 

 

$

382

 

$

3,464

 

$

4,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 29, 2012

 

 

 

 

 

 

 

 

Prepaid

 

Accrued

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

Expenses

 

 

 

 

 

 

 

Final

 

 

 

and Other

 

and Other

 

Other

 

 

 

 

 

Settlement

 

Notional

 

Current

 

Current

 

Liabilities,

 

Designated as hedging instruments

 

Hedge Type

 

Date

 

Amount

 

Assets

 

Liabilities

 

Noncurrent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts - sell Canadian

 

Cash flow

 

12/2012

 

$

7,000

 

$

-    

 

$

163

 

$

-    

 

Interest rate swap

 

Cash flow

 

6/2014

 

$

75,000

 

-    

 

3,531

 

5,022

 

Total fair value

 

 

 

 

 

 

 

$

-    

 

$

3,694

 

$

5,022

 

 

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

 

PRE-TAX EFFECT OF DERIVATIVE INSTRUMENTS

 

(in thousands)

 

 

 

Three Months Ended May 31,

 

 

 

Gain \ (Loss)

 

Gain \ (Loss) Reclassified

 

 

 

 

 

 

 

 

 

Recognized in OCI

 

from Accumulated Other

 

Gain \ (Loss) Recognized

 

 

 

(effective portion)

 

Comprehensive Loss into Income

 

as Income (1)

 

 

 

2012

 

2011

 

Location

 

2012

 

2011

 

Location

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency contracts - ordinary and cash flow hedges

 

$

910

 

$

(487

)

SG&A

 

$

26

 

$

(144

)

SG&A

 

$

35

 

$

(63

)

Interest rate swaps - cash flow hedges

 

(44

)

(2,442

)

Interest expense

 

(926

)

(1,526

)

 

 

-    

 

-    

 

Total

 

$

866

 

$

(2,929

)

 

 

$

(900

)

$

(1,670

)

 

 

$

35

 

$

(63

)

 

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

 

We expect gains of $0.38 million associated with foreign currency contracts and losses of $3.46 million associated with our interest rate swap, currently reported in accumulated other comprehensive loss, to be reclassified into income over the next twelve months. The amount ultimately realized, however, will differ as exchange rates and interest rates change and the underlying contracts settle.

 

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

 

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Note 13 – Repurchase of Helen of Troy Common Stock

 

As of May 31, 2012, we are authorized by our Board of Directors to purchase up to 3,022,788 shares of common stock in the open market or through private transactions.  Our current equity compensation plans include provisions that allow for the “cashless exercise” of stock options by all plan participants. In a cashless exercise, any required payroll taxes, federal withholding taxes and exercise price of the shares due from the option holder can be paid for by having the option holder tender back to the Company a number of shares at fair value equal to the amounts due. Cashless exercises are accounted for by the Company as a purchase and retirement of shares.

 

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

 

SHARE REPURCHASES

 

 

Three Months Ended May 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Value of common stock received as exercise price of options

 

 

 

 

 

Number of shares

 

44,444

 

26,183

 

Aggregate market value of shares (in thousands)

 

  $

1,476

 

$

837

 

Average price per share

 

  $

33.20

 

$

31.98

 

 

 

 

 

 

 

Value of common stock received from director stock compensation activity

 

 

 

 

 

Number of shares

 

1,122

 

-

 

Aggregate market value of shares (in thousands)

 

  $

37

 

$

-

 

Average price per share

 

  $

32.88

 

$

-

 

 

Note 14 – Share-Based Compensation Plans

 

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

 

During the fiscal quarter ended May 31, 2012, the Company granted options to purchase 301,000 shares of common stock at exercise prices ranging from $32.52 to $34.72 per share to certain of our officers, employees and new hires.  The fair value of the options were estimated using the Black-Scholes option pricing model to estimate fair values ranging from $13.16 to $14.57 for grants with terms of four and five years.  The following assumptions were used for the grants: expected lives ranging from 4.05 to 4.35 years; risk free interest rates ranging from  0.61 to 0.86  percent; zero dividend yield; and expected volatilities ranging from 50.95 to 52.48 percent.

 

On March 1, 2012, the Company granted 3,750 shares of restricted stock to certain board members, having fair values at the date of grant of $32.88 per share for a total value granted of $0.12 million. The restricted stock awards vested immediately and were valued at the fair value of the Company’s common stock at the date of the grant.

 

On March 1, 2012, under the terms of his employment agreement, our Chief Executive Officer and President was granted 700,000 restricted stock units (the “Performance RSUs”), which may be earned in tranches based on the Company’s achievement of specified performance goals for fiscal years 2013, 2014 and 2015.  Any earned Performance RSUs are subject to additional time-based vesting requirements. Up to 100,000 and 200,000 Performance RSUs may be earned based on the Company’s achievement of the specified performance goals for fiscal years 2013 and 2014, respectively.  Up to 700,000 Performance RSUs (less the number of Performance RSUs previously earned, if any) may be earned based on the Company’s achievement of either the specified performance goal for fiscal year 2015 or the three year average performance goal for fiscal years 2013 through 2015.  The Performance RSUs had a fair value at the date of grant of $32.88 per share for a grant date fair value of  $23.02 million.  Compensation expense associated with

 

- 17 -



 

Performance RSUs is equal to the market value of our common stock on the date of the grant multiplied by the number of Performance RSUs vesting during any given period.  Expense for each tranche must be estimated until earned, subject to a probability assessment of achieving the performance criteria specified for the tranche. We are recording the expense for each tranche over the related service periods.

 

During the fiscal quarter ended May 31, 2012, employees exercised stock options to purchase 93,005 shares of common stock.

 

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

 

SHARE-BASED PAYMENT EXPENSE

(in thousands, except per share data)

 

 

Three Months Ended May 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Stock options

 

 $

547

 

$

466

 

Directors stock compensation

 

123

 

-    

 

Performance based restricted stock awards and units

 

932

 

-    

 

Share-based payment expense

 

1,602

 

466

 

Less income tax benefits

 

(265

)

(25

)

Share-based payment expense, net of income tax benefits

 

 $

1,337

 

$

441

 

 

 

 

 

 

 

Earnings per share impact of share based payment expense:

 

 

 

 

 

Basic

 

 $

0.04

 

$

0.01

 

Diluted

 

 $

0.04

 

$

0.01

 

 

- 18 -



 

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

 

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

 

OVERVIEW OF THE QUARTER’S RESULTS:

 

U.S. and global macroeconomic conditions continue to fuel consumer uncertainty.  Over our latest fiscal quarter, domestic and global economic indicators have signaled a slowing of the domestic economic recovery, parts of the Euro zone slipping back into recession and weakening overall world economic growth.  While gasoline prices have declined off recent highs and housing markets have stopped their downward trend in most major domestic markets, consumers are pulling back on discretionary purchases as evidenced by a decline in reported U.S. retail sales in April and May (after adjusting for declining gasoline prices).  Industrial production, exports and consumer confidence have declined