-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FM2BeuEaQzEKKdB0XYTKUUzZJG/K3h6QM0xEYBHmRtbo2HTIhxb5QtvvSmDZyu+b +Q0nepr7xLz3KTy6167QrA== 0000950134-98-008105.txt : 19981016 0000950134-98-008105.hdr.sgml : 19981016 ACCESSION NUMBER: 0000950134-98-008105 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981015 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HELEN OF TROY LTD CENTRAL INDEX KEY: 0000916789 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC HOUSEWARES & FANS [3634] IRS NUMBER: 742692550 FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23312 FILM NUMBER: 98725853 BUSINESS ADDRESS: STREET 1: 6827 MARKET AVE CITY: EL PASO STATE: TX ZIP: 79915 BUSINESS PHONE: 9157796363 MAIL ADDRESS: STREET 1: 6827 MARKET AVE CITY: EL PASO STATE: TX ZIP: 79915 10-Q 1 FORM 10-Q FOR QUARTER ENDED AUGUST 31, 1998 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 1998 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 0-23312 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.) 6827 Market Avenue El Paso, TX 79915 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (915) 779-6363 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of October 12, 1998 there were 28,691,972 shares of Common Stock, $.10 Par Value, outstanding. 2 HELEN OF TROY LIMITED AND SUBSIDIARIES INDEX
Page No. PART I. FINANCIAL INFORMATION Item 1 Consolidated Condensed Balance Sheets as of August 31, 1998 and February 28, 1998.........................................................................3 Consolidated Condensed Statements of Income for the Three and Six Months Ended August 31, 1998 and August 31, 1997...........................................................................5 Consolidated Condensed Statements of Cash Flows for the Six Months Ended August 31, 1998 and August 31, 1997...........................................................................6 Notes to Consolidated Condensed Financial Statements......................................................................8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................................9 PART II. OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders................................................12 Item 5 Other Information..................................................................................13 Item 6 Exhibits and Reports on Form 8-K...................................................................13 SIGNATURES...................................................................................................................14
2 3 PART I. FINANCIAL INFORMATION HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except par value and shares)
August 31, February 28, 1998 1998 ---------- ------------ (unaudited) Assets Current assets: Cash and cash equivalents $ 24,450 $ 55,670 Receivables - principally trade, less allowance for doubtful receivables of $606 at August 31, 1998 and $568 at February 28, 1998 56,581 44,569 Inventories 99,850 71,357 Prepaid expenses 7,835 3,802 Deferred income tax benefits 1,961 1,522 -------- -------- Total current assets 190,677 176,920 Property and equipment net of accumulated depreciation of $5,921 at August 31, 1998 and $4,892 at February 28, 1998 33,329 26,255 License agreements, at cost, less accumulated amortization of $8,577 at August 31, 1998 and $8,068 at February 28, 1998 8,475 8,984 Other assets, net of amortization 19,628 15,401 -------- -------- Total assets $252,109 $227,560 ======== ========
3 4 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except par value and shares)
August 31, February 28, 1998 1998 ---------- ------------ (unaudited) Liabilities and Stockholders' Equity Current liabilities: Notes payable $ 10,000 $ -- Accounts payable, principally trade 875 1,430 Accrued expenses: Advertising and promotional 7,859 4,599 Other 8,086 7,389 Income taxes payable 8,145 9,208 -------- -------- Total current liabilities 34,965 22,626 Long-term debt 55,450 55,450 -------- -------- Total liabilities 90,415 78,076 Stockholders' equity: Cumulative preferred stock, non-voting, $1.00 par value. Authorized 2,000,000 shares; none issued -- -- Common stock, $.10 par value Authorized 50,000,000 shares; issued and outstanding 27,961,428 shares at August 31, 1998 and 27,281,242 shares at February 28, 1998 2,796 2,728 Additional paid-in-capital 31,661 31,899 Retained earnings 127,237 114,857 -------- -------- Total stockholders' equity 161,694 149,484 Commitments and contingencies (Note 2) -- -- Total liabilities and stockholders' equity $252,109 $227,560 ======== ========
See accompanying notes to consolidated condensed financial statements. 4 5 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited) (in thousands, except shares and earnings per share)
Three Months Ended Six Months Ended August 31, August 31, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Net sales $ 72,162 $ 60,929 $ 136,298 $ 113,356 Cost of sales 43,467 37,666 82,614 70,303 ------------ ------------ ------------ ------------ Gross profit 28,695 23,263 53,684 43,053 Selling, general and administrative expenses 19,016 15,537 37,812 30,460 ------------ ------------ ------------ ------------ Operating income 9,679 7,726 15,872 12,593 Other income (expense): Interest expense (852) (846) (1,764) (1,558) Other income, net 603 729 1,367 1,157 ------------ ------------ ------------ ------------ Total other income (expense) (249) (117) (397) (401) ------------ ------------ ------------ ------------ Earnings before income taxes 9,430 7,609 15,475 12,192 Income tax expense (benefit): Current 2,136 1,760 3,534 2,676 Deferred (250) (48) (439) 67 ------------ ------------ ------------ ------------ Net earnings $ 7,544 $ 5,897 $ 12,380 $ 9,449 ============ ============ ============ ============ Earnings per share Basic $ .27 $ .22 $ .45 $ .36 Diluted .26 .21 .42 .33 Weighted average number of common and common equivalent shares used in computing earnings per share - Basic 27,880,371 26,706,646 27,713,194 26,539,480 Diluted 29,416,613 28,728,096 29,273,890 28,572,212
See accompanying notes to consolidated condensed financial statements. 5 6 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited, in thousands)
Six Months Ended August 31, 1998 1997 -------- -------- Cash flows from operating activities: Net earnings $ 12,380 $ 9,449 Adjustments to reconcile net income to net cash provided/(used) by operating activities: Depreciation and amortization 2,190 1,893 Provision for doubtful receivables 38 84 Provision for deferred taxes, net (439) 66 Gain on sale of assets -- (282) Changes in operating assets and liabilities: Accounts receivable (12,050) (13,140) Inventory (28,493) 3,597 Prepaid expenses (4,033) (2,250) Accounts payable (555) (1,859) Accrued expenses 3,957 3,594 Income taxes payable (1,063) 2,831 -------- -------- Net cash provided/(used) by operating activities (28,068) 3,983 Cash flows from investing activities: Capital and license expenditures (7,838) (1,587) Proceeds from sale of assets -- 1,678 Other assets (5,144) (3,591) Collection on note receivable -- 234 -------- -------- Net cash used by investing activities (12,982) (3,266)
6 7 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited, in thousands)
Six Months Ended August 31, 1998 1997 -------- -------- Cash flows from financing activities: Net borrowings (payments) on revolving line of credit 10,000 (4,001) Proceeds from long-term debt -- 15,000 Exercise of stock options including related tax benefits (170) 2,950 -------- -------- Net cash provided by financing activities 9,830 13,949 -------- -------- Net increase/(decrease) in cash and cash equivalents (31,220) 14,666 -------- -------- Cash and cash equivalents, beginning of period 55,670 25,798 -------- -------- Cash and cash equivalents, end of period $ 24,450 $ 40,464 ======== ======== Supplemental cash flow disclosures: Interest paid $ 1,964 $ 1,448 Income tax (refund, net of payments)/taxes paid -- (213)
See accompanying notes to consolidated condensed financial statements. (Continued) 7 8 HELEN OF TROY LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS August 31, 1998 Note 1 - In the opinion of the Company, the accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its financial condition as of August 31, 1998 and February 28, 1998 and the results of its operations for the periods ended August 31, 1998 and 1997. While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these statements be read in conjunction with the financial statements and the notes included in the Company's latest annual report on Form 10-K. Note 2 - The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of such claims and legal actions will not have a material adverse effect on the financial position of the Company. Note 3 - Basic earnings per share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed based upon the weighted average number of common shares plus the effects of dilutive securities. The number of dilutive securities was 1,536,242 and 2,021,450, respectively, for the three months ended August 31, 1998 and 1997, and 1,560,696 and 2,032,732, respectively, for the six months ended August 31, 1998 and 1997. All potentially dilutive securities are included in the calculations of diluted earnings per share. Note 4 - On September 25, 1998, the Company acquired 100% of the stock of Karina, Inc., a New Jersey corporation. Karina develops, designs and markets basic and fashion hair accessories, brushes, combs, and various personal care implements. In exchange for the stock of Karina, the Company issued 691,760 shares of its Common Stock to Karina's shareholders. The Company will report this acquisition using the purchase method of accounting. As of and for the fiscal year ended May 31, 1998, its most recent fiscal year-end, Karina's unaudited financial statements reflected total assets and net revenues of $4,786,000 and $14,201,000, respectively. 8 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Quarter ended August 31, 1998 Net second quarter sales increased $11,233,000, or 18.4%, when compared to the quarter ended August 31, 1997, as the Company experienced broadly based sales growth in all of its product groups. The Company anticipates achieving further sales increases in the brushes, combs and accessories product group through its September 1998 acquisition of 100% of the outstanding stock of Karina, Inc. Karina develops, designs and markets basic and fashion hair accessories, hairbrushes, combs, and various personal care implements under the Karina, Chez Robere, Aimee, Altesse, and Kent trade names. The Company believes that the acquisition of Karina provides it with an entry into the "high-end" segment of the markets for these products and with new opportunities in mass retail markets. Gross profit as a percentage of sales increased to 39.8% for the quarter ended August 31, 1998, from 38.2% for the quarter ended August 31, 1997. The increased gross profit percentage reflected a favorable mix of products sold, as well as slight reductions in the cost of goods sold for some of the Company's products. Growth in sales of brushes, combs and accessories as a percentage of the Company's total sales contributed to the beneficial product mix change in second quarter of fiscal 1999. Selling, general, and administrative expenses as a percentage of sales increased to 26.4% for the second quarter of fiscal 1999, from 25.5% for the same period in fiscal 1998. Increased bad debt and freight expenses more than offset the economies of higher sales in the second quarter of fiscal 1999. Due to the financial failure of the independent distributor of the Company's products in Russia, the Company recognized a bad debt loss of $740,000 in the second quarter. That distributor's account represented the Company's only significant exposure to receivable losses in Russia or Asia. Freight expense increased as a percentage of net sales primarily because of a shift in sales mix to products for which freight expense is a higher percentage of the sales price. Interest expense remained comparable between the second quarters of fiscal 1999 and fiscal 1998. Interest payments resulting from the $15,000,000 Guaranteed Senior Note issued on July 18, 1997 increased interest expense for the quarter ended August 31, 1998, compared to the same period in the prior fiscal year. The capitalization of interest on construction of the Company's new headquarters offset most of the increased interest expense. Second quarter fiscal 1999 other income decreased $126,000, or 17.3%, versus the second quarter of fiscal 1998. A $237,000 gain recorded on the sale of land during the quarter ended August 31, 1997 more than offset increased interest income for the three months ended August 31, 1998. 9 10 The Company recorded income tax expense equal to 20.0% of pre-tax income for the quarter ended August 31, 1998, compared to 22.5% for the quarter ended August 31, 1997. Beginning in the first quarter of fiscal 1999, management's review of the facts and circumstances relevant to the accrual of income taxes indicated that a tax rate of 20.0% is appropriate for fiscal 1999. Six Months Ended August 31, 1998 Net sales for the first six months of fiscal 1999 increased $22,942,000, or 20.2%, when compared to the same period in fiscal 1998. Sales for the first six months of fiscal 1999 increased in all of the Company's product groups, compared to the same period in fiscal 1998. Gross profit as a percentage of sales increased from 38.0% for the six months ended August 31, 1997 to 39.4% for the six months ended August 31, 1998. As with the increase for the second quarter discussed above, the Company attained growth in its gross profit margins through a favorable product mix and through slight reductions in its costs of goods sold. Selling, general, and administrative expenses increased to 27.8% of sales for the six months ended August 31, 1998, compared to 26.9% for the six months ended August 31, 1997. The effects of increased bad debt and freight expenses mentioned above in the discussion of the results for the second quarter, as well as higher advertising and sales promotion expenses, exceeded slightly the economies produced by increased sales. Interest expense increased 13.2% for the first six months of fiscal 1999, compared to the same period in fiscal 1998. The average outstanding debt balance was higher during the six months ended August 31, 1998 than for the six months ended August 31, 1997 due to the issuance of $15,000,0000 in Guaranteed Senior Notes by one of the Company's subsidiaries in July of 1997. Other income decreased $210,000, or 18.2%, for the six months ended August 31,1998, compared to the same period last fiscal year, primarily because of the gain on sale of land recorded by the Company in fiscal 1998 and mentioned above in the discussion of other income for the quarter. Liquidity and Capital Resources The Company's working capital and current ratio were $155,712,000 and 5.5, respectively, at August 31, 1998, compared to $154,294,000 and 7.8, respectively, at February 28, 1998. The Company's cash balance decreased to $24,450,000 at August 31, 1998 from $55,670,000 at February 28, 1998, due to seasonal increases in accounts receivable and inventory, the addition of new inventories for new product lines and the construction of a new office building. The new product lines include both internally developed products and products obtained through acquisitions. The Company believes its capital resources are adequate to finance growth and to service the Company's debt obligations. The Company also believes that internal funds and available credit will be adequate to finance the completion of the new headquarters office building, which is expected to occur in March 1999. 10 11 Year 2000 Until recently most computer software and hardware, as well as chips and processors embedded in various products, (collectively referred to as "computer applications") used two digits, rather than four, to define the applicable year. Such computer applications might process incorrectly any date after December 31, 1999. Consequently, many business and governmental entities face the risk of some degree of interruption in their operations when using computer applications to process dates of January 1, 2000 and beyond. This is known as the Year 2000 ("Y2K") Issue. The Company's sales, accounts receivable, inventory management, accounts payable, general ledger, payroll and Electronic Data Interchange systems comprise its critical information technology ("IT") systems. The Company has assessed its Y2K readiness with regard to critical IT systems. Based on internal assessments and upon vendor representations, the Company believes that it will complete the necessary actions to bring all of its critical IT systems into Y2K compliance by December 1998. Software and hardware, such as security and telephone systems, that facilitate the operations of its warehouses and corporate headquarters, as well as computer chips embedded in its products comprise the Company's primary non-IT systems. The Company is in the process of assessing the Y2K compliance of the non-IT systems that operate at its facilities and expects to conclude this assessment by December 1998. The computer chips embedded in the products sold by the Company are not date-sensitive and therefore pose no Y2K risk. The Company has not incurred, nor does it expect to incur, material costs in readying its computer applications for the Year 2000. The IT and non-IT systems currently in place or expected to be in place were not purchased specifically, nor was their installation accelerated, because of the Y2K issue. The Company has assessed communications received from its major customers and the representations that some of those customers have made in reports filed with the Securities and Exchange Commission. Based on this assessment, the Company believes that those customers will be Y2K compliant. After an assessment of its relationships with its suppliers, the Company will send Y2K readiness inquiries to vendors that supply products or components that could not be easily obtained from other suppliers, if it is determined that any such vendor relationships exist. The Company expects to send such inquiries, if deemed necessary, by the end of December 1998. The Company has received communications from its key financial service providers indicating that they are actively working to resolve their Y2K service issues. There can be no guarantee that the Company or its trading partners will not experience Y2K compliance difficulties. If the Company or its significant trading partners experience Y2K compliance problems, adverse business consequences could result. The Company believes that the most likely negative effects, if any, could include disruptions in both shipments and receipts of products, delays in the Company's receipt of payments from customers and delays in the ability to pay certain suppliers. 11 12 The Company believes that the Y2K compliance of its IT and non-IT systems as well as its efforts to assess the Y2K compliance of its trading partners should minimize the business difficulties encountered as a result of the Y2K issue. Consequently, the Company does not anticipate the need to formulate contingency plans to deal with Y2K issues and has not formulated such plans. If this assessment changes, the Company will develop contingency plans as deemed necessary. Information relating to forward-looking statements This report, some of the Company's press releases and some of the Company's comments to the news media, contain certain forward-looking statements that are based on management's current expectations with respect to future events or financial performance. A number of risks or uncertainties could cause actual results to differ materially from historical or anticipated results. Generally, the words "anticipates," "believes," "expects" and other similar words identify forward-looking statements. The Company cautions readers not to place undue reliance on forward-looking statements. Factors that could cause actual results to differ from those anticipated include: (1) industry conditions and competition, (2) risks associated with operating in foreign jurisdictions, (3) worldwide and domestic economic conditions, (4) the impact of current and future laws and litigation, (5) uninsured losses, (6) management's reliance on the representations of third parties, and (7) the risks described from time to time in the Company's reports to the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended February 28, 1998. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held August 25, 1998, in El Paso, Texas. At that meeting, the shareholders voted on the following proposals: o Proposal 1. Election of Directors; o Proposal 2. To consider approval of the Helen of Troy Limited 1998 Stock Option and Restricted Stock Plan; o Proposal 3. To consider approval of the Helen of Troy Limited 1998 Employee Stock Purchase Plan. A description of the foregoing matters is contained in the Company's Proxy Statement dated July 23, 1998, relating to the 1998 Annual Meeting of Shareholders. 12 13 With respect to Proposal 1, the Directors received the following votes:
Against or Broker For Withheld Abstentions Non-Votes Gerald J. Rubin 24,721,330 600 59,278 0 Daniel C. Montano 24,623,040 98,890 59,278 0 Byron H. Rubin 24,714,793 7,137 59,278 0 Stanlee N. Rubin 24,548,323 173,607 59,278 0 Gary B. Abromovitz 24,719,805 2,125 59,278 0 Christopher L. Carameros 24,720,615 1,315 59,278 0
Proposals 2 and 3 received the following votes:
Proposal 2 Broker For Against Abstentions Non-Votes 12,915,107 7,879,062 66,498 3,944,745
Proposal 3 Broker For Against Abstentions Non-Votes 15,007,105 5,922,436 63,791 3,812,080
Item. 5. Other Information Shareholder Proposals Proposals of the shareholders intended to be presented at the Company's 1999 Annual Meeting of Shareholders pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, for inclusion in the Company's proxy materials must be received by the Company no later than March 5, 1999. If a proponent fails to notify the Company by May 19, 1999 of a non-Rule 14a-8 shareholder proposal that it intends to submit at the Company's 1999 Annual Meeting of Shareholders, the proxy solicited by the Board of Directors with respect to such meeting may grant discretionary authority to the proxies named therein to vote with respect to such matter. Items 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HELEN OF TROY LIMITED (Registrant) Date October 14, 1998 /s/ Gerald J. Rubin ---------------- ---------------------------------- Gerald J. Rubin Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date October 14, 1998 /s/ Sam L. Henry ---------------- ---------------------------------- Sam L. Henry Senior Vice-President, Finance, and Chief Financial Officer (Principal Financial Officer) 14 15 Exhibit Index
Exhibit Number Description - ------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 This financial data schedule contains summary financial information extracted from the consolidated financial statements of Helen of Troy Limited and subsidiaries as of, and for the six months ended August 31, 1998, and is qualified in its entirety by reference to such financial statements. 6-MOS FEB-28-1999 AUG-31-1998 24,450,000 0 57,187,000 606,000 99,850,000 190,677,000 39,250,000 5,921,000 252,109,000 34,965,000 55,450,000 0 0 2,796,000 158,898,000 252,109,000 136,298,000 136,298,000 82,614,000 82,614,000 37,812,000 1,029,000 1,764,000 15,475,000 3,095,000 12,380,000 0 0 0 12,380,000 .45 .42
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