-----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, BiApuSrkSCMtCPrXqpEFPkMRSxZVd99MjygyV4PnfL8tKKavNamCHCZEcbYJZxrc j8R1kqvC7WIodkt2AZqGnA== 0000950134-99-000195.txt : 19990115 0000950134-99-000195.hdr.sgml : 19990115 ACCESSION NUMBER: 0000950134-99-000195 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990114 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: 001-14669 FILM NUMBER: 99506238 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 NOVEMBER 30, 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 November 30, 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) (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 January 12, 1999 there were 29,044,652 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 November 30, 1998 and February 28, 1998......................................3 Consolidated Condensed Statements of Income for the Three and Nine Months Ended November 30, 1998 and November 30, 1997......................................5 Consolidated Condensed Statements of Cash Flows for the Nine Months ended November 30, 1998 and November 30, 1997......................................6 Notes to Consolidated Condensed Financial Statements...................................8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................10 PART II. OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K............................14 SIGNATURES...................................................................15
2 3 PART I. FINANCIAL INFORMATION HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except shares)
November 30, February 28, 1998 1998 -------------- -------------- (unaudited) Assets Current Assets: Cash and cash equivalents $ 9,433 $ 55,670 Receivables - principally trade, less allowance for doubtful receivables of $1,206 at November 30, 1998 and $568 at February 28, 1998 76,675 44,569 Inventories 98,524 71,357 Prepaid expenses 3,445 3,802 Deferred income tax benefits 2,257 1,522 -------------- -------------- Total current assets 190,334 176,920 Property and equipment, net of accumulated depreciation of $7,039 at November 30, 1998 and $4,892 at February 28, 1998 38,867 26,255 License agreements, at cost, less amortization of $8,830 at November 30, 1998 and $8,068 at February 28, 1998 8,221 8,984 Goodwill 37,154 10,856 Other assets, net of amortization 15,233 4,545 -------------- -------------- Total assets $ 289,809 $ 227,560 ============== ==============
(continued) 3 4 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except shares)
November 30, February 28, 1998 1998 -------------- -------------- (unaudited) Liabilities and Stockholders' Equity Current liabilities: Notes payable $ 4,814 $ -- Accounts payable, principally trade 4,830 1,430 Accrued expenses: Advertising and promotional 7,704 4,599 Other 11,142 7,389 Income taxes payable 11,167 9,208 -------------- -------------- Total current liabilities 39,657 22,626 Long-term debt 55,479 55,450 -------------- -------------- Total liabilities 95,136 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, 29,043,652 shares at November 30, 1998 and 27,281,242 shares at February 28, 1998 2,904 2,728 Additional paid-in-capital 53,441 31,899 Retained earnings 138,328 114,857 -------------- -------------- Total stockholders' equity 194,673 149,484 -------------- -------------- Commitments and contingencies -- -- Total liabilities and stockholders' equity $ 289,809 $ 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)
For the Three Months For the Nine Months Ended November 30, Ended November 30, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Net sales $ 89,144 $ 82,780 $ 225,442 $ 196,137 Cost of sales 53,085 50,979 135,699 121,283 ------------ ------------ ------------ ------------ Gross profit 36,059 31,801 89,743 74,854 Selling, general and administrative expenses 21,719 19,398 59,531 49,858 ------------ ------------ ------------ ------------ Operating income 14,340 12,403 30,212 24,996 Other income (expense): Interest (expense) (817) (986) (2,581) (2,544) Interest income 144 468 1,330 1,160 Other, net 196 52 377 517 ------------ ------------ ------------ ------------ Total other income (expense) (477) (466) (874) (867) ------------ ------------ ------------ ------------ Earnings before income taxes 13,863 11,937 29,338 24,129 Income tax expense (benefit): Current 3,069 3,243 6,603 5,919 Deferred (296) (549) (735) (482) ------------ ------------ ------------ ------------ Net earnings $ 11,090 $ 9,243 $ 23,470 $ 18,692 ============ ============ ============ ============ Earnings per share Basic $ .39 $ .34 $ .84 $ .70 Diluted .37 .32 .80 .65 Weighted average number of common and common equivalent shares used in computing earnings per share Basic 28,665,065 27,096,534 28,026,758 26,724,167 Diluted 29,784,645 29,285,932 29,440,416 28,809,121
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)
Nine Months Ended November 30, 1998 1997 -------- -------- Cash flows from operating activities: Net earnings $ 23,470 $ 18,692 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 3,405 2,921 Provision for doubtful receivables 444 356 Provision for deferred taxes, net (735) (483) Gain on sale of assets -- (282) Changes in operating assets and liabilities: Accounts receivable (29,730) (34,658) Inventory (23,865) (91) Prepaid expenses 598 (2,008) Accounts payable (792) (655) Accrued expenses 6,478 8,638 Income taxes payable 1,832 5,947 -------- -------- Net cash used by operating activities (18,895) (1,623) Cash flows from investing activities: Capital and license expenditures (13,376) (2,063) Proceeds from sale of assets -- 1,678 Other assets (14,930) (4,077) Acquisitions, net of cash acquired (2,234) -- Collection on note receivable -- 413 -------- -------- Net cash used by investing activities (30,540) (4,049)
(continued) 6 7 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited, in thousands)
Nine Months Ended November 30, 1998 1997 -------- -------- Cash flows from financing activities: Net (payments)/borrowings on revolving line of credit $ 4,814 $ (4,001) Proceeds from long-term debt -- 15,000 Payments on long-term debt (1,634) -- Exercise of stock options, including related tax benefits 18 4,027 -------- -------- Net cash provided by financing activities 3,198 15,026 -------- -------- Net increase/(decrease) in cash and cash equivalents (46,237) 9,354 -------- -------- Cash and cash equivalents, beginning of period 55,670 25,798 -------- -------- Cash and cash equivalents, end of period $ 9,433 $ 35,152 ======== ======== Supplemental cash flow disclosures: Interest paid $ 2,949 $ 2,431 Income taxes paid -- (213) Capital stock issued for acquisitions 21,700 -- - ------------------------------------------------------------------------------------------------- Details of Acquisitions: Fair value of assets acquired $ 30,783 $ -- Liabilities assumed 6,362 -- Stock issued 21,700 -- -------- -------- Cash paid 2,721 -- Less: cash acquired (487) -- -------- -------- Net cash paid for acquisitions $ 2,234 $ -- ======== ========
See accompanying notes to consolidated condensed financial statements. 7 8 HELEN OF TROY LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS November 30, 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 November 30, 1998 and February 28, 1998 and the results of its operations for the periods ended November 30, 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 weighed 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 1,119,580 and 2,189,398, respectively, for the three months ended November 30, 1998 and 1997, and 1,413,658 and 2,084,954, respectively, for the nine months ended November 30, 1998 and 1997. Dilutive securities for the three months ended November 30, 1998 included 1,087,490 shares for dilutive stock options and 32,090 shares contingently issuable as part of an acquisition. For the nine months ended November 30, 1998, dilutive securities included 1,402,962 shares attributable to dilutive stock options and 10,696 shares contingently issuable as part of an acquisition. All dilutive securities for the three and nine-month periods ended November 30, 1997 consisted of dilutive stock options outstanding. All 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. On October 19, 1998, the Company acquired 100% of the stock of DCNL, Inc., a California corporation. DCNL develops, designs and markets specialized hair brushes and accessories. In exchange for the stock of DCNL, the Company issued 350,000 shares of its Common Stock and made additional cash payments to DCNL's 8 9 shareholders. Under the terms of the agreement, DCNL's shareholders will receive additional shares of Helen of Troy Common Stock if the market price of the Company's Common Stock does not exceed a specified level. In order to qualify for that additional consideration, the former DCNL shareholders must hold the 350,000 shares of the Company's Common Stock until October 19, 1999. The Company accounted for the Karina and DCNL acquisitions using the purchase method of accounting. As of November 30, 1998, the Company had recorded $23.4 million of goodwill on the Karina and DCNL acquisitions, combined. The Company is amortizing that goodwill over a 30-year life. Note 5 - Certain prior year numbers have been reclassified to conform with current year reporting classifications. 9 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Quarter ended November 30, 1998 Net sales for the quarter ended November 30, 1998 increased $6,364,000, or 7.7%, when compared with the quarter ended November 30, 1997. The introduction of new product lines, increased international sales, and sales of products connected with the Company's third quarter acquisitions, produced most of the third quarter sales growth. Gross profit as a percentage of sales increased to 40.5% for the quarter ended November 30, 1998, compared to 38.4% for the quarter ended November 30, 1997. The increase in gross profit was attributable to a favorable change in the mix of products sold and to small reductions in the cost of some of the Company's products. Selling, general, and administrative expenses as a percentage of sales increased to 24.4% of sales for the quarter ended November 30, 1998, compared to 23.4% for the quarter ended November 30, 1997. The shift in sales mix, as described above, also caused a shift in selling, freight, and other expenses that are related to those sales. Recent acquisitions also increased selling, general, and administrative costs in absolute amounts and as a percentage of net sales. Cost efficiencies expected from the elimination of certain costs have not yet been realized. Interest expense decreased $169,000, or 17.1%, for the third quarter of fiscal 1999, compared to the same period in fiscal 1998. The capitalization of interest expense on the construction of the Company's new headquarters building produced the decrease in interest expense. Interest income decreased by $324,000, or 69.2% for the quarter ended November 30, 1998, versus the quarter ended November 30, 1997. This decrease is due primarily to the Company's average cash balance being lower in the third quarter of fiscal 1999 than in the same period in fiscal 1998. Nine-month period ended November 30, 1998 Net sales for the first nine months of fiscal 1999 increased $29,305,000, or 14.9%, compared to the first nine months of fiscal 1998. Sales increases produced by acquisitions, the Company's introduction of new product lines, increased international sales and higher domestic sales of existing products produced the sales growth for the nine months ended November 30, 1998. Gross profit as a percentage of sales grew from 38.2% for the nine months ended November 30, 1997 to 39.8% for the nine months ended November 30, 1998. As with the gross profit increase for the 10 11 third quarter, the Company has achieved a favorable mix of products sold as well as small reductions in the costs of some of the products sold. Selling, general, and administrative expenses increased to 26.4% of sales for the nine months ended November 30, 1998, compared to 25.4% for the same period a year earlier. As was the case for the third quarter of fiscal 1999, higher freight expenses, due to the mix of products sold, contributed to the increase in selling, general, and administrative expenses as a percentage of sales for the first nine months of fiscal 1999. Additionally, the Company recognized a $740,000 bad debt charge during the second quarter of fiscal 1999, due to the bankruptcy of a Russian distributor of its products. That distributor's account was the Company's only significant exposure to credit risk in Russia or Asia. Interest expense for the first nine months of fiscal 1999 remained relatively constant, compared to the same period last year, increasing $37,000, or 1.5%. The capitalization of interest on the construction of the Company's new corporate headquarters offset most of the increase in interest expense produced by the Company's issuance of $15,000,000 of Guaranteed Senior Notes in July 1997. Interest income for the first nine months of fiscal 1999 increased 14.7% over the same period of fiscal 1998. That increase in interest income occurred in the first quarter of fiscal 1999. As explained in the Company's May 31, 1998 quarterly report on Form 10-Q, the Company's interest income was greater because the Company's average cash balance was greater in the quarter ended May 31, 1998 than it was in the same period a year earlier. Other income for the nine months ended November 30, 1998 decreased when compared to the same period ended November 30, 1997. During the nine months ended November 30, 1997 the Company recorded a gain from the sale of land. No such transaction occurred during the nine month period ended November 30, 1998. Liquidity and Capital Resources The Company's working capital and current ratio were $150,677,000 and 4.8, respectively, at November 30, 1998, compared to $154,294,000 and 7.8, respectively, at February 28, 1998. The Company's cash balance decreased to $9,433,000 at November 30, 1998, compared to $55,670,000 at February 28, 1998. Increases in inventory levels and in accounts receivable balances, along with capital expenditures for construction of the Company's new corporate headquarters and cash used for acquisitions were the primary factors causing the cash decrease. The increase in inventory is primarily due to seasonality, the introduction of new product lines and the acquisition of new businesses. The Company believes that 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 corporate headquarters office building. The new headquarters is expected to be complete in April 1999. 11 12 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 has completed the necessary actions to bring all of its critical IT systems into Y2K compliance. 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 February 1999. 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 continues to assess 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. Additionally, the Company is in the process of inquiring with major customers as to their Y2K compliance. Based on this assessment and communications received to date, the Company believes that its major customers will be Y2K compliant. The Company is currently analyzing its relationships with its suppliers. By February 1999 the Company expects to finish sending Y2K readiness inquiries to any vendors that supply products or components that could not be easily obtained from other suppliers. 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. 12 13 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. 13 14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Exhibits 27. Financial Data Schedule Reports on Form 8-K The Company did not file any reports on form 8-K during the third quarter of fiscal 1999. 14 15 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 January 14, 1999 s/Gerald J. Rubin ---------------- ----------------------------- Gerald J. Rubin Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date January 14, 1999 s/Sam L. Henry ---------------- ------------------------------- Sam L. Henry Senior Vice-President, Finance, and Chief Financial Officer (Principal Financial Officer) 15 16 EXHIBIT INDEX
Exhibits - -------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 THE 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 NINE MONTHS ENDED NOVEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS FEB-28-1999 NOV-30-1998 9,433,000 0 77,881,000 1,206,000 98,524,000 190,334,000 45,906,000 7,039,000 289,809,000 39,657,000 55,479,000 0 0 2,904,000 191,769,000 289,809,000 225,442,000 225,442,000 135,699,000 135,699,000 59,531,000 1,525,000 2,581,000 29,338,000 5,868,000 23,470,000 0 0 0 23,470,000 .84 .80
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