UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2001
Commission file number 0-23312
HELEN OF TROY LIMITED
(Exact name of the registrant as specified in its charter)
Bermuda
(State or other jurisdiction of
incorporation or organization)
74-2692550
(I.R.S. Employer
Identification No.)
1 Helen of Troy Plaza
El Paso, Texas
(Address of principal executive offices)
79912
(Zip Code)
Registrant's telephone number, including area code: (915) 225-8000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.10 par value
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the registrant as of May 18, 2001 was
$227,623,471.
As of May 18, 2001 there were 28,065,526 shares of Common Stock, $.10 Par Value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Company’s definitive proxy statement, which is to be filed under the Securities Exchange Act of 1934
within 120 days of the end of the Company’s fiscal year on February 28, 2001, are incorporated by reference into Part III hereof.
Except for those portions specifically incorporated by reference herein, such document shall not be deemed to be filed with the
Securities and Exchange Commission as part of this Form 10-K.
Index to Exhibits - Page 54
TABLE OF CONTENTS
______________________________________________________________________________
Page
PART I
1
6
7
8
______________________________________________________________________________
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Market for Registrant's Common Equity and Related
Stockholder Matters
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
48
______________________________________________________________________________
PART III
Item 10.
Item 11.
Item 12.
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners
and Management
Certain Relationships and Related Transactions
48
48
______________________________________________________________________________
Item 13.
9
11
13
21
48
48
PART IV Item 14.
Exhibits, Financial Statement Schedules and Reports
on Form 8-K
Signatures
49
52
_____________________________________________________________________________
i
General
PART I
Item 1. Business
The Registrant was incorporated as Helen of Troy Corporation in Texas in 1968. The Registrant
reincorporated as Helen of Troy Limited in Bermuda on February 16, 1994. Unless the context requires
otherwise, references to the “Company” or to “Helen of Troy” refer to Helen of Troy Limited and its subsidiaries.
Helen of Troy designs, develops and sells a variety of personal care and comfort products under
trademarks licensed from third parties, as well as under trademarks that it owns. The Company outsources the
manufacture of its products to third parties and sells most of its products to mass merchandisers, drug chains,
warehouse clubs, grocery stores, beauty supply retailers and wholesalers in the United States and other countries.
Products bearing licensed trademarks include those sold under the trademarks of Vidal Sassoon, licensed
,
(in areas other than North America), licensed
, licensed from Sunbeam Products, Inc.
, Ecstasy(cid:226)
, Hot Tools(cid:226)
,
,
from Procter & Gamble Co.; Revlon(cid:226)
licensed from Schering-Plough HealthCare Products, Inc.; Scholl(cid:226)
from Scholl Limited; Barbie(cid:226)
Trademarks owned by the Company include Helen of Troy(cid:226)
Hotspa(cid:226)
Kurl*Mi(cid:226)
, licensed from Mattel, Inc.; and Sunbeam(cid:226)
, Salon Edition(cid:226)
, licensed from Revlon Consumer Products Corporation; Dr. Scholl’s(cid:226)
, Caruso, Dazey(cid:226)
, DCNL, IGIA(cid:226)
, Gallery Series(cid:226)
, Detangle*Mi(cid:226)
, Lady Dazey(cid:226)
, and Epil-stop(cid:226)
, Gold Series(cid:226)
, Karina(cid:226)
, Wigo(cid:226)
, Heat*Mi(cid:226)
, Carel(cid:226)
.
, Lady Carel(cid:226)
, Sable(cid:226)
Helen of Troy designs, develops and sells a full line of personal care and comfort products. The Company’s
products include hair dryers, curling irons, hot air brushes, brush irons, home hair clippers and trimmers, lighted
mirrors, hairsetters, foot baths, body massagers, paraffin baths, hairbrushes, combs and hair accessories.
Products
, Ecstasy(cid:226)
, Sunbeam(cid:226)
, and Sable(cid:226)
, Hot Tools(cid:226)
, Gold Series(cid:226)
, Lady Dazey(cid:226)
, Helen of Troy(cid:226)
, Gallery Series(cid:226)
, Carel(cid:226)
, Wigo(cid:226)
and Hot Tools(cid:226)
, Salon Edition(cid:226)
. Helen of Troy’s hairsetters bear the Vidal Sassoon, Revlon(cid:226)
The Company’s hand-held hair dryers sell under the trademarks Vidal Sassoon, Revlon(cid:226)
, Salon Edition(cid:226)
, Helen
of Troy(cid:226)
. Hard and
soft-bonnet hair dryers are sold under the Dazey(cid:226)
trademarks. The
Company sells curling irons, hot air brushes and brush irons under trademarks that include Vidal Sassoon, Revlon(cid:226)
,
Sunbeam(cid:226)
, and
Sable(cid:226)
and Caruso trademarks. The Company’s hair
clippers sell under the Sunbeam(cid:226)
trademark. The Company also sells foot baths, foot massagers and body
, Scholl(cid:226)
massagers under the Dr. Scholl’s(cid:226)
, Carel(cid:226)
trademarks. Helen of Troy sells paraffin baths
and other skin care appliances under the Revlon(cid:226)
trade names. Helen of Troy sells hair styling
implements such as brushes and combs under brand names including Vidal Sassoon, Revlon(cid:226)
,
Kurl*Mi(cid:226)
, Ecstasy(cid:226)
, and Altesse. The Company sells utility and decorative hair accessories under trade names that
include Vidal Sassoon, Karina(cid:226)
. Helen of Troy’s utility hair accessories include rollers,
bobby pins, hair clips, hair nets, and shower caps. Decorative hair accessories sold by the Company include
ponytailers, barrettes, headbands, and decorative clips.
and Hotspa(cid:226)
, and Hotspa(cid:226)
, Nandi and Sweet Things(cid:226)
, Gallery Series(cid:226)
, Detangle*Mi(cid:226)
, Gold Series(cid:226)
, Hot Tools(cid:226)
Ecstasy(cid:226)
, Wigo(cid:226)
In March 2000 the Company expanded its product lines through its acquisition of a 55 percent interest in
Tactica International, Inc. (“Tactica”). Tactica sells, principally under the IGIA(cid:226)
trade names,
personal care items, including hair dryers, paraffin baths and depilatories, as well as a number of other consumer
items.
and Epil-stop(cid:226)
The Company continues to develop new products and enhance existing products in order to maintain and
improve its position in the personal care and comfort product market. The Company’s marketing and engineering
departments develop new products, at times employing the assistance of independent consulting firms. Significant
product additions during fiscal 2001 included new quiet hair dryers, hair care appliances that use halogen technology
and a line of paraffin wax and other skin care appliances. In addition to internal product development, the Company
expanded its product lines through the acquisition in December 1999 of the Sunbeam trademark for hair care
appliances. In January 2000 the Company further expanded its product lines through the acquisition of a license from
Sunbeam Products, Inc. to design, develop and sell human hair clippers and trimmers under the Sunbeam(cid:226)
trade
name. At the same time Sunbeam Products, Inc. granted Helen of Troy a license to sell the same products under the
Oster(cid:226)
trade name for a transitional period.
Sales and Marketing
Helen of Troy markets its products primarily within the United States of America. Sales within the United
States comprised 89 percent of total sales in fiscal 2001, 88 percent of total sales in fiscal 2000 and 92 percent of total
sales in fiscal 1999. The Company sells its products primarily through mass merchandisers, drug chains, warehouse
clubs, grocery stores and beauty supply retailers and wholesalers. The Company markets its products in the United
States through approximately 100 manufacturers’ representative organizations, beauty and barber supply
representative organizations and through its own sales staff.
, and Scholl’s(cid:226)
Products sold under the Vidal Sassoon, Revlon(cid:226)
trademarks comprise most of the
Company’s international sales. The Company sells products under the Vidal Sassoon trademark in various countries
in Western Europe and under the Revlon(cid:226)
trademark worldwide, except in Western Europe. Products are sold
internationally under the Scholl(cid:226)
professional hair care appliances are also marketed worldwide.
The Company is licensed to sell various other products outside of the United States. The Company’s products are
sold outside of the United States through mass merchandisers, chain drug stores, catalogs, grocery stores and beauty
supply retailers and wholesalers. Internationally, the Company markets its products through manufacturers’
representative organizations, independent distributors, and its own sales staff.
trademark. Wigo(cid:226)
Helen of Troy’s licensors promote many of the brand names under which the Company sells products.
Revlon Consumer Products Corporation engages in extensive national advertising of its beauty care products. The
Proctor & Gamble Company actively markets the Vidal Sassoon name. The Dr. Scholl’s® and Sunbeam®
trademarks are widely recognized, because of advertising and the sale of a variety of products. Helen of Troy benefits
from the name recognition associated with the Vidal Sassoon, Revlon®, Sunbeam® and Dr. Scholl’s® trademarks
and further improves the name recognition and perceived quality of all the trademarks under which it sells products
through its own advertising and product development efforts. The Company promotes its products through
television advertising and through print media, including consumer and trade magazines and various industry trade
shows.
Tactica, a 55 percent owned subsidiary of the Company, markets its products principally through direct
distribution to consumers using extensive television and print advertising. It also sells to major mass merchandisers,
drug store chains, and specialty stores.
Manufacturing and Distribution
The Company contracts with unaffiliated manufacturers in the Far East, primarily in the Peoples’ Republic of
China (the “PRC”), Thailand, Taiwan and South Korea, to manufacture most of its products. The Company
purchases a small percentage of its products from third party manufacturers in North America and Europe. Third
party manufacturers use molds and certain other tooling, most of which are owned by Helen of Troy, in
manufacturing the Company’s products. The Company employs numerous technical and quality control persons to
monitor the quality of its products. Most of the Company’s products are subject to customs duties. The vast majority
of the Company’s products are imported into the United States, the United Kingdom, Canada, or The Netherlands.
2
The Company is subject to certain risks as a result of the manufacture of the vast majority of its products
in the Far East. These risks include changing international political relations, changes in customs duties and other
trade barriers, changes in shipping costs, currency exchange fluctuations and local political unrest. To date, these
factors have not significantly affected the Company’s production in the Far East.
The Company’s products that are sold in North America and manufactured in the Far East are shipped to the
West Coast of the United States and the West Coast of Canada. The products are then shipped by truck or rail
service to warehouse facilities in El Paso, Texas; Memphis, Tennessee; and Toronto, Canada or directly to customers.
The Company ships substantially all of its products sold to North American customers from these warehouses by
ground transportation services. Products sold throughout the rest of the world are shipped from manufacturers,
primarily in the Far East, to warehouses that the Company rents in Veenendaal, The Netherlands and
Nottinghamshire, the United Kingdom, or directly to customers. Products stored at the warehouses in The
Netherlands and the United Kingdom are shipped from those warehouses to distributors or retailers.
License Agreements, Trademarks and Patents
Helen of Troy is materially dependent upon the continued use of trademarks acquired under various license
agreements and in particular the Vidal Sassoon and Revlon(cid:226)
trademarks. All of the license agreements under which
Helen of Troy sells or intends to sell products with trademarks owned by other entities require approval from the
various licensors prior to the Company’s introduction of new products under those trademarks. The licensors also
must approve the product packaging. Many of the license agreements require the Company to pay minimum
royalties, meet minimum sales volumes, and make minimum levels of advertising expenditures.
License agreements with Procter & Gamble (“P&G”) allow Helen of Troy to sell certain products using
the Vidal Sassoon trademark in the United States and Canada. Products covered by these licenses include hair
dryers, curling irons, brush irons, hairsetters, lighted mirrors, brushes, combs and hair care accessories in the
United States and Canada. The Company is also licensed to sell the above categories of Vidal Sassoon products in
Western Europe and Mexico.
Under licenses from Revlon Consumer Products Corporation, Helen of Troy uses the Revlon(cid:226)
trademark
worldwide, except in Western Europe, on electric hair care appliances, brushes, combs, lighted mirrors, personal spa
products, and battery-operated and electric women’s shavers.
The Company sells foot baths, foot massagers, hydro massagers, and body massagers bearing the Dr.
trademark in the United States and Canada, under a license from Schering-Plough HealthCare Products,
trademark in other areas of the world through a
Scholl’s(cid:226)
Inc. The Company also sells these products bearing the Scholl(cid:226)
license from Scholl Limited.
The Company entered into a license agreement with Mattel, Inc. in 1999. Under this license agreement, the
Company develops and markets hair dryers, hair brushes, combs, accessories and combination packs in the United
States and Canada under the Barbie(cid:226)
trademark.
In December 1999, the Company entered into a license agreement with Sunbeam Products, Inc. to develop,
market and distribute hair dryers and curling irons, hairsetters, styling products and hot air brushes under the
Sunbeam trade name in the United States and Canada. In January 2000 the Company acquired a license from
Sunbeam Products to design, develop and sell human hair clippers and trimmers under the Sunbeam(cid:226)
trade name.
At the same time Sunbeam Products granted Helen of Troy a license to sell the same products under the Oster(cid:226)
trade name for a transitional period.
Although Helen of Troy has filed or obtained licenses for design and utility patents in the United States and
several foreign countries, the Company does not believe that any particular patent or patent license is materially
important to its business.
3
Investment in Tactica International, Inc.
On March 14, 2000 the Company acquired a 55 percent ownership interest in Tactica International, Inc.
(“Tactica”) for $2,500,000. The Company also agreed to fund Tactica’s working capital requirements through an
intercompany revolving credit facility limited to $17,500,000. Tactica designs, develops and sells a variety of personal
care appliances, including hair dryers, depilatories, paraffin baths, and other consumer products which are sold directly
to consumers and through the retail distribution channel. Tactica’s primary trade names are IGIA(cid:226)
.
Under the IGIA(cid:226)
trade name, Tactica produces a line of hair care products utilizing ion technology, including the
IGIA Ion-Aire hairdryer. The Therma-Spa Paraffin Bath and the patented Touch ‘N’ Go Hair Removal System are
also marketed under the IGIA(cid:226)
trade name. Products marketed under the Epil-stop(cid:226)
trade names include a variety
of topical products for hair removal. To create product awareness and interest, Tactica uses television infomercials
and direct response marketing extensively.
and Epil-stop(cid:226)
Tactica typically operates at higher gross profit margins than Helen of Troy’s other operating segments, but
also has higher operating expenses because of the high level of television and print advertising necessary to Tactica’s
business. In addition, many of the products developed and marketed by Tactica are trend-oriented and usually have
shorter product lives than Helen of Troy’s other products. Accordingly, the ability of Tactica to achieve consistent
sales levels is dependent upon the continued development of new products, advertising effectiveness, and ultimate
product acceptance by the consumer.
Reliance on One Customer
Sales to Wal-Mart Stores, Inc., and one of its affiliates, accounted for approximately 23 percent of the
Company’s net sales in fiscal 2001. Sales to that same customer comprised 26 percent and 29 percent of net sales
in fiscal 2000 and in fiscal 1999, respectively.
Order Backlog
There was no significant backlog of orders at February 28, 2001.
Competitive Conditions
The Company encounters significant levels of competition with respect to all of its products. Product
pricing, performance, packaging and availability, as well as brand name recognition, affect competition in the market
for personal care and comfort products. The Company’s primary competitors include The Conair Corporation;
Applica Incorporated; Remington Products Company; Goody Products, Inc., a division of Newell Rubbermaid Inc.;
Homedics-USA, Inc.; and The New L & N Marketing and Sales Corporation. These competitors possess known
brand names and significant resources.
Seasonality
The Company’s business is somewhat seasonal. Sales in the Company’s fiscal second and third quarters,
combined, accounted for 57 percent, 54 percent and 55 percent of total sales in fiscal 2001, 2000 and 1999,
respectively. As a result of the seasonality of sales, the Company’s working capital needs fluctuate during the year.
Regulation
Electrical products sold by the Company must meet the safety standards imposed in various national, state,
local and provincial jurisdictions. The Company’s electrical products sold in the United States are designed,
manufactured and tested to meet the safety standards of Underwriters Laboratories, Inc. or Electronic Testing
Laboratories.
4
Employees
The Company employs 558 full-time employees in the United States, Hong Kong and Europe, of which
186 are marketing and sales employees, 125 are distribution employees, 54 are engineering and development
employees and 193 are administrative personnel. Included in these totals are 39 employees of Tactica, a
subsidiary in which the company owns a 55 percent interest. Tactica employs 31 administrative and 8 sales and
marketing personnel. None of the Company’s employees are covered by any collective bargaining agreement.
The Company has never experienced a work stoppage and believes it has satisfactory working relations with its
employees.
Risk Factors
Dependence Upon Licenses and Trademarks. A substantial portion of the Company’s sales revenue is derived from
sales of products under licensed trademarks. As a result, the Company is materially dependent upon the continued
use of such trademarks, particularly the Vidal Sassoon and Revlon(cid:226)
trademarks. Actions taken by licensors and other
third parties could diminish greatly the value to the Company of any of the licensed trademarks. If the Company were
unable to sell products under these licensed trademarks the effect on the Company’s business, financial condition and
results of operations could be both negative and material.
Reliance Upon Certain Customers. The Company is dependent on certain of its principal customers. Wal-Mart
Stores, Inc., and one of its affiliates, accounted for approximately 23 percent of the Company’s net sales in fiscal 2001.
The Company’s top three customers accounted for approximately 37 percent of fiscal 2001 net sales. Although the
Company has long-standing relationships with its major customers, no contracts require these customers to buy from
the Company. A substantial decrease in sales to any of its major customers would have a material adverse effect on
the Company’s business, financial condition and results of operations.
U.S. and Worldwide Economic Conditions. Consumer spending patterns in the United States and abroad, as well
as other domestic and worldwide economic factors that affect the Company’s customers and suppliers, play
important roles in the Company’s operations. Consequently, adverse changes in economic conditions that affect
consumer spending or worldwide economic conditions could have a material negative effect on the Company’s
business, financial condition, and results of operations.
Competition. The personal care and comfort products industry is extremely competitive. Competition is based
upon price and quality, as well as brand name recognition, innovation in the design of new products and replacement
models, and in marketing and distribution approaches. The Company competes with domestic and international
companies, some of which have substantially greater financial and other resources than those of the Company. The
Company believes that its ability to produce reliable products that incorporate developments in technology and satisfy
consumer tastes with respect to style and design, as well as its ability to market a broad offering of products in each
applicable category at competitive prices, are keys to its future success. No assurance can be given that the Company
will be able to successfully compete on the basis of these factors in the future.
International Manufacturing and Operations. All of the Company’s products are manufactured by unaffiliated third
party companies, most of which are in the People’s Republic of China. Risks associated with such foreign
manufacturing include changing international political relations, changes in customs duties and other trade barriers,
changes in shipping costs, currency exchange fluctuations, local political unrest, and the availability and cost of raw
materials and merchandise. To date, these factors have not significantly affected the Company’s production in the Far
East; however, any change that impairs the Company’s ability to obtain products from such manufacturers, or to
obtain products at marketable rates, could have a material negative effect on the Company’s business, financial
condition and results of operations.
5
Newly-Acquired Product Lines and Subsidiaries. The Company’s business plan includes a commitment to growth
through the acquisition of new product lines and businesses. The Company may acquire partial or full ownership in
businesses or may acquire rights to market and distribute particular products or lines of products. The acquisition of a
business or of the rights to market specific products or use specific product names involves a financial commitment
by the Company. In case of an acquisition such commitments are usually in the form of either cash or stock
consideration. In the case of a new license such commitments are usually in the form of prepaid royalties and future
minimum royalty payments. While the Company’s strategy is to acquire businesses and to develop products that will
contribute positively to its earnings, there is no guarantee of such results. Anticipated synergies may not materialize,
cost savings may be less than expected, sales of products may not meet expectations, and acquired businesses may
carry unexpected liabilities. Each of these factors could result in a newly acquired business or product line having a
material negative impact on the Company’s business, financial condition and results of operations.
Inventory. Because of Helen of Troy’s reliance on manufacturers in the Far East, the Company’s production
lead times are relatively long. Therefore, the Company must commit to production in advance of customer orders. If
Helen of Troy fails to forecast customer or consumer demand accurately the Company may encounter difficulties in
filling customer orders or in liquidating excess inventories, or may find that customers are canceling orders or
returning products. Distribution difficulties may have an adverse effect on the Company’s business by increasing the
amount of inventory and the cost of warehousing inventory. Additionally, changes in retailer inventory management
strategies could make inventory management more difficult for the Company. Any of these results could have a
material adverse effect on the Company’s business, financial condition and result of operations.
Taxes. Currently, Helen of Troy benefits from an international corporate structure that provides for relatively
low tax rates on a consolidated basis. If the Company were to encounter significant changes in the rates or rules
imposed by certain key taxing jurisdictions, such changes could have a material adverse effect on the Company’s
business or profitability. In addition, the Company’s position on various tax matters may be challenged, as is the case
with the Hong Kong Inland Revenue Department matter discussed in “Item 3. Legal Proceedings.” Furthermore,
critical to the favorable U.S. tax treatment of the Company’s earnings is its ability to maintain its position that the
parent company and/or its significant foreign owned subsidiaries are not deemed to be Controlled Foreign
Corporations (as defined under the United States Internal Revenue Code). A Controlled Foreign Corporation is a
non-U.S. corporation whose largest U.S. shareholders (i.e., those owning 10% or more of the stock) together own
more than 50% of the stock in such corporation. If a change of control of the Company or any of its significant
foreign subsidiaries were to occur such that one or more of those subsidiaries became Controlled Foreign
Corporations, such a change could have a material negative effect on the Company’s business, financial condition and
results of operations.
Item 2. Properties
Plant and Facilities
The Company owns a 135,000 square foot office building in El Paso, Texas that houses its worldwide
headquarters. The Company’s main warehouse in El Paso, Texas totals 408,000 square feet and is adjacent to the
headquarters building. The two buildings are located on a 50-acre plot of land owned by the Company. In addition
the Company leases 108,000 square feet of warehouse space in El Paso, Texas.
The Company also owns 22 acres of land in El Paso, Texas, near the 50 acres on which the warehouse and
corporate headquarters are located. The Company is holding this land for future business use.
A subsidiary located in Hong Kong leases approximately 26,500 square feet of office space. Prior to
fiscal 1996 this subsidiary was headquartered in approximately 12,000 square feet of office space that was
acquired by condominium ownership. In fiscal 1998 the Company leased that office space to a third party. The
Company also leases various administrative and sales offices in the United States, the United Kingdom, Germany,
Canada and France.
The Company leases warehouse space in public warehouses located in Memphis, Tennessee; Veenendaal, The
Netherlands; Nottinghamshire, the United Kingdom; Toronto, Canada; Montevideo, Uruguay; and Hong Kong.
6
The Company also owns its former headquarters, which consists of an office building with approximately
40,000 square feet, situated on approximately one acre of land in El Paso, Texas. Additionally, the Company owns
and maintains 12,000 square feet of warehouse space on a 62,000 square foot lot adjacent to the former headquarters
building. The Company is holding these properties for sale.
Item 3. Legal Proceedings
The Inland Revenue Department (“the IRD”) in Hong Kong assessed tax on certain profits of the
Company’s foreign subsidiaries for the fiscal years 1990 through 1997. Hong Kong tax law allows for the
taxation of profits earned from activities conducted in Hong Kong. The Company is vigorously defending its
position that it conducted the activities that produced the profits in question outside of Hong Kong. The Company
also asserts that it has complied with all applicable reporting and tax payment obligations. If the IRD’s position
were to prevail, the resulting tax liability could range from $5,600,000 to $29,000,000 (U.S.) for the period from
fiscal 1990 through fiscal 2001. In connection with the IRD’s assertion the Company purchased $5,750,000 (U.S.)
in tax reserve certificates in Hong Kong. Tax reserve certificates represent the prepayment by a taxpayer of
potential tax liabilities. The amounts paid for tax reserve certificates are refundable in the event that the value of
the tax reserve certificates exceeds the related tax liability. These certificates are denominated in Hong Kong
currency and are subject to risks associated with foreign currency fluctuations. Although the ultimate resolution
of the IRD’s claims cannot be predicted with certainty, management believes that adequate provision has been
made in the financial statements for settlement of the IRD’s claims.
In October 1999 a demand for arbitration with the American Arbitration Association was filed by the
former shareholders of DCNL, Inc., an entity acquired by the Company in October 1998. The demand alleged
among other things, that the Company and certain executive officers breached the October 16, 1998 Merger
Agreement between DCNL California and the Company regarding the redemption of certain contingent value
rights and the calculation of earnout payments. The full settlement of this matter in February 2001 did not have a
material adverse effect on the Company’s financial results.
In fiscal 2001, The Schawbel Corporation (“Schawbel”), the supplier of the Company’s butane hair care
products, notified the Company that it was terminating the supply and distribution agreement the parties
executed in September of 1998 (the “Distribution Agreement”). Schawbel considered Helen of Troy to be in
default of the Distribution Agreement because of the Company’s failure to meet certain minimum sales
requirements. During fiscal 2001 the Company sold $2,399,000 (approximately 0.7 percent of the Company’s
consolidated sales) of products purchased from Schawbel. In the fourth quarter of fiscal 2001, the Company
recorded a $2,457,000 charge for the remaining unamortized costs under the Distribution Agreement.
Subsequent to the Company’s fiscal 2001 year, it reached a settlement with Schawbel formally terminating the
Distribution Agreement. In addition, the settlement grants the Company the right to sell all of its remaining
$3,061,000 of inventory purchased under the Distribution Agreement.
In a related matter, in September 1999, Schawbel commenced litigation in the United States District Court
for the District of Massachusetts against The Conair Corporation (“Conair”), the predecessor distributor to Helen
of Troy for Schawbel’s butane products. In its action, amended in June 2000, Schawbel alleged, among other
things, that Conair, following Schawbel’s termination of the Conair distribution agreement, stockpiled and sold
Schawbel product beyond the 120 day “sell-off” period afforded under the agreement, and manufactured,
marketed and sold its own line of butane products which infringed patents held by Schawbel. In November
2000, the Massachusetts court granted Schawbel its request for preliminary injunction, and ordered that Conair
cease selling all allegedly infringing products. On March 7, 2001, Helen of Troy sought leave from the
Massachusetts court to intervene as a plaintiff in the action and to assert claims against Conair similar to the
claims raised by Schawbel. Helen of Troy also is seeking to recover damages in excess of $10 million, arising
from the Company’s inability to meet minimums under the Distribution Agreement and subsequent termination
by Schawbel. In an order dated April 11, 2001, the Massachusetts court granted Helen of Troy’s motion to
intervene and Helen of Troy subsequently served its complaint on Conair. On May 11, 2001 Conair responded
by filing a motion to dismiss the Company’s claim, and serving on Helen of Troy a counterclaim alleging that
Helen of Troy conspired with Schawbel to unlawfully terminate Conair’s distribution agreement with Schawbel,
and to disparage Conair’s reputation in the industry, and seeking $15 million in damages. Although the ultimate
outcome of the matter cannot be predicted, the Company contends that there is no basis to Conair’s attempts to
dismiss Helen of Troy’s claims, and that Conair’s counterclaims lack validity. The Company intends to pursue
7
vigorously its claims and defense in the litigation.
The Company is involved in various other legal claims and proceedings in the normal course of operations.
In the opinion of management, the outcome of these matters will not have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2001.
8
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
Price Range of Common Stock
The Company’s Common Stock is listed on the NASDAQ National Market System [symbol: HELE].
The following table sets forth, for the periods indicated, in dollars per share, the high and low bid prices of the
Common Stock as reported on the NASDAQ National Market System. These quotations reflect the inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Fiscal 2001
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal 2000
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
7.875
6.938
7.500
7.063
16.500
20.000
14.375
10.688
6.188
4.750
4.000
4.000
10.313
13.375
7.250
7.000
Approximate Number of Equity Security Holders
The Company had one class of equity security outstanding at February 28, 2001, Common Stock with a
par value of $0.10. As of May 7, 2001, there were 461 holders of record of the Company’s Common Stock.
Shares held in “nominee” or “street” name at each bank nominee or brokerage house are included in the number
of shareholders of record as a single shareholder.
Cash Dividends
The Board of Directors’ current policy is to retain earnings to provide funds for the operation and
expansion of the Company’s business and for potential acquisitions. The Company has not paid any cash
dividends on its Common Stock since inception. The Company’s current intention is to pay no cash dividends in
fiscal 2002. Any change in dividend policy will depend upon future conditions, including earnings and financial
condition, general business conditions, any applicable contractual limitations, and other factors deemed relevant
by the Board of Directors.
Shareholder Rights Plan
Under the terms of a Shareholder Rights Plan approved by the Board of Directors on December 1, 1998
the Board of Directors declared, on that date, a dividend of one preference share right (“Right”) for each
outstanding share of Common Stock. The dividend, which was payable to shareholders of record on December
15, 1998, resulted in no cash payment by the Company, created no liability on the part of the Company and did
not change the number of shares of Common Stock outstanding.
9
Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of
Series A First Preference Shares (“Preference Shares”), par value $1.00, at a price of $100 per one one-thousandth
of a Preference Share. One one-thousandth of a Preference Share would have voting rights essentially equivalent
to those associated with one share of Common Stock. Should certain persons or groups of affiliated persons
acquire more than 15% of the Company’s outstanding Common Stock, they would become an “Acquiring
Person.” At that time, the Board may distribute Rights that are separable from the Common Stock (on the
“Distribution Date”) and may adjust the price of a Preference Share. The Rights are not exercisable and are
inseparable from the Common Stock until the Distribution Date. The Rights associated with an Acquiring
Person’s shares of Common Stock would not be exercisable. The rights have certain anti-takeover effects and
could cause substantial dilution to a person or group that attempts to acquire the Company in certain
circumstances. However, the Rights should not interfere with any merger or other business combination approved
by the Board of Directors.
The Rights will expire on December 1, 2008 (the “Final Expiration Date”), unless the Final Expiration
Date is advanced or extended or unless the Rights are earlier redeemed or exchanged by the Company. A more
complete explanation of the Shareholder Rights Plan, along with the Plan itself, is contained in the Form 8-K filed
by the Company with the Securities and Exchange Commission on December 4, 1998.
Recent Sales of Unregistered Securities
In September and October 1998, the Company issued 691,760 and 350,000 shares of Common Stock,
respectively, in connection with the acquisition of Karina, Inc. and DCNL, Inc. The Company also issued 350,000
contingent value rights to the former shareholders of DCNL, Inc. in October 1998, in connection with the
acquisition of that company. The former shareholders of DCNL, Inc. received 154,544 shares of Common Stock
when the contingent value rights that they held were redeemed.
The shares of Common Stock were issued to the former shareholders of Karina, Inc. and DCNL, Inc. in
reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.
A registration statement on Form S-3, which included 691,760 shares of Common Stock issued in September
1998, was declared effective by the Securities and Exchange Commission on October 21, 1998. Additionally, a
registration statement on Form S-3, which included 350,000 shares of Common Stock and 350,000 shares of
Common Stock issuable upon exercise or redemption of contingent value rights issued in October 1998, was
declared effective by the Securities and Exchange Commission on December 2, 1998. Of the 350,000 shares of
Common Stock issuable upon exercise or redemption of the contingent value rights, 154,544 were ultimately
issued.
10
Item 6. Selected Financial Data
The selected consolidated financial information set forth below has been summarized from the
Company’s Consolidated Financial Statements. This information should be read in conjunction with the
Consolidated Financial Statements and the related Notes to Consolidated Financial Statements included in
Item 8. “Financial Statements and Supplementary Data.” All currency amounts in this document are
denominated in U.S. dollars.
Twelve Months Ended Last Day of February
(in thousands, except per share amounts)
Statements of Income Data
Net Sales
2001 (1)
2000
1999
1998
1997
$361,398
299,513
294,487
248,098
213,035
Cost of sales
Gross Profit
220,530
140,868
185,685 (2)
113,828
175,293
119,194
153,087
95,011
132,861
80,174
Selling, general and
Administrative expenses
118,306
104,409 (2)
82,862
64,911
57,438
Operating income
22,562
9,419
36,332
30,100
22,736
Interest expense
Other income
(3,989)
2,317 (3)
(3,530)
7,208 (3)
(3,337)
2,418
(3,487)
2,203
(2,262)
1,665
Earnings before income taxes
Income tax expense (benefit)
Net earnings
Per Share Data
Basic
Diluted
Weighted average number of
common shares outstanding:
Basic
Diluted
20,890
3,558
$17,332
$ .61
$ .60
13,097
(14)
13,111
.45
.44
35,413
28,816
22,139
7,083
6,484
4,981
28,330
22,332
17,158
1.00
.96
.83
.77
.66
.62
28,420
28,729
29,053
29,885
28,279
29,596
26,856
28,851
26,078
27,770
11
Item 6. Selected Financial Data - continued
Last Day of February
(in thousands)
2001
2000
1999
1998
1997
Balance Sheet Data:
Working capital
Total assets
Long-term debt
Stockholders’ equity (4)
$157,809
337,181
55,000
$219,609
154,395
304,252
55,000
209,624
150,940
294,036
55,450
199,842
154,294
227,560
55,450
149,484
111,937
182,226
40,450
120,482
(1) Fiscal 2001 results include the results of Tactica, a subsidiary in which the Company acquired a 55
percent interest in March 2000.
(2) In fiscal 2000, the Company incurred $2,669,000 of charges to cost of goods sold and $8,725,000 of
charges to selling, general and administrative expenses as a result of the discontinuance of its artificial
nails product line. In fiscal 2000 the Company also incurred $770,000 of charges related to the
restructuring and reorganization of several departments. See “Item 7 – Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Fiscal Year Ended February 29, 2000 versus
Fiscal Year Ended February 28, 1999” for a further discussion of certain charges taken during the fourth
quarter of fiscal 2000.
(3) Other income includes gains of approximately $1,400,000 in fiscal 2001 and $6,300,000 in fiscal 2000
from the sale and appreciation of marketable securities. See “Item 7 – Management’s Discussion and
Analysis of Financial Condition and Results of Operations for a further discussion of gains from
marketable securities.
(4) In fiscal 2000 the Company repurchased 526,485 shares of common stock at a cost of $4,076,000. In
fiscal 2001, the Company repurchased 815,946 shares of common stock at a cost of $4,623,000.
12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The following table sets forth, for the periods indicated, selected consolidated operating data for the
Company as a percentage of net sales.
Relationship to Net Sales
Fiscal Year
2001
2000
Net sales
Cost of sales
Gross Profit
Selling, general and
administrative expenses
Operating income
Interest expense
Other income, net
Earnings before income taxes
Income taxes
Net Earnings
100.0%
61.0
39.0
32.7
6.3
(1.1)
0.6
5.8
1.0
4.8%
100.0
62.0
38.0
34.9
3.1
(1.1)
2.4
4.4
-
4.4
1999
100.0
59.5
40.5
28.2
12.3
(1.1)
0.8
12.0
2.4
9.6
13
Segments
The Company operates its business in three segments. The North American segment sells hair care and other
personal care and comfort appliances, hairbrushes, combs, and utility and decorative hair accessories in the United
States, Canada, and Mexico. The International segment sells the same categories of products in countries outside of
North America.
The third operating segment is Tactica. In March 2000, the Company acquired a 55 percent ownership
interest in Tactica. The Company’s consolidated results of operations include and will continue to include one
hundred percent of Tactica’s revenues and expenses until such time as the minority interest in Tactica’s
accumulated deficit is extinguished. Tactica operates at higher gross profit margins but has higher operating
expenses because of the high level of television and print advertising necessary to the business. In addition, many
of the products developed and marketed by Tactica are trend oriented and usually have shorter product lives.
Accordingly, the ability of Tactica to achieve consistent sales levels is dependent upon the continued development
of new products, effectiveness of the advertising and the ultimate product acceptance by the consumer.
Sales by operating segment for fiscal 2001, 2000 and 1999 were as follows:
Segment
North American
International
Tactica
(in thousands)
2001
$ 311,998
25,390
24,010
$ 361,398
2000
275,827
23,686
-
299,513
1999
278,900
15,587
-
294,487
% increase
(decrease)
2001 /
2000
2000 /
1999
13%
7
n/a
21%
(1)%
52
n/a
2 %
Operating income (loss) by operating segment for fiscal 2001, 2000, and 1999 was as follows:
Segment
North American
International
Tactica
Corporate / other
(in thousands)
2001
$ 28,736
94
(4,629)
(1,639)
$ 22,562
2000
9,857
835
-
(1,273)
9,419
1999
39,871
(641)
-
(2,898)
36,332
% increase
(decrease)
2001 /
2000
192 %
(89)
-
(29)
2000 /
1999
(75) %
230
-
56
140% (74) %
14
Fiscal Year Ended February 28, 2001 Versus Fiscal Year Ended February 29, 2000
Sales
Net sales for fiscal 2001 increased 20.7 percent or $61,885,000 compared to fiscal 2000. Increased North
American sales and the addition of the sales of Tactica contributed most of the sales growth. Sales in the Company’s
International segment also grew. Excluding the sales of the newly-added Tactica segment, the Company achieved net
sales growth of 12.6 percent in fiscal 2001.
The increase in the Company’s fiscal 2001 North American sales was largely due to the internal
development of new products and sales of a new product line. The Company introduced new quiet hair dryers, a
new line of halogen hair care appliances, and a new line of personal spa products, including paraffin baths, during
fiscal 2001. Additionally, sales of home hair clippers and trimmers under the Sunbeam® and Oster® names
helped the Company achieve increased sales in the North American segment during fiscal 2001. Fiscal 2001 was
the first year in which the Company sold hair clippers and trimmers. Sales of certain brush, comb and accessory
products declined in fiscal 2001, partially offsetting the sales growth produced by the segment’s other products.
North American segment sales include the Company’s North American sales of artificial nails, which totaled
$233,000 in fiscal 2001 and $394,000 in fiscal 2000. The Company discontinued production of artificial nails in fiscal
2000 and plans to sell its remaining inventory of this product line.
The Company’s sales in countries other than the United States, Canada, and Mexico comprise the business of
its International segment. Higher sales in Latin America, particularly in Brazil, were the primary factor increasing
International sales during fiscal 2001, relative to fiscal 2000. Sales in Germany and France also grew. The Company
continues to work to penetrate these and other international markets.
Tactica, a subsidiary of which Helen of Troy acquired 55 percent ownership during March 2000, accounted
for $24,010,000 of the Company’s fiscal 2001 sales growth. Tactica sells a number of personal care items, including a
hair dryer that uses ion technology, depilatories, paraffin baths, and other consumer items. Tactica sells directly to
consumers and to retailers.
Gross profit
Gross profit as a percentage of sales rose from 38.0 percent in fiscal 2000 to 39.0 percent in fiscal 2001.
The sales of Tactica contributed significantly to the increase in gross profit. Tactica generates higher gross
margins and incurs higher selling, general, and administrative expenses, as a percentage of its sales, compared to
the Company’s other sales. Additionally, gross profit for fiscal 2000 was reduced by a $2,669,000 pre-tax charge
for the write-down of the Company’s artificial nails inventory. The absence of such a charge in fiscal
2001contributed to improved gross profit as a percentage of sales. Slightly lower gross margins on some of the
Company’s other North American and International products partially offset factors that increased margins.
Selling, general, and administrative expenses
Selling, general, and administrative expenses (“SG&A”) as a percentage of sales decreased to 32.7
percent in fiscal 2001, from 34.9 percent in fiscal 2000. Excluding the newly-acquired Tactica segment, added in
fiscal 2001, selling, general, and administrative expenses as a percentage of sales decreased from 34.9 percent in
fiscal 2000 to 29.4 percent in fiscal 2001. Two factors accounted for a substantial portion of the overall decrease.
First, because of fiscal 2001 sales growth, the Company’s fixed expenses represented a smaller percentage of
sales in fiscal 2001 than in fiscal 2000. Second, in fiscal 2000, the Company recognized $8,725,000 in pre-tax
SG&A expenses related primarily to the discontinuance of its artificial nails business and also to other charges
associated with strategic reorganizations of certain operations. In fiscal 2001, the Company recognized
$2,457,000 in pre-tax charges due to the planned discontinuance of its butane hair care products and a $1,895,000
reduction in SG&A due to the settlement of a license obligation for which the Company accrued a liability in
fiscal 2000. The charge for the discontinuance of the product line, combined with the benefit from the settlement
of the license obligation resulted in a net $562,000 increase in fiscal 2001 SG&A, versus the $8,725,000 increase
related to non-recurring charges in fiscal 2000.
15
The selling, general, and administrative expenses of the Company’s newly acquired Tactica operating
segment partially offset the effects of the above-discussed factors. Tactica’s business of selling directly to
consumers requires relatively large amounts of television and print advertising. As a result, Tactica incurs higher
SG&A expenses, as a percentage of sales, than the Company’s other operating segments. Additionally, fiscal
2001 expenses associated with media advertising campaigns for some of the Company’s new hair care appliances
offset, in part, the factors that lowered SG&A as a percentage of overall sales.
Operating income
Operating income totaled $22,562,000 in fiscal 2001, an increase of $13,143,000 from $9,419,000 in
fiscal 2000. Higher sales levels, along with the effects of non-recurring charges in fiscal 2000, resulted in higher
operating income in fiscal 2001, versus fiscal 2000. Fiscal 2000 operating income was reduced by $13,382,000 in
pre-tax charges, $10,584,000 of which were attributable to the discontinuance of the Company’s artificial nails
product line. The fiscal 2001 results produced by Tactica, the subsidiary in which the Company acquired a 55
percent interest in the first quarter of the fiscal year, reduced consolidated operating income by $4,629,000.
Interest expense and Other income / expense
Interest expense increased to $3,989,000 in fiscal 2001from $3,530,000 in fiscal 2000. The primary reason for
the increase is that the Company capitalized interest on the construction of its new corporate headquarters during the
first two quarters of fiscal 2000. No interest was capitalized during fiscal 2001.
Other income decreased to $2,317,000 in fiscal 2001 from $7,083,000 in fiscal 2000. Lower income from the
sale and appreciation of marketable securities accounted for most of this decrease. Income from the sale and
appreciation of marketable securities was approximately $1,400,000 in fiscal 2001, versus $6,300,000 for fiscal 2000.
The Company’s marketable securities consist of shares of the common stock of several publicly traded companies and
are stated at market value, as determined by the most recent trading price of each security as of the balance sheet date.
The market risk associated with marketable securities is summarized in the “Liquidity and Capital Resources” section
of Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Income tax expense
Income tax expense totaled $3,558,000, or 17 percent of earnings before income taxes, versus a tax benefit of
$14,000 in fiscal 2000 on $13,097,000 in earnings before income taxes. The Company’s effective tax rate for both
fiscal 2001 and fiscal 2000 was reduced below rates of approximately 20 percent that it had experienced prior to fiscal
2000. During both fiscal 2001 and fiscal 2000, the Company’s tax rate was reduced by the fact that Helen of Troy
Limited, the Bermuda Corporation, which is not subject to any capital gains or other income tax, holds the
consolidated group’s investments in marketable securities. In addition, the charges associated with the Company’s
discontinuance of its artificial nails product line created tax benefits on the books of a United States subsidiary that
offset much of the tax expense associated with the income of non-United States subsidiaries.
16
Fiscal Year Ended February 29, 2000 Versus Fiscal Year Ended February 28, 1999
Sales
Fiscal 2000 sales increased $5,026,000, or two percent, when compared to fiscal 1999 sales. The Company
experienced increased competition, which constrained sales growth for fiscal 2000. Sales in the Company’s
International segment grew significantly in fiscal 2000. Increased sales in Latin America, as well as in the United
Kingdom and Western Europe, were the principal reasons for the international sales growth in fiscal 2000.
Gross Profit
Fiscal 2000 gross profit as a percentage of sales decreased to 38.0 percent, from 40.5 percent in fiscal 1999.
As noted in the discussion of fiscal 2001 gross profit versus fiscal 2000 gross profit, the Company absorbed a charge
to cost of goods sold of $2,669,000 in fiscal 2000 for the write-down of artificial nails inventory. This charge,
combined with increased transportation costs from the Far East, and a less favorable sales mix, contributed to the
decrease in gross profit from fiscal 1999 to fiscal 2000.
Selling, general, and administrative expenses
Selling, general, and administrative expenses as a percentage of sales increased to 34.9 percent in fiscal 2000,
compared to 28.2 percent in fiscal 1999. As noted above in the discussion of SG&A for fiscal 2001 versus fiscal 2000,
the Company recorded pre-tax charges of $8,725,000 in the fourth quarter of fiscal 2000. The charges were associated
primarily with the discontinuance of the Company’s artificial nails product line. The restructuring of various
departments within the Company also resulted in fourth quarter fiscal 2000 charges. Higher cooperative advertising
and freight costs also contributed to the increase in SG&A as a percentage of sales in fiscal 2000. Depreciation and
amortization expenses also increased as the Company placed into service its new corporate headquarters and recorded
a full year of amortization of the goodwill associated with its fiscal 1999 acquisitions. Finally, increased customer
chargebacks, due in part to transition issues associated with the Company taking over the operations of its El Paso
warehouse from a third party contractor, also resulted in higher SG&A as a percentage of sales in fiscal 2000 than in
fiscal 1999.
Operating income
Operating income decreased to $9,419,000 in fiscal 2000, from $36,332,000 in fiscal 1999. The charges
incurred in connection with the discontinuance of the artificial nails product line and the restructuring of several
departments within the Company contributed to the decrease in operating income. Additionally, the effects of
higher cooperative advertising expenses, higher levels of customer chargebacks, higher freight costs, and higher
depreciation and amortization expense also played important roles in the decrease.
Interest expense and Other income, net
Interest expense for fiscal 2000 remained relatively constant with that of fiscal 1999. In fiscal 2000, the
Company recorded approximately $6,300,000 in gains from sales of marketable securities. The Company
recorded no such gains in fiscal 1999. Gains from the sale of marketable securities are included in “Other
income, net” on the consolidated statements of income. The Company’s marketable securities consist of shares of
the common stock of several publicly traded companies and are stated at market value, as determined by the most
recent trading price of each security as of the balance sheet date. The market risk associated with marketable
securities is summarized in the “Liquidity and Capital Resources” section of Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
17
Income tax expense
The Company recorded a net tax benefit of $14,000 on pretax income of $13,097,000 for the year ended
February 29, 2000. The effective tax rate for fiscal 2000 was less than the 20 percent effective rate recorded in fiscal
1999 because of two factors. First, Helen of Troy Limited, the Bermuda Corporation holds the consolidated group’s
investments in marketable securities and is not subject to any capital gains tax or other income tax on the sale of
equity securities. Second, the charges associated with the Company’s discontinuance of its artificial nails product line
created tax benefits on the books of a United States subsidiary that offset much of the tax expense associated with the
income of non-United States subsidiaries.
Liquidity and Capital Resources
The Company’s cash balance decreased from $34,265,000 at February 29, 2000 to $25,937,000 at February 28,
2001. Cash used by operations totaled $185,000, as the operations of Tactica used $17,026,000 of cash, while the
Company’s other operations provided $16,841,000 of cash for the fiscal year ended February 28, 2001. Investing
activities utilized $13,294,000 in cash, with the Company’s $2,500,000 investment in Tactica, loans totaling $3,500,000
to Tactica’s minority shareholders, and capital and license expenditures utilizing most of that amount. Financing
activities provided a net $5,151,000 of cash, as the Company’s $10,000,000 borrowing on its line of credit more than
offset the $4,623,000 used to repurchase 815,946 shares of its common stock during fiscal 2001.
The fiscal 2001 common stock repurchases occurred under the terms of a resolution approved by the Board
of Directors on September 29, 1999. The resolution allows the repurchase of up to 3,000,000 shares in the aggregate
over a period extending to September 29, 2002. Since the inception of this common stock repurchase program, the
Company repurchased a total of 1,342,431 shares of its common stock for $8,699,196, including commissions, or an
average price per share of $6.48.
The Company’s net accounts receivable balance was $64,310,000 at February 28, 2001, compared to
$52,916,000 at February 29, 2000. The 21.5 percent increase in accounts receivable is comparable to the 20.7 percent
increase in net sales for fiscal 2001. Days sales outstanding in accounts receivable, computed based on fourth quarter
sales, was 74 at February 28, 2001, versus 73 at February 29, 2000.
The Company’s inventory balance at February 28, 2001 was $118,544,000, versus $96,959,000 at February 29,
2000, a 22.2 percent increase. As with the increase in accounts receivable, the increased inventory balance is
comparable to the 20.7 percent increase in net sales. Inventory turns were 1.9 for both fiscal 2001 and fiscal 2000.
Included on the Company’s consolidated balance sheets at February 28, 2001 and February 29, 2000, were
$1,956,000 and $994,000, respectively, of investments in equity securities. The Company periodically invests in such
securities. Investing in equity securities entails certain market risks. Should the stock prices of one or more of the
entities in which the Company has invested decline, the Company could lose part or all of its investments in such
securities.
The Company’s working capital balance increased to $157,809,000 at February 28, 2001 from $154,395,000 at
February 29, 2000. The Company’s current ratio was 3.5 at February 28, 2001, versus 4.9 at February 29, 2000. The
decrease in the current ratio was due, in part, to the cash requirements associated with the acquisition of a 55 percent
interest in Tactica and to the funding of Tactica’s operations.
In connection with its acquisition of a 55 percent interest in Tactica, the Company loaned $3,500,000 to the
minority shareholders of Tactica. The interest rate on these loans is 8.75 percent. All principal and unpaid interest on
these loans is due March 14, 2005. Included in other assets on the Company’s consolidated balance sheet at February
28, 2001 is $3,826,000 related to the principal and accrued interest on these loans.
18
The Company maintains a line of credit with a bank to facilitate short-term borrowings and the issuance
of letters of credit. This line of credit allows borrowings totaling $10,000,000, charges interest at the LIBOR rate
plus a percentage that varies based on the Company’s earnings before interest, taxes, depreciation and
amortization (EBITDA), and expires July 31, 2001. At February 28, 2001 the interest rate charged under the line
of credit was 7.65 percent. This line of credit allows for the issuance of letters of credit up to $3,000,000. Any
outstanding letters of credit reduce the $10,000,000 maximum borrowing limit on this line of credit on a dollar-
for-dollar basis. At February 28, 2001, borrowings under this line of credit totaled $10,000,000 and there were no
outstanding letters of credit under this facility. At May 23, 2001, borrowings under this line of credit were
$6,000,000. The Company believes that it will renew or replace this credit facility on similar terms in July 2001.
The Company has an additional line of credit with a different lender, specifically for the issuance of letters of
credit. That line of credit charges interest at the bank’s prime rate plus two percent (10.5 percent at February 28,
2001), allows up to $4,000,000 in letters of credit to be outstanding at any one time, and expires August 1, 2001. As
of February 28, 2001 and May 23, 2001, outstanding letters of credit under this facility were $1,756,000 and
$1,218,000, respectively. The Company believes that it will renew or replace this credit facility on similar terms in July
2001.
Capital and license expenditures totaled $3,185,000, $8,340,000, and $17,731,000 in fiscal 2001, 2000,
and 1999, respectively. During fiscal 2000 and 1999 capital expenditure totals included expenditures for the
Company’s new corporate headquarters. The Company’s operations are not capital intensive. Management
believes that the Company’s short and long-term capital needs will stem primarily from factors associated with its
normal operations, such as the need to carry sufficient levels of inventory.
The Company regularly evaluates acquisition opportunities in its ordinary course of business and might
augment its internal growth with acquisitions of complimentary businesses and product lines. Should the
Company engage in significant acquisition activity, it would need to seek additional financing.
As noted above, approximately $23,026,000 of cash was used to acquire Tactica and fund its loans and
working capital needs during fiscal 2001. While the Company cannot predict with certainty, it believes Tactica’s
cash needs will be substantially less in fiscal 2002. Based on the above discussion and the Company’s current
financial condition and current operations, the Company believes that cash flows from operations and available
financing sources will continue to provide sufficient capital resources to fund the Company’s on going liquidity
needs for the foreseeable future.
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. Forward-looking statements are subject to risks that could
cause such statements to differ materially from actual results. Factors that could cause actual results to differ
from those anticipated include: (1) general industry conditions and competition, (2) credit risks, (3) the
Company’s material reliance on individual customers or small numbers of customers, (4) the Company’s
material reliance on certain trademarks, (5) risks associated with inventory, including potential obsolescence, (6)
risks associated with new products and new product lines, (7) risks associated with operating in foreign
jurisdictions, (8) worldwide and domestic economic conditions, (9) the impact of current and future laws, and
regulations, (10) the domestic and foreign tax rates to which the Company is subject, (11) uninsured losses, (12)
reliance on computer systems, (13) management’s reliance on the representations of third parties, (14) risks
associated with new business ventures and acquisitions, (15) risks associated with investments in equity
securities, and (16) the risks described from time to time in the Company’s reports to the Securities and
Exchange Commission, including this report.
19
New Accounting Guidance
In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133).
SFAS 133 establishes accounting and reporting standards for derivative instruments and is effective for financial
statements issued for fiscal quarters of fiscal years beginning after June 15, 2000. Based on the nature of its
current operations, the Company does not expect SFAS 133 to have a material effect on its financial statements.
In April 2001, the FASB’s Emerging Issues Task force (“EITF”) reached consensus on EITF Issue 00-25
(“EITF 00-25”), “Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer.”
EITF 00-25 requires vendors who offer certain allowances to customers to characterize those allowances as
reductions of net sales, rather than as selling, general, and administrative expenses. EITF 00-25 is applicable for
fiscal quarters beginning after December 15, 2001 and requires restatement of prior periods if possible. Had the
Company applied EITF 00-25 to its fiscal 2001 and 2000 results, net sales and selling, general, and
administrative expense would have decreased by $1,320,000 and $268,000, respectively.
20
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Page
Independent Auditors’ Report
Consolidated Financial Statements:
Consolidated Balance Sheets as of February 28, 2001 and February 29, 2000
Consolidated Statements of Income for each of the years in the
three-year period ended February 28, 2001
Consolidated Statements of Stockholders’ Equity for each of
the years in the three-year period ended February 28, 2001
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended February 28, 2001
Notes to Consolidated Financial Statements
Financial Statement Schedule –
Schedule II – Valuation and Qualifying Accounts for each of
the years in the three-year period ended February 28, 2001
22
23
25
26
27
29
47
All other schedules are omitted as the required information is included in the consolidated financial
statements or is not applicable.
21
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Stockholders
Helen of Troy Limited:
We have audited the consolidated financial statements of Helen of Troy Limited and subsidiaries as listed in the
index on page 21. In connection with our audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the index on page 21. These consolidated financial statements and
financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Helen of Troy Limited and subsidiaries as of February 28, 2001 and February 29, 2000, and
the results of their operations and their cash flows for each of the years in the three-year period ended February 28,
2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
El Paso, Texas
May 7, 2001
KPMG LLP
22
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Consolidated Balance Sheets
February 28, 2001 and February 29, 2000
(in thousands, except par value and shares)
Assets
2001
2000
Current assets:
Cash and cash equivalents
Marketable securities, at market value
Receivables – principally trade, less
allowance of $ 4,081 in 2001 and
$2,514 in 2000
Inventories
Prepaid expenses
Deferred income tax benefits
$ 25,937
1,956
$ 34,265
994
64,310
118,544
2,516
7,118
52,916
96,959
3,919
4,970
Total current assets
220,381
194,023
Property and equipment, at cost less
accumulated depreciation of $9,133 in
2001 and $6,212 in 2000
Goodwill, net of accumulated
amortization of $6,594 in 2001
and $4,569 in 2000
License agreements, at cost less accumulated
amortization of $10,676 in 2001
and $9,384 in 2000
Other assets at cost, net
47,763
47,739
42,808
40,850
7,844
18,385
5,504
16,136
$337,181
$304,252
(Continued)
23
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Consolidated Balance Sheets
February 28, 2001 and February 29, 2000
(in thousands, except par value and shares)
Liabilities and Stockholders’ Equity
Current liabilities
Notes payable to banks
Current portion of long-term debt
Accounts payable, principally trade
Accrued expenses:
Advertising and promotional
Other
Income taxes payable
Total current liabilities
Long-term debt, net of current portion
Total liabilities
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; 28,065,526 and 28,837,609
shares issued and outstanding at February 28,
2001 and February 29, 2000, respectively
Additional paid-in-capital
Retained earnings
Minority interest in deficit of acquired subsidiary
Total stockholders’ equity
Commitments and contingencies
See accompanying notes to consolidated financial statements.
2001
2000
$ 10,000
-
21,003
5,101
8,343
18,125
62,572
55,000
117,572
$ -
450
6,295
4,602
15,227
13,054
39,628
55,000
94,628
-
-
2,806
52,206
169,503
(4,906)
219,609
2,884
53,494
153,246
-
209,624
$ 337,181
$ 304,252
24
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except shares and earnings per share)
Year Ended the Last Day of February
2001
2000
1999
$361,398
220,530
299,513
185,685
294,487
175,293
140,868
113,828
119,194
Net Sales
Cost of sales
Gross profit
Selling, general and administrative
expenses
118,306
104,409
82,862
Operating income
22,562
9,419
36,332
Other income (expense):
Interest expense
Other income, net
Total other income (expense)
Earnings before income taxes
Income tax expense (benefit)
(3,989)
2,317
(1,672)
20,890
3,558
(3,530)
7,208
(3,337)
2,418
3,678
(919)
13,097
35,413
(14)
7,083
Net earnings
$17,332
13,111
28,330
Earnings per share:
Basic
Diluted
$ .61
$ .60
.45
.44
1.00
.96
Weighted average number of common
shares used in computing net earnings per share:
Basic
Diluted
28,420,073
28,728,762
29,052,788
29,885,260
28,278,545
29,596,189
See accompanying notes to consolidated financial statements.
25
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Years ended last day of February 2001, 2000 and 1999
(in thousands)
Additional
Paid-In
Retained
Minority
Interest in
Deficit of
Acquired
Capital
Earnings
Subsidiary
31,899
114,857
Balances, February 28, 1998
Exercise of common stock
options, net
Issuance of common stock to
acquire subsidiaries
Net earnings
Balances, February 28, 1999
Exercise of common stock
options, net
Issuance of common stock
in connection with employee
stock purchase plan
Net issuance of (recovery) common
stock in connection with
acquisitions
Acquisition and retirement
of treasury stock
Net earnings
Common
Stock
$ 2,728
73
104
-
2,905
16
4
12
(53)
-
-
-
28,330
143,187
-
-
-
(3,052)
255
21,596
-
53,750
913
360
(558)
(971)
-
Total
Stockholders
’
Equity
149,484
328
21,700
28,330
199,842
929
364
(546)
(4,076)
-
-
-
-
-
-
-
13,111
-
13,111
Balances, February 29, 2000
$ 2,884
53,494
153,246
Exercise of common stock
options, net
Issuance of common stock
in connection with employee
stock purchase plan
Acquisition and retirement of
treasury stock
Minority interest in deficit of
1
3
52
168
-
-
(82)
(1,508)
(3,033)
-
-
-
-
209,624
53
171
(4,623)
acquired
subsidiary
at date of
acquisition
Net earnings
-
-
-
-
(2,948)
(2,948)
-
19,290
(1,958)
17,332
Balances February 28, 2001
$ 2,806
52,206
169,503
(4,906)
219,609
See accompanying notes to consolidated financial statements.
26
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization
Provision for doubtful receivables
Deferred taxes, net
Purchases of marketable securities
Proceeds
from
sales of marketable
securities
Realized gain – trading securities
Unrealized (gain) loss – trading securities
Impairment of asset held for sale
Other non-cash adjustments to income
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses
Accounts payable
Accrued expenses
Income taxes payable
Years Ended Last Day of February
2001
2000
1999
$17,332
13,111
28,330
8,137
1,003
(2,148)
(1,579)
2,006
(688)
(701)
158
2,457
(12,053)
(20,011)
1,483
8,240
(8,892)
5,071
6,921
559
(1,112)
(16,340)
21,530
(6,265)
81
650
1,783
6,324
(6,671)
(1,871)
4,703
5,827
(600)
4,965
993
(511)
-
-
-
-
-
-
(13,403)
(15,720)
1,963
(4,030)
688
8,402
Net cash provided (used) by operating
activities
(185)
28,630
11,677
Cash flows from investing activities:
Capital and license expenditures
Cash paid for acquisitions, net of cash
acquired
Addition to other assets
Net cash used by investing
activities
(3,185)
(2,205)
(8,340)
(1,798)
(17,731)
(7,471)
(7,904)
(4,589)
(11,211)
(13,294)
(14,727)
(36,413)
(Continued)
27
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Years Ended Last Day of February
2001
2000
1999
Cash flows from financing activities:
Net proceeds from (payments on)
short-term borrowings
Payments on long-term debt
Payment of payroll tax and income tax withholding
associated with stock options exercised
Proceeds from exercise of stock options, net
Common stock repurchases
10,000
(450)
-
224
(4,623)
(10,000)
-
-
747
(4,076)
10,000
(1,663)
(6,669)
1,089
-
Net cash (used in) provided
by financing activities
5,151
(13,329)
2,757
Net increase (decrease) in cash and cash equivalents
(8,328)
574
(21,979)
Cash and cash equivalents, beginning
of year
34,265
33,691
55,670
Cash and cash equivalents, end of year
$25,937
34,265
33,691
Supplemental cash flow disclosures:
Interest paid
Income taxes paid (net of refunds)
Details of acquisitions in which common stock was issued
Fair value of assets acquired
Less:
Liabilities assumed
Common stock issued
Cash paid
Less: cash acquired
Net cash paid for acquisitions in which
common stock was issued
$ 3,982
$ 1,015
4,210
1,177
4,003
(1,123)
-
-
-
-
-
$ -
-
32,107
-
-
-
-
-
6,804
21,700
3,603
(488)
3,115
See accompanying notes to consolidated financial statements.
28
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(a) General
Helen of Troy Limited, a Bermuda company, and its subsidiaries (the “Company”) design, develop,
import, and distribute hair care and other personal care appliances, hairbrushes, combs, hair accessories
and other personal care products. The Company purchases its products from unaffiliated manufacturers
most of which are located in the Far East, including manufacturers in The People’s Republic of China,
Thailand, Taiwan and South Korea.
The consolidated financial statements are prepared in U.S. dollars and in accordance with accounting
principles generally accepted in the United States of America. These principles require management 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.
(b)
(c)
(d)
(e)
Principles of Consolidation
The consolidated financial statements include the accounts of Helen of Troy Limited and its
subsidiaries, including Tactica International, Inc. (“Tactica”), a subsidiary in which the Company
acquired a 55 percent interest in fiscal 2001. The Company’s consolidated results of operations include
and will continue to include one hundred percent of Tactica’s revenues and expenses until such time as
the minority interest in Tactica’s accumulated deficit has been extinguished. Intercompany balances
and transactions have been eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value) and consist
primarily of finished goods.
Property and Equipment
Property and equipment are stated at cost. Depreciation is recorded on a straight-line basis over the
estimated useful lives of the assets.
Intangible Assets
Intangible assets consist primarily of goodwill, license agreements and trademarks. The Company
amortizes intangible assets using the straight-line method over appropriate periods ranging from five to
forty years. The Company recorded amortization of intangible assets totaling $5,292,000, $4,527,000,
and $3,370,000 during fiscal 2001, 2000, and 1999, respectively.
The Company assesses the recoverability of goodwill by determining whether the amortization of the
asset balance over its remaining life can be recovered through undiscounted future operating cash flows
of the acquired operation. The amount of impairment, if any, is measured based on projected
discounted future operating cash flows. The discount rate used would be based on the Company’s cost
of capital. The Company believes no impairment of goodwill has occurred and that no reduction of the
estimated useful lives is warranted.
29
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
The great majority of the Company’s sales are made subject to license agreements with the licensors of
the Vidal Sassoon, Revlon®, Sunbeam® and Dr. Scholl’s® trademarks. The Company amortizes the
acquisition costs of the existing license agreements on a straight-line basis over the lives of the
respective agreements. Net sales subject to license agreements comprised 72 percent, 73 percent, and
80 percent of total net sales for fiscal years 2001, 2000, and 1999, respectively.
(f) Income Taxes
The Company uses the asset and liability method to account for income taxes. Deferred income tax
assets and liabilities are recognized for the future tax consequences of temporary differences between
the book and tax bases of various assets and liabilities. Generally, deferred tax assets represent future
income tax reductions while deferred tax liabilities represent income taxes that the Company expects
to pay in the future. The Company measures deferred tax assets and liabilities using enacted tax rates
for the years in which it expects that temporary differences will reverse or be settled. Changes in tax
rates affect the carrying values of deferred tax assets and liabilities. The effects of tax rate changes are
recognized in the periods in which they are enacted.
(g) Earnings per Share
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 potentially dilutive securities. The number of
potentially dilutive securities was 308,689, 832,472, and 1,317,644 for fiscal years 2001, 2000, and
1999, respectively. Dilutive securities for the years ended February 28, 2001, February 29, 2000 and
February 28, 1999 included 258,084, 739,615 and 1,271,565 shares, respectively, attributable to
dilutive stock options and 50,605, 92,857 and 46,079 shares, respectively, contingently issuable as part
of an acquisition. Options to purchase common stock that were outstanding but not included in the
computation of earnings per share because the exercise prices of such options were greater than the
average market price of the Company’s common stock totaled 4,319,762, 3,786,612, and 2,040,800 for
fiscal 2001, 2000, and 1999, respectively.
(h) Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
(i) Marketable Securities
Marketable securities consist of shares of common stock of several publicly traded companies and are
stated at market value, as determined by the most recent trading price of each security as of the
balance sheet date. At February 28, 2001, the Company held its investments in equity securities of
unaffiliated companies for the purpose of trading them in the near term. Therefore, all investments
in equity securities are classified as trading securities, with all unrealized gains and losses
attributable to such securities included in earnings. Management determines the appropriate
classification of the Company’s investments when those investments are purchased and reevaluates
those determinations at each balance sheet date. Included in the heading “Other income” on the
Consolidated Statements of Income for the years ended February 28, 2001 and February 29, 2000
are $688,000 and $6,265,000, respectively, in realized gains. The heading “Other income” for the
years ended February 28, 2001 and February 29, 2000, respectively, also includes $701,000 in net
unrealized gains and $81,000 in net unrealized losses.
30
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
The net unrealized gain or loss on marketable securities represents the difference between the market
values of such securities at the balance sheet date and the amounts that the Company paid for such
securities.
(j) Foreign Currency Transactions
The U.S dollar is the functional currency of the Company. If applicable, all transactions of Helen of
Troy Limited’s non-U.S. subsidiaries have been re-measured in U.S. dollars using historical
exchange rates. Changes in exchange rates that affect cash flows and the related receivables or
payables are recognized as transaction gains and losses in the determination of net earnings.
(k) Revenue Recognition
Revenue is recognized when products are shipped to customers.
(l) Advertising
Advertising costs are expensed in the fiscal year in which they are incurred. During the fiscal years
ended February 28, 2001, February 29, 2000 and February 28, 1999, $31,675,000, $18,527,000, and
$18,212,000, respectively, of advertising costs were charged to selling, general, and administrative
expenses.
(m) Warranties
The Company’s products are under warranty against defects in material and workmanship for a
maximum of two years. The Company has established an accrual of approximately $2,946,000 and
$2,868,000 for the fiscal years ended February 28, 2001 and February 29, 2000, respectively, to
cover future warranty costs.
(n) Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is measured as the amount by
which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to sell.
(o) Interest Income
Interest income is included in “Other income, net” on the Consolidated Statements of Income. Interest
income totaled $931,000, $987,000, and $1,496,000 in fiscal 2001, 2000, and 1999, respectively.
(Continued)
31
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1)
Summary of Significant Accounting Policies, continued
(p) Financial Instruments
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.
Based on prevailing interest rates for similar instruments, the fair value of the current note payable
approximates its carrying value. See note 4 for management’s assessment of the fair value of the
Company’s guaranteed Senior Notes.
(q) Stock-based Compensation Plans
The Company accounts for its stock-based compensation plans in accordance with Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”).
Therefore, no compensation cost has been recognized in connection with the Company’s stock
option plans. Disclosures in accordance with Statement of Financial Accounting Standards No. 123,
“Accounting for Stock-Based Compensation,” (“SFAS No. 123”), appear in note 6.
(Continued)
32
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Property and Equipment
A summary of property and equipment is as follows:
Estimated
Useful Lives
(Years)
As of the last day
of February
2001
2000
Land
Building and improvements
Computer and other equipment
Transportation equipment
Furniture and fixtures
Less accumulated depreciation
-
20-40
3 – 5
3 – 5
5- 15
$10,157
29,242
9,809
897
6,791
56,896
(9,133)
10,111
29,184
7,567
897
6,192
53,951
(6,212)
Property and equipment, net
$47,763
47,739
The Company recorded $3,003,000, $2,394,000, and $1,595,000 of depreciation expense for fiscal 2001,
2000, and 1999, respectively. Capital expenditures totaled $1,351,000, $8,340,000, and $17,731,000 in
fiscal 2001, 2000, and 1999, respectively.
The Company recognized a $650,000 impairment charge during fiscal 2000 and an additional $158,000
charge during the fourth quarter of fiscal 2001. These amounts represent the estimated excess of the
carrying amount over the estimated net realizable value of the Company’s former headquarters. The
former headquarters is classified as an asset held for sale and is included in the heading “Other assets” on
the accompanying February 28, 2001, and February 29, 2000 Consolidated Balance Sheets.
During fiscal 2000 the Company capitalized $721,000 of interest in connection with the construction of a
new office facility.
The Company leases 108,000 square feet of warehouse space, as well as various administrative office space,
from a real estate partnership in which the Chief Executive Officer and another member of the Board of
Directors are partners. During fiscal 2001 the Company paid the real estate partnership $513,000 under
these leases.
(Continued)
33
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Notes Payable
The Company maintains a line of credit with a bank to facilitate short-term borrowings and the issuance of
letters of credit. This line allows borrowing totaling $10,000,000, charges interest at the LIBOR rate plus
a percentage that varies based on the Company’s earnings before interest, taxes, depreciation and
amortization (EBITDA), and expires July 31, 2001. At February 28, 2001 the interest rate charged under
the line of credit was 7.65 percent. This line of credit allows for the issuance of letters of credit up to
$3,000,000. Any outstanding letters of credit reduce the $10,000,000 maximum borrowing limit on this
line of credit on a dollar-for-dollar basis. At February 28, 2001, borrowing under this line of credit totaled
$10,000,000 and there were no outstanding letters of credit under this facility.
The Company has an additional line of credit with a different lender, specifically for the issuance of letters of
credit. Outstanding borrowing under that line of credit charges interest at the bank’s prime rate plus two
percent (10.5 percent as of February 28, 2001), allows up to $4,000,000 in letters of credit to be
outstanding at any one time and expires August 1, 2001. As of February 28, 2001, outstanding letters of
credit under this facility were $1,756,000.
(4) Long-Term Debt
On January 5, 1996, a U.S. subsidiary issued guaranteed Senior Notes at face value of $40,000,000. Interest
is paid quarterly at a rate of 7.01%. The Senior Notes are unsecured, are guaranteed by Helen of Troy
Limited and certain of its subsidiaries and are due January 5, 2008. Annual principal payments of
$10,000,000 begin in fiscal 2005. Using a discounted cash flow analysis based on estimated market rates,
the estimated fair value of the guaranteed Senior Notes at February 28, 2001 is approximately
$38,556,000.
On July 18, 1997, a U.S. subsidiary of the Company’s issued a $15,000,000 Senior Note. Interest is paid
quarterly at a rate of 7.24%. The $15,000,000 Senior Note is unsecured, is guaranteed by Helen of Troy
Limited and certain of its subsidiaries and is due July 18, 2012. Annual principal payments begin in
fiscal 2009. Using a discounted cash flow analysis based on estimated market rates, the estimated fair
value of the guaranteed Senior Note at February 28, 2001 is approximately $14,302,000.
Both the $40,000,000 and $15,000,000 Senior Notes contain covenants that require the Company to meet
certain net worth and other financial requirements. Additionally, the notes restrict the Company from
incurring liens on any of its properties, except under certain conditions as defined in the Senior Note
agreements.
(Continued)
34
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Income Taxes
The components of earnings before income tax expense are as follows:
Years ended the last day of February
(in thousands)
2001
2000
1999
$ 4,524
16,366
$ 20,890
(5,725)
18,822
13,097
9,697
25,716
35,413
U.S.
Non-U.S.
The components of income tax expense (benefit) are as follows:
Current
U.S.
Non-U.S.
Deferred
2001
$ 2,990
2,716
(2,148)
$ 3,558
2000
(182)
1,280
(1,112)
(14)
1999
4,734
2,860
(511)
7,083
Total income tax expense differs from the amounts computed by applying the statutory tax rate to earnings
before income taxes. The reasons for these differences are as follows:
Expected tax expense at the U.S.
statutory rate of 35%
Decrease in income
taxes
resulting
from
income
from non-U.S. operations
subject to varying income
tax rates
Actual tax expense
Years ended the last day of February
(in thousands)
2001
2000
1999
$ 7,312
4,584
12,395
(3,754)
$ 3,558
(4,598)
(14)
(5,312)
7,083
(Continued)
35
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Income Taxes, continued
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
liabilities at February 28, 2001 and February 29, 2000 are as follows:
Deferred tax assets:
Net operating loss carryforwards
Inventories, principally due to additional
cost of
inventories
for
tax
purposes
Accrued expenses
Accounts receivable
Total gross deferred tax assets
Valuation allowance
Deferred tax liabilities:
Depreciation and amortization
Net deferred tax asset
2001
2000
(in thousands)
$ 1,615
1,287
3,557
2,926
9,385
(1,627)
(640)
$ 7,118
718
1,314
3,051
130
5,213
-
(243)
4,970
The Company’s United States net operating loss of $2,683,000 expires if not utilized by fiscal 2021.
Accounting standards require that deferred income taxes reflect the tax consequences of future tax
benefits, including net operating losses, to the extent that realization of such benefits is more likely than
not. Certain of the Company’s gross deferred tax assets do not, in the opinion of management, meet that
standard as of February 28, 2001. Therefore, the Company has placed a valuation allowance against
those assets. Although realization is not assured, management believes it is more likely than not that the
remaining net deferred tax asset, including net operating losses, will be realized. The amount of the
deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income
during the carryforward period are reduced.
The Inland Revenue Department (the “IRD”) in Hong Kong assessed tax on certain profits of the Company’s
foreign subsidiaries for the fiscal years 1990 through 1997. Hong Kong tax law allows for the taxation
of profits earned from activities conducted in Hong Kong. The Company is vigorously defending its
position that it conducted the activities that produced the profits in question outside of Hong Kong. The
Company also asserts that it has complied with all applicable reporting and tax payment obligations. If
the IRD’s position were to prevail, the resulting tax liability could range from $5,600,000 to $29,000,000
(U.S.) for the period from fiscal 1990 through 2001. In connection with the IRD’s assertion, the
Company purchased $5,750,000 (U.S.) in tax reserve certificates in Hong Kong as of February 28, 2001.
Tax reserve certificates represent the prepayment by a taxpayer of potential tax liabilities. The amounts
paid for tax reserve certificates are refundable in the event that the value of the tax reserve certificates
exceeds the related tax liability. These certificates are denominated in Hong Kong currency and are
subject to risks associated with foreign currency fluctuations. Although the ultimate resolution of the
IRD’s claims cannot be predicted with certainty, management believes that adequate provision has been
made in the financial statements for settlement of the IRD’s claims.
(Continued)
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Income Taxes, continued
The U.S. federal tax returns of the Company’s largest domestic subsidiary for the fiscal years 1997, 1998 and
1999 are being examined by the Internal Revenue Service (“IRS”). No adjustments have been proposed
by the IRS. Although the ultimate outcome of the examination cannot be predicted with certainty,
management is of the opinion that adequate provision has been made in the financial statements for the
estimated effect of the examination.
The Company plans to permanently reinvest all of the undistributed earnings of the non-U.S. subsidiaries of
the United States subsidiaries. The Company has made no provision for U.S. federal income taxes on
these undistributed earnings. At February 28, 2001, undistributed earnings for which the Company had not
provided deferred U.S. federal income taxes totaled $50,244,000.
During fiscal years 2000 and 1999 officers and employees exercised certain stock options, resulting in a U.S.
federal income tax deduction for the Company. The deductions attributable to the exercise of stock
options did not affect income tax expense for financial reporting purposes. The tax effect of the stock
option exercises increased additional paid-in-capital by $239,000, and $5,907,000, respectively, in fiscal
2000, and 1999.
(6) Stock-Based Compensation Plans
The Company sponsors four stock-based compensation plans. The plans consist of two employee stock option
plans, a non-employee director stock option plan and an employee stock purchase plan. These plans are
described below. The Company accounts for its stock-based compensation plans under APB No. 25.
Accordingly, no compensation expense has been recognized for the Company’s stock option plans or its
stock purchase plan. Had the Company recorded compensation expense for its stock option plans based on
the fair value of the options at the dates of grant for those awards, consistent with the method of SFAS
Number 123, the Company’s net income and earnings per share would have been reduced to the following
pro forma amounts:
Net Income:
Earnings per share:
As Reported
Pro forma
Basic: As Reported
Pro forma
Diluted:
As Reported
Pro forma
Years Ended the last day of February
2001
2000
1999
$17,332,000
12,502,000
13,111,000
5,054,000
28,330,000
25,533,000
$ .61
$ .44
$ .60
$ .44
.45
.17
.44
.17
1.00
.90
.96
.86
(Continued)
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Stock-Based Compensation Plans, continued
The Company computed the pro forma figures disclosed above using the Black-Scholes option pricing model
with the following weighted-average assumptions used for grants in fiscal 2001, 2000, and 1999,
respectively; expected dividend yields of zero for all years; expected volatility of 34.9 percent for fiscal
2001, 35.1 percent for fiscal 2000, and 27.4 percent for fiscal 1999; risk-free interest rates of 4.9 percent
for fiscal 2001, 6.6 percent for fiscal 2000, and 5.4 percent for fiscal 1999; and expected lives of 3, 4, 5 or
10 years depending on the option granted.
Under stock option and restricted stock plans adopted in 1994 and 1998 (the “1994 Plan” and the “1998 Plan”
respectively) the Company reserved a total of 11,000,000 shares of its common stock for issuance to key
officers and employees. Pursuant to the 1994 and 1998 Plans, the Company grants options to purchase its
common stock at a price equal to or greater than the fair market value on the grant date. Both plans
contain provisions for incentive stock options (“ISOs”), non-qualified stock options (“Non-Qs”) and
restricted stock grants. Generally, options granted under the 1994 and 1998 Plans become exercisable
immediately, or over a one, four or five-year vesting period and expire on a date ranging from seven to ten
years from their date of grant.
Under a stock option plan for non-employee directors (the “Directors’ Plan”), adopted in fiscal 1996, the
Company reserved a total of 480,000 shares of its common stock for issuance to non-employee members
of the Board of Directors. The Company grants options under the Directors’ Plan at a price equal to the
fair market value of the Company’s common stock at the date of grant. Options granted under the
Directors’ Plan vest one year from their date of issuance and expire ten years after issuance.
A summary of stock option activity under all plans is as follows:
Years Ended the last day of February
Options outstanding,
beginning of year
Options granted
Options exercised
Options forfeited
Options outstanding, at
year end
Options exercisable at year-
end
Weighted-average fair value
of
options
granted
during
the year
2001
Weighted Average
2000
Weighted Average
1999
Weighted Average
Shares
(000s)
Exercise
Price
Shares
(000s)
Exercise
Price
Shares
(000s)
Exercise
Price
5,441
1,273
(12)
(499)
$11.96
5.95
4.31
14.78
4,393
1,386
(146)
(192)
6,203
4,362
10.52
$ 9.01
5,441
3,032
$11.53
12.16
4.72
8.95
11.96
9.54
4,554
1,110
(724)
(547)
4,393
1,683
8.10
15.76
2.75
3.20
11.53
6.62
$ 3.00
6.40
7.13
(Continued)
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Stock-Based Compensation Plans, continued
The following table summarizes information about stock options at February 28, 2001:
Outstanding Stock Options
Exercisable Stock Options
Number of
Options
269,980
186,843
91,676
548,499
2,529,272
2,849,643
5,378,915
Price Range
$4.13 to $7.91
$9.69 to $12.50
$13.13 to $24.31
$4.13 to $7.09
$10.00 to $20.00
116,000
160,000
276,000
$4.41 to $10.63
$14.47 to $17.63
Weighted-
Average
Remaining
Contractual
Life (years)
5.88
5.83
5.82
5.85
6.80
7.93
7.40
8.67
6.87
7.63
Weighted-
Average
Exercise
Price
$ 6.01
11.55
16.45
$ 9.64
Number of
Options
102,880
49,656
26,690
179,226
$ 5.29
15.15
$ 10.51
2,505,272
1,481,756
3,987,028
$ 7.30
16.02
$ 12.36
36,000
160,000
196,000
Weighted –
Average
Exercise
Price
$ 4.98
11.50
16.59
$ 8.51
$ 5.27
14.65
$ 8.75
$ 8.61
16.02
$14.66
ISOs
Total
Non-Qs
Total
Directors’
Plan
Total
In fiscal 1999 the Company’s shareholders approved an employee stock purchase plan (the “Stock Purchase
Plan”) under which 500,000 shares of common stock are reserved for issuance to the Company’s
employees, nearly all of whom are eligible to participate. Under the terms of the Stock Purchase Plan
employees authorize the Company to withhold from 1 percent to 15 percent of their wages or salaries to
purchase the Company’s common stock. The purchase price for stock purchased under the plan is equal to
85 percent of the stock’s fair market value on either the first day of each option period or the last day of
each period, whichever is lower. During fiscal 2001, 32,063 shares of common stock were issued under the
stock purchase plan.
(Continued)
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Commitments and Contingencies
The Company has employment contracts with certain of its officers. These agreements provide for minimum
salary levels and potential incentive bonuses. One agreement automatically renews itself each month for a
five year period and provides that in the event of a merger, consolidation or transfer of all or substantially
all of the assets of the Company to an unaffiliated party, the officer may make an election to receive a
cash payment for the balance of the obligations under the agreement. The expiration dates for these
agreements range from March 15, 2003 to February 28, 2006. The aggregate commitment for future
salaries pursuant to such contracts, at February 28, 2001, excluding incentive compensation, was
approximately $5,500,000.
Many of the license agreements under which the Company sells or intends to sell products with trademarks
owned by other entities require the Company to pay minimum royalties, meet minimum sales volumes
and make minimum levels of advertising expenditures.
The Company purchases most of the appliances and products that it sells from unaffiliated manufacturers
located in the Far East, principally in the Peoples’ Republic of China, Thailand, Taiwan and South Korea.
Due to the fact that most of its products are manufactured in the Far East, the Company is subject to risks
associated with trade barriers, currency exchange fluctuations and political unrest. These risks have not
historically affected the Company’s operations. Additionally, the Company’s management believes that it
could obtain its products from facilities in other countries, if necessary. However, the relocation of
production capacity could require substantial time and could result in increased costs.
In October 1999 a demand for arbitration was filed with the American Arbitration Association by the former
shareholders of DCNL, Inc., an entity acquired by the Company in October 1998. The demand alleged,
among other things, that the Company and certain executive officers breached the October 16, 1998
Merger Agreement between DCNL and the Company regarding the redemption of certain contingent
value rights and the calculation of earn out payments. The full settlement of this matter in February 2001
did not have a material adverse effect on the Company’s financial results.
In fiscal 2001, The Schawbel Corporation (“Schawbel”), the supplier of the Company’s butane hair care
products, notified the Company that it was terminating the supply and distribution agreement the parties
executed in September of 1998 (the “Distribution Agreement”). Schawbel considered Helen of Troy to be
in default of the Distribution Agreement because of the Company’s failure to meet certain minimum sales
requirements. During fiscal 2001 the Company sold $2,399,000 (approximately 0.7 percent of the
Company’s consolidated sales) of products purchased from Schawbel. In the fourth quarter of fiscal
2001, the Company recorded a $2,457,000 charge for the remaining unamortized costs under the
Distribution Agreement. Subsequent to the Company’s fiscal 2001 year, it reached a settlement with
Schawbel formally terminating the Distribution Agreement. In addition, the settlement grants the
Company the right to sell all of its remaining $3,061,000 of inventory purchased under the Distribution
Agreement.
(Continued)
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Commitments and Contingencies, continued
In a related matter, in September 1999, Schawbel commenced litigation in the United States District Court
for the District of Massachusetts against The Conair Corporation (“Conair”), the predecessor distributor to
Helen of Troy for Schawbel’s butane products. In its action, amended in June 2000, Schawbel alleged,
among other things, that Conair, following Schawbel’s termination of the Conair distribution agreement,
stockpiled and sold Schawbel product beyond the 120 day “sell-off” period afforded under the agreement,
and manufactured, marketed and sold its own line of butane products which infringed patents held by
Schawbel. In November 2000, the Massachusetts court granted Schawbel its request for preliminary
injunction, and ordered that Conair cease selling all allegedly infringing products. On March 7, 2001,
Helen of Troy sought leave from the Massachusetts court to intervene as a plaintiff in the action and to
assert claims against Conair similar to the claims raised by Schawbel. The Company is also seeking to
recover damages in excess of $10 million, arising from the Company’s inability to meet minimums under
the Distribution Agreement and subsequent termination by Schawbel. In an order dated April 11, 2001,
the Massachusetts court granted Helen of Troy’s motion to intervene and Helen of Troy subsequently
served its complaint on Conair. On May 11, 2001 Conair responded by filing a motion to dismiss the
Company’s claim, and serving on Helen of Troy a counterclaim alleging that Helen of Troy conspired
with Schawbel to unlawfully terminate Conair’s distribution agreement with Schawbel, and to disparage
Conair’s reputation in the industry, and seeking $15 million in damages. Although the outcome of the
matter cannot be predicted, the Company contends that there is no basis to Conair’s attempts to dismiss
Helen of Troy’s claims, and that Conair’s counterclaims lack validity. The Company intends to pursue
vigorously its claims and defense in the litigation.
The Company is also involved in various other legal claims and proceedings in the normal course of
operations. The Company is insured for substantially all of the various claims in which it is involved. In
the opinion of management, the outcome of these matters will not have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the Company and its subsidiaries.
Under the terms of a Shareholders’ Rights Plan approved by the Board of Directors in fiscal 1999, the Board
of Directors declared a dividend of one preference share right (“Right”) for each outstanding share of
Common Stock. The dividend resulted in no cash payment by the Company, created no liability on the
part of the Company and did not change the number of shares of Common Stock outstanding. The Rights
are inseparable from the shares of Common Stock and entitle the holders to purchase one one-thousandth
of a share of Series A First Preference Shares (“Preference Shares”), par value $1.00, at a price of $100
per one-one thousandth of a Preference Share. Should certain persons or groups of persons (“Acquiring
Persons”) acquire more than 15% of the Company’s outstanding Common Stock, the Board of Directors
may either adjust the price at which holders of Rights may purchase Preference Shares or may redeem all
of the then outstanding Rights at $.01 per Right. The Rights associated with the Acquiring Person’s
shares of Common Stock would not be exercisable. The Rights have certain anti-takeover effects. The
Rights could cause substantial dilution to a person or group that attempts to acquire the Company in
certain circumstances, but should not interfere with any merger or other business combination approved
by the Board of Directors. The Rights expire December 1, 2008, unless their expiration date is advanced
or extended or unless the Rights are earlier redeemed or exchanged by the Company.
(Continued)
On September 29, 1999, the Company’s Board of Directors approved a resolution authorizing the Company
to purchase, in open market or private transactions, up to 3,000,000 shares of its common stock over a
period extending to September 29, 2002. As of February 28, 2001, the Company had repurchased
1,342,431 of its shares under this resolution at a total cost of $8,699,000.
(8) Fourth Quarter Charges/Transactions
In the fourth quarter of fiscal 2001, the Company recognized $2,457,000 in pre-tax charges due to the
planned discontinuance of a product (see note 7) and a $1,895,000 reduction in SG&A due to the
settlement of a license obligation for which the Company had accrued a liability in fiscal 2000.
During the fourth quarter of fiscal 2000 the Company recorded pre-tax charges of $10,624,000 related to the
discontinuation of its artificial nails product line. The pre-tax charges resulting from such
discontinuation included $2,669,000 for the write-down of artificial nails inventory. In addition,
reserves for resolution of future contractual obligations, allowances for customer returns, and the write-
off of related license costs, resulted in approximately $7,955,000 in fourth quarter 2000 charges. Also
during the fourth quarter, the Company implemented several major organizational changes, resulting in
fourth quarter charges of $770,000. These changes realigned organizational responsibilities, restructured
various departments and streamlined certain functions within the Company. At February 29, 2000
accrued liabilities included approximately $8,000,000 related to these charges.
(Continued)
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Selected Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data is as follows (in thousands, except per share amounts):
Fiscal 2001:
May
August
November
February
Total
Net sales
$76,111
$88,233
$119,106
$77,948
$361,398
Gross profit
Net earnings
Earnings per
share
29,929
2,334
33,817
3,746
45,398
7,940
31,724
140,868
3,312
(a)
17,332
Basic
Diluted
.08
.08
.13
.13
.28
.28
.12
.12
.61
.60
Fiscal 2000:
Net sales
$72,188
$71,520
$ 89,601
$66,204
$299,513
Gross profit
Net earnings
Earnings per
share
28,949
5,846
26,995
8,140
33,651
5,978
24,233
(6,853)
(a)
(a)
113,828
13,111
Basic
Diluted
.20
.20
.28
.27
.21
.20
(.24)
(.23)
(a)
(a)
.45
.44
The business of the Company is somewhat seasonal. Between 54 percent and 57 percent of annual sales
volume normally occurs in the second and third fiscal quarters.
(a) See note 8 regarding fourth quarter 2000 and 2001 charges relating to the discontinuance of certain non-
core products.
(Continued)
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Segment Information
The following table contains segment information for fiscal 2001, 2000, and 1999.
2001
Net sales
Operating income (loss)
Identifiable assets
Capital / license
expenditures
Depreciation and
amortization
2000
Net sales
Operating income (loss)
Identifiable assets
Capital / license
expenditures
Depreciation and
amortization
1999
Net sales
Operating income (loss)
Identifiable assets
Capital / license
expenditures
Depreciation and
amortization
North
American
$ 311,998
28,736
273,068
3,056
7,537
(in thousands)
International
$ 25,390
94
24,331
Tactica
$ 24,010
(4,629)
19,943
Corporate /
Other
-
(1,639)
19,839
Total
$ 361,398
22,562
337,181
125
372
4
228
-
-
3,185
8,137
$ 275,827
9,857
264,460
$ 23,686
835
20,231
8,253
6,025
87
896
$ 278,900
39,871
260,543
$ 15,587
(641)
16,404
17,716
4,181
15
784
-
-
-
-
-
-
-
-
-
-
-
(1,273)
19,561
$ 299,513
9,419
304,252
-
-
8,340
6,921
-
(2,898)
17,089
$ 294,487
36,332
294,036
-
-
17,731
4,965
The operating income and loss totals for the North American segment include $233,000 of income for fiscal
2001 and $10,801,000 and $1,040,000 of losses for fiscal 2000 and 1999, respectively, related to artificial
nails products. The Company has discontinued production of artificial nails and is in the process of
attempting to sell the remainder of its artificial nails inventory.
The North American segment sells hair care appliances, other personal care appliances, including massagers
and spa products, hairbrushes, combs, and utility and decorative hair accessories in the United States,
Canada, and Mexico. The International segment sells hair care appliances, personal care appliances,
hairbrushes, combs, and
(Continued)
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Segment Information, continued
hair accessories in countries outside North America. Tactica sells a variety of personal care and other
consumer products directly to consumers and to retailers. The Company’s chief operating decision maker
reviews the results of each of the three operating segments separately.
Operating profit for each operating segment is computed based on net sales, less cost of goods sold, less any
selling, general and administrative expenses associated with the segment. The selling, general, and
administrative expense totals used to compute each segment’s operating profit are comprised of SG&A
expense directly associated with those segments, plus corporate overhead expenses that are allocable to
operating segments. Other items of income and expense, including income taxes, are not allocated to operating
segments.
The Company’s domestic and international net revenues from third parties and long-lived assets are as
follows:
Net revenues from third parties:
United States
International
Total
Long-lived assets:
United States
International
Total
2001
2000
1999
$ 323,330
38,068
361,398
94,890
21,910
$ 116,800
264,238
35,275
299,513
90,674
19,555
110,229
270,600
23,887
294,487
85,697
18,655
104,352
Sales to one customer and its affiliate accounted for 23 percent, 26 percent, and 29 percent of the
Company’s net sales in fiscal 2001, 2000, and 1999, respectively.
(11) Acquisitions and Purchases of Trademarks
On July 31, 1998, the Company acquired the Wigo(cid:226)
trademark and certain assets from EWT Elektrogerate
GmbH & Co. KG of Germany in a cash transaction. As a result, the Company now has the exclusive
worldwide rights to design, market and sell various appliances, including professional salon hair care
appliances, under the Wigo(cid:226)
trademark.
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. During fiscal 2000 25,634 of those
shares, which were held in escrow, were settled, resulting in a recovery to the Company of
approximately $546,000.
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 shareholders. Under the terms of the agreement, DCNL’s shareholders redeemed
their contingent value
(Continued)
HELEN OF TROY LIMITED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Acquisitions and Purchases of Trademarks, continued
rights issued as part of the acquisition and received 154,544 additional shares of Helen of Troy common
stock subsequent to fiscal 1999.
In December 1999, the Company entered into a long-term license with Sunbeam Products, Inc. to develop,
market and distribute hair dryers and curling irons, hairsetters, styling products and hot air brushes under the
Sunbeam(cid:226)
trade name in the United States and Canada. In January 2000 the Company acquired a long-term
license from Sunbeam Products, Inc. to design, develop and sell human hair clippers and trimmers under the
Sunbeam(cid:226)
trade name. At the same time Sunbeam Products, Inc. granted Helen of Troy a license to sell the
same products under the Oster(cid:226)
trade name for a transitional period.
In March 2000, the Company acquired a 55 percent ownership interest in Tactica International, Inc.
(“Tactica”) for $2,500,000. In addition, the Company loaned the minority shareholders of Tactica
$3,500,000 on March 14, 2000. The interest rate on these loans is 8.75 percent. All principal and
accrued interest on the loans is due March 14, 2005. Included in “Other assets” on the Company’s
February 28, 2001 consolidated balance sheet is $3,826,000 related to the principal and accrued interest
on these loans. The Company has also agreed to fund Tactica’s working capital requirements through
an intercompany revolving credit facility limited to $17,500,000. The 45 percent interest held by other
shareholders in Tactica’s deficit appears as a reduction of the Company’s stockholders’ equity on the
February 28, 2001 consolidated balance sheet. The financial results of Tactica have been included in
the accompanying financial statements of the Company, beginning March 14, 2000, the date of
acquisition. It was not practical to develop pro forma information for the year ended February 29, 2000.
The Company accounted for the acquisitions discussed above using the purchase method of accounting.
Costs in excess of the fair value of the net tangible assets acquired are included in goodwill. The
Company is amortizing these costs over 15 to 30 years.
HELEN OF TROY LIMITED AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
Years ended February 28, 2001, February 29, 2000 and February 28, 1999
(in thousands)
Additions
Description
Year ended February 28, 2001
Balance at
Beginning
of Year
Charged to
cost and
expenses
Write-off of
uncollectible
accounts
Balance at
End of Year
Recoveries
Allowance for accounts receivable
$2,514
$2,469
$ 63
$ 965
$4,081
Year ended February 29, 2000
Allowance for accounts receivable
1,756
2,554
Year ended February 28, 1999
Allowance for accounts receivable
568
2,267
64
29
1,860
2,514
1,108
1,756
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information in the Company’s Proxy Statement, which will be filed within 120 days of the end of the
Company’s 2001 fiscal year, is incorporated herein by reference in response to this Item 10.
Item 11. Executive Compensation
Information in the Company’s Proxy Statement, which will be filed within 120 days of the end of the
Company’s 2001 fiscal year, is incorporated herein by reference in response to this Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information in the Company’s Proxy Statement, which will be filed within 120 days of the end of the
Company’s 2001 fiscal year, is incorporated herein by reference in response to this Item 12.
Item 13. Certain Relationships and Related Transactions
Information in the Company’s Proxy Statement, which will be filed within 120 days of the end of the
Company’s 2001 fiscal year, is incorporated herein by reference in response to this Item 13.
PART IV
Item 14.
Exhibits, Financial Statements Schedule, and Reports on Form 8-K
(a)
Exhibits
3.1 Memorandum of Association. (Filed as Exhibit 31 to the Registrant’s Registration
Statement on Form S-4, File No. 33-73594, filed with the Securities and Exchange
Commission on December 30, 1993).
3.2
4.1
Bye-Laws. (Filed as Exhibit 3.2 to the Registrant’s Registration Statement on Form S-4,
File No. 33-73594, filed with the Securities and Exchange Commission on December 30,
1993).
Rights Agreement, dated as of December 1, 1998, between Helen of Troy Limited and
Harris Trust and Savings Bank, as Rights Agent. (Filed as Exhibit 4 to the Registrant’s
Current Report on Form 8-K, filed with the Securities and Exchange Commission on
December 4, 1998).
10.1 Vidal Sassoon, Inc. Amended License Agreement of December 22, 1982. (Filed as Exhibit
10.1 to the Helen of Troy Corporation’s Registration Statement on Form S-2, File No. 2-
82520, filed with the Securities and Exchange Commission on March 18, 1983).
10.2
Letter Agreements Amending Sassoon License Agreement. (Filed as Exhibit 10.2 to the
Helen of Troy Corporation’s Registration Statement on Form S-2, File No. 33-13253, filed
with the Securities and Exchange Commission on April 8, 1987).
10.3
10.4
Form of Directors’ and Executive Officers’ Indemnity Agreement dated February 11, 1994
executed by each of Gerald J. Rubin, Robert D. Spear, Stanlee N. Rubin, Gary B.
Abromovitz, Byron H. Rubin, Daniel C. Montano, and Christopher L. Carameros. (Filed as
Exhibit 10.2 to the Registrants Registration Statement on Form S-4, File No. 33-73594,
filed with the Securities and Exchange Commission on December 10, 1993).
1994 Stock Option and Restricted Stock Plan, as previously filed with the Registrants’
Registration Statement on Form S-4, File No. 33-73594, as Exhibit 10.1 filed with the
Securities and Exchange Commission on December 30, 1993, is hereby incorporated herein
by reference.
10.5 Vidal Sassoon, Inc., European License Agreement, dated January 1, 1990. (Filed as Exhibit
10.25 to Helen of Troy Corporation’s Annual Report on Form 10-K for the period ending
February 28, 1990, filed with the Securities and Exchange Commission).
10.6 Revlon Consumer Products Corporation (RCPC) North American Appliances License
Agreement dated September 30, 1992. (Filed as Exhibit 10.31 to Helen of Troy
Corporation’s Quarterly report on Form 10-Q for the period ending November 30, 1992
filed with the Securities and Exchange Commission).
10.7 Revlon Consumer Products Corporation (RCPC) International Appliances License
Agreement dated September 30, 1992. (Filed as Exhibit 10.32 to Helen of Troy
Corporation’s Quarterly report on Form 10-Q for the period ending November 30, 1992
filed with the Securities and Exchange Commission).
10.8 Revlon Consumer Products Corporation (RCPC) North American Comb and Brush License
Agreement dated September 30, 1992. (Filed as Exhibit 10.33 to Helen of Troy
Corporation’s Quarterly report on Form 10-Q for the period ending November 30, 1992
filed with the Securities and Exchange Commission).
10.9 Revlon Consumer Products Corporation (RCPC) International Comb and Brush License
Agreement dated September 30, 1992. (Filed as Exhibit 10.34 to Helen of Troy
Corporation’s Quarterly report on Form 10-Q for the period ending November 30, 1992
filed with the Securities and Exchange Commission).
10.10 First Amendment to RCPC North America Appliance License Agreement, dated September
30, 1992. (Filed as Exhibit 10.26 to Helen of Troy Corporation’s Annual Report on Form
10-K for the period ending February 28, 1993 filed with the Securities and Exchange
Commission).
10.11 First Amendment to RCPC North America Comb and Brush License Agreement, dated
September 30, 1992. (Filed as Exhibit 10.27 to Helen of Troy Corporation’s Annual Report
on Form 10-K for the period ending February 28, 1993 filed with the Securities and
Exchange Commission).
10.12 First Amendment to RCPC International Appliance License Agreement, dated September
30, 1992. (Filed as Exhibit 10.28 to Helen of Troy Corporation’s Annual Report on Form
10-K for the period ending February 28, 1993 filed with the Securities and Exchange
Commission).
10.13 First Amendment to RCPC International Comb and Brush License Agreement, dated
September 30, 1992. (Filed as Exhibit 10.29 to Helen of Troy Corporation’s Annual Report
on Form 10-K for the period ending February 28, 1993 filed with the Securities and
Exchange Commission).
10.14 License Agreement between Helen of Troy Corporation and Helen of Troy Limited, a
Barbados corporation, dated February 28, 1994. (Filed as Exhibit 10.22 to the Registrant’s
Annual Report on Form 10-K for the period ending February 28, 1994 filed with the
Securities and Exchange Commission).
10.15 Amended and Restated Note Purchase, Guaranty and Master Shelf Agreement, $40,000,000
7.01% Guaranteed Senior Notes and $40,000,000 Guaranteed Senior Note Facility. (Filed
as Exhibit 10.23 to the Registrant’s Quarterly Report on Form 10-Q for the period ending
November 30, 1996).
10.16 Employment contract for H. McIntyre Gardner. (Filed as Exhibit 10.24 to the Registrant’s
Quarterly Report on Form 10-Q for the period ending November 30, 1997).
10.17 Helen of Troy Limited 1998 Employee Stock Option and Restricted Stock Plan. (Filed as
Exhibit 4.3 to the Registrant’s Registration Statement on Form S-8, File Number 333-
67349, filed with the Securities and Exchange Commission on November 6, 1998).
10.18 Helen of Troy Limited 1998 Employee Stock Purchase Plan, as previously filed as Exhibit
4.3 of the Registrant’s Registration Statement on Form S-8, File Number 333-67369, filed
with the Securities and Exchange Commission on November 6, 1998, is hereby
incorporated herein by reference.
10.19 Amended and Restated Employment Agreement between Helen of Troy Limited and
Gerald J. Rubin, dated March 1, 1999. (Filed as Exhibit 10.29 to the Registrant’s Quarterly
Report on Form 10-Q for the period ending August 31, 1999).
10.20 Amended and Restated Helen of Troy Limited 1995 Non-Employee Director Stock Option
Plan. (Filed as Exhibit 10.30 to the Registrant’s Quarterly Report on Form 10-Q for the
period ending August 31, 1999).
21*
Subsidiaries of the Registrant, filed herewith.
23*
Independent Auditors’ Consent, filed herewith.
*filed herewith
(b)
The following documents are filed as part of the report:
1.
Financial Statements
Independent Auditors’ Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2.
Schedule:
Schedule II – Valuation and Qualifying Accounts
(c)
Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth quarter of fiscal 2001.
The registrant will send its annual report to security holders and proxy solicitation material subsequent to the filing
of this form and shall furnish copies of both to the Commission when they are sent to security holders.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/Gerald J. Rubin
Gerald J. Rubin, Chairman,
Chief Executive Officer and Director
Dated May 29, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/Gerald J. Rubin
(Gerald J. Rubin)
/s/Russell G. Gibson
(Russell G. Gibson)
Chairman of the Board, Chief
Executive Officer, President, and
Director (Principal Executive Officer) May 29, 2001
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
May 29, 2001
/s/Stanlee N. Rubin
(Stanlee N. Rubin)
Director
May 29, 2001
/s/Christopher L. Carameros
(Christopher L. Carameros)
Director
May 29 , 2001
/s/Byron H. Rubin
Director
May 29, 2001
(Byron H. Rubin)
(Daniel C. Montano)
Director
May 29, 2001
/s/Gary B. Abromovitz
(Gary B. Abromovitz)
Director
May 29, 2001
Index to Exhibits
21
23
-
Subsidiaries of the Registrant, filed herewith.
-
Independent Auditors' Consent, filed herewith.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21
Name
Helen of Troy (Far East) Limited
Helen of Troy (Cayman) Limited
Helen of Troy International B.V.
Helen of Troy Limited
Helen of Troy Services Limited
Helen of Troy Texas Corporation
Helen of Troy Nevada Corporation
HOT Nevada Inc.
Helen of Troy L.P.
HOT International Marketing Limited
HOT (UK) Limited
Helen of Troy GmbH
Karina, Inc.
DCNL, Inc.
Helen of Troy Canada, Inc.
Helen of Troy Limited
Helen of Troy, LLC
Tactica International, Inc.
(55% ownership)
Helen of Troy SARL
Fontelux Trading, S.A.
Incorporation
Hong Kong
Cayman Islands
The Netherlands
Barbados
Hong Kong
Texas
Nevada
Nevada
Doing
Business as
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Texas Limited Partnership
Same Name
Barbados
United Kingdom
Germany
New Jersey
Texas
Nevada
Hong Kong
Nevada
Nevada
France
Uruguay
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
EXHIBIT 23
Exhibit 23
INDEPENDENT AUDITORS’ CONSENT
The Board of Directors
Helen of Troy Limited:
We consent to incorporation by reference in the registration statements No. 33-75832, No. 333-11181, No. 333-
67349 and No. 333-67369 on Form S-8, and the registration statements No. 333-65477 and No. 333-67293 on Form
S-3, of Helen of Troy Limited of our report dated May 7, 2001, relating to the consolidated balance sheets of Helen
of Troy Limited and subsidiaries as of February 28, 2001 and February 29, 2000, and the related consolidated
statements of income, stockholders’ equity and cash flows and related financial statement schedule for each of the
years in the three-year period ended February 28, 2001, which report appears in the February 28, 2001 annual
report on Form 10-K of Helen of Troy Limited.
KPMG LLP
El Paso, Texas
May 29, 2001
F i n a n c i a l H i g h l i g h t s
NET SALES
$ MILLIONS
NET INCOME
$ MILLIONS
EARNINGS PER SHARE
DILUTED
$ MILLIONS
3
6
1
4
.
2
9
4
5
.
2
9
9
.
5
2
4
8
.
1
2
1
3
.
0
400
350
300
250
200
150
100
50
0
40
35
30
25
20
15
10
5
0
2
8
3
.
2
2
.
3
1
7
.
2
1
7
.
3
1
3
.
1
1.20
1.05
.90
.75
.60
.45
.30
.15
0
.
0
9
6
.
0
7
7
0
.
6
2
0
.
6
0
0
.
4
4
97
98
99
00
01
97
98
99
00
01
97
98
99
00
01
Last Day of February
2001
2000
1999
1998
1997
(1)
Tw e l v e M o n t h s E n d e d L a s t D a y o f F e b r u a r y
( i n t h o u s a n d s , e x c e p t p e r s h a r e a m o u n t s )
Net sales
$361,398
$299,513
$294,487
$248,098
$213,035
Operating income
22,562
9,419
36,332
30,100
22,736
Net income
17,332
13,111
28,330
22,332
17,158
Diluted income per share
0.60
0.44
0.96
0.77
0.62
Working capital
Total assets
Long-term debt
157,809
154,395
150,940
154,294
111,937
337,181
304,252
294,036
227,560
182,226
55,000
55,000
55,450
55,450
40,450
Stockholders’ equity (2)
219,609
209,624
199,842
149,484
120,482
(1)
Fiscal 2001 results include the results of Tactica, a subsidiary in which the Company acquired a 55 percent interest in
March 2000.
(2)
In fiscal 2000, the Company repurchased 526,485 shares of common stock at a cost of $4,076,000. In fiscal 2001, the
Company repurchased 815,946 shares of common stock at a cost of $4,623,000.
H E L E N O F T R O Y L I M I T E D
A N D S U B S I D I A R I E S
S t o c k P r i c e s
Fiscal 2001
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal 2000
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
$7.875
6.938
7.500
7.063
$16.500
20.000
14.375
10.688
$6.188
4.750
4.000
4.000
$10.313
13.375
7.250
7.000
Stock Traded Over the Counter
National NASDAQ Symbol HELE
Registrar, Transfer Agent and Dividend Disbursing Agent
Computershare Investor Service, LLC
Chicago, Illinois 60606
The Annual Meeting of Stockholders
The annual Meeting of Stockholders will be held
on August 28, 2001 at one o’clock p.m. at the Hilton
Camino Real Hotel, 101 South El Paso Street,
El Paso, Texas 79901
Form 10-K
A copy of the company’s annual report on Form
10-K, as filed with the Securities and Exchange
Commission, will be furnished to any stockholder
free of charge on request to the Chief Financial
Officer or Secretary of the Company.
Revlon is a registered trademark of Revlon Consumer Products Corporation
Dr. Scholl’s and Scholl are registered trademarks of Schering-Plough HealthCare
Products, Inc. (US) and Scholl Ltd. (UK)
Barbie is a registered trademark owned and used under license from Mattel, Inc.
Sunbeam and Oster are registered trademarks of Sunbeam Products, Inc.